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, 1998
                                 -----------------------------------------------

                                       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 46,948 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 38

                                TOTAL OF 40 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
through 1998, a total of 119 Current Income Units and 315  Growth/Shelter  Units
were relinquished,  leaving 46,948 Units (24,863 Current Income Units and 22,085
Growth/Shelter Units) outstanding at December 31, 1998.

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 real estate. As described in
Item  2  -  Properties,  at  December  31,  1998,  the  Partnership  owned  five
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.



<PAGE>
Business Plan:

As previously announced, the Partnership has retained PaineWebber,  Incorporated
("PaineWebber")  as its exclusive  financial advisor to explore  alternatives to
maximize  the  value  of  the  Partnership,  including,  without  limitation,  a
transaction  in which  limited  partnership  interests  in the  Partnership  are
converted into cash. The Partnership,  through  PaineWebber,  provided financial
and other  information to interested  parties as part of an auction  process and
until early March 1999 was conducting  discussions with one bidder in an attempt
to reach a definitive  agreement  with respect to a sale  transaction.  In early
March 1999, because the Partnership had been unable to conclude negotiations for
a transaction with such bidder, the Partnership  terminated such discussions and
commenced   discussions   with  respect  to  a  sale  transaction  with  another
well-financed  bidder who had been  involved in the  original  auction  process.
During  the last full  week of  March,  the  Partnership  entered  into a 45 day
exclusivity  agreement with such party.  It is possible that the General Partner
and its  affiliates  will receive  non-cash  consideration  for their  ownership
interests in  connection  with any such  transaction.  There can be no assurance
regarding whether any such agreement will be reached nor the terms thereof.

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, 1998.  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:

Environmental laws create potential liabilities that may affect property owners.
The environmental  laws of Federal and certain state  governments,  for example,
impose liability on current and certain past owners of property from which there
is a release  or threat of  release  of  hazardous  substances.  This  liability
includes costs of investigation and remediation of the hazardous  substances and
natural resource  damages.  Liability for costs of investigation and remediation
is strict and may be imposed  irrespective  of whether the property owner was at
fault,  although  there are a number of  defenses.  Both  governments  and third
parties may seek recoveries under these laws.

Third parties also may seek  recovery  under the common law for damages to their
property  or person,  against  owners of  property  from which  there has been a
release of hazardous and other substances.

The presence of  contamination  or the failure to remediate  contaminations  may
adversely  affect the owner's  ability to sell or lease real estate or to borrow
using the real estate as collateral.

Various  buildings at properties do or may contain  building  materials that are
the subject of various  regulatory  programs  intended to protect  human health.
Such building materials include,  for example,  asbestos,  lead-based paint, and
lead plumbing components.  The Company has implemented programs to deal with the
presence  of those  materials,  which  include,  as  appropriate,  reduction  of
potential  exposure  situations.  The Company does not believe that the costs of
such programs are likely to have a material adverse effect. Failure to implement
such programs can result in regulatory  violations or liability claims resulting
from alleged exposure to such materials.

In connection with the proposed sale  transaction as more fully described above,
Phase I  environmental  site  assessments  have been completed for each property
owned  by the  Partnership.  Such  environmental  assessments  performed  on the
properties  have not revealed any  environmental  liability that the Partnership
believes  would have a material  adverse effect on the  Partnership's  business,
assets,  or results of operations.  The Partnership has not been notified by any
governmental  authority  of any  non-compliance,  liability  or  other  claim in
connection with any of its properties. There can be no assurances, however, that
environmental   liabilities   have  not  developed   since  such   environmental
assessments were prepared, or that future uses or conditions (including, without
limitation,  changes in applicable  environmental laws and regulations) will not
result in imposition of environmental liability.


<PAGE>
ITEM 2.   PROPERTIES
-------   ----------

The following  table sets forth the investment  portfolio of the  Partnership at
December 31, 1998.  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 as described more fully in Item 8 - Note 5 - "Mortgage Notes Payable". 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                        1998                  Date
Property              Description            Property            Debt       Property Tax            Acquired
--------              -----------           ------------         ----       ------------            --------

Bedford Green (1)     Apartments
<S>                   <C>                 <C>               <C>              <C>                      <C> 
Bedford, OH           156 units           $      2,017,686  $     3,207,582  $      86,932            6/84

Breckenridge (2)      Apartments
Davenport, IA         120 units                  1,321,327        1,627,764         93,534           10/84

Evergreen
  Square (3)          Apartments
Tupelo, MS            257 units                  2,389,179        1,870,207         77,362           11/84

Governour's
  Square (4)          Apartments
Wilmington, NC        219 units                  3,522,665        2,933,310         69,744           11/84

Woodcreek (5)         Apartments
Ft. Wayne, IN         204 units                  2,448,756        2,733,734         88,036           11/84
                                           ---------------   --------------     ----------
                                          $     11,699,613  $    12,372,597   $    415,608
                                           ===============   ==============    ===========
</TABLE>

---------------------------------
Total:    Apartments  - 956 Units

(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>
                                        1998           1997            1996           1995          1994
                                    -------------  -------------  --------------  -------------  -----------

Bedford Green
<S>                                       <C>             <C>            <C>            <C>             <C>
   Occupancy Rate............             93%             97%            97%            99%             87%
   Rent Per Square Foot......           $9.43           $9.33          $9.11          $8.31           $7.99

Breckenridge
   Occupancy Rate............             98%             93%            93%            97%             89%
   Rent Per Square Foot......           $8.73           $8.58          $8.26          $7.79           $7.07

Evergreen Square
   Occupancy Rate............             88%             85%            88%            90%             91%
   Rent Per Square Foot......           $4.77           $4.38          $4.62          $4.52           $4.24

Governour's Square
   Occupancy Rate............             99%             99%           100%            99%             97%
   Rent Per Square Foot......           $8.10           $7.76          $7.33          $6.85           $6.44

Woodcreek
   Occupancy Rate............             88%             87%            93%            87%             92%
   Rent Per Square Foot......           $6.54           $6.36          $6.33          $6.09           $6.22
</TABLE>

Occupancy rate  represents all units leased divided by the total number of units
for residential  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
----------------------

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  with  rental  rates and  occupancy  comparable  to its  competitors.
Occupancy decreased slightly in 1998, mainly due to tenants purchasing new homes
or moving to competing  apartment  communities  that offered  rental  discounts.
Management  expects  to  maintain  occupancy  in the  mid 90%  range  in 1999 by
completing interior upgrades.


<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.  Although  new  apartment  construction  occurred in the area in 1997 and
1998,  the  property  was able to maintain  occupancy  by offering  discounts to
tenants.  Due to the availability of affordable housing and discounts offered by
competitors,  rental  rate  increases  are  expected  to  be  minimal  in  1999.
Management expects to maintain occupancy in the mid 90% range in 1999.

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

Evergreen  Square  Apartments,  built  in 1970 in  Tupelo,  Mississippi,  offers
attractive  floor  plans 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  decreased
occupancy  over  the  past  three  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
Partnership  anticipates a slight decrease in occupancy in 1999 due to increased
competition  from new  multi-family  developments  and leasing  incentives being
offered to tenants by competitors. The Partnership expects to maintain occupancy
in the mid 90% range in 1999 by offering  discounts and  concessions  to attract
and retain tenants.

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, as well
as the  construction of six  multi-family  communities in the area.  Woodcreek's
rental rates are slightly higher than the average for the area, which has led to
occupancy  rates that are slightly  lower than the average.  Increased  customer
service,  along with an aggressive marketing and leasing campaign,  should allow
the property to maintain occupancy in the high 80% to low 90% range during 1999.


