UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    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, 1995
                                   -------------------------------------------

                                                        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  0-15460


                       MCNEIL REAL ESTATE FUND XXVI, L.P.
------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


         California                                         33-0168395
------------------------------------------------------------------------------
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                              Identification No.)


             13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240
------------------------------------------------------------------------------
       (Address of principal executive offices)            (Zip code)

Registrant's telephone number, including area code      (214)  448-5800
                                                   ---------------------------

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

Securities registered pursuant to Section 12(g) of the Act:  Limited partnership
                                                             units
----------------------------------------------------------

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,  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. [ ]

83,583,671 of the registrant's  86,533,671 limited partnership units are held by
non-affiliates.  The aggregate market value of units held by  non-affiliates  is
not determinable since there is no public trading market for limited partnership
units and transfers of units are subject to certain restrictions.

Documents Incorporated by Reference:        See Item 14, Page 38

                                TOTAL OF 39 PAGES


<PAGE>


                                     PART I

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

ORGANIZATION
------------

McNeil Real Estate  Fund XXVI,  L.P.,  (the  "Partnership"),  formerly  known as
Southmark Equity Partners III, Ltd., was organized on March 4, 1985 as a limited
partnership under the provisions of the California  Revised Limited  Partnership
Act to acquire and operate  residential and commercial  properties.  The general
partner of the Partnership is McNeil Partners,  L.P. (the "General Partner"),  a
Delaware limited partnership,  an affiliate of Robert A. McNeil ("McNeil").  The
General Partner was elected at a meeting of limited  partners on March 30, 1992,
at which  time an amended  and  restated  partnership  agreement  (the  "Amended
Partnership  Agreement")  was  adopted.  Prior to March 30,  1992,  the  general
partner  of the  Partnership  was  Southmark  Investment  Group  86,  Inc.  (the
"Original General Partner"), a wholly-owned  subsidiary of Southmark Corporation
("Southmark").  The  principal  place of business  for the  Partnership  and the
General Partner is 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240.

On July 22, 1986, the  Partnership  registered  with the Securities and Exchange
Commission  ("SEC")  under the  Securities  Act of 1933 (File No.  33-5568)  and
commenced a public offering for sale of $90,000,000 of limited partnership units
("Units").  The Units represent  equity interests in the Partnership and entitle
the holders thereof to participate in certain  allocations and  distributions of
the Partnership. The sale of Units closed on July 21, 1987 with 86,553,913 Units
sold at one dollar each, or gross proceeds of  $86,553,913  to the  Partnership.
The Partnership  subsequently  filed a Form 8-A Registration  Statement with the
SEC and registered its Units under the Securities Exchange Act of 1934 (File No.
0-15460).  In 1995,  4,930  Units were  relinquished  leaving  86,548,983  Units
outstanding as of December 31, 1995.  Subsequent to year end,  15,312 Units were
relinquished leaving 86,533,671 Units outstanding as of February 16, 1996.

SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER
--------------------------------------------------

On July 14, 1989,  Southmark filed a voluntary petition for reorganization under
Chapter 11 of the U.S.  Bankruptcy Code.  Neither the  Partnership,  the General
Partner  nor  the  Original   General  Partner  were  included  in  the  filing.
Southmark's  reorganization  plan became  effective  August 10, 1990.  Under the
plan, most of Southmark's assets,  which included  Southmark's  interests in the
Original  General  Partner,  are being  sold or  liquidated  for the  benefit of
creditors.

In  accordance  with  Southmark's  reorganization  plan,  Southmark,  McNeil and
various of their affiliates  entered into an asset purchase agreement on October
12, 1990,  providing for, among other things,  the transfer of control to McNeil
or his affiliates of 34 limited partnerships  (including the Partnership) in the
Southmark portfolio.

On February 14,  1991,  pursuant to the asset  purchase  agreement as amended on
that date,  McNeil Real Estate  Management,  Inc.  ("McREMI"),  an  affiliate of
McNeil,  acquired the assets relating to the property management and partnership
administrative  business of  Southmark  and its  affiliates.  On March 13, 1991,
McREMI  commenced  management  of the  Partnership's  properties  pursuant to an
assignment of the existing  property  management  agreements  from the Southmark
affiliates.

On March 30, 1992, the limited partners  approved a restructuring  proposal that
provided  for (i) the  replacement  of the Original  General  Partner with a new
general  partner,  McNeil  Partners,  L.P.;  (ii) the  adoption  of the  Amended
Partnership  Agreement which substantially alters the provisions of the original
partnership   agreement   relating   to,  among  other   things,   compensation,
reimbursement  of expenses and voting  rights;  (iii) the approval of an amended
property management  agreement with McREMI, the Partnership's  property manager;
and (iv) the  approval  to change the  Partnership's  name to McNeil Real Estate
Fund XXVI, L.P. Under the Amended Partnership  Agreement,  the Partnership began
accruing  an asset  management  fee,  retroactive  to March 13,  1991,  which is
payable to the new General  Partner.  For a discussion  of the  methodology  for
calculating  the asset  management  fee, see Item 13 Certain  Relationships  and
Related Transactions.  The proposals approved at the March 30, 1992 meeting were
implemented as of that date.



<PAGE>


Settlement of Claims:

The  Partnership  filed claims with the United States  Bankruptcy  Court for the
Northern  District of Texas,  Dallas Division (the  "Bankruptcy  Court") against
Southmark for damages relating to improper  overcharges,  breach of contract and
breach of fiduciary duty. The Partnership settled these claims in 1991, and such
settlement was approved by the Bankruptcy Court.

An Order Granting  Motion to Distribute  Funds to Class 8 Claimants  dated April
14, 1995 was issued by the Bankruptcy  Court.  In accordance  with the Order, in
May 1995 the Partnership received in full satisfaction of its claims, $45,263 in
cash,  and  common  and  preferred  stock  in the  reorganized  Southmark  which
represents the  Partnership's  pro-rata share of Southmark  assets available for
Class 8 Claimants. The Partnership sold the Southmark common and preferred stock
in May 1995 for $14,611,  which combined with the cash proceeds from  Southmark,
resulted in a gain on legal settlement of $59,874.

CURRENT OPERATIONS
------------------

General:

The Partnership is engaged in diversified real estate activities,  including the
ownership, operation and management of residential, commercial office and retail
real estate. At December 31, 1995, the Partnership  owned five  income-producing
properties as described in Item 2 - Properties.

The  Partnership  does not directly  employ any personnel.  The General  Partner
conducts the business of the  Partnership  directly and through its  affiliates.
The Partnership  reimburses  affiliates of the General Partner for such services
rendered in accordance with the Amended Partnership Agreement.

The business of the Partnership to date has involved only one industry  segment.
See Item 8 - Financial Statements and Supplementary Data. The Partnership has no
foreign operations. The business of the Partnership is not seasonal.

Business Plan:

The  Partnership's  anticipated  plan of  operations  for 1996 is to preserve or
increase the net operating income of its properties whenever possible,  while at
the same time making  whatever  capital  expenditures  are reasonable  under the
circumstances  in order to preserve  and enhance the value of the  Partnership's
properties.  The  General  Partner  is  evaluating  market  and  other  economic
conditions to determine the optimum time to commence an orderly  liquidation  of
the  Partnership's  properties  in  accordance  with the  terms  of the  Amended
Partnership  Agreement.  In  conjunction  therewith,  the General  Partner  will
continue to explore  potential  avenues to enhance the value of the Units in the
Partnership,  which may include, among other things, asset sales or refinancings
of the Partnership's properties which may result in distributions to the limited
partners.  See  Item 7 -  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations.

Competitive Conditions:

Since the  principal  business of the  Partnership  is to own and  operate  real
estate,  the Partnership is subject to all of the risks incident to ownership of
real estate and interests  therein,  many of which relate to the  illiquidity of
this type of  investment.  These  risks  include  changes  in  general  or local
economic conditions,  changes in supply or demand for competing properties in an
area,  changes in interest rates and  availability  of permanent  mortgage funds
which  may  render  the  sale  or  refinancing   of  a  property   difficult  or
unattractive, changes in real estate and zoning laws, increases in real property
tax rates and Federal or local  economic or rent  controls.  The  illiquidity of
real estate  investments  generally  impairs the ability of the  Partnership  to
respond  promptly  to  changed  circumstances.  The  Partnership  competes  with
numerous established companies, private investors (including foreign investors),
real estate investment trusts,  limited partnerships and other entities (many of
which have greater  resources than the Partnership) in connection with the sale,
financing  and  leasing  of  properties.  The  impact  of  these  risks  on  the
Partnership,   including   losses  from  operations  and   foreclosures  of  the
Partnership's  properties,  is described in Item 7 - Management's Discussion and
Analysis  of  Financial  Condition  and  Results of  Operations.  For a detailed
discussion of the competitive  conditions for the  Partnership's  properties see
Item 2 - Properties.

Other Information:

The environmental  laws of the Federal government and of certain state and local
governments  impose  liability  on current  property  owners for the clean-up of
hazardous and toxic substances discharged on the property. This liability may be
imposed  without  regard  to the  timing,  cause or person  responsible  for the
release of such substances onto the property.  The Partnership  could be subject
to such liability in the event that it owns properties having such environmental
problems.  The Partnership has no knowledge of any pending claims or proceedings
regarding such environmental problems.

ITEM 2.      PROPERTIES
------       ----------

The  following  table sets forth the real  estate  investment  portfolio  of the
Partnership  at December 31, 1995.  All of the  buildings  and the land on which
they are  located  are owned by the  Partnership  in fee and are  encumbered  by
mortgage  indebtedness,  with the exception of Edison Ford Square.  See Item 8 -
Note 5 -  "Mortgage  Notes  Payable"  and Note 7 -  "Mortgage  Notes  Payable  -
Affiliate".  See also Item 8 - Note 4 - "Real Estate  Investments"  and Schedule
III - "Real Estate  Investments and Accumulated  Depreciation and Amortization."
In  the  opinion  of  management,  the  properties  are  adequately  covered  by
insurance.

<TABLE>

                                             Net Basis of                             1995         Date
Property              Description              Property            Debt          Property Taxes  Acquired
--------              -----------             ----------        ----------       --------------  --------
<S>                   <C>                     <C>               <C>                 <C>            <C>
Amargosa Creek        Apartments
   Lancaster, CA      216 units               $5,970,957        $4,808,711          $ 74,373       12/86

Edison Ford
Square                Retail Center
   Ft. Myers, FL      144,069 sq. ft.          3,982,203                 -            70,151        7/87

Continental Plaza     Office Building
   Scottsdale, AZ     54,538 sq. ft.           2,260,886           952,538            46,003       11/86

Northway Mall         Retail Center
   Pittsburgh, PA     390,045 sq. ft.         24,469,175        15,000,000           277,859        6/87

Westwood Center       Office Building
   Tampa, FL          126,107 sq. ft.          7,945,780         2,336,210           185,874        3/87
                                              ----------        ----------           -------
                                             $44,629,001       $23,097,459          $654,260
                                              ==========        ==========           =======

-----------------------------------------
Total:   Apartments  -  216 Units
         Retail Centers - 534,114 sq. ft.
         Office Buildings - 180,645 sq. ft.
</TABLE>



<PAGE>

<TABLE>

The  following  table sets  forth the  properties'  occupancy  rate and rent per
square foot for the last five years:

                                         1995           1994            1993           1992            1991
                                       -------        --------        -------        -------         -------
<S>                                    <C>            <C>             <C>            <C>             <C>
Amargosa Creek
   Occupancy Rate............             92%             89%            86%            95%             78%
   Rent Per Square Foot......          $ 7.15          $ 7.17         $ 6.94         $ 6.87          $ 6.98

Edison Ford Square
   Occupancy Rate............             46%             54%            80%            83%             78%
   Rent Per Square Foot......          $ 4.80          $ 5.84         $ 6.43         $ 6.28          $ 6.24

Continental Plaza
   Occupancy Rate............            100%             98%            98%            72%             65%
   Rent Per Square Foot......          $12.03          $10.50         $10.30         $ 8.68          $ 9.51

Northway Mall
   Occupancy Rate............             87%             61%            53%            78%             83%
   Rent Per Square Foot......          $ 8.97          $ 5.74         $ 6.59         $ 8.37          $ 8.25

Westwood Center
   Occupancy Rate............             92%             90%            95%            88%             63%
   Rent Per Square Foot......          $11.95          $11.78         $11.58         $ 8.77          $ 7.38
</TABLE>

Occupancy rate  represents all units leased divided by the total number of units
for  residential  properties  and square  footage leased divided by total square
footage for other  properties  as of  December  31 of the given  year.  Rent per
square foot represents all revenue, except interest, derived from the property's
operations divided by the leasable square footage of the property.

Competitive Conditions
----------------------

Amargosa Creek Apartments
-------------------------

Amargosa Creek Apartments,  built in 1984, is located in the Mojave Desert, east
of the Antelope Valley Freeway,  south of downtown  Lancaster,  California.  The
major  industry in the Antelope  Valley is aerospace and Edward's Air Force Base
is located 26 miles from the property.  During the past three years the property
has had interior and exterior  upgrades that were  necessary to compete with the
market as well as to overcome the negative  reputation  created by being located
in a high-crime locale.  These improvements have proved to be effective,  as the
property ended the year at an occupancy rate of 92% which is three percent ahead
of the market  average.  Amargosa  Creek is expected to continue to  demonstrate
stabilized economic growth during 1996 and beyond;  however, since the market is
strongly  affected  by the  aerospace  industry;  any  layoffs  or  growth  will
significantly impact the property's performance.

