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, 1996
                                 -----------------------------------------------

                                       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  0-17173
                            --------


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


         Delaware                               33-0214387
--------------------------------------------------------------------------------
(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:  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. [ ]

4,577,059 of the registrant's  5,236,893  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 43

                                TOTAL OF 45 PAGES

<PAGE>
                                     PART I

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

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

McNeil Real  Estate Fund XXVII,  L.P.  (the  "Partnership"),  formerly  known as
Southmark Prime Plus, L.P., was organized by affiliates of Southmark Corporation
("Southmark") on January 16, 1987 as a limited  partnership under the provisions
of the Delaware Revised Uniform Limited Partnership Act to make short-term loans
to affiliates of the general partner.  The general partner of the Partnership is
McNeil Partners,  L.P. (the "General Partner"),  a Delaware limited partnership,
an affiliate of Robert A. McNeil ("McNeil").  The General Partner was elected at
a meeting of limited  partners on March 30,  1992,  at which time an amended and
restated  partnership  agreement  (the  "Amended  Partnership   Agreement")  was
adopted.  Prior to March 30, 1992, the general  partner of the  Partnership  was
Prime Plus Corp. (the "Original General Partner"), a wholly-owned  subsidiary of
McNeil.  The Original  General Partner was purchased from Southmark by McNeil on
March 13, 1991, as discussed  further below. The principal place of business for
the Partnership and the General Partner is 13760 Noel Road,  Suite 600,  Dallas,
Texas 75240.

The sole limited partner of the Partnership was initially  Southmark  Depositary
Corp. (the "Depositary"),  a wholly-owned subsidiary of Southmark. On August 14,
1987, the  Partnership  registered  with the Securities and Exchange  Commission
("SEC")  under the  Securities  Act of 1933 (File No.  33-11824) and commenced a
public  offering  for sale of  $100,000,000  of  Depositary  units.  The sale of
Depositary  units closed on August 14, 1988,  with  5,548,888  units sold at $10
each, or gross  proceeds of  $55,488,880  to the  Partnership.  The  Partnership
subsequently filed a Form 8-A Registration Statement with the SEC and registered
its  Depositary  units  under  the  Securities  Exchange  Act of 1934  (File No.
0-17173).  The  Depositary  assigned the  principal  attributes of its aggregate
limited partner  interest in the Partnership to the Depositary unit holders.  As
further discussed,  the Depositary units were subsequently  converted to limited
partnership  units  ("Units").  The  Units  represent  equity  interests  in the
Partnership  and  entitle  the  limited   partners  to  participate  in  certain
allocations  and  distributions  of the  Partnership.  As of December  31, 1996,
311,995 of the Units have been repurchased  pursuant to the terms of the Amended
Partnership Agreement.

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

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

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


<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.  On March 13, 1991,
McREMI  commenced  management  of the  Partnership's  properties  pursuant to an
assignment of the existing  property  management  agreements  from the Southmark
affiliates.

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

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,  which
totaled  approximately  $17,024,326,  for  the  full  amount  claimed  and  such
settlement was approved by the Bankruptcy Court.

Pursuant to the settlement agreement, the Partnership released Southmark and its
affiliates  and the  Original  General  Partner  from any further  liability  in
connection  with the  claims  made with the  Bankruptcy  Court.  In  return,  an
affiliate of McNeil  agreed to waive  payment on a dollar for dollar basis in an
amount equal to the settled  claims  against  Partnership  advances owed at that
time. In addition,  the Partnership received Southmark bankruptcy plan assets in
respect to its claims which were not offset  against the  Partnership  advances.
Because the Partnership's claims against Southmark were settled for $17,024,326,
the  Partnership  advances of $223,800  owed at that time were  reduced in their
entirety  and the claims had a remaining  balance of  $16,800,526.  Although the
Partnership  settled the claims against  Southmark for the full amount  claimed,
the settlement agreement provided that the Partnership receive a distribution of
Southmark  bankruptcy  plan  assets  based on a claim  amount  of  approximately
$9,157,000.

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,  $984,649
in cash, and common and preferred stock in the  reorganized  Southmark which was
subsequently  sold for  $317,675.  These  amounts  represent  the  Partnership's
pro-rata share of Southmark assets available for Class 8 Claimants.






<PAGE>
CURRENT OPERATIONS
------------------

General:

Under the original partnership agreement, the Partnership's primary business was
to make short-term  nonrecourse mortgage or deed of trust loans to affiliates of
the  Original  General  Partner and to  partnerships  or real estate  investment
trusts  sponsored by affiliates of the Original  General  Partner formed for the
purpose of acquiring  income-producing real properties. Due to borrower defaults
and foreclosures on the properties securing all but one of these mortgages,  the
Partnership's  business  also  includes  ownership and operation of real estate.
Since  the  beginning  of  operations  and  prior  to  the  restructuring,   the
Partnership  funded twelve mortgage loans, seven in 1987 and five in 1988, which
completed the Partnership's investment of the proceeds from the sale of Units.

The borrowers on the mortgage loan  investments held by the Partnership were all
affiliates of Southmark. During the early part of the terms of the loans, to the
extent that property  operations  were  insufficient  to pay required  interest,
Southmark  supported the borrowers  with cash and the  Partnership's  loans were
kept current. On July 14, 1989, Southmark filed for bankruptcy  protection,  and
such support ceased and all loans went into default.

In 1994,  the  remaining  mortgage  loan  investment,  which  was  secured  by a
mini-storage  warehouse  in  Stone  Mountain,   Georgia  that  was  sold  to  an
unaffiliated borrower,  was modified.  Principal and interest payments under the
modified terms were received by the Partnership.  The loan was repaid in full in
1996. See Item 8 - Note 5 "Mortgage Loan Investment."

In 1992, the Partnership  received the proceeds from a $7,000,000  mortgage note
payable secured by five of the Partnership's  mini-storage warehouses located in
Florida.  A portion of the proceeds  from the loan was used to make  nonrecourse
mortgage  loans to  affiliates  of the General  Partner in  accordance  with the
Amended Partnership  Agreement.  The loans were secured by income-producing real
estate  and were  either  junior or senior to other  indebtedness  as more fully
described in Item 8 - Note 6 - "Mortgage  Loan  Investments -  Affiliates."  The
mortgage note payable was repaid by the  Partnership  in 1995. A $5 million line
of credit was obtained during 1995 for the purpose of funding  additional  loans
to affiliates of the General  Partner.  See Item 8 - Note 7 - "Revolving  Credit
Agreement."

The  Partnership  is engaged  in the  ownership,  operation  and  management  of
commercial real estate and the servicing of mortgage loan investments secured by
real estate.  At December 31,  1996,  the  Partnership  had four  mortgage  loan
investments to affiliates of the General Partner as described in Item 8 - Note 6
-  "Mortgage  Loan  Investments  -  Affiliates"  and owned ten  income-producing
properties as described in Item 2 - Properties.

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


<PAGE>
Business Plan:

The Partnership  determined to evaluate market and other economic  conditions to
establish  the  optimum  time  to  commence  an  orderly   liquidation   of  the
Partnership's  assets in  accordance  with the terms of the Amended  Partnership
Agreement.  Taking such conditions as well as other pertinent  information  into
account,  the Partnership has determined to begin orderly liquidation of all its
assets.  Although there can be no assurance as to the timing of the  liquidation
due to real estate  market  conditions,  the general  difficulty of disposing of
real estate,  and other general  economic  factors,  it is anticipated that such
liquidation  would result in the  dissolution of the  Partnership  followed by a
liquidating   distribution  to  the  limited  partners  by  December  1999.  The
Partnership  expects to collect all mortgage loan investments made to affiliates
prior  to  December  1999.  Until  such  time as the  Partnership's  assets  are
liquidated,  the Partnership's plan of operations is to preserve or increase the
net operating  income of its assets  whenever  possible,  while at the same time
making whatever capital  expenditures are reasonable under the  circumstances in
order to  preserve  and  enhance  the  value of the  Partnership's  assets.  The
Partnership  may continue to make loans to  affiliates  in  accordance  with the
terms of the Amended Partnership Agreement.

Competitive Conditions:

Since the  principal  business of the  Partnership  is to own and  operate  real
estate and to service notes receivable  secured by real estate,  the Partnership
is  subject  to all of the risks  incidental  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 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  and the borrowers) in connection with the sale,  financing
and  leasing  of  properties.  The  impact  of these  risks on the  Partnership,
including  losses  from  operations  and   foreclosures  of  the   Partnership's
properties,  is  described  in Item 7  Management's  Discussion  and Analysis of
Financial  Condition and Results of  Operations.  See Item 2 - Properties  for a
discussion  of  the  competitive   conditions  at  each  of  the   Partnership's
properties.

Forward-Looking Information:

Within this document,  certain  statements are made as to the expected occupancy
trends,  financial  condition,  results  of  operations,  and cash  flows of the
Partnership  for periods after  December 31, 1996.  All of these  statements are
forward-looking  statements  made pursuant to the safe harbor  provisions of the
Private  Securities  Litigation  Reform Act of 1995.  These  statements  are not
historical  and  involve  risks  and  uncertainties.  The  Partnership's  actual
occupancy trends, financial condition, results of operations, and cash flows for
future  periods may differ  materially  due to several  factors.  These  factors
include,  but are not limited to, the  Partnership's  ability to control  costs,
make necessary  capital  improvements,  negotiate  sales or  refinancings of its
properties,  collect  payments  on  mortgage  loan  investments  and  respond to
changing economic and competitive factors.
<PAGE>
Other Information:

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

In August 1995, High River Limited  Partnership,  a Delaware limited partnership
controlled  by Carl C. Icahn ("High  River") made  unsolicited  tender offers to
purchase from holders of limited  partnership  units up to approximately  45% of
the  outstanding   limited  partnership  units  of  certain  other  partnerships
controlled by the General Partner. High River did not offer to purchase Units of
the  Partnership at that time. In September 1996, High River made an unsolicited
tender offer to purchase any and all of the outstanding Units of the Partnership
for a purchase price of $5.62 per unit. In addition High River made  unsolicited
tender offers for certain other partnerships  controlled by the General Partner.
The Partnership  recommended  that the limited partners reject the tender offers
made with respect to the  Partnership  and not tender  their Units.  The General
Partner  believes  that  as of  January  31,  1997,  High  River  has  purchased
approximately 12.806% of the outstanding Units pursuant to the tender offers. In
addition,  all litigation  filed by High River,  Mr. Icahn and his affiliates in
connection with the tender offers has been dismissed without prejudice.

On October 17, 1996, McNeil Real Estate Fund XXVII,  L.P.  announced that it had
received an unsolicited  offer from an  unaffiliated  third party to acquire all
outstanding  Units of Fund  XXVII at $6.50  per  Unit.  After  meeting  with the
offeror in Dallas and considering the $6.50 offer,  the Partnership  rejected it
as being inadequate.


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

The  following  table sets forth the real  estate  investment  portfolio  of the
Partnership  at December 31, 1996.  All of the  buildings  and the land on which
they are located are owned in fee. The two office  buildings and Kendall  Sunset
Mini-Storage  secure a $5 million line of credit as described more fully in Item
8 -  Note  7 -  "Revolving  Credit  Agreement."  The  remaining  properties  are
unencumbered by mortgage  indebtedness.  See also Item 8 - Note 4 - "Real Estate
Investments"  and  Schedule  III  -  Real  Estate  Investments  and  Accumulated
Depreciation and Amortization.  In the opinion of management, the properties are
adequately covered by insurance.

<TABLE>
<CAPTION>
                                              Net Basis                            1996            Date
Property              Description            of Property         Debt (a)     Property Taxes     Acquired
--------              -----------            -----------         --------     --------------     --------
<S>                   <C>                  <C>               <C>              <C>                   <C> 
AAA Century
  Airport             Self-Storage
Inglewood, CA         566 units            $     1,963,835   $           -    $    28,126           9/90

AAA Sentry            Mini-Storage
N. Lauderdale, FL     801 units                    466,287               -         53,552          10/90

Burbank               Mini-Storage
Burbank, CA           985 units                  2,696,478               -         41,767           9/90

Forest Hill           Mini-Storage
W. Palm Beach, FL     683 units                  1,988,605               -         34,830           8/90

Fountainbleau         Mini-Storage
Miami, FL             771 units                  1,231,229               -         62,765          11/90

Kendall Sunset        Mini-Storage
Miami, FL             940 units                  3,598,794         416,167         72,782          10/90

Margate               Mini-Storage
Margate, FL           640 units                  1,231,903               -         48,921          10/90

Military Trail        Mini-Storage
W. Palm Beach, FL     683 units                  1,934,719               -         39,810           8/90

One Corporate
  Center I            Office Building
Edina, MN             111,146 sq. ft.            4,346,928         328,737        208,625          12/89

One Corporate
  Center III          Office Building
Edina, MN             111,252 sq. ft.            4,430,170         356,715        212,422          12/89
                                            --------------    ------------    -----------
                                           $    23,888,948   $   1,101,619   $    803,600
                                            ==============    ============    ===========
</TABLE>
-----------------------------------------
Total:    Office Buildings  -  222,398 sq. ft.
          Mini-storage and self-storage warehouses - 6,069 units

<PAGE>
(a)       For purposes of this table,  the revolving  credit  agreement has been
          allocated  among  the  properties  securing  the  debt  based on their
          estimated relative market values.

