<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                    0-15538
                                    ----------------------------
 
 
               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.
incorporation or organization)                                   Employer
                                                            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>
                                                      June 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                           41,857,900   49,873,600
------------------------------------------------------------------------------
                                                      47,928,000   58,025,200
Accumulated depreciation and amortization            (15,113,900) (17,062,800)
------------------------------------------------------------------------------
 Total investment properties, net of accumulated
  depreciation and amortization                       32,814,100   40,962,400
Cash and cash equivalents                              3,073,500    1,372,900
Escrow deposits                                          125,000           --
Rents receivable                                         582,100      624,400
Other assets (primarily loan acquisition costs, net
 of accumulated amortization of $988,700 and
 $967,200, respectively)                                 277,500      500,100
------------------------------------------------------------------------------
                                                     $36,872,200  $43,459,800
------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' (DEFICIT)
Liabilities:
 Mortgage loans payable                              $27,104,300  $34,803,200
 Front-End Fees Loan payable to Affiliate              8,295,200    8,295,200
 Accounts payable and accrued expenses                 1,098,100    1,260,700
 Due to Affiliates                                     1,056,900      745,600
 Security deposits                                       173,000      186,300
 Other liabilities                                        16,700      439,000
------------------------------------------------------------------------------
                                                      37,744,200   45,730,000
------------------------------------------------------------------------------
Partners' (deficit):
 General Partner                                        (872,000)  (2,270,200)
 Limited Partners (57,621 Units issued and
  outstanding)
------------------------------------------------------------------------------
                                                        (872,000)  (2,270,200)
------------------------------------------------------------------------------
                                                     $36,872,200  $43,459,800
------------------------------------------------------------------------------
</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                                       $(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 six months ended June
 30, 1997                                     1,398,200      0      1,398,200
------------------------------------------------------------------------------
Partners' (deficit), June 30, 1997          $  (872,000)   $ 0    $  (872,000)
------------------------------------------------------------------------------
</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                                            $2,298,300 $2,646,400
 Interest                                              21,900     16,600
 Gain on sale of property                           1,529,600
-------------------------------------------------------------------------
                                                    3,849,800  2,663,000
-------------------------------------------------------------------------
Expenses:
 Interest:
  Affiliates                                          161,200    154,900
  Nonaffiliates                                       685,000    846,900
 Depreciation and amortization                        369,400    418,300
 Property operating:
  Affiliates                                           36,900    148,100
  Nonaffiliates                                       501,000    476,800
 Real estate taxes                                    389,400    412,900
 Insurance--Affiliate                                  27,200     37,400
 Repairs and maintenance                              270,800    324,900
 General and administrative:
  Affiliates                                            1,800      9,200
  Nonaffiliates                                        58,700     37,600
-------------------------------------------------------------------------
                                                    2,501,400  2,867,000
-------------------------------------------------------------------------
Net income (loss)                                  $1,348,400 $ (204,000)
-------------------------------------------------------------------------
Net income (loss) allocated to General Partner     $1,348,400 $ (204,000)
-------------------------------------------------------------------------
Net income (loss) 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 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                                            $4,890,300 $5,312,500
 Interest                                              38,400     30,800
 Gain on sale of property                           1,529,600
-------------------------------------------------------------------------
                                                    6,458,300  5,343,300
-------------------------------------------------------------------------
Expenses:
 Interest:
  Affiliates                                          315,900    311,300
  Nonaffiliates                                     1,403,000  1,716,000
 Depreciation and amortization                        745,600    826,400
 Property operating:
  Affiliates                                          119,400    282,600
  Nonaffiliates                                     1,023,300  1,051,400
 Real estate taxes                                    722,300    717,400
 Insurance--Affiliate                                  62,200     73,100
 Repairs and maintenance                              563,000    631,000
 General and administrative:
  Affiliates                                           10,700     17,300
  Nonaffiliates                                        94,700     94,800
-------------------------------------------------------------------------
                                                    5,060,100  5,721,300
-------------------------------------------------------------------------
Net income (loss)                                  $1,398,200 $ (378,000)
-------------------------------------------------------------------------
Net income (loss) allocated to General Partner     $1,398,200 $ (378,000)
-------------------------------------------------------------------------
Net income (loss) 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 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 (loss)                                     $ 1,398,200  $ (378,000)
 Adjustments to reconcile net income (loss) to net
  cash provided by operating activities:
  Depreciation and amortization                            745,600     826,400
  (Gain) on sale of property                            (1,529,600)
  Changes in assets and liabilities:
   Decrease in rents receivable                             42,300     177,000
   Decrease in other assets                                251,000     311,300
   (Decrease) increase in accounts payable and accrued
    expenses                                              (162,600)     80,100
   (Decrease) in due to Affiliates                          (4,600)    (60,600)
   (Decrease) in other liabilities                        (122,300)   (118,300)
-------------------------------------------------------------------------------
    Net cash provided by operating activities              618,000     837,900
-------------------------------------------------------------------------------
Cash flows from investing activities:
 Proceeds from sale of property                          9,305,900
 Payments for capital and tenant improvements             (590,300)   (352,600)
 (Increase) decrease in escrow deposits                   (125,000)     79,700
-------------------------------------------------------------------------------
    Net cash provided by (used for) investing
     activities                                          8,590,600    (272,900)
-------------------------------------------------------------------------------
Cash flows from financing activities:
 Proceeds from mortgage loan payable                    11,000,000
 Repayment of mortgages loan payable                   (18,413,600)
 Principal payments on mortgage loans payable             (285,300)   (565,000)
 Interest deferred on Front-End Fees loan payable to
  Affiliate                                                315,900     368,200
 Loan acquisition costs incurred                          (111,700)    (15,100)
 (Decrease) increase in security deposits                  (13,300)     23,300
-------------------------------------------------------------------------------
    Net cash (used for) financing activities            (7,508,000)   (188,600)
-------------------------------------------------------------------------------
 Net increase in cash and cash equivalents               1,700,600     376,400
 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    $ 3,073,500  $1,708,000
-------------------------------------------------------------------------------
 Supplemental information:
 Interest paid to nonaffiliates during the period      $ 1,473,000  $1,726,300
-------------------------------------------------------------------------------
</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 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 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 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.
 
