<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                          Washington, D.C. 20549-1004

                                   FORM 10-K



[X]  ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the fiscal year ended              December 31, 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                            0-16888
                                   --------------------------------------------

               First Capital Income and Growth Fund - Series XII
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>


            Illinois                                                                 36-3498223
-------------------------------                                       ---------------------------------------
<S>                                                                   <C>
(State or other jurisdiction of                                                   (I.R.S. Employer
incorporation or organization)                                                  Identification No.)

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

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

Securities registered pursuant to Section 12(b) of the Act:                             NONE
                                                                      -----------------------------------------

Securities registered pursuant to Section 12(g) of the Act:              Limited Partnership Assignee Units
                                                                      -----------------------------------------
</TABLE>

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
                                      ---   ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]

Documents incorporated by reference:

The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the definitive Prospectus dated May 8, 1987, included in
the Registrant's Registration Statement on Form S-11 (Registration No.
33-12269), is incorporated herein by reference in Part IV of this report.

Exhibit Index - Page A-1
------------------------


                                       1
<PAGE>

                                    PART I

ITEM 1.  BUSINESS
-------  --------

The registrant, First Capital Income and Growth Fund-Series XII (the
"Partnership") is a limited partnership organized in 1987 under the Revised
Uniform Limited Partnership Act of the State of Illinois. The Partnership sold
1,000,000 Limited Partnership Assignee Units (the "Units") to the public from
May 1987 to November 1988, pursuant to a Registration Statement on Form S-11
filed with the Securities and Exchange Commission (Registration No. 33-12269).
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement.

The business of the Partnership is to invest primarily in existing, income-
producing real estate, such as shopping centers, office buildings, apartments,
warehouses, or any one or more of these categories. From November 1987 to March
1991, the Partnership: 1) made three real property investments; 2) purchased 50%
interests in three joint ventures, a 75% interest in one joint venture and a 25%
interest in a separate joint venture which were each formed with Affiliated
partnerships for the purpose of acquiring a 100% interest in certain real
property and 3) purchased 50% interests in four separate joint ventures which
were each formed with Affiliated partnerships for the purpose of acquiring a
preferred majority interest in certain real property. All of these joint
ventures, prior to dissolution, are operated under the common control of First
Capital Financial Corporation (the "General Partner") and an Affiliate. Through
December 31, 1997 the Partnership, with its respective joint venture partners,
has dissolved as a result of the property sale and/or disposition: 1) the 75%
interest, the 25% interest and one of the 50% interests in joint ventures that
had 100% interests in real property; 2) all four 50% joint ventures that had
preferred majority interests in real property and 3) one real property
investment.

Property management services for the Partnership's office buildings are provided
by an Affiliate of the General Partner and for its shopping center by a third-
party property management company for fees calculated as a percentage of gross
rents received from each of the Partnership's properties.

The real estate business is highly competitive. The results of operations of the
Partnership will depend upon the availability of suitable tenants, real estate
market conditions and general economic conditions which may impact the success
of these tenants. Properties owned by the Partnership frequently compete for
tenants with similar properties owned by others.

As of March 1, 1998, there were 14 employees at the Partnership's properties for
on-site property maintenance and administration.

ITEM 2.  PROPERTIES (a)(b)
-------  -----------------

As of December 31, 1997, the Partnership owned directly or through joint
ventures, the following four properties, which were owned in fee simple and,
except for 1800 Sherman Office Building ("1800 Sherman"), were encumbered by
mortgages. For details of the material terms of the mortgages, refer to Note 5
of Notes to Financial Statements.

<TABLE>
<CAPTION>
                                                     Net Leasable     Number of
   Property Name                 Location            Sq. Footage     Tenants (c)
-------------------      ------------------------    ------------    -----------
<S>                      <C>                         <C>             <C>
Shopping Center:
----------------
Deerfield Mall           Deerfield Beach, Florida      371,995         52 (2)
</TABLE>

                                       2
<PAGE>

ITEM 2.   PROPERTIES (a)(b) (Continued)
-------   -----------------

<TABLE>
<CAPTION>
                                               Net Leasable     Number of
   Property Name             Location          Sq. Footage     Tenants (c)
--------------------   --------------------    ------------    -----------
Office Buildings:
-----------------
<S>                    <C>                     <C>             <C>
Meidinger Tower        Louisville, Kentucky      331,054           31 (1)

Prentice Plaza (50%)   Englewood, Colorado       157,311           35 (1)

1800 Sherman (50%)     Evanston, Illinois        134,541           32 (2)
</TABLE>

     (a)  For a discussion of significant operating results and major capital
          expenditures planned for the Partnership's properties refer to Item 7.

     (b)  For federal income tax purposes, the Partnership depreciates the
          portion of the acquisition costs of its properties allocable to real
          property (exclusive of land), and all improvements thereafter, over
          useful lives of 40 years utilizing the straight-line method. The
          Partnership's portion of real estate taxes for Deerfield Mall, 1800
          Sherman, Meidinger Tower and Prentice Plaza was $684,100, $525,500,
          $306,500 and $285,600, respectively, for the year ended December 31,
          1997. In the opinion of the General Partner, all of the Partnership's
          properties are adequately insured and serviced by all necessary
          utilities.

     (c)  Represents the total number of tenants as well as the number of
          tenants, in parenthesis, that individually occupy more than 10% of the
          net leasable square footage of the property.

The following table presents each of the Partnership's properties' occupancy
rates as of December 31 for each of the last five years:

<TABLE>
<CAPTION>
 Property Name        1997    1996    1995    1994    1993
---------------       ----    ----    ----    ----    ----
<S>                   <C>     <C>     <C>     <C>     <C>
Meidinger Tower        94%     98%     96%     93%     85%

Deerfield Mall         90%     92%     93%     92%     89%

1800 Sherman          100%     94%     97%     97%     94%

Prentice Plaza         95%     98%     99%     97%     92%
</TABLE>

The amounts in the following table represent each of the Partnership properties'
average annual rental rate per square foot for each of the last five years ended
December 31 and were computed by dividing each property's base rental revenues
by its average occupied square footage:

<TABLE>
<CAPTION>
 Property Name         1997      1996      1995      1994      1993
---------------       ------    ------    ------    ------    ------
<S>                   <C>       <C>       <C>       <C>       <C>
Meidinger Tower       $ 8.55    $ 7.98    $ 8.33    $ 8.21    $ 8.46

Deerfield Mall        $ 9.47    $ 9.57    $ 9.58    $ 9.25    $ 9.40

1800 Sherman          $21.90    $21.27    $21.14    $20.58    $20.20

Prentice Plaza        $15.68    $14.91    $14.31    $13.65    $12.63
</TABLE>

                                       3
<PAGE>

ITEM 2.  PROPERTIES (Continued)
------   ----------

The following table summarizes the principal provisions of the leases for each
of the tenants which occupy ten percent or more of the rentable square footage
at each of the Partnership's properties:
<TABLE>
<CAPTION>
                                     Partnership's Share of per                              Percentage
                                      annum Base Rents (a) for                                 of Net        Renewal
                                    ----------------------------                              Leasable       Options
                                                    Final Twelve        Expiration             Square       (Renewal
                                                      Months of          Date of              Footage       Options/
                                       1998             Lease             Lease               Occupied       Years)
                                    -----------     ------------    ------------------    --------------- --------------
<S>                                 <C>             <C>             <C>                   <C>             <C>
Meidinger Tower
---------------

William M. Mercer
 (management and
   insurance consulting)              $887,200        $887,200          7/31/2002               34%         1/10 & 2/5

Deerfield Mall
--------------

T. J. Maxx
 (department store)                   $433,500        $433,500         11/30/2012               21%            5/5
Publix
 (grocery store)                      $252,700        $252,700           5/4/2008               11%            4/5


1800 Sherman (50%)
------------------

ZS Associates
 (management consultants)             $375,100        $390,900         12/31/2004               29%            1/5
Sachs Group
 (health care information)            $190,000        $223,100          6/30/2004               12%            1/5

Prentice Plaza (50%)
--------------------

ICG (b)
 (fiber optic provider)               $146,900        $150,200          9/30/1999               11%            None
</TABLE>
     (a)  The Partnership's share of per annum base rents for each of the
          tenants listed above for each of the years between 1998 and the final
          twelve months for each of the above leases is no lesser or greater
          than the amounts listed in the above table.

     (b)  This space is sublet from ANTEC Corporation, who is the Lessee and is
          responsible for the rent payments through the expiration of the lease.

                                       4

<PAGE>

The amounts in the following table represent the Partnership's portion of base
rental income from leases in the year of expiration (assuming no lease renewals)
through the year ended December 31, 2007:

<TABLE>
<CAPTION>
                                             Base Rents in
              Number                            Year of          % of Total Base
  Year      of Tenants      Square Feet      Expiration (a)         Rents (b)
-------     ----------      -----------      --------------      ---------------
<S>         <C>             <C>              <C>                <C>
  1998          42            134,905           $790,200              9.53%
  1999          28            124,365           $682,800              9.70%
  2000          22             72,464           $460,300              7.49%
  2001          19             80,169           $698,700             12.53%
  2002          11            151,139           $780,900             18.16%
  2003          10             51,779           $333,300             10.16%
  2004           8             95,379           $801,900             29.62%
  2005           1                900           $ 10,100              0.53%
  2006           1              6,681           $ 58,900              3.12%
  2007           1             10,037           $115,400              6.51%
</TABLE>

(a)  Represents the Partnership's portion of base rents to be collected each
     calendar year on expiring leases.

(b)  Represents the Partnership's portion of base rents to be collected each
     year on expiring leases as a percentage of the Partnership's portion of the
     total base rents to be collected on leases in effect as of December 31,
     1997.

ITEM. 3  LEGAL PROCEEDINGS
-------  -----------------

(a & b)  The Partnership and its properties were not a party to, nor the subject
of, any material pending legal proceedings, nor were any such proceedings
terminated during the quarter ended December 31, 1997.  Ordinary routine legal
matters incidental to the business which was not deemed material were pursued
during the quarter ended December 31, 1997.

