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

                                  FORM 10-K405

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

     For the fiscal year ended            December 31, 1997
                                ------------------------------------------------

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from ______________ to_____________

     Commission file number  0-13356
                           ----------

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


         California                             33-0030615
--------------------------------------------------------------------------------
(State or other jurisdiction of                 (I.R.S. Employer
incorporation or organization)                   Identification No.)


             13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240
--------------------------------------------------------------------------------
               (Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code       (972)  448-5800
                                                     ---------------------------

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

Securities registered pursuant to Section 12(g) of the Act:
     Current Income Limited Partnership Units
     Growth/Shelter 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. [ X ]

All of the Registrant's 47,086 outstanding 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 41

                                TOTAL OF 43 PAGES

<PAGE>
                                     PART I

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

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

McNeil  Real Estate  Fund XXI,  L.P.,  (the  "Partnership"),  formerly  known as
Southmark Realty Partners, Ltd., was organized on November 23, 1983 as a limited
partnership under the provisions of the California  Revised Limited  Partnership
Act to acquire and operate  commercial and residential  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 26, 1992,
at which  time an amended  and  restated  partnership  agreement  (the  "Amended
Partnership  Agreement")  was  adopted.  Prior to March 26,  1992,  the  general
partner of the Partnership was Southmark  Partners,  Ltd. (the "Original General
Partner"), a Texas limited partnership of which the general partner is Southmark
Investment  Group,  Inc., 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 600, LB70, Dallas, Texas, 75240.

On February 3, 1984, the Partnership registered with the Securities and Exchange
Commission  ("SEC")  under the  Securities  Act of 1933 (File No.  2-88171)  and
commenced  a public  offering  for sale of  $50,000,000  of limited  partnership
units. There were two classes of limited  partnership units offered,  designated
as Current Income Units and Growth/Shelter  Units,  (referred to collectively as
"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 February 2, 1985 with 47,382 Units
(24,982  Current  Income Units and 22,400  Growth/Shelter  Units) sold at $1,000
each, or gross  proceeds of  $47,382,000  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. 0-13356). In 1994,
1995 and 1996, a total of 33 Current  Income Units and 61  Growth/Shelter  Units
were  relinquished.  During 1997, 43 Current Income Units and 159 Growth/Shelter
Units were  relinquished  leaving 47,086 Units (24,906  Current Income Units and
22,180 Growth/Shelter Units) outstanding at December 31, 1997.

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, were 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 (the "Selected Partnerships").




<PAGE>
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 and commenced management
of the  Partnership's  properties  pursuant  to an  assignment  of the  existing
property management agreements from the Southmark affiliates.

On March 26, 1992, the limited partners  approved a restructuring  proposal that
provided  for (i) the  replacement  of the Original  General  Partner with a new
general  partner,  the  General  Partner;  (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 XXI, L.P. Under the Amended  Partnership  Agreement,  the Partnership began
accruing an asset  management  fee,  retroactive to February 14, 1991,  which is
payable  to  the  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 26, 1992 meeting were
implemented as of that date.

Concurrent with the approval of the restructuring,  the General Partner acquired
from Southmark and its affiliates,  for aggregate  consideration of $389,023 (i)
the right to receive  payment on the  advances  owing  from the  Partnership  to
Southmark and its affiliates in the amount of  $1,131,143,  and (ii) the general
partner interest of the Original General Partner. None of the Units are owned by
the General Partner or its affiliates.

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.  As described in Item 2 - Properties,  at December 31, 1997,
the Partnership owned seven revenue-producing 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. See Item 8 Note 2
- "Transactions With Affiliates."

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:

Pursuant  to the  Partnership's  previously  announced  liquidation  plans,  the
Partnership  has recently  retained  PaineWebber,  Incorporated as its exclusive
financial  advisor  to  explore  alternatives  to  maximize  the  value  of  the
Partnership.  The  alternatives  being  considered by the  Partnership  include,
without limitation,  a transaction in which limited partnership interests in the
Partnership  are converted into cash. The General  Partner of the Partnership or


<PAGE>
entities or persons  affiliated with the General Partner will not be involved as
a purchaser in any of the transactions  contemplated above. Any transaction will
be subject to certain conditions  including (i) approval by the limited partners
of the Partnership, and (ii) receipt of an opinion from an independent financial
advisory  firm  as  to  the  fairness  of  the  consideration  received  by  the
Partnership  pursuant to such  transaction.  Finally,  there can be no assurance
that any transaction will be consummated, or as to the terms thereof.

The Partnership placed Fort Meigs Plaza on the market for sale effective October
1, 1996. The Partnership has received an offer from a non-affiliate  to purchase
the center for $3.8 million.

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.

Forward-Looking Information:

Within this document,  certain  statements are made as to the expected occupancy
trends,  financial  condition,  results  of  operations,  and cash  flows of the
Partnership  for periods after  December 31, 1997.  All of these  statements are
forward-looking  statements  made pursuant to the safe harbor  provisions of the
Private  Securities  Litigation  Reform Act of 1995.  These  statements  are not
historical  and  involve  risks  and  uncertainties.  The  Partnership's  actual
occupancy trends, financial condition, results of operations, and cash flows for
future  periods may differ  materially  due to several  factors.  These  factors
include,  but are not limited to, the  Partnership's  ability to control  costs,
make necessary  capital  improvements,  negotiate  sales or  refinancings of its
properties and respond to changing economic and competitive factors.



<PAGE>
Environmental Matters:

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.

Other Information:

Management  has begun to review its  information  technology  infrastructure  to
identify any systems that could be affected by the year 2000  problem.  The year
2000 problem is the result of computer  programs  being written using two digits
rather  than  four to  define  the  applicable  year.  Any  programs  that  have
time-sensitive  software may recognize a date using "00" as the year 1900 rather
than  the  year  2000.   This  could   result  in  major   systems   failure  or
miscalculations.  The information  systems used by the Partnership for financial
reporting and  significant  accounting  functions  were made year 2000 compliant
during  recent  systems  conversions.  The  Partnership  is in  the  process  of
evaluating the computer systems at the various properties.  The Partnership also
intends to communicate  with  suppliers,  financial  institutions  and others to
coordinate  year 2000 issues.  Management  believes that the  remediation of any
outstanding  year 2000  conversion  issues  will not have a material  or adverse
effect on the Partnership's operations.

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

The following  table sets forth the investment  portfolio of the  Partnership at
December 31, 1997.  All of the  buildings and the land on which they are located
are owned by the  Partnership  in fee and are  subject  to a first  lien deed of
trust.  Certain  of the  properties  are  also  subject  to one or  more  junior
mortgages as described more fully in Item 8 - Note 5 - "Mortgage  Notes Payable"
and Note 6 - "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>
<CAPTION>
                                            Net Basis of                          1997              Date
Property              Description            Property            Debt         Property Tax         Acquired
--------              -----------           ------------         ----         ------------         --------
Real Estate Investments:
<S>                   <C>                  <C>               <C>                <C>                   <C>
Bedford Green (1)     Apartments
Bedford, OH           156 units            $     2,129,408   $    3,238,088     $   94,193            6/84

Breckenridge (2)      Apartments
Davenport, IA         120 units                  1,412,126        1,661,089         81,384           10/84

Evergreen
  Square (3)          Apartments
Tupelo, MS            257 units                  2,579,916        1,908,495         80,854           11/84
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                            Net Basis of                          1997              Date
Property              Description            Property            Debt         Property Tax         Acquired
--------              -----------           ------------         ----         ------------         --------
<S>                   <C>                 <C>               <C>               <C>                    <C>
Governour's
  Square (4)          Apartments
Wilmington, NC        219 units           $      3,744,275  $     2,993,362   $     67,850           11/84

Wise County Plaza     Retail Center
Wise, VA              147,848 sq. ft.            4,609,575        5,973,735         43,349            2/84

Woodcreek (5)         Apartments
Ft. Wayne, IN         204 units                  2,588,366        2,759,734        110,981           11/84
                                           ---------------   --------------     ----------
                                          $     17,063,666  $    18,534,503   $    478,611
                                           ===============   ==============    ===========

Asset Held for Sale:

Fort Meigs Plaza      Retail Center
Perrysburg, OH        104,990 sq. ft.     $      2,795,988  $     3,730,076   $     74,894           10/84
                                           ===============   ==============    ===========
</TABLE>
----------------------------------------------
Total:    Apartments  - 956 Units
          Retail Centers - 252,838 sq. ft.

(1)    Bedford Green Apartments is owned   by   Bedford   Green Fund XXI Limited
       Partnership, which is wholly-owned by the Partnership.

(2)    Breckenridge  Apartments is   owned  by   Breckenridge  Fund  XXI Limited
       Partnership, which is wholly-owned by the Partnership.

(3)    Evergreen  Apartments is owned by Evergreen Fund XXI Limited Partnership,
       which is wholly-owned by the Partnership.

(4)    Governour's  Square Apartments  is  owned by Governour's Square Fund  XXI
       Limited Partnership, which is wholly-owned by the Partnership.

(5)    Woodcreek  Apartments is owned by Woodcreek Fund XXI Limited Partnership,
       which is wholly-owned by the Partnership.


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

<TABLE>
<CAPTION>
                                        1997           1996            1995           1994          1993
                                    -------------  -------------  --------------  -------------  ----------
Real Estate Investments:
<S>                                       <C>             <C>            <C>            <C>             <C>
Bedford Green
   Occupancy Rate............             97%             97%            99%            87%             95%
   Rent Per Square Foot......           $9.33           $9.11          $8.31          $7.99           $7.83

Breckenridge
   Occupancy Rate............             93%             93%            97%            89%             88%
   Rent Per Square Foot......           $8.58           $8.26          $7.79          $7.07           $7.09

Evergreen Square
   Occupancy Rate............             85%             88%            90%            91%             90%
   Rent Per Square Foot......           $4.38           $4.62          $4.52          $4.24           $3.88

Governour's Square
   Occupancy Rate............             99%            100%            99%            97%             97%
   Rent Per Square Foot......           $7.76           $7.33          $6.85          $6.44           $6.01

Wise County Plaza
   Occupancy Rate............             95%             88%            94%            83%             91%
   Rent Per Square Foot......           $6.00           $6.02          $5.56          $5.90           $6.33

Woodcreek
   Occupancy Rate............             87%             93%            87%            92%             98%
   Rent Per Square Foot......           $6.36           $6.33          $6.09          $6.22           $5.42

Asset Held for Sale:

Fort Meigs Plaza
   Occupancy Rate............             96%             97%            96%            98%            100%
   Rent Per Square Foot......           $6.50           $6.52          $6.38          $6.40           $6.45
</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 commercial  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
----------------------

Real Estate Investments:

Bedford Green
-------------

Bedford Green  Apartments is located in Bedford,  Ohio,  southeast of Cleveland,
Ohio.  Bedford Green continues to be one of the nicest apartment  communities in
the market and charges slightly higher rents than its competitors.  The property
ended the year at a 97%  occupancy  rate,  giving  the  property  a 98%  average
occupancy rate for 1997.  Management expects to maintain occupancy in the mid to
high 90% range in 1998 by  improving  the  appearance  of the  property  through
capital expenditures.
<PAGE>
Breckenridge
------------

Breckenridge Apartments is located in a northwest residential area of Davenport,
Iowa. The property currently has no deferred  maintenance and its curb appeal is
equal to that of its  competition.  The  property  floor  plans are very  small,
resulting in square foot rental rates which are significantly higher than market
rates. New apartment construction is now occurring in the area, which could have
an effect on the property's  performance.  Due to the availability of affordable
housing  and  discounts  offered  by  competitors,   rental  rates  will  remain
relatively stable in 1998.  Management  expects to maintain occupancy in the mid
90% range in 1998.

Evergreen Square
----------------

Evergreen  Square  Apartments,  built  in 1970 in  Tupelo,  Mississippi,  offers
attractive  floor  plans,  a  renovated  exterior  and various  amenities  which
position it as a strong  competitor  in its market area.  Exterior  improvements
have helped Evergreen  Square maintain a stabilized  occupancy in spite of being
located  in a  declining  neighborhood.  An  increase  in  crime in the area has
resulted in a decrease in occupancy over the past two years.  Although there has
been no recent multifamily  development in the immediate area, the area offers a
very reasonably priced  home-buying  market and an abundance of rental homes and
duplexes.  Based  upon a  continued  capital  improvement  program  and  focused
management, Evergreen Square should be able to maintain current occupancy rates.
However, its location in a declining neighborhood will limit long-range growth.