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 (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' 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 six months ended June 30,
1997, the General Partner was allocated 100% of the Net Profits of $1,348,400
and $1,398,200, respectively. Included in the Net Profits allocated to the
General Partner was the gain on sale of property of $1,529,600 for the quarter
and six months ended June 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 six months ended June 30, 1997 were as follows:
<TABLE>
<CAPTION>
                                                      Paid
                                               -------------------
                                               Quarter  Six Months  Payable
-----------------------------------------------------------------------------
<S>                                            <C>      <C>        <C>
Property management and leasing fees            $44,700  $103,500  $   42,500
Interest expense on Front-End Fees loan (Note
 3)                                                None      None     999,500
Reimbursement of property insurance premiums,
 at cost                                         48,000    48,000      14,200
Reimbursement of expenses, at cost:
 --Accounting                                     5,800     8,800         600
 --Investor communication                         1,000     1,400         100
 --Legal                                         12,600    37,000        None
-----------------------------------------------------------------------------
                                               $112,100  $198,700  $1,056,900
-----------------------------------------------------------------------------
</TABLE>
 
4
<PAGE>
 
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 six months ended June 30, 1997, ANTEC paid $52,700 and $142,200,
respectively, in rents and reimbursements of expenses. In addition, during the
six months ended June 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 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 six months ended June
30, 1997, MHC paid $5,600 and $18,200, 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.
 
Effective on December 31, 1996, the Affiliate providing property and management
and certain leasing services to the Partnership's shopping centers, sold its
interest in its property management agreements to an unrelated party.
 
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 is due and payable monthly at
a rate no greater than the cost of funds obtained by the Affiliate from
unaffiliated lenders.
 
As of June 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 six months ended June 30, 1997 was 7.57%. As of June 30, 1997, the
interest rate was 7.69%.
 
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 June 30, 1997,
the amount of interest deferred pursuant to this modification was $999,500.
 