<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 XXIII,  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., Hearth Hollow  Associates,  McNeil Midwest  Properties I, L.P. and
Regency North Associates,  L.P., - 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  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. The case was stayed pending settlement discussions.  A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties.  Preliminary
Court  approval was received on October 6, 1998. A hearing for Final Approval of
Settlement, initially scheduled for December 17, 1998, has been continued to May
25, 1999.



<PAGE>
Because McNeil Real Estate Fund XXIII,  L.P., Hearth Hollow  Associates,  McNeil
Midwest  Properties I, L.P. and Regency North Associates,  L.P. would be part of
the  transaction  contemplated  in the settlement  and Plaintiffs  claim that an
effort should be made to sell the McNeil Partnerships,  Plaintiffs have included
allegations with respect to McNeil Real Estate Fund XXIII,  L.P.,  Hearth Hollow
Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P.
in the third consolidated and amended complaint.

Plaintiff's  counsel  intends  to seek an  order  awarding  attorney's  fees and
reimbursements  of their  out-of-pocket  expenses.  The  amount of such award is
undeterminable  until  final  approval  is  received  from the  court.  Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis,  based
upon  tangible  asset value of each such  partnership,  less total  liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.

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

None.

                                     PART II

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

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

(B)      Title of Class                          Number of Record Unit Holders

         Limited partnership units               3,730 as of February 1, 1999

(C)      No distributions were paid to the partners in 1998 or 1997 and none are
         anticipated in 1999.  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."


<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
------- -----------------------

The  following  table sets forth a summary  of  certain  financial  data for the
Partnership.  This summary should be read in conjunction with the  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                              1998           1997            1996           1995           1994
------------------                  -------------  -------------  --------------  -------------  -------------
<S>                                 <C>            <C>              <C>            <C>            <C>         
Rental revenue...............       $   5,674,766  $   6,478,023    $  6,434,691   $  6,642,725   $  8,054,097
Write-down for impairment
   of real estate............                   -       (330,000)              -              -              -
Gain on disposition of
   real estate...............             863,350              -               -      1,615,811         29,440
Loss before extraordinary
   items.....................            (411,232)    (1,478,604)     (1,127,080)      (170,804)    (1,891,596)
Extraordinary items..........           1,816,152              -               -              -              -
Net income (loss)............           1,404,920     (1,478,604)     (1,127,080)      (170,804)    (1,891,596)

Net income (loss) per limited
 partnership unit:

  Income (loss) before 
  extraordinary items:
    Current Income Units....        $       (1.48) $       (5.34)   $      (4.07)  $      31.62   $      (6.82)
    Growth/Shelter Units....               (16.76)        (60.00)         (45.41)        (42.85)        (76.12)

  Extraordinary items:
    Current Income Units....                 6.57              -               -              -              -
    Growth/Shelter Units....                74.01              -               -              -              -

  Net income (loss):
    Current Income Units....                 5.09          (5.34)          (4.07)         31.62          (6.82)
    Growth/Shelter Units....                57.25         (60.00)         (45.41)        (42.85)        (76.12)


                                                              As of December 31,
Balance Sheets                          1998           1997            1996           1995           1994
--------------                      -------------  -------------  --------------  -------------  -------------

Real estate investments, net...    $   11,699,613  $  17,063,666    $ 18,121,925   $ 21,671,191   $ 22,557,552
Assets held for sale...........                 -      2,795,988       2,731,674              -      8,153,520
Total assets...................        13,972,463     23,063,962      23,931,225     25,178,649     33,985,057
Mortgage notes payable, net....        12,372,597     22,264,579     22,514,175      22,742,528     30,979,473
Partners' deficit..............        (4,494,662)    (5,899,582)     (4,420,978)    (3,293,898)    (3,123,094)
</TABLE>

See Item 7 -  Management's  Discussion  and Analysis of Financial  Condition and
Results of  Operations.  Homestead  Manor  Apartments was sold in February 1994.
Wyoming Mall and Suburban Plaza shopping  centers were sold in March 1995.  Fort
Meigs Plaza was sold in April 1998 and Wise County  Plaza was  foreclosed  on by
the lender in May 1998.

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

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

The  Partnership was formed to engage in the business of acquiring and operating
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 Suburban Plaza and Wyoming Mall shopping  centers.  Fort Meigs
Plaza was sold in April  1998 and Wise  County  Plaza was  foreclosed  on by the
lender in May 1998.  The  Partnership  continues  to operate the five  remaining
properties.

On April 20, 1998, the  Partnership  sold Fort Meigs Plaza Shopping Center to an
unaffiliated  purchaser for a cash purchase price of  $3,800,000.  Cash proceeds
from the sale, after payment of prorated rents and property taxes,  were used to
repay the  mortgage  notes  payable to McNeil  Real  Estate  Fund XX,  L.P.,  an
affiliate. A gain on disposition of real estate of $863,350 was recorded in 1998
as a result of this  transaction.  In  addition,  the  Partnership  recognized a
$190,437  extraordinary gain on repayment of mortgage notes payable - affiliate,
which  represents  the book value of the  mortgage  notes,  and related  accrued
interest,  retired in excess of the cash payment made to the affiliate to retire
the notes.

The mortgage notes payable  secured by Wise County Plaza Shopping Center matured
in August 1997 and the  Partnership  was unable to negotiate a modification  and
extension of the loans.  On May 29, 1998, Wise County Plaza was foreclosed on by
the  lender in full  settlement  of the  mortgage  indebtedness  secured  by the
property.  In connection with this  transaction,  the Partnership  recognized an
extraordinary gain on retirement of mortgage note payable of $1,625,715.

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

1998 compared to 1997

Revenue:

Total  revenue  decreased by $14,998 in 1998 as compared to 1997.  In 1998,  the
Partnership  recognized a gain on the sale of Fort Meigs Plaza Shopping  Center,
which was  offset by a  decrease  in rental  revenue  and a gain on  involuntary
conversion recognized in 1997, as discussed below.





<PAGE>
Rental  revenue in 1998  decreased  by  $803,257  in relation to the prior year.
Excluding rental revenue from Fort Meigs Plaza and Wise County Plaza, which were
disposed of in 1998, rental revenue  increased by $206,404.  Rental rates at all
of the  remaining  properties  increased in 1998.  In  addition,  there was a 6%
increase in average occupancy at Evergreen Square Apartments in 1998.

The Partnership  recognized a gain on involuntary  conversion of $66,655 in 1997
related to hurricane damage suffered at Governour's  Square  Apartments in 1996.
The gain,  which  represents  the insurance  proceeds  received in excess of the
basis of the property  damaged,  was recognized as  reimbursement  proceeds were
received from the insurance carrier. No such gain on involuntary  conversion was
recognized in 1998.

In 1998,  the  Partnership  recognized a $863,350 gain on the sale of Fort Meigs
Plaza  Shopping  Center  as  further  discussed  in Item 8 - Note 7 -  "Property
Dispositions." No such gain was recognized in 1997.

The  Partnership  recognized  $1,816,152  in  extraordinary  gains in 1998.  The
Partnership  recognized a $190,437 gain on the repayment of the Fort Meigs Plaza
mortgage notes payable - affiliate as a result of the sale of the property.  The
Partnership  also  recognized a $1,625,715 gain on retirement of the Wise County
Plaza mortgage  notes payable as a result of the  foreclosure of the property by
the lender.