Continental Plaza
-----------------

Continental Plaza is an office building located in prestigious north Scottsdale,
Arizona, an eastern suburb of Phoenix. The garden-style property consists of two
Spanish style  buildings  surrounding a courtyard.  Continental  Plaza ended the
year at a 100%  occupancy  rate as compared to a market  average of 90%.  Rental
rates in the Scottsdale market declined in the early 1990's due to an oversupply
of office space.  Minimal commercial growth since then is allowing the market to
recover.  Occupancy rates at Continental Plaza are expected to remain at current
levels during 1996 and revenue growth is expected due to escalating lease rates.



<PAGE>


Edison Ford Square
------------------

Edison Ford Square,  built in 1960 and located in downtown Fort Myers,  Florida,
has evolved from  primarily a retail  center to more of a service  center.  This
transformation  occurred as a result of  demographic  changes that reduced major
retailers'  interest in this location.  Formerly known as Boulevard  Plaza,  the
property  was  renamed  to  Edison  Ford  Square  in 1993 due to the  property's
proximity to the Thomas Edison and Henry Ford  estates.  The property is located
within walking distance of this historical attraction; thus the name was changed
to capitalize on the tourism  market.  Plans for a major  renovation  that would
capture the architecture and style of the Edison home began in 1993; however the
loss of two  major  anchors  in  1994  made  this  renovation  impractical.  The
property,  located in the center of the downtown entertainment district,  offers
easy access,  high  visibility  and expansive  parking;  however the property is
dated in appearance and has a lot of deferred maintenance.

Northway Mall
-------------

Northway  Mall,  built in the early 1960's and opened in 1962,  is a multi-level
facility  consisting of  approximately  397,000  square feet of retail space and
mezzanine level office suites.  It is located 12 miles south of the Pennsylvania
State  Turnpike in the North Hills area of Pittsburgh,  Pennsylvania.  In August
1994 after the  construction  financing was secured,  the mall was renovated and
had a grand opening and ribbon  cutting on May 6, 1995.  Management is currently
searching  for two  tenants to occupy  approximately  20,000  square  feet.  The
occupancy rate at December 31, 1995 was 87% and is projected to reach 93% during
1996. The greater  Pittsburgh area is very stable with  occupancies  approaching
the 90% mark and shopping  centers  adjacent to Northway  Mall are currently 92%
occupied.

Westwood Center
---------------

Westwood Center, an eight-story office building built in 1984, is located in the
Westshore  Business  District of Tampa,  Florida.  A three year  capital plan to
renovate the exterior as well as the interior common areas began in 1991 and was
completed  in 1993.  These  improvements  have  allowed the property to maintain
competitiveness with the local market.  Overall, the Westshore Business District
continues to hold stable  occupancies of 94% and Westwood  Center ended the year
with a 92% occupancy.  Current market concerns  include the property's  location
near a declining  neighborhood  and the area's  higher than average  crime rate.
Presently,  there  is no new  office  building  construction  in  the  Westshore
Business  District,  and the  property is  positioned  for steady  growth in the
coming years.

The following  schedule shows lease  expirations  for each of the  Partnership's
commercial properties for 1996 through 2005:
<TABLE>

                            Number of                                    Annual         % of Gross
                           Expirations           Square Feet              Rent          Annual Rent
                           -----------           -----------           ---------        -----------
<S>                        <C>                   <C>                   <C>              <C>
Continental Plaza
-----------------
1996                            6                     7,668          $    94,242             15%
1997                            8                    11,549              151,390             23%
1998                            8                    14,570              178,532             27%
1999                            2                     3,074               38,929              6%
2000                            4                    17,677              191,787             29%
2001-2005                       -                         -                    -              -

</TABLE>

<PAGE>

<TABLE>

                            Number of                                    Annual         % of Gross
                           Expirations           Square Feet              Rent          Annual Rent
                           -----------           -----------           ---------        -----------
<S>                        <C>                   <C>                   <C>              <C>
Edison Ford Square
------------------
1996                            7                    19,519          $   138,789             15%
1997                            2                     1,979               13,081              1%
1998                            3                     3,268               27,363              3%
1999                           10                    34,443              201,862             22%
2000                            3                     8,379               49,731              6%
2001                            -                         -                    -              -
2002                            1                     7,132               53,847              6%
2003                            -                         -                    -              -
2004                            2                     5,028               54,655              6%
2005                            -                         -                    -              -

Northway Mall
-------------
1996                           12                    39,559          $   327,301              9%
1997                            3                     4,538               47,491              1%
1998                            4                    12,263              115,251              3%
1999                            7                    84,156              418,559             11%
2000                            7                     9,096              137,167              4%
2001                            3                     3,632               67,360              2%
2002                            4                    13,589              191,532              5%
2003                            -                         -                    -              -
2004                            1                    69,639              405,299             11%
2005                            3                    39,304              436,390             12%

Westwood Center
---------------
1996                           10                    18,992          $   254,916             15%
1997                           10                    53,407              693,234             42%
1998                            2                     2,392               32,269              2%
1999                            8                    32,981              454,533             27%
2000                            3                     4,110               55,486              3%
2001-2005                       -                         -                    -              -
</TABLE>

No  residential  tenant  leases 10% or more of the available  rental space.  The
following  schedule reflects  information on commercial tenants occupying 10% or
more of the leasable square feet for each property:
<TABLE>

 Nature of
 Business                        Square Footage                                                 Lease
   Use                              Leased                      Annual Rent                   Expiration
---------                          ---------                   ------------                   ----------
<S>                                <C>                         <C>                            <C>
Continental Plaza
-----------------
   General Business                   5,952                       $ 71,424                       2000
   General Business                  10,433                        104,330                       2000

Edison Ford Square
------------------
   None

Northway Mall
-------------
   Department Store                  73,500                       $275,625                       1999
   Department Store                  69,639                        405,299                       2004

Westwood Center
---------------
   General Office                    13,009                       $164,121                       1997
   General Office                    17,225                        232,538                       1997
   General Office                    14,640                        209,352                       1999
</TABLE>



<PAGE>


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

The Partnership is not party to, nor are any of the Partnership's properties the
subject of, any material pending legal proceedings, other than ordinary, routine
litigation incidental to the Partnership's business, except for the following:

     HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young,  BDO Seidman et
     ---------------------------------------------------------------------------
     al (Case #92-06560-A). This suit was filed on behalf of the Partnership and
     --------------------
     other affiliated  partnerships  (the "Affiliated  Partnerships") on May 26,
     1992, in the 14th Judicial  District Court of Dallas  County.  The petition
     sought recovery against the Partnership's  former auditors,  Ernst & Young,
     for negligence and fraud in failing to detect and/or report  overcharges of
     fees/expenses by Southmark, the former general partner. The former auditors
     initially asserted counterclaims against the Affiliated  Partnerships based
     on alleged fraudulent misrepresentations made to the auditors by the former
     management of the Affiliated Partnerships (Southmark) in the form of client
     representation  letters executed and delivered to the auditors by Southmark
     management.  The counterclaims sought recovery of attorneys' fees and costs
     incurred in defending this action.  The counterclaims  were later dismissed
     on appeal, as discussed below.

     The trial court granted summary judgment  against the Partnership  based on
     the statute of limitations; however, on appeal, the Dallas Court of Appeals
     reversed  the trial court and remanded  for trial the  Partnerships'  fraud
     claims  against  Ernst & Young.  The Texas  Supreme  Court  denied  Ernst &
     Young's  application for writ of error on January 11, 1996. The Partnership
     is  continuing  to pursue  vigorously  its  claims  against  Ernst & Young;
     however,  the final outcome of this litigation cannot be determined at this
     time.

For a discussion of the Southmark  bankruptcy,  see Item 1 - Business.  See also
Item 8 - Note 9 - "Gain on Legal Settlement".

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

None.


                                     PART II

ITEM 5.      MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND
------       ------------------------------------------------------------
             RELATED SECURITY HOLDER MATTERS
             -------------------------------

(A)   There  is no  established public  trading market  for limited  partnership
      units, nor is one expected to develop.

(B)   Title of Class                               Number of Record Unit Holders
      --------------                               -----------------------------

      Limited partnership units                    7,156 as of February 16, 1996

(C)   No  distributions were made to the  partners  in 1995 or 1994 and none are
      anticipated in 1996. See Item 7 -  Management's  Discussion  and  Analysis
      of Financial Condition and Results of Operations and Item 8  -  Note  1  -
      "Organization   and   Summary  of   Significant   Accounting    Policies -
      Distributions".


<PAGE>


ITEM 6. SELECTED FINANCIAL DATA
------  -----------------------

The  following  table sets forth a summary  of  certain  financial  data for the
Partnership.  This summary should be read in  conjunction  with the notes to the
Partnership's  financial  statements  appearing in Item 8 - Financial Statements
and Supplementary Data.

<TABLE>
Statements of                                                Years Ended December 31,
                                     -------------------------------------------------------------------------
Operations                               1995           1994           1993            1992           1991
------------------                   ------------   ------------   -------------   ------------   ------------
<S>                                 <C>            <C>            <C>             <C>            <C>
Rental revenue...............       $   7,568,361  $   6,385,998  $    6,708,736  $   6,942,367  $   6,773,720
Write-down for permanent
   impairment of real estate.          (2,200,000)             -      (7,239,353)    (4,602,377)      (620,000)
Loss before extraordinary
   items.....................          (5,063,046)    (1,938,063)     (8,843,767)    (6,795,983)    (4,563,202)
Extraordinary items..........                   -              -               -         91,952      1,377,921
Net loss.....................          (5,063,046)    (1,938,063)     (8,843,767)    (6,704,031)    (3,185,281)

Loss per thousand limited
   partnership units:
   Loss before
     extraordinary items.....       $      (57.91) $      (22.17)  $     (101.15) $      (77.73)  $     (52.19)
   Extraordinary items.......                   -              -               -           1.05          15.76
                                     ------------   ------------    ------------   ------------    -----------
   Net loss..................       $      (57.91) $      (22.17)  $     (101.15) $      (76.68)  $     (36.43)
                                     ============   ============    ============   ============    ===========

Distributions per thousand
   limited partnership
   units.....................       $           -  $           -   $           -  $           -   $       5.00
                                     ============   ============    ============   ============    ===========


                                                                  As of December 31,
                                     -------------------------------------------------------------------------
Balance Sheets                            1995           1994            1993           1992           1991
--------------                         ----------     ----------      ----------     ----------     ----------

Real estate, net                      $44,629,001    $41,738,690     $39,917,222    $48,201,116    $54,925,023
Total assets                           54,217,223     45,208,188      45,097,635     49,921,437     56,677,241
Mortgage notes payable                 23,097,459      9,350,045       8,343,376      4,871,326      4,906,644
Partners' equity                       27,338,809     32,401,855      34,339,918     43,183,685     49,887,716
</TABLE>

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

FINANCIAL CONDITION
-------------------

The  Partnership was formed to engage in the business of acquiring and operating
income-producing  real  properties,  and holding the properties for  investment.
Since  completion of its capital  formation and property  acquisition  phases in
1987,  when it completed the purchase of five  properties,  the  Partnership has
operated its properties for production of income.  The original  acquisitions of
properties  were all cash. In 1993,  the  Partnership  obtained  refinancing  on
Amargosa  Creek  Apartments,  financing  on  Westwood  Center and also  obtained
financing on  Continental  Plaza from an affiliate  of the General  Partner.  In
1994, the Partnership  obtained a construction loan to finance the major capital
improvement  program  at  Northway  Mall.  The  capital  improvement  program at
Northway  Mall was  completed  during 1995 and the property  obtained  permanent
financing in December 1995, as discussed below.

Occupancy rates at Continental  Plaza increased in 1993, but rental rates in the
Scottsdale,   Arizona  market  remained  depressed.   During  1993,  the  market
stabilized,  but did so at a level  which would have made it  difficult  for the
Partnership to ultimately  realize its then carrying value over the next five to
seven years.  Accordingly,  the Partnership recorded a $1,239,353 write-down for
permanent impairment during the second quarter of 1993.


<PAGE>


Edison Ford Square is a 141,000 sq. ft. retail center in Ft. Myers, Florida that
has evolved from primarily  retail,  to more of a service center use It was 46%,
54% and 80%  occupied at December 31, 1995,  1994 and 1993.  The downtown  area,
where the shopping center is located,  has  experienced  decay due to a shift in
demographics.  The center is within  walking  distance of the Thomas  Edison and
Henry Ford estates,  significant historical attractions in the area. Plans for a
major  renovation  that would have  captured the  architecture  and style of the
Edison home began in 1993. However,  with the loss of two major anchors in 1994,
it was not viable to continue this project. During 1995, a full, in-depth market
analysis was  performed to determine  the center's  highest and best use. It was
determined that the only viable  alternative  would be a complete  redevelopment
and renovation of the center; however, the Partnership has decided not to pursue
this alternative  because of the inherent risks and economic  uncertainties.  An
unsolicited  offer from an  unaffiliated  third party to purchase the center was
received during 1995, which approximated the value of the land. These facts have
led  to  the  conclusion  that  a  permanent   impairment  has  been  sustained.
Accordingly,  the Partnership  recorded a write-down for permanent impairment of
$2.2 million against Edison Ford's building and  improvements  during the fourth
quarter of 1995, to record the property at its estimated net  realizable  value,
which approximates the value of the land.