4. MORTGAGE LOANS PAYABLE:
 
Mortgage loans payable at June 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 Date
      as Collateral          6/30/97      12/31/96     Rate
------------------------------------------------------------------------------
<S>                        <C>           <C>         <C>        <C>        <C>
Marquette Mall and Office
 Building                  $2,202,200(a) $ 2,202,200  7.75%       7/1/2002
                              974,000(a)   1,023,900  7.75%       7/1/2002
                            8,110,000(b)   8,215,500  8.07%(c)   9/30/1997
Burlington I, II and III
 Office Center             11,000,000(d)  10,814,200  7.66%(d)   5/15/1999
Regency Park Shopping
 Center (50%)(e)                    (e)    7,709,200       (e)         (e)
Prentice Plaza (50%)          4,818,100    4,838,200  7.30%(c)  12/19/2000
------------------------------------------------------------------------------
                            $27,104,300  $34,803,200
------------------------------------------------------------------------------
</TABLE>
 
(a) Pursuant to the terms of an amendment to the mortgage loan collateralized
    by Marquette Mall, during the period beginning March 1, 1996 through
    February 28, 1998, accrued interest only shall be paid and that on March 1,
    1998 the original terms of the mortgage loan will become effective.
    Pursuant to the terms of an amendment to the mortgage loan collateralized
    by Marquette Office Building, during the period beginning March 1, 1996
    through February 28, 1998 monthly installments of principal in the amount
    of $8,333 plus accrued interest shall be paid and that on March 1, 1998 the
    original terms of the mortgage loan will become effective.
(b) 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 has the option and is in the process of extending the maturity
    date to March 31, 1998 for a fee equal to 0.25% of the outstanding
    principal balance.
(c) The average interest rate represents an average for the six months ended
    June 30, 1997. Interest rates are subject to change in accordance with the
    provisions of the loan agreements. As of June 30, 1997, interest rates on
    the mortgage loans collateralized by Prentice Plaza and the second mortgage
    collateralized by Marquette were 7.44% and 8.19%, respectively.
(d) 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 continues a prohibition on distributions to Partners. The
    interest rate as of June 30, 1997 was 7.56%
(e) 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 has 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 $1,666,400, which is net of closing expenses and the repayment of the
mortgage loan encumbering the property. The Partnership recorded a gain of
$1,529,600 in connection with this sale. Net proceeds received from this
transaction will be 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 table below is a recap of the Partnership's share of certain operating
results of each 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>
MARQUETTE MALL AND OFFICE BUILDING
Rental revenues             $1,009,000  $911,200  $2,078,000  $1,929,200
-------------------------------------------------------------------------
Property net (loss) income  $  (10,400) $(58,300) $   41,300  $    6,000
-------------------------------------------------------------------------
Average occupancy                  83%       82%         83%         82%
-------------------------------------------------------------------------
BURLINGTON OFFICE CENTER I, II AND III
Rental revenues             $  838,800  $666,700  $1,647,400  $1,333,800
-------------------------------------------------------------------------
Property net income (loss)  $  172,000  $(44,200) $  245,500  $  (81,200)
-------------------------------------------------------------------------
Average occupancy                  96%       78%         96%         78%
-------------------------------------------------------------------------
PRENTICE PLAZA (50%)
Rental revenues             $  222,100  $381,000  $  586,800  $  691,000
-------------------------------------------------------------------------
Property net (loss)         $ (167,100) $(17,700) $ (157,700) $  (57,800)
-------------------------------------------------------------------------
Average occupancy                  93%       99%         94%         99%
-------------------------------------------------------------------------
REGENCY PARK SHOPPING CENTER (50%) (B)
Rental revenues             $  227,600  $301,500  $  575,000  $  600,400
-------------------------------------------------------------------------
Property net income         $   31,000  $ 10,900  $  135,200  $      400
-------------------------------------------------------------------------
Average occupancy                            88%                     88%
-------------------------------------------------------------------------
SENTRY PARK WEST OFFICE CAMPUS (50%) (C)
Rental revenues                         $386,000              $  758,100
-------------------------------------------------------------------------
Property net income                     $102,700              $  169,700
-------------------------------------------------------------------------
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 six months ended June 30, 1997 and 1996.
 