Expenses:

Total  expenses  decreased by $1,082,370 in 1998 as compared to 1997.  Excluding
the sale of Fort Meigs Plaza and the  foreclosure  of Wise County Plaza in 1998,
total expenses increased by $304,532. The increase in expenses was mainly due to
an  increase  in general  and  administrative  expenses,  partially  offset by a
decrease in interest affiliates, as discussed below.

Interest expense in 1998 decreased by $625,420 in relation to 1997. The decrease
was mainly due to the first lien loan on Fort Meigs Plaza being  purchased by an
affiliate  in  December  1997 (see Item 8 - Note 6 - "Mortgage  Notes  Payable -
Affiliate").  Interest on this loan was  recorded  as  interest  expense for the
first eleven  months of 1997;  it was recorded as interest - affiliates in 1998.
Also, there was a decrease in interest expense relating to the Wise County Plaza
loans due to the foreclosure of the property by the lender in May 1998.

Interest -  affiliates  decreased  by $15,897 in 1998 as  compared  to the prior
year.  The decrease was  partially due to the April 1998 payoff of the first and
second lien affiliate loans secured by Fort Meigs Plaza. Additionally,  in April
1998  the  Partnership  repaid  $630,574  of   interest-bearing   advances  from
affiliates,  resulting in less interest being accrued on these advances ($17,684
in 1998 as  compared  to  $59,728  in  1997).  These  decreases  in  interest  -
affiliates  were  partially  offset by an increase in interest on the first lien
loan secured by Fort Meigs Plaza which was payable to an  affiliate in 1998,  as
discussed above.

Depreciation  and  amortization,  property  taxes,  property  management  fees -
affiliates,  and  other  property  operating  expenses  decreased  by  $158,833,
$96,609, $44,078 and $44,387,  respectively,  in 1998 as compared to 1997. These
decreases  were mainly  attributable  to Fort Meigs Plaza and Wise County Plaza,
which were disposed of in 1998.




<PAGE>
General and administrative expenses in 1998 increased by $276,746 as compared to
1997.  The  increase  was  primarily  due to costs  incurred  in 1998 to explore
alternatives to maximize the value of the Partnership (see Liquidity and Capital
Resources).

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

The Partnership  generated $610,878 of cash through operating activities in 1998
as compared to $1,168,737 in 1997 and $699,883 in 1996.

Approximately  $107,000  of the  $557,859  decrease  in 1998 as compared to 1997
related to Fort Meigs Plaza  which was sold in April 1998 and Wise County  Plaza
which was foreclosed on in May 1998. The remaining  decrease in cash provided by
operating  activities  was mainly due to an increase in cash paid to  suppliers,
mainly due to an increase in general and administrative  expenses,  as discussed
above.  In  addition,  the  Partnership  paid  $182,091 of  interest  accrued on
affiliate advances in 1998.

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.

In 1997 and 1996, the Partnership  received $100,241 and $40,937,  respectively,
of  proceeds  from the  insurance  carrier  for  hurricane  damage  suffered  at
Governour's Square Apartments. No such proceeds were received in 1998.

The Partnership  expended  $478,003,  $852,810 and $820,483 for additions to its
real  estate  investments  and  asset  held  for sale in  1998,  1997 and  1996,
respectively.  The decrease in 1998 as compared to 1997 was partially due to the
disposition of Fort Meigs Plaza and Wise County Plaza shopping  centers in 1998.
No improvements  were performed at these two properties before their disposition
in 1998, while  approximately  $120,000 of improvements  were performed at these
two  properties in 1997.  In addition,  there were fewer  exterior  improvements
performed at Bedford Green,  Evergreen Square and Governour's  Square apartments
in 1998.

In April 1998, the Partnership  received $3,698,365 in proceeds from the sale of
Fort  Meigs  Plaza,  $3,534,157  of which  was used to repay  the  Partnership's
mortgage notes payable - affiliate.

The  Partnership  repaid  $630,574 of advances from  affiliates in 1998. No such
advances were repaid during 1997 or 1996.

Short-term liquidity:

In 1999,  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  Partnership  has no  established  lines of  credit  from  outside  sources.
Although  affiliates of the Partnership  have  previously  funded cash deficits,
affiliates are not obligated to advance funds to the  Partnership  and 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.


<PAGE>
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 were payable to, the
General Partner. The balance of these advances,  including accrued interest, was
repaid during 1998.

For the  Partnership  as a whole,  management  projects  positive cash flow from
operations in 1999. The  Partnership has budgeted  approximately  $1,017,000 for
necessary capital improvements for all properties in 1999, which are expected to
be funded from available cash reserves or from operations of the properties.

Additional efforts to maintain and improve  Partnership  liquidity have included
continued attention to property management activities. The objective has been to
obtain maximum  occupancy  rates while holding  expenses to levels  necessary to
maximize  cash flows.  The  Partnership  has made  capital  expenditures  on its
properties where improvements were expected to increase the  competitiveness and
marketability of the properties.

Long-term liquidity:

As previously announced, the Partnership has retained PaineWebber,  Incorporated
("PaineWebber")  as its exclusive  financial advisor to explore  alternatives to
maximize  the  value  of  the  Partnership,  including,  without  limitation,  a
transaction  in which  limited  partnership  interests  in the  Partnership  are
converted into cash. The Partnership,  through  PaineWebber,  provided financial
and other  information to interested  parties as part of an auction  process and
until early March 1999 was conducting  discussions with one bidder in an attempt
to reach a definitive  agreement  with respect to a sale  transaction.  In early
March 1999, because the Partnership had been unable to conclude negotiations for
a transaction with such bidder, the Partnership  terminated such discussions and
commenced   discussions   with  respect  to  a  sale  transaction  with  another
well-financed  bidder who had been  involved in the  original  auction  process.
During  the last full  week of  March,  the  Partnership  entered  into a 45 day
exclusivity  agreement with such party.  It is possible that the General Partner
and its  affiliates  will receive  non-cash  consideration  for their  ownership
interests in  connection  with any such  transaction.  There can be no assurance
regarding whether any such agreement will be reached nor the terms thereof.

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's  working capital needs have been
supported by deferring certain affiliate payables. The Partnership owed payables
to  affiliates   for  property   management   fees,   Partnership   general  and
administrative  expenses,  asset  management fees and disposition  fees totaling
$5,446,918 at December 31, 1998.

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.





<PAGE>
YEAR 2000 DISCLOSURE
--------------------

State of readiness
------------------

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.

Management has assessed its  information  technology  ("IT")  infrastructure  to
identify  any systems  that could be affected by the year 2000  problem.  The IT
used by the  Partnership  for  financial  reporting and  significant  accounting
functions was made year 2000 compliant  during recent systems  conversions.  The
software  utilized for these  functions  are licensed by third party vendors who
have warranted that their systems are year 2000 compliant.

Management  is  in  the  process  of  evaluating  the  mechanical  and  embedded
technological systems at the various properties.  Management has inventoried all
such systems and queried suppliers,  vendors and manufacturers to determine year
2000 compliance. Management will complete assessment of findings by May 1, 1999.
In  circumstances  of  non-compliance  management  will work with the  vendor to
remedy the  problem or seek  alternative  suppliers  who will be in  compliance.
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. However, no estimates can be made as to the potential adverse impact
resulting  from the failure of third party  service  providers and vendors to be
year 2000 compliant.

Cost
----

The cost of IT and  embedded  technology  systems  testing  and  upgrades is not
expected to be material to the Partnership. Because all the IT systems have been
upgraded  over the last three years,  all such systems were  compliant,  or made
compliant at no additional cost by third party vendors.  Management  anticipates
the costs of assessing,  testing, and if necessary replacing embedded technology
components will be less than $50,000.  Such costs will be funded from operations
of the Partnership.