The  Partnership  has been  undergoing a major capital  improvements  program to
convert Northway Mall into a value oriented retail shopping center  specializing
in brand name  merchandise  at  less-than-retail  prices  since  1994.  In 1993,
mortgage loans totaling $3.4 million on Westwood Center and  Continental  Plaza,
previously  unencumbered  assets,  were obtained.  The proceeds from these loans
were used to partially finance the capital improvement program at Northway Mall.
In the third  quarter  of 1994,  management  finalized  a  construction  loan on
Northway  Mall  totaling  $11  million to  finance  the  balance of the  capital
improvement  program.  The  mortgage  note  allowed for monthly  withdrawals  of
principal  in the amount of  approved  invoices.  The  principal  amount was due
August  1996 and accrued  interest  at a variable  rate.  The  interest  rate at
December  17, 1995 (the date the mortgage  note was repaid) was 9.75%.  Interest
payments were due from the Partnership upon repayment of the note.  During 1995,
$91,000  of  this  interest  was  capitalized  as an  addition  to  real  estate
investments,  which is the  portion  related  to the  vacant  square  footage of
Northway  Mall that was under  construction  during  the year.  The  Partnership
incurred  loan costs of $214,218 in 1994  related to the  construction  mortgage
note financing, of which $70,000 were capitalized in 1995 as an addition to real
estate  investments  to be depreciated  over the life of the related asset.  The
remaining   loan  costs  of  $144,218  were  amortized  over  the  life  of  the
construction mortgage note. The Partnership was provided cash flow of $1,121,473
during 1994 due to the construction mortgage note as discussed above.

Management obtained permanent financing for the capital  improvements program in
December  1995.  The new mortgage  note, in the amount of $15 million,  bears an
interest rate of 7.5% with monthly  principal and interest  payments of $110,849
and matures in December 2002. The proceeds from the refinancing were used to pay
off the  construction  mortgage  note as well  as the  affiliate  mortgage  note
discussed  below.  The renovations  were completed during 1995. As a part of the
renovations,  assets  valued at  approximately  $1,248,000  were  demolished  or
removed and written off in the fourth  quarter of 1995.  Four anchor tenants and
several  smaller  tenants have moved in during 1995 due to the completion of the
renovation. The decision to renovate the mall was made after exhaustive analyses
and studies  conducted by management to determine  future cash flows of the mall
based  upon  stabilized  leases.  Accordingly,  based  upon the  level of rental
revenues that would be generated from these leases, management concluded at that
time that the Partnership  could not ultimately  realize its then carrying value
over the next five to seven  years.  Accordingly,  a  write-down  for  permanent
impairment  in the amount of $6 million was  recorded  during 1993 to record the
asset to its net realizable value.



<PAGE>


RESULTS OF OPERATIONS
---------------------

1995 compared to 1994

Revenue:

Partnership revenues increased by $1,271,972 or 20% in 1995 as compared to 1994.
Rental  revenue  and  interest  income  increased  by  $1,182,363  and  $29,735,
respectively.

Rental  revenues for 1995 were  $7,568,361 as compared to  $6,385,998  for 1994.
This increase is primarily due to the increase in occupancy rates at four of the
five Partnership's  properties,  with the largest increase occurring at Northway
Mall.

Interest income increased  $29,735 for 1995 as compared to 1994 primarily due to
the  Partnership's  increased cash balance.  The proceeds from the Northway Mall
refinancing  of  approximately   $5,800,000  were  deposited  in  December  1995
resulting  in an  increase  of  approximately  $11,000  of  interest  income for
December 1995.

In 1995 the  Partnership  received  cash and common and  preferred  stock in the
reorganized  Southmark in settlement of its bankruptcy claims against Southmark.
The  Partnership  recognized  a  $59,874  gain  during  1995 as a result of this
settlement. No such gain was recognized in 1994.

Expenses:

Total  expenses  increased  $4,396,955 or 52% in 1995 as compared 1994 primarily
due to an increase in interest,  depreciation and amortization expense, the loss
on  demolition  and  replacement  of assets,  and the  write-down  for permanent
impairment on Edison Ford Square, as discussed below.

Interest expense  increased  $469,121 or 69% in 1995 as compared 1994 due to the
construction financing at Northway Mall.

Interest  expense - affiliates  increased  $26,553 or 28% in 1995 as compared to
1994 due to a higher interest rate on the affiliate mortgage.

Depreciation and amortization  increased  $241,374 or 10% in 1995 as compared to
1994 due to the renovation at Northway Mall.

Personnel  expenses  increased $66,274 or 9% in 1995 as compared to 1994, due to
an increase in personnel at Northway Mall because of the increased occupancy, as
well  as  higher  compensation  for  property  personnel  at  the  Partnership's
remaining properties.

Property  management  fees -  affiliates  increased  $51,890  or 13% in  1995 as
compared to 1994. The increased occupancy at Northway Mall led to an increase in
tenant receipts on which the management fee is based.

Bad debt expense decreased approximately $122,000 in 1995 as compared to 1994 at
Westwood  Center,  Edison Ford Square,  and Northway  Mall due to 1994's  tenant
evictions and relocations.

Other property operating expenses increased $51,470 or 9% in 1995 as compared to
1994 due to an increase in marketing and leasing expenses at Northway Mall.

General and  administrative  expenses  decreased  $48,079 or 43% in 1995. During
1994, Westwood Center incurred $22,500 in professional fees for an appraisal; no
such fees were  incurred  during  1995.  The  decrease was also due to decreased
expenses  relating  to legal  proceedings  against  an  unaffiliated  management
company for mismanagement and other causes of action at Northway Mall.

General and  administrative - affiliates  expenses  increased $109,627 or 15% in
1995 as compared to 1994.  There was an increase of $54,364 in asset  management
fees in 1995 due to the increase in the tangible assets of the  Partnership,  on
which the fee is based.  There was an  increase of $55,263 in  reimbursement  to
affiliates  due to an  increase  in services  provided  in  connection  with the
Northway Mall renovation.

Edison Ford Square is a 141,000 sq. ft. retail center in Ft. Myers, Florida that
has evolved from primarily  retail,  to more of a service center use It was 46%,
54% and 80%  occupied at December 31, 1995,  1994 and 1993.  The downtown  area,
where the shopping center is located,  has  experienced  decay due to a shift in
demographics.  The center is within  walking  distance of the Thomas  Edison and
Henry Ford estates,  significant historical attractions in the area. Plans for a
major  renovation  that would have  captured the  architecture  and style of the
Edison home began in 1993. However,  with the loss of two major anchors in 1994,
it was not viable to continue this project. During 1995, a full, in-depth market
analysis was  performed to determine  the center's  highest and best use. It was
determined that the only viable  alternative  would be a complete  redevelopment
and renovation of the center; however, the Partnership has decided not to pursue
this alternative  because of the inherent risks and economic  uncertainties.  An
unsolicited  offer from an  unaffiliated  third party to purchase the center was
received during 1995, which approximated the value of the land. These facts have
led  to  the  conclusion  that  a  permanent   impairment  has  been  sustained.
Accordingly,  the Partnership  recorded a write-down for permanent impairment of
$2.2 million against Edison Ford's building and  improvements  during the fourth
quarter of 1995, to record the property at its estimated net  realizable  value,
which approximates the value of the land.

The  Partnership  recognized a loss on Northway Mall renovation of $1,247,940 in
1995.  This  loss is due to the  demolition  or  removal  of  assets  that  were
previously capitalized.

1994 compared to 1993

Revenue:

Total  Partnership  revenues  decreased by $392,393 in 1994 as compared to 1993.
Rental revenue decreased  $322,738 primarily due to decreased rental revenues at
Northway Mall. Due to the capital improvement program, portions of the mall were
unavailable  for  leasing in 1994.  Rental  revenues  at Edison Ford Square also
decreased  during 1994 due to the loss of two anchor  tenants in December  1993.
Interest income increased $50,059 in 1994 as compared to 1993 due to higher cash
balances from mortgage financings.

In 1992, an anchor tenant at Northway Mall filed for  bankruptcy  protection and
management deemed the amounts due from the tenant as uncollectible. During 1993,
the  Partnership  received  $119,714 of claims  settlement from the tenant which
were recorded as other income.

Expenses:

Total  expenses  decreased  $7,298,097  in 1994 as  compared  to 1993.  The 1993
expenses include a $7,239,353 write-down for permanent impairment of real estate
on Northway Mall and Continental Plaza.

Interest  expense  increased  $146,568 in 1994 as  compared to 1993.  In October
1993, the Partnership  obtained a $2.5 million loan secured by Westwood  Center.
The  increase  in  interest  expense  from  this loan was  slightly  offset by a
decrease  in  interest  expense  at  Amargosa  Creek  Apartments,   due  to  the
refinancing in October 1993 at a lower interest rate.

Interest expense - affiliates increased $40,939 in 1994 as compared to 1993. The
Partnership  borrowed  $952,538  from McNeil Real  Estate Fund XXVII,  L.P.,  an
affiliate of the General Partner, during 1993.

Property  tax expense  decreased  $110,142  in 1994 as compared to 1993.  During
1994,  Amargosa Creek and Continental  Plaza received tax refunds of $88,849 and
$26,113,  respectively, due to successful tax appeals for a reduction in taxable
basis. The remaining properties' tax expenses were comparable to 1993.

Personnel expenses  increased $65,687 during 1994 as compared to 1993.  Northway
Mall had an increase in salaries  expense of  approximately  $32,000 during 1994
due to the  addition  of  personnel  necessary  to oversee the  renovation.  The
remainder  of the  increase is  attributable  to higher  employee  and  workers'
compensation insurance expense due to higher rates.



<PAGE>


General  and  administrative  expense  decreased  $82,416 in 1994 as compared to
1993. Prior to December 1991,  Northway Mall had been managed by an unaffiliated
management  company.  The Partnership  instituted legal proceedings  against the
management  company  for  mismanagement  and other  causes of action.  The legal
proceedings were stopped due to the bankruptcy filing by the management  company
in  August  1993.  Additionally,   during  1993,  the  property  required  legal
representation to amend tenant leases for relocations  necessary for the capital
renovations project.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

The Partnership  generated  $1,472,199 of cash through  operating  activities in
1995 as compared to $966,845 in 1994 and  $1,144,158 in 1993. The change in cash
provided  by  operations  in 1995 as  compared  to 1994 is  primarily  due to an
increase in tenant  receipts and a decrease in property taxes paid and a gain on
the settlement of bankruptcy  claims against  Southmark as discussed in Item 1 -
Southmark  Bankruptcy  and Change in General  Partner.  These cash  changes were
offset by an increase in interest paid. The increased occupancy at Northway Mall
and Continental  Plaza which was  substantially  responsible for the increase in
tenant  receipts.  The decrease in property  tax payments is primarily  due to a
change in the due date of the tax  payments  for Edison  Ford  Square.  The 1993
taxes were paid in February 1994 and the 1994 taxes were paid in December 1994.

The decrease in cash from  operations  in 1994 as compared to 1993 was primarily
due to the decrease of the outstanding  accounts payable  balance.  During 1994,
the  Partnership  was able to  reduce  the  payables  due to the  improved  cash
position of the Partnership.  Additionally, the Partnership incurred an increase
in interest paid due to the new financings  during 1993. These increases in cash
used  in  operations  were  partially  offset  by a  decrease  in  cash  paid to
affiliates due to the deferral of certain affiliate payables.

Expenditures  related to additions to real estate in 1995 utilized $9,732,038 of
Partnership  cash flows as compared  to  $3,551,769  during 1994 and  $1,447,238
during 1993.  The increase in the  additions to real estate is primarily  due to
the  capital  improvement  program at Northway  Mall.  In 1993,  mortgage  loans
totaling  $3.4  million on Westwood  Center and  Continental  Plaza,  previously
unencumbered  assets, were obtained.  The proceeds from these loans were used to
partially finance the capital improvement program at Northway Mall. In the third
quarter of 1994,  management  finalized a  construction  loan on  Northway  Mall
totaling $11 million to finance the balance for the capital improvement program.
The mortgage note allowed for monthly  withdrawals of principal in the amount of
approved invoices. The principal amount was due August 1996 and accrued interest
at a variable rate. The interest rate a December 17, 1995 (the date the mortgage
note was repaid) was 9.75%. Interest payments were due from the Partnership upon
repayment of the note. During 1995,  $91,000 of this interest was capitalized as
an  addition  to real estate  investments,  which is the portion  related to the
vacant square  footage of Northway Mall that was under  construction  during the
year.  The  Partnership  incurred  loan costs of $214,218 in 1994 related to the
construction mortgage note financing,  of which $70,000 were capitalized in 1995
as an addition to real estate investments to be depreciated over the life of the
related asset. The remaining loan costs of $144,218 were amortized over the life
of the  construction  mortgage note. The  Partnership  was provided cash flow of
$1,121,473 during 1994 due to the construction mortgage note as discussed above.