Governour's Square
------------------

Governour's Square Apartments,  located in Wilmington,  North Carolina was built
in 1974.  Exterior  improvements  as well as interior  upgrades have enabled the
property to achieve an occupancy rate slightly above the market,  even with some
new  construction  and  renovations by  competitors  in the immediate  area. The
apartments  are  marketed  primarily  to middle  income  residents.  Many of the
families  who select  the  property  do so for its  favorable  school  location,
however,  this may change in 1998 due to  redistricting  plans for the city. The
Partnership  anticipates a slight decrease in occupancy in 1998 due to increased
competition  from new  multi-family  developments  and leasing  incentives being
offered  to  tenants  by  competitors.  With  continued  interior  and  exterior
upgrades,  the Partnership expects to maintain occupancy in the mid 90% range in
1998.

Wise County
-----------

Wise County Plaza, located in Wise, Virginia, was built in 1971 and its colonial
design is unique to the area. Although the shopping center is located in an area
besieged  by  high  unemployment  rates  and a  lackluster  economy  due  to the
declining  coal industry,  it has remained a consistent  competitor in the local
retail market.  Management plans to maintain  occupancy while holding down costs
in 1998.






<PAGE>
The mortgage notes payable  secured by Wise County Plaza matured in August 1997.
The  partnership  is  currently  attempting  to  negotiate  a  modification  and
extension of the loans with the lender.  If an agreement cannot be reached,  the
lender may foreclose on the property. The Partnership has received an offer from
a non-affiliate  to purchase the center for $4.9 million,  which is more than $1
million  less  than the  principal  balance  owed on the  loans  secured  by the
property.  Based on this offer and the reduced anticipated holding period of the
property, the Partnership recorded a $330,000 write-down for impairment of value
during the fourth  quarter  of 1997 to record  the  shopping  center at its fair
value less costs to sell.

Woodcreek
---------

Woodcreek  Apartments,  located in Fort  Wayne,  Indiana,  was built in 1978 and
offers attractive floor plans. The immediate area consists of older, established
apartment  communities that are not aggressive in raising rental rates. A strong
single-family   housing  market  has  negatively  impacted  the  rental  market.
Woodcreek's  occupancy  rate is  slightly  lower than the  average for the area.
Management  added a weight room in 1996 which  appealed  to the large  number of
young professionals in the complex.  The stable economy in the area should allow
the property to maintain occupancy in the low 90% range during 1998.

Asset Held for Sale:

Fort Meigs Plaza
----------------

Fort Meigs Plaza is a strip shopping center located in Perrysburg,  Ohio, a city
lying just outside of Toledo,  Ohio.  The center is surrounded  by  upper-middle
income  residential  neighborhoods  which  are very well  established.  With the
exception of one property,  all of the competitors are newer, yet Fort Meigs has
earned a reputation in the marketplace as a well maintained center. The property
is expected to operate at current occupancy levels in 1998.


<PAGE>
The following  schedule shows lease  expirations  for each of the  Partnership's
commercial properties for 1998 through 2007:

<TABLE>
<CAPTION>
                           Number of                                   Annual           % of Gross
                           Expirations           Square Feet            Rent            Annual Rent
                           -----------           -----------           ------           -----------
<C>                             <C>                   <C>          <C>                        <C>
Fort Meigs Plaza
1998                            3                     3,485        $      37,080              6%
1999                            4                    42,256              127,024             22%
2000                            4                     9,020               76,575             13%
2001                            3                    35,772              245,880             42%
2002                            2                     6,329               42,225              7%
2003                            1                     2,250               25,192              4%
2004-2007                       -                         -                    -              -

Wise County Plaza
1998                            8                    14,387        $     110,136             14%
1999                            5                    12,035               66,766              8%
2000                            3                     5,517               38,302              5%
2001                            4                    37,904              283,468             36%
2002-2003                       -                         -                    -              -
2004                            1                    36,893               55,340              7%
2005-2007                       -                         -                    -              -
</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>
<CAPTION>
Nature of
Business                       Square Footage                                                  Lease
   Use                              Leased                    Annual Rent                   Expiration
---------                      --------------                 -----------                   -----------
<S>                                  <C>                       <C>                             <C>
Fort Meigs Plaza
   Variety Store                     30,000                    $  64,500                       1999
   Grocery Store                     32,470                      222,420                       2001

Wise County Plaza
   General Office                    21,062                    $ 218,762                       2001
   Department Store                  36,893                       55,340                       2004
   Grocery Store                     32,016                      146,664                       2008

</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:

James F.  Schofield,  Gerald C. Gillett,  Donna S. Gillett,  Jeffrey  Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners, L.P.,
McNeil Investors,  Inc., McNeil Real Estate Management,  Inc., Robert A. McNeil,
Carole J. McNeil,  McNeil Pacific  Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX,  Ltd.,  McNeil Real  Estate  Fund X, Ltd.,  McNeil Real Estate Fund XI,
Ltd.,  McNeil  Real Estate Fund XII,  Ltd.,  McNeil Real Estate Fund XIV,  Ltd.,
McNeil Real Estate Fund XV, Ltd.,  McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P.,  McNeil Real Estate Fund XXII,  L.P.,  McNeil Real Estate
Fund XXIV,  L.P.,  McNeil Real Estate  Fund XXV,  L.P.,  McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII,  L.P., et al. - Superior Court of
the State of California for the County of Los Angeles,  Case No. BC133799 (Class
and Derivative Action Complaint).

The action involves  purported  class and derivative  actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the  "Partnerships").  Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management,  Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their  fiduciary  duties and certain  obligations  under the respective  Amended
Partnership  Agreement.  Plaintiffs  allege that  Defendants  have rendered such
Units highly illiquid and  artificially  depressed the prices that are available
for Units on the resale market.  Plaintiffs also allege that Defendants  engaged
in a course of conduct to prevent the  acquisition  of Units by an  affiliate of
Carl  Icahn  by  disseminating  purportedly  false,  misleading  and  inadequate
information.  Plaintiffs  further allege that Defendants  acted to advance their
own personal  interests at the expense of the Partnerships'  public unit holders
by failing to sell Partnership  properties and failing to make  distributions to
unitholders.

On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs  are suing for breach of  fiduciary  duty,  breach of contract and an
accounting,  alleging,  among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive,  that these fees should
be reduced retroactively and that the respective Amended Partnership  Agreements
governing the Partnerships are invalid.

Defendants  filed a demurrer to the  consolidated  and amended  complaint  and a
motion to strike on February 14, 1997,  seeking to dismiss the  consolidated and
amended complaint in all respects.  A hearing on Defendant's demurrer and motion
to strike  was held on May 5,  1997.  The Court  granted  Defendants'  demurrer,
dismissing  the  consolidated  and  amended  complaint  with leave to amend.  On
October  31,  1997,  the  Plaintiffs  filed a second  consolidated  and  amended
complaint.  Defendants  must  move,  answer or  otherwise  respond to the second
consolidated and amended complaint by June 30, 1998.

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

None.



<PAGE>
                                     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            3,932 as of January 31, 1998

(C)      No distributions were paid to the partners in 1997 or 1996 and none are
         anticipated in 1998.  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 Unit  holders.  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."

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  Partnership's
financial  statements  and  notes  thereto  appearing  in  Item  8  -  Financial
Statements and Supplementary Data.

<TABLE>
<CAPTION>
Statements of                                             Years Ended December 31,
Operations                              1997           1996            1995           1994           1993
------------------                  -------------  -------------  --------------  -------------  --------------
<S>                                 <C>            <C>            <C>             <C>            <C>
Rental revenue...............       $   6,478,023  $   6,434,691  $    6,642,725  $   8,054,097  $   9,985,424
Write-down for impairment
   of real estate............            (330,000)             -               -              -       (976,800)
Gain on disposition of
   real estate...............                   -              -       1,615,811         29,440        678,830
Loss before extraordinary
   items.....................          (1,478,604)    (1,127,080)       (170,804)    (1,891,596)    (3,106,420)
Extraordinary items..........                   -              -               -              -     (1,182,974)
Net loss.....................          (1,478,604)    (1,127,080)       (170,804)    (1,891,596)    (4,289,394)

Net income (loss) per
   limited partnership unit:

   Income (loss) before
     extraordinary items:
     Current Income Units....       $      (5.34)  $       (4.07) $       31.62    $      (6.82)   $     (11.19)
     Growth/Shelter Units....             (60.00)         (45.41)        (42.85)         (76.12)        (124.81)

   Extraordinary items:
     Current Income Units....                   -              -               -              -          (4.26)
     Growth/Shelter Units....                   -              -               -              -         (47.53)

   Net income (loss):
     Current Income Units....              (5.34)          (4.07)         31.62           (6.82)        (15.45)
     Growth/Shelter Units....             (60.00)         (45.41)        (42.85)         (76.12)       (172.34)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                              As of December 31,
Balance Sheets                          1997           1996            1995           1994           1993
--------------                      -------------  -------------  --------------  -------------  -------------
<S>                                <C>            <C>            <C>             <C>            <C>
Real estate investments, net...    $   17,063,666 $   18,121,925 $    21,671,191 $   22,557,552 $   27,856,319
Assets held for sale...........         2,795,988      2,731,674               -      8,153,520      5,935,338
Total assets...................        23,063,962     23,931,225      25,178,649     33,985,057     38,017,866
Mortgage notes payable, net....        22,264,579     22,514,175      22,742,528     30,979,473     33,040,885
Partners' deficit..............        (5,899,582)    (4,420,978)     (3,293,898)    (3,123,094)    (1,231,498)
</TABLE>

See Item 7 -  Management's  Discussion  and Analysis of Financial  Condition and
Results of  Operations.  Hickory Lake  Apartments  was sold in December 1993 and
Homestead Manor Apartments was sold in February 1994.  Wyoming Mall and Suburban
Plaza shopping centers were sold in March 1995.

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

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

The Partnership  generated  $1,168,737 of cash through  operating  activities in
1997 as compared to $699,883 in 1996 and $410,990 in 1995.  The increase in 1997
as  compared  to 1996 was mainly due to a decrease  in cash paid to  affiliates,
partially  offset  by an  increase  in cash  paid to  suppliers.  In  1996,  the
Partnership  paid  $700,000 of previously  accrued  overhead  reimbursements  to
McREMI. No overhead  reimbursements were paid to McREMI in 1997. The increase in
cash paid to  suppliers  was due to the timing of the payment of invoices at the
end of the year.

The  increase  in 1996 as  compared  to 1995 was  primarily  due to the sales of
Suburban Plaza and Wyoming Mall in 1995.  With the proceeds from the sales,  the
Partnership  was able to repay  $973,000 of advances and  $1,331,000 of mortgage
notes payable from  affiliates in the first half of 1995,  thereby  reducing the
interest  paid to  affiliates  in 1996.  In  addition,  cash paid to  suppliers,
interest paid and property taxes paid were lower in 1996 due to the sales of the
two properties. These decreases in cash paid were partially offset by a decrease
in cash  received  from  tenants as a result of the property  sales in 1995.  In
addition,  no  interest  was  received  from  affiliates  in 1996 as compared to
$71,614 in 1995 since the  previous  advances  of $300,000 to McNeil Real Estate
Fund XXII,  L.P. ("Fund XXII") for Wyoming Mall were paid off in 1995. Cash paid
to  affiliates  increased  in 1996  due to the  payment  of  previously  accrued
overhead reimbursements to McREMI.

In 1997 and 1996, the Partnership  received $100,241 and $40,937,  respectively,
of proceeds  from the  insurance  carrier for  damages  suffered at  Governour's
Square Apartments. No such proceeds were received in 1995.

During 1995, the Partnership  received  $300,000 for repayment of the advance to
Fund XXII, the joint owner of Wyoming Mall.




<PAGE>
In 1995, the sale of Suburban Plaza and Wyoming Mall shopping  centers  provided
cash proceeds of $10,946,743.  The  Partnership  used the proceeds to retire the
related  mortgage notes on the properties sold totaling  $7,415,826,  to repay a
mortgage  note  from an  affiliate  in the  amount  of  $1,331,000  and to repay
affiliate advances of $973,000.

In 1995, the Partnership paid $194,952 for deferred  borrowing costs relating to
the refinancing of Bedford Green and Woodcreek Apartments.

In 1995,  the  Partnership  received  $60,103 of proceeds from  refinancing  two
mortgage notes payable. See Item 8 - Note 10 - "Mortgage Refinancings."

Short-term liquidity:

In 1998,  present cash balances and operations of the properties are expected to
provide sufficient cash for normal operating expenses, debt service payments and
budgeted capital improvements. The mortgage notes payable secured by Wise County
Plaza and the second lien  mortgage  note  payable -  affiliate  secured by Fort
Meigs Plaza  matured in 1997.  The first lien  mortgage note payable - affiliate
secured by Fort Meigs Plaza matured in March 1998. The Partnership has continued
to make  regularly  scheduled  debt  service  payments on the Wise County  Plaza
mortgages  and has  attempted to negotiate a  modification  and extension of the
loan with the lender.  An agreement has not been reached and the lender  intends
to foreclose on the property.  Foreclosure  by the lender is not  anticipated to
have a significant  effect of the Partnership  since all excess cash flow of the
property  is payable  to the lender as  additional  interest  on the loans.  The
Partnership  has  placed  Fort  Meigs  Plaza  on the  market  for  sale  and the
Partnership has received an offer from a non-affiliate  to purchase the property
for $3.8 million. The Partnership will continue to make regularly scheduled debt
service payments on the mortgage notes until the property can be sold.

