<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                           0-15538
                            ----------------------------------------------------


               First Capital Income Properties, Ltd. - Series XI
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

 
            Illinois                                            36-3364279
-------------------------------                            ---------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                              Identification No.)


Two North Riverside Plaza, Suite 1100, Chicago, Illinois        60606-2607
--------------------------------------------------------   ---------------------
        (Address of principal executive offices)                (Zip Code)


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

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

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


Documents incorporated by reference:

The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the Partnership's Prospectus dated September 12, 1985,
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                                                $ 6,070,100  $ 8,151,600
 Buildings and improvements                           41,976,000   49,873,600
------------------------------------------------------------------------------
                                                      48,046,100   58,025,200
Accumulated depreciation and amortization            (15,457,900) (17,062,800)
------------------------------------------------------------------------------
 Total investment properties, net of accumulated
  depreciation and amortization                       32,588,200   40,962,400
Cash and cash equivalents                              3,222,300    1,372,900
Escrow deposits                                          125,000
Rents receivable                                         487,400      624,400
Other assets (primarily loan acquisition costs,
 net of accumulated amortization of $1,038,200 and
 $967,200, respectively)                                 417,200      500,100
------------------------------------------------------------------------------
                                                     $36,840,100  $43,459,800
------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' (DEFICIT)
Liabilities:
 Mortgage loans payable                              $26,949,200  $34,803,200
 Front-End Fees Loan payable to Affiliate              8,295,200    8,295,200
 Accounts payable and accrued expenses                 1,178,600    1,260,700
 Due to Affiliates                                     1,237,400      745,600
 Security deposits                                       175,700      186,300
 Other liabilities                                        10,900      439,000
------------------------------------------------------------------------------
                                                      37,847,000   45,730,000
------------------------------------------------------------------------------
Partners' (deficit):
 General Partner (deficit)                            (1,006,900)  (2,270,200)
 Limited Partners (57,621 Units issued and
  outstanding)
------------------------------------------------------------------------------
                                                      (1,006,900)  (2,270,200)
------------------------------------------------------------------------------
                                                     $36,840,100  $43,459,800
------------------------------------------------------------------------------
</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                                       $(2,512,100)   $ 0    $(2,512,100)
Net income for the year ended December 31,
 1996                                           241,900      0        241,900
------------------------------------------------------------------------------
Partners' (deficit), December 31, 1996       (2,270,200)     0     (2,270,200)
Net income for the nine months ended
 September 30, 1997                           1,263,300      0      1,263,300
------------------------------------------------------------------------------
Partners' (deficit), September 30, 1997     $(1,006,900)   $ 0    $(1,006,900)
------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
2
<PAGE>
 