Management obtained permanent financing for the capital  improvements program in
December  1995.  The new mortgage  note, in the amount of $15 million,  bears an
interest rate of 7.5% with monthly  principal and interest  payments of $110,849
and matures in December 2002. The proceeds from the refinancing were used to pay
off the  construction  mortgage  note as well  as the  affiliate  mortgage  note
discussed  below.  The renovations  were completed during 1995. As a part of the
renovation, assets valued at approximately $1,248,000 were demolished or removed
and written off in the fourth  quarter of 1995.  Four anchor tenants and several
smaller  tenants  have  moved  in  during  1995  due  to the  completion  of the
renovation.

In March  1993,  the  Partnership  obtained a loan from  McNeil Real Estate Fund
XXVII, L.P. which allows the Partnership to borrow funds totaling $1,536,000. Of
this amount available, $952,538 was borrowed during 1993. The note is secured by
Continental Plaza and requires monthly interest payments only equal to the prime
lending rate the Bank of America  plus 2 1/2%,  with the  principal  balance due
March in 1996. The mortgage note was repaid in January 1996.

In October  1993,  the  Partnership  refinanced  the  mortgage  note  secured by
Amargosa  Creek  Apartments  that had a principal  balance of $4,839,966  and an
interest rate of 9.875% with monthly payments of $43,458. The new mortgage loan,
in the amount of  $4,900,000,  bears an  interest  rate of 7.875%  with  monthly
payments of $35,528 and will mature in December 1998.

In October 1993, the Partnership also obtained  financing for Westwood Center, a
previously  unencumbered  property. The new mortgage loan, in the amount of $2.5
million,  bears an interest rate of 8% with monthly payments of $22,457 and will
mature in December 1998.

At  December  31,  1995,  the  Partnership  held  cash and cash  equivalents  of
$6,761,516.

Short-term liquidity:

The General  Partner has  established a revolving  credit facility not to exceed
$5,000,000 in the aggregate  which is available on a "first-come,  first-served"
basis  to  the  Partnership  and  other  affiliated  partnerships,   if  certain
conditions are met.  Borrowings  under the facility may be used to fund deferred
maintenance,  refinancing  obligations  and working  capital needs.  There is no
assurance that the Partnership will receive any funds under the facility because
no amounts are reserved for any particular partnership. As of December 31, 1995,
$2,662,819  remained  available  for  borrowing  under  the  facility;  however,
additional  funds could become  available as other  partnerships  repay existing
borrowings. This commitment will terminate on March 30, 1997.

The General Partner has, at its discretion,  advanced funds to the  Partnership.
As discussed  below,  the  Partnership  received such advances that were used to
fund  working  capital  requirements.  The General  Partner is not  obligated to
advance funds to the  Partnership and there is no assurance that the Partnership
will receive additional funds.

The  advances  from  affiliates  at December  31,  1995 and 1994  consist of the
following:
<TABLE>
                                                                         1995             1994
                                                                     -----------      -----------
         <S>                                                       <C>               <C>
         Advances from General Partner                             $     130,518     $    130,518
         Accrued interest payable                                         37,812           24,984
                                                                    ------------      -----------
                                                                   $     168,330     $    155,502
                                                                    ============      ===========
</TABLE>

The  advances  are  unsecured,  due on demand and accrue  interest  at the prime
lending  rate of Bank of  America  plus 1%. The prime  lending  rate was 8.5% at
December 31, 1995 and 1994.

The present cash balance  plus cash to be provided by  operating  activities  is
considered  adequate to meet the  Partnership's  needs for debt service,  normal
amounts of repairs and  maintenance  and capital  improvements  to preserve  and
enhance the value of the properties. The Partnership has budgeted $1,941,000 for
necessary capital improvements for all properties in 1996.

Long-term liquidity:

For the long term,  property operations will remain the primary source of funds.
While the present outlook for the Partnership's  liquidity is favorable,  market
conditions may change and property  operations can  deteriorate.  In that event,
the Partnership  would require other sources of working  capital.  No such other
sources have been  identified,  and the Partnership has no established  lines of
credit.  Other possible actions to resolve working capital  deficiencies include
refinancing or  renegotiating  terms of existing loans,  deferring major capital
expenditures on Partnership properties except where improvements are expected to
enhance the  competitiveness  or marketability  of the properties,  or arranging
working capital support from affiliates. All or a combination of these steps may
be  inadequate  or  unfeasible  in  resolving  such  potential  working  capital
deficiencies.

Distributions:


To maintain  adequate cash  balances of the  Partnership,  distributions  to the
limited  partners were suspended in 1991.  The General  Partner will continue to
monitor  the cash  reserves  and working  capital  needs of the  Partnership  to
determine when cash flows will support distributions to the limited partners.


<PAGE>


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

<TABLE>

                                                                                                        Page
                                                                                                       Number
                                                                                                       ------
INDEX TO FINANCIAL STATEMENTS
-----------------------------

<S>                                                                                                    <C>
Financial Statements:

   Report of Independent Public Accountants.......................................                       16

   Balance Sheets at December 31, 1995 and 1994...................................                       17

   Statements of Operations for each of the three years in the period
      ended December 31, 1995.....................................................                       18

   Statements of Partners' Equity (Deficit) for each of the three years in
      the period ended December 31, 1995..........................................                       19

   Statements of Cash Flows for each of the three years in the period
      ended December 31, 1995.....................................................                       20

   Notes to Financial Statements..................................................                       22

   Financial Statement Schedule -
      Schedule III - Real Estate Investments and Accumulated
         Depreciation and Amortization............................................                       31
</TABLE>




























All other  schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.


<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Partners of McNeil Real Estate Fund XXVI, L.P.:

We have audited the accompanying balance sheets of McNeil Real Estate Fund XXVI,
L.P. (a California  limited  partnership)  as of December 31, 1995 and 1994, and
the related statements of operations,  partners' equity (deficit) and cash flows
for each of the  three  years in the  period  ended  December  31,  1995.  These
financial  statements and the schedule referred to below are the  responsibility
of the Partnership's management.  Our responsibility is to express an opinion on
these financial statements and the 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 McNeil Real Estate Fund XXVI,
L.P. as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements  taken as a whole.  The  schedule  listed  in the index to
financial  statements is presented for purposes of complying with the Securities
and  Exchange  Commission's  rules  and  is not  part  of  the  basic  financial
statements.  This schedule has been subjected to the auditing procedures applied
in our audits of the basic  financial  statements  and, in our  opinion,  fairly
states in all material  respects  the  financial  data  required to be set forth
therein in relation to the basic financial statements taken as a whole.


/s/  Arthur Andersen LLP


Dallas, Texas
   March 13, 1996



<PAGE>


                       McNEIL REAL ESTATE FUND XXVI, L.P.

                                 BALANCE SHEETS


<TABLE>
                                                                                     December 31,
                                                                            ------------------------------
                                                                               1995                1994
                                                                            ----------          ----------

ASSETS
------
<S>                                                                        <C>                 <C>
Real estate investments:
   Land.....................................................               $ 9,189,092         $ 9,189,092
   Buildings and improvements...............................                56,695,050          51,745,169
                                                                            ----------          ----------
                                                                            65,884,142          60,934,261
   Less:  Accumulated depreciation and amortization.........               (21,255,141)        (19,195,571)
                                                                            ----------          ----------
                                                                            44,629,001          41,738,690


Cash and cash equivalents...................................                 6,761,516           1,473,850
Cash segregated for security deposits.......................                   202,396             233,759
Accounts receivable, net of allowance for doubtful
   accounts of $596,156 and $864,014 at
   December 31, 1995 and 1994, respectively.................                 1,096,937             789,641
Prepaid commissions.........................................                   379,444             404,543
Prepaid expenses and other assets...........................                   716,091             179,445
Deferred borrowing costs, net of accumulated
   amortization of $125,641 and $101,065 at
   December 31, 1995 and 1994, respectively.................                   431,838             388,260
                                                                            ----------          ----------
                                                                           $54,217,223         $45,208,188
                                                                            ==========          ==========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
-----------------------------------------

Mortgage notes payable......................................               $22,144,921         $ 8,397,507
Mortgage note payable - affiliate...........................                   952,538             952,538
Accounts payable and accrued expenses.......................                   358,856             171,067
Accounts payable - Northway Mall renovation ................                         -             711,056
Accrued property taxes......................................                    59,864              35,325
Payable to affiliates - General Partner.....................                 2,983,409           2,151,614
Advances from affiliates - General Partner..................                   168,330             155,502
Security deposits and deferred rental income................                   210,496             231,724
                                                                            ----------          ----------
                                                                            26,878,414          12,806,333
                                                                            ----------          ----------

Partners' equity (deficit):
   Limited  partners  -  90,000,000   limited   partnership
   units  authorized;  86,548,983  and 86,553,913   limited
   partnership    units    issued   and   outstanding    at
   December 31, 1995 and 1994, respectively................                 27,716,222          32,728,638
   General Partner..........................................                  (377,413)           (326,783)
                                                                            ----------          ----------
                                                                            27,338,809          32,401,855
                                                                            ----------          ----------
                                                                           $54,217,223         $45,208,188
                                                                            ==========          ==========

</TABLE>






                See accompanying notes to financial statements.


<PAGE>


                       McNEIL REAL ESTATE FUND XXVI, L.P.

                            STATEMENTS OF OPERATIONS
<TABLE>
                                                                For the Years Ended December 31,
                                                       ------------------------------------------------
                                                          1995                1994               1993
                                                       ----------          ---------          ---------
Revenue:
<S>                                                     <C>               <C>                <C>
   Rental revenue..........................            $7,568,361         $6,385,998         $6,708,736
   Interest ...............................                98,207             68,472             18,413
   Other income............................                     -                  -            119,714
   Gain on legal settlement................                59,874                  -                  -
                                                        ---------          ---------          ---------
     Total revenue.........................             7,726,442          6,454,470          6,846,863
                                                        ---------          ---------          ---------
Expenses:
   Interest................................             1,148,546            679,425            532,857
   Interest - affiliates...................               120,765             94,212             53,273
   Depreciation and amortization...........             2,682,731          2,441,357          2,491,779
   Property taxes..........................               654,260            614,985            725,127
   Bad debt................................               (13,025)           109,404            109,284
   Personnel expenses......................               781,301            715,027            649,340
   Utilities...............................             1,060,645          1,003,866          1,023,452
   Repairs and maintenance.................               962,791            955,631            975,508
   Property management fees -
     affiliates............................               437,006            385,116            373,823
   Other property operating expenses.......               623,705            572,235            621,672
   General and administrative..............                62,701            110,780            193,196
   General and administrative -
     affiliates............................               820,122            710,495            701,966
   Write-down for permanent
     impairment of real estate.............             2,200,000                  -          7,239,353
   Loss on demolition and replacement
     of assets.............................             1,247,940                  -                  -
                                                       ----------         ----------         ----------
     Total expenses........................            12,789,488          8,392,533         15,690,630
                                                       ----------         ----------         ----------

Net loss...................................           $(5,063,046)       $(1,938,063)       $(8,843,767)
                                                       ==========         ==========         ==========

Net loss allocable to limited
   partners................................           $(5,012,416)       $(1,918,682)       $(8,755,329)
Net loss allocable to General
   Partner.................................               (50,630)           (19,381)           (88,438)
                                                       ----------         ----------         ----------
Net loss...................................           $(5,063,046)       $(1,938,063)       $(8,843,767)
                                                       ==========         ==========         ==========

Net loss per thousand limited
   partnership units.......................           $    (57.91)       $    (22.17)       $   (101.15)
                                                       ==========         ==========         ==========
</TABLE>














                 See accompanying notes to financial statements.


<PAGE>


                       McNEIL REAL ESTATE FUND XXVI, L.P.

                    STATEMENTS OF PARTNERS' EQUITY (DEFICIT)

              For the Years Ended December 31, 1995, 1994 and 1993



<TABLE>
                                                                                                      Total'
                                                       General                 Limited                Partners
                                                       Partner                 Partners               Equity
                                                      ----------              ----------            ----------
<S>                                                  <C>                     <C>                   <C>
Balance at December 31, 1992..............           $  (218,964)            $43,402,649           $43,183,685

Net loss..................................               (88,438)             (8,755,329)           (8,843,767)
                                                      ----------              ----------            ----------

Balance at December 31, 1993..............              (307,402)             34,647,320            34,339,918

Net loss..................................               (19,381)             (1,918,682)           (1,938,063)
                                                      ----------              ----------            ----------

Balance at December 31, 1994..............              (326,783)             32,728,638            32,401,855

Net loss..................................               (50,630)             (5,012,416)           (5,063,046)
                                                      ----------              ----------            ----------

Balance at December 31, 1995..............           $  (377,413)            $27,716,222           $27,338,809
                                                      ==========              ==========            ==========

</TABLE>































                See accompanying notes to financial statements.


<PAGE>


                       McNEIL REAL ESTATE FUND XXVI, L.P.