The  Partnership  has no  established  lines of  credit  from  outside  sources.
Although  affiliates of the Partnership  have  previously  funded cash deficits,
there can be no assurance the Partnership will receive  additional funds.  Other
possible actions to resolve cash  deficiencies  include  refinancing,  deferring
major capital or repair  expenditures  on  Partnership  properties  except where
improvements are expected to enhance the  competitiveness  and  marketability of
the properties,  deferring payables to or arranging financing from affiliates or
the ultimate sale of Partnership properties.

The General Partner has, at its discretion, advanced funds to the Partnership to
fund working capital  requirements.  During 1995, the  Partnership  repaid these
advances  from the proceeds  from the sales of Wyoming Mall and Suburban  Plaza.
The General  Partner is not obligated to advance funds to the  Partnership,  and
there is no assurance that the Partnership will receive additional funds.

Prior  to the  restructuring  of the  Partnership,  affiliates  of the  Original
General  Partner  advanced  funds to enable the  Partnership to meet its working
capital requirements.  These advances were purchased by, and are now payable to,
the  General  Partner.  During  1995 the  Partnership  repaid a  portion  of the
purchased  advances and the related accrued  interest from the proceeds from the
sales of Wyoming Mall and Suburban Plaza.







<PAGE>
The total  advances from  affiliates at December 31, 1997 and 1996  consisted of
the following:

                                                        1997             1996
                                                    -----------      -----------

    Advances purchased by General Partner           $     630,574    $   630,574
    Accrued interest payable                              164,407        104,679
                                                     -----------      ----------
                                                    $     794,981    $   735,253
                                                     ============     ==========

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 8.50% and
8.25% at December 31, 1997 and 1996, respectively.

Long-term liquidity:

Pursuant  to the  Partnership's  previously  announced  liquidation  plans,  the
Partnership  has recently  retained  PaineWebber,  Incorporated as its exclusive
financial  advisor  to  explore  alternatives  to  maximize  the  value  of  the
Partnership.  The  alternatives  being  considered by the  Partnership  include,
without limitation,  a transaction in which limited partnership interests in the
Partnership  are converted into cash. The General  Partner of the Partnership or
entities or persons  affiliated with the General Partner will not be involved as
a purchaser in any of the transactions  contemplated above. Any transaction will
be subject to certain conditions  including (i) approval by the limited partners
of the Partnership, and (ii) receipt of an opinion from an independent financial
advisory  firm  as  to  the  fairness  of  the  consideration  received  by  the
Partnership  pursuant to such  transaction.  Finally,  there can be no assurance
that any transaction will be consummated, or as to the terms thereof.

The Partnership placed Fort Meigs Plaza on the market for sale effective October
1, 1996. The Partnership has received an offer from a non-affiliate  to purchase
the center for $3.8 million.

Operations of the  Partnership's  properties are expected to provide  sufficient
cash flow for operating expenses, debt service payments and capital improvements
in the foreseeable  future.  The Partnership has significant  mortgage  balances
that are past due or matured in March 1998. As the  Partnership  has been unable
to negotiate a modification of the Wise County Plaza mortgages, the property may
be foreclosed by the lender.  Foreclosure  by the lender is not  anticipated  to
have a significant  effect of the Partnership  since all excess cash flow of the
property  is payable  to the lender as  additional  interest  on the loans.  The
Partnership  has  placed  Fort  Meigs  Plaza  on the  market  for  sale  and the
Partnership has received an offer from a non-affiliate  to purchase the property
for $3.8 million. The Partnership will continue to make regularly scheduled debt
service payments on the loans until the property can be sold.

These  conditions raise  substantial  doubt about the  Partnership's  ability to
continue  as a going  concern.  The  financial  statements  do not  include  any
adjustments that might result from the outcome of these uncertainties.


<PAGE>
Distributions

To maintain adequate cash balances of the Partnership,  distributions to Current
Income Unit holders were suspended in 1989.  There have been no distributions to
Growth/Shelter  Units  holders.   Distributions  to  Unit  holders  will  remain
suspended  for the  foreseeable  future.  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 Unit holders.

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

The  Partnership was formed to engage in the business of acquiring and operating
revenue-producing  real  properties,  and holding the properties for investment.
Since  completion of its capital  formation and property  acquisition  phases in
1985, when it completed the purchase of thirteen properties, the Partnership has
operated its properties for production of income.

The  Partnership's   properties  were  adversely  affected  by  competitive  and
overbuilt markets, resulting in continuing cash flow problems. Commerce Tower in
Amarillo,  Texas and Georgetown Apartments in Lakeland,  Florida were foreclosed
on by the respective lenders in full settlement of mortgage indebtedness in 1990
and 1992,  respectively.  Hickory Lake Apartments was sold in December 1993, and
Homestead  Manor  Apartments  was sold in  February  1994.  In March  1995,  the
Partnership  sold the Suburban  Plaza and Wyoming  Mall  shopping  centers.  The
Partnership continues to operate the seven remaining properties.

During  1994,  management  determined  that Wyoming Mall had reached its optimum
value and therefore began actively marketing the property for sale. The property
was sold on March 31, 1995 with net cash proceeds of $877,664.

Suburban  Plaza  was  sold to an  unrelated  third  party  for a cash  price  of
$6,910,000  on March  31,1995.  The  Partnership  received net cash  proceeds of
$1,322,253.

The mortgage notes payable  secured by Wise County Plaza matured in August 1997.
The partnership  has attempted to negotiate a modification  and extension of the
loans with the lender.  An agreement has not been reached and the lender intends
to  foreclose  on the  property.  The  Partnership  has received an offer from a
non-affiliate  to purchase  the center for $4.9  million,  which is more than $1
million  less  than the  principal  balance  owed on the  loans  secured  by the
property.  Based on this offer and the reduced anticipated holding period of the
property, the Partnership recorded a $330,000 write-down for impairment of value
during the fourth  quarter  of 1997 to record  the  shopping  center at its fair
value less costs to sell.

The Partnership's working capital needs have been supported by net proceeds from
the December  1993 sale of Hickory Lake  Apartments  and the March 1995 sales of
Suburban Plaza and Wyoming Mall and by deferring certain affiliate payables.

The Partnership  has had little ready cash reserves since its inception.  It has
been largely  dependent on  affiliates  to support its  operations.  Although no
additional  advances from  affiliates were required during 1997, the Partnership
owed  affiliate  advances of $794,981  and payables to  affiliates  for property
management  fees,  Partnership  general  and  administrative   expenses,   asset
management fees and disposition fees totaling $4,862,973.



<PAGE>
RESULTS OF OPERATIONS
---------------------

1997 compared to 1996

Revenue:

Total revenue  increased by $66,222 in 1997 as compared to 1996 due to increases
in rental  revenue and gain on  involuntary  conversion,  partially  offset by a
decrease in interest income, as discussed below.

In 1997, rental revenue increased by $43,332 in relation to 1996. Rental revenue
increased at Bedford Green,  Breckenridge and Governour's  Square  apartments in
1997 due to increases in rental rates.  These increases were partially offset by
a decrease in rental revenue at Evergreen Square  Apartments due to a decline in
occupancy  in 1997.  Rental  revenue  remained  relatively  stable at  Woodcreek
Apartments,  Fort  Meigs  Plaza  and Wise  County  Plaza  in 1997.  See Item 2 -
Properties for a more detailed analysis of occupancy and rents per square foot.

Interest income decreased by $16,513 in 1997 as compared to 1996,  mainly due to
a lower average amount of cash available for short-term  investment in 1997. The
Partnership  held  approximately  $2 million of cash and cash equivalents at the
beginning of 1996. Cash and cash  equivalents  decreased to  approximately  $1.7
million  by the end of 1996,  mainly due to a  $700,000  payment  of  previously
accrued overhead  reimbursements  in the second half of the year. Cash increased
only slightly to approximately $1.8 million at the end of 1997.

The Partnership  recognized a gain on involuntary  conversion of $66,655 in 1997
and $27,252 in 1996. Both of the gains were related to hurricane damage suffered
at Governour's  Square  Apartments in 1996, and were recognized as reimbursement
proceeds were received from the insurance carrier. The total gain on involuntary
conversion of $93,907  represents the insurance  proceeds  received in excess of
the basis of the property damaged by the hurricanes.

Expenses:

Total  expenses  increased by $417,746 in 1997 as compared to 1996. The increase
was mainly due to a  write-down  of Wise County  Plaza as well as  increases  in
interest -  affiliates  and general and  administrative  expenses,  as discussed
below.

In 1997,  interest - affiliates  increased  by $33,060 in relation to 1996.  The
increase was mainly due to an affiliate  purchasing the first lien mortgage note
secured  by Fort  Meigs  Plaza in  December  1997 from an  unaffiliated  lender.
Interest - affiliates in 1997 includes  interest  expense for the portion of the
year the affiliate owned the mortgage.

General and administrative  expenses increased by $84,667 in 1997 as compared to
1996. The increase was partially due to an increase in legal  expenses  relating
to a class  action  lawsuit,  as  discussed  in Item 3 - Legal  Proceedings.  In
addition,  the Partnership incurred  approximately $19,000 of costs incurred for
investor services, which were paid to an unrelated third party in 1997. In 1996,
such costs were paid to an affiliate of the General Partner and were included in
general and administrative - affiliates on the Statements of Operations.

In 1997, the Partnership  recorded a $330,000  write-down for impairment of Wise
County Plaza Shopping Center. No such write-down was recorded in 1996.


<PAGE>
1996 compared to 1995

Revenue:

Total revenue  decreased by $1,815,931 in 1996 as compared to 1995. The decrease
was  mainly  due to the  Partnership  recording  a gain in  1995 on the  sale of
Suburban Plaza Shopping  Center,  net of the loss on the sale of Wyoming Mall in
1995, as discussed below.

Rental revenue  decreased by $208,034 in 1996 as compared to the prior year. The
overall  decrease was primarily  due to the sales of Suburban  Plaza and Wyoming
Mall, which contributed  rental revenue of approximately  $326,000 and $262,000,
respectively,  in 1995. This loss of rental revenue from the sold properties was
partially  offset by an  increase  in rental  revenue  at the  remainder  of the
properties.  The majority of the  increase was due to increased  rental rates at
each of the  properties.  In  addition,  although  occupancy  at  Bedford  Green
Apartments and Wise County Plaza was lower at the end of 1996 than at the end of
1995,  there  was an  increase  in the  average  occupancy  rates at  these  two
properties  in 1996.  See Item 2 - Properties  for a more  detailed  analysis of
occupancy and rents per square foot.

Interest  income  decreased by $19,338 in 1996 as compared to 1995. In 1995, the
Partnership  recorded  approximately  $9,400 of  interest on a loan made to Fund
XXII,  the joint owner of Wyoming Mall. No such interest was recorded in 1996 as
the loan was repaid by Fund XXII in 1995.  In addition,  there was a decrease in
interest  earned  on funds  held in escrow  accounts  by the  mortgagee.  Escrow
deposits  declined  in 1996 as funds were  released  by the  lenders for capital
improvements.

The Partnership  recognized a gain on involuntary conversion of $27,252 relating
to hurricane damage suffered at Governour's  Square Apartments in 1996 (see Item
8 - Note 11 - "Gain on Involuntary Conversion").

During 1995, the Partnership  recognized a gain on disposition of real estate on
Suburban Plaza of $1,861,448 and a loss on the sale of Wyoming Mall of $245,637.
No such gain was recorded in 1996.

Expenses:

Total  expenses  decreased by $859,655 in 1996 as compared to 1995. The decrease
was mainly due to decreases in interest expense,  depreciation and amortization,
other property  operating  expenses and general and administrative - affiliates,
as discussed below.

Interest   expense  in  1996   decreased   by  $311,462  in  relation  to  1995.
Approximately $214,000 of the decrease was due to the repayment of the mortgages
on Suburban Plaza and Wyoming Mall when the properties  were sold in March 1995.
The decrease was also due to lower  interest  rates on the mortgages  secured by
Bedford Green and Woodcreek Apartments which were refinanced in July 1995.

Interest expense - affiliates  decreased by $76,032 in 1996 as compared to 1995.
The decrease  was due to the  repayment of $973,000 of advances and a $1,331,000
mortgage  note from an  affiliate in 1995.  See Item 8 - Note 2 -  "Transactions
with Affiliates."