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

<TABLE>
<CAPTION>
                                        1996           1995            1994           1993          1992
                                    -------------  -------------  --------------  -------------  -----------
<S>                                       <C>             <C>            <C>            <C>              <C>
AAA Century Airport
   Occupancy Rate............             96%             94%            95%            82%              77%
   Rent Per Square Foot......       $   10.12      $    10.19     $     8.87      $    7.90      $      7.95

AAA Sentry
   Occupancy Rate............             96%             96%            95%            98%              84%
   Rent Per Square Foot......       $    8.01      $     7.70     $     7.00      $    6.17      $      4.06

Burbank
   Occupancy Rate............             87%             81%            81%            84%             76%
   Rent Per Square Foot......       $   10.80      $    10.29     $    10.32      $    8.74      $     8.09

Forest Hill
   Occupancy Rate............             98%             97%            99%           100%             92%
   Rent Per Square Foot......       $   10.41      $     9.82     $     9.22      $    8.45      $     7.35

Fountainbleau
   Occupancy Rate............             96%             97%            99%           100%             98%
   Rent Per Square Foot......       $    8.98      $     8.38     $     8.08      $    7.66      $     6.12

Kendall Sunset
   Occupancy Rate............             92%             95%            96%            99%            100%
   Rent Per Square Foot......       $   11.75      $    11.72     $    11.71      $   11.23      $     9.63

Margate
   Occupancy Rate............             94%             90%           100%            98%             96%
   Rent Per Square Foot......       $    9.95      $     9.90     $    10.06      $    9.55      $     8.08

Military Trail
   Occupancy Rate............             88%             91%            90%            91%             83%
   Rent Per Square Foot......       $   10.11      $     9.35     $     8.46      $    7.76      $     7.76

One Corporate Center I
   Occupancy Rate............            100%             93%            95%            99%             81%
   Rent Per Square Foot......       $   11.88      $    10.92     $    10.34      $   11.56      $     8.28

One Corporate Center III
   Occupancy Rate............             95%             97%            96%            78%             54%
   Rent Per Square Foot......       $   12.31      $    11.17     $    11.03      $    7.38      $     4.09

</TABLE>

Occupancy rate  represents all units leased divided by the total number of units
for  mini-storage  properties  and square footage leased divided by total square
footage for other  properties  as of  December  31 of the given  year.  Rent per
square foot represents all revenue, except interest, derived from the property's
operations divided by the leasable square footage of the property.
<PAGE>
Competitive conditions:
-----------------------

AAA Century Airport
-------------------

AAA  Century  Airport  Self-Storage  consists of three,  two-story  self-storage
warehouse  buildings and one  apartment/leasing  office.  The rentable  space is
divided into 566 units,  including 10 recreational  vehicle parking spaces. Each
unit is  individually  alarmed for  additional  security.  The property does not
offer climate-controlled units.

The  property  is  located   approximately   two  miles  from  the  Los  Angeles
International Airport in Inglewood, California. Inglewood is a relatively mature
area with growth to the west  generated by development  around the airport.  The
property  is  located in a low income  area with a high  unemployment  and crime
rate. There is little competition which represents a threat to the property. AAA
Century has an advantage in that it is able to offer individually  alarmed units
for additional security. The property plans to increase rental rates slightly in
1997.  The  Partnership  expects to maintain  occupancy  in the mid 90% range in
1997.

AAA Sentry
----------

AAA Sentry  Mini-Storage  consists  of five,  two-story  self-storage  warehouse
buildings and one  apartment/leasing  office. The rentable space is divided into
801 units, with 85% of these units air conditioned.

The property is located in a  predominately  commercial  area, with a mixture of
single and  multi-family  residential  properties.  The property's  occupancy is
currently  higher and rents slightly lower than the competition in the immediate
area.  A  rental  rate  increase  is  planned  for  early  1997  and  management
anticipates maintaining occupancy in the mid 90% range in 1997.

Burbank
-------

Burbank   Mini-Storage   consists  of  two,   two-story  and  one,   three-story
self-storage warehouse buildings and one apartment/leasing  office. The rentable
space is  divided  into 985 units,  with 10 of these  units  being  recreational
vehicle parking spaces.  All of the buildings have fire  sprinklers,  but do not
offer climate-controlled environments.

The  property is located in the eastern  quadrant of Burbank,  California,  just
west of  Interstate  5 and  approximately  twenty  miles north of  downtown  Los
Angeles and seven miles south of the Burbank  Airport.  There are two  competing
self-storage  properties with superior  visibility and highway  access.  Another
competing  property  was built in 1995 that is closer to the  airport,  provides
deep discounting and offers a moving truck to move customers'  belongings to the
facility.  In 1997,  management plans to aggressively  market the upstairs units
that are seldom  rented.  Discounts will be offered for the upstairs units while
rents will be increased  on the lower level units which are in high demand.  The
Partnership expects to increase occupancy to the low 90% range in 1997.





<PAGE>
Forest Hill
-----------

Forest Hill  Mini-Storage  consists of nine,  one-story  self-storage  warehouse
buildings and one  apartment/leasing  office. The rentable space is divided into
683 units, with 20 of these units being recreational vehicle parking spaces. 35%
of the units are air conditioned.

The property is located in a predominately residential neighborhood in West Palm
Beach,  Florida  consisting of single  family homes and small  businesses to the
east  and  multi-family  apartment  communities  to  the  south  and  west.  The
property's  rental rates and occupancy are currently higher than the competition
in the immediate area.

A competing  facility opened in December 1996 that allows drive in accessibility
to the units. Another new facility within one mile of Forest Hill is expected to
open in September 1997. These two facilities could have a negative impact on the
property.  However, with the property's favorable reputation in the marketplace,
the Partnership expects to maintain occupancy in the mid 90% range in 1997.

Fountainbleau
-------------

Fountainbleau  Mini-Storage consists of three,  two-story self-storage warehouse
buildings and one  apartment/leasing  office. The rentable space is divided into
771 units. 56% of the units are air conditioned.

The property is located in the central  western  quadrant of the Miami metroplex
and is in close  proximity to the Miami  International  Airport.  The  immediate
neighborhood  is  predominately  industrial  with single family  residential and
multi-family  communities  further  to the south and north.  The tenant  profile
currently consists of local businesses. A marketing campaign will be implemented
in 1997 to attract residential users. A major international  moving company that
leased more than 90 of the units in 1995  gradually  began moving out during the
last quarter of 1996 and is planning on vacating all of their units by the first
quarter of 1997. The  Partnership  expects to maintain  occupancy in the mid 90%
range in 1997.  Surrounding  vacant  property is  currently  being  marketed for
future mini-storage development. Any new development could impact the property's
future performance.

Kendall Sunset
--------------

Kendall Sunset Mini-Storage  consists of ten, one-story  self-storage  warehouse
buildings and one  apartment/leasing  office. The rentable space is divided into
940 units. 35% of the units are air conditioned.

The property is located in a residential  neighborhood at the southwestern  edge
of the Miami metroplex. The area is tropical in nature and is in close proximity
to the Everglades  and Key West.  The property's  rental rates and occupancy are
slightly higher than the competition in the immediate area.  However,  occupancy
began to drop in 1996 due to new  competitors  being added to the  market.  Rent
concessions and discounts were offered to maintain  occupancy and compete within
the market.  The Partnership  expects to maintain occupancy in the low 90% range
in 1997.




<PAGE>
Margate
-------

Margate   Mini-Storage   consists  of  four,   one-story  and  one,  three-story
self-storage warehouse buildings and one apartment/leasing  office. The rentable
space is divided into 640 units, with 11 of the units being recreational vehicle
parking spaces. 52% of the units are air conditioned.

The property is located in a predominately  commercial/retail  neighborhood with
single family homes and multi-family  communities  along the secondary  streets.
The  property's  rental  rates  and  occupancy  are  slightly  higher  than  the
competition  in  the  immediate  area.  The  development  of a new  self-storage
facility near the property had an adverse effect on the property's  occupancy at
the end of 1995 and the beginning of 1996.  However,  Margate began an extensive
marketing  program and occupancy  began to improve in mid 1996. The property has
an excellent  reputation in the marketplace  and management  expects to maintain
occupancy in the low 90% range in 1997.

Military Trail
--------------

Military Trail Mini-Storage consists of eight,  one-story self-storage warehouse
buildings and one  apartment/leasing  office. The rentable space is divided into
683 units, with 16 of the units being  recreational  vehicle parking spaces. 35%
of the units are air conditioned.

The property is located in a predominately  commercial/retail  neighborhood. The
majority  of the  apartment  complexes  in the area are to the north with single
family  residences to the west.  The location is the most positive  feature with
direct access to Military Trail, a major  thoroughfare.  During 1996,  occupancy
began to drop due to two new  facilities  being  built in the  area.  All of the
older  competitors  have  responded to the new  competition  by dropping  rental
rates.  Military Trail's rental rates and occupancy are slightly higher than the
immediate competition.  The Partnership expects to maintain occupancy in the low
90% range throughout 1997.

One Corporate Center I and One Corporate Center III
---------------------------------------------------

One Corporate Center I and III are six-story class "B" office buildings  located
in the southwest suburban Minneapolis/St.  Paul metropolitan area. The buildings
are  two  of  four  identical  buildings  located  in a  commercial  development
identified as One Corporate Center.

Rental rates  increased in 1996 due to renewing  leases at current market rates.
Several  new office  buildings  are  currently  under  construction  and will be
available  for  occupancy  in 1997.  Management  will  concentrate  on retaining
existing  tenants in 1997.  Rental rate  increases  in 1997 will be less than in
1996  due to the  availability  of new  competing  space.  The  properties  will
continue  to perform  capital  improvements  in 1997 in order to  replace  aging
building  systems  and to  upgrade  common  areas to remain  competitive  in the
marketplace. The Partnership expects to maintain occupancy in the mid 90% range.







<PAGE>
The following  schedule shows lease  expirations  for each of the  Partnership's
commercial properties for 1997 through 2006:

<TABLE>
<CAPTION>
                                Number of                             Annual           % of Gross
                               Expirations           Square Feet       Rent            Annual Rent
                               -----------           -----------      -------          -----------         
One Corporate Center I
<C>                                   <C>               <C>          <C>                    <C>
1997                                  7                 27,658       $ 309,696              23%
1998                                  5                 34,240         442,860              32%
1999                                  6                 17,705         218,244              16%
2000                                  3                  5,705          84,936               6%
2001                                  7                 19,849         310,776              23%
2002-2006                             -                      -               -               -

                                Number of                              Annual           % of Gross
                               Expirations           Square Feet        Rent            Annual Rent
                               -----------           -----------       ------           -----------

One Corporate Center III
1997                                  5                 12,471       $ 166,152              12%
1998                                 11                 40,794         503,772              36%
1999                                  7                 26,829         353,268              25%
2000                                  3                 12,367         182,772              13%
2001                                  2                  6,944         103,068               7%
2002                                  2                  7,152          77,664               6%
2003-2005                             -                      -               -               -
2006                                  1                    920          14,256               1%
</TABLE>

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

<TABLE>
<CAPTION>
Nature of
Business                       Square Footage                                       Lease
   Use                              Leased                Annual Rent             Expiration
---------                      --------------             -----------             -----------
One Corporate Center I
<S>                                 <C>                  <C>                        <C> 
   General Office                   22,589               $   239,436                1997
   General Office                   14,642                   200,304                1998
   Bank                             13,666                   160,572                1999

One Corporate Center III

   General Office                   13,136               $   158,448                1998
</TABLE>







<PAGE>
ITEM 3.      LEGAL PROCEEDINGS
-------      -----------------

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

1)   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.

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


<PAGE>
     The action  involves  purported  class and  derivative  actions  brought by
     limited  partners of each of the fourteen  limited  partnerships  that were
     named as nominal  defendants as listed above (as defined in this Section 2,
     the  "Partnerships").  Plaintiffs allege that McNeil  Investors,  Inc., its
     affiliate,  McNeil Real Estate Management,  Inc., and three of their senior
     officers and/or directors (as defined in this Section 2, collectively,  the
     "Defendants") breached their fiduciary duties and certain obligations under
     the  respective  amended  partnership  agreements.  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.  On January 7, 1997,  the Court ordered  consolidation  with three
     other similar actions.

     The  Partnerships  filed a demurrer to the complaint and a motion to strike
     on February 14, 1997, seeking to dismiss the complaint in all respects. The
     demurrer is pending.  The Partnerships  deny that there is any merit to the
     plaintiffs' allegations and intend to vigorously defend this action.

3)   Helen Pasco v. McNeil Real Estate Fund XXVII,  L.P.,  Southmark  Prime Plus
     Corp., et al. and Does 1-50 Inclusive.  This complaint alleges that several
     limited  partnerships  and funds,  including  the  Partnership,  along with
     McMachen,  Prudential Securities,  Inc. and other unidentified  defendants,
     transmitted  false and misleading  information  to the plaintiff  which was
     used to entice the plaintiff into investing her money with the  defendants.
     The complaint also alleges that the defendants misrepresented  speculative,
     illiquid  limited  partnerships  as  safe,   income-producing   investments
     suitable for  safety-conscious  and  conservative  investors.  Although the
     Partnership is included as a defendant,  the plaintiff's allegations do not
     specify in what way the Partnership was involved in improper  conduct.  The
     complaint  does  not  state,  other  than by  broad  allegations,  that the
     Partnership  acted in an improper  manner with regard to the  operation  or
     management of the limited partnership. An answer was filed on behalf of the
     Partnership  in February 1994, and there has been no further action in this
     matter.  The  ultimate  outcome of this case cannot be  determined  at this
     time.