Risks
-----

Ultimately,  the potential impact of the year 2000 issue will depend not only on
the corrective measures the Partnership undertakes, but also on the way in which
the year 2000 issue is  addressed  by  government  agencies  and  entities  that
provide services or supplies to the  Partnership.  Management has not determined
the most likely worst case scenario to the  Partnership.  As management  studies
the findings of its property  systems  assessment and testing,  management  will
develop  a better  understanding  of what  would  be the  worst  case  scenario.
Management  believes  that  progress  on all  areas is  proceeding  and that the
Partnership  will  experience  no  adverse  effect  as a result of the year 2000
issue. However, there is no assurance that this will be the case.




<PAGE>
Contingency plans
-----------------

Management  is  developing  contingency  plans to  address  potential  year 2000
non-compliance of IT and embedded technology  systems.  Management believes that
failure of any IT system could have an adverse  impact on  operations.  However,
management  believes  that  alternative  systems  are  available  that  could be
utilized to minimize  such impact.  Management  believes that any failure in the
embedded  technology  systems  could have an adverse  impact on that  property's
performance.  Management  will assess these risks and develop  plans to mitigate
possible failures by June, 1999.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------- ----------------------------------------------------------

Not Applicable.
<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.......................................                       16

   Balance Sheets at December 31, 1998 and 1997...................................                       17

   Statements of Operations for each of the three years in the period
      ended December 31, 1998.....................................................                       18

   Statements of Partners' Deficit for each of the three years
      in the period ended December 31, 1998.......................................                       19

   Statements of Cash Flows for each of the three years in the period
      ended December 31, 1998.....................................................                       20

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

   Financial Statement Schedule -

      Schedule III - Real Estate Investments and Accumulated
         Depreciation.............................................................                       33


</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, 1998 and 1997, and
the related statements of operations,  partners' deficit and cash flows for each
of the three  years in the period  ended  December  31,  1998.  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, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.

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


/s/ Arthur Andersen LLP


Dallas, Texas
   March 19, 1999
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                         ---------------------------------
                                                                              1998                1997
                                                                         ------------         ------------
ASSETS
------

Real estate investments:
<S>                                                                      <C>                  <C>         
   Land .........................................................        $  1,842,544         $  3,192,923
   Buildings and improvements ...................................          22,468,887           30,048,514
                                                                         ------------         ------------
                                                                           24,311,431           33,241,437
   Less:  Accumulated depreciation and
     amortization ...............................................         (12,611,818)         (16,177,771)
                                                                         ------------         ------------
                                                                           11,699,613           17,063,666

Asset held for sale .............................................                  --            2,795,988

Cash and cash equivalents .......................................           1,253,238            1,817,585
Cash segregated for security deposits ...........................             181,524              176,258
Accounts receivable .............................................              25,391              229,435
Escrow deposits .................................................             470,958              558,752
Deferred borrowing costs, net of accumulated
   amortization of $255,111 and $218,067 at
   December 31, 1998 and 1997, respectively .....................             305,817              368,334
Prepaid expenses and other assets ...............................              35,922               53,944
                                                                         ------------         ------------
                                                                         $ 13,972,463         $ 23,063,962
                                                                         ============         ============

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

Mortgage notes payable, net .....................................        $ 12,372,597         $ 18,534,503
Mortgage notes payable - affiliate ..............................                  --            3,730,076
Accounts payable and accrued expenses ...........................             172,803              398,815
Accrued property taxes ..........................................             304,699              447,269
Payable to affiliates ...........................................           5,446,918            4,862,973
Advances from affiliates ........................................                  --              794,981
Security deposits and deferred rental revenue ...................             170,108              194,927
                                                                         ------------         ------------
                                                                           18,467,125           28,963,544
                                                                         ------------         ------------

Partners' deficit:
   Limited  partners - 50,000 Units  authorized; 46,948
     and 47,086 Units issued and outstanding at December
     31, 1998 and 1997, respectively (24,863 Current
     Income Units and 22,085  Growth/Shelter  Units
     outstanding at December 31, 1998 and  24,906 Current
     Income  Units and 22,180  Growth/Shelter  Units
     outstanding at December 31, 1997) ..........................          (4,132,103)          (5,522,974)
   General Partner ..............................................            (362,559)            (376,608)
                                                                         ------------         ------------
                                                                           (4,494,662)          (5,899,582)
                                                                         ------------         ------------
                                                                         $ 13,972,463         $ 23,063,962
                                                                         ============         ============
</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,
                                                     ---------------------------------------------------
                                                         1998                1997                1996
                                                     -----------         -----------         -----------
Revenue:
<S>                                                  <C>                 <C>                 <C>        
   Rental revenue ...........................        $ 5,674,766         $ 6,478,023         $ 6,434,691
   Interest .................................             80,425              88,861             105,374
   Gain on involuntary conversion ...........                 --              66,655              27,252
   Gain on disposition of real estate........            863,350                  --                  --
                                                     -----------         -----------         -----------
     Total revenue ..........................          6,618,541           6,633,539           6,567,317
                                                     -----------         -----------         -----------

Expenses:
   Interest .................................          1,372,869           1,998,289           2,028,191
   Interest - affiliates ....................            137,371             153,268             120,208
   Depreciation and amortization ............          1,357,922           1,516,755           1,590,804
   Property taxes ...........................            456,896             553,505             520,251
   Personnel costs ..........................            806,686             764,892             729,371
   Repairs and maintenance ..................            773,386             779,481             787,086
   Property management fees -
     affiliates .............................            291,009             335,087             331,145
   Utilities ................................            418,168             435,999             421,204
   Other property operating expenses ........            371,857             416,244             381,858
   General and administrative ...............            453,192             176,446              91,779
   General and administrative -
     affiliates .............................            590,417             652,177             692,500
   Write-down for impairment of real
     estate .................................                 --             330,000                  --
                                                     -----------         -----------         -----------
     Total expenses .........................          7,029,773           8,112,143           7,694,397
                                                     -----------         -----------         -----------

Loss before extraordinary items .............           (411,232)         (1,478,604)         (1,127,080)
Extraordinary items .........................          1,816,152                  --                  --
                                                     -----------         -----------         -----------
Net income (loss) ...........................        $ 1,404,920         $(1,478,604)        $(1,127,080)
                                                     ===========         ===========         ===========

Net income (loss) allocable to:
   Current Income Unit ......................        $   126,443         $  (133,074)        $  (101,437)
   Growth/Shelter Unit ......................          1,264,428          (1,330,744)         (1,014,372)
   General Partner ..........................             14,049             (14,786)            (11,271)
                                                     -----------         -----------         -----------
Net income (loss) ...........................        $ 1,404,920         $(1,478,604)        $(1,127,080)
                                                     ===========         ===========         ===========

Net income (loss) per limited
   partnership unit:
   Current Income Unit Holders:
     Loss before extraordinary items ........              (1.48)              (5.34)              (4.07)
     Extraordinary items ....................               6.57                  --                  --
                                                     -----------         -----------         -----------
     Net income (loss) ......................        $      5.09         $     (5.34)        $     (4.07)
                                                     ===========         ===========         ===========

   Growth/Shelter Unit Holders:
     Loss before extraordinary items ........             (16.76)             (60.00)             (45.41)
     Extraordinary items ....................              74.01                  --                  --
                                                     -----------         -----------         -----------
     Net income (loss) ......................        $     57.25         $    (60.00)        $    (45.41)
                                                     ===========         ===========         ===========
</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, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                                        Total
                                                General             Limited            Partners'
                                                Partner             Partners            Deficit
                                              ------------        ------------        ------------
<S>                                           <C>                 <C>                 <C>         
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)         (1,014,372)
                                              -----------         -----------         -----------
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)