ITEM. 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------  ---------------------------------------------------

(a, b, c & d)   None.


ITEM 5.  MARKET FOR THE REGISTRANT'S EQUITY AND RELATED SECURITY HOLDER MATTERS
-------  ----------------------------------------------------------------------

There has not been, nor is there expected to be, a public market for Units.

As of March 1, 1998, there were 6,870 Holders of Units.

                                       5
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                         For the Years Ended December 31,
                          ----------------------------------------------------------------
                             1997        1996         1995          1994          1993
-------------------------------------------------------------------------------------------
<S>                       <C>         <C>         <C>           <C>           <C>
Total revenues            $13,443,300 $17,899,200 $ 17,678,700  $ 16,698,200  $ 18,534,400
Net income (loss)         $ 1,039,700 $ 2,155,600 $(13,386,400) $(14,742,000) $(22,424,800)
Net income (loss)
 allocated to Limited
 Partners (a)             $ 1,029,300 $ 2,134,000 $(13,252,500) $(14,594,600) $(22,200,600)
Weighted average number
 of Units outstanding         949,843     949,843      953,845       963,785       973,695
Net income (loss)
 allocated to Limited
 Partners per weighted
 average
 Unit (a)                 $      1.08 $      2.25 $     (13.89) $     (15.14) $     (22.80)
Total assets              $70,105,700 $74,772,700 $ 85,015,000  $100,121,600  $120,664,800
Mortgage loans payable    $43,773,700 $48,858,400 $ 60,405,300  $ 61,195,100  $ 65,853,800
Front-End Fees Loan
 payable to Affiliate     $13,434,400 $13,434,400 $ 13,434,400  $ 13,434,400  $ 13,434,400
Distributions to Limited
 Partners per weighted
 average Unit                    None        None         None          None          None
Return of capital to
 Limited Partners per
 weighted average Unit
 (b)                             None        None         None          None          None
OTHER DATA:
Investment in commercial
 rental properties (net
 of accumulated
 depreciation and
 amortization)            $59,890,500 $65,500,600 $ 78,329,900  $ 94,027,300  $113,844,700
Number of real property
 interests owned at
 December 31                        4           5            7             7            10
-------------------------------------------------------------------------------------------
</TABLE>
(a) Net (loss) allocated to Limited Partners for 1993 included an extraordinary
    gain on extinguishment of debt.
(b) For the purposes of this table, return of capital represents either: the
    amount by which distributions, if any, exceed net income each respective
    year or; total distributions, if any, in years when the Partnership incurs
    a net loss. Pursuant to the Partnership Agreement, Capital Investment is
    only reduced by distributions of Sale or Refinancing Proceeds. Accordingly,
    return of capital as used in the above table does not impact Capital
    Investment.

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 generally accepted accounting principles ("GAAP"):

<TABLE>
<CAPTION>
                                        For the Years Ended December 31,
                          ----------------------------------------------------------------
                             1997          1996         1995         1994         1993
-------------------------------------------------------------------------------------------
<S>                       <C>          <C>           <C>          <C>          <C>
Cash Flow (as defined in
 the Partnership
 Agreement) (a)           $ 1,089,100  $  2,710,800  $ 2,141,300  $ 2,259,300  $ 2,673,200
Items of reconciliation:
Principal payments on
 mortgage loans payable     1,265,000     1,085,200    1,240,500      449,200      185,200
Changes in current
 assets and liabilities:
Decrease (increase) in
 current assets               217,200       374,200     (271,600)     495,000      540,200
(Decrease) increase in
 current liabilities         (632,000)     (751,300)      50,600     (156,100)     758,200
-------------------------------------------------------------------------------------------
Net cash provided by
 operating activities     $ 1,939,300  $  3,418,900  $ 3,160,800  $ 3,047,400  $ 4,156,800
-------------------------------------------------------------------------------------------
Net cash provided by
 (used for) investing
 activities               $ 1,114,200  $ 10,173,400  $  (683,000) $ 2,141,100  $(5,627,100)
-------------------------------------------------------------------------------------------
Net cash (used for)
 financing activities     $(5,074,700) $(11,675,100) $(1,833,400) $(5,762,800) $(4,329,500)
-------------------------------------------------------------------------------------------
</TABLE>
(a) Cash Flow is defined in the Partnership Agreement as Partnership cash
    revenues earned from operations (excluding tenant deposits and proceeds
    from the sale, disposition or financing of any Partnership properties or
    the refinancing of any Partnership indebtedness), minus all cash expenses
    incurred (including Operating Expenses, payments of principal and interest
    on any Partnership indebtedness, and any reserves of revenues from
    operations deemed reasonably necessary by the General Partner), except
    depreciation and amortization expenses and capital expenditures and lease
    acquisition expenditures.

The above selected financial data should be read in conjunction with the
financial statements and the related notes appearing on pages A-1 through A-9
in this report and the supplemental schedule on pages A-10 and A-11.

                                                                               6
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The ordinary business of the Partnership is expected to pass through its life
cycle in three phases: (i) the Offering of Units and investment in Properties;
(ii) the operation of properties and (iii) the sale or other disposition of
properties.

The Partnership commenced the Offering of Units on May 8, 1987 and began
operations on June 9, 1987 after reaching the required minimum subscription
level. On November 22, 1988, the Offering was Terminated upon the sale of
1,000,000 Units. From November 1987 to March 1991, the Partnership: 1) made
three real property investments; 2) purchased 50% interests in three joint
ventures, a 75% interest in one joint venture and a 25% interest in a separate
joint venture, each of which were formed with Affiliated partnerships for the
purpose of acquiring a 100% interest in certain real property and 3) purchased
50% interests in four separate joint ventures, each of which were formed with
Affiliated partnerships for the purpose of acquiring a preferred majority
interest in certain real property.

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
1993 the Partnership, in addition to being in the operation of properties
phase, entered the disposition phase of its life cycle. During the disposition
phase of the Partnership's life cycle, comparisons of operating results are
complicated due to the timing and effect of property sales and dispositions.
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. Through December
31, 1997 the Partnership, with its respective joint venture partners, has
dissolved as a result of the property sale and/or disposition: 1) the 75%
interest, the 25% interest and one of the 50% interests in joint ventures that
had 100% interests in real property; 2) all four 50% interests in joint
ventures with preferred majority interests in real property and 3) one real
property investment.

OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the years ended December 31, 1997, 1996 and 1995.
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 Years Ended December
                                              31,
                                ---------------------------------
                                   1997       1996        1995
------------------------------------------------------------------
<S>                             <C>        <C>         <C>
MEIDINGER TOWER
Rental revenues                 $4,965,200 $4,893,300  $4,680,200
------------------------------------------------------------------
Property net income (loss) (b)  $   71,500 $ (203,200) $ (311,200)
------------------------------------------------------------------
Average occupancy                      96%        97%         93%
------------------------------------------------------------------
DEERFIELD MALL
Rental revenues                 $4,057,400 $4,275,400  $4,212,300
------------------------------------------------------------------
Property net income (b)         $  605,800 $  794,000  $  550,500
------------------------------------------------------------------
Average occupancy                      92%        94%         94%
------------------------------------------------------------------
1800 SHERMAN OFFICE BUILDING (50%)
Rental revenues                 $1,577,900 $1,533,100  $1,538,200
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                          Comparative Operating Results
                         (a) For the Years Ended December
                                       31,
                         ----------------------------------
                            1997        1996        1995
------------------------------------------------------------
<S>                      <C>         <C>         <C>
Property net income (b)  $  402,100  $  380,600  $  316,000
------------------------------------------------------------
Average occupancy               96%         95%         97%
------------------------------------------------------------
PRENTICE PLAZA (50%)
Rental revenues          $1,253,500  $1,270,700  $1,169,400
------------------------------------------------------------
Property net (loss)      $ (114,800) $  (19,900) $ (229,800)
------------------------------------------------------------
Average occupancy               95%         99%         97%
------------------------------------------------------------
SOLD PROPERTIES (C)
Rental revenues          $  285,000  $4,629,500  $5,832,200
------------------------------------------------------------
Property net income (b)  $    3,000  $1,165,300  $  107,300
------------------------------------------------------------
</TABLE>
(a) Excludes certain income and expense items which are either 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) Property net (loss) income excludes provisions for value impairment which
    were included in the Statement of Income and Expenses for the year ended
    December 31, 1995 (see Note 11 of Notes to Financial Statements for
    additional information).
(c) Includes the results of properties sold in 1997 and 1996. ("Sold
    Properties") is comprised of the results, exclusive of the gains on sale,
    of Equitable of Iowa Office Building ("Equitable"), Sentry Park West Office
    Campus ("Sentry West") and Regency Park Shopping Center ("Regency") (see
    Note 10 of Notes to Financial Statements for additional information).

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31,
1996
Net income decreased by $1,115,900 for the year ended December 31, 1997 when
compared to the year ended December 31, 1996. The decrease was primarily due to
the absence of results from Sentry West and Equitable due to their 1996 sales.
Also contributing to the decrease was the diminished operating results at
Deerfield Mall and Prentice Plaza and the smaller gain recorded on the 1997
property sale when compared to the 1996 property sales. Partially offsetting
the decrease was improved operating results at Meidinger Tower and 1800 Sherman
and an increase in interest income earned on the Partnership's short-term
investments due to the proceeds from the sales of the Sold Properties being
available for investment. The improved operating results at Meidinger Tower
were the result of the classification of Meidinger Tower as "Held of
Disposition" as of October 1, 1997 which precluded the Partnership from
recording provisions for deprecation or amortization on the property.

Net income, exclusive of gains on the sales and the results of operations of
the Sold Properties, increased by $177,200 for the year ended December 31, 1997
when compared to the year ended December 31, 1996. The increase was primarily
due to the improved operating results at Meidinger Tower and 1800 Sherman and
the increase in interest income, as previously discussed. Also contributing to
the increase was a

7
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)

decrease in general and administrative expenses for accounting services and
salaries. The increase was partially offset by diminished operating results at
Deerfield Mall and Prentice Plaza.