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended September 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                      1997        1996
-------------------------------------------------------------------------
<S>                                                <C>         <C>
Income:
 Rental                                            $2,069,100  $2,646,400
 Interest                                              41,200      15,200
 Gain on sale of property                                         822,000
-------------------------------------------------------------------------
                                                    2,110,300   3,483,600
-------------------------------------------------------------------------
Expenses:
 Interest:
  Affiliates                                          162,300     157,200
  Nonaffiliates                                       552,000     802,600
 Depreciation and amortization                        393,500     399,400
 Property operating:
  Affiliates                                          120,300     122,400
  Nonaffiliates                                       406,500     571,100
 Real estate taxes                                    260,500     445,500
 Insurance--Affiliate                                  28,400      33,300
 Repairs and maintenance                              284,300     302,900
 General and administrative:
  Affiliates                                            8,500      37,100
  Nonaffiliates                                        19,800       5,400
 Additional expense of sale of property                 9,100
-------------------------------------------------------------------------
                                                    2,245,200   2,876,900
-------------------------------------------------------------------------
Net (loss) income                                  $ (134,900) $  606,700
-------------------------------------------------------------------------
Net (loss) income allocated to General Partner     $ (134,900) $  606,700
-------------------------------------------------------------------------
Net (loss) income allocated to Limited Partners    $        0  $        0
-------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
 (57,621 Units outstanding)                        $     0.00  $     0.00
-------------------------------------------------------------------------
</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                                            $6,959,400 $7,958,900
 Interest                                              79,600     46,000
 Gain on sale of property                           1,520,500    822,000
------------------------------------------------------------------------
                                                    8,559,500  8,826,900
------------------------------------------------------------------------
Expenses:
 Interest:
  Affiliates                                          478,200    468,500
  Nonaffiliates                                     1,955,000  2,518,600
 Depreciation and amortization                      1,139,100  1,225,800
 Property operating:
  Affiliates                                          239,700    405,000
  Nonaffiliates                                     1,429,800  1,622,500
 Real estate taxes                                    982,800  1,162,900
 Insurance--Affiliate                                  90,600    106,400
 Repairs and maintenance                              847,300    933,900
 General and administrative:
  Affiliates                                           19,200     54,400
  Nonaffiliates                                       114,500    100,200
------------------------------------------------------------------------
                                                    7,296,200  8,598,200
------------------------------------------------------------------------
Net income                                         $1,263,300 $  228,700
------------------------------------------------------------------------
Net income allocated to General Partner            $1,263,300 $  228,700
------------------------------------------------------------------------
Net income allocated to Limited Partners           $        0 $        0
------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
 (57,621 Units outstanding)                        $     0.00 $     0.00
------------------------------------------------------------------------
</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                                            $ 1,263,300  $  228,700
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization                          1,139,100   1,225,800
  Gain on sale of property                              (1,520,500)   (822,000)
  Changes in assets and liabilities:
   Decrease in rents receivable                            137,000      34,700
   Decrease in other assets                                103,200     153,700
   (Decrease) increase in accounts payable and accrued
    expenses                                               (82,100)     33,500
   Increase in due to Affiliates                            13,600       5,600
   (Decrease) in other liabilities                        (128,100)   (106,700)
-------------------------------------------------------------------------------
    Net cash provided by operating activities              925,500     753,300
-------------------------------------------------------------------------------
Cash flows from investing activities:
 Proceeds from sale of property                          9,296,800   5,612,500
 Payments for capital and tenant improvements             (708,400)   (505,800)
 (Increase) decrease in escrow deposits                   (125,000)     79,700
-------------------------------------------------------------------------------
    Net cash provided by investing activities            8,463,400   5,186,400
-------------------------------------------------------------------------------
Cash flows from financing activities:
 Proceeds from mortgage loan payable                    11,000,000
 Repayment of mortgage loans payable                   (18,413,600) (4,568,700)
 Principal payments on mortgage loans payable             (440,400) (1,731,700)
 Interest deferred on Front-End Fees loan payable to
  Affiliate                                                478,200     468,500
 Loan acquisition costs incurred                          (153,100)    (21,800)
 (Decrease) in security deposits                           (10,600)    (34,000)
-------------------------------------------------------------------------------
    Net cash (used for) financing activities            (7,539,500) (5,887,700)
-------------------------------------------------------------------------------
Net increase in cash and cash equivalents                1,849,400      52,000
Cash and cash equivalents at the beginning of the
 period                                                  1,372,900   1,331,600
-------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period     $ 3,222,300  $1,383,600
-------------------------------------------------------------------------------
Supplemental information:
 Interest paid to nonaffiliates during the period      $ 2,095,700  $2,615,300
-------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
                                                                               3
<PAGE>
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Certificate and Agreement of
Limited Partnership, which is included in the Registration Statement and
incorporated herein by reference.
 
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). Under this method of accounting,
revenues are recorded when earned and expenses are recorded when incurred.
 
Preparation of the Partnership's financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
 
The financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the quarter and nine months ended September 30, 1997 are not necessarily
indicative of the operating results for the year ending December 31, 1997.
 
The financial statements include the Partnership's 50% interest in two joint
ventures with Affiliated partnerships. These joint ventures were formed for the
purpose of each acquiring a 100% interest in certain real property. These joint
ventures are operated under the common control of the General Partner.
Accordingly, the Partnership's pro rata share of the joint ventures' revenues,
expenses, assets, liabilities and Partners' capital is included in the
financial statements.
 
The financial statements include the Partnership's 70% undivided preferred
interest in a joint venture with an unaffiliated third party. The joint venture
owns a 100% interest in the Burlington Office Center I, II and III
("Burlington"). This joint venture is operated under the control of the General
Partner. Accordingly, the Partnership has included 100% of the venture's
revenues, expenses, assets, liabilities and Partner's capital in the financial
statements.
 
Commercial rental properties are recorded at cost, net of any provisions for
value impairment, and depreciated (exclusive of amounts allocated to land) on
the straight-line method over their estimated useful lives. Lease acquisition
fees are recorded at cost and amortized on 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 commercial rental properties when conditions
exist which may indicate that it is probable that the sum of expected future
cash flows (undiscounted) from a property is less than its carrying basis. Upon
determination that an impairment has occurred, the carrying basis in the rental
property is reduced to its estimated fair value. Management was not aware of
any indicator that would result in a significant impairment loss during the
periods reported.
 