<PAGE>
Other property  operating  expenses decreased by $128,071 in 1996 as compared to
the prior year.  The decrease was partially  due to the sales of Suburban  Plaza
and Wyoming Mall, which incurred expenses of approximately  $33,000 and $19,000,
respectively, in 1995. In addition, a greater amount of legal fees were incurred
at Wise  County  Plaza in 1995  relating  to the  bankruptcy  filing  by a major
tenant.  All of the properties  experienced a decrease in property insurance and
marketing costs in 1996.

General  and  administrative  -  affiliates  decreased  by  $107,274  in 1996 as
compared  to 1995.  The  decrease  was mainly due to a lower  amount of overhead
expenses being allocated to the Partnership by McREMI.

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                      Page
                                                                                                      Number
                                                                                                      ------
INDEX TO FINANCIAL STATEMENTS

Financial Statements:

<S>                                                                                                      <C>
   Report of Independent Public Accountants.......................................                       17

   Balance Sheets at December 31, 1997 and 1996...................................                       18

   Statements of Operations for each of the three years in the period
      ended December 31, 1997.....................................................                       19

   Statements of Partners' Deficit for each of the three years
      in the period ended December 31, 1997.......................................                       20

   Statements of Cash Flows for each of the three years in the period
      ended December 31, 1997.....................................................                       21

   Notes to Financial Statements..................................................                       23

   Financial Statement Schedule -

      Schedule III - Real Estate Investments and Accumulated
         Depreciation and Amortization............................................                       36

</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 XXI, L.P.:

We have audited the accompanying  balance sheets of McNeil Real Estate Fund XXI,
L.P. (a California  limited  partnership)  as of December 31, 1997 and 1996, and
the related statements of operations,  partners' deficit and cash flows for each
of the three  years in the period  ended  December  31,  1997.  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 XXI,
L.P. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Partnership  will  continue as a going  concern.  As  discussed in Note 8 to the
financial  statements,  the Partnership  has previously  relied on advances from
affiliates  to meet  its  debt  obligations  and to fund  capital  improvements.
Additionally, the Partnership has had to defer payment of payables to affiliates
in order to meet its working capital needs. Additionally,  the Partnership is in
default  on  approximately  $9.7  million  in  mortgage  note  debt for which no
extensions,  modifications or refinancings have yet been negotiated. There is no
guarantee that such negotiations can be completed.  Management's plans in regard
to  these  matters  are  also  described  in  Note  8.  These  conditions  raise
substantial  doubt  about  the  Partnership's  ability  to  continue  as a going
concern.  The  financial  statements do not include any  adjustments  that might
result from the outcome of these uncertainties.

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 20, 1998
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                       -----------------------------------
                                                                           1997                   1996
                                                                       ---------------      --------------

ASSETS
------
<S>                                                                    <C>                  <C>
Real estate investments:
   Land.....................................................           $     3,192,923      $    3,240,113
   Buildings and improvements...............................                30,048,514          29,542,828
                                                                        --------------       -------------
                                                                            33,241,437          32,782,941
   Less:  Accumulated depreciation and
     amortization...........................................               (16,177,771)        (14,661,016)
                                                                        --------------       -------------
                                                                            17,063,666          18,121,925

Asset held for sale.........................................                 2,795,988           2,731,674

Cash and cash equivalents...................................                 1,817,585           1,670,843
Cash segregated for security deposits.......................                   176,258             167,645
Accounts receivable.........................................                   229,435             317,152
Escrow deposits.............................................                   558,752             425,750
Deferred borrowing costs, net of accumulated
   amortization of $218,067 and $153,724 at
   December 31, 1997 and 1996, respectively.................                   368,334             432,677
Prepaid expenses and other assets...........................                    53,944              63,559
                                                                        --------------       -------------
                                                                       $    23,063,962      $   23,931,225
                                                                        ==============       =============

LIABILITIES AND PARTNERS' DEFICIT
---------------------------------

Mortgage notes payable, net.................................           $    18,534,503      $   21,780,275
Mortgage notes payable - affiliate..........................                 3,730,076             733,900
Accounts payable and accrued expenses.......................                   398,815             282,667
Accrued property taxes......................................                   447,269             347,845
Payable to affiliates.......................................                 4,862,973           4,210,324
Advances from affiliates....................................                   794,981             735,253
Deferred gain on involuntary conversion.....................                         -              66,879
Security deposits and deferred rental revenue...............                   194,927             195,060
                                                                        --------------       -------------
                                                                            28,963,544          28,352,203
                                                                        --------------       -------------

Partners' deficit:
   Limited  partners - 50,000 Units authorized; 47,086 and
     47,288 Units issued and outstanding at December 31,
     1997 and 1996, respectively (24,906 Current Income
     Units and 22,180 Growth/Shelter Units outstanding
     at December 31, 1997 and 24,949 Current Income
     Units and  22,339  Growth/Shelter  Units outstanding
     at December 31, 1996).....................................             (5,522,974)         (4,059,156)
   General Partner..........................................                  (376,608)           (361,822)
                                                                        --------------       -------------
                                                                            (5,899,582)         (4,420,978)
                                                                        --------------       -------------
                                                                       $    23,063,962      $   23,931,225
                                                                        ==============       =============
</TABLE>

                 See accompanying notes to financial statements.
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.

                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                             For the Years Ended December 31,
                                                   ----------------------------------------------------
                                                       1997               1996               1995
                                                   --------------     --------------    ---------------
<S>                                                <C>                <C>               <C>
Revenue:
   Rental revenue..........................        $    6,478,023     $    6,434,691    $     6,642,725
   Interest................................                88,861            105,374            124,712
   Gain on involuntary conversion..........                66,655             27,252                  -
   Net gain on disposition of real estate..                     -                  -          1,615,811
                                                    -------------      -------------     --------------
     Total revenue.........................             6,633,539          6,567,317          8,383,248
                                                    -------------      -------------     --------------

Expenses:
   Interest................................             1,998,289          2,028,191          2,339,653
   Interest - affiliates...................               153,268            120,208            196,240
   Depreciation and amortization...........             1,516,755          1,590,804          1,724,781
   Property taxes..........................               553,505            520,251            552,075
   Personnel costs.........................               764,892            729,371            789,067
   Repairs and maintenance.................               779,481            787,086            758,653
   Property management fees -
     affiliates............................               335,087            331,145            351,663
   Utilities...............................               435,999            421,204            432,670
   Other property operating expenses.......               416,244            381,858            509,929
   General and administrative..............               176,446             91,779             99,547
   General and administrative -
     affiliates............................               652,177            692,500            799,774
   Write-down for impairment of real
     estate................................               330,000                  -                  -
                                                    -------------      -------------     --------------
     Total expenses........................             8,112,143          7,694,397          8,554,052
                                                    -------------      -------------     --------------

Net loss...................................        $   (1,478,604)    $   (1,127,080)   $      (170,804)
                                                    =============      =============     ==============

Net income (loss) allocable to limited
   partners - Current Income Unit..........        $     (133,074)    $     (101,437)   $       788,960
Net loss allocable to limited
   partners - Growth/Shelter Unit..........            (1,330,744)        (1,014,372)          (958,056)
Net loss allocable to General
   Partner.................................               (14,786)           (11,271)            (1,708)
                                                    -------------      -------------     --------------
Net loss...................................        $   (1,478,604)    $   (1,127,080)   $      (170,804)
                                                    =============      =============     ==============

Net income (loss) per limited partnership unit:

Current Income Unit Holders................        $        (5.34)    $        (4.07)   $       31.62
                                                    =============      =============     ==============

Growth/Shelter Unit Holders................        $       (60.00)    $       (45.41)   $       (42.85)
                                                    =============      =============     ==============
</TABLE>


                 See accompanying notes to financial statements.
<PAGE>

                        McNEIL REAL ESTATE FUND XXI, L.P.

                         STATEMENTS OF PARTNERS' DEFICIT

              For the Years Ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                                                                    Total
                                                     General                 Limited                Partners'
                                                     Partner                 Partners               Deficit
                                                 -----------------       -----------------     -----------------
<S>                                              <C>                     <C>                   <C>
Balance at December 31, 1994..............       $       (348,843)       $     (2,774,251)     $     (3,123,094)

Net income (loss)
   General Partner........................                 (1,708)                      -                (1,708)
   Current Income Units...................                      -                 788,960               788,960
   Growth/Shelter Units...................                      -                (958,056)             (958,056)
                                                  ---------------         ---------------       ---------------
Total net loss............................                 (1,708)               (169,096)             (170,804)
                                                  ---------------         ---------------       ---------------

Balance at December 31, 1995..............               (350,551)             (2,943,347)           (3,293,898)

Net loss
   General Partner........................                (11,271)                      -               (11,271)
   Current Income Units...................                      -                (101,437)             (101,437)
   Growth/Shelter Units...................                      -              (1,014,372)           (1,104,372)
                                                  ---------------         ---------------       ---------------
Total net loss............................                (11,271)             (1,115,809)           (1,127,080)
                                                  ---------------         ---------------       ---------------

Balance at December 31, 1996..............               (361,822)             (4,059,156)           (4,420,978)

Net loss
   General Partner........................                (14,786)                      -               (14,786)
   Current Income Units...................                      -                (133,074)             (133,074)
   Growth/Shelter Units...................                      -              (1,330,744)           (1,330,744)
                                                  ---------------         ---------------       ---------------
Total net loss............................                (14,786)             (1,463,818)           (1,478,604)
                                                  ---------------         ---------------       ---------------

Balance at December 31, 1997..............       $       (376,608)       $     (5,522,974)     $     (5,899,582)
                                                  ===============         ===============       ===============
</TABLE>
                 See accompanying notes to financial statements.
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.

                            STATEMENTS OF CASH FLOWS

                Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
                                                              For the Years Ended December 31,
                                                    ----------------------------------------------------
                                                        1997               1996               1995
                                                    --------------    ---------------   ----------------
<S>                                                 <C>               <C>               <C>
Cash flows from operating activities:
   Cash received from tenants..................     $   6,443,437     $    6,377,872    $     6,778,734
   Cash paid to suppliers......................        (2,542,810)        (2,295,191)        (2,600,394)
   Cash paid to affiliates.....................          (334,615)        (1,031,299)          (358,687)
   Interest received...........................            88,861            105,374            115,284
   Interest received - affiliates..............                 -                  -             71,614
   Interest paid...............................        (1,902,698)        (1,947,970)        (2,320,337)
   Interest paid to affiliates.................           (48,886)           (48,493)          (543,878)
   Property taxes paid.........................          (534,552)          (460,410)          (731,346)
                                                    -------------      -------------     --------------
Net cash provided by operating
     activities................................         1,168,737            699,883            410,990
                                                    -------------      -------------     --------------

Cash flows from investing activities:
   Net proceeds received from
     insurance company.........................           100,241             40,937                  -
   Additions to real estate investments
     and assets held for sale .................          (852,810)          (820,483)          (702,157)
   Repayment of advances to affiliates.........                 -                  -            300,000
   Proceeds from disposition of real estate....                 -                  -         10,946,743
                                                    -------------      -------------     --------------
Net cash provided by (used in)
   investing activities........................          (752,569)          (779,546)        10,544,586
                                                    -------------      -------------     --------------

Cash flows from financing activities:
   Deferred borrowing costs paid...............                 -               (635)          (194,952)
   Principal payments on mortgage
     notes payable.............................          (269,426)          (247,160)          (253,698)
   Retirement of mortgage notes due to
     disposition of real estate................                 -                  -         (7,415,826)
   Retirement of mortgage note - affiliate.
     due to disposition of real estate.........                 -                  -         (1,331,000)
   Net proceeds from refinancing on
     mortgage notes payable....................                 -                  -             60,103
   Repayment of advances from affiliates.......                 -                  -           (973,000)
                                                    -------------      -------------     --------------
Net cash used in financing activities..........          (269,426)          (247,795)       (10,108,373)
                                                    -------------      -------------     --------------

Net increase (decrease) in cash and
     cash equivalents..........................           146,742           (327,458)           847,203

Cash and cash equivalents at
     beginning of year.........................         1,670,843          1,998,301          1,151,098
                                                    -------------      -------------     --------------

Cash and cash equivalents at end
     of year...................................    $    1,817,585     $    1,670,843    $     1,998,301
                                                    =============      =============     ==============
</TABLE>

See discussion of noncash  investing and financing  activities in Note 4 - "Real
Estate  Investments,"  Note 6 - "Mortgage  Notes Payable - Affiliate,"  Note 7 -
"Property Dispositions" and Note 11 - "Gain on Involuntary Conversion."

                 See accompanying notes to financial statements.
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.