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

None.





<PAGE>
                                     PART II

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

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

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

         Limited partnership units           2,493 as of January 31, 1997

(C)      Distributions  paid to the limited partners totaled  $5,999,994 in 1996
         from cash from operations.  No  distributions  were paid to the General
         Partner in 1996. No distributions  were paid to the limited partners or
         the General  Partner in 1995. See Item 7 - Management's  Discussion and
         Analysis of Financial Condition and Results of Operations, and Item 8 -
         Note 1 - "Organization and Summary of Significant Accounting Policies -
         Distributions."

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

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

<TABLE>
<CAPTION>
Statements of                                             Years Ended December 31,
Operations                              1996           1995            1994           1993           1992
------------------                  -------------  -------------  --------------  -------------  -------------
<S>                                 <C>            <C>            <C>             <C>            <C>          
Rental revenue...............       $   7,943,383  $   7,517,404  $    7,234,070  $   6,546,936  $   5,220,555
Interest income on mortgage
  loan investments...........             268,665        440,658         451,841        674,118        207,757
Income (loss) before extra-
  ordinary item..............           2,245,414      3,268,110       1,355,563      1,306,745       (192,058)
Extraordinary item...........                   -       (252,402)              -              -              -
Net income (loss)............           2,245,414      3,015,708       1,355,563      1,306,745       (192,058)

Net income (loss) per    weighted
  average hundred limited
  partnership units:
  Income (loss) before extra-
     ordinary item...........       $       42.15  $       60.93  $        25.09  $       24.00  $       (3.50)
  Extraordinary item.........                   -          (4.71)              -              -              -
                                     ------------   ------------   -------------   ------------   ------------
  Net income (loss)..........       $       42.15  $       56.22  $        25.09  $       24.00  $       (3.50)
                                     ============   ============   =============   ============   ============

Distributions per weighted
  average hundred limited
  partnership units..........       $      113.77  $           -   $           -  $           -  $        4.43
                                     ============   ============    ============   ============   ============
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

                                                              As of December 31,
Balance Sheets                          1996           1995            1994           1993           1992
--------------                      -------------  -------------  --------------  -------------  -------------
<S>                                <C>             <C>            <C>             <C>            <C>          
Real estate investments, net...    $   23,888,948  $  24,977,575  $   25,921,989  $  26,674,164  $  26,633,500
Mortgage loan investments,
  net..........................         4,692,760      3,597,673       4,679,929      5,718,144      4,685,107
Total assets...................        32,641,270     35,489,741      39,501,853     38,779,870     38,451,367
Long-term debt.................         1,101,619              -       6,726,266      6,853,753      6,968,258
Partners' equity...............        30,543,422     34,630,930      31,948,150     30,925,518     29,951,706
</TABLE>


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

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

Under the original partnership  agreement,  the Partnership was formed to engage
in the business of making short-term nonrecourse mortgage or deed of trust loans
to affiliates of the Original General Partner and to partnerships or real estate
investment trusts sponsored by affiliates of the Original General Partner formed
for the purpose of acquiring  income-producing  real  properties and reinvesting
the proceeds from  repayment of such loans in  additional  affiliate  loans.  In
1989,  the  Partnership  initiated  foreclosure  proceedings  on the  collateral
securing each of its mortgage loan  investments.  The  Partnership  acquired two
office buildings in 1989 and eight  mini-storage  warehouses in 1990 as a result
of the  foreclosures.  Also in 1990,  one loan was  collected  in full  when the
borrower  sold the  mini-storage  warehouse  securing  the loan.  The  remaining
mortgage  loan  investment,  secured  by a  mini-storage  warehouse  owned by an
unaffiliated limited partnership, was collected in full in 1996.

In October 1992,  the  Partnership  received  approximately  $6.5 million of net
proceeds  from  a  $7  million  loan  secured  by  five  of  the   Partnership's
mini-storage  warehouses located in Florida. A portion of the proceeds were used
for working capital and for general partnership purposes. The loan proceeds were
also  used to make such  loans to  affiliates  in  accordance  with the  Amended
Partnership  Agreement  as more fully  described  in Item 8 - Note 6 - "Mortgage
Loan Investments - Affiliates" and Item 13 - Certain  Relationships  and Related
Transactions.  The mortgage  note payable was paid in full in 1995. A $5 million
line of credit was obtained during 1995 for the purposing of funding  additional
loans to  affiliates  of the General  Partner.  See Item 8 - Note 7 - "Revolving
Credit Agreement."









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

1996 compared to 1995

Revenue:

Total revenue  decreased by $1,085,785 in 1996 as compared to 1995. The decrease
was due to a decrease in interest  income,  a  non-recurring  1995  property tax
refund and gain on legal  settlement,  partially offset by an increase in rental
revenue  and a  non-recurring  1996  gain on  extinguishment  of  mortgage  loan
investment, as discussed below.

Rental  revenue for 1996 increased by $425,979 in relation to 1995. The increase
was mainly due to  increases  of  approximately  $107,000  and  $127,000  at One
Corporate Center I and III office buildings as a result of an increase in rental
rates in 1996. In addition,  rental revenue increased by approximately  $44,000,
$31,000  and  $37,000  at   Fountainbleau,   Forest  Hill  and  Military   Trail
mini-storages as a result of an increase in rental rates in 1996. Rental revenue
at Burbank Mini-Storage increased by approximately $43,000 due to an increase in
occupancy  in 1996.  See Item 2 -  Properties  for a more  detailed  analysis of
occupancy and rents per square foot.

Interest  income on mortgage  loan  investment  decreased by $116,890 in 1996 as
compared  to  1995.  The  decrease  was due to the  repayment  of the  A-Quality
Mini-Storage loan by the borrower in the first quarter of 1996.

Interest income on mortgage loan  investments - affiliates  decreased by $55,103
in 1996 as compared to 1995.  The decrease was due to a lower average  amount of
loans  outstanding  during 1996.  Although  there was a greater  amount of loans
outstanding  at the end of 1996,  $3.4  million of those loans were made in late
November 1996.

Other  interest  income in 1996  decreased  by $59,773 in relation to 1995.  The
decrease was  primarily due to a lower amount of cash  available for  short-term
investment as a result of $6 million of distributions  being paid to the limited
partners in 1996.

In 1995,  the  Partnership  received a $30,515  refund of prior years'  property
taxes for AAA Century  Airport  Mini-Storage  as a result of an appeal  filed on
behalf of the property. No such property tax refunds were received in 1996.

As discussed  in Item 1, in 1995 the  Partnership  received  cash and common and
preferred  stock in the  reorganized  Southmark in settlement of its  bankruptcy
claims against  Southmark.  The  Partnership  recognized a $1,302,324  gain as a
result of this settlement. No such gain was recognized in 1996.

In 1996, the Partnership recognized a $52,841 gain on extinguishment of mortgage
loan  investment due to the early payoff of the A-Quality note. No such gain was
recognized in 1995.

Expenses:

Total  expenses  decreased by $63,089 in 1996 as compared to 1995.  The decrease
was mainly due to a decrease in interest expense and general and  administrative
-  affiliates,  partially  offset by an increase  in general and  administrative
expenses, as discussed below.


<PAGE>
Interest  expense  in 1996  decreased  by  $262,907  in  relation  to 1995.  The
Partnership's  mortgage note payable was repaid in the second half of 1995.  The
Partnership  borrowed  additional  funds under its line of credit  agreement  in
November  1996,  as further  discussed  in Item 8 - Note 7 -  "Revolving  Credit
Agreement." Interest expense includes amortization of deferred borrowing costs.

General and administrative  expenses increased by $84,894 in 1996 as compared to
1995.  The increase was due to costs incurred in 1996 relating to evaluation and
dissemination  of information  regarding an unsolicited  tender offer in 1996 as
discussed in Item 1 - Business.

General  and  administrative  -  affiliates  decreased  by  $112,735  in 1996 as
compared to 1995. The decrease was mainly due to a decrease in overhead expenses
allocated to the Partnership by McREMI.

In 1995, the Partnership  recognized a $252,402  extraordinary  loss incurred in
connection  with the repayment of its mortgage note payable as discussed in Item
8 - Note 7 -  "Revolving  Credit  Agreement."  The loss  consisted of $66,949 in
prepayment  penalties and a $185,453 write off of deferred  borrowing  costs. No
such loss was recorded in 1996.

1995 compared to 1994

Revenue:

Total  revenue  increased by  $1,676,557  in 1995 as compared to the prior year,
primarily  due to a 1995  gain on legal  settlement  and an  increase  in rental
revenue and other interest income, as discussed below.

Rental revenue in 1995 increased by $283,334 as compared to 1994. Rental revenue
increased by approximately $65,000 and $16,000 at One Corporate Center I and III
office buildings,  respectively,  due to an increase in rental rates in 1995. In
addition,  rental revenue increased at a majority of the mini-storage properties
as a result  of an  increase  in rental  rates in 1995.  The  largest  increases
occurred at AAA Century  Airport,  AAA Sentry and  Military  Trail where  rental
revenue increased by approximately $68,000,  $52,000 and $41,000,  respectively.
See Item 2 - Properties for a more detailed  analysis of occupancy and rents per
square foot.

Other  interest  income  increased  by $115,445 in 1995 as compared to the prior
year.  The increase was  primarily  the result of an increase in interest  rates
earned on invested cash in 1995.

In 1995,  the  Partnership  received a $30,515  refund of prior years'  property
taxes for AAA Century  Airport  Mini-Storage  as a result of an appeal  filed on
behalf of the property.  In 1994, the  Partnership  received a $43,878 refund of
prior years' property taxes for Burbank Mini-Storage.

As discussed  in Item 1, in 1995 the  Partnership  received  cash and common and
preferred  stock in the  reorganized  Southmark in settlement of its  bankruptcy
claims against  Southmark.  The  Partnership  recognized a $1,302,324  gain as a
result of this settlement. No such gain was recognized in 1994.

Expenses:

Total  expenses  decreased by $235,990  in  1995  as compared to the prior year,
mainly due to a decrease in interest expense, as discussed below.


<PAGE>
Interest expense decreased by $380,381 in 1995 as compared to 1994. The decrease
was due to the  repayment  of the  Partnership's  mortgage  note  payable in the
second half of 1995, as further  discussed in Item 8 - Note 7 "Revolving  Credit
Agreement."

General and administrative  expenses decreased by $44,076 in 1995 as compared to
1994.  The decrease  was due to a decrease in legal  expenses in 1995. A greater
amount of legal expenses were incurred in 1994 relating to a lawsuit against the
borrower on the A-Quality  Mini-Storage  loan and a lawsuit against the officers
and  directors  of the Original  General  Partner and the  Partnership's  former
auditors.

In 1995, the Partnership  recognized a $252,402  extraordinary  loss incurred in
connection  with the repayment of its mortgage note payable as discussed in Item
8 - Note 7 -  "Revolving  Credit  Agreement."  The loss  consisted of $66,949 in
prepayment  penalties and a $185,453 write off of deferred  borrowing  costs. No
such loss was recognized during 1994.

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

The Partnership  generated  $4,134,772 of cash through  operating  activities in
1996,  $5,157,580  in 1995 and  $2,730,364  in  1994.  The  decrease  in 1996 as
compared to 1995 was mainly due to cash received in 1995 from the  settlement of
bankruptcy claims against Southmark,  partially offset by a decrease in interest
paid in 1996. The  Partnership's  mortgage note payable was repaid in the second
half of 1995 and  additional  funds were not  borrowed  under the line of credit
until late November 1996; thus the related interest expense decreased.

The increase in cash generated through operating  activities in 1995 as compared
to 1994 was also due to cash received in 1995 from the  settlement of bankruptcy
claims against  Southmark.  In addition,  there was an increase in cash received
from  tenants  (see  discussion  of  increase  in rental  revenue,  above) and a
decrease in interest  paid due to the  repayment of the  Partnership's  mortgage
note payable in 1995, previously discussed.

In 1996, the Partnership received cash of $1,404,026 as repayment in full of the
Partnership's   mortgage  loan  investment  to  an  unaffiliated  borrower.  The
Partnership  received $282,420 and $278,337 of principal payments on the loan in
1995 and 1994, respectively.

The  Partnership  made loans to affiliates (net of collections) of $2,456,858 in
1996.  The  Partnership  collected  (net of loans made) $972,000 and $843,135 of
principal on loans to affiliates in 1995 and 1994, respectively.

In 1995,  the  Partnership  expended a total of  $6,726,266 to repay in full its
mortgage note payable and paid $66,949 in prepayment  penalties  associated with
such repayment.  The Partnership also paid $195,059 in deferred  borrowing costs
to secure a $5 million line of credit.

In 1996,  the  Partnership  paid  $5,999,994  in  distributions  to the  limited
partners. No distributions were paid to the partners in 1995 or 1994.







<PAGE>
Short-term liquidity:

At  December  31,  1996,  the  Partnership  held  cash and cash  equivalents  of
$3,022,851.  This balance provides a reasonable level of working capital for the
Partnership's immediate needs in operating its properties.

For the  Partnership  as a whole,  management  projects  positive cash flow from
operations in 1997.  The  Partnership  has budgeted  approximately  $800,000 for
necessary capital improvements for all properties in 1997, which are expected to
be funded from available cash reserves or from operations of the properties.

