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  0-14268
                           ----------


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


         California                                    33-0085680
--------------------------------------------------------------------------------
(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  32,736,117  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 32

                                TOTAL OF 34 PAGES
<PAGE>
                                     PART I

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

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

McNeil Real Estate  Fund XXII,  L.P.,  (the  "Partnership"),  formerly  known as
Southmark  Realty  Partners  II, Ltd.  was  organized  on November 30, 1984 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  Investment  Group,  Inc. (the
"Original General Partner"), a wholly-owned  subsidiary of Southmark Corporation
("Southmark").  The  principal  place of business  for the  Partnership  and the
General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240.

On February  26,  1985,  the  Partnership  registered  with the  Securities  and
Exchange  Commission ("SEC") under the Securities Act of 1933 (File No. 2-94740)
and commenced a public  offering for sale of $55,000,000 of limited  partnership
units.  There were two  classes  of limited  partnership  units,  designated  as
Current Income Units and Growth/Shelter  Units offered (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 December 31, 1985, with 33,333,867
Units (19,922,588 Current Income Units and 13,411,279 Growth/Shelter Units) sold
at  one  dollar  each,  or  gross  proceeds  of  $33,333,867.   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. 0-14268).  During
the years 1991 through 1997, 518,750 Units were rescinded. In 1998, 79,000 Units
were relinquished  leaving 32,736,117 Units (19,493,088 Current Income Units and
13,243,029 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 being sold or  liquidated  for the  benefit of
creditors.

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





<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  Partners 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
management  agreement with McREMI, the Partnership's  property manager; and (iv)
the approval to change the  Partnership's  name to McNeil Real Estate Fund XXII,
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
new General  Partner.  For a discussion of the  methodology  for calculating the
asset  management  fee,  see  Item  13  -  Certain   Relationships  and  Related
Transactions.  The  proposals  approved  at the  March  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 $18,861, (i)
the right to receive  payment on the  advances  owing  from the  Partnership  to
Southmark  and its  affiliates  in the amount of  $16,397,  and (ii) the general
partner interest of the Original General Partner. None of the Units are owned by
the General Partner or its affiliates.

Settlement Of Claims:

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

An Order Granting  Motion to Distribute  Funds to Class 8 Claimants  dated April
14, 1995 was issued by the Bankruptcy  Court.  In accordance  with the Order, in
May 1995 the Partnership received in full satisfaction of its claims, $29,292 in
cash, and common and preferred stock in the reorganized  Southmark which amounts
represent the  Partnership's  pro-rata share of Southmark  assets  available for
Class 8 Claimants. The Partnership sold the Southmark common and preferred stock
in May 1995 for $9,457 which,  combined  with the cash proceeds from  Southmark,
resulted in a gain on legal settlement of $38,749.

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

General:

The Partnership is engaged in real estate  activities,  including the ownership,
operation and management of residential  real estate.  At December 31, 1998, the
Partnership  owned  one  income-producing  property  as  described  in  Item 2 -
Properties.




<PAGE>
The  Partnership  does not directly  employ any personnel.  The General  Partner
conducts the business of the  Partnership  directly and through its  affiliates.
The Partnership  reimburses  affiliates of the General Partner for such services
rendered in accordance with the Amended Partnership Agreement. See Item 8 - Note
2 "Transactions With Affiliates".

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

Business Plan:

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   foreclosure  of  the
Partnership's  property,  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 property see Item
2 - Properties.


<PAGE>
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 the sale or refinancing of its
property and respond to changing economic and competitive factors.

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.  The  buildings  and the land on which they are located are
owned in fee,  subject  to a first lien deed of trust as set forth more fully in
Item 8 - Note 5 -  "Mortgage  Note  Payable".  See also  Item 8 - Note 4 - "Real
Estate  Investment"  and Schedule III - "Real Estate  Investment and Accumulated
Depreciation".  In the opinion of management, the property is adequately covered
by insurance.

<TABLE>
<CAPTION>
                                          Net Basis of                       1998        Date
Property              Description          Property           Debt        Property Tax  Acquired
--------              -----------         ------------    -----------     ------------  --------
<S>                   <C>                <C>              <C>              <C>            <C> 
Harbour Club III (1)  Apartments
   Belleville, MI     331 units          $ 5,131,904      $ 5,871,684      $ 166,626      5/86
</TABLE>

(1)    Harbour Club III Apartments is owned by Harbour Club  Associates  Limited
       Partnership,  which is  wholly-owned  by the  Partnership and its General
       Partner.

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

<TABLE>
<CAPTION>
                                        1998           1997            1996           1995          1994
                                    -------------  -------------  --------------  -------------  ----------
Harbour Club III
<S>                                       <C>             <C>            <C>            <C>             <C>
   Occupancy Rate............             94%             92%            94%            96%             91%
   Rent Per Square Foot......           $8.17           $7.69          $7.38          $7.21           $6.75
</TABLE>

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

Harbour Club III
----------------

Harbour Club III, located in Belleville,  Michigan,  was built in 1972 as a part
of a four-phase  apartment  complex.  The property offers a complete  package of
amenities  including a golf course,  clubhouse,  exercise  room,  tanning  beds,
tennis courts,  saunas,  boat docks and launch, and playgrounds.  The apartments
located  in this phase of the  complex  offer lake and golf  course  views.  The
Belleville market is currently  supporting an occupancy rate of 94% which is the




<PAGE>
current rate at Harbour Club III.  Prior to 1997, the property had not increased
rents  for six  years  due to  restrictions  imposed  by the  property's  former
mortgage  holder.  In 1998, a 6% rent  increase was  implemented.  Over the past
three  years,  approximately  $1,060,000  has been  invested in the property and
$138,800 has been budgeted for 1999. These capital  improvements  include paving
the parking lot, exercise equipment, hall renovations and interior upgrades. The
1999 capital expenditures will continue to enhance the curb appeal and allow the
property to compete more aggressively and increase occupancy.