                            STATEMENTS OF CASH FLOWS


               Reconciliation of Net Loss to Net Cash Provided by
                              Operating Activities

<TABLE>
<CAPTION>
                                                             For the Years Ended December 31,
                                                   -----------------------------------------------------
                                                         1997               1996               1995
                                                   ---------------  -----------------   ----------------
<S>                                                <C>              <C>                 <C>
Net loss...................................        $   (1,478,604)  $     (1,127,080)   $      (170,804)
                                                    -------------    ---------------     --------------

Adjustments to reconcile net loss
   to net cash provided by operating
   activities:
   Depreciation and amortization...........             1,516,755          1,590,804          1,724,781
   Amortization of discounts on
     mortgage notes payable................                19,830             18,807             20,278
   Amortization of deferred borrowing
     costs.................................                64,343             63,589             62,026
   Accrued interest on advances from
     affiliates............................                59,728             58,652           (261,381)
   Interest added to advances to
     affiliates............................                     -                  -             (9,428)
   Gain on disposition of real estate......                     -                  -         (1,615,811)
   Gain on involuntary conversion..........               (66,655)           (27,252)                 -
   Write-down for impairment of real
     estate................................               330,000                  -                  -
   Changes in assets and liabilities:
     Cash segregated for security
       deposits............................                (8,613)              (638)            38,574
     Accounts receivable...................               (12,748)           (40,225)            89,358
     Advances to affiliates................                     -                  -             71,614
     Escrow deposits.......................              (133,002)           185,889           (358,841)
     Prepaid expenses and other
       assets..............................                 9,615             (5,141)            63,678
     Accounts payable and accrued
       expenses............................               116,148            (18,318)            16,756
     Accrued property taxes................                99,424              9,710            (65,774)
     Payable to affiliates.................               652,649             (7,654)           792,750
     Security deposits and deferred
        rental revenue.....................                  (133)            (1,260)            13,214
                                                    -------------      -------------     --------------

         Total adjustments.................             2,317,341          1,826,963            581,794
                                                    -------------      -------------     --------------

Net cash provided by operating
     activities............................        $    1,168,737     $      699,883    $       410,990
                                                    =============      =============     ==============
</TABLE>
                 See accompanying notes to financial statements.
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1997

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

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

McNeil  Real Estate  Fund XXI,  L.P.,  (the  "Partnership"),  formerly  known as
Southmark Realty Partners, Ltd., was organized on November 23, 1983 as a limited
partnership under the provisions of the California  Revised Limited  Partnership
Act to acquire and operate  commercial and residential  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.  The General
Partner was elected at a meeting of limited partners on March 26, 1992, at which
time an amended and restated  partnership  agreement  (the "Amended  Partnership
Agreement")  was adopted.  Prior to March 26, 1992,  the general  partner of the
Partnership was Southmark  Partners,  Ltd. (the "Original General  Partner"),  a
Texas limited  partnership of which the general partner is Southmark  Investment
Group, Inc., a wholly-owned  subsidiary of Southmark Corporation.  The principal
place of business  for the  Partnership  and the  General  Partner is 13760 Noel
Road, Suite 600, 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.  As described  in Note 4 - "Real  Estate  Investments,"  at
December 31, 1997, the Partnership owned seven revenue-producing properties.

Pursuant  to the  Partnership's  previously  announced  liquidation  plans,  the
Partnership  has recently  retained  PaineWebber,  Incorporated as its exclusive
financial  advisor  to  explore  alternatives  to  maximize  the  value  of  the
Partnership.  The  alternatives  being  considered by the  Partnership  include,
without limitation,  a transaction in which limited partnership interests in the
Partnership  are converted into cash. The General  Partner of the Partnership or
entities or persons  affiliated with the General Partner will not be involved as
a purchaser in any of the transactions  contemplated above. Any transaction will
be subject to certain conditions  including (i) approval by the limited partners
of the Partnership, and (ii) receipt of an opinion from an independent financial
advisory  firm  as  to  the  fairness  of  the  consideration  received  by  the
Partnership  pursuant to such  transaction.  Finally,  there can be no assurance
that any transaction will be consummated, or as to the terms thereof.

The Partnership placed Fort Meigs Plaza on the market for sale effective October
1, 1996. The Partnership has received an offer from a non-affiliate  to purchase
the center for $3.8 million.


<PAGE>
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.

The  Partnership's  financial  statements  include the accounts of the following
listed tier  partnerships.  These single asset tier  partnerships were formed to
accommodate  the refinancing of the respective  property.  The Partnership has a
100% ownership interest in each of the following tier partnerships:

      Tier Partnership
      ----------------

      Bedford Green Fund XXI Limited Partnership
      Breckenridge Fund XXI Limited Partnership
      Evergreen Fund XXI Limited Partnership
      Governour's Square Fund XXI Limited Partnership
      Woodcreek Fund XXI Limited Partnership

The financial  statements also include the accounts  (through March 31, 1995) of
the  Partnership and its 50% undivided  interest in the assets,  liabilities and
operations of Wyoming Mall owned jointly with McNeil Real Estate Fund XXII, L.P.

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

Real estate investments are generally stated at the lower of depreciated cost or
fair value. Real estate investments are reviewed for impairment  whenever events
or changes in  circumstances  indicate  that their  carrying  amounts may not be
recoverable.  When the  carrying  value  of a  property  exceeds  the sum of all
estimated  future cash flows, an impairment loss is recognized.  At such time, a
write-down is recorded to reduce the basis of the property to its estimated fair
value.

The  Partnership's  method  of  accounting  for real  estate  investments  is in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS 121"),  which the Partnership  adopted effective January 1, 1996. The
adoption  of  SFAS  121 did  not  have a  material  impact  on the  accompanying
financial statements.

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

Asset Held for Sale
-------------------

The asset held for sale is stated at the lower of depreciated cost or fair value
less costs to sell.  Depreciation on this asset ceased at the time it was placed
on the market for sale.



<PAGE>
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 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.

Escrow Deposits
---------------

The  Partnership is required to maintain  escrow accounts in accordance with the
terms of various  mortgage  indebtedness  agreements.  These escrow accounts are
controlled by the mortgagee and are used for payment of property  taxes,  hazard
insurance,  capital improvements and/or property replacements.  Carrying amounts
for escrow deposits approximate fair value.

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  lease and are  included  in prepaid  expenses  and other  assets on the
Balance Sheets.

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.

Discounts on Mortgage Notes Payable
-----------------------------------

Discounts on mortgage notes payable are being amortized over the remaining terms
of the related mortgage notes using the effective interest method.  Amortization
of discounts on mortgage  notes  payable is included in interest  expense on the
Statements of Operations.

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

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




<PAGE>
The Partnership leases its commercial properties under non-cancelable  operating
leases.  Certain leases provide concessions and/or periods of escalating or free
rent. Rental revenue is recognized on a straight-line basis over the term of the
related lease. 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 (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 equally as a group, and net loss shall be allocated one percent (1%) to
the General  Partner,  nine percent (9%) to the limited  partners owning Current
Income  Units  and  ninety  percent  (90%)  to  the  limited   partners   owning
Growth/Shelter Units.

For financial statement  purposes,  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 equally as a group, and net loss shall be
allocated  one percent  (1%) to the General  Partner,  nine  percent (9%) to the
limited  partners  owning  Current  Income Units and ninety percent (90%) to the
limited partners owning Growth/Shelter Units.

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 1997, 1996 and 1995 have been made
in accordance with these provisions.


<PAGE>
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 Current Income Priority Return and then
the  Growth/Shelter  Priority  Return.  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 Current Income Priority
Return,  then the  Growth/Shelter  Priority  Return,  then repayment of Original
Invested  Capital,  and of the  remainder,  16.66% to  limited  partners  owning
Current Income Units and 83.34% to limited partners owning Growth/Shelter Units.
The  limited  partners'  Current  Income  and  Growth/Shelter  Priority  Returns
represent  a 10% and 8%,  respectively,  cumulative  return  on  their  Adjusted
Invested  Capital  balance,  as  defined.  No  distributions  of Current  Income
Priority   Return  have  been  made  since  1988,   and  no   distributions   of
Growth/Shelter Priority Return have been made since the Partnership began.

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.

Net Income (Loss) Per Limited Partnership Units
-----------------------------------------------

Net income (loss) per limited  partnership unit ("Unit") is computed by dividing
net income  (loss)  allocated to the limited  partners by the  weighted  average
number of Units  outstanding.  Per Unit  information  has been computed based on
24,906,  24,949 and 24,949  Current Income Units  outstanding in 1997,  1996 and
1995,   respectively  and  22,180,   22,339  and  22,359   Growth/Shelter  Units
outstanding in 1997, 1996 and 1995, respectively.

Reclassifications
-----------------

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

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

The  Partnership  pays  property  management  fees  equal to 5% of gross  rental
receipts for its  residential  properties  and 6% of gross  rental  receipts for
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  reimburses  McREMI  for  its  costs,  including  overhead,  of
administering the Partnership's affairs.



<PAGE>
Under the terms of the Amended  Partnership  Agreement,  the Partnership  pays a
disposition  fee to an affiliate of the General Partner equal to 3% of the gross
sales price for brokerage  services performed in connection with the sale of the
Partnership's  properties.  The fee is due and  payable  at the  time  the  sale
closes. The Partnership incurred $346,050 of such fees during 1995 in connection
with the sales of Suburban Plaza and Wyoming Mall.  These fees have not yet been
paid by the Partnership and are included in payable to affiliates on the Balance
Sheets at December 31, 1997 and 1996.

Under the terms of the Amended Partnership Agreement,  the Partnership is paying
an asset  management fee,  retroactive to February 14, 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 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.

Compensation and  reimbursements  paid or accrued for the benefit of the General
Partner or its affiliates are as follows:

<TABLE>
<CAPTION>
                                                            For the Years Ended December 31,
                                                   ---------------------------------------------------
                                                        1997               1996               1995
                                                   --------------     --------------   ---------------
<S>                                                <C>                <C>              <C>
Property management fees - affiliates........      $      335,087     $      331,145   $       351,663
Charged to net gain on disposition of
   real estate:
   Disposition fee ..........................                   -                  -            346,050
Charged to interest - affiliates:
   Interest on advances from
     affiliates..............................              59,728             58,652             86,364
   Interest on mortgage notes
     payable - affiliates....................              93,540             61,556            109,876
Charged to general and
   administrative - affiliates:
   Partnership administration................             261,701            295,106            394,802
   Asset management fee......................             390,476            397,394            404,972
                                                    -------------      -------------     --------------
                                                   $    1,140,532     $    1,143,853    $     1,693,727
                                                    =============      =============     ==============
</TABLE>

During 1992,  the  Partnership  made  advances of $320,874 to McNeil Real Estate
Fund XXII,  L.P., the joint owner of Wyoming Mall, for tenant  improvements  and
operations at Wyoming Mall.  During 1994,  $20,874 of these  advances was repaid
and during  1995 the  balance of the  advances  and the  related  interest  were
repaid. The advances,  which were unsecured and due on demand,  accrued interest
at prime plus 3.5%.




<PAGE>
The General Partner has, at its discretion,  advanced funds to the  Partnership.
The  Partnership  received  $472,431 in advances  that were used to fund working
capital  requirements.  These  advances and the related  accrued  interest  were
repaid in 1995 from the  proceeds  from the sales of Wyoming  Mall and  Suburban
Plaza. The General Partner is not obligated to advance funds to the Partnership,
and there is no assurance that the Partnership will receive additional funds.

Prior  to the  restructuring  of the  Partnership,  affiliates  of the  Original
General  Partner  advanced  funds to enable the  Partnership to meet its working
capital requirements.  These advances were purchased by, and are now payable to,
the General  Partner.  During 1995,  $500,569 of these  advances and the related
accrued interest were repaid.

The total  advances from  affiliates at December 31, 1997 and 1996  consisted of
the following:

                                                     1997             1996
                                                  -----------     ------------

   Advances purchased by General Partner          $   630,574     $    630,574
   Accrued interest payable                           164,407          104,679
                                                   ----------      -----------
                                                  $   794,981     $    735,253
                                                   ==========      ===========



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 8.50% and
8.25% at December 31, 1997 and 1996, respectively.

In May 1992, the Partnership obtained a loan from McNeil Real Estate Fund XXVII,
L.P.,  an  affiliate of the General  Partner,  totaling  $972,000.  The loan was
secured by a third lien on  Suburban  Plaza  which was sold in March  1995.  The
Partnership utilized a portion of the proceeds from 1995 property sales to repay
the affiliate mortgage in April 1995.

Payable to  affiliates  at December  31, 1997 and 1996  consisted  primarily  of
unpaid  property   management  fees,   Partnership  general  and  administrative
expenses, disposition fees and asset management fees and is due and payable from
current operations.

See Note 6 -  "Mortgage  Notes  Payable -  Affiliate"  for a  discussion  of the
mortgage notes payable to an affiliated entity.