The following comparative discussion includes only the results of the
Partnership's four remaining properties.

Rental revenues decreased by $118,500 or 1% for the year ended December 31,
1997 when compared to the year ended December 31, 1996. The decrease was
primarily due to a decrease in base rental income at Deerfield Mall due to a
decline in the average occupancy. Also contributing to the decrease was a
decrease in tenant expense reimbursements at Prentice Plaza resulting from a
refund received in 1997 for 1996 real estate taxes reducing amounts due from
tenants. Partially offsetting the decrease was an increase in base rental
income at 1800 Sherman due to an increase in rates charged new and renewing
tenants and the 1997 receipt as consideration for the early termination of a
portion of a tenant's lease at Prentice Plaza.

Interest expense increased by $69,600 for the year ended December 31, 1997 when
compared to the year ended December 31, 1996. The increase was primarily due to
an increase in the average interest rate charged on the mortgage loan
collateralized by Meidinger Tower. Partially offsetting the increase was the
effects of principal payments made during the past 24 months on the
Partnership's mortgage loans.

Depreciation and amortization expense decreased by $322,400 for the year ended
December 31, 1997 when compared to the year ended December 31 , 1996. The
decrease was primarily due to the classification of Meidinger Tower as "Held
for Disposition" as of October 1, 1997.

Real estate tax expense increased by $128,900 for the year ended December 31,
1997 when compared the year ended December 31, 1996. The increase was primarily
due to a reassessment of property values at Prentice Plaza and 1800 Sherman by
the taxing authorities.

Repair and maintenance expenses increased by $119,100 for the year ended
December 31, 1997 when compared to the year ended December 31, 1996. The
increase was primarily due to an increase in repairs to the HVAC system and the
elevators at Meidinger Tower.

Property operating expenses decreased by $91,200 for the year ended December
31, 1997 when compared to the year ended December 31, 1996. The decrease was
primarily due to decreases in utility costs at Meidinger Tower and Prentice
Plaza and a decrease in security costs at Deerfield Mall.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31,
1995
Net results for the Partnership changed from a (loss) of $(13,386,400) for the
year ended December 31, 1995 to income of $2,155,600 for the year ended
December 31, 1996. The change in results was primarily due to the provisions
for value impairment on certain of the Partnership's properties which
contributed $12,700,000 to the net (loss) in 1995. In addition, the change was
due to the gains of $816,100 and $160,200 from the sales of Sentry West and
Equitable, respectively, during 1996.

Net results, exclusive of provisions for value impairment, gains on sale of
properties and the operating results of the sold properties, changed from a
(loss) of $(863,900) for the year ended December 31, 1995 to income of $24,500
for the year ended December 31, 1996. The change in results was primarily due
to: 1) improved operating results at all of the Partnership remaining
properties, 2) decreased interest expense on the Partnership's Front-End Fees
loan, due to a decrease in the variable interest rate, 3) increased interest
income, primarily due to an increase in the funds available for short-term
investments which was primarily the result of the receipt of sales proceeds
during the second half of 1996 and 4) decreased general and administrative
expenses, primarily due to lower data processing and printing and mailing
costs.

The following comparative discussion includes the results from the
Partnership's five remaining property investments at December 31, 1996
(Meidinger Tower, Deerfield Mall, 1800 Sherman, Regency and Prentice Plaza).

Rental revenues increased by $384,200 or 3.2% for the year ended December 31,
1996 when compared to the year ended December 31, 1995. The primary factors
which contributed to the increase were higher rental revenues at Meidinger
Tower, which was primarily due to an increase in tenant expense reimbursements
and the receipt in 1996 of a one-time lease settlement fee and Prentice Plaza,
primarily due to an increase in tenant expense reimbursements and base rents,
which was due to the increase in average occupancy and average base rental rate
charged to new and renewing tenants.

Interest expense on the Partnership's mortgage loans decreased by $280,300 for
the year ended December 31, 1996 when compared to the year ended December 31,
1995. The decrease was primarily due to: 1) a lower average interest rate on
Meidinger's variable rate mortgage loan; 2) a decrease in the interest rate on
the fixed-rate mortgage loan collateralized by Regency resulting from a 1996
modification of its loan and 3) lower average outstanding balances resulting
from principal payments on the Deerfield Mall and Regency mortgage loans.

Depreciation and amortization expense decreased by $146,500 for the years under
comparison. The decrease was primarily the result of the effects of provisions
for value impairment recorded during the year ended December 31, 1995 which
reduced the depreciable bases of Deerfield Mall, Meidinger Tower, 1800 Sherman
and Regency.

Real estate tax expense decreased by $142,200 for the years under comparison.
The decrease was primarily due to the successful appeal in 1996 for the
reduction of the assessed value of 1800 Sherman for the 1995 tax year and the
1996 receipt of a refund following a successful appeal of the assessed value of
Prentice Plaza for the 1989 to 1994 tax years.

Repairs and maintenance expense increased by $116,900 for the year ended
December 31, 1996 when compared to the year ended December 31, 1995. The
property contributing most significantly to the increase was Meidinger Tower,
primarily due to a 7% increase in the janitorial service contract which was the
result of an increase in the contractor's wages and the costs of supplies.

Property operating expenses increased by $107,700 for the years under
comparison as a result of an increase at Meidinger Tower which was primarily
due to higher utility, security and personnel costs as well as an increase in
property management and leasing fees resulting from the increase in rental
revenues. Also contributing to the increase was an increase in security costs
at Prentice Plaza.

                                                                               8
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)


To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its asset and property management groups,
continues to take the following actions: 1) implementation of marketing
programs, including hiring of third-party leasing agents or providing on-site
leasing personnel, advertising, direct mail campaigns and development of
building brochures; 2) early renewal of existing tenant 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.

The rate of inflation has remained relatively stable during the years under
comparison and has had a minimal impact on the operating results of the
Partnership. The nature of various tenant lease clauses protects the
Partnership, to some extent, from increases in the rate of inflation. Certain
of the lease clauses provide for the following: (1) annual rent increases based
on the Consumer Price Index or graduated rental increases; (2) percentage
rentals at shopping centers, for which the Partnership receives as additional
rent a percentage of a tenant's sales over predetermined amounts and (3) total
or partial tenant reimbursement of property operating expenses (e.g., common
area maintenance, real estate taxes, etc.).

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.
Cash Flow (as defined in the Partnership Agreement) is generally not equal to
net income or cash flows as determined by 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 second table in Select Financial Data 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 Flows.

The decrease in Cash Flow (as defined in the Partnership Agreement) of
$1,621,700 for the year ended December 31, 1997 when compared to the year ended
December 31, 1996 was primarily due to the absence of operating results from
the Sold Properties and, to a lesser degree the decrease in operating results
at the Partnership's remaining properties, exclusive of depreciation and
amortization. In addition, the decrease was also the result of increased
principal payments on the Partnership's mortgage loans payable.

The net decrease in the Partnership's cash position of $2,021,200 for the year
December 31, 1997 was primarily the result of investment in debt securities,
principal amortization payments and expenditures made for capital and tenant
improvements and leasing costs exceeding the net cash provided by operating
activities and the net proceeds received from the sale of Regency. Liquid
assets (including cash, cash equivalents and investments in debt securities) of
the Partnership as of December 31, 1997 were comprised of amounts held for
working capital purposes.

Net cash provided by operating activities continues to be a primary source of
funds for the Partnership. Net cash provided by operating activities decreased
by $1,479,600 for the year ended December 31, 1997 when compared to the year
ended December 31, 1996. The decrease was primarily the result of the absence
of operating results generated by the Sold Properties together with the
decrease in operating results at the Partnership's remaining properties, as
previously discussed.

Net cash provided by investing activities decreased by $9,059,200 for the year
ended December 31, 1997 when compared to the year ended December 31, 1996. The
decrease was primarily due to the cash generated from the 1996 sales of Sentry
West and Equitable exceeding the cash generated by the 1997 sale of Regency.
Also contributing to the decrease was an increase in investments in debt
securities. The increase in investments in debt securities is a result of the
extension of the maturities of certain of the Partnership's short-term
investments in an effort to maximize the return on these amounts while they are
held for working capital purposes. These investments are of investment-grade
and generally mature less than one year from their date of purchase.

The Partnership maintains working capital reserves to pay for capital
expenditures such as building and tenant improvements and leasing costs. During
the year ended December 31, 1997, the Partnership spent $362,600 for these
items and has budgeted to spend approximately $700,000 during 1998. Included in
this budgeted amount are capital and tenant improvements and leasing costs of
approximately $400,000 for Prentice Plaza and $250,000 for 1800 Sherman. The
amounts budgeted to be spent at both properties relate mostly to tenant
allowances and improvements. Actual amounts expended may vary depending on a
number of factors including actual leasing activity, results of property
operations, liquidity considerations, the sale of any of the properties and
other market conditions throughout the year. The General Partner believes that
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, the joint venture in which the Partnership owned a 25%
interest sold Regency. The Partnership's share of net proceeds from this
transaction was $867,900, which was net of closing costs and the repayment of
the mortgage loan collateralized by Regency. Proceeds from this sale have been
retained to supplement working capital reserves.

The decrease in net cash used for financing activities of $6,600,400 for year
ended December 31, 1997 when compared to the year ended December 31, 1996 was
primarily the result of the repayment of the mortgage loans in conjunction with
the 1996 sales of Sentry West and Equitable exceeding the repayment of the
mortgage loan in conjunction with the 1997 sale of Regency.

Pursuant to a modification of the Partnership's Front-End Fees loan agreement,
the Partnership has the option to defer payment of interest on this loan for a
69-month period

9
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)

beginning April 1, 1993. In addition, any interest payments made by the
Partnership from April 1, 1993 through December 31, 1998 may be borrowed from
an Affiliate of the General Partner. 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. As of December 31, 1997, the Partnership had
not exercised its option to defer the payment of interest on this loan.