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

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

1)   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.


<PAGE>
     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.

     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.

2)   HCW Pension  Real Estate  Fund,  Ltd. et al. v. Ernst & Young,  BDO Seidman
     et al. (Case #92-06560-A). This suit was filed on behalf of the Partnership
     and other  affiliated  partnerships  (as  defined  in this  Section  1, the
     "Affiliated  Partnerships")  on May 26, 1992, in the 14th Judicial District
     Court  of  Dallas  County.   The  petition  sought  recovery   against  the
     Partnership's  former auditors,  Ernst & Young, for negligence and fraud in
     failing to detect and/or report  overcharges of fees/expenses by Southmark,
     the  former  general  partner.   The  former  auditors  initially  asserted
     counterclaims   against  the  Affiliated   Partnerships  based  on  alleged
     fraudulent misrepresentations made to the auditors by the former management
     of  the  Affiliated   Partnerships   (Southmark)  in  the  form  of  client
     representation  letters executed and delivered to the auditors by Southmark
     management.  The counterclaims sought recovery of attorneys' fees and costs
     incurred in defending this action.  The counterclaims  were later dismissed
     on appeal, as discussed below.

     The  trial  court  granted   summary   judgment   against  the   Affiliated
     Partnerships based on the statute of limitations;  however,  on appeal, the
     Dallas Court of Appeals reversed the trial court and remanded for trial the
     Affiliated  Partnerships'  fraud claims  against  Ernst & Young.  The Texas
     Supreme  Court  denied  Ernst &  Young's  application  for writ of error on
     January 11, 1996. Shortly before trial, the district court judge once again
     granted summary judgment against the Affiliated Partnerships on December 2,
     1996. The Partnership is continuing to pursue vigorously its claims against
     Ernst & Young;  however,  the final  outcome of this  litigation  cannot be
     determined at this time.

For a discussion of the Southmark bankruptcy, see Item 1 - Business.

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       2,175 as of February 1, 1999

(C)      No distributions were made 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 partners.  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...............       $   2,509,553  $   2,340,806  $    2,251,970  $   2,456,308  $   2,950,795
Loss on disposition of real
 estate......................                   -              -               -        245,637              -
Net income(loss).............             (89,405)        21,172        (220,762)      (308,378)      (565,993)

Net income(loss) per
 thousand limited
 partnership units:
Net Income(loss):
 Current Income Units........       $        (.41) $         .53  $        (1.01) $      (1.40)  $       (2.56)
 Growth/Shelter Units........               (6.08)           .78          (14.97)       (20.74)         (38.04)

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

Real estate investment, net....     $   5,131,904  $   5,389,429 $     5,318,692  $  5,504,538   $   5,632,109
Asset held for sale............                 -              -               -             -       4,393,157
Total assets...................         6,448,454      6,341,340       6,164,365     6,407,931      11,314,161
Mortgage notes payable, net....         5,871,684      5,928,021       5,979,501     6,026,515       9,534,751
Partners' deficit..............        (1,862,306)    (1,772,901)     (1,794,073)   (1,419,024)     (1,110,646)
</TABLE>

Wyoming Mall was sold on March 31, 1995.  See Item 7 -  Management's  Discussion
and Analysis of Financial Condition and Results of Operations.


<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
income-producing  real  properties and holding the  properties  for  investment.
Since  completion of its capital  formation and property  acquisition  phases in
1986,  when it completed the purchase of five  properties,  the  Partnership has
operated its  properties  for  production of income.  Competitive  and overbuilt
markets,  resulting in continuing  cash flow  problems,  adversely  affected the
Partnership's  properties.  In 1988, the lender foreclosed on Southmark Tower in

Houston,  Texas in full settlement of the mortgage indebtedness on the property.
In 1993, two of the  Partnership's  properties,  Abbey Lane and Lexington Green,
were  conveyed  via a deed in  lieu of  foreclosure  in full  settlement  of the
mortgage indebtedness on the properties. After the sale of Wyoming Mall in March
1995, the Partnership continues to operate its remaining property,  Harbour Club
III.

The Partnership has had little ready cash reserves since its inception,  and has
been  largely  dependent on  affiliates  to support its  operations.  Payable to
affiliates for property management fees,  Partnership general and administrative
expenses and asset management fees totaled $2,140,623 at December 31, 1998.

Until the  Partnership  is able to generate cash from  operations or sales,  the
Partnership  will be dependent on its present  cash  reserves,  operation of the
property,  or  financial  support  from  affiliates.  Distributions  will remain
suspended until cash reserves are judged adequate.