NOTE 3 - TAXABLE LOSS
---------------------

McNeil Real Estate Fund XXI, 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.



<PAGE>
The Partnership's net assets and liabilities for tax reporting purposes exceeded
the net assets and liabilities for financial  reporting  purposes by $3,352,795,
$3,103,486 and $3,563,407 in 1997, 1996 and 1995, respectively.

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

The  basis  and  accumulated  depreciation  of  the  Partnership's  real  estate
investments at December 31, 1997 and 1996 are set forth in the following tables:

<TABLE>
<CAPTION>

                                                                        Accumulated
                                                   Buildings and        Depreciation         Net Book
       1997                         Land           Improvements        & Amortization          Value
       ----                    --------------      ------------        --------------     ---------------
<S>                            <C>                <C>                  <C>                <C>
Bedford Green
   Bedford, OH                 $      252,310     $     3,810,292      $   (1,933,194)    $     2,129,408
Breckenridge
   Davenport, IA                      232,016           2,501,225          (1,321,115)          1,412,126
Evergreen Square
   Tupelo, MS                         396,856           4,737,859          (2,554,799)          2,579,916
Governour's Square
   Wilmington, NC                     577,657           6,348,996          (3,182,378)          3,744,275
Wise County Plaza
   Wise, VA                         1,350,379           8,057,521          (4,798,325)          4,609,575
Woodcreek
   Fort Wayne, IN                     383,705           4,592,621          (2,387,960)          2,588,366
                                -------------       -------------       -------------       -------------
                               $    3,192,923      $   30,048,514      $  (16,177,771)     $   17,063,666
                                =============       =============       =============       =============

                                                                        Accumulated
                                                   Buildings and        Depreciation         Net Book
       1996                         Land           Improvements        & Amortization          Value
       ----                    --------------      ------------        --------------     ---------------

Bedford Green                  $      252,310      $    3,632,040      $   (1,738,243)     $    2,146,107
Breckenridge                          232,016           2,460,769          (1,188,517)          1,504,268
Evergreen Square                      396,856           4,608,920          (2,326,553)          2,679,223
Governour's Square                    577,657           6,095,250          (2,807,622)          3,865,285
Wise County Plaza                   1,397,569           8,284,347          (4,475,872)          5,206,044
Woodcreek                             383,705           4,461,502          (2,124,209)          2,720,998
                                -------------       -------------       -------------       -------------
                               $    3,240,113      $   29,542,828      $  (14,661,016)     $   18,121,925
                                =============       =============       =============       =============
</TABLE>

On October 1, 1996,  the General  Partner  placed Fort Meigs  Plaza,  located in
Perrysburg,  Ohio,  on the market for sale.  Fort Meigs Plaza was  classified as
such at  December  31,  1997 and 1996 with a net book  value of  $2,795,988  and
$2,731,674, respectively.





<PAGE>
The results of operations  for the asset held for sale at December 31, 1997 were
$12,683,  $(115,695) and $(184,183) for the years ended December 31, 1997,  1996
and 1995,  respectively.  Results of  operations  are  operating  revenues  less
operating expenses including depreciation and amortization and interest expense.

Wise  County  Plaza is a shopping  center  located in an area  besieged  by high
unemployment  rates and a lackluster economy due to the declining coal industry.
The mortgage notes payable  secured by Wise County Plaza matured in August 1997.
The partnership  has attempted to negotiate a modification  and extension of the
loans with the lender.  An agreement has not been reached and the lender intends
to  foreclose  on the  property.  The  Partnership  has received an offer from a
non-affiliate  to purchase  the center for $4.9  million,  which is more than $1
million  less  than the  principal  balance  owed on the  loans  secured  by the
property.  Based on this offer and the reduced anticipated holding period of the
property, the Partnership recorded a $330,000 write-down for impairment of value
during the fourth  quarter of 1997 to record the property at its fair value less
costs to sell.

The Partnership leases its commercial properties under non-cancelable  operating
leases.  Future  minimum  rents to be received  as of  December  31, 1997 are as
follows:

                                                 Real Estate     Asset Held
                                                 Investments      For Sale
                                                ------------    -------------

     1998..............................         $   798,661     $    573,846
     1999..............................             709,659          498,124
     2000..............................             650,595          375,223
     2001..............................             435,931          337,222
     2002..............................             346,256           60,201
     Thereafter........................           1,188,600          362,875
                                                 ----------      -----------
       Total...........................         $ 4,129,702     $  2,207,491
                                                 ==========      ===========


Future minimum rents do not include  contingent rentals based on sales volume of
tenants. Contingent rents amounted to $71,229, $54,912 and $63,777 for the years
ended December 31, 1997, 1996, and 1995, respectively. Future minimum rents also
do not include  expense  reimbursements  for common area  maintenance,  property
taxes, and other expenses.  These expense  reimbursements  amounted to $153,655,
$174,370  and $233,290  for the years ended  December  31, 1997,  1996 and 1995,
respectively.  These contingent rents and expense reimbursements,  which include
amounts  related to the asset held for sale,  are included in rental  revenue on
the Statements of Operations.



<PAGE>
NOTE 5 - MORTGAGE NOTES PAYABLE
-------------------------------

The following  sets forth  mortgage  notes  payable,  net of  discounts,  of the
Partnership  at  December  31, 1997 and 1996.  All  mortgage  notes  payable are
secured by the related real estate investment or asset held for sale.

<TABLE>
<CAPTION>
                           Mortgage         Annual        Monthly
                           Lien             Interest      Payments/                    December 31,
Property                   Position(a)      Rates %       Maturity (f)             1997                1996
--------                   -----------      -------    -------------------    ---------------     --------------
<S>                        <C>                <C>      <C>           <C>      <C>                <C>
Bedford Green (b)          First              8.48     $   25,327    07/02    $     3,238,088    $     3,266,122
                                                                                -------------     --------------

Breckenridge (c)           First              8.15     $   14,602    07/03          1,693,694          1,729,293
                           Discount                                                   (32,605)           (37,624)
                                                                                -------------     --------------
                                                                                    1,661,089          1,691,669
                                                                                -------------     --------------

Evergreen Square (c)       First              8.15     $   16,777    07/03          1,945,956          1,986,858
                           Discount                                                   (37,461)           (43,228)
                                                                                -------------     --------------
                                                                                    1,908,495          1,943,630
                                                                                -------------     --------------

Fort Meigs Plaza (d)       First             12.81     $   27,370    10/97                  -          3,011,293
                                                                                -------------     --------------

Governour's Square (c)     First              8.15     $   26,314    07/03          3,052,118          3,116,269
                           Discount                                                   (58,756)           (67,800)
                                                                                -------------     --------------
                                                                                    2,993,362          3,048,469
                                                                                -------------     --------------

Wise County Plaza (e)      First              8.97     $   31,296    08/97          3,464,689          3,526,419
                           Second             3.87          8,092    08/97          2,509,046          2,509,046
                                                                                -------------     --------------
                                                                                    5,973,735          6,035,465
                                                                                -------------     --------------

Woodcreek (b)              First              8.48     $   21,586    07/02          2,759,734          2,783,627
                                                                                -------------     --------------

                                                       Total                  $    18,534,503    $    21,780,275
                                                                                =============     ==============
</TABLE>

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

(b)    On July 14, 1995, the Partnership refinanced Bedford Green Apartments and
       Woodcreek Apartments (see Note 10 - "Mortgage Refinancings").




<PAGE>
(c)    Financing  was  obtained  under  the  terms  of a  Real  Estate  Mortgage
       Investment   Conduit   financing.   The   mortgage   notes   payable  are
       cross-collateralized  and may not be prepaid in whole or part before July
       1998.  Any  prepayments  made during the sixth or seventh  loan years are
       subject to a Yield Maintenance  premium,  as defined.  Additionally,  the
       Partnership  must  pay a  release  payment  equal  to 25% of the  prepaid
       balance  which  will be applied to the  remaining  mortgage  notes in the
       collateral pool.

(d)    On  December 19, 1997, an  affiliated  partnership  purchased  the  first
       lien  mortgage  note secured by Fort Meigs Plaza.  See Note 6 - "Mortgage
       Notes Payable - Affiliate."

(e)    The mortgage notes payable secured by Wise County Plaza matured in August
       1997.  The  Partnership  has continued to make  regularly  scheduled debt
       service  payments  and has  attempted  to  negotiate a  modification  and
       extension of the loans with the lender. An agreement has not been reached
       and the lender intends to foreclose on the property. All excess cash flow
       of the  property is payable to the lender as  additional  interest on the
       loans.

(f)    Balloon payments on the mortgage notes are due as follows:

           Property                  Balloon Payment          Date
           --------                  ---------------          ----


       Wise County Plaza              $  5,973,735            08/97
       Bedford Green                     3,074,442            07/02
       Woodcreek                         2,620,263            07/02
       Breckenridge                      1,436,695            07/03
       Evergreen Square                  1,650,679            07/03
       Governour's Square                2,588,992            07/03

Scheduled  principal  maturities of the mortgage  notes  payable under  existing
agreements, excluding discounts of $128,822, are as follows:

       1998....................................        $  6,182,793
       1999....................................             226,949
       2000....................................             246,371
       2001....................................             267,457
       2002....................................           5,951,223
       Thereafter..............................           5,788,532
                                                        -----------
                                                       $ 18,663,325

Based on borrowing  rates  currently  available to the  Partnership for mortgage
loans with  similar  terms and  average  maturities,  the fair value of mortgage
notes payable was approximately $18,527,000 at December 31, 1997 and $21,458,000
at December 31, 1996.


<PAGE>
NOTE 6 - MORTGAGE NOTES PAYABLE - AFFILIATE
-------------------------------------------

The following sets forth  mortgage notes payable - affiliate of the  Partnership
at December  31, 1997 and 1996.  The  mortgage  notes are secured by the related
asset held for sale.

<TABLE>
<CAPTION>

                         Mortgage           Annual        Monthly
                         Lien               Interest      Payments/                    December 31,
Property                 Position(a)        Rates %       Maturity                 1997        1996
--------                 ------------      -------      -------------------    -----------  -----------
<S>                      <C>                 <C>       <C>            <C>     <C>           <C>
Fort Meigs Plaza         First               12.81     $   33,333     03/98   $  2,996,176   $        -
                         Second               8.25     $    4,073(b)  09/97        733,900      733,900
                                                                               -----------    ---------
                                                                              $  3,730,076   $  733,900
                                                                               ===========    =========
</TABLE>

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

(b)     Payments are interest-only equal to an effective interest rate of 6.66%.
        All accrued interest is due at maturity.

In December 1997,  McNeil Real Estate Fund XX, L.P., the affiliated  partnership
that holds the second lien mortgage  secured by Fort Meigs Plaza,  purchased the
first lien mortgage note from the  unaffiliated  lender.  The  Partnership is in
default on payment of both the first and second liens on Fort Meigs Plaza as the
notes matured on March 1, 1998 and September 1, 1997,  respectively.  Fort Meigs
Plaza is  currently on the market for sale and the  Partnership  has received an
offer from a  non-affiliate  to purchase  the  property  for $3.8  million.  The
Partnership  will continue to make regularly  scheduled debt service payments on
the first and second lien mortgage notes until the property can be sold.

If the pending sales transaction is not completed,  the Partnership will attempt
to renegotiate the terms of the affiliate debt. However, such refinancing may be
at an  interest  rate  which is higher,  or  otherwise  on terms  which are less
favorable  than  those  provided  by  the  current  mortgage.   Furthermore,  if
alternative  financing cannot be obtained,  the affiliate lender could foreclose
on the property  securing the mortgage.  Management  believes the possibility of
this outcome is unlikely.

Based on borrowing rates  currently  available to the Partnership for a mortgage
loan with similar terms and average  maturities,  the fair value of the mortgage
notes payable was approximately  $3,627,000 at December 31, 1997 and $690,000 at
December 31, 1996.