The mortgage loan collateralized by Meidinger Tower matures during 1998. The
General Partner is actively seeking to sell the property. As a result of such
effort, the Partnership has entered into an agreement (the "Agreement") to sell
the property. Based on the terms of the Agreement, the net proceeds are
expected to substantially exceed the amount necessary to repay the mortgage
loan. The transaction contemplated by the Agreement, which is scheduled to
close in April 1998, is subject to the fulfillment of certain conditions. There
can be no assurance that this or any sale transaction will close prior to the
maturity of the loan.

The General Partner, on behalf of the Partnership, has contracted for
substantially all of its business activities with certain principal entities
for which computer programs are utilized. Each of these companies is
financially responsible and have represented to management of the General
Partner that they are taking appropriate steps for modifications needed to
their respective systems to accommodate processing data by Year 2000.
Accordingly, the Partnership anticipates incurring no material Year 2000 costs
and is currently not aware of any material contingencies related to this
matter.

The Partnership has significant financial obligations during 1998 and beyond.
In addition to substantial required principal payments on certain of its
mortgage loans, one of the Partnership's mortgage loans matures in 1998. In
addition, as a result of the normal recurring tenant turnover, it is
anticipated that the Partnership will incur a substantial amount of capital and
tenant improvements and leasing costs during the next several years. In light
of this, the General Partner believes that it is in the Partnership's best
interest to retain all cash available. Accordingly, cash 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 and least
expensive sources of cash. For the year ended December 31, 1997, Cash Flow (as
defined in the Partnership Agreement) of $1,089,100 was retained to supplement
working capital reserves. In addition, the General Partner continues to review
other sources of cash available to the Partnership, which includes the possible
financing, 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, financing or refinancing of any properties or any mortgage
loan modifications or extensions are sufficient to cover the planned
expenditures for the ensuing twelve month period.

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.

                                                                              10
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------  -------------------------------------------

The response to this item is submitted as a separate section of this report.
See page A-1 "Index of Financial Statements and Exhibits."

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-------  ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------

None.

                                      10
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------  -------------------------------------------

The response to this item is submitted as a separate section of this report.
See page A-1 "Index of Financial Statements and Exhibits."

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-------  ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------

None.

                                      11
<PAGE>

                                   PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) & (e)  DIRECTORS

     The Partnership has no directors. First Capital Financial Corporation
     ("FCFC") is the General Partner. The directors of FCFC, as of March 31,
     1998, are shown in the table below. Directors serve for one year or until
     their successors are elected. The next annual meeting of FCFC will be held
     in June 1998.

       Name                                                Office
       ----                                                ------

     Douglas Crocker II..................................  Director
     Sheli Z. Rosenberg..................................  Director

     Douglas Crocker II, 57, has been President and Chief Executive Officer
     since December 1992 and a Director since January 1993 of the General
     Partner. Mr. Crocker has been President, Chief Executive Officer and
     trustee of Equity Residential Properties Trust since March 31, 1993. Mr.
     Crocker is a member of the Board of Directors of Horizon Group, Inc. and
     Wellsford Real Properties Inc. Mr. Crocker was an Executive Vice President
     of Equity Financial and Management Company ("EFMC") from November 1992
     until March 1997.

     Sheli Z. Rosenberg, 56, was President and Chief Executive Officer of the
     General Partner from December 1990 to December 1992 and has been a Director
     of the General Partner since September 1983; was Executive Vice President
     and General Counsel for EFMC from October 1980 to November 1994; has been
     President and Chief Executive Officer of Equity Group Investments, Inc.
     ("EGI") since November 1994; has been a Director of Great American
     Management and Investment Inc. ("Great American") since June 1984 and is a
     director of various subsidiaries of Great American. She is also a director
     of Anixter International Inc., American Classic Voyages Co., CVS
     Corporation, Illinova Corporation, Illinois Power Co., Jacor
     Communications, Inc. and Manufactured Home Communities, Inc. She is also a
     trustee of Equity Residential Properties Trust, Equity Office Properties
     Trust and Capital Trust. Ms. Rosenberg was a Principal of Rosenberg &
     Liebentritt, P.C., counsel to the Partnership, the General Partner and
     certain of their Affiliates from 1980 until September 1997. She had been
     Vice President of First Capital Benefit Administrators, Inc. ("Benefit
     Administrators") since July 22, 1987 until its liquidation in November
     1995. Benefit Administrators filed for protection under the Federal
     Bankruptcy laws on January 3, 1995.

                                      12
<PAGE>


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
-------   --------------------------------------------------

     (b) & (e)  EXECUTIVE OFFICERS
                ------------------

     The Partnership does not have any executive officers. The executive
     officers of the General Partner as of March 31, 1998 are shown in the
     table. All officers are elected to serve for one year or until their
     successors are elected and qualified.

<TABLE>
<CAPTION>

          Name                                                Office
          ----                                                ------
<S>                                      <C>
     Douglas Crocker II...................President and Chief Executive Officer
     Donald J. Liebentritt................Vice President
     Norman M. Field......................Vice President - Finance and Treasurer
</TABLE>

     PRESIDENT AND CEO--See Table of Directors above.

     Donald J. Liebentritt, 47, has been Vice President of the General Partner
     since July 1997 and is Executive Vice President and General Counsel of EGI,
     Vice President and Assistant Secretary of Great American and Principal and
     Chairman of the Board of Rosenberg & Liebentritt, P.C.

     Norman M. Field, 49, has been Vice President of Finance and Treasurer of
     the General Partner since February 1984, and also served as Vice President
     and Treasurer of Great American from July 1983 until March 1995. Mr. Field
     had been Treasurer of Benefit Administrators since July 22, 1987 until its
     liquidation in November 1995. Benefit Administrators filed for protection
     under the Federal Bankruptcy laws on January 3, 1995. He was Chief
     Financial Officer of Equality Specialties, Inc. ("Equality"), a subsidiary
     of Great American, from August 1994 to April 1995. Equality was sold in
     April 1995.

(d)  FAMILY RELATIONSHIPS
     --------------------

     There are no family relationships among any of the foregoing directors and
     officers.

(f)  INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
     ----------------------------------------

     With the exception of the bankruptcy matter disclosed under Items 10 (a),
     (b) and (e), there are no involvements in certain legal proceedings among
     any of the foregoing directors and officers.

                                      13
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION
--------  ----------------------


(a,b,c & d) As stated in Item 10, the Partnership has no officers or directors.
Neither the General Partner, nor any director or officer of the General Partner,
received any direct remuneration from the Partnership during the year ended
December 31, 1997. However, the General Partner and its Affiliates do compensate
its directors and officers. For additional information see Item 13 Certain
Relationships and Related Transactions.

(e)  None.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------  --------------------------------------------------------------

(a)  As of March 1, 1998, no person of record owned or was known by the
     Partnership to own beneficially more than 5% of the Partnership's 949,843
     Units then outstanding.

(b)  The Partnership has no directors or executive officers. As of March 1,
     1998, the executive officers and directors of the General Partner, as a
     group, did not own any Units.

(c)  None.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------  ----------------------------------------------


(a)  Affiliates of the General Partner provide leasing, supervisory and property
     management services to the Partnership. Compensation for these property
     management services may not exceed 6% of the gross receipts from the
     property being managed where the General Partner or Affiliates provide
     leasing, re-leasing and leasing-related services, or 3% of gross receipts
     where the General Partner or Affiliates do not perform leasing, re-leasing
     and leasing-related services for a particular property. For the year ended
     December 31, 1997, these Affiliates were entitled to leasing, property
     management and supervisory fees of $482,900, of which $3,600 was due as of
     December 31, 1997. Other Affiliates of the General Partner were also
     entitled to $133,300 for fees, compensation and reimbursements for
     insurance and personnel services fees. Compensation for these services are
     on terms which are fair, reasonable and no less favorable to the
     Partnership than reasonably could be obtained from unaffiliated persons. Of
     these amounts, $1,400 was due to Affiliates as of December 31, 1997.

     In addition to the principal balance, the Partnership is also obligated to
     an Affiliate for interest incurred on the Front-End Fees Loan. The
     Affiliate was entitled to $1,040,900 in interest for the year ended
     December 31, 1997. In accordance with the Partnership Agreement, neither
     the General Partner nor its Affiliates shall lend money to the Partnership
     with interest rates and other finance charges and fees in excess of the
     lesser of the amounts that are charged by unrelated lending institutions on
     comparable loans for the same purpose in the same locality or 2% above the
     prime rate of interest charged by Chase Manhattan Bank.

     Pursuant to a modification of the Partnership's Front-End Fees Loan, the
     Partnership has the option to defer payment of interest on this loan for a
     69-month period beginning April 1, 1993. All deferred amounts shall be due
     and payable on January 1, 1999, and shall not be subordinated to repayment
     to the Limited Partners. As of December 31, 1997, the Partnership had not
     exercised its option to defer the payment of interest on this loan.

     In accordance with the Partnership Agreement, as compensation for services
     rendered in managing the affairs of the Partnership, the General Partner
     shall be entitled to receive subsequent


                                      14
<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
--------  ----------------------------------------------

  to November 22, 1988, the Termination of the Offering, a Portfolio Management
  Fee, payable quarterly, which shall be an amount equal to the lesser of (i)
  0.5% of the gross value of the Partnership's assets (not reduced by
  indebtedness collateralized by such assets), all as estimated by the General
  Partner in its reasonable discretion, plus, to the extent the Portfolio
  Management Fee paid in any prior year was less than 0.5% of the gross value of
  the Partnership's assets in such prior year, the amount of such deficit, or
  (ii) an amount equal to the remainder obtained by subtracting the aggregate
  amount previously paid to the General Partner as Portfolio Management Fees
  during such fiscal year, from an amount equal to 10% of the Partnership's
  aggregate Cash Flow (as defined in the Partnership Agreement) (computed prior
  to the deduction for Portfolio Management Fees) for such fiscal year. For the
  year ended December 31, 1997, in conjunction with the suspension of
  distributions of Cash Flow (as defined in the Partnership Agreement) to
  Limited Partners, the General Partner was not paid a Portfolio Management Fee.