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

1998 compared to 1997

Revenue:

Total  Partnership  revenues  increased by $176,787 or 7% in 1998 as compared to
1997. Rental revenue increased to $2,509,553 in 1998 from $2,340,806 in 1997 due
to an  increase  in the  occupancy  rate and rental  rates at Harbour  Club III.
Interest  income for 1998  increased by $8,040 as compared to the prior year due
to higher average cash balances being invested in interest bearing accounts.

Expenses:

Total expenses increased by $287,364 or 12% for the year ended December 31, 1998
as compared to 1997.

Depreciation  expense increased $123,124 or 28% in 1998 as compared to 1997. The
increase can be attributed to  depreciation  of the capital  improvements  added
during 1998 and 1997,  respectively,  being  amortized over useful lives ranging
from five to ten years.

General and  administrative  expenses  increased  by $119,881 or 130% in 1998 as
compared to 1997. The increase was primarily due to increased  costs incurred to
explore  alternatives  to maximize  the value of the  Partnership  (see  Current
Operations).


<PAGE>
1997 compared to 1996

Revenue:

Total Partnership  revenues in 1997 increased $92,592 or 4% for 1997 as compared
to 1996.  Rental revenue was $2,340,806 for 1997, a 4% increase from  $2,251,970
for 1996.  Interest income  increased  $3,756 or 11% for 1997 as compared to the
prior year.

Expenses:

Total expenses decreased by $149,342 or 6% for the year ended December 31, 1997,
as compared to 1996. This decrease is primarily due to the interest  incurred as
a result of the recession of limited  partnership units in 1996. No such expense
occurred in 1997.

General  and  administrative  expenses  increased  by $18,593 or 25% for 1997 as
compared to 1996.  The increase is primarily due to costs  incurred for investor
services that were paid to an unrelated  third party in 1997.  During 1996, such
costs were paid to an  affiliate  of the General  Partner  and were  included in
general and administrative - affiliates on the Statement of Operations.

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

The Partnership  was provided  $723,850 of cash by operating  activities  during
1998 as compared to  $794,323  for 1997.  Cash paid to  suppliers  increased  by
$255,313  mainly  due to  payments  for  increased  general  and  administrative
expenses as discussed above. This increase was partially offset by cash received
from tenants which increased more than $224,000 at Harbour Club III Apartments.

The  Partnership had $794,323 of cash provided by operations in 1997 as compared
to $452,443 in 1996. Cash paid to suppliers  decreased by $149,047 mainly due to
a receipt of $83,000 for property  replacements  from escrow  previously held by
HUD, the former  mortgage  holder of Harbour Club III  Apartments.  Cash paid to
affiliates increased by $52,662 due to the resumption of overhead payments to an
affiliate of the General Partner for administering the Partnership's  affairs in
1997. The  Partnership  paid $145,713 of interest  relating to the rescission of
limited partnership units in 1996.

Cash used for additions to the real estate  investment was $306,696  during 1998
as compared  to  $511,834  during  1997.  A greater  amount was spent in 1998 at
Harbour Club III for landscape and signage  improvements,  as well as electrical
upgrades. In addition, hallway renovations were capitalized during 1998.


Cash used for principal payments on the mortgage note payable was $96,850 during
1998 as compared to $90,321 for 1997.

Short-term liquidity:

At  December  31,  1998,  the  Partnership  held  $1,114,934  of cash  and  cash
equivalents.  The General  Partner  considers  this level of cash reserves to be
adequate to meet the Partnership's operating needs. The General Partner believes
that  anticipated  operating  results  for 1999 will be  sufficient  to fund the
Partnership's  budgeted  capital  improvements for 1999 and to repay the current
portion of the Partnership's mortgage note.


<PAGE>

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.

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

To maintain adequate cash balances of the Partnership,  distributions to Current
Income Unit holders were suspended in 1988.  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.

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.


<PAGE>
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.......................................                       14

   Balance Sheets at December 31, 1998 and 1997...................................                       15

   Statements of Operations for each of the three years in the period
   ended December 31, 1998........................................................                       16

   Statements of Partners' Deficit for each of the three years in
   the period ended December 31, 1998.............................................                       17

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

   Notes to Financial Statements..................................................                       20

   Financial Statement Schedules -

      Schedule III - Real Estate Investment and Accumulated
         Depreciation.............................................................                       27


</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 XXII, L.P.:

We have audited the accompanying balance sheets of McNeil Real Estate Fund XXII,
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 XXII,
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 XXII, L.P.