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

In February 1997,  $1,999,970 was distributed to the limited  partners.  Also in
February 1997,  $2,336,029 was borrowed by the Partnership  under its $5 million
revolving  credit  agreement and loaned to an affiliate of the General  Partner.
The $5 million  revolving credit agreement  expires in June 1997. The lender has
verbally  indicated  a  willingness  to  extend  the loan for one year  upon the
written  request  by the  Partnership  in  accordance  with the  line of  credit
agreement.

Long-term liquidity:

While the outlook for  maintenance of adequate levels of liquidity is favorable,
should  operations  deteriorate and present cash resources be  insufficient  for
current needs,  the Partnership  would require other sources of working capital.
The  Partnership  acquired a $5 million  line of credit in 1995 that may be used
for property  operations.  Other possible  actions to resolve cash  deficiencies
include refinancings, deferral of capital expenditures on Partnership properties
except  where  improvements  are expected to increase  the  competitiveness  and
marketability  of the  properties,  arranging  financing from  affiliates or the
ultimate sale of the properties.

The Partnership  determined to evaluate market and other economic  conditions to
establish  the  optimum  time  to  commence  an  orderly   liquidation   of  the
Partnership's  assets in  accordance  with the terms of the Amended  Partnership
Agreement.  Taking such conditions as well as other pertinent  information  into
account,  the Partnership has determined to begin orderly liquidation of all its
assets.  Although there can be no assurance as to the timing of the  liquidation
due to real estate  market  conditions,  the general  difficulty of disposing of
real estate,  and other general  economic  factors,  it is anticipated that such
liquidation  would result in the  dissolution of the  Partnership  followed by a
liquidating distribution the limited partners by December 1999.

<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.......................................                       19

   Balance Sheets at December 31, 1996 and 1995...................................                       20

   Statements of Operations for each of the three years in the period
      ended December 31, 1996.....................................................                       21

   Statements of Partners' Equity (Deficit) for each of the three years
      in the period ended December 31, 1996.......................................                       22

   Statements of Cash Flows for each of the three years in the period
      ended December 31, 1996.....................................................                       23

   Notes to Financial Statements..................................................                       25

   Financial Statement Schedule -

      Schedule III - Real Estate Investments and Accumulated
         Depreciation and Amortization............................................                       37

</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 XXVII, L.P.:

We have  audited  the  accompanying  balance  sheets of McNeil  Real Estate Fund
XXVII,  L.P. (a Delaware limited  partnership) as of December 31, 1996 and 1995,
and the related  statements of operations,  partners'  equity (deficit) and cash
flows for each of the three years in the period ended  December 31, 1996.  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 XXVII,
L.P. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, 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 17, 1997



<PAGE>
                       MCNEIL REAL ESTATE FUND XXVII, L.P.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                       -----------------------------------
                                                                            1996                 1995
                                                                       ---------------      --------------
ASSETS
------

Real estate investments:
<S>                                                                    <C>                  <C>           
   Land.....................................................           $     5,387,855      $    5,387,855
   Buildings and improvements...............................                27,175,885          26,635,813
                                                                        --------------       -------------
                                                                            32,563,740          32,023,668
   Less:  Accumulated depreciation and amortization.........                (8,674,792)         (7,046,093)
                                                                        --------------       -------------
                                                                            23,888,948          24,977,575
                                                                        --------------       -------------

Mortgage loan investment....................................                         -           1,538,932
Less:  Allowance for impairment.............................                         -            (177,161)
                                                                        --------------       -------------
                                                                                     -           1,361,771

Mortgage loan investments - affiliates......................                 4,692,760           2,235,902

Cash and cash equivalents...................................                 3,022,851           5,718,657
Cash segregated for security deposits and
   repurchase of limited partnership units..................                   427,123             407,565
Accounts receivable.........................................                   297,942             299,835
Accrued interest receivable.................................                    43,200              23,978
Deferred borrowing costs, net of accumulated
   amortization of $146,294 and $48,764 at
   December 31, 1996 and 1995, respectively.................                    48,765             146,295
Prepaid expenses and other assets...........................                   219,681             318,163
                                                                        --------------       -------------
                                                                       $    32,641,270      $   35,489,741
                                                                        ==============       =============

LIABILITIES AND PARTNERS' EQUITY (DEFICIT)

Revolving credit agreement..................................           $     1,101,619      $            -
Accounts payable and accrued expenses.......................                    77,635              68,471
Payable to limited partners.................................                   332,928             332,928
Payable to affiliates.......................................                   370,837             253,044
Security deposits and deferred rental revenue...............                   214,829             204,368
                                                                        --------------       -------------
                                                                             2,097,848             858,811
                                                                        --------------       -------------

Partners' equity (deficit):
   Limited partners - 10,000,000 limited partnership units
     authorized; 5,236,893  and 5,273,885 limited 
     partnership units outstanding at December 31, 1996
     and 1995, respectively.................................                30,648,258          34,758,220
   General Partner..........................................                  (104,836)           (127,290)
                                                                        --------------       -------------
                                                                            30,543,422          34,630,930
                                                                        --------------       -------------
                                                                       $    32,641,270      $   35,489,741
                                                                        ==============       =============

</TABLE>

                 See accompanying notes to financial statements.
<PAGE>

                       McNEIL REAL ESTATE FUND XXVII, L.P.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                             For the Years Ended December 31,
                                                   ----------------------------------------------------
                                                        1996               1995               1994
                                                   --------------     --------------    ---------------
Revenue:
<S>                                                <C>                <C>               <C>            
   Rental revenue..........................        $    7,943,383     $    7,517,404    $     7,234,070
   Interest income on mortgage loan
     investment............................                32,444            149,334            159,337
   Interest income on mortgage loan
     investments - affiliates..............               236,221            291,324            292,504
   Other interest income...................               299,982            359,755            244,310
   Property tax refund.....................                     -             30,515             43,878
   Gain on legal settlement................                     -          1,302,324                  -
   Gain on extinguishment of mortgage
     loan investment.......................                52,841                  -                  -
                                                    -------------      -------------     --------------
     Total revenue.........................             8,564,871          9,650,656          7,974,099
                                                    -------------      -------------     --------------

Expenses:
   Interest................................               122,307            385,214            765,595
   Depreciation and amortization...........             1,628,699          1,507,747          1,440,667
   Property taxes..........................               803,600            751,848            710,166
   Personnel costs.........................               667,758            627,809            601,610
   Repairs and maintenance.................               590,986            579,543            579,535
   Property management fees -
     affiliates............................               435,159            426,203            405,746
   Utilities...............................               455,718            444,526            442,680
   Other property operating expenses.......               581,026            597,611            569,077
   General and administrative..............               141,310             56,416            100,492
   General and administrative -
     affiliates............................               892,894          1,005,629          1,002,968
                                                    -------------      -------------     --------------
     Total expenses........................             6,319,457          6,382,546          6,618,536
                                                    -------------      -------------     --------------

Net income before extraordinary item.......             2,245,414          3,268,110          1,355,563
Extraordinary item.........................                     -           (252,402)                 -
                                                    -------------      -------------     --------------

Net income.................................        $    2,245,414     $    3,015,708    $     1,355,563
                                                    =============      =============     ==============

Net income allocable to limited
   partners................................        $    2,222,960     $    2,985,551    $     1,342,007
Net income allocable to General
   Partner.................................                22,454             30,157             13,556
                                                    -------------      -------------     --------------
Net income.................................        $    2,245,414     $    3,015,708    $     1,355,563
                                                    =============      =============     ==============

Net income per weighted average hundred
   limited partnership units:
   Net income before extraordinary item....        $        42.15     $        60.93    $         25.09
   Extraordinary item......................                     -              (4.71)                 -
                                                    -------------      -------------     --------------
Net income.................................        $        42.15     $        56.22    $         25.09
                                                    =============      =============     ==============

Distributions per weighted average
   hundred limited partnership units.......        $       113.77     $            -    $             -
                                                    =============      =============     ==============
</TABLE>

                 See accompanying notes to financial statements.
<PAGE>

                       McNEIL REAL ESTATE FUND XXVII, L.P.

                    STATEMENTS OF PARTNERS' EQUITY (DEFICIT)

              For the Years Ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>

                                                                                                     Total
                                                     General                    Limited              Partners'
                                                     Partner                    Partners             Equity
                                                 ----------------           -----------------     -----------------

<S>                                              <C>                        <C>                   <C>             
Balance at December 31, 1993..............       $      (171,003)           $     31,096,521      $     30,925,518

Repurchase of 37,408 limited
   partnership units......................                     -                    (332,931)             (332,931)

Net income................................                13,556                   1,342,007             1,355,563
                                                  --------------             ---------------       ---------------

Balance at December 31, 1994..............              (157,447)                 32,105,597            31,948,150

Repurchase of 36,992 limited
   partnership units......................                     -                    (332,928)             (332,928)

Net income................................                30,157                   2,985,551             3,015,708
                                                  --------------             ---------------       ---------------

Balance at December 31, 1995..............              (127,290)                 34,758,220            34,630,930

Repurchase of 36,992 limited
   partnership units......................                     -                    (332,928)             (332,928)

Net income................................                22,454                   2,222,960             2,245,414

Distributions.............................                     -                  (5,999,994)           (5,999,994)
                                                  --------------           -----------------      ----------------

Balance at December 31, 1996..............       $      (104,836)         $       30,648,258     $      30,543,422
                                                  ==============           =================      ================
</TABLE>


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

                            STATEMENTS OF CASH FLOWS

                Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
                                                           For the Years Ended December 31,
                                                   -----------------------------------------------------
                                                       1996               1995               1994
                                                   ---------------   ---------------    ----------------
Cash flows from operating activities:
<S>                                                <C>               <C>                <C>            
   Cash received from tenants..............        $    7,881,796    $     7,754,299    $     7,316,836
   Cash paid to suppliers..................            (2,278,401)        (2,107,840)        (2,308,783)
   Cash paid to affiliates.................            (1,210,260)        (1,405,977)        (1,508,428)
   Interest received.......................               344,947            336,925            339,729
   Interest received from affiliates.......               215,064            316,719            280,611
   Interest paid...........................               (14,774)          (317,537)          (723,313)
   Property taxes paid.....................              (803,600)          (751,848)          (710,166)
   Property tax refund.....................                     -             30,515             43,878
   Cash received from legal settlement.....                     -          1,302,324                  -
                                                    -------------      -------------     --------------
Net cash provided by operating
   activities..............................             4,134,772          5,157,580          2,730,364
                                                    -------------      -------------     --------------

Cash flows from investing activities:
   Additions to real estate investments....              (540,072)          (563,333)          (688,492)
   Proceeds from collection of mortgage
     loan investments......................             1,404,026            282,420            278,337
   Mortgage loan investments -
     affiliates............................            (3,409,396)                 -         (1,008,000)
   Proceeds from collection of mortgage
     loan investments - affiliates.........               952,538            972,000          1,851,135
                                                    -------------      -------------     --------------
Net cash provided by (used in)
   investing activities....................            (1,592,904)           691,087            432,980
                                                    -------------      -------------     --------------

Cash flows from financing activities:
   Net increase in cash segregated
     for repurchase of limited
     partnership units.....................                (6,371)            (5,215)           (87,150)
   Deferred borrowing costs paid...........                     -           (195,059)                 -
   Proceeds from revolving credit
     agreement.............................             1,101,619                  -                  -
   Principal payments on mortgage
     note payable..........................                     -         (6,726,266)          (127,487)
   Mortgage prepayment penalty paid........                     -            (66,949)                 -
   Repurchase of limited partnership
     units.................................              (332,928)          (332,931)          (332,933)
   Distributions paid......................            (5,999,994)                 -                  -
                                                    -------------      -------------     --------------

Net cash used in financing activities......            (5,237,674)        (7,326,420)          (547,570)
                                                    -------------      -------------     --------------

Net increase (decrease) in cash and
   cash equivalents........................            (2,695,806)        (1,477,753)         2,615,774

Cash and cash equivalents at
   beginning of year.......................             5,718,657          7,196,410          4,580,636
                                                    -------------      -------------     --------------

Cash and cash equivalents at end
   of year.................................        $    3,022,851     $    5,718,657    $     7,196,410
                                                    =============      =============     ==============
</TABLE>
                 See accompanying notes to financial statements.
<PAGE>

                       McNEIL REAL ESTATE FUND XXVII, L.P.

                            STATEMENTS OF CASH FLOWS


              Reconciliation of Net Income to Net Cash Provided by
                              Operating Activities


<TABLE>
<CAPTION>
                                                          For the Years Ended December 31,
                                                   ----------------------------------------------------
                                                       1996               1995               1994
                                                   -------------      --------------    ---------------
<S>                                                <C>                <C>               <C>            
Net income.................................        $   2,245,414      $    3,015,708    $     1,355,563
                                                    ------------       -------------     --------------

Adjustments  to  reconcile   net  income 
   to  net  cash  provided  by  operating
   activities:
   Depreciation and amortization...........             1,628,699          1,507,747          1,440,667
   Amortization of deferred borrowing
     costs.................................                97,530             67,677             42,282
   Allowance for impairment of
     mortgage loan investment..............                     -           (172,164)           (83,257)
   Gain on extinguishment of mortgage
     loan investment.......................               (52,841)                 -                  -
   Extraordinary item......................                     -            252,402                  -
   Changes in assets and liabilities:
     Cash segregated for security
       deposits............................               (13,187)             1,962             (3,720)
     Accounts receivable...................                 1,893            225,452             62,607
     Accrued interest receivable...........                (8,636)            25,395              7,446
     Prepaid expenses and other
       assets..............................                98,482            202,024             81,936
     Accounts payable and accrued
       expenses............................                 9,164             (3,960)           (97,325)
     Payable to affiliates.................               117,793             25,855            (99,714)
     Security deposits and deferred
       rental revenue......................                10,461              9,482             23,879
                                                    -------------      -------------     --------------

         Total adjustments.................             1,889,358          2,141,872          1,374,801
                                                    -------------      -------------     --------------

Net cash provided by operating
   activities..............................        $    4,134,772     $    5,157,580    $     2,730,364
                                                    =============      =============     ==============
</TABLE>


                 See accompanying notes to financial statements.