  In accordance with the Partnership Agreement, Net Profits and Net Losses
  (exclusive of Net Profits and Net Losses from a Major Capital Event) are
  allocated 1% to the General Partner and 99% to the Limited Partners as a
  group. Net Losses from a Major Capital Event are allocated: first, prior to
  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, in proportion to and to the extent of such
  positive balances; and second, the balance, if any, 1% to the General Partner
  and 99% to the Limited Partners as a group. Net Profits from a Major Capital
  Event are allocated: first, prior to giving effect to any distributions of
  Sale or Refinancing Proceeds from the transaction, Net Profit in the amount of
  the Minimum Gain (as defined in the Partnership Agreement) attributable to the
  property that is the subject of such Major Capital Event is allocated to the
  General Partner and Limited Partners with negative balances in their Capital
  Accounts, pro rata in proportion to such respective negative balances; second,
  to the General Partner and each Limited Partner in proportion to and to the
  extent of such amounts, if any, equal to the amount of Sale or Refinancing
  Proceeds to be distributed to each such General Partner or Limited Partner
  with respect to such Major Capital Event; and third, the balance, if any, 20%
  to the General Partner and 80% to the Limited Partners as a group.
  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
  year ended December 31, 1997, the General Partner was allocated Net Profits of
  $10,400 which included $8,500 of gain from the sale of a Partnership property.

  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 year
  ended December 31, 1997, the Partnership's 50% share of ANTEC's rent and
  related payments amounted to $137,000. In addition, during the year ended
  December 31, 1997 ANTEC remitted $60,000 as consideration for the early
  release of approximately 38% of its leased space. ANTEC has also 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
  responsibility for the rent on their space until their lease expires in
  September 1999. The per square foot rent paid by ANTEC is comparable to that
  paid by other tenants at Prentice Plaza.

  Manufactured Homes Communities, Inc. ("MHC"), a real estate investment trust
  which is in the business of owning and operating mobile home communities, an
  Affiliate of the General Partner, is obligated to the Partnership under a
  lease of office space at Prentice Plaza. During the year ended December 31,
  1997, the Partnership's 50% share of MHC's rent amounted to $21,800. The per
  square foot rent paid by MHC is comparable to that paid by other tenants at
  Prentice Plaza.

                                      15
<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
--------  ----------------------------------------------

(b) Rosenberg & Liebentritt, P.C. ("Rosenberg"), serves as legal counsel to the
    Partnership, the General Partner and certain of their Affiliates. Donald J.
    Liebentritt, Vice President of the General Partner, is a Principal and
    Chairman of the Board of Rosenberg. For the year ended December 31, 1997,
    Rosenberg was entitled to $69,200 for legal fees from the Partnership.
    Compensation for these services are on terms which are fair, reasonable and
    no less favorable to the Partnership than reasonably could be obtained from
    unaffiliated persons.

(c) No management person is indebted to the Partnership.

(d) None.


                                      16
<PAGE>

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------  ----------------------------------------------------------------

(a,c & d)  See Index of Financial Statements, Schedule and Exhibits on page A-1
of Form 10-K.

(b)  Reports on Form 8-K:

There were no reports filed on Form 8-K during the quarter ended December 31,
1997.

                                      17
<PAGE>


                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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 AND GROWTH FUND - SERIES XII


                               BY: FIRST CAPITAL FINANCIAL CORPORATION
                                   GENERAL PARTNER


Dated: March 31, 1998          By: /s/ DOUGLAS CROCKER II
       ------------------          ---------------------------------------------
                                       DOUGLAS CROCKER II
                                    President and Chief Executive Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
<S>                            <C>                  <C>

/s/ DOUGLAS CROCKER II         March 31, 1998       President, Chief Executive
-------------------------      --------------       Officer and Director of the
    DOUGLAS CROCKER II                              General Partner

/s/ SHELI Z. ROSENBERG         March 31, 1998       Director of the General
-------------------------      --------------       Partner
    SHELI Z. ROSENBERG

/s/ DONALD J. LIEBENTRITT      March 31, 1998       Vice President
-------------------------      --------------
    DONALD J. LIEBENTRITT

/s/ NORMAN M. FIELD            March 31, 1998       Vice President - Finance and
-------------------------      --------------       Treasurer
    NORMAN M. FIELD
</TABLE>

                                      18
<PAGE>

             INDEX OF FINANCIAL STATEMENTS, SCHEDULE AND EXHIBITS

               FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT

<TABLE>
                                                                                                         Pages
                                                                                                      ------------
<S>                                                                                                   <C>
Report of Independent Auditors                                                                             A-2

Balance Sheets as of December 31, 1997 and 1996                                                            A-3

Statements of Partners' Capital for the Years Ended
 December 31, 1997, 1996 and 1995                                                                          A-3

Statements of Income and Expenses for the Years Ended
   December 31, 1997, 1996 and 1995                                                                        A-4

Statements of Cash Flows for the Years Ended
   December 31, 1997, 1996 and 1995                                                                        A-4

Notes to Financial Statements                                                                         A-5 to A-9

SCHEDULE FILED AS PART OF THIS REPORT

III - Real Estate and Accumulated Depreciation as of December 31, 1997                                A-10 and A-11
</TABLE>

All other schedules have been omitted as inapplicable, or for the reason that
the required information is shown in the financial statements or notes thereto.

EXHIBITS FILED AS PART OF THIS REPORT

EXHIBITS (3 & 4)  First Amended and Restated Certificate and Agreement of
Limited Partnership as set forth on pages A-1 through A-37 of the Partnership's
definitive Prospectus dated May 8, 1987; Registration Statement No. 33-12269,
filed pursuant to Rule 424 (b), is incorporated herein by reference.

EXHIBIT (10) Material Contracts

Real Estate Sale Agreement for the sale of the Partnership's investment in
Equitable of Iowa Building filed as an exhibit to the Partnership's Report on
Form 8-K dated October 30, 1996 is incorporated herein by reference.

Real Estate Sale Agreement for the sale of the Partnership's investment in
Sentry Park West Office Campus filed as an exhibit to the Partnership's Report
on Form 8-K dated September 12, 1996 is incorporated herein by reference.

EXHIBIT (13) Annual Report to Security Holders

The 1996 Annual Report to Limited Partners is being sent under separate cover,
not as a filed document and not via EDGAR, for the information of the
commission.

EXHIBIT (27) Financial Data Schedule


                                      A-1
<PAGE>

                        REPORT OF INDEPENDENT AUDITORS

Partners
First Capital Income and Growth Fund - Series XII
Chicago, Illinois

We have audited the accompanying balance sheets of First Capital Income and
Growth Fund - Series XII as of December 31, 1997 and 1996, and the related
statements of income and expenses, partners' capital and cash flows for each of
the three years in the period ended December 31, 1997, and the financial
statement schedule listed in the accompanying index. These financial statements
and schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Capital Income and Growth
Fund - Series XII at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.


                                  Ernst & Young LLP
Chicago, Illinois
March 9, 1998

                                      A-2
<PAGE>

BALANCE SHEETS
December 31, 1997 and 1996
(All dollars rounded to nearest 00s)

<TABLE>
<CAPTION>
                                                      1997         1996
----------------------------------------------------------------------------
<S>                                                <C>          <C>
ASSETS
Investment in commercial rental properties:
 Land                                              $12,034,200  $13,074,900
 Buildings and improvements                         69,717,000   73,507,400
----------------------------------------------------------------------------
                                                    81,751,200   86,582,300
 Accumulated depreciation and amortization         (21,860,700) (21,081,700)
----------------------------------------------------------------------------
Total investment properties, net of accumulated
 depreciation and amortization                      59,890,500   65,500,600
Cash and cash equivalents                            4,879,400    6,900,600
Investments in debt securities                       3,948,400      496,300
Restricted cash                                        100,000      100,000
Rents receivable                                       379,000      549,700
Escrow deposits                                        552,400      747,600
Other assets (net of accumulated amortization on
 loan acquisition costs of $919,100 and $874,700,
 respectively)                                         356,000      477,900
----------------------------------------------------------------------------
                                                   $70,105,700  $74,772,700
----------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
 Mortgage loans payable                            $43,773,700  $48,858,400
 Front-End Fees Loan payable to Affiliate           13,434,400   13,434,400
 Accounts payable and accrued expenses               1,435,200    1,939,800
 Due to Affiliates                                       5,000      186,900
 Security deposits                                     231,800      221,800
 Other liabilities                                     199,000      144,500
----------------------------------------------------------------------------
                                                    59,079,100   64,785,800
----------------------------------------------------------------------------
Partners' capital:
 General Partner (deficit)                          (1,664,600)  (1,675,000)
 Limited Partners (1,000,000 Units issued, 949,843
  Units outstanding)                                12,691,200   11,661,900
----------------------------------------------------------------------------
                                                    11,026,600    9,986,900
----------------------------------------------------------------------------
                                                   $70,105,700  $74,772,700
----------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1997, 1996 and 1995
(All dollars rounded to nearest 00s)

<TABLE>
<CAPTION>
                                         General      Limited
                                         Partner      Partners       Total
-------------------------------------------------------------------------------
<S>                                    <C>          <C>           <C>
Partners' (deficit) capital,
 January 1, 1995                       $(1,562,700) $ 23,779,700  $ 22,217,000
Repurchase of Units                                     (999,300)     (999,300)
Net (loss) for the year ended
 December 31, 1995                        (133,900)  (13,252,500)  (13,386,400)
-------------------------------------------------------------------------------
Partners' (deficit) capital, December
 31, 1995                               (1,696,600)    9,527,900     7,831,300
Net income for the year ended
 December 31, 1996                          21,600     2,134,000     2,155,600
-------------------------------------------------------------------------------
Partners' (deficit) capital, December
 31, 1996                               (1,675,000)   11,661,900     9,986,900
Net income for the year ended
 December 31, 1997                          10,400     1,029,300     1,039,700
-------------------------------------------------------------------------------
Partners' (deficit) capital, December
 31, 1997                              $(1,664,600) $ 12,691,200  $ 11,026,600
-------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
A-3
<PAGE>