                                 BALANCE SHEETS

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

ASSETS
------

Real estate investment:
<S>                                                                        <C>                  <C>         
   Land ...........................................................        $    380,414         $    380,414
   Buildings and improvements .....................................          10,902,583           10,595,887
                                                                           ------------         ------------
                                                                             11,282,997           10,976,301
   Less:  Accumulated depreciation ................................          (6,151,093)          (5,586,872)
                                                                           ------------         ------------
                                                                              5,131,904            5,389,429

Cash and cash equivalents .........................................           1,114,934              794,630
Cash segregated for security deposits .............................              68,788               67,510
Accounts receivable ...............................................               4,867               11,508
Escrow deposits ...................................................             118,261               68,310
Prepaid expenses and other assets .................................               9,700                9,953
                                                                           ------------         ------------
                                                                           $  6,448,454         $  6,341,340
                                                                           ============         ============
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------

Mortgage note payable, net ........................................        $  5,871,684         $  5,928,021
Accounts payable and accrued expenses .............................             119,347              114,584
Accrued property taxes ............................................              71,800               68,129
Payable to affiliates - General Partner ...........................           2,140,623            1,933,837
Security deposits and deferred rental income ......................             107,306               69,670
                                                                           ------------         ------------
                                                                              8,310,760            8,114,241
                                                                           ------------         ------------

Partners' deficit:
   Limited  partners - 55,000,000  Units  authorized;
     32,736,117 and 32,815,117 Units issued and outstanding
     at December 31, 1998 and 1997,  respectively,
     (19,493,088 and 19,567,088 Current Income Units
     outstanding at December 31, 1998 and 1997,
     respectively, and 13,243,029 and 13,248,029
     Growth/Shelter Units at December 31, 1998
     and 1997, respectively) ......................................          (1,608,707)          (1,520,196)
   General Partner ................................................            (253,599)            (252,705)
                                                                           ------------         ------------
                                                                             (1,862,306)          (1,772,901)
                                                                           ------------         ------------
                                                                           $  6,448,454         $  6,341,340
                                                                           ============         ============
</TABLE>
                 See accompanying notes to financial statements.
<PAGE>
                       McNEIL REAL ESTATE FUND XXII, L.P.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                               For the Years Ended December 31,
                                                      --------------------------------------------------
                                                          1998                1997               1996
                                                      -----------         -----------        -----------
Revenue:
<S>                                                   <C>                 <C>                <C>        
   Rental revenue ............................        $ 2,509,553         $ 2,340,806        $ 2,251,970
   Interest ..................................             46,257              38,217             34,461
                                                      -----------         -----------        -----------
     Total revenue ...........................          2,555,810           2,379,023          2,286,431
                                                      -----------         -----------        -----------

Expenses:
   Interest ..................................            535,848             543,730            581,533
   Interest - rescission of limited
     partnership units .......................                 --                  --            145,713
   Depreciation ..............................            564,221             441,097            427,053
   Property taxes ............................            166,626             158,102            153,318
   Personnel expenses ........................            310,345             284,143            291,417
   Repairs and maintenance ...................            290,895             269,458            266,224
   Property management fees -
     affiliates ..............................            124,342             116,572            112,374
   Other property operating expenses .........            206,503             226,895            227,802
   General and administrative ................            212,042              92,161             73,568
   General and administrative -
     affiliates ..............................            234,393             225,693            228,191
                                                      -----------         -----------        -----------
     Total expenses ..........................          2,645,215           2,357,851          2,507,193
                                                      -----------         -----------        -----------

Net income (loss) ............................        $   (89,405)        $    21,172        $  (220,762)
                                                      ===========         ===========        ===========

Net income (loss) allocable to limited
   partners - Current Income Unit ............        $    (8,046)        $    10,480        $   (19,868)
Net income (loss) allocable to limited
   partners - Growth/Shelter Unit ............            (80,465)             10,480           (198,686)
Net income (loss) allocable to General
   Partner ...................................               (894)                212             (2,208)
                                                      -----------         -----------        -----------
Net income (loss) ............................        $   (89,405)        $    21,172        $  (220,762)
                                                      ===========         ===========        ===========

Net income (loss) per thousand limited
 partnership units:
Current Income Units .........................        $      (.41)        $       .53        $     (1.01)
                                                      ===========         ===========        ===========

Growth/Shelter Units .........................        $     (6.08)        $       .78        $    (14.97)
                                                      ===========         ===========        ===========

</TABLE>

                 See accompanying notes to financial statements.
<PAGE>
                       McNEIL REAL ESTATE FUND XXII, 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 .............        $  (250,709)        $(1,168,315)        $(1,419,024)

Rescission of 178,000 limited
   partnership units (net of distribution
   previously paid of $23,713) ...........                 --            (154,287)           (154,287)

Net loss
   General Partner .......................             (2,208)                 --              (2,208)
   Current Income Units ..................                 --             (19,868)            (19,868)
   Growth/Shelter Units ..................                 --            (198,686)           (198,686)
                                                  -----------         -----------         -----------
Total net loss ...........................             (2,208)           (218,554)           (220,762)
                                                  -----------         -----------         -----------

Balance at December 31, 1996 .............           (252,917)         (1,541,156)         (1,794,073)

Net income
   General Partner .......................                212                  --                 212
   Current Income Units ..................                 --              10,480              10,480
   Growth/Shelter Units ..................                 --              10,480              10,480
                                                  -----------         -----------         -----------
Total net income .........................                212              20,960              21,172
                                                  -----------         -----------         -----------

Balance at December 31, 1997 .............           (252,705)         (1,520,196)         (1,772,901)

Net loss
   General Partner .......................               (894)                 --                (894)
   Current Income Units ..................                 --              (8,046)             (8,046)
   Growth/Shelter Units ..................                 --             (80,465)            (80,465)
                                                  -----------         -----------         -----------
Total net loss ...........................               (894)            (88,511)            (89,405)
                                                  -----------         -----------         -----------