                            STATEMENTS OF CASH FLOWS

                Increase (Decrease) in Cash and Cash Equivalents


<TABLE>
                                                                For the Years Ended December 31,
                                                       ------------------------------------------------
                                                          1995                1994              1993
                                                       ----------         ----------         ----------
<S>                                                    <C>               <C>                <C>
Cash flows from operating activities:
   Cash received from tenants..............           $ 7,284,225        $ 6,369,873        $ 6,327,093
   Cash received from legal settlement.....                59,874                  -                  -
   Cash paid to suppliers..................            (3,729,096)        (3,625,342)        (3,319,961)
   Cash paid to affiliates.................              (425,333)          (408,803)          (562,050)
   Interest received.......................                98,207             68,472             18,413
   Interest paid...........................            (1,008,659)          (581,020)          (485,764)
   Interest paid to affiliates.............              (107,937)           (98,941)           (29,223)
   Property taxes paid.....................              (699,082)          (757,394)          (804,350)
                                                       ----------         ----------         ----------
Net cash provided by
     operating activities..................             1,472,199            966,845          1,144,158
                                                       ----------         ----------         ----------

Net cash used in investing activities:
   Additions to real estate
     investments...........................            (9,732,038)        (3,551,769)        (1,447,238)
                                                       ----------         ----------         ----------

Cash flows from financing activities:
   Principal payments on mortgage
     notes payable.........................              (131,113)          (114,804)           (40,522)
   Proceeds from mortgage notes
     refinancing...........................            13,878,527          1,121,473          2,560,034
   Proceeds from mortgage note ............
     payable - affiliate...................                     -                  -            952,538
   Deferred borrowing costs paid...........              (199,909)          (214,218)          (284,762)
   Advances from affiliates - General
     Partner...............................                     -                  -             12,570
                                                       ----------         ----------         ----------
Net cash provided by
     financing activities..................            13,547,505            792,451          3,199,858
                                                       ----------         ----------         ----------

Net increase (decrease) in cash and
   cash equivalents........................             5,287,666         (1,792,473)         2,896,778

Cash and cash equivalents at
     beginning of year.....................             1,473,850          3,266,323            369,545
                                                       ----------         ----------         ----------

Cash and cash equivalents at end
     of year...............................           $ 6,761,516        $ 1,473,850        $ 3,266,323
                                                       ==========         ==========         ==========

</TABLE>

     See discussion of noncash investing and financing activities in Note 4







                See accompanying notes to financial statements.


<PAGE>


                       McNEIL REAL ESTATE FUND XXVI, L.P.

                            STATEMENTS OF CASH FLOWS


     Reconciliation of Net Loss to Net Cash Provided by Operating Activities


<TABLE>
                                                                For the Years Ended December 31,
                                                        -----------------------------------------------
                                                           1995              1994               1993
                                                        ----------        ----------         ----------
<S>                                                    <C>               <C>                <C>
Net loss...................................            $(5,063,046)      $(1,938,063)       $(8,843,767)
                                                        ----------        ----------         ----------

Adjustments to reconcile net loss to net 
  cash provided by operating activities:
   Depreciation and amortization...........             2,682,731          2,441,357          2,491,779
   Amortization of deferred borrowing
     costs.................................               156,331             99,166             38,418
   Allowance for doubtful accounts.........              (267,858)            28,391           (141,593)
   Interest added to mortgage note
     payable - affiliate, net of payments..                     -                  -             15,353
   Interest added to advances from
     affiliates - General Partner..........                12,828             10,624              8,697
   Write-down for permanent
     impairment of real estate.............             2,200,000                  -          7,239,353
   Loss on demolition and replacement
      of assets............................             1,247,940                  -                  -
   Changes in assets and liabilities:
     Cash segregated for security
       deposits............................                31,363            (14,079)           (40,440)
     Accounts receivable...................               (39,438)            72,453           (106,654)
     Prepaid expenses and other
       assets..............................              (536,646)            12,563            (28,841)
     Prepaid commissions...................                25,099            (65,834)               558
     Accounts payable and accrued
       expenses............................               187,789           (215,007)             4,365
     Accrued property taxes................                24,539           (142,695)           (46,988)
     Payable to affiliates - General
       Partner.............................               831,795            671,455            513,739
     Security deposits and deferred
       rental income.......................               (21,228)             6,514             40,179
                                                        ---------          ---------          ---------

         Total adjustments.................             6,535,245          2,904,908          9,987,925
                                                        ---------          ---------          ---------

Net cash provided by
     operating activities..................            $1,472,199         $  966,845         $1,144,158
                                                        =========          =========          =========
</TABLE>









                See accompanying notes to financial statements.


<PAGE>



                       McNEIL REAL ESTATE FUND XXVI, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1995

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------   -----------------------------------------------------------

Organization
------------

McNeil Real Estate  Fund XXVI,  L.P.,  (the  "Partnership"),  formerly  known as
Southmark Equity Partners III, Ltd., was organized on March 4, 1985 as a limited
partnership under the provisions of the California  Revised Limited  Partnership
Act to acquire and operate  residential and commercial  properties.  The general
partner of the Partnership is McNeil Partners,  L.P. (the "General Partner"),  a
Delaware limited partnership,  an affiliate of Robert A. McNeil ("McNeil").  The
General Partner was elected at a meeting of limited  partners on March 30, 1992,
at which  time an amended  and  restated  partnership  agreement  (the  "Amended
Partnership  Agreement")  was  adopted.  Prior to March 30,  1992,  the  general
partner  of the  Partnership  was  Southmark  Investment  Group  86,  Inc.  (the
"Original General Partner"), a wholly-owned  subsidiary of Southmark Corporation
("Southmark").  The Original  General  Partner was purchased  from  Southmark by
McNeil on March 13, 1991.  The principal  place of business for the  Partnership
and the  General  Partner is 13760 Noel Road,  Suite 700,  LB70,  Dallas,  Texas
75240.

The Partnership is engaged in diversified real estate activities,  including the
ownership, operation and management of residential, commercial office and retail
real estate. At December 31, 1995, the Partnership  owned five  income-producing
properties as described in Note 4 - Real Estate Investments.

Basis of Presentation
---------------------

The  accompanying  financial  statements  have been prepared in conformity  with
generally accepted accounting principles ("GAAP").  The preparation of 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.

Real Estate Investments
-----------------------

Real  estate  investments  are  generally  stated  at the  lower  of cost or net
realizable value.  Real estate  investments are monitored on an ongoing basis to
determine if the property has sustained a permanent impairment in value. At such
time,  a  write-down  is recorded to reduce the basis of the property to its net
realizable  value. A permanent  impairment is determined to have occurred when a
decline in property  value is considered to be other than  temporary  based upon
management's  expectations  with respect to projected  cash flows and prevailing
economic conditions.

Improvements and betterments are capitalized and expensed  through  depreciation
charges. Repairs and maintenance are charged to operations as incurred.

In March 1995,  the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived  Assets to be Disposed Of." This statement
requires that long-lived assets and certain identifiable  intangibles to be held
and used by an entity be reviewed for impairment  whenever  events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  This  statement is effective for financial  statements  for fiscal
years  beginning  after December 15, 1995. The  Partnership  has not adopted the
principles  of this  statement  within the  accompanying  financial  statements;
however,  it is not anticipated that adoption will have a material effect on the
carrying value of the Partnership's long-lived assets.

Depreciation and Amortization
-----------------------------

Buildings and improvements are depreciated using the  straight-line  method over
the  estimated  useful lives of the assets,  ranging from 5 to 25 years.  Tenant
improvements  are  capitalized  and are amortized  over the terms of the related
tenant lease using the straight-line method.

Cash and Cash Equivalents
-------------------------

Cash and cash equivalents  include cash on hand and cash on deposit in financial
institutions with original  maturities of three months or less. Carrying amounts
for cash and cash equivalents approximate fair value.

Deferred Borrowing Costs
------------------------

Loan fees and other related costs incurred to obtain long-term financing on real
property are  capitalized  and amortized  using a method that  approximates  the
effective  interest method over the terms of the related mortgage notes payable.
Amortization of deferred  borrowing costs is included in interest expense on the
Statements of Operations.

Prepaid Commissions
-------------------

Leasing  commissions  incurred to obtain  leases on  commercial  properties  are
capitalized  and amortized using the  straight-line  method over the term of the
related leases.

Rental Revenue
--------------

The  Partnership  leases its  residential  property under  short-term  operating
leases. Lease terms generally are less than one year in duration.  Rental income
is recognized as earned.

The Partnership leases its commercial properties under non-cancelable  operating
leases.  Certain leases provide concessions and/or periods of escalating or free
rent. Rental income is recognized on a straight-line  basis over the life of the
related leases. The excess of the rental revenue recognized over the contractual
rental  payments  is  recorded  as accrued  rent  receivable  and is included in
accounts receivable on the Balance Sheets.

Income Taxes
------------

No provision for Federal  income taxes is necessary in the financial  statements
of the  Partnership  because,  as a  partnership,  it is not  subject to Federal
income tax and the tax effect of its activities accrues to the partners.

Allocation of Net Income and Net Loss
-------------------------------------

The Amended  Partnership  Agreement  generally  provides that net income and net
loss  (other  than  net  income  arising  from  sales or  refinancing)  shall be
allocated one percent (1%) to the General Partner and ninety-nine  percent (99%)
to the limited partners.

For financial statement purposes,  net income and net loss arising from sales or
refinancing  shall be  allocated  one percent  (1%) to the  General  Partner and
ninety-nine percent (99%) to the limited partners.

For tax reporting  purposes,  net income arising from sales or refinancing shall
be  allocated  as  follows:  (a)  first,  amounts  of such net  income  shall be
allocated among the General  Partner and limited  partners in proportion to, and
to the extent of, the  portion of such  partner's  share of the net  decrease in
Partnership Minimum Gain determined under Treasury  Regulations,  (b) second, to
the General Partner and limited partners in proportion to, and to the extent of,
the amount by which their  respective  capital account  balances are negative by
more than their respective  remaining shares of the  Partnership's  Minimum Gain
attributable  to properties  still owned by the Partnership and (c) third, 1% of
such net income shall be  allocated  to the General  Partner and 99% of such net
income shall be allocated to the limited partners.

Federal  income tax law provides  that the  allocation of loss to a partner will
not be  recognized  unless the  allocation  is in  accordance  with a  partner's
interest in the partnership or the allocation has substantial  economic  effect.
Internal  Revenue  Code Section  704(b) and  accompanying  Treasury  Regulations
establish  criteria for allocation of  Partnership  deductions  attributable  to
debt. The  Partnership's  tax allocations for 1995, 1994 and 1993 have been made
in accordance with these provisions.





Distributions
-------------

At the discretion of the General  Partner,  distributable  cash (other than cash
from sales or refinancing)  shall be distributed  100% to the limited  partners,
with such  distributions  first paying the limited partners' Priority Return and
then to all limited  partners on a per limited  partnership unit ("Unit") basis.
Also at the discretion of the General Partner, the limited partners will receive
100% of  distributable  cash from sales or refinancing  with such  distributions
first paying the limited partners Priority Return; as defined,  then the limited
partners'  Additional  Priority  Return,  then  repayment  of Original  Invested
Capital, and of the remainder,  to the limited partners on a per Unit basis. The
limited partners' Priority Returns represent a 8 1/4% cumulative return on their
Adjusted Invested Capital balance, as defined.  The limited partners' Additional
Priority  Returns  represent a 1% cumulative  return on their Adjusted  Invested
Capital balance, as defined.

In connection  with a Terminating  Disposition,  as defined,  cash from sales or
refinancing and any remaining reserves shall be allocated among, and distributed
to, the General Partner and limited partners in proportion to, and to the extent
of,  their  positive  capital  account  balances  after the net  income has been
allocated pursuant to the above.

There were no distributions to partners in 1995, 1994 and 1993.

Net Loss Per Thousand Limited Partnership Units
-----------------------------------------------

Net loss per thousand  Units is computed by dividing  net loss  allocated to the
limited partners by the weighted average number of Units  outstanding  expressed
in thousands.  Per Unit  information  has been computed based on 86,549 thousand
Units  outstanding  in 1995, and 86,554  thousand Units  outstanding in 1994 and
1993.

Reclassification
----------------

Certain reclassifications have been made to prior period amounts to conform with
the current year presentation.

NOTE 2 - TRANSACTIONS WITH AFFILIATES
------   ----------------------------

The  Partnership  pays property  management fees equal to 5% of the gross rental
receipts for its  residential  property and 6% of gross rental  receipts for its
commercial  properties to McNeil Real Estate  Management,  Inc.  ("McREMI"),  an
affiliate of the General Partner, for providing property management services for
the Partnership's residential and commercial properties and leasing services for
its residential  properties.  McREMI may also choose to provide leasing services
for the Partnership's  commercial properties,  in which case McREMI will receive
property  management  fees from such  commercial  properties  equal to 3% of the
property's  gross  rental  receipts  plus  leasing   commissions  based  on  the
prevailing market rate for such services where the property is located.

The  Partnership  reimbursed  an  affiliate  of the  General  Partner  for costs
incurred in connection  with  refinancing  and  modification  of mortgage  notes
payable  in 1993.  These  costs  were  recorded  as  prepaid  expense  until the
refinancing or modification  occurred,  at which time the costs were capitalized
and are amortized  over the  remaining  term of the related  mortgage.  If these
refinancings or modifications did not occur, these costs were expensed.

The  Partnership  reimburses  McREMI  for  its  costs,  including  overhead,  of
administering the Partnership's affairs.