STATEMENTS OF INCOME AND EXPENSES
For the years ended December 31, 1997, 1996 and 1995
(All dollars rounded to nearest 00s except Unit and per Unit amounts)

<TABLE>
<CAPTION>
                                           1997        1996         1995
-----------------------------------------------------------------------------
<S>                                     <C>         <C>         <C>
Income:
 Rental                                 $12,145,300 $16,602,000 $ 17,433,800
 Interest                                   452,500     320,900      244,900
 Gain on sales of property                  845,500     976,300
-----------------------------------------------------------------------------
                                         13,443,300  17,899,200   17,678,700
-----------------------------------------------------------------------------
Expenses:
 Interest:
 Affiliates                               1,040,900   1,016,600    1,090,000
 Nonaffiliates                            3,479,100   4,188,100    4,725,900
 Depreciation and amortization            2,159,900   2,616,700    4,068,200
 Property operating:
 Affiliates                                 493,900   1,134,900    1,036,300
 Nonaffiliates                            1,500,600   2,047,500    2,277,600
 Real estate taxes                        1,832,300   2,078,000    2,441,000
 Insurance--Affiliate                       102,300     155,200      151,100
 Repairs and maintenance                  1,606,400   2,280,100    2,322,500
 General and administrative:
 Affiliates                                  36,600      54,700       66,600
 Nonaffiliates                              151,600     171,800      185,900
 Provisions for value impairment                                  12,700,000
-----------------------------------------------------------------------------
                                         12,403,600  15,743,600   31,065,100
-----------------------------------------------------------------------------
Net income (loss)                       $ 1,039,700   2,155,600  (13,386,400)
-----------------------------------------------------------------------------
Net income (loss) allocated to General
 Partner                                $    10,400 $    21,600 $   (133,900)
-----------------------------------------------------------------------------
Net income (loss) allocated to Limited
 Partners                               $ 1,029,300 $ 2,134,000 $(13,252,500)
-----------------------------------------------------------------------------
Net income (loss) allocated to Limited
 Partners per Unit                      $      1.08 $      2.25 $     (13.89)
-----------------------------------------------------------------------------
Weighted average number of Units
 outstanding                                949,843     949,843      953,845
-----------------------------------------------------------------------------
</TABLE>

STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1995
(All dollars rounded to nearest 00s)

<TABLE>
<CAPTION>
                                            1997        1996          1995
--------------------------------------------------------------------------------
<S>                                      <C>         <C>          <C>
Cash flows from operating activities:
 Net income (loss)                       $1,039,700    2,155,600  $ (13,386,400)
 Adjustments to reconcile net income
  (loss) to net cash provided by
  operating activities:
 Depreciation and amortization            2,159,900    2,616,700      4,068,200
 Gain on sales of property                 (845,500)    (976,300)
 Provisions for value impairment                                     12,700,000
 Changes in assets and liabilities:
  Decrease (increase) in rents
   receivable                               170,700       13,600        (22,900)
  Decrease (increase) in other assets        46,500      360,600       (248,700)
  (Decrease) increase in accounts
   payable and accrued expenses            (504,600)    (748,100)       179,400
  (Decrease) increase in due to
   Affiliates                              (181,900)       7,500        (70,900)
  Increase (decrease) in other
   liabilities                               54,500      (10,700)       (57,900)
--------------------------------------------------------------------------------
   Net cash provided by operating
    activities                            1,939,300    3,418,900      3,160,800
--------------------------------------------------------------------------------
Cash flows from investing activities:
 Payments for capital and tenant
  improvements                             (362,600)    (899,500)      (945,500)
 (Increase) in investments in debt
  securities                             (3,452,100)    (496,300)
 Proceeds from the sales of property      4,733,700   12,189,100
 Decrease (increase) in escrow deposits     195,200     (619,900)       262,500
--------------------------------------------------------------------------------
   Net cash provided by (used for)
    investing activities                  1,114,200   10,173,400       (683,000)
--------------------------------------------------------------------------------
Cash flows from financing activities:
 Principal payments on mortgage loans
  payable                                (1,265,000)  (1,085,200)    (1,240,500)
 Proceeds from mortgage loans payable                                 4,875,000
 Repayment of mortgage loans payable     (3,819,700) (10,461,700)    (4,424,300)
 Repurchase of Units                                                   (999,300)
 Loan costs incurred, net of refunds                     (28,500)       (62,600)
 Increase (decrease) in security
  deposits                                   10,000      (99,700)        18,300
--------------------------------------------------------------------------------
   Net cash (used for) financing
    activities                           (5,074,700) (11,675,100)    (1,833,400)
--------------------------------------------------------------------------------
Net (decrease) increase in cash and
 cash equivalents                        (2,021,200)   1,917,200        644,400
Cash and cash equivalents at the
 beginning of the year                    6,900,600    4,983,400      4,339,000
--------------------------------------------------------------------------------
Cash and cash equivalents at the end of
 the year                                $4,879,400  $ 6,900,600  $   4,983,400
--------------------------------------------------------------------------------
Supplemental information:
 Interest paid during the year           $4,713,000  $ 5,281,700  $   5,779,800
--------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
                                                                             A-4
<PAGE>

NOTES TO FINANCIAL STATEMENTS
December 31, 1997

1. ORGANIZATION AND 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.

ORGANIZATION:
The Partnership was formed on February 24, 1987, by the filing of a Certificate
and Agreement of Limited Partnership with the Recorder of Deeds of Cook County,
Illinois, and commenced the Offering of Units on May 8, 1987. The Certificate
and Agreement, as amended and restated, authorized the sale to the public of
500,000 Units (with the General Partner's option to increase to 1,000,000
Units) and not less than 14,000 Units pursuant to the Prospectus. On June 9,
1987, the required minimum subscription level was reached and the Partnership's
operations commenced. The General Partner exercised its option to increase the
Offering to 1,000,000 Units, which amount was sold prior to the Termination of
the Offering in November 1988. The Partnership was formed to invest primarily
in existing, improved, income-producing real estate.

The Partnership Agreement provides that the Partnership will be dissolved on or
before December 31, 2017. The Limited Partners, by a majority vote, may
dissolve the Partnership at any time.

ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). The Partnership utilizes the accrual
method of accounting. Under this method, revenues are recorded when earned and
expenses are recorded when incurred.

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 statements include the Partnership's 50% interest in three joint
ventures and its 25% interest in another joint venture with Affiliated
partnerships. Two of the 50% joint ventures and the 25% joint venture were
formed for the purpose of each acquiring a 100% interest in certain real
property and one of the 50% joint ventures was formed for the purpose of
acquiring a preferred majority 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 Partnership is not liable for federal income taxes as the Partners
recognize their proportionate share of the Partnership income or loss in their
individual tax returns; therefore, no provision for income taxes is made in the
financial statements of the Partnership. In addition, it is not practicable for
the Partnership to determine the aggregate tax bases of the individual
Partners; therefore, the disclosure of the differences between the tax bases
and the reported assets and liabilities of the Partnership would not be
meaningful.

Commercial rental properties held for investment 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. Upon classifying a commercial rental property as held for disposition,
no further depreciation or amortization of such property is provided for in the
financial statements. Lease acquisition fees are recorded at cost and amortized
over the life of the lease. Repair and maintenance costs are expensed as
incurred; expenditures for improvements are capitalized and depreciated over
the estimated life of such improvements.

The Partnership evaluates its commercial rental properties for impairment when
conditions exist which may indicate that it is probable that the sum of
expected future cash flows (undiscounted) from a property is less than its
carrying basis. Upon determination that an impairment has occurred, the
carrying basis in the rental property is reduced to its estimated fair value.
Except as disclosed in Note 11, the General Partner 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 charged to expense.

Property sales are recorded when title transfers and sufficient consideration
has been received by the Partnership. Upon disposition, the related costs and
accumulated depreciation and amortization are removed from the respective
accounts. Any gain or loss on sale is recognized in accordance with generally
accepted accounting principles.

Cash equivalents are considered all highly liquid investments with a maturity
of three months or less when purchased.

Investments in debt securities are comprised of corporate debt securities and
are classified as held-to-maturity. These investments are carried at their
amortized cost basis in the financial statements which approximated fair market
value. These securities generally had a maturity of less than one year when
purchased.

The Partnership's financial statements include financial instruments, including
receivables, escrow deposits, restricted cash, trade liabilities and mortgage
debt. The Partnership considers the disclosure of the fair value of its
mortgage debt to be impracticable due to the general illiquid nature of the
real estate financing market and an inability to obtain comparable

A-5
<PAGE>

financing on certain properties. The fair value of all other financial
instruments, including cash and cash equivalents, was not materially different
from their carrying value at December 31, 1997 and 1996.

Certain reclassifications have been made to the previously reported 1996 and
1995 statements in order to provide comparability with the 1997 statements.
These reclassifications had no effect on net (loss) or Partners' capital
(deficit).

2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, as compensation for services
rendered in managing the affairs of the Partnership, the General Partner shall
be entitled to receive subsequent to November 22, 1988, the Termination of the
Offering, a Portfolio Management Fee, payable quarterly, which shall be an
amount equal to the lesser of (i) 0.5% of the gross value of the Partnership's
assets (not reduced by indebtedness collateralized by such assets), all as
estimated by the General Partner in its reasonable discretion, plus, to the
extent the Portfolio Management Fee paid in any prior year was less than 0.5%
of the gross value of the Partnership's assets in such prior year, the amount
of such deficit, or (ii) an amount equal to the remainder obtained by
subtracting the aggregate amount previously paid to the General Partner as
Portfolio Management Fees during such fiscal year, from an amount equal to 10%
of the Partnership's aggregate Cash Flow (as defined in the Partnership
Agreement) (computed prior to the deduction for Portfolio Management Fees) for
such fiscal year. For the years ended December 31, 1997, 1996 and 1995 in
conjunction with the suspension of distributions of Cash Flow (as defined in
the Partnership Agreement) to Limited Partners, the General Partner was not
paid a Portfolio Management Fee.