<PAGE>
NOTE 7 - PROPERTY DISPOSITIONS
------------------------------

On March 31, 1995, Suburban Plaza Shopping Center was sold to an unrelated third
party  for a cash  price  of  $6,910,000.  Cash  proceeds  and  the  gain on the
disposition is detailed below:

<TABLE>
<CAPTION>
                                                                    Gain on Sale          Cash Proceeds
                                                                  -----------------      ------------------
<S>                                                               <C>                    <C>
Sales price..........................................             $      6,910,000       $       6,910,000

Selling costs........................................                     (293,754)                (86,454)
Retirement of mortgage discount......................                     (683,198)
Carrying value.......................................                   (3,691,594)
Accounts receivable..................................                     (315,979)
Deferred borrowing costs.............................                         (479)
Prepaid expenses.....................................                      (63,548)
                                                                   ---------------

Gain on disposition of real estate...................             $      1,861,448
                                                                   ===============         ---------------


Retirement of mortgage note..........................                                           (3,963,489)
Retirement of mortgage notes - affiliates............                                           (1,331,000)
Accrued interest paid on retired notes...............                                             (146,111)
Real estate tax proration............................                                              (38,368)
Credit for security deposit liability................                                              (22,325)
                                                                                            --------------
Net cash proceeds....................................                                     $      1,322,253
                                                                                            ==============

</TABLE>

<PAGE>
On March 31, 1995,  Wyoming Mall Shopping  Center was sold to an unrelated third
party  for a cash  price of  $9,250,000.  The  Partnership  had a 50%  undivided
interest  in the assets,  liabilities  and  operations  of Wyoming  Mall,  owned
jointly with McNeil Real Estate Fund XXII,  L.P.  Cash  proceeds and the gain on
the disposition is detailed below:

<TABLE>
<CAPTION>
                                                                    Gain on Sale           Cash Proceeds
                                                                  -----------------      ------------------
<S>                                                               <C>                    <C>
Sales price..........................................             $      4,625,000       $       4,625,000

Selling costs........................................                     (234,838)                (96,088)
Mortgage note prepayment penalty.....................                     (138,441)               (138,441)
Carrying value.......................................                   (4,325,663)
Accounts receivable..................................                      (81,749)
Deferred borrowing costs.............................                      (49,910)
Prepaid expenses.....................................                      (40,036)
                                                                   ---------------

Loss on disposition of real estate...................             $       (245,637)
                                                                   ===============          --------------


Retirement of mortgage note..........................                                           (3,452,337)
Payment of 1994 taxes at closing.....................                                              (23,735)
Real estate tax proration............................                                              (14,154)
Credit for security deposit liability................                                              (22,581)
                                                                                            --------------
Net cash proceeds....................................                                     $        877,664
                                                                                            ==============
</TABLE>

The  Partnership  pays a disposition  fee to an affiliate of the General Partner
equal to 3% of the  gross  sales  price  for  brokerage  services  performed  in
connection  with the sale of the  Partnership's  properties.  The fee is due and
payable at the time the sale closes.  The Partnership  incurred $346,050 of such
fees  for the  year  ended  December  31,  1995 in  connection  with the sale of
properties.  These  fees  have  not yet  been  paid by the  Partnership  and are
included in payable to affiliates on the Balance Sheets at December 31, 1997 and
1996.

NOTE 8 - FINANCIAL CONDITION AND GOING CONCERN CONSIDERATIONS
-------------------------------------------------------------

The  accompanying   financial   statements  have  been  prepared   assuming  the
Partnership will continue as a going concern. The Partnership incurred losses of
$1,148,604, $1,127,080 and $170,804 in 1997, 1996 and 1995, respectively.

The Partnership  generated  $1,168,737 of cash through  operating  activities in
1997 and received $100,241 in proceeds from an insurance carrier.  Cash used for
additions to real estate  investments  totaled  $852,810 and mortgage  principal
payments totaled $269,426.  Cash generated through operating activities exceeded
cash expenditures by $146,742.




<PAGE>
In 1998,  present cash balances and operations of the properties are expected to
provide sufficient cash for normal operating expenses, debt service payments and
budgeted capital  improvements.  However, any unanticipated capital improvements
will require other sources of cash. The mortgage  notes payable  secured by Wise
County Plaza and the second lien  mortgage  note payable - affiliate  secured by
Fort  Meigs  Plaza  matured  in 1997.  The first lien  mortgage  note  payable -
affiliate  secured by Fort Meigs Plaza matures in March 1998. The Partnership is
currently in default on all four mortgage  notes.  The Partnership has continued
to make  regularly  scheduled  debt  service  payments on the Wise County  Plaza
mortgages  and has  attempted to negotiate a  modification  and extension of the
loan with the lender.  An agreement has not been reached and the lender  intends
to foreclose on the property.  Foreclosure  by the lender is not  anticipated to
have a significant  effect of the Partnership  since all excess cash flow of the
property  is payable  to the lender as  additional  interest  on the loans.  The
Partnership  has  placed  Fort  Meigs  Plaza  on the  market  for  sale  and the
Partnership has received an offer from a non-affiliate  to purchase the property
for $3.8 million. The Partnership will continue to make regularly scheduled debt
service  payments on the  mortgage  notes until the  property  can be sold.  The
Partnership  has no  established  lines of credit from  outside  sources.  Other
possible actions to resolve cash deficiencies include refinancings,  deferral of
capital  expenditures on Partnership  properties  except where  improvements are
expected to increase the  competitiveness  and  marketability of the properties,
deferral of payables to or arranging financing from affiliates,  or the ultimate
sale of Partnership properties.

These  conditions raise  substantial  doubt about the  Partnership's  ability to
continue  as a going  concern.  The  financial  statements  do not  include  any
adjustments that might result from the outcome of these uncertainties.

NOTE 9 - 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:

James F.  Schofield,  Gerald C. Gillett,  Donna S. Gillett,  Jeffrey  Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners, L.P.,
McNeil Investors,  Inc., McNeil Real Estate Management,  Inc., Robert A. McNeil,
Carole J. McNeil,  McNeil Pacific  Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX,  Ltd.,  McNeil Real  Estate  Fund X, Ltd.,  McNeil Real Estate Fund XI,
Ltd.,  McNeil  Real Estate Fund XII,  Ltd.,  McNeil Real Estate Fund XIV,  Ltd.,
McNeil Real Estate Fund XV, Ltd.,  McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P.,  McNeil Real Estate Fund XXII,  L.P.,  McNeil Real Estate
Fund XXIV,  L.P.,  McNeil Real Estate  Fund XXV,  L.P.,  McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII,  L.P., et al. - Superior Court of
the State of California for the County of Los Angeles,  Case No. BC133799 (Class
and Derivative Action Complaint).



<PAGE>
The action involves  purported  class and derivative  actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the  "Partnerships").  Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management,  Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their  fiduciary  duties and certain  obligations  under the respective  Amended
Partnership  Agreement.  Plaintiffs  allege that  Defendants  have rendered such
Units highly illiquid and  artificially  depressed the prices that are available
for Units on the resale market.  Plaintiffs also allege that Defendants  engaged
in a course of conduct to prevent the  acquisition  of Units by an  affiliate of
Carl  Icahn  by  disseminating  purportedly  false,  misleading  and  inadequate
information.  Plaintiffs  further allege that Defendants  acted to advance their
own personal  interests at the expense of the Partnerships'  public unit holders
by failing to sell Partnership  properties and failing to make  distributions to
unitholders.

On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs  are suing for breach of  fiduciary  duty,  breach of contract and an
accounting,  alleging,  among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive,  that these fees should
be reduced retroactively and that the respective Amended Partnership  Agreements
governing the Partnerships are invalid.

Defendants  filed a demurrer to the  consolidated  and amended  complaint  and a
motion to strike on February 14, 1997,  seeking to dismiss the  consolidated and
amended complaint in all respects.  A hearing on Defendant's demurrer and motion
to strike  was held on May 5,  1997.  The Court  granted  Defendants'  demurrer,
dismissing  the  consolidated  and  amended  complaint  with leave to amend.  On
October  31,  1997,  the  Plaintiffs  filed a second  consolidated  and  amended
complaint.  Defendants  must  move,  answer or  otherwise  respond to the second
consolidated and amended complaint by June 30, 1998.

NOTE 10 - MORTGAGE REFINANCINGS
-------------------------------

The  mortgage  notes  payable on Bedford  Green and  Woodcreek  Apartments  that
matured in June 1995 were refinanced in July 1995 for $3,300,000 and $2,812,500,
respectively.  The new mortgage  loans bear an interest  rate of 8.48%,  require
monthly  principal and interest  payments of $25,327 and $21,586,  respectively,
and  mature  in July  2002.  The  following  is a summary  of the cash  proceeds
relating to the refinancings:

<TABLE>
<CAPTION>
                                                         Bedford
                                                          Green           Woodcreek        Total
                                                     --------------    --------------   --------------
<S>                                                  <C>               <C>              <C>
         New loan proceeds..................         $   3,300,000     $   2,812,500    $   6,112,500
         Existing debt retired..............            (3,118,570)       (2,933,827)      (6,052,397)
                                                      ------------      ------------     ------------
           Loan proceeds....................         $     181,430     $    (121,327)   $      60,103
                                                      ============      ============     ============
</TABLE>

The Partnership  incurred loan costs of $194,952 related to the refinancing.  An
additional  $404,074 of tax,  insurance  and property  replacement  escrows were
established at the closing of the refinancing.

<PAGE>
NOTE 11 - GAIN ON INVOLUNTARY CONVERSION
----------------------------------------

On July 12 and September 5, 1996,  Governour's Square Apartments suffered damage
from  two  separate  hurricanes.  Repairs  of  damages  totaling  $191,178  were
completed.  Reimbursements  for the repairs  totaling $40,937 were received from
the insurance  carrier in 1996. The remaining costs of $150,241,  less a $50,000
deductible,  were  included  in accounts  receivable  on the  December  31, 1996
Balance Sheet and were received in 1997.  The  Partnership  recognized a gain on
involuntary  conversion  of $27,252 and  recorded a deferred  gain of $66,879 in
1996. A gain on  involuntary  conversion of $66,655 was  recognized in 1997 when
the remaining  insurance  claims were  received.  The total gain on  involuntary
conversion of $93,907  represents the insurance claims in excess of the basis of
the property damaged by the hurricanes.

NOTE 12 - PRO FORMA INFORMATION (UNAUDITED)
-------------------------------------------
The following  unaudited pro forma  information  for the year ended December 31,
1995 reflects the results of operations  of the  Partnership  as if the sales of
Wyoming Mall and Suburban Plaza  shopping  centers had occurred as of January 1,
1995. The unaudited pro forma  information is not necessarily  indicative of the
results of operations which actually would have occurred or those which might be
expected to occur in the future.

                                                       1995
                                                  -------------
   Total revenue                                  $  6,182,132
   Loss before extraordinary items                  (1,756,693)
   Net loss                                         (1,756,693)

   Net loss per thousand limited
     partnership units:
     Current Income Units                                (6.34)
     Growth/Shelter Units                               (70.71)


<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.
                                  SCHEDULE III
      REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
                                December 31, 1997
<TABLE>
<CAPTION>
                                                                                                       Costs
                                                       Initial Cost (b)            Cumulative        Capitalized
                              Related                         Buildings and       Write-down for     Subsequent
Description               Encumbrances (b)       Land         Improvements        Impairment (c)   To Acquisition
-----------               -----------------  ---------------  ---------------     --------------   --------------

APARTMENTS:
<S>                        <C>               <C>               <C>                <C>              <C>
Bedford Green
   Bedford, OH             $    3,238,088    $      252,310    $    3,203,996     $          -     $     606,296

Breckenridge
   Davenport, IA                1,661,089           232,016         2,184,818                -           316,407

Evergreen Square
   Tupelo, MS                   1,908,495           396,856         4,217,746         (491,000)        1,011,113

Governour's Square
   Wilmington, NC               2,993,362           577,657         4,829,242                -         1,519,754

Woodcreek
   Fort Wayne, IN               2,759,734           383,705         3,613,217                -           979,404

RETAIL CENTERS:

Wise County Plaza
   Wise, VA                     5,973,735         1,397,569         8,375,648         (830,000)          464,683
                           --------------    --------------    --------------     ------------     -------------

                          $    18,534,503   $    3,240,113    $    26,424,667    $  (1,321,000)   $    4,897,657
                           ==============    =============     ==============     ============     =============


Asset Held for Sale (d):

Fort Meigs Plaza
   Perrysburg, OH         $     3,730,076
                           ==============
</TABLE>

(b)  The initial cost and encumbrances  reflect the present value of future loan
     payments  discounted,  if  appropriate,  at a  rate  estimated  to  be  the
     prevailing interest rate at the date of acquisition or refinancing.

(c)  The carrying  values of Evergreen  Square  Apartments and Wise County Plaza
     Shopping  Center were reduced by $176,568 and  $500,000,  respectively,  in
     1989. The carrying value of Evergreen Square Apartments was further reduced
     by $314,432 in 1991 and the carrying  value of Wise County  Plaza  Shopping
     Center was further reduced by $330,000 in 1997.

(d)  The  asset  held for sale is stated  at lower of  depreciated  cost or fair
     value less cost to sell.  Historical cost, net of accumulated  depreciation
     and amortization and write-downs, becomes the new cost basis when the asset
     is classified as "Held for Sale." Depreciation ceases at the time the asset
     is placed on the market for sale.