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

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1996

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

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

McNeil Real  Estate Fund XXVII,  L.P.  (the  "Partnership"),  formerly  known as
Southmark Prime Plus, L.P., was organized by affiliates of Southmark Corporation
("Southmark") on January 16, 1987, as a limited partnership under the provisions
of the Delaware Revised Uniform Limited Partnership Act to make short-term loans
to affiliates of the general partner.  The general partner of the Partnership is
McNeil Partners,  L.P. (the "General Partner"),  a Delaware limited partnership,
an affiliate of Robert A. McNeil ("McNeil").  The General Partner was elected at
a meeting of limited  partners on March 30,  1992,  at which time an amended and
restated  partnership  agreement  (the  "Amended  Partnership   Agreement")  was
adopted.  Prior to March 30, 1992, the general  partner of the  Partnership  was
Prime Plus Corp. (the "Original General Partner"), a wholly-owned  subsidiary of
McNeil.  The Original  General Partner was purchased from Southmark by McNeil on
March 13, 1991.  The  principal  place of business for the  Partnership  and the
General Partner is 13760 Noel Road, Suite 600, Dallas, Texas 75240.

The sole limited partner of the Partnership was initially  Southmark  Depositary
Corp. (the "Depositary"), a wholly-owned subsidiary of Southmark. The Depositary
assigned the principal  attributes of its aggregate  limited partner interest in
the  Partnership  to the  Depositary  unit holders.  The  Depositary  units were
subsequently converted to limited partnership units ("Units").

Under the original partnership agreement, the Partnership's primary business was
to make short-term  nonrecourse mortgage or deed of trust loans to affiliates of
the  Original  General  Partner and to  partnerships  or real estate  investment
trusts  sponsored by affiliates of the Original  General  Partner formed for the
purpose of acquiring  income-producing real properties. Due to borrower defaults
and foreclosures on the properties securing all but one of these mortgages,  the
Partnership's business also includes ownership and operation of real estate.

In 1992, the Partnership used a portion of proceeds from a mortgage note payable
to make  nonrecourse  mortgage  loans to  affiliates  of the General  Partner in
accordance with the Amended Partnership Agreement. The mortgage note payable was
repaid by the Partnership in 1995, and a $5 million  revolving  credit agreement
was obtained that is being used to fund  additional  loans made to affiliates of
the General Partner.  See Note 7 - "Revolving Credit  Agreement." The loans made
to affiliates are secured by income-producing  real estate and are either junior
or senior to other  indebtedness  as more fully  described in Note 6 - "Mortgage
Loan Investments - Affiliates."


<PAGE>
The  Partnership  is engaged  in the  ownership,  operation  and  management  of
commercial real estate and the servicing of mortgage loan investments secured by
real  estate.  The  Partnership  has  determined  to  evaluate  market and other
economic  conditions  to  establish  the  optimum  time to  commence  an orderly
liquidation  of the  Partnership's  assets in  accordance  with the terms of the
Amended  Partnership  Agreement.  At December 31, 1996, the Partnership had four
mortgage loan  investments  to affiliates of the General  Partner as describe in
Note 6 - "Mortgage Loan Investments - Affiliates" and owned ten income-producing
properties as described in Note 4 - "Real Estate Investments."

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

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

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

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

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

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

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

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

Mortgage Loan Investments
-------------------------

Mortgage  loan  investments  are recorded at their  original  basis,  net of any
allowance  for  impairment.  Interest  income  is  recognized  as it is  earned.
Interest accrual is ceased at such time as management  determines  collection is
doubtful.


<PAGE>
Cash and Cash Equivalents
-------------------------

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

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

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

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

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

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

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

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

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

The Amended Partnership  Agreement provides for net income and net losses of the
Partnership  to be allocated  99% to the limited  partners and 1% to the General
Partner.

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 1996, 1995, and 1994 have been made
in accordance with these provisions.

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

At the discretion of the General Partner, distributions to the partners are paid
from cash from  operations  available  after payment of affiliate  compensation.
Under the terms of the Amended Partnership Agreement, the General Partner is not
entitled to distributions from operations.
<PAGE>
Cash from operations  available for  distribution is determined by provisions of
the Amended Partnership  Agreement,  and differs from the amount reported as net
cash  provided by operating  activities in the  accompanying  Statements of Cash
Flows. Cash from operations available for distribution consists of cash received
from  operations  of the  Partnership  during a given  period  of time  less (1)
operational cash disbursements  during the same period of time including capital
improvements,   unscheduled  mortgage  principal  reductions  and  repayment  of
Partnership  advances from affiliates,  (2) a reasonable allowance for reserves,
contingencies and anticipated obligations as determined at the discretion of the
General  Partner,  (3) proceeds held pending  investment in affiliate loans, and
(4) any monies reserved for repurchase of Units.

Liquidation proceeds will be distributed when the Partnership is dissolved after
taking into account all items of income,  gain, loss or deduction.  Distribution
of liquidation  proceeds will then be made to the partners with positive capital
account balances.

No  distributions  were   paid  to  the  partners in 1995  or 1994. In 1996, the
Partnership  distributed  $5,999,994 to the limited partners.

In February 1997, $1,999,970 was distributed to the limited partners.

Net Income Per Hundred Limited Partnership Units
------------------------------------------------

Net income per one hundred Units is computed by dividing net income allocated to
the  limited  partners  by the  weighted  average  number  of Units  outstanding
expressed in hundreds.  Per unit  information has been computed based on 52,739,
53,109  and 53,483  (in  hundreds)  Units  outstanding  in 1996,  1995 and 1994,
respectively.

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

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

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

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 $30 per gross square foot
for  mini-storage  warehouses  and $50 per  gross  square  foot  for  commercial
properties to arrive at the property tangible asset value. The property tangible
asset  value is then  added to the book  value  of all  other  assets  excluding
intangible items. The fee percentage decreases subsequent to 1999.
<PAGE>
Compensation  and  reimbursements  paid to or  accrued  for the  benefit  of the
General Partner or its affiliates are as follows:

<TABLE>
<CAPTION>
                                                          For the Years Ended December 31,
                                                   ----------------------------------------------------
                                                       1996               1995               1994
                                                   --------------     --------------    ---------------
<S>                                                <C>                <C>               <C>            
Property management fees...................        $      435,159     $      426,203    $       405,746
Charged to general and
   administrative - affiliates:
   Partnership administration..............               314,832            432,998            405,528
   Asset management fee....................               578,062            572,631            597,440
                                                    -------------      -------------     --------------
                                                   $    1,328,053     $    1,431,832    $     1,408,714
                                                    =============      =============     ==============
</TABLE>

Until March 13, 1991, the Original General Partner was entitled to receive,  out
of cash from operations,  a performance incentive fee equal to 20% of all points
received by the Partnership on mortgage loans if the limited  partners  received
distributions of cash from operations  equal to a 10% cumulative  noncompounding
annual return on their original capital  investment.  Such fees were cumulative,
were  accrued in the years earned and are to be paid when  conditions  were met.
Conditions for payment have not yet been met and, at December 31, 1996 and 1995,
$141,647 of amounts accrued in prior years are included in payable to affiliates
on the Balance Sheets.

Under  the  terms of the  Amended  Partnership  Agreement,  the  Partnership  is
expressly  permitted to make loans to affiliates of the General Partner, so long
as such loans meet certain conditions. See Note 6 - "Mortgage Loan Investments -
Affiliates" for a discussion of these transactions.

Payable to affiliates at December 31, 1996 and 1995  consisted  primarily of the
performance   incentive  fee  of  $141,647  accrued  in  prior  years,  property
management  fees,  Partnership  general  and  administrative   expenses,   asset
management fees and prepaid interest as further  discussed in Note 6 - "Mortgage
Loan  Investments - Affiliates."  Except for the  performance  incentive fee and
prepaid interest, all accrued fees are due and payable from current operations.

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

McNeil  Real Estate Fund  XXVII,  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 financial  reporting  purposes
exceeded the net assets and liabilities for tax purposes by $12,040,518 in 1996,
$11,258,459 in 1995 and $10,569,292 in 1994.


<PAGE>

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

The  basis  and  accumulated  depreciation  of  the  Partnership's  real  estate
investments at December 31, 1996 and 1995 are set forth in the following tables:

<TABLE>
<CAPTION>
                                                                         Accumulated
                                                   Buildings and         Depreciation        Net Book
       1996                         Land           Improvements        and Amortization        Value
       ----                    --------------      ------------        ----------------   ---------------
<S>                            <C>                <C>                  <C>                 <C>           
AAA Century Airport
   Inglewood, CA               $      361,535     $     2,145,958      $     (543,658)     $    1,963,835
AAA Sentry
   N. Lauderdale, FL                   70,337             558,674            (162,724)            466,287
Burbank
   Burbank, CA                        830,043           2,505,647            (639,212)          2,696,478
Forest Hill
   W. Palm Beach, FL                  510,780           1,987,092            (509,267)          1,988,605
Fountainbleau
   Miami, FL                          287,114           1,232,975            (288,860)          1,231,229
Kendall Sunset
   Miami, FL                          672,756           3,905,730            (979,692)          3,598,794
Margate
   Margate, FL                        233,575           1,340,085            (341,757)          1,231,903
Military Trail
   W. Palm Beach, FL                  571,715           1,833,280            (470,276)          1,934,719
One Corporate Center I
   Edina, MN                          925,000           5,621,079          (2,199,151)          4,346,928
One Corporate Center III
   Edina, MN                          925,000           6,045,365          (2,540,195)          4,430,170
                                -------------       -------------       --------------      -------------
                               $    5,387,855      $   27,175,885      $   (8,674,792)     $   23,888,948
                                =============       =============       =============       =============


                                                                         Accumulated
                                                   Buildings and         Depreciation        Net Book
       1995                         Land           Improvements        and Amortization        Value
       ----                    --------------      ------------        ----------------   ---------------

AAA Century Airport            $      361,535      $    2,142,648      $     (449,652)     $    2,054,531
AAA Sentry                             70,337             525,535            (123,641)            472,231
Burbank                               830,043           2,482,324            (531,179)          2,781,188
Forest Hill                           510,780           1,952,030            (422,550)          2,040,260
Fountainbleau                         287,114           1,204,371            (228,724)          1,262,761
Kendall Sunset                        672,756           3,889,002            (815,954)          3,745,804
Margate                               233,575           1,297,803            (274,389)          1,256,989
Military Trail                        571,715           1,806,036            (385,788)          1,991,963
One Corporate Center I                925,000           5,477,168          (1,836,921)          4,565,247
One Corporate Center III              925,000           5,858,896          (1,977,295)          4,806,601
                                -------------       -------------       -------------       -------------
                               $    5,387,855     $    26,635,813      $   (7,046,093)     $   24,977,575
                                =============      ==============       =============       =============
</TABLE>

<PAGE>

The  Partnership  leases its office  buildings  under  non-cancelable  operating
leases.  Future  minimum  rents to be received  as of  December  31, 1996 are as
follows:

    1997....................................        $  2,673,000
    1998....................................           1,839,000
    1999....................................           1,018,000
    2000....................................             727,000
    2001....................................             330,000
    Thereafter..............................             100,000
                                                     -----------
      Total                                         $  6,687,000
                                                     ===========

Future  minimum  rents do not  include  expense  reimbursements  for common area
maintenance,  property taxes and other  expenses.  These expense  reimbursements
amounted to $132,563,  $130,560  and  $127,069 for the years ended  December 31,
1996,  1995 and 1994,  respectively,  and are included in rental  revenue on the
Statements of Operations.

NOTE 5 - MORTGAGE LOAN INVESTMENT
---------------------------------

In 1987,  the  Partnership  made a nonrecourse  mortgage loan to an affiliate of
Southmark secured by A-Quality Mini-Storage.  The property was subsequently sold
to an unaffiliated borrower subject to the Partnership's first priority mortgage
loan.

In April 1994,  the  borrower,  who had filed for  bankruptcy  in 1990,  and the
Partnership reached a settlement concerning the loan. Under the settlement,  the
borrower  paid the  Partnership  $150,000  in cash and the loan was  renewed for
$1,453,194 (representing the original $2,100,000 principal balance less all post
bankruptcy petition payments made by the borrower) effective January 1, 1994. An
additional  second  lien  loan was  executed  in the  amount of  $134,397  at an
interest  rate of 6%,  which  was  paid in full in the  third  quarter  of 1995.
Principal  and interest at a rate of prime plus 2% were  payable  monthly on the
first lien loan. On March 21, 1996, the Partnership  received $1,404,026 as full
settlement  of the first lien  loan.  In  connection  with the  settlement,  the
Partnership   recorded  a  $52,841  gain  on  extinguishment  of  mortgage  loan
investment,  which  represents the excess of the settlement  amount over the net
carrying  amount of the mortgage loan  investment and related  accrued  interest
accounts.