In accordance with the Partnership Agreement, Net Profits and Net Losses
(exclusive of Net Profits and Net Losses from a Major Capital Event) are
allocated 1% to the General Partner and 99% to the Limited Partners as a group.
Net Losses from a Major Capital Event are allocated: first, prior to 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, in proportion to and to the extent of such positive
balances; and second, the balance, if any, 1% to the General Partner and 99% to
the Limited Partners as a group. Net Profits from a Major Capital Event are
allocated: first, prior to giving effect to any distributions of Sale or
Refinancing Proceeds from the transaction, Net Profit in the amount of the
Minimum Gain attributable to the property that is the subject of such Major
Capital Event is allocated to the General Partner and Limited Partners with
negative balances in their Capital Accounts, pro rata in proportion to such
respective negative balances; second, to the General Partner and each Limited
Partner in proportion to and to the extent of such amounts, if any, equal to
the amount of Sale or Refinancing Proceeds to be distributed to each such
General Partner or Limited Partner with respect to such Major Capital Event;
and third, the balance, if any, 20% to the General Partner and 80% to the
Limited Partners as a group. 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 year ended December 31, 1997, the General Partner was
allocated a Net Profit of $10,400, which included a net gain of $8,500 from the
sale of a Partnership property. For the year ended December 31, 1996, the
General Partner was allocated a Net Profit of $21,600, which included a gain of
$9,800 from the sale of two Partnership properties. For the year ended December
31, 1995, the General Partner was allocated a Net (Loss) of $(133,900), which
included a (loss) from provisions for value impairment of $(127,000).

Fees and reimbursements paid and payable by the Partnership to Affiliates were
as follows:

<TABLE>
<CAPTION>
                                      For the Years Ended December 31,
                         -----------------------------------------------------------
                                1997                1996                1995
                         ------------------- ------------------- -------------------
                            Paid     Payable    Paid    Payable     Paid    Payable
------------------------------------------------------------------------------------
<S>                      <C>         <C>     <C>        <C>      <C>        <C>
Property management and
 leasing fees            $   511,300 $3,600  $1,006,800 $ 32,000 $1,092,100 $ 70,800
Interest expense on
 Front-End Fees Loan
 (Note 3)                  1,128,400   None   1,021,300   87,500  1,075,700   92,200
Reimbursement of
 property insurance
 premiums, at cost           102,300   None     155,200     None    146,400     None
Legal                         86,200   None     132,600   63,100     43,700    1,400
Reimbursement of
 expenses at cost:
 --Accounting                 24,100  1,100      47,000    3,700     31,700   12,200
 --Investor
  communication                9,800    300      15,500      600     23,100    2,800
 --Other                        None   None         300     None      1,300     None
------------------------------------------------------------------------------------
                         $ 1,862,100 $5,000  $2,378,700 $186,900 $2,414,000 $179,400
------------------------------------------------------------------------------------
</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 years
ended December 31, 1997, 1996 and 1995 the Partnership's 50% share of ANTEC's
rent and reimbursement of expenses amounted to $137,000, $293,400 and $189,100,
respectively. In addition, during the year ended December 31, 1997, ANTEC
remitted $60,000 as consideration for the early release of approximately 38% of
its leased space. ANTEC has also 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 responsibility for the rent on their space
until their lease expires in September 1999. 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 in the business of owning and operating mobile home communities, an
Affiliate of the General Partner, is obligated to the Partnership under a lease
of office space at Prentice Plaza. During the years ended December 31, 1997,
1996 and 1995 the Partnership's 50% share of MHC's rent amounted to $21,800,
$29,900 and $22,100, respectively. The per square foot rent paid by MHC is
comparable to that paid by other tenants at Prentice Plaza.

                                                                             A-6
<PAGE>

On-site property management for the Partnership's properties is provided by an
Affiliate of the General Partner and a third-party property management group
for a fee equal to 3% of gross rents received by the properties. The Affiliate
and third-party property management group are entitled to leasing fees equal to
3% of gross rents received, reduced by leasing fees, if any, paid to third
parties.

3. FRONT-END FEES LOAN PAYABLE TO AFFILIATE:
The Partnership borrowed from 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. Interest on the outstanding balance of this loan is due
and payable monthly at the lesser of the cost of funds obtained by the General
Partner from unaffiliated lenders or 2% above Chase Manhattan Bank's prime
rate.

As of December 31, 1997, the Partnership had drawn $13,434,400 under the Front-
End Fees Loan agreement. The interest rate paid on the Front-End Fees Loan is
subject to change in accordance with the loan agreement. The weighted average
interest rate for the year ended December 31, 1997 was 7.64%. As of December
31, 1997, the interest rate was 7.97%.

Pursuant to a modification of this loan agreement, the Partnership has the
option to defer payment of interest on this loan for a 69-month period
beginning April 1, 1993. In addition, any interest payments made by the
Partnership from April 1, 1993 through December 31, 1999 may be borrowed from
the General Partner. 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. As of December 31, 1997, the Partnership had not exercised
its option to defer the payment of interest on this loan.

4. RESTRICTED CASH:
Restricted cash at December 31, 1997 represented a Eurodollar investment in the
amount of $100,000 which has been pledged as collateral for a letter of credit
issued to the Louisville Gas & Electric Company for Meidinger Tower.

5. MORTGAGE LOANS PAYABLE:
Mortgage loans payable at December 31, 1997 and 1996, consisted of the
following loans which are non-recourse:

<TABLE>
<CAPTION>
                        Principal Balance at   Average                         Estimated
Property Pledged as    ----------------------- Interest  Maturity   Periodic    Balloon
Collateral              12/31/97    12/31/96   Rate(a)     Date    Payment(b) Payment(c)
-----------------------------------------------------------------------------------------
<S>                    <C>         <C>         <C>      <C>        <C>        <C>
Meidinger Tower        $21,779,000 $22,405,300   7.13%  10/15/1998        (d) $21,779,000
Deerfield Mall          17,196,600  17,760,400   7.60%    3/1/2001  $154,257  $15,256,700
Prentice Plaza (50%)     4,798,100   4,838,100   7.34%  12/19/2000        (e) $ 4,655,200
Regency Park Shopping
 Center (25%)(f)                     3,854,600
-----------------------------------------------------------------------------------------
                       $43,773,700 $48,858,400
-----------------------------------------------------------------------------------------
</TABLE>
(a) The average interest rate represents an average for the year ended December
    31, 1997. Interest rates are subject to change in accordance with the
    provisions of the loan agreements for Meidinger Tower and Prentice Plaza.
    As of December 31, 1997, interest rates on the loans collateralized by
    Meidinger Tower and Prentice Plaza were 8.5% and 7.44%, respectively.
(b) Represents level monthly principal and interest payments.
(c) This repayment may require either sale or refinancing of the respective
    property.
(d) For the year ended December 31, 1997, in addition to monthly interest
    payments the Partnership made principal payments through the release of
    $626,300 from the real estate tax escrow due to the successful appeal of
    real estate taxes.
(e) In addition to monthly interest, monthly principal payments of $3,638,
    $3,960 and $4,305 are required commencing on January 1, 1998, 1999 and
    2000, respectively.
(f) The joint venture which owns Regency Park Shopping Center ("Regency"), in
    which the Partnership has a 25% interest with Affiliated Partnerships,
    repaid the mortgage collateralized by Regency with a portion of the
    proceeds generated from its sale (see Note 10 for additional information).

Principal amortization of mortgage loans payable for the duration of the loans
as of December 31, 1997 was as follows:

<TABLE>
                    <S>   <C>
                    1998  $22,385,800
                    1999      654,900
                    2000    5,362,200
                    2001   15,370,800
                             --------
                          $43,773,700
                             --------
</TABLE>

The amounts scheduled above do not consider the effects of the timing of
principal payment requirements, if any, based on property cash flow, which must
each be paid periodically, as well as amounts which are available but unfunded
to the Partnership under certain mortgage loans.

6. REPURCHASE OPTION:
On January 1, 1991, the Repurchase Option period commenced for the repurchase
of Limited Partnership Interests. This Repurchase Option, as defined in the
Partnership Agreement, allowed Limited Partners to resell their Interests to
the Partnership. During 1995, the fifth and final year of the Repurchase Option
period, the Partnership paid a price equal to 115% of the Limited Partners'
Original Capital Contribution reduced by all prior distributions previously
made to the Limited Partner. The maximum amount of Interests that the
Partnership was obligated to purchase during the Repurchase Option period was

A-7
<PAGE>

0.25% of the total Original Capital Contribution for each and every calendar
quarter during the Repurchase Option period. As of December 31, 1997, the
Partnership repurchased 50,157 Units which represented Original Capital
Contributions of $5,015,700. The repurchase of these Units, reduced by all
prior distributions previously made to the Limited Partners, resulted in a net
reduction of Limited Partners' Capital and net payments by the Partnership of
$4,581,400.

7. FUTURE MINIMUM RENTALS:
The Partnership's share of future minimum rental income due on noncancelable
leases as of December 31, 1997 was as follows:

<TABLE>
                    <S>         <C>
                    1998        $ 8,290,300
                    1999          7,041,600
                    2000          6,145,300
                    2001          5,574,900
                    2002          4,299,200
                    Thereafter   17,981,600
                             --------------
                                $49,332,900
                             --------------
</TABLE>

The Partnership is subject to the usual business risks associated with the
collection of the above-scheduled rentals. In addition to the amounts scheduled
above, the Partnership expects to receive rental revenue from operating expense
reimbursements and percentage rents. Percentage rents earned for the years
ended December 31, 1997, 1996 and 1995 were $29,400, $147,400 and $164,600,
respectively.