Loan acquisition costs are amortized over the term of the mortgage loan made in
connection with the acquisition of Partnership properties or refinancing of
Partnership loans. When a property is disposed of or a loan is refinanced, the
related loan acquisition costs and accumulated amortization are removed from
the respective accounts and any unamortized balance is expensed.
 
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 their respective
accounts. Any gain or loss is recognized in accordance with GAAP.
 
Cash equivalents are considered all highly liquid investments with a maturity
of three months or less when purchased.
 
Certain reclassifications have been made to the previously reported 1996
statements in order to provide comparability with the 1997 statements. These
reclassifications had no effect on net income (loss) or Partners' (deficit).
 
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' (deficit) 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, Net Profits and Net Losses
(exclusive of Net Profits and Net Losses from the sale, disposition or
provision for value impairment of Partnership properties) shall be 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 or Refinancing 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 or Refinancing 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 or Refinancing
Proceeds to be distributed to the General Partner with respect to the sale or
disposition of such property; and fourth, the balance, if any, 25% to the
General Partner and 75% 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 or
Refinancing Proceeds from the transaction, to the General Partner and Limited
Partners with positive balances in their Capital Accounts, pro rata in
proportion to such respective positive balances, to the extent of the total
amount of such positive balances; and second, the balance, if any, 1% to the
General Partner and 99% to the Limited Partners. Notwithstanding anything to
the contrary, there shall be allocated to the General Partner not less than 1%
of all items of Partnership income, gain, loss, deduction and credit during the
existence of the Partnership. For the quarter and nine months ended September
30, 1997, the General Partner was allocated 100% of the Net (Losses) Profits of
$(134,900) and $1,263,300, respectively. Included in the Net Profits allocated
to the General Partner was the gain on sale of property of $1,520,500 for the
nine months ended September 30, 1997. No amounts will be allocated to Limited
Partners until such time as the cumulative computation of such Partners'
capital account would result in a positive balance.
 
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
                                               --------------------
                                               Quarter  Nine Months  Payable
------------------------------------------------------------------------------
<S>                                            <C>      <C>         <C>
Property management and leasing fees            $49,500  $153,000   $   30,800
Interest expense on Front-End Fees loan (Note
 3)                                                None      None    1,161,700
Reimbursement of property insurance premiums,
 at cost                                         42,600    90,600         None
Legal                                            51,100    88,100       41,500
Reimbursement of expenses, at cost:
 --Accounting                                     3,600    12,400        2,900
 --Investor communication                           700     2,100          500
------------------------------------------------------------------------------
                                               $147,500  $346,200   $1,237,400
------------------------------------------------------------------------------
</TABLE>
 
ANTEC Corporation ("ANTEC"), which is in the business of designing,
engineering, manufacturing and distributing cable television products, and
approximately 18.5% owned by Anixter International Inc. (formerly known as Itel
Corporation), an Affiliate of the General Partner, is obligated to the
Partnership under a lease of office space at Prentice Plaza. During the quarter
and nine months ended September 30, 1997, ANTEC paid $43,600 and $185,800,
respectively, in rents and reimbursements of expenses. In addition, during the
nine months ended September 30, 1997, ANTEC remitted $120,000 as partial
consideration for the early release of approximately 38% of its leased space.
Substantially all of this space has been retenanted for rents approximating the
terms of ANTEC's lease. ANTEC has reached an agreement with another tenant to
sublease the remainder of their space. The subletting has no effect on the
Partnership as ANTEC still retains ultimate responsibility for the rent on
their space until their lease expires in September 1999. The Partnership owns a
50% joint venture
 
                                                                               4
<PAGE>
 
interest in these amounts. The per square foot rent paid by ANTEC is comparable
to that paid by other tenants at Prentice Plaza.
 
Manufactured Home Communities, Inc. ("MHC"), a real estate investment trust,
which is an Affiliate of the General Partner and in the business of owning and
operating mobil home communities, is obligated to the Partnership under a lease
of office space at Prentice Plaza. During the quarter and nine months ended
September 30, 1997, MHC paid $15,400 and $33,600, respectively, in rents and
reimbursements of expenses. The Partnership owns a 50% joint venture interest
in these amounts. The per square foot rent paid by MHC is comparable to that
paid by other tenants at Prentice Plaza.
 