<PAGE>
The  following  sets forth the  Partnership's  mortgage  loan  investment  to an
unaffiliated borrower at December 31, 1996 and 1995.

<TABLE>
<CAPTION>

                         Mortgage         Annual          Monthly
                         Lien             Interest        Payments/                 December 31,
Property                 Position         Rate %          Maturity              1996               1995
--------                 ------------     ------       ----------------    --------------      --------------
<S>                                          <C>           <C>    <C>      <C>                 <C>           
A - Quality
   Mini-Storage            First          (a)10.50     (a) 14,470 1/97     $            -      $    1,538,932
Allowance for loss                                                                      -            (177,161)
                                                                            -------------       -------------

                                                                           $            -      $    1,361,771
                                                                            =============       =============
</TABLE>

(a)  Under the  modification  terms,  interest accrued on the mortgage loan at a
     rate equal to the prime lending rate of Bank of America in effect as of the
     first  day of each  calendar  month  plus 2%.  The  prime  lending  rate at
     December  31, 1995 was 8.5%.  The monthly  payment was based on a 240 month
     amortization, which changed as the interest rate changed.

Based on market lending rates for mortgage loan  investments with similar terms,
risks and average maturities, the fair value of the mortgage loan investment was
approximately $1,407,000 at December 31, 1995.

In  accordance  with  Statement  of  Financial  Accounting  Standards  No.  114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114"),  the measure of
impairment for a loan restructured in a troubled debt  restructuring is based on
the present  value of  expected  future cash flows  discounted  at the  original
contractual rate. Accordingly, upon the April 1994 modification, the Partnership
measured the impairment of the mortgage loan  investment and determined  that an
allowance for  impairment was still  required.  The allowance for impairment was
written  off in March 1996,  when the first lien loan was paid in full.  For the
years ended December 31, 1995 and 1994,  the allowance for impairment  decreased
by $172,164 and $83,257,  respectively.  The 1995  decrease in the allowance was
due to the passage of time (the allowance was measured based on discounted  cash
flows),  and the 1994 decrease was primarily due to the April 1994  modification
which changed the expected future cash flows.

Subsequent to the April 1994  modification,  interest  income was recorded at an
interest  rate that equated the expected  future cash flows to the mortgage loan
investment balance.  The expected cash flows changed slightly from year to year.
Additionally,  any changes in the  allowance for  impairment  that resulted from
changes in the discount  rate or passage of time were also  recorded as interest
income.  This  accounting  treatment  resulted  in the  recognition  of $32,444,
$149,334 and $159,337 of interest  income for the years ended December 31, 1996,
1995 and 1994, respectively. The effective interest rate of this interest income
was  10.8%,  10.4% and 10.3% for  1996,  1995 and 1994,  respectively.  Interest
income of $32,444,  $154,909 and $136,417 would have been  recognized  under the
terms of the modification  agreement for the years ended December 31, 1996, 1995
and 1994, respectively, if the Partnership had not adopted SFAS 114.



<PAGE>
NOTE 6 - MORTGAGE LOAN INVESTMENTS - AFFILIATES
-----------------------------------------------

Under  the  terms of the  Amended  Partnership  Agreement,  the  Partnership  is
expressly  permitted to make  nonrecourse  mortgage  loans to  affiliates of the
General  Partner so long as such loans meet certain  conditions,  including that
such loans bear  interest at a rate equal to the prime  lending  rate of Bank of
America  plus  2.5%,  or plus 3.5% if the loan is junior to other  indebtedness.
These loans are secured by income-producing real estate and may be either junior
or senior to other indebtedness secured by such property.  At December 31, 1996,
the  Partnership  had  outstanding  loans  receivable  of  $4,692,760,  of which
$3,892,760  were first priority  loans and $800,000 was a junior  priority loan.
For the year ended December 31, 1996,  the  Partnership  recognized  $236,221 of
interest   income  related  to  these  loans.   The  following  sets  forth  the
Partnership's  mortgage loan investments to affiliates of the General Partner at
December 31, 1996 and 1995.  Loans were funded by the proceeds from the mortgage
note payable  entered into in October 1992, the line of credit  obtained in June
1995  (see  Note 7  "Revolving  Credit  Agreement")  or other  available  funds.
Interest only payments are due monthly.  The monthly payment varies according to
the prime lending rate.

<TABLE>
<CAPTION>
                                   Mortgage      Annual
                                   Lien          Interest                                 December 31,
Property                           Position      Rate % (a)       Maturity             1996             1995
--------                           ---------     ----------       -----------       -------------  -------------
<S>                                <C>             <C>               <C>          <C>             <C>           
McNeil Pension Investment
   Fund, Ltd.:
   Brice Road Office
     Building                      First           10.75             05/98        $     483,364   $      483,364
   Verre Center Office
     Building                      First           10.75             11/99              820,426                -
McNeil Real Estate Fund X,
   Ltd.:
   Lakeview Plaza Shopping
     Center                        Second          11.75             08/97              800,000          800,000
McNeil Real Estate Fund
   XI, Ltd.:
   The Village Apartments          First           10.75             11/99            2,588,970                -
McNeil Real Estate Fund
   XXVI, L.P.:
   Continental Plaza Office
     Building                      First           10.75             03/96                    -          952,538
                                                                                  -------------    -------------
                                                                                 $    4,692,760   $    2,235,902
                                                                                  =============    =============
</TABLE>

(a)  The loans bear  interest at the prime  lending rate of Bank of America plus
     2.5% for senior  priority  loans and prime  plus 3.5% for  junior  priority
     loans.  The prime  lending  rate was 8.25% at December 31, 1996 and 8.5% at
     December 31, 1995.





<PAGE>

On May 1, 1992, the Partnership agreed to loan an aggregate of $1.115 million to
McNeil Pension  Investment  Fund,  Ltd.  ("McPIF"),  an affiliate of the General
Partner,  at an  interest  rate of prime  plus 1% per annum  (the  maximum  rate
allowed to be incurred by McPIF in connection  with  borrowings  from affiliates
pursuant to McPIF's partnership agreement).  A total of $483,364 was borrowed by
McPIF pursuant to this commitment. This loan is secured by a first lien on Brice
Road Office Building located in Reynoldsburg, Ohio. The original loan matured in
May  1995,  at which  time a new loan  under  substantially  the same  terms was
executed.  Interest on the loan is payable monthly.  Principal is payable in May
1998.

On October  25,  1996,  the  Partnership  agreed to loan an  aggregate  of $1.68
million to McPIF at an  interest  rate of prime  plus 1% per annum (the  maximum
rate  allowed  to be  incurred  by  McPIF in  connection  with  borrowings  from
affiliates  pursuant to McPIF's  partnership  agreement).  In 1996, $820,426 was
borrowed by McPIF pursuant to this  commitment.  This loan is secured by a first
lien on Verre Center Office Building located in Chamblee, Georgia.
Interest on the loan is payable monthly. Principal is payable in November 1999.

On August 15, 1994, the Partnership agreed to loan an aggregate of $1 million to
McNeil Real Estate Fund X, Ltd. ("Fund X"), at an interest rate of prime plus 1%
per annum (the maximum rate allowed to be incurred by Fund X in connection  with
borrowings from affiliates pursuant to Fund X's partnership agreement). In 1994,
$800,000  was  borrowed  by Fund X  pursuant  to this  commitment.  This loan is
secured by a second lien on Lakeview Plaza Shopping Center located in Lexington,
Kentucky.  Interest on the loan is payable  monthly,  with principal  payable in
August 1997.

On  October  25,  1996,  the   Partnership   agreed  to  loan  an  aggregate  of
approximately  $2.589 million to McNeil Real Estate Fund XI, L.P. ("Fund XI") at
an  interest  rate of prime plus 1% per annum (the  maximum  rate  allowed to be
incurred by Fund XI in connection with  borrowings  from affiliates  pursuant to
Fund XI's partnership  agreement).  In 1996,  $2,588,970 was borrowed by Fund XI
pursuant to this commitment. This loan is secured by a first lien on The Village
Apartments located in Gresham, Oregon. Interest on the loan is payable monthly.
Principal is payable in November 1999.

On March 1, 1993, the Partnership  agreed to loan an aggregate of  approximately
$1.54  million at an interest rate of prime plus 2.5% to McNeil Real Estate Fund
XXVI, L.P. ("Fund XXVI"). A total of $952,538 was borrowed by Fund XXVI pursuant
to this commitment.  This loan was secured by a first lien on Continental  Plaza
Office Building located in Scottsdale, Arizona. Interest on the loan was payable
monthly,  with principal payable on the third anniversary date of issuance.  The
loan was paid in full in January 1996.

In order to induce the Partnership to lend funds to the foregoing  affiliates of
the General  Partner,  the General  Partner  entered  into  agreements  with the
Partnership  whereby  the  General  Partner  agreed to pay:  (i) the  difference
between the interest  rate  required by the  Partnership's  Amended  Partnership
Agreement  to be charged  to  affiliates  (either  prime plus 2.5% or prime plus
3.5%) and the interest  rate  actually  paid by Fund X, Fund XI and McPIF to the
Partnership  (prime plus 1%), and (ii) all points (1.5% of the principal  amount
if a first priority security interest is obtained and 2% of the principal amount
if a junior priority security interest is obtained),  closing costs and expenses
required to be received by the Partnership pursuant to the Partnership's Amended
Partnership Agreement in connection with such affiliated financing arrangements.


<PAGE>
At December 31, 1996 and 1995, the General Partner had paid $78,391 and $27,250,
respectively,  representing the aggregate amount of interest which would be owed
for one year pursuant to this arrangement. In addition, the General Partner paid
$83,510,  $27,193 and $28,249 of interest,  points,  closing  costs and expenses
required to be received by the  Partnership on all affiliate  loans during 1996,
1995 and 1994,  respectively.  All other  requirements for affiliated  loans, as
specified  in the  Partnership's  Amended  Partnership  Agreement,  were  met at
December 31, 1996, 1995 and 1994, in connection with these loans.

A summary of activity for the mortgage loan  investments  from  affiliates is as
follows:

<TABLE>
<CAPTION>
                                                           For the Years Ended December 31,
                                                   ----------------------------------------------------
                                                        1996               1995               1994
                                                   --------------     --------------    ---------------
<S>                                                <C>                <C>               <C>            
Balance at beginning of year...............        $    2,235,902     $    3,207,902    $     4,051,037
Mortgage loans funded......................             3,409,396                  -          1,008,000
Mortgage loans repaid......................              (952,538)          (972,000)        (1,851,135)
                                                    -------------      -------------     --------------
Balance at end of year.....................        $    4,692,760     $    2,235,902    $     3,207,902
                                                    =============      =============     ==============
</TABLE>

Based on the lending rates prescribed by the Amended  Partnership  Agreement for
affiliate   mortgage  loan   investments,   the  fair  value  of  mortgage  loan
investments-affiliates approximated book value at December 31, 1996 and 1995.

The cost of the mortgage loan investments for Federal income tax purposes is the
same as the carrying amount for financial statement purposes.

NOTE 7 - REVOLVING CREDIT AGREEMENT
-----------------------------------

As more fully described below, the revolving credit agreement of the Partnership
was converted from a mortgage note payable during 1995.

The following sets forth the revolving  credit  agreement of the  Partnership at
December 31, 1996 and 1995.  The  revolving  credit  agreement is secured by the
related real estate investments.

<TABLE>
<CAPTION>
                         Mortgage         Annual          Monthly
                         Lien             Interest        Payments/                 December 31,
Property                 Position         Rate %          Maturity              1996               1995
--------                 ------------     ------       ----------------    --------------      -----------
<S>                      <C>              <C>              <C>   <C>       <C>                 <C>         
Kendall Sunset,
One Corporate
Center I and
One Corporate
Center III               First            7.5 (a)          (a)   6/97      $    1,101,619      $          -
                                                                            =============       ===========
</TABLE>

<PAGE>
(a)  The interest  rate and monthly  payment vary based on the London  Interbank
     Offer Rate plus 2%. The rate listed above  represents the rate in effect as
     of December 31, 1996.

A $5 million  revolving  credit agreement was secured by the Partnership in June
1995.  The  Partnership  had  borrowed  $1,101,619  under the  revolving  credit
agreement  at  December  31,  1996.  No amounts  had been  borrowed  against the
revolving  credit  agreement  at December  31, 1995.  Any  borrowings  under the
revolving  credit  agreement bear interest at prime plus one half of one percent
or a LIBOR-based  rate, if so elected by the  Partnership.  The  Partnership  is
required to pay a  commitment  fee equal to one quarter of one percent per annum
on any unused portion of the line of credit.  Total  commitment fees paid during
1996 and 1995 were $12,708 and $3,542,  respectively.  In 1995, the  Partnership
incurred  loan costs of  $195,059  related  to the line of  credit.  The line of
credit  expires in July 1997 and is secured  by One  Corporate  Center I and III
office  buildings and Kendall Sunset  Mini-Storage.  The line of credit contains
financial  covenants that require the Partnership to maintain a Consolidated Net
Worth of $25,000,000 and an Interest  Expense Coverage Ratio of 3:1, as defined,
among other  restrictions.The  lender has verbally  indicated a  willingness  to
extend  the loan for one year upon the  written  request by the  Partnership  in
accordance with the line of credit agreement.