                     See accompanying notes to Schedule III.
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.
                                  SCHEDULE III
      REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
                                December 31, 1997

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

APARTMENTS:
<S>                           <C>                <C>              <C>                 <C>
Bedford Green
   Bedford, OH                $      252,310     $    3,810,292   $      4,062,602    $   (1,933,194)

Breckenridge
   Davenport, IA                     232,016          2,501,225          2,733,241        (1,321,115)

Evergreen Square
   Tupelo, MS                        396,856          4,737,859          5,134,715        (2,554,799)

Governour's Square
   Wilmington, NC                    577,657          6,348,996          6,926,653        (3,182,378)

Woodcreek
   Fort Wayne, IN                    383,705          4,592,621          4,976,326        (2,387,960)

RETAIL CENTERS:

Wise County Plaza
   Wise, VA                        1,350,379          8,057,521          9,407,900        (4,798,325)
                               -------------      -------------    ---------------     -------------

                              $    3,192,923     $   30,048,514   $     33,241,437    $   (16,177,771)
                               =============      =============    ===============     ==============


Asset Held for Sale (d):

Fort Meigs Plaza
   Perrysburg, OH                                                 $      2,795,988
                                                                   ===============
</TABLE>


(a)  For Federal income tax purposes,  the properties are depreciated over lives
     ranging from 5-39 years using ACRS or MACRS methods.  The aggregate cost of
     real estate investments for Federal income tax purposes was $44,610,083 and
     accumulated depreciation was $32,683,983 at December 31, 1997.

(d)  The  asset  held for sale is stated  at lower of  depreciated  cost or fair
     value less cost to sell.  Historical cost, net of accumulated  depreciation
     and amortization and write-downs, becomes the new cost basis when the asset
     is classified as "Held for Sale." Depreciation ceases at the time the asset
     is placed on the market for sale.

                     See accompanying notes to Schedule III.
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.
                                  SCHEDULE III
      REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
                                December 31, 1997

<TABLE>
<CAPTION>

                                 Date of                    Date                Depreciable
Description                   Construction                Acquired              Lives (Years)
-----------                   ------------                --------              -------------

APARTMENTS:
<S>                             <C>                         <C>                     <C>
Bedford Green
   Bedford, OH                  1970                        06/84                   5-25

Breckenridge
   Davenport, IA                1974                        10/84                   5-25

Evergreen
   Tupelo, MS                   1970                        11/84                   5-25

Governour's Square
   Wilmington, NC               1974                        11/84                   5-25

Woodcreek
   Fort Wayne, IN               1978                        11/84                   5-25

RETAIL CENTERS:


Wise County Plaza
   Wise, VA                     1971                        02/84                   5-25


Asset Held for Sale (d):

Fort Meigs Plaza
   Perrysburg, OH               1974                        10/84

</TABLE>

(d)  The  asset  held for sale is stated  at lower of  depreciated  cost or fair
     value less cost to sell.  Historical cost, net of accumulated  depreciation
     and amortization and write-downs, becomes the new cost basis when the asset
     is classified as "Held for Sale."

                     See accompanying notes to Schedule III.

<PAGE>
                        McNEIL REAL ESTATE FUND XXI, 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>
<CAPTION>
                                                          For the Years Ended December 31,
                                                  ---------------------------------------------
                                                       1997            1996            1995
                                                  -------------   -------------  --------------
<S>                                               <C>             <C>            <C>
Real estate investments:

Balance at beginning of year...............       $ 32,782,941    $ 36,949,217   $  36,253,677

Improvements...............................            788,496         798,291         695,540

Reclassification to asset held for
   sale....................................                  -      (4,875,377)              -

Write-off of damaged basis.................                  -         (89,190)              -

Write-down for impairment of real estate...           (330,000)              -               -
                                                   -----------      ----------    ------------

Balance at end of year.....................       $ 33,241,437     $ 32,782,941  $  36,949,217
                                                   ===========      ===========   ============


Accumulated depreciation and amortization:

Balance at beginning of year...............       $ 14,661,016     $ 15,278,026  $  13,696,125

Depreciation and amortization..............          1,516,755        1,590,804      1,724,781

Reclassification to asset held for
   sale....................................                  -       (2,165,895)      (142,880)

Write-off of damaged basis.................                  -          (41,919)             -
                                                   -----------      -----------   ------------

Balance at end of year.....................       $ 16,177,771     $ 14,661,016  $  15,278,026
                                                   ===========      ===========   ============


Assets held for sale:

Balance at beginning of year...............       $  2,731,674     $          -  $   8,153,520

Reclassification to asset held for
   sale....................................                  -        2,709,482              -

Improvements...............................             64,314           22,192          6,617

Depreciation and amortization..............                  -                -       (142,880)

Sale of real estate........................                  -                -     (8,017,257)
                                                   -----------      -----------   ------------

Balance at end of year.....................       $  2,795,988     $  2,731,674  $           -
                                                   ===========      ===========   ============
</TABLE>

<PAGE>
ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-------       ----------------------------------------------------------------
              FINANCIAL DISCLOSURES
              ---------------------

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>
<CAPTION>
                                       Other Principal Occupations and Other
Name and Position             Age      Directorships During the Past 5 Years
-----------------             ---      -------------------------------------
<S>                            <C>      <C>
Robert A. McNeil,              77       Mr.  McNeil  is also  Chairman  of   the
Chairman of the                         Board and Director of McNeil Real Estate
Board and Director                      Management,  Inc. ("McREMI") which is an
                                        affiliate of the General 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 in 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 has been a
                                        member  of the  International  Board  of
                                        Directors of the Salk  Institute,  which
                                        promotes  research  in  improvements  in
                                        health care.

Carole J. McNeil               54       Mrs.  McNeil     is  Co-Chairman,   with
Co-Chairman of the                      husband  Robert  A.  McNeil,  of  McNeil
Board                                   Investors,  Inc. Mrs.  McNeil has twenty
                                        years of real  estate  experience,  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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                       Other Principal Occupations and Other
Name and Position             Age      Directorships During the Past 5 Years
-----------------             ---      -------------------------------------
<S>                            <C>      <C>
Ron K. Taylor                  40       Mr.  Taylor is the  President  and Chief
President and Chief                     Executive  Officer of McNeil Real Estate
Executive Officer                       Management  which is an affiliate of the
                                        General Partner.  Mr. Taylor has been in
                                        this capacity  since the  resignation of
                                        Donald K. Reed on March 4,  1997.  Prior
                                        to       assuming       his      current
                                        responsibilities, Mr. Taylor served as a
                                        Senior  Vice  President  of McREMI.  Mr.
                                        Taylor has been in this  capacity  since
                                        McREMI  commenced  operations  in  1991.
                                        Prior  to  joining  McREMI,  Mr.  Taylor
                                        served as an  Executive  Vice  President
                                        for  a   national   syndication/property
                                        management  firm. In this capacity,  Mr.
                                        Taylor  had the  responsibility  for the
                                        management  and leasing of a  21,000,000
                                        square  foot   portfolio  of  commercial
                                        properties. Mr. Taylor has been actively
                                        involved  in the  real  estate  industry
                                        since 1983.
</TABLE>

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

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,  1997,  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, 1997. The  Partnership  has no plans to
pay any such remuneration to any directors or officers of the general partner 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.


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.



<PAGE>
(B)   Security ownership of management.

      Neither the General  Partner nor any of its  officers or  directors of its
      general partner own any limited partnership 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,  1997,  the
Partnership  accrued  $390,476 of such asset  management fees. Total accrued but
unpaid asset  management  fees of $3,318,406  were  outstanding  at December 31,
1997.

The  Partnership  pays property  management fees equal to 5% of the gross rental
receipts for its  residential  properties  and 6% of gross  rental  receipts 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, 1997, the Partnership  paid or accrued
$596,788  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."

Prior  to the  restructuring  of the  Partnership,  affiliates  of the  Original
General  Partner  advanced  funds to enable the  Partnership to meet its working
capital requirements.  These advances were purchased by, and are now payable to,
the General  Partner.  Accrued  interest  totaling $59,728 was added to advances
from affiliates for the year ended December 31, 1997.

A first and  second  lien on Fort  Meigs  Plaza is  secured  by  mortgage  notes
totaling $3,730,076 payable to an affiliate of the General Partner. For the year
ended  December  31,  1997,  interest  expense  relating to these loans  totaled
$93,540.



<PAGE>
                                     PART IV

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

See accompanying Index to Financial  Statements at Item 8 - Financial Statements
and Supplementary Data.

<TABLE>
<CAPTION>
(A)           Exhibits

              Exhibit
              Number               Description
              -------              -----------
              <S>                  <C>
              3.1 and 4.1          Amended  and  Restated   Limited  Partnership
                                   Agreement dated March 26, 1992  (Incorporated
                                   by  reference  to the  Current  Report of the
                                   registrant  on Form 8-K dated March 26, 1992,
                                   as filed on April 9, 1992).

              10.3                 Amended and  Restated  Notes, dated  March 1,
                                   1991, between Southmark Realty Partners, Ltd.
                                   and The  Manhattan  Savings Bank  relating to
                                   Wise County Plaza. (Incorporated by reference
                                   to the  Annual  Report of the  registrant  on
                                   Form 10-K for the period  ended  December 31,
                                   1991, as filed on March 24, 1992).

              10.10                Property  Management  Agreement dated   March
                                   26,  1992,  between  McNeil  Real Estate Fund
                                   XXI, L.P. and McNeil Real Estate  Management,
                                   Inc. (1)

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

              10.13                Loan  Agreement  dated June 23, 1993  between
                                   Lexington  Mortgage  Company  and McNeil Real
                                   Estate Fund XXI,  L.P., et al.  (Incorporated
                                   by reference  to the Annual  Report of McNeil
                                   Real Estate Fund XI, Ltd.  (file No.  0-9783)
                                   on Form 10-K for the  period  ended  December
                                   31, 1993, as filed on March 30, 1994).

              10.14                Master Property  Management Agreement,  dated
                                   June 24,  1993  between  McNeil  Real  Estate
                                   Management,  Inc. and McNeil Real Estate Fund
                                   XXI, L.P. (filed without schedules).(2)

              10.15                Loan   Agreement dated July 14, 1995  between
                                   Fleet Real Estate  Capital,  Inc. and Bedford
                                   Green Fund XXI Limited Partnership. (3)

</TABLE>
<PAGE>
              Exhibit
              Number               Description
              -------              -----------
<TABLE>
<CAPTION>

              <S>                  <C>
              10.16                Loan Agreement dated  July 14, 1995   between
                                   Fleet Real Estate Capital, Inc. and Woodcreek
                                   Fund XXI Limited Partnership. (3)

              11.                  Statement regarding computation of net income
                                   (loss) per limited partnership unit (see Item
                                   8 - Note 1 -  "Organization  and  Summary  of
                                   Significant Accounting Policies").
</TABLE>

<TABLE>
<CAPTION>

              22.                  Following is a list of subsidiaries of the Partnership:

                                                                                            Names Under
                                                                  Jurisdiction               Which It Is
                                   Name of Subsidiary            Incorporation             Doing Business
                                   ------------------            --------------            --------------
                                   <S>                             <C>                          <C>
                                   Bedford Green Fund XXI
                                   Limited Partnership             Texas                        None

                                   Breckenridge Fund XXI
                                   Limited Partnership             Delaware                     None

                                   Evergreen Fund XXI
                                   Limited Partnership             Delaware                     None

                                   Governour's Square Fund
                                   XXI Limited Partnership         Delaware                     None

                                   Woodcreek Fund XXI
                                   Limited Partnership             Texas                        None

</TABLE>
              The Partnership has omitted  instruments with respect to long-term
              debt  where  the  total  amount  of  the   securities   authorized
              thereunder  does  not  exceed  10%  of  the  total  assets  of the
              Partnership. The Partnership agrees to furnish a copy of each such
              instrument to the Commission upon request.


                     (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.


<PAGE>

                     (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 30, 1994.

                     (3)           Incorporated  by reference  to the  Quarterly
                                   Report of the registrant on Form 10-Q for the
                                   period ended  September 30, 1995, as filed on
                                   November 13, 1995.


(B)       There were no reports on Form 8-K filed by the Partnership  during the
          quarter ended December 31, 1997.



<PAGE>

                        McNEIL REAL ESTATE FUND XXI, 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.


                             McNEIL REAL ESTATE FUND XXI, L.P.


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

                                  By: McNeil Investors, Inc., General Partner



March 31, 1998                    By:  /s/  Robert 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 31, 1998                    By:  /s/  Ron K. Taylor
--------------                         -----------------------------------------
Date                                   Ron K. Taylor
                                       President and Director of McNeil
                                         Investors, Inc.
                                       (Principal Financial Officer)




March 31, 1998                    By:  /s/  Carol A. Fahs
--------------                         -----------------------------------------
Date                                   Carol A. Fahs
                                       Vice President of McNeil Investors, Inc.
                                       (Principal Accounting Officer)