Net income
   General Partner ...................             14,049                  --              14,049
   Current Income Units ..............                 --             126,443             126,443
   Growth/Shelter Units ..............                 --           1,264,428           1,264,428
                                              -----------         -----------         -----------
Total net income .....................             14,049           1,390,871           1,404,920
                                              -----------         -----------         -----------

Balance at December 31, 1998 .........        $  (362,559)        $(4,132,103)        $(4,494,662)
                                              ===========         ===========         ===========

</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,
                                                          ----------------------------------------------------
                                                              1998                1997                1996
                                                          ------------        ------------        ------------

Cash flows from operating activities:
<S>                                                       <C>                 <C>                 <C>        
   Cash received from tenants ....................        $ 5,736,477         $ 6,443,437         $ 6,377,872
   Cash paid to suppliers ........................         (2,816,070)         (2,542,810)         (2,295,191)
   Cash paid to affiliates .......................           (297,481)           (334,615)         (1,031,299)
   Interest received .............................             80,425              88,861             105,374
   Interest paid .................................         (1,148,066)         (1,902,698)         (1,947,970)
   Interest paid to affiliates ...................           (407,432)            (48,886)            (48,493)
   Property taxes paid ...........................           (536,975)           (534,552)           (460,410)
                                                          -----------         -----------         -----------
Net cash provided by operating
     activities ..................................            610,878           1,168,737             699,883
                                                          -----------         -----------         -----------

Cash flows from investing activities:
   Net proceeds received from
     insurance company ...........................                 --             100,241              40,937
   Additions to real estate investments
     and asset held for sale .....................           (478,003)           (852,810)           (820,483)
   Proceeds from disposition of real estate.......          3,698,365                  --                  --
                                                          -----------         -----------         -----------
Net cash provided by (used in)
   investing activities ..........................          3,220,362            (752,569)           (779,546)
                                                          -----------         -----------         -----------

Cash flows from financing activities:
   Deferred borrowing costs paid .................                 --                  --                (635)
   Principal payments on mortgage
     notes payable ...............................           (225,374)           (269,426)           (247,160)
   Principal payments on mortgage notes
     payable - affiliate .........................             (5,482)                 --                  --
   Repayment of mortgage notes
     payable - affiliate .........................         (3,534,157)                 --                  --
   Repayment of advances from affiliates .........           (630,574)                 --                  --
                                                          -----------         -----------         -----------
Net cash used in financing activities ............         (4,395,587)           (269,426)           (247,795)
                                                          -----------         -----------         -----------

Net increase (decrease) in cash and
     cash equivalents ............................           (564,347)            146,742            (327,458)

Cash and cash equivalents at
     beginning of year ...........................          1,817,585           1,670,843           1,998,301
                                                          -----------         -----------         -----------

Cash and cash equivalents at end
     of year .....................................        $ 1,253,238         $ 1,817,585         $ 1,670,843
                                                          ===========         ===========         ===========
</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 8 - "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 Income (Loss) to Net Cash Provided by
                              Operating Activities


<TABLE>
<CAPTION>
                                                              For the Years Ended December 31,
                                                     ----------------------------------------------------
                                                         1998                 1997               1996
                                                     -----------         ------------        ------------
<S>                                                  <C>                 <C>                 <C>         
Net income (loss) ...........................        $ 1,404,920         $(1,478,604)        $(1,127,080)
                                                     -----------         -----------         -----------

Adjustments to reconcile net income
   (loss) to net cash provided by
   operating activities:
   Depreciation and amortization ............          1,357,922           1,516,755           1,590,804
   Amortization of discounts on
     mortgage notes payable .................             20,887              19,830              18,807
   Amortization of deferred borrowing
     costs ..................................             62,517              64,343              63,589
   Accrued interest on advances from
     affiliates .............................           (164,407)             59,728              58,652
   Gain on disposition of real estate .......           (863,350)                 --                  --
   Gain on involuntary conversion ...........                 --             (66,655)            (27,252)
   Write-down for impairment of real
     estate .................................                 --             330,000                  --
   Extraordinary items ......................         (1,816,152)                 --                  --
   Changes in assets and liabilities:
     Cash segregated for security
       deposits .............................             (5,266)             (8,613)               (638)
     Accounts receivable ....................            113,155             (12,748)            (40,225)
     Escrow deposits ........................             69,732            (133,002)            185,889
     Prepaid expenses and other
       assets ...............................             (2,881)              9,615              (5,141)
     Accounts payable and accrued
       expenses .............................             (3,840)            116,148             (18,318)
     Accrued property taxes .................           (122,235)             99,424               9,710
     Payable to affiliates ..................            583,945             652,649              (7,654)
     Security deposits and deferred
        rental revenue ......................            (24,069)               (133)             (1,260)
                                                     -----------         -----------         -----------

         Total adjustments ..................           (794,042)          2,647,341           1,826,963
                                                     -----------         -----------         -----------

Net cash provided by operating
     activities .............................        $   610,878         $ 1,168,737         $   699,883
                                                     ===========         ===========         ===========

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

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1998

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 real estate. As described in
Note 4 - "Real Estate  Investments," at December 31, 1998, the Partnership owned
five revenue-producing properties.

As previously announced, the Partnership has retained PaineWebber,  Incorporated
("PaineWebber")  as its exclusive  financial advisor to explore  alternatives to
maximize  the  value  of  the  Partnership,  including,  without  limitation,  a
transaction  in which  limited  partnership  interests  in the  Partnership  are
converted into cash. The Partnership,  through  PaineWebber,  provided financial
and other  information to interested  parties as part of an auction  process and
until early March 1999 was conducting  discussions with one bidder in an attempt
to reach a definitive  agreement  with respect to a sale  transaction.  In early
March 1999, because the Partnership had been unable to conclude negotiations for
a transaction with such bidder, the Partnership  terminated such discussions and
commenced   discussions   with  respect  to  a  sale  transaction  with  another
well-financed  bidder who had been  involved in the  original  auction  process.
During  the last full  week of  March,  the  Partnership  entered  into a 45 day
exclusivity  agreement with such party.  It is possible that the General Partner
and its  affiliates  will receive  non-cash  consideration  for their  ownership
interests in  connection  with any such  transaction.  There can be no assurance
regarding whether any such agreement will be reached nor the terms thereof.

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.
<PAGE>
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

Adoption of Recent Accounting Pronouncements
--------------------------------------------

The Partnership has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures  About  Segments of an Enterprise  and Related  Information  ("SFAS
131"). SFAS 131 requires an enterprise to report financial information about its
reportable operating segments, which are defined as components of a business for
which  separate  financial  information  is  evaluated  regularly  by the  chief
decision  maker  in  allocating   resources  and  assessing   performance.   The
Partnership  does not  prepare  such  information  for  internal  use,  since it
analyzes  the   performance  of  and  allocates   resources  for  each  property
individually.  The Partnership's  management has determined that it operates one
line of business and it would be  impracticable  to report segment  information.
Therefore, the adoption of SFAS 131 has no impact on the Partnership's financial
statements.

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 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". 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.

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 was  stated at the  lower of  depreciated  cost or fair
value less estimated costs to sell.  Depreciation and amortization 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 were 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  were
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 leased its commercial properties under non-cancelable  operating
leases. Certain leases provided concessions and/or periods of escalating or free
rent.  Rental revenue was 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  was 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 1998, 1997 and 1996 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
24,863,  24,906 and 24,949  Current Income Units  outstanding in 1998,  1997 and
1996,   respectively  and  22,085,   22,180  and  22,339   Growth/Shelter  Units
outstanding in 1998, 1997 and 1996, respectively.