In February 1997, $2,336,029 was borrowed by the Partnership under the revolving
credit agreement and loaned to an affiliate of the General Partner.

Based on borrowing  rates  currently  available to the Partnership for long-term
debt with similar terms and average maturities,  the fair value of the revolving
credit agreement borrowings approximated book value at December 31, 1996.

In October  1992,  the  Partnership  entered into a loan  agreement to borrow an
aggregate of $7 million.  Principal on this loan was due and payable seven years
following issuance,  with interest payable annually at a rate of 10.5% per annum
for the first three years and prime plus 2% thereafter.  The loan was secured by
certain  mini-storage  warehouses  owned by the Partnership.  McNeil  personally
guaranteed  up to $1.75 million of the aggregate  loan amount.  The  Partnership
received net proceeds of  approximately  $6.5 million from the loan, the balance
of the loan amount being used to defray  certain  closing costs and to establish
an escrow account for real estate taxes. The net loan proceeds were used to make
loans to various  affiliates of the General  Partner and to fund working capital
needs. The balance of the proceeds was invested, in accordance with the terms of
the Amended Partnership Agreement, in short-term interest-bearing accounts.

In May 1995, the Partnership  paid down its mortgage note payable by $4,628,250.
In June 1995, the Partnership  secured a $5 million  revolving  credit agreement
that is being used to fund  additional  loans made to  affiliates of the General
Partner as well as for  working  capital and general  partnership  purposes.  In
connection with obtaining the revolving credit  agreement,  the Partnership paid
off the remaining $2,019,844 balance of its mortgage note payable. In connection
with the repayments,  the Partnership  paid prepayment  penalties of $66,949 and
wrote off $185,453 of deferred  borrowing  costs,  resulting in an extraordinary
loss of $252,402 in 1995.


<PAGE>
NOTE 8 - REPURCHASE OF LIMITED PARTNERSHIP UNITS
------------------------------------------------

Under the provisions of both the original partnership  agreement and the Amended
Partnership  Agreement,  the  Partnership  is  required to  repurchase  Units in
amounts totaling up to 0.6% of gross proceeds per year. The repurchase amount is
equal  to the  lesser  of 90% of  adjusted  invested  capital,  or $9 per  Unit.
Repurchase is based on written requests from limited partners  submitted between
October 1 and October 20 of each year. The  requirement  was first  effective in
1989. In January 1997, $332,928 was used to repurchase 36,992 Units for requests
submitted in 1996. In January 1996, $332,928 was used to repurchase 36,992 Units
for requests submitted in 1995. In January 1995, $332,931 was used to repurchase
37,408 Units for requests submitted in 1994.

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

The  Partnership  filed claims with the United States  Bankruptcy  Court for the
Northern  District of Texas,  Dallas Division (the  "Bankruptcy  Court") against
Southmark for damages relating to improper  overcharges,  breach of contract and
breach of fiduciary  duty. The Partnership  settled these claims in 1991,  which
totaled  approximately  $17,024,326,  for  the  full  amount  claimed  and  such
settlement was approved by the Bankruptcy Court.

Pursuant to the settlement agreement, the Partnership released Southmark and its
affiliates  and the  Original  General  Partner  from any further  liability  in
connection  with the  claims  made with the  Bankruptcy  Court.  In  return,  an
affiliate of McNeil  agreed to waive  payment on a dollar for dollar basis in an
amount equal to the settled  claims  against  Partnership  advances owed at that
time. In addition,  the Partnership received Southmark bankruptcy plan assets in
respect to its claims which were not offset  against the  Partnership  advances.
Because the Partnership's claims against Southmark were settled for $17,024,326,
the  Partnership  advances of $223,800  owed at that time were  reduced in their
entirety  and the claims had a remaining  balance of  $16,800,526.  Although the
Partnership  settled the claims against  Southmark for the full amount  claimed,
the settlement agreement provided that the Partnership receive a distribution of
Southmark  bankruptcy  plan  assets  based on a claim  amount  of  approximately
$9,157,000.

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,  $984,649
in cash, and common and preferred stock in the  reorganized  Southmark which was
subsequently  sold for  $317,675.  These  amounts  represent  the  Partnership's
pro-rata  share of Southmark  assets  available  for Class 8 Claimants  and were
recorded as a gain on legal settlement on the Statements of Operations.


<PAGE>
NOTE 10 - LEGAL PROCEEDINGS
---------------------------

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

1)   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.

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

     The action  involves  purported  class and  derivative  actions  brought by
     limited  partners of each of the fourteen  limited  partnerships  that were
     named as nominal  defendants as listed above (as defined in this Section 2,
     the  "Partnerships").  Plaintiffs allege that McNeil  Investors,  Inc., its
     affiliate,  McNeil Real Estate Management,  Inc., and three of their senior
     officers and/or directors (as defined in this Section 2, collectively,  the
     "Defendants") breached their fiduciary duties and certain obligations under
     the  respective  amended  partnership  agreements.  Plaintiffs  allege that
     Defendants  have  rendered  such Units  highly  illiquid  and  artificially


<PAGE>
     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.  On January 7, 1997,  the Court ordered  consolidation  with three
     other similar actions.

     The  Partnerships  filed a demurrer to the complaint and a motion to strike
     on February 14, 1997, seeking to dismiss the complaint in all respects. The
     demurrer is pending.  The Partnerships  deny that there is any merit to the
     plaintiffs' allegations and intend to vigorously defend this action.

3)   Helen Pasco v. McNeil Real Estate Fund XXVII,  L.P.,  Southmark  Prime Plus
     Corp., et al. and Does 1-50 Inclusive.  This complaint alleges that several
     limited  partnerships  and funds,  including  the  Partnership,  along with
     McMachen,  Prudential Securities,  Inc. and other unidentified  defendants,
     transmitted  false and misleading  information  to the plaintiff  which was
     used to entice the plaintiff into investing her money with the  defendants.
     The complaint also alleges that the defendants misrepresented  speculative,
     illiquid  limited  partnerships  as  safe,   income-producing   investments
     suitable for  safety-conscious  and  conservative  investors.  Although the
     Partnership is included as a defendant,  the plaintiff's allegations do not
     specify in what way the Partnership was involved in improper  conduct.  The
     complaint  does  not  state,  other  than by  broad  allegations,  that the
     Partnership  acted in an improper  manner with regard to the  operation  or
     management of the limited partnership. An answer was filed on behalf of the
     Partnership  in February 1994, and there has been no further action in this
     matter.  The  ultimate  outcome of this case cannot be  determined  at this
     time.



<PAGE>
                       McNEIL REAL ESTATE FUND XXVII, LTD.
                                  SCHEDULE III
              REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
                                December 31, 1996

<TABLE>
<CAPTION>
                                                                                  Cumulative           Costs
                                                       Initial Cost (b)            Write-down       Capitalized
                          Related                             Buildings and     and Permanent       Subsequent
Description               Encumbrances (a)       Land         Improvements        Impairment       To Acquisition
------------              ----------------       ----         --------------    -------------      --------------
<S>                        <C>               <C>               <C>               <C>               <C>          
MINI-STORAGE WAREHOUSES:

AAA Century Airport
   Inglewood, CA           $            -    $      359,820    $    2,040,180    $           -     $     107,493

AAA Sentry
   N. Lauderdale, FL                    -            69,890           380,110                -           179,011

Burbank
   Burbank, CA                          -           825,918         2,394,082                -           115,690

Forest Hill
   West Palm Beach, FL                  -           507,422         1,862,578                -           127,872

Fountainbleau
   Miami, FL                            -           285,854           864,146                -           370,089

Kendall Sunset
   Miami, FL (c)                  416,167           672,000         3,808,000                -            98,486

Margate
   Margate, FL                          -           233,101         1,156,899                -           183,660

Military Trail
   West Palm Beach, FL                  -           568,405         1,681,595                -           154,995

OFFICE BUILDINGS:

One Corporate Center I
   Edina, MN (c)                  328,737           925,000         5,250,000        (1,300,000)       1,671,079

One Corporate Center III
   Edina, MN (c)                  356,715           925,000         5,255,000        (1,300,000)       2,090,365
                           --------------    --------------    --------------     -------------     ------------

                          $     1,101,619   $     5,372,410   $    24,692,590    $   (2,600,000)   $   5,098,740
                           ==============    ==============    ==============     =============     ============
</TABLE>


(a)  The Partnership's  $1,101,619 debt at December 31, 1996 is secured by three
     separate  properties.  For purposes of Schedule III, the  revolving  credit
     agreement has been allocated among the properties  based on their estimated
     relative market values.

(c)  For Federal income tax purposes,  the properties are depreciated over lives
     ranging from 5-39  years using ACRS or MACRS methods. The aggregate cost of
     real estate investments for Federal income tax purposes was $34,941,954 and
     accumulated depreciation was $5,878,982 at December 31, 1996.



                     See accompanying notes to Schedule III.

<PAGE>
                       McNEIL REAL ESTATE FUND XXVII, LTD.
                                  SCHEDULE III
              REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
                                December 31, 1996

<TABLE>
<CAPTION>
                                            Gross Amount at
                                     Which Carried at Close of Period                 Accumulated
                                                 Buildings and                         Depreciation
Description                      Land            Improvements          Total (b)      and Amortization
-----------                      ----            -------------         ---------     ------------------
<S>                           <C>                <C>              <C>                 <C>            
MINI-STORAGE WAREHOUSES:

AAA Century Airport
   Inglewood, CA              $      361,535     $    2,145,958   $      2,507,493    $     (543,658)

AAA Sentry
   N. Lauderdale, FL                  70,337            558,674            629,011          (162,724)

Burbank
   Burbank, CA                       830,043          2,505,647          3,335,690          (639,212)

Forest Hill
   West Palm Beach, FL               510,780          1,987,092          2,497,872          (509,267)

Fountainbleau
   Miami, FL                         287,114          1,232,975          1,520,089          (288,860)

Kendall Sunset
   Miami, FL (c)                     672,756          3,905,730          4,578,486          (979,692)

Margate
   Margate, FL                       233,575          1,340,085          1,573,660          (341,757)

Military Trial
   West Palm Beach, FL               571,715          1,833,280          2,404,995          (470,276)

OFFICE BUILDINGS:

One Corporate Center I
   Edina, MN (c)                     925,000          5,621,079          6,546,079        (2,199,151)

One Corporate Center III
   Edina, MN (c)                     925,000          6,045,365          6,970,365        (2,540,195)
                              --------------     --------------   ----------------     -------------
                             $     5,387,855    $    27,175,885  $      32,563,740    $   (8,674,792)
                              ==============     ==============   ================     =============
</TABLE>


(b)  The carrying  value of  One  Corporate  Center I and III Office   Buildings
     were each reduced by  $1,300,000 in  1991.

(c)  For Federal income tax purposes,  the properties are depreciated over lives
     ranging from 5-39 years using ACRS or MACRS methods. The aggregate cost  of
     real estate investments for Federal income tax purposes was $34,941,954 and
     accumulated depreciation was $5,878,982 at December 31, 1996.

                     See accompanying notes to Schedule III.

<PAGE>
                       McNEIL REAL ESTATE FUND XXVII, LTD.
                                  SCHEDULE III
              REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
                                December 31, 1996


<TABLE>
<CAPTION>

                                 Date of                    Date                Depreciable
Description                   Construction                Acquired              lives (years)
-----------                   ------------                --------              -------------
<S>                             <C>                         <C>                     <C> 
MINI-STORAGE WAREHOUSES:

AAA Century Airport
   Inglewood, CA                1987                        09/90                   5-25

AAA Sentry
   N. Lauderdale, FL            1987                        10/90                   5-25

Burbank
   Burbank, CA                  1987                        09/90                   5-25

Forest Hill
   West Palm Beach, FL          1985                        08/90                   5-25

Fountainbleau
   Miami, FL                    1987                        11/90                   5-25

Kendall Sunset
   Miami FL (c)                 1986                        10/90                   5-25

Margate
   Margate, FL                  1985                        10/90                   5-25

Military Trial
   West Palm Beach, FL          1986                        08/90                   5-25

OFFICE BUILDINGS:

One Corporate Center I
   Edina, MN (c)                1979                        12/89                   5-25

One Corporate Center III
   Edina, MN (c)                1980                        12/89                   5-25
</TABLE>


(c)  For Federal income tax purposes,  the properties are depreciated over lives
     ranging from 5-39  years using ACRS or MACRS methods. The aggregate cost of
     real estate investments for Federal income tax purposes was $34,941,954 and
     accumulated depreciation was $5,878,982 at December 31, 1996.


                     See accompanying notes to Schedule III.

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

                              Notes to Schedule III

      Real Estate Investments and Accumulated Depreciation and Amortization


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


<TABLE>
<CAPTION>
                                                            For the Years Ended December 31,
                                                   ----------------------------------------------------
                                                       1996               1995                1994
                                                   --------------     --------------    ---------------
<S>                                                <C>                <C>               <C>            
Real estate investments:

Balance at beginning of year...............        $   32,023,668     $   31,460,335    $    30,771,843

Improvements...............................               540,072            563,333            688,492
                                                    -------------      -------------     --------------

Balance at end of year.....................        $   32,563,740     $   32,023,668    $    31,460,335
                                                    =============      =============     ==============



Accumulated depreciation and amortization:

Balance at beginning of year...............        $    7,046,093     $    5,538,346    $     4,097,679

Depreciation and amortization..............             1,628,699          1,507,747          1,440,667
                                                    -------------      -------------     --------------

Balance at end of year.....................        $    8,674,792     $    7,046,093    $     5,538,346
                                                    =============      =============     ==============

</TABLE>


<PAGE>
                                    PART III


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

None.