On-site property management for certain of the Partnership's properties is
provided by independent real estate management companies for fees ranging from
3% to 6% of gross rents received by the properties. In addition, Affiliates of
the General Partner provide on-site property management, leasing and
supervisory services for fees based upon various percentage rates of gross
rents for the properties. These fees range from 1% to 6% based upon the terms
of the individual management agreements.
 
3. FRONT-END FEES LOAN PAYABLE TO AFFILIATE:
 
The Partnership borrowed from an Affiliate of the General Partner an amount
needed for the payment of securities sales commissions, Offering and
Organizational Expenses and other Front-End Fees, other than Acquisition Fees.
Repayment of the principal amount of the Front-End Fees loan is subordinated to
payment to the Limited Partners of 100% of their Original Capital Contribution
from Sale or Refinancing Proceeds (as defined in the Partnership Agreement).
Interest on the outstanding balance of this loan was due and payable monthly at
a rate no greater than the cost of funds obtained by the Affiliate from
unaffiliated lenders.
 
As of September 30, 1997, the Partnership had drawn $8,295,200 under the Front-
End Fees loan agreement. The interest rate on the Front-End Fees loan is
subject to change in accordance with the loan agreement. The weighted average
interest rate for the nine months ended September 30, 1997 was 7.60%. As of
September 30, 1997, the interest rate was 7.66%.
 
Pursuant to a modification of this loan agreement, the Partnership has the
option to defer payment of interest on this loan, for a 72-month period
beginning January 1, 1993. In addition, any interest payments paid by the
Partnership from January 1, 1993 through December 31, 1998 may be borrowed from
the Affiliate. All deferred and subsequently borrowed amounts (including
accrued interest thereon) shall be due and payable on January 1, 1999, and
shall not be subordinated to payment of Original Capital Contributions to
Limited Partners. Beginning with the interest payment due on January 1, 1996,
the Partnership has elected to defer payment of interest. As of September 30,
1997, the amount of interest deferred pursuant to this modification was
$1,161,700.
 
4. MORTGAGE LOANS PAYABLE:
 
Mortgage loans payable at September 30, 1997 and December 31, 1996 consisted of
the following loans which are non-recourse to or not guaranteed by the
Partnership unless otherwise disclosed:
 
<TABLE>
<CAPTION>
                              Partnership's Share of
          Property             Principal Balance at      Average
          Pledged             -------------------------- Interest    Maturity
       as Collateral            9/30/97       12/31/96     Rate        Date
------------------------------------------------------------------------------
<S>                           <C>            <C>         <C>        <C>
Marquette Mall and Office
 Building                     $ 2,202,200    $ 2,202,200  7.75%       7/1/2002
                                  948,900      1,023,900  7.75%       7/1/2002
                                7,990,000(a)   8,215,500  8.10%(b)   3/31/1998
Burlington I, II and III
 Office Center                 11,000,000(c)  10,814,200  7.58%(c)   5/15/1999
Regency Park Shopping Center
 (50%)(d)                                (d)   7,709,200       (d)         (d)
Prentice Plaza (50%)            4,808,100      4,838,200  7.34%(b)  12/19/2000
------------------------------------------------------------------------------
                              $26,949,200    $34,803,200
------------------------------------------------------------------------------
</TABLE>
(a) The terms of the loan provide for monthly principal payments of $30,000 in
    addition to interest at 30 day LIBOR plus 250 basis points. The loan is
    recourse to the Partnership and prohibits distributions to Partners. The
    Partnership exercised the option to extend the maturity date to March 31,
    1998 for a fee equal to 0.25% of the outstanding principal balance.
    Beginning October 1, 1997, monthly principal payments will be increased to
    $50,000 and the interest rate will be increased to 30 day LIBOR plus 275
    basis points The Partnership has another option to extend the Maturity to
    September 30, 1998 for the same conditions as the option exercised and for
    the same fee. The Partnership is currently exploring alternative financing
    options for this property. There can be no assurance that a refinancing
    will be successful.
(b) The average interest rate represents an average for the nine months ended
    September 30, 1997. Interest rates are subject to change in accordance with
    the provisions of the loan agreements. As of September 30, 1997, interest
    rates on the mortgage loans collateralized by Prentice Plaza and the second
    mortgage collateralized by Marquette were 7.38% and 8.16%, respectively.
(c) On May 15, 1997, Burlington Associates General Partnership, in which the
    Partnership owns a 70% undivided preferred interest, obtained a new
    mortgage loan in the amount of $11,000,000 secured by Burlington and
    guaranteed by the Partnership. The existing loan was paid off in full with
    proceeds from the new loan. The interest rate on the new loan is variable
    at LIBOR plus 187.5 basis points. The maturity date of the new loan is May
    15, 1999 and includes an option for a one-year renewal under slightly
    different terms, provided the Partnership is able to meet certain
    conditions for renewal. The new loan is interest only, payable monthly in
    arrears and contains a prohibition on distributions to Partners. The
    interest rate as of September 30, 1997 was 7.50%.
(d) The joint venture which owns Regency, in which the Partnership has a 50%
    interest with Affiliated partnerships, repaid the mortgage collateralized
    by Regency with proceeds generated from its sale. For further information
    regarding the sale see Note 5.
 