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.

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

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, 1998 and 1997.




<PAGE>
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 to .75% in
2000, .50% in 2001 and .25% thereafter.

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,
                                                   ----------------------------------------------------
                                                         1998              1997              1996
                                                   --------------     --------------    ---------------
<S>                                                <C>                <C>               <C>            
Property management fees - affiliates........      $      291,009     $      335,087    $       331,145
Charged to interest - affiliates:
   Interest on advances from
     affiliates..............................              17,684             59,728             58,652
   Interest on mortgage notes
     payable - affiliate.....................             119,687             93,540             61,556
Charged to general and
   administrative - affiliates:
   Partnership administration................             271,987            261,701            295,106
   Asset management fee......................             318,430            390,476            397,394
                                                    -------------      -------------     --------------
                                                   $    1,018,797     $    1,140,532    $     1,143,853
                                                    =============      =============     ==============
</TABLE>

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 were payable to, the
General Partner. The advances were unsecured, due on demand and accrued interest
at the prime lending rate of Bank of America plus 1%. During 1998,  the $630,574
balance of these  advances  and the related  accrued  interest of $182,091  were
repaid.

Payable to  affiliates  at December  31, 1998 and 1997  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 that were payable to an affiliated entity.







<PAGE>
NOTE 3 - TAXABLE INCOME (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.

The Partnership's net assets and liabilities for tax reporting purposes exceeded
the net assets and liabilities for financial  reporting  purposes by $7,624,931,
$3,352,795 and $3,103,486 in 1998, 1997 and 1996, respectively.

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

The  basis  and  accumulated  depreciation  of  the  Partnership's  real  estate
investments at December 31, 1998 and 1997 are set forth in the following tables:

<TABLE>
<CAPTION>
                                                   Buildings and        Accumulated           Net Book
       1998                         Land           Improvements         Depreciation            Value
       ----                    --------------      ------------        --------------      --------------

Bedford Green
<S>                            <C>                 <C>                 <C>                 <C>           
   Bedford, OH                 $      252,310      $    3,908,016      $   (2,142,640)     $    2,017,686
Breckenridge
   Davenport, IA                      232,016           2,540,776          (1,451,465)          1,321,327
Evergreen Square
   Tupelo, MS                         396,856           4,784,152          (2,791,829)          2,389,179
Governour's Square
   Wilmington, NC                     577,657           6,511,314          (3,566,306)          3,522,665
Woodcreek
   Fort Wayne, IN                     383,705           4,724,629          (2,659,578)          2,448,756
                                -------------       -------------       -------------       -------------
                               $    1,842,544      $   22,468,887      $  (12,611,818)     $   11,699,613
                                =============       =============       =============       =============

                                                   Buildings and        Accumulated          Net Book
       1997                         Land           Improvements         Depreciation           Value
       ----                    --------------      ------------        --------------     ---------------

Bedford Green                  $      252,310      $    3,810,292      $   (1,933,194)     $    2,129,408
Breckenridge                          232,016           2,501,225          (1,321,115)          1,412,126
Evergreen Square                      396,856           4,737,859          (2,554,799)          2,579,916
Governour's Square                    577,657           6,348,996          (3,182,378)          3,744,275
Wise County Plaza                   1,350,379           8,057,521          (4,798,325)          4,609,575
Woodcreek                             383,705           4,592,621          (2,387,960)          2,588,366
                                -------------       -------------       -------------       -------------
                               $    3,192,923      $   30,048,514      $  (16,177,771)     $   17,063,666
                                =============       =============       =============       =============
</TABLE>


<PAGE>
On October 1, 1996,  the General  Partner  placed Fort Meigs  Plaza,  a shopping
center located in Perrysburg, Ohio, on the market for sale. Fort Meigs Plaza was
classified as such at December 31, 1997 with a net book value of $2,795,988.  On
April 20,  1998,  Fort  Meigs  Plaza was sold to an  unaffiliated  purchaser  as
further discussed in Note 7 - "Property Dispositions."

The results of operations  for the asset held for sale were $(400),  $12,683 and
$(115,695) for the years ended December 31, 1998,  1997 and 1996,  respectively.
Results of operations are operating  revenues less operating  expenses including
depreciation and amortization and interest expense.

Wise County  Plaza was a shopping  center  located in Wise,  Virginia 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  and  the   Partnership  was  unable  to  negotiate  a
modification and extension of the loans. The Partnership  received an offer from
a non-affiliate to purchase the center for $4.9 million,  which was 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.  On May 29,  1998,  Wise County  Plaza was  foreclosed  on by the
lender in full settlement of the mortgage  indebtedness secured by the property.
In connection with this transaction, the Partnership recognized an extraordinary
gain on retirement of mortgage note payable of $1,625,715.

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

The following  sets forth  mortgage  notes  payable,  net of  discounts,  of the
Partnership  at  December  31, 1998 and 1997.  All  mortgage  notes  payable are
secured by the related real estate investment.

<TABLE>
<CAPTION>
                           Mortgage       Annual          Monthly
                           Lien           Interest        Payments/                       December 31,
Property                   Position(a)    Rates %         Maturity (d)             1998                1997
--------                   -----------    -------      -------------------    ---------------     --------------
<S>                        <C>                <C>      <C>           <C>       <C>               <C>            
Bedford Green              First              8.48     $   25,327    07/02     $    3,207,582    $     3,238,088
                                                                                -------------     --------------

Breckenridge (b)           First              8.15     $   14,602    07/03          1,655,083          1,693,694
                           Discount                                                   (27,319)           (32,605)
                                                                                -------------     --------------
                                                                                    1,627,764          1,661,089
                                                                                -------------     --------------

Evergreen Square (b)       First              8.15     $   16,777    07/03          1,901,594          1,945,956
                           Discount                                                   (31,387)           (37,461)
                                                                                -------------     --------------
                                                                                    1,870,207          1,908,495
                                                                                -------------     --------------
</TABLE>




<PAGE>
<TABLE>
<CAPTION>
                           Mortgage       Annual          Monthly
                           Lien           Interest        Payments/                       December 31,
Property                   Position(a)    Rates %         Maturity (d)             1998                1997
--------                   -----------    -------      -------------------    ---------------     --------------
<S>                        <C>                <C>      <C>           <C>       <C>               <C>            


Governour's Square (b)     First              8.15     $   26,314    07/03          2,982,539          3,052,118
                           Discount                                                   (49,229)           (58,756)
                                                                                -------------     --------------
                                                                                    2,933,310          2,993,362
                                                                                -------------     --------------

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

Woodcreek                  First              8.48     $   21,586    07/02          2,733,734          2,759,734
                                                                                -------------     --------------

                                                       Total                   $   12,372,597    $    18,534,503
                                                                                =============     ==============
</TABLE>

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

(b)    Financing was obtained under the terms   of  a   Real   Estate   Mortgage
       Investment   Conduit   financing.   The   mortgage   notes   payable  are
       cross-collateralized.  Principal  prepayments  made  before July 2000 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.

(c)    The mortgage notes payable secured  by  Wise County Plaza Shopping Center
       matured in August  1997 and the  Partnership  was unable to  negotiate  a
       modification  and  extension of the loans.  On May 29, 1998,  Wise County
       Plaza was  foreclosed on by the lender in full  settlement of the mortage
       indebtedness  secured  by the  property.  The  Partnership  recognized  a
       $1,625,715  extraordinary  gain on retirement of mortgage note payable as
       further discussed in Note 7 - "Property Dispositions."