Balance at December 31, 1998 .............        $  (253,599)        $(1,608,707)        $(1,862,306)
                                                  ===========         ===========         ===========
</TABLE>

                 See accompanying notes to financial statements.
<PAGE>

                       McNEIL REAL ESTATE FUND XXII, 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 ................        $ 2,563,536         $ 2,339,524         $ 2,261,315
   Cash paid to suppliers ....................         (1,025,188)           (769,875)           (918,922)
   Cash paid to affiliates ...................           (151,949)           (164,795)           (112,133)
   Interest received .........................             46,257              38,217              34,461
   Interest paid .............................           (495,900)           (505,417)           (544,804)
   Interest paid to limited partners for
     rescission of units .....................                 --                  --            (145,713)
   Property taxes paid .......................           (212,906)           (143,331)           (121,761)
                                                      -----------         -----------         -----------
Net cash provided by operating
   activities ................................            723,850             794,323             452,443
                                                      -----------         -----------         -----------

Net cash used in investing activities:
   Additions to real estate
     investments .............................           (306,696)           (511,834)           (241,207)
                                                      -----------         -----------         -----------

Cash flows from financing activities:
   Principal payments on mortgage
     notes payable ...........................            (96,850)            (90,321)            (84,234)
   Rescission of limited partnership
     units ...................................                 --                  --            (154,287)
                                                      -----------         -----------         -----------
Net cash used in financing activities ........            (96,850)            (90,321)           (238,521)
                                                      -----------         -----------         -----------

Net increase (decrease) in cash and
   cash equivalents ..........................            320,304             192,168             (27,285)

Cash and cash equivalents at
   beginning of year .........................            794,630             602,462             629,747
                                                      -----------         -----------         -----------

Cash and cash equivalents at end
   of year ...................................        $ 1,114,934         $   794,630         $   602,462
                                                      ===========         ===========         ===========

</TABLE>

                 See accompanying notes to financial statements.
<PAGE>

                       McNEIL REAL ESTATE FUND XXII, 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) ..........................        $ (89,405)        $  21,172         $(220,762)
                                                    ---------         ---------         ---------

Adjustments to reconcile net income
   (loss) to net cash provided by
   operating activities:
   Depreciation ............................          564,221           441,097           427,053
   Amortization of discount on
     mortgage note payable .................           40,513            38,841            37,220
   Changes in assets and liabilities:
     Cash segregated for security
       deposits ............................           (1,278)           (1,000)            9,980
     Accounts receivable ...................            6,641            (6,894)               69
     Escrow deposits .......................          (49,951)           92,332            19,895
     Prepaid expenses and other
       assets ..............................              253             1,492               491
     Accounts payable and accrued
       expenses ............................            4,763            24,012           (42,578)
     Accrued property taxes ................            3,671             1,702               496
     Payable to affiliates - General
       Partner .............................          206,786           177,470           228,432
     Security deposits and deferred
       rental income .......................           37,636             4,099            (7,853)
                                                    ---------         ---------         ---------

         Total adjustments .................          813,255           773,151           673,205
                                                    ---------         ---------         ---------

Net cash provided by
   operating activities ....................        $ 723,850         $ 794,323         $ 452,443
                                                    =========         =========         =========
</TABLE>


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

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 1998

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

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

McNeil Real Estate  Fund XXII,  L.P.,  (the  "Partnership"),  formerly  known as
Southmark  Realty  Partners  II, Ltd.  was  organized  on November 30, 1984 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.  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 real estate  activities,  including the ownership,
operation and  management of  residential  and retail real estate and other real
estate  related  assets.  At  December  31,  1998,  the  Partnership  owned  one
income-producing property as described in Note 4 - Real Estate Investment.

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.


<PAGE>
Basis of Presentation
---------------------

The  accompanying  financial  statements  have been prepared in conformity  with
generally accepted accounting principles ("GAAP").  The preparation of financial
statements in conformity  with GAAP  requires  management to make  estimates and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.


<PAGE>
The  Partnership's  financial  statements  include the  accounts of Harbour Club
Associates  Limited  Partnership   ("Harbour  Club"),  a  single  asset  limited
partnership   formed  to  accommodate   the  refinancing  of  Harbour  Club  III
Apartments.  The Partnership is the general partner of Harbour Club, and holds a
99.99% interest in Harbour Club. The Partnership  exercises effective control of
Harbour Club. The minority  interest is not presented as it is both negative and
immaterial.

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.

Depreciation
------------

Buildings and improvements are depreciated using the  straight-line  method over
the estimated useful lives of the assets, ranging from 5 to 25 years.

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

Cash  and  cash  equivalents  include  cash on hand  and  cash on  deposit  with
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  its  mortgage  indebtedness  agreement.  These  escrow  accounts  are
controlled by the mortgagee and are used for payment of property taxes.
Carrying amounts for escrow deposits approximate fair value.

Discount on Mortgage Note Payable
---------------------------------

Discount on mortgage note payable is being  amortized over the remaining term of
the related note using the effective  interest method.  Amortization of discount
on mortgage  note payable is included in interest  expense on the  Statements of
Operations.