For additional information regarding the mortgage loans payable, see notes to
the financial statements in the Partnership's Annual Report for the year ended
December 31, 1996.
 
5. PROPERTY SALE:
 
On June 16, 1997, a joint venture in which the Partnership owns a 50% interest
sold Regency for a sale price of $19,325,000, of which the Partnership's share
was $9,662,500. The Partnership's share of net proceeds from this transaction
was $1,657,300, which is net of closing expenses and the repayment of the
mortgage loan encumbering the property. The Partnership recorded a gain of
$1,520,500 in connection with this sale. Net proceeds received from this
transaction have been retained to supplement working capital reserves.
 
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 effect of property sales. Partnership operating results are
generally expected to decline as real property interests are sold or disposed
of since the Partnership no longer receives income generated from such real
property interests.
 
The table below is a recap of the Partnership's share of certain operating
results of each of its properties for the quarters and nine months ended
September 30, 1997 and 1996. The discussion following the table should be read
in conjunction with the financial statements and notes thereto appearing in
this report.
 
<TABLE>
<CAPTION>
                                Comparative Operating Results (a)
                             For the Quarters      For the Nine Months
                                   Ended                  Ended
                            9/30/97    9/30/96     9/30/97     9/30/96
-------------------------------------------------------------------------
<S>                         <C>       <C>         <C>         <C>
MARQUETTE MALL AND OFFICE BUILDING
Rental revenues             $941,400  $1,056,200  $3,019,400  $2,985,400
-------------------------------------------------------------------------
Property net (loss)         $(49,600) $  (63,500) $   (8,300) $  (57,500)
-------------------------------------------------------------------------
Average occupancy                82%         83%         82%         83%
-------------------------------------------------------------------------
BURLINGTON OFFICE CENTER I, II AND III
Rental revenues             $785,900  $  719,000  $2,433,300  $2,052,700
-------------------------------------------------------------------------
Property net income (loss)  $ 53,900  $  (19,000) $  299,400  $ (100,200)
-------------------------------------------------------------------------
Average occupancy                96%         87%         96%         81%
-------------------------------------------------------------------------
PRENTICE PLAZA (50%)
Rental revenues             $340,300  $  334,200  $  927,100  $1,025,300
-------------------------------------------------------------------------
Property net income (loss)  $ 32,800  $    3,700  $ (124,900) $  (54,100)
-------------------------------------------------------------------------
Average occupancy                96%         99%         95%         99%
-------------------------------------------------------------------------
REGENCY PARK SHOPPING CENTER (50%) (B)
Rental revenues             $         $  296,000  $  575,300  $  896,400
-------------------------------------------------------------------------
Property net income         $         $    2,200  $  126,800  $    2,700
-------------------------------------------------------------------------
Average occupancy                            91%                     89%
-------------------------------------------------------------------------
SENTRY PARK WEST OFFICE CAMPUS (50%) (C)
Rental revenues                       $  241,100              $  999,200
-------------------------------------------------------------------------
Property net income                      $58,800              $  228,500
-------------------------------------------------------------------------
Average occupancy                            87%                     87%
-------------------------------------------------------------------------
</TABLE>
(a) Excludes certain income and expense items which are not directly related to
    individual property operating results such as interest income, interest
    expense on the Partnership's Front-End Fees loan and general and
    administrative expenses or are related to properties disposed of by the
    Partnership prior to the periods under comparison.
(b) Regency Park Shopping Center ("Regency") was sold on June 16, 1997.
    Property net income excludes the gain recorded on the sale. For further
    information see Note 5 of Note to Financial Statements.
(c) Sentry Park West Office Campus ("Sentry West") was sold on August 28, 1996.
 