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

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


       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


<PAGE>
Scheduled  principal  maturities of the mortgage  notes  payable under  existing
agreements, excluding discounts of $107,935, are as follows:

              1999....................................        $    226,949
              2000....................................             246,371
              2001....................................             267,457
              2002....................................           5,951,223
              2003....................................           5,788,532
                                                               -----------
                                                              $ 12,480,532
                                                               ===========

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 $12,524,000 at December 31, 1998 and $18,527,000
at December 31, 1997.

NOTE 6 - MORTGAGE NOTES PAYABLE - AFFILIATE
-------------------------------------------

The following sets forth  mortgage notes payable - affiliate of the  Partnership
at December 31, 1998 and 1997.  The  mortgage  notes were secured by the related
asset held for sale.

<TABLE>
<CAPTION>
                         Mortgage         Annual          Monthly
                         Lien             Interest        Payments/                    December 31,
Property                 Position(a)      Rates %         Maturity                 1998                1997
--------                 ------------     -------      -------------------    ---------------     --------------
<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
                                                                                -------------      -------------
                                                                               $            -     $    3,730,076
                                                                                =============      =============
</TABLE>

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

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

In December 1997,  McNeil Real Estate Fund XX, L.P.  ("Fund XX"), the affiliated
partnership  that held the second  lien  mortgage  secured by Fort Meigs  Plaza,
purchased the first lien mortgage note from the  unaffiliated  lender.  On April
20, 1998, the Partnership  sold Fort Meigs Plaza to an  unaffiliated  purchaser.
Cash proceeds from the sale, after payment of prorated rents and property taxes,
were  used to repay the  mortgage  notes  payable  to Fund XX.  The  Partnership
recognized a $190,437  extraordinary gain on repayment of mortgage notes payable
- affiliate as further discussed in Note 7 - "Property Dispositions."

Based on borrowing rates available to the Partnership at December 31, 1997 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.




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

On April 20,  1998,  the  Partnership  sold Fort Meigs  Plaza  Shopping  Center,
located in Perrysburg,  Ohio, to an  unaffiliated  purchaser for a cash purchase
price of  $3,800,000.  Cash  proceeds  from the sale,  after payment of prorated
rents and property taxes,  were used to repay the mortgage notes payable to Fund
XX, an affiliate.  Cash  proceeds,  as well as the gain on sale, are detailed on
the following page.

<TABLE>
<CAPTION>
                                                                        Gain                   Cash
                                                                       on Sale               Proceeds
                                                                  -----------------      ---------------
<S>                                                               <C>                    <C>           
Sales price..........................................             $       3,800,000      $    3,800,000

Selling costs .......................................                     (101,635)            (101,635)
Straight-line rents receivable written off...........                      (28,979)
Prepaid leasing commissions written off..............                      (10,048)
Carrying value.......................................                   (2,795,988)
                                                                   ----------------       -------------

Gain on sale of real estate..........................             $        863,350
                                                                   ===============

Proceeds from sale...................................                                          3,698,365

Prorated rents and property taxes paid at
   closing...........................................                                            (83,012)

Repayment of mortgage notes payable to
   Fund XX and related accrued interest..............                                         (3,615,353)
                                                                                           -------------

Net cash proceeds....................................                                     $            -
                                                                                           =============
</TABLE>

The  Partnership  recognized a $190,437  extraordinary  gain on repayment of the
mortgage notes payable to Fund XX, as follows:

First lien mortgage note payable - affiliate.........       $  2,990,694
Second lien mortgage note payable - affiliate........            733,900
Accrued interest payable.............................             81,196
                                                             -----------
   Total principal and interest payable to
     Fund XX.........................................          3,805,790

Cash for repayment in full of principal and
   interest payable to Fund XX.......................         (3,615,353)
                                                             -----------

Extraordinary gain on repayment of mortgage
   notes payable - affiliate.........................       $    190,437
                                                             ===========


<PAGE>
Under the terms of its partnership  agreement,  the Partnership  normally pays a
disposition  fee to 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.  In
connection  with the sale of Fort Meigs Plaza,  the General  Partner  waived its
right to receive such fee, which would have totaled $114,000.

The mortgage  notes  payable  secured by Wise County Plaza  matured on August 1,
1997 and the Partnership was unable to negotiate a modification and extension of
the loans. On May 29, 1998, Wise County Plaza was foreclosed on by the lender in
full  settlement  of the  mortgage  indebtedness  secured  by the  property.  In
connection with this  transaction,  the Partnership  recognized an extraordinary
gain on retirement of mortgage note payable as set forth on the following page.

Estimated fair value of real estate..................       $   4,535,814

Accounts receivable written off......................             (61,910)
Prepaid expenses written off.........................             (10,855)
Accrued property taxes written off...................              20,335
Deferred rental revenue written off..................                 750
Carrying value.......................................          (4,484,134)
                                                             ------------

   Gain on disposition...............................       $           -
                                                             ============

Amount of mortgage note payable settled..............       $   5,957,419
Amount of accrued interest payable settled...........             222,172
Escrow deposits applied..............................             (18,062)
Estimated fair value of real estate..................          (4,535,814)
                                                             ------------

Extraordinary gain on repayment of mortgage
   note payable......................................       $   1,625,715
                                                             ============

NOTE 8 - 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.









<PAGE>
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 XXIII,  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., Hearth Hollow  Associates,  McNeil Midwest  Properties I, L.P. and
Regency North Associates,  L.P., - 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  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. The case was stayed pending settlement discussions.  A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties.  Preliminary
Court  approval was received on October 6, 1998. A hearing for Final Approval of
Settlement, initially scheduled for December 17, 1998, has been continued to May
25, 1999.


<PAGE>
Because McNeil Real Estate Fund XXIII,  L.P., Hearth Hollow  Associates,  McNeil
Midwest  Properties I, L.P. and Regency North Associates,  L.P. would be part of
the  transaction  contemplated  in the settlement  and Plaintiffs  claim that an
effort should be made to sell the McNeil Partnerships,  Plaintiffs have included
allegations with respect to McNeil Real Estate Fund XXIII,  L.P.,  Hearth Hollow
Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P.
in the third consolidated and amended complaint.

Plaintiff's  counsel  intends  to seek an  order  awarding  attorney's  fees and
reimbursements  of their  out-of-pocket  expenses.  The  amount of such award is
undeterminable  until  final  approval  is  received  from the  court.  Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis,  based
upon  tangible  asset value of each such  partnership,  less total  liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.

NOTE 10 - COMMITMENTS AND CONTINGENCIES
---------------------------------------

Environmental laws create potential liabilities that may affect property owners.
The environmental  laws of Federal and certain state  governments,  for example,
impose liability on current and certain past owners of property from which there
is a release  or threat of  release  of  hazardous  substances.  This  liability
includes costs of investigation and remediation of the hazardous  substances and
natural resource  damages.  Liability for costs of investigation and remediation
is strict and may be imposed  irrespective  of whether the property owner was at
fault,  although  there are a number of  defenses.  Both  governments  and third
parties may seek recoveries under these laws.

Third parties also may seek  recovery  under the common law for damages to their
property  or person,  against  owners of  property  from which  there has been a
release of hazardous and other substances.

The presence of  contamination  or the failure to remediate  contaminations  may
adversely  affect the owner's  ability to sell or lease real estate or to borrow
using the real estate as collateral.