<PAGE>
Rental Revenue
--------------

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

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 refinancings
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 property 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  refinancings,  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% cumulative return on their Adjusted Invested Capital balance, as
defined.  No  distributions  of Current Income  Priority  Returns have been made
since 1988, and no  distributions of  Growth/Shelter  Priority Returns have been
made since the Partnership began.

In connection  with a Terminating  Disposition,  as defined,  cash from sales or
refinancings   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 Thousand Limited Partnership Units
--------------------------------------------------------

Net income (loss) per thousand limited  partnership  units ("Units") is computed
by dividing net income (loss)  allocated to the limited partners by the weighted
average number of limited partnership Units outstanding  expressed in thousands.
Per thousand  unit  information  has been computed  based on 19,493,  19,567 and
19,713 weighted average Current Income Units outstanding in 1998, 1997 and 1996,
respectively,  and 13,243,  13,248 and 13,275  weighted  average  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 the gross rental
receipts for its  residential  property 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 property.

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


<PAGE>
Under the terms of the Amended Partnership Agreement,  the Partnership is paying
an  asset  management  fee 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 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 to or  accrued  for the  benefit  of the
General Partner or its affiliates are as follows:

                                                For the Years Ended December 31,
                                                --------------------------------
                                                  1998         1997      1996
                                                --------     --------   --------

Property management fees...................     $124,342     $116,572   $112,374
Charged to general and
   administrative - affiliates:
   Partnership administration..............       65,845       63,367     81,704
   Asset management fee....................      168,548      162,326    146,487
                                                 -------      -------    -------
                                                $358,735     $342,265   $340,565
                                                 =======      =======    =======

Payable to affiliates - General  Partner at December 31, 1998 and 1997 consisted
primarily  of  unpaid  property   management  fees,   Partnership   general  and
administrative  expenses,  and asset management fees and is due and payable from
current operations.

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

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

The  Partnership's  net assets and liabilities for tax purposes exceeded the net
assets and liabilities for financial  reporting purposes by $6,236,358  in 1998,
$6,119,845 in 1997 and $6,503,402 in 1996.


<PAGE>
NOTE 4 - REAL ESTATE INVESTMENT
-------------------------------

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

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

Harbour Club III
   Belleville, MI

<S>    <C>                     <C>            <C>            <C>            <C>        
       1998                    $  380,414     $ 10,902,583   $ (6,151,093)  $ 5,131,904
                                =========      ===========    ===========    ==========


       1997                    $  380,414     $ 10,595,887   $ (5,586,872)  $ 5,389,429
                                =========      ===========    ===========    ==========
</TABLE>
<PAGE>
NOTE 5 - MORTGAGE NOTE PAYABLE
------------------------------

The  following  sets  forth the  mortgage  note  payable of the  Partnership  at
December 31, 1998 and 1997. The mortgage note is secured by the underlying  real
estate investment.

<TABLE>
<CAPTION>
                         Mortgage         Annual          Monthly
                         Lien             Interest        Payments/                    December 31,
Property                 Position    (a)  Rates %         Maturity                 1998         1997
--------                 ---------------  -------      -------------------    ------------  -------------
<S>                      <C>                  <C>      <C>           <C>      <C>           <C>            
Harbour Club III         First                7.000    $   49,395    05/24    $ 7,031,256   $  7,128,106
                         Discount (b)                                          (1,159,572)    (1,200,085)
                                                                               ----------    -----------
                                                                              $ 5,871,684   $  5,928,021
                                                                               ==========    ===========
</TABLE>

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

(b)     The discount is based on an effective interest rate of 9.09%.

Scheduled  principal   maturities  of  the  mortgage  note  under  the  existing
agreement, excluding the discount of $1,159,572, are as follows:

             1999....................................       $   103,852
             2000....................................           111,360
             2001....................................           119,410
             2002....................................           128,042
             2003....................................           137,298
             Thereafter..............................         6,431,294
                                                             ----------
             Total                                          $ 7,031,256
                                                             ==========

Based on borrowing rates  currently  available to the Partnership for a mortgage
loan with similar terms and average  maturities,  the fair value of the mortgage
note payable was approximately $6,701,000 as of December 31, 1998 and $6,937,000
as of December 31, 1997.

NOTE 6 - LEGAL PROCEEDINGS
--------------------------

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

1)   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).


<PAGE>
     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.

     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.

2)   HCW Pension  Real Estate  Fund,  Ltd. et al. v. Ernst & Young,  BDO Seidman
     et al. (Case #92-06560-A). This suit was filed on behalf of the Partnership
     and other  affiliated  partnerships  (as  defined  in this  Section  1, the
     "Affiliated  Partnerships")  on May 26, 1992, in the 14th Judicial District
     Court  of  Dallas  County.   The  petition  sought  recovery   against  the
     Partnership's  former auditors,  Ernst & Young, for negligence and fraud in
     failing to detect and/or report  overcharges of fees/expenses by Southmark,
     the  former  general  partner.   The  former  auditors  initially  asserted
     counterclaims   against  the  Affiliated   Partnerships  based  on  alleged
     fraudulent misrepresentations made to the auditors by the former management
     of  the  Affiliated   Partnerships   (Southmark)  in  the  form  of  client
     representation  letters executed and delivered to the auditors by Southmark
     management.  The counterclaims sought recovery of attorneys' fees and costs
     incurred in defending this action.  The counterclaims  were later dismissed
     on appeal, as discussed below.