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 (loss) for the Partnership changed from $606,700 for the quarter
ended September 30, 1996 to $(134,900) for the quarter ended September 30,
1997. The change was primarily due to the gain recognized in 1996 on the sale
of Sentry West, together with the absence of results in 1997 from Sentry West
and Regency. Partially offsetting the change was improved operating results at
Prentice Plaza and Burlington Office Center I, II and III ("Burlington").
 
Net income increased by $1,034,600 for the nine months ended September 30, 1997
when compared to the nine months ended September 30, 1996. The increase was
primarily due the gain on sale recorded in 1997 from the sale of Regency being
greater than the 1996 gain recorded from the sale of Sentry West. Also
contributing to the increase was improved operating results at Marquette Mall
and Office Building ("Marquette") and Burlington. Partially offsetting the
increase was diminished operating results at Prentice Plaza and the absence in
1997 of results at Sentry West.
 
Net results, exclusive of sold properties, improved by $158,700 and $440,400
for the quarter and nine months ended September 30, 1997 when compared to the
quarter and nine months ended September 30, 1996, respectively.
 
The following comparative discussion excludes the operating results of Regency
and Sentry West.
 
Rental revenues increased by $316,400 or 5.2% for the nine months ended
September 30, 1997 when compared to the nine months ended September 30, 1996,
respectively. The increase was primarily due to an increase in base rental
income at Burlington which was due to the successful leasing of the majority of
the vacant space at Burlington III during 1996. Also contributing to the
increase was the receipt in 1997 of an early lease termination payment at
Prentice Plaza. The increase was partially offset by a decrease in tenant
expense reimbursements at Prentice Plaza due to the recent reconciliation of
1996 expenses reimbursable by tenants resulting in a larger overbilling than
had been previously estimated.
 
Rental revenues decreased by $41,800 or 2.0% for the quarter ended September
30, 1997 when compared to the quarter ended September 30, 1996. The decrease
was primarily due to a decrease in tenant expense reimbursements at Marquette
which is the result of a decrease in the projected 1997 billings to tenants.
The decrease was partially offset by the increase in base rental income at
Burlington resulting from increased occupancy.
 
Interest expense on the Partnership's mortgage loans decreased by $45,500 and
$145,500 for the quarter and nine months ended September 30, 1997 when compared
to the quarter and nine months ended September 30, 1996, respectively. The
decreases were primarily due to a decrease in the interest rate on the mortgage
loan collateralized by Burlington. Also contributing to the decreases was the
effect of the principal paydowns of Marquette's junior mortgage loan during
1996, resulting from the application of a portion of the net sale proceeds from
the sale of Sentry West and monthly principal amortization payments made over
the last 21 months.
 
Repair and maintenance expense increased by $37,000 and $84,700 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 janitorial services at Burlington due to the increase in
occupancy. The increases were partially offset by decreases in janitorial
services at Marquette.
 
Real estate tax expense decreased by $130,200 and $56,300 for the quarterly and
nine-month periods under comparison, respectively. The decreases were primarily
due to an overestimate of 1996 real estate taxes, subsequently adjusted in
1997.
 
Depreciation and amortization expense increased by $45,500 and $87,300 for the
quarterly and nine-month periods under comparison, respectively. The increases
were primarily due to the depreciable assets placed in service at Marquette
during the past 21 months exceeding the assets whose depreciable lives expired
during 1996 and 1997.
 
Property operating expenses decreased by $69,100 and $46,000 for the quarter
and nine months ended September 30, 1997 when compared to the quarter and nine
months ended September 30, 1996. The decreases were primarily the result of
decreases in utility costs at Marquette and Prentice Plaza. Also contributing
to the decreases were decreases in property management fees paid at Prentice
Plaza which was due to an increase in 1997 in commissions paid to brokers which
are capitalized and amortized over the life of the lease. The decreases were
partially offset by an increase in professional services at Marquette.
 
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its Affiliated and unaffiliated asset and property
management groups, continues to take the following actions: 1) implementation
of marketing programs, including hiring of third-party leasing agents or
providing on-site leasing personnel, advertising, direct mail campaigns and
development of property brochures; 2) early renewal of existing tenants' leases
and addressing any expansion needs these tenants may have; 3) promotion of
local broker events and networking with local brokers; 4) networking with
national level retailers; 5) cold-calling other businesses and tenants in the
market area and 6) providing rental concessions or competitively pricing rental
rates depending on market conditions.
 