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,              76       Mr.  McNeil  is also  Chairman   of  the
Chairman of the                         Board and Director of McNeil Real Estate
Board and Director                      Management,  Inc. ("McREMI") which is an
                                        affiliate of the General Partner. He has
                                        held the foregoing  positions  since the
                                        formation  of such  entity in 1990.  Mr.
                                        McNeil  received  his B.A.  degree  from
                                        Stanford  University  in  1942  and  his
                                        L.L.B.  degree from  Stanford Law School
                                        in 1948. He is a member of the State Bar
                                        of  California  and has been involved in
                                        real  estate  financing  since  the late
                                        1940's and in real estate  acquisitions,
                                        syndications  and   dispositions   since
                                        1960. From 1986 until active  operations
                                        of  McREMI  and  McNeil  Partners,  L.P.
                                        began in February 1991, Mr. McNeil was a
                                        private investor.  Mr. McNeil has been a
                                        member  of the  international  board  of
                                        directors of the Salk  Institute,  which
                                        promotes  research  in  improvements  in
                                        health care.

Carole J. McNeil               53       Mrs.  McNeil    is   Co-Chairman,   with
Co-Chairman of the                      husband  Robert  A.  McNeil,  of  McNeil
Board                                   Investors,  Inc. Mrs.  McNeil has twenty
                                        years of real  estate  experience,  most
                                        recently as a private investor from 1986
                                        to 1993.  In 1982,  she founded  Ivory &
                                        Associates,  a  commercial  real  estate
                                        brokerage  firm  in San  Francisco,  CA.
                                        Prior to that, she was a commercial real
                                        estate agent and analyst with Marcus and
                                        Millichap  in San  Francisco.  In  1978,
                                        Mrs.   McNeil   established  the  Escrow
                                        Training  Company,   California's  first
                                        accredited  commercial  training program
                                        for title  company  escrow  officers and
                                        real  estate  agents   needing   college
                                        credits   to   qualify   for   brokerage
                                        licenses.  She  began in real  estate as
                                        Manager and Marketing  Director of Title
                                        Insurance and Trust in Marin County, CA.
                                        Mrs. McNeil serves on the  international
                                        board   of   directors   of   the   Salk
                                        Institute.

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

Ron K. Taylor                  39       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.

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,  1996,  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, 1996. The  Partnership  has no plans to
pay any such remuneration to any directors or officers of the general partner of
the General Partner in the future.

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


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

     (A)   Security ownership of certain beneficial owners.

           No  individual  or group,  as  defined  by  Section  13(d)(3)  of the
           Securities  Exchange Act of 1934, was known by the Partnership to own
           more than 5% of the Units,  other than the General Partner,  as noted
           in (B) below, and High River Limited  Partnership  which owns 670,634
           Units at January 31, 1997 (approximately  12.806 % of the outstanding
           Units).  The business  address for High River Limited  Partnership is
           100 South Bedford Road, Mount Kisco, New York 10549.


<PAGE>
     (B)   Security ownership of management.

           The General  Partner and the  officers  and  directors of its general
           partner,  collectively own 659,834 limited  partnership  units, which
           represents approximately 12.6% of the outstanding limited partnership
           units as of January 31, 1997.

     (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 $30  per  gross  square  foot  for  mini-storage
warehouses and $50 per gross square foot for commercial  properties to arrive at
the property  tangible  asset value.  The property  tangible asset value is then
added to the book value of all other assets excluding  intangible items. The fee
percentage  decreases  subsequent to 1999. For the year ended December 31, 1996,
the Partnership paid or accrued $578,062 of such asset management fees.

Until March 13, 1991, the Original General Partner was entitled to receive,  out
of cash from operations,  a performance incentive fee equal to 20% of all points
received  by the  Partnership  on  mortgage  loans if the Unit  holders  receive
distributions of cash from operations  equal to a 10% cumulative  noncompounding
annual return on their original  capital  investment.  Such fees were cumulative
and were accrued in the years earned and are to be paid when conditions are met.
Conditions for payment have not yet been met and, at December 31, 1996, $141,647
of amounts  accrued in prior years are included in payable to  affiliates on the
Balance Sheets.

The  Partnership  pays property  management fees equal to 5% of the gross rental
receipts of mini-storage  properties (6% for commercial) 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, 1996,  the  Partnership  paid or accrued  $749,991 of such property
management  fees and  reimbursements.  See Item 7 - Management's  Discussion and
Analysis of Financial  Condition and Results of Operations and Item 8 - Note 2 -
"Transactions With Affiliates."

Under  the  terms of the  Amended  Partnership  Agreement,  the  Partnership  is
expressly  permitted to make loans to affiliates of the General Partner, so long
as such loans meet certain  conditions,  including that such loans bear interest
at a rate of  either  prime of Bank of  America  plus 2.5% or prime  plus  3.5%,
depending  on whether the  security  for such loans is first  priority or junior
priority.




<PAGE>
On May 1, 1992, the Partnership agreed to loan an aggregate of $1.115 million to
McNeil Pension  Investment  Fund,  Ltd.  ("McPIF"),  an affiliate of the General
Partner,  at an  interest  rate of prime  plus 1% per annum  (the  maximum  rate
allowed to be incurred by McPIF in connection  with  borrowings  from affiliates
pursuant to McPIF's partnership agreement).  A total of $483,364 was borrowed by
McPIF pursuant to this commitment. This loan is secured by a first lien on Brice
Road Office Building located in Reynoldsburg, Ohio. The original loan matured in
May  1995,  at which  time a new loan  under  substantially  the same  terms was
executed.  Interest on the loan is payable monthly.  Principal is payable in May
1998.

On October  25,  1996,  the  Partnership  agreed to loan an  aggregate  of $1.68
million to McPIF at an  interest  rate of prime  plus 1% per annum (the  maximum
rate  allowed  to be  incurred  by  McPIF in  connection  with  borrowings  from
affiliates  pursuant to McPIF's  partnership  agreement).  In 1996, $820,426 was
borrowed by McPIF pursuant to this  commitment.  This loan is secured by a first
lien on Verre Center Office Building located in Chamblee, Georgia. Interest   on
the loan is payable monthly. Principal is payable in November 1999.

On August 15, 1994, the Partnership agreed to loan an aggregate of $1 million to
McNeil Real Estate Fund X, Ltd. ("Fund X"), at an interest rate of prime plus 1%
per annum (the maximum rate allowed to be incurred by Fund X in connection  with
borrowings from affiliates pursuant to Fund X's partnership agreement). In 1994,
$800,000  was  borrowed  by Fund X  pursuant  to this  commitment.  This loan is
secured by a second lien on Lakeview Plaza Shopping Center located in Lexington,
Kentucky.  Interest on the loan is payable  monthly,  with principal  payable in
August 1997.

On  October  25,  1996,  the   Partnership   agreed  to  loan  an  aggregate  of
approximately  $2.589 million to McNeil Real Estate Fund XI, L.P. ("Fund XI") at
an  interest  rate of prime plus 1% per annum (the  maximum  rate  allowed to be
incurred by Fund XI in connection with  borrowings  from affiliates  pursuant to
Fund XI's partnership  agreement).  In 1996,  $2,588,970 was borrowed by Fund XI
pursuant to this commitment. This loan is secured by a first lien on The Village
Apartments located in Gresham, Oregon. Interest on the loan is payable monthly.
Principal is payable in November 1999.

On March 1, 1993, the Partnership  agreed to loan an aggregate of  approximately
$1.54  million at an interest rate of prime plus 2.5% to McNeil Real Estate Fund
XXVI, L.P. ("Fund XXVI"). A total of $952,538 was borrowed by Fund XXVI pursuant
to this commitment.  This loan was secured by a first lien on Continental  Plaza
Office Building located in Scottsdale, Arizona. Interest on the loan was payable
monthly,  with principal payable on the third anniversary date of issuance.  The
loan was paid in full in January 1996.

In order to induce the  Partnership  to lend funds to  affiliates of the General
Partner,  the General  Partner  entered  into  agreements  with the  Partnership
whereby  the  General  Partner  agreed to pay:  (i) the  difference  between the
interest rate required by the Partnership's  Amended Partnership Agreement to be
charged to  affiliates  (either  prime of Bank of America plus 2.5% or 3.5%) and
the interest rate actually paid by Fund X, Fund XI and McPIF to the  Partnership
(prime plus 1%),  and (ii) all points (1.5% of the  principal  amount if a first







<PAGE>
priority  security  interest is  obtained  and 2% of the  principal  amount if a
junior  priority  security  interest is  obtained),  closing  costs and expenses
required to be received by the Partnership pursuant to the Partnership's Amended
Partnership Agreement in connection with such affiliated financing arrangements.
In 1996, the General Partner paid $83,510 of interest, points, closing costs and
expenses  required to be  received by the  Partnership  on all  affiliate  loans
during  1996.  In  connection  with  these  loans,  all other  requirements  for
affiliated  loans,  as  specified  in  the  Partnership's   Amended  Partnership
Agreement, were met.



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

See accompanying Index to Financial Statements at Item 8.

(A)   Exhibits


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

      4.2                         Amended   and   Restated  Limited  Partnership
                                  Agreement  of McNeil  Real  Estate Fund XXVII,
                                  L.P. (incorporated by reference to the Current
                                  Report  of the  registrant  on Form 8-K  dated
                                  March 30, 1992, as filed on April 10, 1992).

      10.                         Mutual   Release   and   Settlement  Agreement
                                  between Southmark Storage  Associates  Limited
                                  Partnership and McNeil Real Estate Fund XXVII,
                                  L.P.   (incorporated   by   reference  to  the
                                  Quarterly  Report  of the  registrant  on form
                                  10-Q for the period ended March 31,  1995,  as
                                  filed on May 15, 1995).

      10.1                        Assignment  of  Partnership  Advances    dated
                                  March 13, 1991  between  Prime Plus Corp.  and
                                  McNeil Partners, L.P. (1)

      10.2                        Revolving  Credit  Agreement  dated  August 6,
                                  1991,   between  McNeil  Partners,   L.P.  and
                                  various selected  partnerships,  including the
                                  registrant  (incorporated  by reference to the
                                  Annual  Report of the  registrant on Form 10-K
                                  for the period ended  December  31,  1993,  as
                                  filed on March 30, 1994).

      10.5                        Property  Management Agreement dated March 30,
                                  1992,  between  McNeil Real Estate Fund XXVII,
                                  L.P. and McNeil Real Estate  Management,  Inc.
                                  (2)

      10.6                        Amendment   of Property  Management  Agreement
                                  dated  March 5, 1993,  by McNeil  Real  Estate
                                  Fund  XXVII,   L.P.  and  McNeil  Real  Estate
                                  Management, Inc. (2)


<PAGE>

      Exhibit
      Number                      Description
      -------                     -----------
      10.7                        Promissory   Note   dated   October  23, 1992,
                                  between  Community  Bank, N.A. and McNeil Real
                                  Estate Fund XXVII, L.P. (2)

      10.8                        Loan Agreement dated October 23, 1992, between
                                  Community  Bank,  N.A.  and McNeil Real Estate
                                  Fund XXVII, L.P. (2)

      10.9                        Guaranty   Agreement  dated  October 23, 1992,
                                  between  Community  Bank,  N.A.  and Robert A.
                                  McNeil. (2)

      10.10                       Revolving Credit Loan Agreement dated June 21,
                                  1995, between PNC Bank,  National  Association
                                  and McNeil Real Estate Fund XXVII, L.P. (3)

      10.11                       Consolidated,  Amended and Restated  Revolving
                                  Credit Note dated June 21,  1995,  between PNC
                                  Bank,  National  Association  and McNeil  Real
                                  Estate Fund XXVII, L.P.
                                  (3)

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

                  (1)             Incorporated by reference to the Annual Report
                                  of the  registrant on Form 10-K for the period
                                  ended December 31, 1990, as filed on March 29,
                                  1991.

                  (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.

                  (3)             Incorporated   by reference   to   the  Annual
                                  Report of the  registrant on Form 10-K for the
                                  period ended  December  31, 1995,  as filed on
                                  March 29, 1996.


(B)      Reports  on Form 8-K.  There  were no  reports on Form 8-K filed by the
         Partnership during the quarter ended December 31, 1996.


<PAGE>

                       McNEIL REAL ESTATE FUND XXVII, 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 XXVII, L.P.

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

                                   By: McNeil Investors, Inc., General Partner






March 28, 1997                      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 28, 1997                      By:  /s/  Ron K. Taylor
--------------                          ----------------------------------------
Date                                    Ron K. Taylor
                                        President and Director of McNeil
                                         Investors, Inc.
                                        (Principal Financial Officer)



March 28, 1997                      By:  /s/  Carol A. Fahs
--------------                          ----------------------------------------
Date                                    Carol A. Fahs
                                        Vice President of McNeil Investors, Inc.
                                        (Principal Accounting Officer)