<PAGE>
     The  trial  court  granted   summary   judgment   against  the   Affiliated
     Partnerships based on the statute of limitations;  however,  on appeal, the
     Dallas Court of Appeals reversed the trial court and remanded for trial the
     Affiliated  Partnerships'  fraud claims  against  Ernst & Young.  The Texas
     Supreme  Court  denied  Ernst &  Young's  application  for writ of error on
     January 11, 1996. Shortly before trial, the district court judge once again
     granted summary judgment against the Affiliated Partnerships on December 2,
     1996. The Partnership is continuing to pursue vigorously its claims against
     Ernst & Young;  however,  the final  outcome of this  litigation  cannot be
     determined at this time.

3)   Dick and Aloma Anderson v. McNeil   Real   Estate  Fund XXII, L.P.,  McNeil
     Partners,  L.P.,  Wayne T. Shipp, the Wayne Shipp Agency,  Inc.,  Southmark
     Investment Group, Inc. and Southmark Realty Partners, Ltd. This lawsuit was
     filed in November  1993, in Washington  State in the Clark County  Superior
     Court. In 1985, the plaintiffs apparently spent $22,000 to purchase limited
     partnership  interests in Southmark Realty Partners Ltd. II , (not named by
     them as a defendant ) whose name is now McNeil Real Estate Fund XXII,  L.P.
     (the  "Partnership").   Plaintiffs  allege  that  in  connection  with  the
     transactions by which McNeil  Partners,  L.P. became general partner of the
     Partnership, and by which certain changes were made in the Partnership, the
     McNeil entities engaged in the offer and/or sale of unregistered securities
     in violation of Washington law. The plaintiffs have alleged that certain of
     the other  defendants  --  specifically  Mr. Shipp and the Shipp  Insurance
     Agency  --  engaged  in  fraud  in  connection  with  the  sale of  limited
     partnership interests in the Partnership to plaintiffs. The plaintiffs have
     not made fraud allegations against any of the McNeil or Southmark entities.
     The majority of  plaintiffs'  claims against the  Partnership  are based on
     allegations  that  the  securities  are  not  registered  in the  State  of
     Washington.  Although  it is the  Partnership's  position  that  it did not
     violate Washington law, in order to avoid any claims of successor liability
     and to avoid further legal costs,  the Partnership and the Shipp defendants
     agreed to settle with the  plaintiffs by each paying  $15,000 to plaintiffs
     in exchange  for a release of all claims.  Settlement  documents  have been
     executed. An Order of Dismissal was issued by the Court on August 3, 1998.

<PAGE>
NOTE 7 - RESCISSION OF LIMITED PARTNERSHIP UNITS
------------------------------------------------

On October 22,  1996,  a judgment  was entered  against the  Partnership,  which
effectively  rescinded  188,000 Units of the Partnership as of October 31, 1996.
The judgment was for $347,809. As part of a negotiation, however, the plaintiffs
agreed  to  accept  $300,000  as full and  complete  settlement  of all  claims,
including attorney fees.  Accordingly,  the Partnership made settlement payments
to an escrow agent on behalf of the plaintiff limited partners totaling $300,000
on December  23,  1996.  The payments  consisted  of two  components.  The first
component of $154,287,  which is recorded as a rescission of limited partnership
units on the  Statements  of  Partners'  Deficit,  represents  the return of the
limited partners' equity investments net of all distributions previously paid to
them.  The  second  component  of  $145,713,  which is  recorded  as  interest -
rescission  of  limited  partnership  units  on the  Statements  of  Operations,
represents interest paid on the rescinded Units pursuant to the court judgment.

NOTE 8 - 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>
                       McNEIL REAL ESTATE FUND XXII, L.P.
                                  SCHEDULE III
              REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
                                December 31, 1998

<TABLE>
<CAPTION>
                                                                                                        Costs
                                                       Initial Cost                Cumulative        Capitalized
                           Related                               Buildings and     Write-down         Subsequent
Description                Encumbrances (b)      Land            Improvements      Impairment (c)   To Acquisition
-----------                ----------------  -------------      --------------    ---------------   ---------------
APARTMENTS:

Harbour Club III
<S>                        <C>              <C>                <C>               <C>                <C>         
   Belleville, MI (c)      $    5,871,684   $     561,491      $   13,475,784    $  (4,526,936)     $  1,772,658
                            =============    ============       =============     ============       ===========
</TABLE>

(b)   The 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   Harbour Club  III  Apartments was  reduced  by
      $4,526,936 in 1992.


                     See accompanying notes to Schedule III.
<PAGE>
                       McNEIL REAL ESTATE FUND XXII, L.P.
                                  SCHEDULE III
              REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
                                December 31, 1998
<TABLE>
<CAPTION>
                                            Gross Amount at
                                     Which Carried at Close of Period               Accumulated
                                                 Buildings and                      Depreciation
Description                        Land          Improvements       Total (a)      and Amortization
-----------                   --------------     --------------   --------------   ----------------
APARTMENTS:

Harbour Club III
<S>                           <C>                <C>              <C>              <C>            
   Belleville, MI (c)         $      380,414     $   10,902,583   $  11,282,997    $   (6,151,093)
                               =============      =============    ============     =============
</TABLE>

(a)  For Federal  income tax purposes,  the property is  depreciated  over lives
     ranging from 5-27.5 years using ACRS or MACRS  methods.  The aggregate cost
     of real estate  investments for Federal income tax purposes was $17,294,962
     and accumulated depreciation was $11,485,723 December 31, 1998.