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales
 
                                                                               6
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
price. In the interim, the Partnership continues to manage and maintain its
properties. Cash Flow (as defined in the Partnership Agreement) is generally
not equal to net income or cash flows as determined by generally accepted
accounting principles ("GAAP"), since certain items are treated differently
under the Partnership Agreement than under GAAP. Management believes that to
facilitate a clear understanding of the Partnership's operations, an analysis
of Cash Flow (as defined in the Partnership Agreement) should be examined in
conjunction with an analysis of net income or cash flows as determined by GAAP.
The following table includes a reconciliation of Cash Flow (as defined in the
Partnership Agreement) to cash flow provided by operating activities as
determined by GAAP. Such amounts are not indicative of actual distributions to
Partners and should not be considered as an alternative to the results
disclosed in the Statements of Income and Expenses and Statements of Cash Flow.
 
<TABLE>
<CAPTION>
                                                 Comparative Cash Flow
                                                        Results
                                                  For the Nine Months
                                                         Ended
                                                  9/30/97      9/30/96
-------------------------------------------------------------------------
<S>                                             <C>          <C>
Cash Flow (Deficit)
 (as defined in the Partnership Agreement)      $   441,500  $  (125,100)
Items of Reconciliation:
 Scheduled principal payments on mortgage loans
  payable                                           440,400      757,600
 Decrease in current assets                         240,200      188,400
 (Decrease) in current liabilities                 (196,600)     (67,600)
-------------------------------------------------------------------------
Net cash provided by operating activities       $   925,500  $   753,300
-------------------------------------------------------------------------
Net cash provided by investing activities       $ 8,463,400  $ 5,186,400
-------------------------------------------------------------------------
Net cash (used for) financing activities        $(7,539,500) $(5,887,700)
-------------------------------------------------------------------------
</TABLE>
 
Cash Flow (Deficit) (as defined in the Partnership Agreement) improved from
$(125,100) for the nine months ended September 30, 1996 to $441,500 for the
nine months ended September 30, 1997. The improvement was primarily the result
of improved operating results, exclusive of depreciation and amortization, at
Marquette and Burlington, partially offset by the absence of results from
Sentry West due to its sale in 1996 and the partial absence of Regency due its
sale in June 1997.
 
The net increase in the Partnership's cash position of $1,849,400 for the nine
months ended September 30, 1997 was primarily the result of net proceeds
received from the sale of Regency and net cash provided by operating activities
exceeding principal payments on mortgage loans payable and payments for capital
and tenant improvements and leasing costs. Liquid assets of the Partnership as
of September 30, 1997 were comprised of amounts held for working capital
purposes.
 
The increase in net cash provided by operating activities of $172,200 was
primarily due to the improvement in the operating results at Marquette and
Burlington, as previously discussed, along with the timing of the collection of
tenant rental payments at Marquette. The increase was partially offset by the
absence of results from Sentry West and the timing of the payment of certain
expenses at Burlington.
 
Net cash provided by investing activities increased by $3,277,000 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 proceeds from the
1997 sale of Regency exceeding the proceeds from the 1996 sale of Sentry West.
The Partnership maintains working capital reserves to pay for capital
expenditures such as building and tenant improvements and leasing costs. During
the nine months ended September 30, 1997, the Partnership spent $708,400 for
capital and tenant improvements and leasing costs and has projected to spend
approximately $425,000 during the remainder of 1997. Included in the amount
spent by the Partnership in 1997 is $300,000 related to the refurbishment and
modernization of one of the major department stores at Marquette. Included in
the projected amount are improvement and leasing costs of approximately
$200,000 for Burlington and $200,000 for Marquette. Actual amounts expended may
vary depending on a number of factors including actual leasing activity,
results of property operations and other market conditions throughout the year.
The General Partner believes these improvements and leasing costs are necessary
in order to increase and/or maintain occupancy levels in very competitive
markets, maximize rental rates charged to new and renewing tenants and to
prepare the remaining properties for eventual disposition.
 