<PAGE>


Under the terms of the Amended Partnership Agreement,  the Partnership is paying
an asset management fee,  retroactive to March 13, 1991, which is payable to the
General  Partner.  Through 1999, the asset management fee is calculated as 1% of
the  Partnership's  tangible asset value.  Tangible asset value is determined by
using the greater of (i) an amount calculated by applying a capitalization  rate
of 9% to the annualized net operating income of each property or (ii) a value of
$10,000 per  apartment  unit for  residential  property and $50 per gross square
foot for commercial property to arrive at the property tangible asset value. The
property  tangible  asset  value is then  added to the book  value of all  other
assets excluding  intangible items. The fee percentage  decreases  subsequent to
1999.

Compensation  and  reimbursements  paid to or  accrued  for the  benefit  of the
General Partner or its affiliates are as follows:
<TABLE>
                                                                For the Years Ended December 31,
                                                        -----------------------------------------------
                                                          1995                1994              1993
                                                        ---------          ---------          ---------
<S>                                                     <C>               <C>                <C>
Charged to prepaid expenses and other assets:
   Deferred borrowing costs................            $        -         $        -         $    9,654
Charged to deferred borrowing costs........                     -                  -             27,028
Property management fees - affiliates......               437,006            385,116            373,823
Charged to interest  - affiliates:
   Interest on mortgage note payable -
     affiliate.............................               107,937             83,588             44,576
   Interest on advances from
     affiliates - General Partner..........                12,828             10,624              8,697
Charged to general and administrative -
   affiliates:
   Partnership administration..............               300,846            245,583            237,431
   Asset management fee....................               519,276            464,912            464,535
                                                        ---------          ---------          ---------
                                                       $1,377,893         $1,189,823         $1,165,744
                                                        =========          =========          =========
</TABLE>

The  payable to  affiliates  - General  Partner at  December  31,  1995 and 1994
consisted primarily of unpaid property management fees,  Partnership general and
administrative  expenses and asset  management  fees and is due and payable from
current operations.

The General Partner has, at its discretion,  advanced funds to the  Partnership.
As discussed  below,  the Partnership  received such advances for the purpose of
funding  working capital  requirements.  The General Partner is not obligated to
advance funds to the  Partnership and there is no assurance that the Partnership
will receive additional funds.

The  advances  from  affiliates  at December  31,  1995 and 1994  consist of the
following:
<TABLE>
                                                                         1995             1994
                                                                     -----------      -----------
<S>                                                                <C>               <C>         
         Advances from General Partner                             $     130,518     $    130,518
         Accrued interest payable                                         37,812           24,984
                                                                    ------------      -----------
                                                                   $     168,330     $    155,502
                                                                    ============      ===========
</TABLE>

The  advances  are  unsecured,  due on demand and accrue  interest  at the prime
lending rate of the Bank of America plus 1%. The prime  lending rate was 8.5% at
December 31, 1995 and 1994.

In March  1993,  the  Partnership  obtained a loan from  McNeil Real Estate Fund
XXVII,  L.P., an affiliate of the General Partner,  which allows the Partnership
to borrow funds  totaling  $1,536,000.  Of this amount  available,  $952,538 was
borrowed in 1993. The principal balance is due March 1, 1996. On January 8, 1996
the Partnership repaid the mortgage loan.



<PAGE>


NOTE 3 - TAXABLE INCOME
------   --------------

McNeil  Real  Estate  Fund XXVI,  L.P.  is a  partnership  and is not subject to
Federal and state income taxes.  Accordingly,  no recognition  has been given to
income taxes in the accompanying  financial  statements of the Partnership since
the income or loss of the  Partnership  is to be  included in the tax returns of
the  individual  partners.  The tax  returns of the  Partnership  are subject to
examination by Federal and state taxing authorities. If such examinations result
in  adjustments  to  distributive  shares of  taxable  income  or loss,  the tax
liability of the partners could be adjusted accordingly.

The  Partnership's  net assets and liabilities for tax purposes exceeded the net
assets and liabilities for financial  reporting purposes by $39,813,538 in 1995,
$35,628,694 in 1994 and $34,539,956 in 1993.

NOTE 4 - REAL ESTATE INVESTMENTS
------   -----------------------

The basis and accumulated  depreciation  and  amortization of the  Partnership's
real  estate  investments  at December  31, 1995 and 1994,  are set forth in the
following tables:
<TABLE>
                                                                          Accumulated
                                                      Buildings and       Depreciation          Net Book
       1995                            Land           Improvements       & Amortization           Value
       ----                         ----------          ---------          ----------           ---------
<S>                                 <C>                <C>                <C>                  <C>
Amargosa Creek
   Lancaster, CA                   $  794,635          $8,517,021        $ (3,340,699)         $5,970,957
Edison Ford Square
   Ft. Myers, FL                    2,438,636           3,786,804          (2,243,237)          3,982,203
Continental Plaza
   Scottsdale, AZ                   1,975,324           1,955,198          (1,669,636)          2,260,886
Northway Mall
   Pittsburgh, PA                   2,965,329          29,897,021          (8,393,175)         24,469,175
Westwood Center
   Tampa, FL                        1,015,168          12,539,006          (5,608,394)          7,945,780
                                    ---------          ----------          ----------          ----------
                                   $9,189,092         $56,695,050        $(21,255,141)        $44,629,001
                                    =========          ==========         ===========          ==========


                                                                         Accumulated
                                                       Buildings and     Depreciation          Net Book
       1994                            Land            Improvements     & Amortization           Value
       ----                         ----------          ----------        -----------          ----------

Amargosa Creek                     $  794,635          $8,439,269        $ (2,968,399)        $ 6,265,505
Edison Ford Square                  2,438,636           5,858,285          (1,951,908)          6,345,013
Continental Plaza                   1,975,324           1,811,174          (1,554,713)          2,231,785
Northway Mall                       2,965,329          23,603,663          (7,758,265)         18,810,727
Westwood Center                     1,015,168          12,032,778          (4,962,286)          8,085,660
                                    ---------          ----------         -----------          ----------
                                   $9,189,092         $51,745,169        $(19,195,571)        $41,738,690
                                    =========          ==========         ===========          ==========
</TABLE>

Edison Ford Square is a 141,000 sq. ft. retail center in Ft. Myers, Florida that
has evolved from primarily  retail,  to more of a service center use It was 46%,
54% and 80%  occupied at December 31, 1995,  1994 and 1993.  The downtown  area,
where the shopping center is located,  has  experienced  decay due to a shift in
demographics.  The center is within  walking  distance of the Thomas  Edison and
Henry Ford estates,  significant historical attractions in the area. Plans for a
major  renovation  that would have  captured the  architecture  and style of the
Edison home began in 1993. However,  with the loss of two major anchors in 1994,
it was not viable to continue this project. During 1995, a full, in-depth market
analysis was  performed to determine  the center's  highest and best use. It was
determined that the only viable  alternative  would be a complete  redevelopment
and renovation of the center; however, the Partnership has decided not to pursue
this alternative  because of the inherent risks and economic  uncertainties.  An
unsolicited  offer from an  unaffiliated  third party to purchase the center was
received during 1995, which approximated the value of the land. These facts have
led  to  the  conclusion  that  a  permanent   impairment  has  been  sustained.
Accordingly,  the Partnership  recorded a write-down for permanent impairment of
$2.2 million against Edison Ford's building and  improvements  during the fourth
quarter of 1995, to record the property at its estimated net  realizable  value,
which approximates the value of the land.

Occupancy rates at Continental  Plaza increased in 1993, but rental rates in the
Scottsdale,   Arizona  market  remained  depressed.   During  1993,  the  market
stabilized,  but did so at a level  which would have made it  difficult  for the
Partnership to ultimately  realize its then carrying value over the next five to
seven years.  Accordingly,  the Partnership recorded a $1,239,353 write-down for
permanent impairment during the second quarter of 1993.

In 1993, mortgage loans totaling $3.4 million on Westwood Center and Continental
Plaza,  previously  unencumbered assets, were obtained.  The proceeds from these
loans were used to partially finance the capital improvement program at Northway
Mall. In the third quarter of 1994,  management finalized a construction loan on
Northway  Mall  totaling  $11  million to finance  the  balance  for the capital
improvement  program.  The  mortgage  note  allowed for monthly  withdrawals  of
principal  in the amount of  approved  invoices.  The  principal  amount was due
August  1996 and  accrued  interest  at a variable  rate.  The  interest  rate a
December  17, 1995 (the date the mortgage  note was repaid) was 9.75%.  Interest
payments were due from the Partnership upon repayment of the note.  During 1995,
$91,000  of  this  interest  was  capitalized  as an  addition  to  real  estate
investments,  which is the  portion  related  to the  vacant  square  footage of
Northway  Mall that was under  construction  during  the year.  The  Partnership
incurred  loan costs of $214,218 in 1994  related to the  construction  mortgage
note financing,  of which $70,000 was capitalized in 1995 as an addition to real
estate  investments  to be depreciated  over the life of the related asset.  The
remaining   loan  costs  of  $144,218  were  amortized  over  the  life  of  the
construction mortgage note. The Partnership was provided cash flow of $1,121,473
during 1994 due to the construction mortgage note as discussed above.

Management obtained permanent financing for the capital  improvements program in
December  1995.  The new mortgage  note, in the amount of $15 million,  bears an
interest rate of 7.5% with monthly  principal and interest  payments of $110,849
and matures in December 2002. The proceeds from the refinancing were used to pay
off the  construction  mortgage  note as well  as the  affiliate  mortgage  note
discussed  below.  The renovations  were completed during 1995. As a part of the
renovation, assets valued at approximately $1,248,000 were demolished or removed
and written off in the fourth  quarter of 1995.  Four anchor tenants and several
smaller  tenants  have  moved  in  during  1995  due  to the  completion  of the
renovation. The decision to renovate the mall was made after exhaustive analyses
and studies  conducted by management to determine  future cash flows of the mall
based  upon  stabilized  leases.  Accordingly,  based  upon the  level of rental
revenues that would be generated from these leases, management concluded that at
the time that the  Partnership  could not  ultimately  realize its then carrying
value over the next five to seven years. Accordingly, a write-down for permanent
impairment  in the amount of $6 million was  recorded  during 1993 to record the
asset to its net realizable value.

The Partnership leases its commercial properties under non-cancelable  operating
leases. Future minimum rents received as of Decemer 31, 1995 are as follows:
<TABLE>
                  <S>                                                   <C>
                  1996....................................              $5,403,000
                  1997....................................               4,686,000
                  1998....................................               3,925,000
                  1999....................................               3,059,000
                  2000....................................               2,502,000
                  Thereafter..............................              13,795,000
                                                                        ----------
                    Total                                              $33,370,000
                                                                        ==========
</TABLE>


Future minimum rents do not include  contingent rentals based on sales volume of
tenants. Contingent rents amounted to $15,094, $11,793 and $81,620 for the years
ended December 31, 1995, 1994 and 1993, respectively.  Future minimum rents also
do not include  expense  reimbursements  for common area  maintenance,  property
taxes, and other expenses.  These expense reimbursements amounted to $1,176,119,
$886,698  and $792,448 for the years ended  December 31, 1995,  1994,  and 1993,
respectively.



<PAGE>


NOTE 5 - MORTGAGE NOTES PAYABLE
------   ----------------------

The  following  sets forth the  mortgage  notes  payable of the  Partnership  at
December 31, 1995 and 1994.  The mortgage  notes are secured by the related real
estate investments.
<TABLE>
                         Mortgage         Annual          Monthly                       December 31,
                         Lien             Interest        Payments/            ------------------------------
Property                 Position (a)     Rates %         Maturity  Date(d)       1995                1994
--------                 -----------      --------      -----------------      ----------          ----------
<S>                      <C>              <C>            <C>                  <C>                  <C>
Amargosa Creek           First            7.875       $  35,528     12/98     $ 4,808,711         $ 4,854,394
                                                                               ----------          ----------

Northway Mall (b)        First            Variable     Variable      8/96               -           1,121,473
Northway Mall (c)        First            7.500         110,849     12/02      15,000,000                   -
                                                                               ----------          ----------
                                                                               15,000,000           1,121,473
                                                                               ----------          ----------

Westwood Center          First            8.000          22,457     12/98       2,336,210           2,421,640
                                                                               ----------          ----------
                                                                              $22,144,921         $ 8,397,507
                                                                               ==========          ==========
</TABLE>

(a)   The debt is non-recourse to the Partnership.

(b)  In  August  1994,  the  Partnership  obtained  financing  for  the  capital
     improvements  program at Northway  Mall.  The  construction  mortgage  note
     allowed  for monthly  withdrawals  of  principal  in the amount of approved
     invoices up to $11 million.  The  principal  amount was due August 1996 and
     accrued  interest  at a  variable  rate.  The  interest  rate was  9.75% at
     December 17, 1995 (the date of repayment  of the note).  Interest  payments
     were due from the  Partnership  to the extent of the excess  cash flow from
     the property.  The remaining  amount of interest was due upon  repayment of
     the note.  During  1995,  $91,000 of this  interest was  capitalized  as an
     addition to real estate  investments,  which is the portion  related to the
     vacant square footage of Northway Mall that was under  construction  during
     the year. The  Partnership  incurred loan costs of $214,218 in 1994 related
     to  the  construction  mortgage  note  financing,   of  which  $70,000  was
     capitalized  as an addition to real estate  investments  to be  depreciated
     over the related life of the asset.  The  remaining  loan costs of $144,218
     were amortized over the life of the construction mortgage note.