Net (loss) income for the Partnership changed from $(204,000) for the quarter
ended June 30, 1996 to $1,348,400 for the quarter ended June 30, 1997 and from
$(378,000) for the six months ended June 30, 1996 to $1,398,200 for the six
months ended June 30, 1997. The change in net income was primarily due to the
gain recorded on the sale of Regency. Also contributing to the change was the
improved operating results at Burlington Office Center I, II and III
("Burlington"). The change was partially offset by diminished operating results
at Prentice Plaza and the absence of results from Sentry West due to its August
1996 sale.
 
Net (loss) exclusive of sold properties decreased by $105,400 and $281,500 for
the quarter and six months ended June 30, 1997 when compared to the quarter and
six months ended June 30, 1996, respectively. The decreases in net (loss) were
primarily due to improved operating results at Burlington and at Marquette Mall
and Office Building ("Marquette"). Partially offsetting the decreases were
diminished operating results at Prentice Plaza.
 
The following comparative discussion excludes the operating results of Regency
and Sentry West.
 
Rental revenues increased by $111,000 or 5.7% and $358,200 or 9.1% for the
quarter and six months ended June 30, 1997 when compared to the quarter and six
months ended June 30, 1996, respectively. The increases were 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 for the six month periods under comparison was a
lease settlement payment received at Prentice Plaza in 1997. The increases were
partially offset by decreases in tenant expense reimbursements at Prentice
Plaza due to the recent reconciliation of 1996 expenses reimbursable by tenants
resulting in a significantly larger overbilling than had been previously
estimated.
 
Interest expense on the Partnership's mortgage loans decreased by $41,700 and
$95,000 for the quarter and six months ended June 30, 1997 when compared to the
quarter and six months ended June 30, 1996. The decreases were primarily due to
a decrease in the interest rates on the mortgage loans collateralized by
Burlington and Prentice Plaza. Also contributing to the decreases was the
effect of the principal paydown of Marquette's junior mortgage loan during
1996, resulting from the application of net sale proceeds from the sale of
Sentry West.
 
Repair and maintenance expenses increased by $47,700 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 janitorial services at Burlington due to
the increase in occupancy and increases in landscaping costs and repairs to the
HVAC at Prentice Plaza. Repair and maintenance expenses remained relatively
unchanged for the quarter ended June 30, 1997 when compared to the quarter
ended June 30, 1996.
 
Real estate tax expense increased by $14,000 and $73,900 for the quarterly and
six-month periods under comparison, respectively. The increases were primarily
due to a projected increase in the assessed valuation of Prentice Plaza for
real estate tax purposes. The Partnership is currently appealing the assessed
valuation of Prentice Plaza but it is uncertain at this time whether or not the
appeal will be successful.
 
Depreciation and amortization expense increased by $17,600 and $41,800 for the
quarterly and six-month periods under comparison, respectively. The increases
were primarily due to the depreciable assets placed in service at Marquette
during the past 18 months exceeding the assets whose depreciable lives expired
in 1996.
 
Property operating expenses increased by $23,100 for the six-month periods
under comparison. The increase was primarily the result of increases at
Marquette in professional services due to costs associated with evaluating the
potential sale of the property and in utility costs. The increase was partially
offset by a decrease in professional service costs at Burlington.
 
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 price. In
the interim, the Partnership continues to manage and maintain it properties.
Notwithstanding the Partnership's intention relative to property
 