On June 16, 1997, a joint venture in which the Partnership owns a 50% interest
completed the sale of Regency. The Partnership's share of Sale Proceeds from
this transaction was $1,657,300, which is net of closing costs and the
repayment of the mortgage loan encumbering the property. Due to the provisions
contained in several of the Partnership's mortgage loan agreements, the
Partnership is precluded from making distributions to Limited Partners until
such loans have been satisfied. As a result, the Sale Proceeds received from
this sale have been added to working capital reserves.
 
Net cash used for financing activities increased by $1,651,800 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 repayment of the
mortgage loan collateralized by Regency exceeding the repayment of the mortgage
loan collateralized by Sentry West. The increase was partially offset by a
decrease in principal amortization payments.
 
Pursuant to a modification of the Partnership's Front-End Fees loan agreement
with an Affiliate of the General Partner, the Partnership has the option to
defer payment of interest on this loan, for a 72-month period beginning January
1, 1993. In addition, any interest payments paid by the Partnership from
January 1, 1993 through December 31, 1998 may be borrowed from this Affiliate.
All deferred and subsequently borrowed amounts (including accrued interest
thereon) shall be due and payable on January 1, 1999, and shall not be
subordinated to payment of Original Capital Contributions to Limited Partners.
Beginning with the interest payment due on January 1, 1996, the Partnership
elected to defer payment of interest.
 
On May 15, 1997, Burlington Associates General Partnership, in which the
Partnership owns a 70% undivided preferred interest, obtained a new mortgage
loan in the amount of $11,000,000 which is secured by Burlington and guaranteed
by the Partnership. The existing loan was paid off in full with proceeds from
the new loan. The maturity date of the new loan is May 15, 1999, and includes
an option for a one-year renewal under slightly different terms, provided the
Partnership is able to meet the conditions for a renewal. The new loan is
interest only during the initial term of the loan, payable monthly in arrears,
and precludes the Partnership from making distributions until the loan is
satisfied.
 
The subordinate mortgage collateralized by Marquette matures on March 31, 1998.
The Partnership has the right to extend the maturity date for a term of six
months, for consideration of a fee equal to 0.25% of the outstanding principal,
together with increases in the interest rate and monthly principal payments.
The loan contains a prohibition on the payment of distributions to Partners and
is recourse to the Partnership. The Partnership is currently evaluating
possible alternative financing. There can be no assurance that the financing
efforts will be successful.
 
As of September 30, 1997, 22 of the 37 tenants at Prentice Plaza and 30 of the
40 tenants at Burlington had leasing totaling 195,943 square feet that expire
during the next two years. The Partnership's share of total base rental
revenues projected to be collected from these tenants for the year ending
December 31, 1997 is $2,096,500. Notwithstanding the market rental rates that
may be in effect at the time that these leases expire, the Partnership faces
uncertainty with respect to the occupancy at its properties during 1997 and
possibly beyond. The General Partner and its management companies intend to
address the possible renewal of these leases well in advance of their scheduled
expirations in an attempt to maintain occupancy and rental revenues at its
properties.
 
The Partnership has thus far met its 1997 financial obligations. However, the
Partnership still faces significant short-term financial issues. As discussed
above, the Partnership faces a significant amount of uncertainty related to
tenancy at its properties. In addition, provisions of certain of its mortgage
loan agreements provide for substantial principal amortization payments as well
as prohibit distributions to Partners. Accordingly, distributions to Partners
continue to be suspended. The General Partner believes that Cash Flow (as
defined in the Partnership Agreement) is one of the best sources of cash
available for the Partnership. For the nine months ended September 30, 1997,
Cash Flow (as defined in the Partnership Agreement) of $441,500 was retained to
supplement working capital reserves. The General Partner continues to review
other sources of cash available to the Partnership, which include the possible
refinancing or sale of certain of the Partnership's properties. While there can
be no assurance as to the timing or successful completion of any future
transactions or as to the properties' future operating results, the General
Partner currently believes that the amount of the Partnership's existing cash
reserves, future Cash Flow (as defined in the Partnership Agreement) to be
earned as well as additional proceeds to be received from any sale, disposition
or refinancing of any properties or any mortgage loan modifications or
extensions are sufficient to cover planned expenditures for the ensuing twelve
months.
 
Based upon the current estimated 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 will be significantly less than such Limited
Partners' original Capital Contribution. There can be no assurance as to the
amount and/or availability of cash for future distributions to Partners.
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 INCOME PROPERTIES, LTD. - SERIES XI

                               By: FIRST CAPITAL FINANCIAL CORPORATION
                                   GENERAL PARTNER

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

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