Various  buildings at properties do or may contain  building  materials that are
the subject of various  regulatory  programs  intended to protect  human health.
Such building materials include,  for example,  asbestos,  lead-based paint, and
lead plumbing components.  The Company has implemented programs to deal with the
presence  of those  materials,  which  include,  as  appropriate,  reduction  of
potential  exposure  situations.  The Company does not believe that the costs of
such programs are likely to have a material adverse effect. Failure to implement
such programs can result in regulatory  violations or liability claims resulting
from alleged exposure to such materials.

In connection with the proposed sale transaction as more fully described in Note
1 -  "Organization  and Summary of  Significant  Accounting  Policies",  Phase I
environmental  site  assessments  have been completed for each property owned by
the Partnership. Such environmental assessments performed on the properties have
not revealed any  environmental  liability that the  Partnership  believes would
have a material adverse effect on the Partnership's business, assets, or results
of  operations.  The  Partnership  has not  been  notified  by any  governmental
authority of any non-compliance, liability or other claim in connection with any
of its  properties.  There can be no  assurances,  however,  that  environmental
liabilities  have  not  developed  since  such  environmental  assessments  were
prepared,  or that future uses or  conditions  (including,  without  limitation,
changes in applicable  environmental  laws and  regulations)  will not result in
imposition of environmental liability.


<PAGE>
NOTE 11 - PRO FORMA INFORMATION (UNAUDITED)
-------------------------------------------

The following  unaudited pro forma  information for the years ended December 31,
1998 and 1997 reflects the results of operations  of the  Partnership  as if the
sale of Fort Meigs Plaza and the  foreclosure  of Wise County Plaza had occurred
as of January 1, 1997. 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.

                                                      1998              1997
                                                  -------------     ------------
    Total revenue...........................      $  5,191,473      $ 5,063,444
    Loss before extraordinary items.........        (1,138,562)        (962,059)
    Net loss................................        (1,138,562)        (962,059)

    Net loss per thousand limited partnership
      units:
      Current Income Units..................             (4.12)           (3.48)
      Growth/Shelter Units..................            (46.40)          (39.04)



<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.
                                  SCHEDULE III
              REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
                                December 31, 1998

<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:

Bedford Green
<S>                        <C>               <C>               <C>                <C>              <C>          
   Bedford, OH             $    3,207,582    $      252,310    $    3,203,996     $          -     $     704,020

Breckenridge
   Davenport, IA                1,627,764           232,016         2,184,818                -           355,958

Evergreen Square
   Tupelo, MS                   1,870,207           396,856         4,217,746         (491,000)        1,057,406

Governour's Square
   Wilmington, NC               2,933,310           577,657         4,829,242                -         1,682,072

Woodcreek
   Fort Wayne, IN               2,733,734           383,705         3,613,217                -         1,111,412
                           --------------    --------------     -------------     ------------      ------------

                          $    12,372,591   $     1,842,544    $   18,049,019    $    (491,000)    $   4,910,868
                           ==============    ==============     =============     ============      ============
</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 value of Evergreen  Square  Apartments was reduced by $176,568
     in 1989, and was further reduced by $314,432 in 1991.


                     See accompanying notes to Schedule III.
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.
                                  SCHEDULE III
              REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
                                December 31, 1998

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

Bedford Green
<S>                           <C>                <C>              <C>                 <C>            
   Bedford, OH                $      252,310     $    3,908,016   $      4,160,326    $   (2,142,640)

Breckenridge
   Davenport, IA                     232,016          2,540,776          2,772,792        (1,451,465)

Evergreen Square
   Tupelo, MS                        396,856          4,784,152          5,181,008        (2,791,829)

Governour's Square
   Wilmington, NC                    577,657          6,511,314          7,088,971        (3,566,306)

Woodcreek
   Fort Wayne, IN                    383,705          4,724,629          5,108,334        (2,659,578)
                               -------------      -------------    ---------------      ------------

                              $    1,842,544     $   22,468,887   $     24,311,431     $ (12,611,818)
                               =============      =============    ===============      ============
</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 $28,009,154 and
     accumulated depreciation was $18,996,326 at December 31, 1998.


                     See accompanying notes to Schedule III.
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.
                                  SCHEDULE III
              REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
                                December 31, 1998


<TABLE>
<CAPTION>


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

APARTMENTS:

Bedford Green
<S>                             <C>                         <C>                     <C> 
   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

</TABLE>



                     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,
                                                        -------------------------------------------------------
                                                            1998                 1997                   1996
                                                        -------------        ------------         -------------
Real estate investments:
<S>                                                     <C>                  <C>                  <C>         
Balance at beginning of year ...................        $ 33,241,437         $ 32,782,941         $ 36,949,217

Improvements ...................................             478,003              788,496              798,291

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

Disposition of real estate .....................          (9,408,009)                  --                   --

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

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

Balance at end of year .........................        $ 24,311,431         $ 33,241,437         $ 32,782,941
                                                        ============         ============         ============


Accumulated depreciation and amortization:

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

Depreciation and amortization ..................           1,357,922            1,516,755            1,590,804

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

Disposition of real estate .....................          (4,923,875)                  --                   --

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

Balance at end of year .........................        $ 12,611,818         $ 16,177,771         $ 14,661,016
                                                        ============         ============         ============


Asset held for sale:

Balance at beginning of year ...................        $  2,795,988         $  2,731,674         $         --

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

Improvements ...................................                  --               64,314               22,192

Depreciation and amortization ..................                  --                   --                   --

Disposition of real estate .....................          (2,795,988)                  --                   --
                                                        ------------         ------------         ------------

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:

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

Robert A. McNeil,              78       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 an 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 is a member
                                        of the International  Board of Directors
                                        of the Salk  Institute,  which  promotes
                                        research in improvements in health care.


<PAGE>
Carole J. McNeil               55       Mrs. McNeil is Co-Chairman, with husband
Co-Chairman of the                      Robert A. McNeil,  of McNeil  Investors,
Board                                   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.

Ron K. Taylor                  41       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.

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


<PAGE>
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,  1998,  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, 1998. 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.

(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 to .75% in 2000, .50% in 2001 and .25% thereafter.  For the year ended
December 31, 1998, the  Partnership  accrued  $318,430 of such asset  management
fees.  Total  accrued  but  unpaid  asset  management  fees of  $3,636,836  were
outstanding at December 31, 1998.


<PAGE>

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, 1998, the Partnership  paid or accrued
$562,996  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 were payable to the
General Partner.  Interest expense related to these advances totaled $17,684 for
the year ended  December 31, 1998.  During 1998,  the $630,574  balance of these
advances and the related accrued interest of $182,091 were repaid.

A first and  second  lien on Fort Meigs  Plaza was  secured  by  mortgage  notes
totaling $3,730,076 payable to an affiliate of the General Partner. For the year
ended  December  31,  1998,  interest  expense  relating to these loans  totaled
$119,687. The loans were repaid in 1998.



<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.

(A)     Exhibits

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

              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)


<PAGE>
              Exhibit
              Number              Description
              -------             -----------

              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").

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

<TABLE>
<CAPTION>
                                                                                            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.

                     (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, 1998.
<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, 1999                    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, 1999                    By:  /s/  Ron K. Taylor
--------------                       -------------------------------------------
Date                                   Ron K. Taylor
                                       President and Director of McNeil 
                                        Investors, Inc.
                                       (Principal Financial Officer)




March 31, 1999                    By:  /s/  Carol A. Fahs
--------------                       -------------------------------------------
Date                                   Carol A. Fahs
                                       Vice President of McNeil Investors, Inc.
                                       (Principal Accounting Officer)