(c)   In December 1995, the  Partnership  obtained  permanent  financing for the
      capital  improvements  program at Northway Mall. The new mortgage note, in
      the amount of $15  million,  bears an interest  rate of 7.5% with  monthly
      principal and interest  payments of $110,849 and matures in December 2002.
      The proceeds from the  refinancing  were used to pay off the  construction
      mortgage note of $9,153,530 as discussed above.

(d)   Balloon payments on the mortgages notes are due as follows:

            Property                             Balloon Payment       Date
            --------                             ---------------      -------
         Amargosa Creek                           $  4,653,031         12/98
         Westwood Center                             2,074,545         12/98
         Northway Mall                              13,118,565         10/02

Scheduled principal maturities of the mortgage notes payable are as follows:

                  1996....................................     $   340,083
                  1997....................................         374,508
                  1998....................................       7,118,247
                  1999....................................         265,795
                  2000....................................         286,429
                  Thereafter..............................      13,759,859
                                                                ----------
                    Total                                      $22,144,921
                                                                ==========

Based on borrowing  rates  currently  available to the  Partnership for mortgage
loans with similar terms and average maturities,  the fair value of the mortgage
notes payable was approximately $21,796,000 at December 31, 1995.


<PAGE>


NOTE 6 - REFINANCING OF MORTGAGE NOTES PAYABLE
------   -------------------------------------

On December 17, 1995,  the  Partnership  refinanced the mortgage note payable on
Northway  Mall.  The new mortgage loan bears an interest rate of 7.5%,  requires
monthly  principal  and  interest  payments of $110,849  and matures in December
2002. The following is a summary of the transaction:

                  New loan proceeds.......................        $15,000,000
                  Existing debt retired...................         (9,153,530)
                                                                   ----------
                  Cash proceeds from refinancing..........        $ 5,846,470
                                                                   ==========

The Partnership  deposited  $591,500 into property tax and deferred  maintenance
escrows and incurred loan costs of $269,910.

During 1995, the Partneship received additional proceeds of $8,0832,057 from the
construction loan for Northway Mall's capital improvement program.

On October 29, 1993, the Partnership  obtained  financing for Westwood Center, a
previously  unencumbered  property. The new mortgage loan, in the amount of $2.5
million,  bears an  interest  rate of 8% with  monthly  payments  of $22,457 and
matures in  December  1998.  The  Partnership  incurred  loan costs of  $142,641
related to the financing, which are being amortized over the life of the loan.

On October 7, 1993,  the  Partnership  refinanced  the mortgage  note payable on
Amargosa  Creek  Apartments.  The new  mortgage  loan bears an interest  rate of
7.875%,  requires monthly principal and interest payments of $35,528 and matures
in December 1998.

                  New loan proceeds.......................        $4,900,000
                  Existing debt retired...................        (4,839,966)
                                                                   ---------
                  Cash proceeds from refinancing..........        $   60,034
                                                                   =========

The Partnership incurred loan costs of $142,121 related to the refinancing.

NOTE 7 - MORTGAGE NOTE PAYABLE - AFFILIATE
-----    ---------------------------------

The  following  sets  forth  the  mortgage  note  payable  -  affiliate  of  the
Partnership  at December 31, 1995 and 1994.  The mortgage note is secured by the
underlying real estate investment.
<TABLE>
                         Mortgage         Annual          Monthly                    December 31,
                         Lien             Interest        Payments/           ------------------------
Property                 Position(a)      Rates %         Maturity Date          1995          1994
--------                 ------------     -------      ------------------     ---------      ---------
<S>                      <C>              <C>          <C>                   <C>             <C>
Continental Plaza (b)      First            (c)         Variable    03/96    $  952,538      $ 952,538
                                                                              =========       ========
</TABLE>

(a)   The debt is non-recourse to the Partnership.

(b)   In March  1993,  the  Partnership  obtained a loan from McNeil Real Estate
      Fund XXVII,  L.P., an affiliate of the General  Partner,  which allows the
      Partnership to borrow funds totaling $1,536,000. Of this amount available,
      $952,538 was borrowed in 1993. The principal balance is due March 1, 1996.
      On January 8, 1996 the Partnership repaid the mortgage loan.

(c)   The note  requires  monthly  payments of interest  only equal to the prime
      lending  rate  of the  Bank of  America  plus 2 1/2%.  The  prime  rate at
      December 31, 1995 and 1994 was 8.5%.

Under the terms of the Amended Partnership Agreement, borrowings from affiliates
approximate fair market value.


<PAGE>


NOTE 8 - LEGAL PROCEEDINGS
------   -----------------

The Partnership is not party to, nor are any of the Partnership's properties the
subject of, any material pending legal proceedings, other than ordinary, routine
litigation incidental to the Partnership's business, except for the following:

     HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young,  BDO Seidman et
     ---------------------------------------------------------------------------
     al (Case #92-06560-A). This suit was filed on behalf of the Partnership and
     --------------------
     other affiliated  partnerships  (the "Affiliated  Partnerships") on May 26,
     1992, in the 14th Judicial  District Court of Dallas  County.  The petition
     sought recovery against the Partnership's  former auditors,  Ernst & Young,
     for negligence and fraud in failing to detect and/or report  overcharges of
     fees/expenses by Southmark, the former general partner. The former auditors
     initially asserted counterclaims against the Affiliated  Partnerships based
     on alleged fraudulent misrepresentations made to the auditors by the former
     management of the Affiliated Partnerships (Southmark) in the form of client
     representation  letters executed and delivered to the auditors by Southmark
     management.  The counterclaims sought recovery of attorneys' fees and costs
     incurred in defending this action.  The counterclaims  were later dismissed
     on appeal, as discussed below.

     The trial court granted summary judgment  against the Partnership  based on
     the statute of limitations; however, on appeal, the Dallas Court of Appeals
     reversed  the trial court and remanded  for trial the  Partnerships'  fraud
     claims  against  Ernst & Young.  The Texas  Supreme  Court  denied  Ernst &
     Young's  application for writ of error on January 11, 1996. The Partnership
     is  continuing  to pursue  vigorously  its  claims  against  Ernst & Young;
     however,  the final outcome of this litigation cannot be determined at this
     time.

See also Note 9 - "Gain on Legal Settlement".

NOTE 9 - GAIN ON LEGAL SETTLEMENT
------   ------------------------

The  Partnership  filed claims with the United States  Bankruptcy  Court for the
Northern  District of Texas,  Dallas Division (the  "Bankruptcy  Court") against
Southmark for damages relating to improper  overcharges,  breach of contract and
breach of fiduciary duty. The Partnership settled these claims in 1991, and such
settlement was approved by the Bankruptcy Court.

An Order Granting  Motion to Distribute  Funds to Class 8 Claimants  dated April
14, 1995 was issued by the Bankruptcy  Court.  In accordance  with the Order, in
May 1995 the Partnership received in full satisfaction of its claims, $45,263 in
cash,  and  common  and  preferred  stock  in the  reorganized  Southmark  which
represents the  Partnership's  pro-rata share of Southmark  assets available for
Class 8 Claimants. The Partnership sold the Southmark common and preferred stock
in May 1995 for $14,611,  which combined with the cash proceeds from  Southmark,
resulted in a gain on legal settlement of $59,874


<PAGE>


                       McNEIL REAL ESTATE FUND XXVI, LTD.
                                  SCHEDULE III
      REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
                                December 31, 1995
<TABLE>
                                                          Initial Cost              Cumulative          Costs
                                                 -----------------------------      Write-down       Capitalized
                               Related (b)                        Buildings and    and Permanent      Subsequent
Description                   Encumbrances          Land          Improvements      Impairment      To Acquisition
-----------                    ----------        ----------       -----------      -----------        ----------
<S>                           <C>                <C>              <C>             <C>                <C>
APARTMENTS:

Amargosa Creek
   Lancaster, CA (b)          $ 4,808,711       $   947,277       $ 9,578,026     $ (1,696,024)      $   482,377

OFFICE BUILDINGS:

Continental Plaza
   Scottsdale, AZ (c)             952,538         4,211,854         4,059,113       (5,662,360)        1,321,915

Westwood Center
   Tampa, FL (d)                2,336,210         1,465,168        14,814,477       (5,000,000)        2,274,529

RETAIL CENTER

Edison Ford Square
   Fort Myers, FL (e)                   -         2,791,707         5,932,380       (3,303,346)          804,699

Northway Mall
   Pittsburgh, PA              15,000,000         4,523,305        17,186,915       (6,000,000)       17,152,130
                               ----------        ----------        ----------      -----------        ----------

                              $23,097,459       $13,939,311       $51,570,911     $(21,661,730)      $22,035,650
                               ==========        ==========        ==========      ===========        ==========
</TABLE>
























                     See accompanying notes to Schedule III.


<PAGE>


                       McNEIL REAL ESTATE FUND XXVI, LTD.
                                  SCHEDULE III
      REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
                                December 31, 1995

<TABLE>
                                                  Gross Amount at
                                          Which Carried at Close of Period
                                  ------------------------------------------------       Accumulated
                                                    Buildings and                        Depreciation
Description                          Land           Improvements         Total (a)     and Amortization
-----------                       ----------         ----------         ----------        ----------
<S>                               <C>               <C>                <C>               <C>
APARTMENTS:

Amargosa Creek
   Lancaster, CA (b)             $   794,635        $ 8,517,021        $ 9,311,656       $(3,340,699)

OFFICE BUILDINGS

Continental Plaza
   Scottsdale, AZ (c)              1,975,324          1,955,198          3,930,522        (1,669,636)

Westwood Center
   Tampa, FL (d)                   1,015,168         12,539,006         13,554,174        (5,608,394)

RETAIL CENTER

Edison Ford Square
   Fort Myers, FL (e)              2,438,636          3,786,804          6,225,440        (2,243,237)

Northwest Plaza
   Pittsburgh, PA (f)              2,965,329         29,897,021         32,862,350        (8,393,175)
                                  ----------         ----------         ----------       -----------
                                 $ 9,189,092        $56,695,050        $65,884,142      $(21,255,141)
                                  ==========         ==========         ==========       ===========
</TABLE>

(a)  For Federal Income tax purposes,  the properties are depreciated over lives
     ranging from 15-25 years using ACRS or MACRS methods. The aggregate cost of
     real estate  investments for Federal income tax purposes was  approximately
     $88,408,467  and accumulated  depreciation  was $18,141,496 at December 31,
     1995.

(b)  The carrying value of Amargosa  Creek  apartments was reduced by $1,696,024
     in 1992.

(c)  The carrying value of Continental  Plaza was reduced by $1,239,353 in 1993,
     $1,803,007 in 1992, $620,000 in 1991 and $2,000,000 in 1989.

(d)  The carrying value of Westwood Center was reduced by $5,000,000 in 1989.

(e)  The carrying  value of Edison Ford Square was reduced by $2,200,000 in 1995
     and $1,103,346 in 1992.

(f)  The carrying value of Northway Mall was reduced by $6,000,000 in 1993.









                     See accompanying notes to Schedule III.


<PAGE>


                       McNEIL REAL ESTATE FUND XXVI, LTD.
                                  SCHEDULE III
      REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
                                December 31, 1995


<TABLE>
                                 Date of                    Date                 Depreciable
Description                   Construction                Acquired              lives (years)
-----------                   ------------                --------              ------------
APARTMENTS:
<S>                           <C>                         <C>                   <C>
Amargosa Creek
   Lancaster, CA (b)            1984/85                     12/86                   5-25

OFFICE BUILDINGS

Continental Plaza
   Scottsdale, AZ (c)           1984                        11/86                   5-25

Westwood Center
   Tampa, FL (d)                1984                        03/87                   5-25

RETAIL CENTER

Edison Ford Square
   Fort Myers, FL (e)           1960                        07/87                   5-25

Northway Mall
   Pittsburgh, PA (f)           1962                        06/87                   5-25

</TABLE>

<PAGE>


                       McNEIL REAL ESTATE FUND XXVI, L.P.

                              Notes to Schedule III
      Real Estate Investments and Accumulated Depreciation and Amortization


A  summary  of  activity  for the  Partnership's  real  estate  investments  and
accumulated depreciation and amortization is as follows:
<TABLE>



                                                                For the Years Ended December 31,
                                                          1995               1994               1993
                                                       ----------         ----------         ----------
<S>                                                    <C>               <C>                 <C>
Real estate investments:

Balance at beginning of year...............           $60,934,261        $56,671,436        $62,463,551

Improvements...............................             9,020,982          4,262,825          1,447,238

Write-down for permanent
   impairment of real estate...............            (2,200,000)                 -         (7,239,353)

Demolition and replacement of assets
   due to capital improvements.............            (1,871,101)                 -                  -
                                                       ----------         ----------         ----------

Balance at end of year.....................           $65,884,142        $60,934,261        $56,671,436
                                                       ==========         ==========         ==========



Accumulated depreciation and amortization:

Balance at beginning of year...............           $19,195,571        $16,754,214        $14,262,435

Depreciation and amortization..............             2,682,731          2,441,357          2,491,779

Demolition and replacement of assets
   due to capital improvements.............              (623,161)                 -                  -
                                                       ----------         ----------         ----------

Balance at end of year.....................           $21,255,141        $19,195,571        $16,754,214
                                                       ==========         ==========         ==========
</TABLE>


<PAGE>


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

None.