(c)  The   carrying  value   of   Harbour   Club III  Apartments  was reduced by
     $4,526,936 in 1992.



                     See accompanying notes to Schedule III.
<PAGE>
                       McNEIL REAL ESTATE FUND XXII, 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:

Harbour Club III
<S>                             <C>                         <C>                     <C> 
   Belleville, MI (c)           1972                        5/86                    5-25

</TABLE>

(c) The carrying  value of Harbour Club III Apartments was reduced by $4,526,936
    in 1992.


                     See accompanying notes to Schedule III.
<PAGE>
                       McNEIL REAL ESTATE FUND XXII, L.P.

                              Notes to Schedule III

              Real Estate Investments and Accumulated Depreciation


A  summary  of  activity  for  the  Partnership's  real  estate  investment  and
accumulated depreciation is as follows:

<TABLE>
<CAPTION>
                                                  For the Years Ended December 31,
                                            -------------------------------------------------
                                                1998              1997               1996
                                            -----------        -----------        -----------

Real estate investment:
<S>                                         <C>                <C>                <C>        
Balance at beginning of year........        $10,976,301        $10,464,467        $10,223,260

Improvements .......................            306,696            511,834            241,207
                                            -----------        -----------        -----------

Balance at end of year .............        $11,282,997        $10,976,301        $10,464,467
                                            ===========        ===========        ===========


Accumulated depreciation:

Balance at beginning of year .......        $ 5,586,872        $ 5,145,775        $ 4,718,722

Depreciation .......................            564,221            441,097            427,053
                                            -----------        -----------        -----------

Balance at end of year .............        $ 6,151,093        $ 5,586,872        $ 5,145,775
                                            ===========        ===========        ===========
</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 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 Units.

(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
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.  For the year ended  December 31, 1998, the  Partnership  paid or accrued
$168,548  of  such  asset  management  fees.  Total  accrued  but  unpaid  asset
management  fees of $1,466,152  were  outstanding  at December 31, 1998. The fee
percentage decreases to .75% in 2000, .50% in 2001 and .25% thereafter.


<PAGE>

The Partnership pays property  management fees equal to 5% of the gross receipts
of the residential  property 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
$190,187 of such property management fees and reimbursements.


<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

              The following  exhibits are  incorporated  by reference and are an
integral part of this Form 10-K.

              Exhibit
              Number                Description
              --------              -----------
              4.                    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).

              10.6                  Modification  of Note  and  Mortgage,  dated
                                    May 1, 1984,  between  Knoblinks  Associates
                                    III and Samuel R. Pierce,  Jr., as Secretary
                                    of Housing and Urban Development relating to
                                    Harbour Club III. (1)

              10.7                  Property Management  Agreement dated   March
                                    26,  1992,  between  McNeil Real Estate Fund
                                    XXII,    L.P.   and   McNeil   Real   Estate
                                    Management, Inc. (2)

              10.8                  Amendment of Property  Management  Agreement
                                    dated March 5, 1993. (2)

              10.10                 Property  Management  Agreement  dated March
                                    26, 1992,  between  Harbour Club  Associates
                                    and  McNeil  Real  Estate   Management  Inc.
                                    (Incorporated  by  reference  to the  Annual
                                    Report  of the  Registrant  on Form 10-K for
                                    the period ended December 31, 1993, as filed
                                    on March 31, 1994.)

              11.                   Statement    regarding  computation of   Net
                                    Income (Loss) per Limited  Partnership  Unit
                                    (see  Item 8 - Note  1 -  "Organization  and
                                    Summary    of     Significant     Accounting
                                    Policies".)



<PAGE>
              Exhibit
              Number                Description
              -------               ----------- 
              22.                   Following is a list of subsidiaries of the
                                     Partnership:

<TABLE>
<CAPTION>
                                                                                      Names Under
                                                                  Jurisdiction        Which It Is
                                    Name of Subsidiary            Incorporation      Doing Business
                                    ------------------            -------------      --------------

                                    Harbour Club Associates
                                    <S>                             <C>                     <C> 
                                    Limited Partnership             Michigan                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  Quarterly
                                 Report of the Registrant,  on Form 10-Q for the
                                 period  ended March 31,  1991,  as filed on May
                                 14, 1991.

                           (2)   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.


      (B)     Reports  on Form  8-K.  There  were no  reports  on Form 8-K filed
              during the quarter ended December 31, 1998.


<PAGE>
                       McNEIL REAL ESTATE FUND XXII, 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 XXII, L.P.


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

                                  By: McNeil Investors, Inc., General Partner



March 31, 1999                    By: /s/  Robert A. McNeil
--------------                        ------------------------------------------
Date                                  Robert A. McNeil
                                      Chairman of the Board and Director
                                      Principal Executive Officer


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




March 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)