                                                                               6
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
sales, another primary objective of the Partnership is to provide cash
distributions to Partners from Partnership operations. To the extent cumulative
cash distributions exceed net income, such excess distributions will be treated
as a return of capital. Cash Flow (as defined in the Partnership Agreement) is
generally not equal to net income or cash flows as determined by generally
accepted accounting principles ("GAAP"), since certain items are treated
differently under the Partnership Agreement than under GAAP. Management
believes that to facilitate a clear understanding of the Partnership's
operations, an analysis of Cash Flow (as defined in the Partnership Agreement)
should be examined in conjunction with an analysis of net income or cash flows
as determined by GAAP. The following table includes a reconciliation of Cash
Flow (as defined in the Partnership Agreement) to cash flow provided by
operating activities as determined by GAAP. Such amounts are not indicative of
actual distributions to Partners and should not be considered as 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 (Deficit)
 (as defined in the Partnership Agreement)              $   328,900  $ (36,900)
Items of Reconciliation:
 Scheduled principal payments on mortgage loans payable     285,300    485,300
 Decrease in current assets                                 293,300    488,300
 (Decrease) in current liabilities                         (289,500)   (98,800)
-------------------------------------------------------------------------------
Net cash provided by operating activities               $   618,000  $ 837,900
-------------------------------------------------------------------------------
Net cash provided by (used for) investing activities    $ 8,590,600  $(272,900)
-------------------------------------------------------------------------------
Net cash (used for) financing activities                $(7,508,000) $(188,600)
-------------------------------------------------------------------------------
</TABLE>
 
Cash Flow (Deficit) (as defined in the Partnership Agreement) changed from
$(36,900) for the six months ended June 30, 1996 to $328,900 for the six months
ended June 30, 1997. The change was primarily result of improved operating
results, exclusive of depreciation and amortization, at all of the
Partnership's properties except Prentice Plaza, partially offset by the absence
of results from Sentry West due to its sale in 1996.
 
The net increase in the Partnership's cash position of $1,700,600 for the six
months ended June 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. The liquid assets of the Partnership
as of June 30, 1997 were comprised of amounts held for working capital
purposes.
 
The decrease in net cash provided by operating activities of $219,900 was
primarily due to the absence of results of Sentry West partially offset by
increases in the net cash provided by operating activities at all of the
Partnership's properties except Prentice Plaza, as previously discussed.
 
Net cash (used for) provided by investing activities changed from $(272,900)
for the six months ended June 30, 1996 to $8,590,600 for the six months ended
June 30, 1997. The change was primarily due to the 1997 sale of Regency. The
Partnership maintains working capital reserves to pay for capital expenditures
such as building and tenant improvements and leasing costs. During the six
months ended June 30, 1997, the Partnership spent $590,300 for capital and
tenant improvements and leasing costs and has projected to spend approximately
$800,000 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 $425,000 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 net proceeds from
this transaction was $1,666,400, 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 obligations, the Partnership
is precluded from making distributions to Limited Partners until such
obligations have been satisfied. As a result, the proceeds received from this
sale have been retained to supplement working capital reserves.
 
Net cash used for financing activities increased by $7,319,400 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 repayment of mortgage loan collateralized
by Regency. 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 has
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, payable monthly in arrears, and precludes the Partnership from
making distributions under the loan is satisfied.
 
During 1996 the two senior mortgage loans collateralized by Marquette Mall and
Marquette Office Building, individually, were amended. The terms of the
amendment to the mortgage loan collateralized by Marquette Mall provided that
through February 28, 1998, accrued interest only shall be paid and that on
March 1, 1998 the original terms of the mortgage loan will become effective.
The terms of the amendment to the mortgage loan collateralized by Marquette
Office Building provided that through February 28, 1998 monthly installments of
principal in the amount of $8,333 plus accrued interest shall be paid and that
on March 1, 1998 the original terms of the mortgage loan will become effective.
 
The subordinate mortgage collateralized by Marquette matures on September 30,
1997. The Partnership has the right and is in the process of extending 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.
 
As of June 30, 1997, 22 of the 35 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 and a half 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.
 
During the quarter ended June 30, 1997 the Partnership secured a new mortgage
for Burlington which should allow the Partnership to benefit from the
significant leasing activity at the property over the past year. The
Partnership was also able to complete the sale of Regency prior to the maturity
date of the mortgage and for a price greater than anticipated as of December
31, 1996. The Partnership, however, faces a significant amount of uncertainty
as to the tenancy of its properties, as previously discussed. Accordingly,
distributions to Partners continue to be suspended. For the six months ended
June 30, 1997, Cash Flow (as defined in the Partnership Agreement) of $328,900
was retained to supplement working capital reserves.
 
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 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:

A report on Form 8-K was filed on June 26, 1997 reporting the sale of
Regency Park Shopping Center, located in Jacksonville, Florida.
<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:  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