                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-------       --------------------------------------------------

Neither the  Partnership  nor the General Partner has any directors or executive
officers.  The names and ages of, as well as the positions held by, the officers
and  directors of McNeil  Investors,  Inc.,  the general  partner of the General
Partner, are as follows:
<TABLE>
                                       Other Principal Occupations and Other
Name and Position             Age      Directorships During the Past 5 Years
-----------------             ---      -------------------------------------
<S>                           <C>      <C>
Robert A. McNeil,              75       Mr.  McNeil  is also  Chairman  of the Board and  Director  of McNeil  Real
Chairman of the                         Estate  Management,  Inc.  ("McREMI")  which is an affiliate of the General
Board and Director                      Partner.  He has held the foregoing  positions  since the formation of such
                                        entity  in  1990.  Mr.  McNeil  received  his  B.A.  degree  from  Stanford
                                        University  in 1942 and his  L.L.B.  degree  from  Stanford  Law  School in
                                        1948. He is a member of the State Bar of  California  and has been involved
                                        in  real   estate   financing   since  the  late  1940's  and  real  estate
                                        acquisitions,  syndications  and  dispositions  since 1960. From 1986 until
                                        active  operations of McREMI and McNeil  Partners,  L.P.  began in February
                                        1991,  Mr.  McNeil was a private  investor.  Mr.  McNeil is a member of the
                                        International  Board of Directors  of the Salk  Institute,  which  promotes
                                        research in improvements in health care.

Carole J. McNeil               52       Mrs.  McNeil is  Co-Chairman,  with  husband  Robert A.  McNeil,  of McNeil
Co-Chairman of the                      Investors,  Inc.  Mrs.  McNeil has twenty years of real estate  experience,
Board                                   most  recently  as a  private  investor  from  1986 to 1993.  In 1982,  she
                                        founded Ivory & Associates, a  commercial  real  estate  brokerage firm  in
                                        San  Francisco,  CA.  Prior  to  that,  she  was  a  commercial real estate
                                        associate  with  the  Madison  Company  and,  earlier,  a commercial  sales
                                        associate and analyst with Marcus and Millichap in San Francisco.  In 1978,
                                        Mrs. McNeil established   Escrow   Training   Centers,  California's  first
                                        accredited commercial training  program  for  title company escrow officers
                                        and real  estate  agents  needing  college credits to qualify for brokerage
                                        licenses. She began in  real  estate  as Manager and Marketing  Director of
                                        Title Insurance  and Trust in Marin County,  CA. Mrs.  McNeil serves on the
                                        International Board of Directors of the Salk Institute.


<PAGE>


                                       Other Principal Occupations and Other
Name and Position             Age      Directorships During the Past 5 Years
-----------------             ---      -------------------------------------

Donald K. Reed,                50       Mr. Reed is  President,  Chief  Executive  Officer  and  Director of McREMI
Director, President,                    which is an affiliate of the General  Partner.  Prior to joining  McREMI in
and Chief Executive                     March 1993, Mr. Reed was President,  Chief  Operating  Officer and Director
Officer                                 of Duddlesten Management Corporation and Duddlesten Realty Advisors,  Inc.,
                                        with    responsibility   for   a   management  portfolio of office, retail,
                                        multi-family and mixed-use land projects  representing  $2 billion in asset
                                        value.  He was  also  Chief  Operating  Officer, Director and member of the
                                        Executive Committee of all Duddlesten affiliates. Mr. Reed started with the
                                        Duddlesten companies in 1976 and served as Senior Vice President and  Chief
                                        Financial  Officer  and  as Executive   Vice President and Chief  Operating
                                        Officer  of  Duddlesten  Management  Corporation  before  his  promotion to
                                        President  in  1982.  He  was  President  and  Chief  Operating  Officer of
                                        Duddlesten  Realty  Advisors, Inc., which has been  engaged  in real estate
                                        acquisitions, marketing and dispositions, since its formation in 1989.

Ron K. Taylor                  38       Mr.  Taylor  is a Senior  Vice  President  of  McREMI  and has been in this
Vice President                          capacity since McREMI commenced  active  operations in 1991. He also serves
                                        as Acting  Chief  Financial  Officer  of McREMI  since the  resignation  of
                                        Robert C. Irvine on January 31, 1996.  Mr. Taylor is primarily  responsible
                                        for   Asset   Management   functions   at   McREMI,    including   property
                                        dispositions,   commercial  leasing,  real  estate  finance  and  portfolio
                                        management.  Prior to joining  McREMI,  Mr.  Taylor  served as an Executive
                                        Vice  President  for a national  syndication/property  management  company.
                                        Mr. Taylor has been involved in the real estate industry since 1983.
</TABLE>

Each director  shall serve until his successor  shall have been duly elected and
qualified.

Section 16 (a) of the Securities Exchange Act of 1934 requires the Partnership's
General  Partner and the directors and executive  offers of the General  Partner
(Including McNeil Investors,  inc. as the general partner of the General Partner
and the officers  and  directors of McNeil  Investors,  Inc.) to file,  with the
Securities  and  Exchange  Commission,  reports  of  ownership  and  changes  in
ownership of the  Partnership's  Units.  The Partnership is required to identify
any of those persons who failed to file such reports on a timely basis.

During  1995,  Mrs.  McNeil  inadvertently  failed to file on a timely basis one
report relating to one transaction.  In making this disclosure,  the Partnership
has relied solely on written  representations of these and other individuals and
on copies of the reports that they have filed with the  Securities  and Exchange
Commission.

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

No direct  compensation  was paid or payable by the  Partnership to directors or
officers  (since it does not have any  directors or officers) for the year ended
December  31,  1995,  nor was any  direct  compensation  paid or  payable by the
Partnership  to  directors  or officers  of the  general  partner of the General
Partner for the year ended  December 31, 1995. The  Partnership  has no plans to
pay any such remuneration to any directors or officers of the General Partner in
the future.

See Item 13 - Certain  Relationships  and  Related  Transactions  for amounts of
compensation and  reimbursements  paid by the Partnership to the General Partner
and its affiliates.



<PAGE>


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

(A) Security ownership of certain beneficial owners.

      No individual or group,  as defined by Section  13(d)(3) of the Securities
      Exchange Act of 1934,  known to the Partnership is the beneficial owner of
      more than 5 percent of the Partnership's securities.

(B) Security ownership of Management.

      The General Partner and the officers or directors of its general  partner,
      collectively,  own 2,950,000  Units,  which is 3% of the  outstanding  any
      Units.

(C)   Change in control.

      None.

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

The amendments to the Partnership compensation structure included in the Amended
Partnership  Agreement  provide for an asset management fee to replace all other
forms of General Partner  compensation  other than property  management fees and
reimbursements  of certain  costs.  Through 1999,  the asset  management  fee is
calculated as 1% of the Partnership's tangible asset value. Tangible asset value
is  determined  by using the greater of (i) an amount  calculated  by applying a
capitalization  rate of 9 percent to the annualized net operating income of each
property or (ii) a value of $10,000 per apartment unit for residential  property
and $50 per gross square foot for commercial  property to arrive at the property
tangible  asset value.  The property  tangible  asset value is then added to the
book value of all other assets  excluding  intangible  items. The fee percentage
decreases  subsequent  to 1999.  For the  year  ended  December  31,  1995,  the
Partnership paid or accrued $519,276 of such asset management fees.

The Partnership pays property  management fees equal to 5% of the gross receipts
of its  residential  property and 6% for  commercial  properties  to McREMI,  an
affiliate of the General Partner,  for providing property  management  services.
Additionally,  the  Partnership  reimburses  McREMI  for  its  costs,  including
overhead of administering the Partnership's affairs. For the year ended December
31 1995, the Partnership  paid or accrued  $737,852 of such property  management
fees and reimbursements. See Item 1 - Business, Item 7 - Management's Discussion
and Analysis of Financial  Condition and Results of Operations and Item 8 - Note
2 - "Transactions With Affiliates".

The General Partner has, at its discretion,  advanced funds to the  Partnership.
As of December 31, 1995, the Partnership had received  $168,330 of such advances
(including  accrued  interest of $37,812) that were used to meet working capital
requirements.  The  advances,  which are  unsecured  and due on  demand,  accrue
interest at a rate equal to the prime lending rate of the Bank of America,  plus
1%. In March 1993, the Partnership  obtained a loan from McNeil Real Estate Fund
XXVII,  L.P., an affiliate of the General Partner,  which allows the Partnership
to borrow funds  totaling  $1,536,000.  Of this amount  available,  $952,538 was
borrowed in 1993. The note requires monthly interest-only  payments equal to the
prime lending rate of Bank of America plus 2.5% with the  principal  balance due
March 1, 1996. At December 31, 1995,  the prime lending rate was 8.5%.  The loan
was repaid in January 1996.
<PAGE>
ITEM 14.     EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
-------      -----------------------------------------------------------------

See accompanying Index to Financial Statements at Item 8.

(A)   Exhibits
      --------

      Exhibit
      Number                      Description
      -------                     -----------

      4.                          Amended  and  Restated   Limited   Partnership
                                  Agreement dated March 30, 1992.  (Incorporated
                                  by   reference   to  Current   Report  of  the
                                  Registrant  on Form 8-K dated March 30,  1992,
                                  as filed on April 10, 1992).

      10.1                        Assignment of Partnership Advances dated March
                                  13, 1991 between  Southmark  Investment  Group
                                  86,   Inc.   and   McNeil    Partners,    L.P.
                                  (Incorporated   by  reference  to  the  Annual
                                  Report of the  registrant on Form 10-K for the
                                  period ended  December  31, 1990,  as filed on
                                  March 29, 1991).

      10.5                        Property Management  Agreement dated March 30,
                                  1992,  between  McNeil  Real Estate Fund XXVI,
                                  L.P.   and  McNeil  Real  Estate   Management,
                                  Inc.(1)

      10.6                        Amendment  of  Property  Management  Agreement
                                  dated March 5, 1993 by McNeil Real Estate Fund
                                  XXVI, L.P. and McNeil Real Estate  Management,
                                  Inc.(1)

      10.7                        Promissory Note dated October 7, 1993, between
                                  McNeil Real Estate Fund XXVI,  L.P.  .and John
                                  Hancock Mutual Life Insurance Company relating
                                  to Amargosa Creek Apartments.(2)

      10.8                        Secured  Promissory  Note  dated  October  27,
                                  1993,  between  McNeil  Real Estate Fund XXVI,
                                  L.P. and Sun Life Assurance  Company of Canada
                                  (U.S.) relating to Westwood Center.(2)

      10.9                        Promissory  Note dated March 1, 1993,  between
                                  McNeil Real Estate Fund XXVI,  L.P. and McNeil
                                  Real Estate Fund XXVII, L.P.(2)

      10.10                       Mortgage  note payable  dated  August  24,1994
                                  between  McNeil Real Estate Fund XXVI L.P. and
                                  PNC Bank,  National  Association  relating  to
                                  Northway  Mall.(Incorporated  by  reference to
                                  the Quarterly Report of the registrant on Form
                                  10-Q for the period ended  September 30, 1994,
                                  as filed on November 14, 1994).

      10.11                       Promissory  note  payable  dated  December 15,
                                  1995, between  McNeil  Real  Estate Fund XXVI,
                                  L.P. and The Variable Annuity Life Insurance.

      11.                         Statement  regarding  computation  of Net Loss
                                  per  Limited  Partnership  Unit (see Note 1 to
                                  Financial Statements).

                  (1)             Incorporated by reference to the Annual Report
                                  of the  registrant on Form 10-K for the period
                                  ended December 31, 1992, as filed on March 30,
                                  1993.

                  (2)             Incorporated by reference to the Annual Report
                                  of the  registrant on Form 10-K for the period
                                  ended December 31, 1993, as filed on March 31,
                                  1994.

(B)   Reports  on Form  8-K.  There  were no  reports  on Form 8-K  filed by the
      Partnership during the quarter ended December 31, 1995.
<PAGE>



                       McNEIL REAL ESTATE FUND XXVI, L.P.
                              A Limited Partnership

                                 SIGNATURE PAGE


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.

<TABLE>
<S>                                                <C>
                                                   McNEIL REAL ESTATE FUND XXVI, L.P.


                                                   By:  McNeil Partners, L.P., General Partner

                                                   By: McNeil Investors, Inc., General Partner



March 29, 1996                                     By:  /s/  Robert A. McNeil
----------------------------------                      --------------------------------------
Date                                                    Robert A. McNeil
                                                        Chairman of the Board and Director
                                                        Principal 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.



March 29, 1996                                      By:  /s/  Donald K. Reed
-----------------------------------                     --------------------------------------
Date                                                    Donald K. Reed
                                                        President and Director of McNeil Investors, Inc.



March 29, 1996                                      By:  /s/  Ron K. Taylor
-----------------------------------                     --------------------------------------
Date                                                    Ron K. Taylor
                                                        Acting Chief Financial Officer
                                                            of McNeil Investors, Inc.



March 29, 1996                                      By:  /s/  Carol A. Fahs
-----------------------------------                     --------------------------------------
Date                                                    Carol A. Fahs
                                                        Chief Accounting Officer of McNeil Real Estate
                                                           Management, Inc.
</TABLE>