8. INCOME TAX:
The Partnership utilizes the accrual method of accounting for both income tax
reporting and financial statement purposes. Financial statement results will
differ from income tax results due to the use of differing depreciation lives
and methods, the recognition of rents received in advance as taxable income and
the Partnership's provisions for value impairment. For federal income tax
reporting purposes the Partnership reported a (loss) of $(2,400,000) for the
year ended December 31, 1997. The aggregate cost of commercial rental
properties for federal income tax purposes at December 31, 1997 was
$105,951,200.

9. ASSET HELD FOR DISPOSITION:
The mortgage loan collateralized by Meidinger Tower matures in October 1998. In
connection with this, the General Partner believes that it is in the best
interest of the Partnership to sell the property. Accordingly, effective
October 1, 1997, the Partnership has classified the property as "Held for
Disposition". In February 1998, the Partnership entered into an agreement (the
"Agreement") to sell the property. Based on the terms of the Agreement, the net
proceeds are expected to substantially exceed the amount necessary to repay the
mortgage loan. The transaction contemplated by the Agreement, which is
scheduled to close in April 1998 is subject to the fulfillment of certain
conditions. There can be no assurance that this or any other sale transaction
will close prior to the maturity date of the loan.

The carrying basis, net of accumulated depreciation and amortization, of
Meidinger Tower on the Balance Sheet as of December 31, 1997 was $20,981,000,
which is less than the sale price, net of estimated selling costs. The
Partnership's share of net income/(loss) (exclusive of provisions for value
impairments) of Meidinger Tower, included in the Statements of Income and
Expenses for the years ended December 31, 1997, 1996 and 1995 was $71,500,
$(203,200) and $(311,200), respectively.

10. PROPERTY SALES:
On June 16, 1997, the joint venture in which the Partnership has a 25%
interest, completed the sale of Regency, for a sale price of $19,325,000, of
which the Partnership's share was $4,831,250. The Partnership's share of
proceeds from this transaction was $867,900, which is net of closing expenses
and the repayment of the mortgage loan encumbering the property. The
Partnership recorded a gain of $799,400 in connection with this sale. Net
proceeds received from this transaction have been retained to supplement
working capital reserves. For income tax reporting purposes the Partnership
reported a (loss) of $(2,315,800) for the year ended December 31, 1997.

On October 16, 1996, the Partnership consummated the sale of Equitable for a
price of $7,000,000. Proceeds from this transaction approximated $520,000,
which was net of closing prorations, estimated selling expenses and the
repayment of the mortgage loan collateralized by Equitable. During 1996, the
Partnership recorded a net gain of $160,200 for financial statement purposes in
connection with this sale. For income tax reporting purposes, the Partnership
reported a (loss) of $(7,742,500) for the year ended December 31, 1996 in
connection with this sale. For the year ended December 31, 1997, the
Partnership recorded a gain of $46,100 for financial statement reporting
purposes in connection with an overaccrual of legal fees.

On August 28, 1996, the joint venture which owned Sentry West consummated the
sale of Sentry West for a sale price of $11,650,000. The Partnership's 50%
share of the proceeds from this transaction, which was net of closing
prorations, selling expenses and the repayment of the mortgage loan on Sentry
West was approximately $894,000 and was retained to supplement working capital.
The net gain reported by the Partnership for financial statement purposes was
$816,100. For income tax purposes, the Partnership reported a (loss) of
$(4,762,500) for the year ended December 31, 1996 in connection with this sale.

11. PROVISIONS FOR VALUE IMPAIRMENT:
Due to the depressed economic environment in the retail industry, regional
factors affecting the Partnership's retail and office properties and other
matters relating specifically to certain of the Partnership's properties, there
was uncertainty as to the Partnership's ability to recover the net carrying
value of certain of its properties during their remaining estimated holding
periods. Accordingly, it was deemed appropriate to reduce the bases of such
properties in the Partnership's financial statements during the year ended
December 31, 1995. The provisions for value impairment were considered non-cash
events for the purposes of the Statement of Cash Flows and were not utilized in
the determination of Cash Flow (as defined in the

                                                                             A-8
<PAGE>

Partnership Agreement). The following is a summary of the provisions for value
impairment reported by the Partnership for the year ended December 31, 1995:

<TABLE>
<CAPTION>
              Property
              =========================================
              <S>                           <C>
              Meidinger Tower               $ 2,200,000
              Deerfield Mall                  5,800,000
              Equitable of Iowa Building      2,500,000
              Regency Park Shopping Center    1,000,000
              1800 Sherman                    1,200,000
              -----------------------------------------
                                            $12,700,000
              =========================================
</TABLE>

A-9
<PAGE>

               FIRST CAPITAL INCOME AND GROWTH FUND - SERIES XII

            SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                            AS OF DECEMBER 31, 1997

<TABLE>
<CAPTION>

     Column A              Column B           Column C                Column D                         Column E
------------------        ----------  -----------------------  ------------------------- --------------------------------------


                                           Initial cost           Costs capitalized                Gross amount at which
                                          to Partnership       subsequent to acquisition         carried at close of period
                                      ------------------------ ------------------------- --------------------------------------
                                                   Buildings                                           Buildings
                                                      and                                                 and
                            Encum-                 Improve-       Improve-    Carrying                 Improve-
   Description             brances       Land        ments          ments     Costs (1)     Land         ments     Total (2)(3)
------------------       -----------  ----------  ------------   ----------   ---------  -----------  -----------  ------------
<S>                      <C>          <C>         <C>            <C>          <C>        <C>          <C>          <C>
Office Buildings:
Prentice Plaza
  (Englewood, CO)
  (50% Interest)         $ 4,798,100  $ 1,139,600  $ 7,390,200   $1,209,900   $ 40,800   $ 1,139,600  $ 8,640,900  $ 9,780,500

Meidinger Tower
  (Louisville, KY)
  (100% Interest)         21,779,000      937,500   39,718,400    4,356,100    238,500       958,000   30,092,500   31,050,500(4)

1800 Sherman
  Office Building
  (Evanston, IL)
  (50% interest)                None    1,319,000    6,147,100      961,500     26,900     1,319,000    5,935,500    7,254,500(4)

Shopping Center:
Deerfield Mall
  (Deerfield
    Beach, FL)
  (100% interest)         17,196,600    9,607,900   30,996,300    1,668,600    192,900     8,617,500   25,048,200   33,665,700(4)
                         -----------  -----------  -----------   ----------   --------   -----------  -----------  -----------
                         $43,773,700  $13,004,000  $84,252,000   $8,196,100   $499,100   $12,034,100  $69,717,100  $81,751,200
                         ===========  ===========  ===========   ==========   ========   ===========  ===========  ===========
</TABLE>

<TABLE>
<CAPTION>

    Column A                  Column F     Column G     Column H    Column I
------------------           -----------  ----------  ----------- ------------
                                                                    Life on
                                                                     which
                                                                   deprecia-
                                                                  tion in lat-
                               Accumu-                            est income
                                lated      Date of                 statements
                              Deprecia-   construc-      Date        is com-
   Description                tion (2)      tion       Acquired       puted
------------------           -----------  ----------  ----------- ------------
<S>                          <C>          <C>         <C>         <C>
Office Buildings:
Prentice Plaza
  (Englewood, CO)                                                      35 (5)
  (50% Interest)             $ 3,414,000     1985      Mar. 1988     2-10 (6)

Meidinger Tower
  (Louisville, KY)                                                     35 (5)
  (100% Interest)             10,069,500     1982      Oct. 1988     1-10 (6)

1800 Sherman
  Office Building
  (Evanston, IL)                                                       35 (5)
  (50% interest)               1,490,400     1986      Mar. 1991     3-10 (6)

Shopping Center:
Deerfield Mall
  (Deerfield
    Beach, FL)                                                        35 (5)
  (100% interest)              6,886,800     1987      Jan. 1989     1-5 (6)
                             -----------
                             $21,860,700
                             ===========
</TABLE>

                 See accompanying notes on the following page.

                                     A-10
<PAGE>

               FIRST CAPITAL INCOME AND GROWTH FUND - SERIES XII

                             NOTES TO SCHEDULE III

<TABLE>
<CAPTION>

Note 1.  Consists of legal fees, appraisal fees, title costs and other related
         professional fees.
Note 2.  The following is a reconciliation of activity in columns E and F.

                                                 For the years ended December 31,
                  -----------------------------------------------------------------------------------
                              1997                      1996                        1995
                  -------------------------  ---------------------------  ---------------------------
                               Accumulated                 Accumulated                  Accumulated
                      Cost     Depreciation       Cost     Depreciation       Cost      Depreciation
                  ------------ ------------  ------------- -------------  ------------- -------------
<S>              <C>          <C>           <C>           <C>            <C>            <C>
Balance
  at the
  beginning
  of the year     $ 86,582,300 $ 21,081,700  $ 104,005,500 $  25,675,600  $ 115,760,000  $21,732,700

Additions
  during
  the year:

Improvements           362,600                     899,500                      945,500

Provisions for
  depreciation                    2,097,000                    2,616,700                   3,942,900

Deductions
  during the
  year:

Cost of real
  estate
  disposed          (5,193,700)                (18,322,700)

Accumulated
  depreciation
  on real
  estate
  disposed                       (1,318,000)                  (7,210,600)

Provisions
  for value
  impairment                                                                (12,700,000)
                  ------------ ------------  ------------- -------------  -------------  -----------
Balance at
  the end of
  the year        $ 81,751,200 $ 21,860,700  $  86,582,300 $  21,081,700  $ 104,005,500  $25,675,600
                  ============ ============  ============= =============  =============  ===========
</TABLE>

Note 3.  The aggregate cost for federal income tax purposes as of December 31,
         1997 was $105,951,200.
Note 4.  Includes provisions for value impairment cummulatively totalling
         $14,200,000 for Meidinger Tower, $1,200,000 for 1800 Sherman and
         $8,800,000 for Deerfield Mall.
Note 5.  Estimated useful life for building in years.
Note 6.  Estimated useful life for improvements in years.

                                     A-11