MCNEIL REAL ESTATE FUND IX LTD, 10-Q, 1998-11-16

MCNEIL REAL ESTATE FUND IX LTD
10-Q, 1998-11-16
OPERATORS OF NONRESIDENTIAL BUILDINGS

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

FORM 10-Q

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

For the quarterly period ended September 30, 1998
------------------------------------------

[ ] 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 0-9026
----------

McNEIL REAL ESTATE FUND IX, LTD.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

California 94-2491437
- --------------------------------------------------------------------------------
(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
-----------------------------

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
--- ---

<PAGE>
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

McNEIL REAL ESTATE FUND IX, LTD.

BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
ASSETS
- ------

Real estate investments:
<S> <C> <C>
Land ......................................................... $ 6,074,303 $ 6,074,303
Buildings and improvements ................................... 78,016,893 76,812,085
------------ ------------
84,091,196 82,886,388
Less: Accumulated depreciation .............................. (52,393,350) (49,466,952)
------------ ------------
31,697,846 33,419,436

Asset held for sale ............................................. 3,122,242 3,009,553

Cash and cash equivalents ....................................... 3,148,305 3,330,836
Cash segregated for security deposits ........................... 622,986 622,602
Accounts receivable ............................................. 60,021 92,135
Prepaid expenses and other assets ............................... 140,313 181,856
Escrow deposits ................................................. 1,154,254 1,663,701
Deferred borrowing costs, net of accumulated
amortization of $1,152,947 and $1,144,486 at
September 30, 1998 and December 31, 1997,
respectively ................................................. 1,360,122 1,731,025
------------ ------------

$ 41,306,089 $ 44,051,144
============ ============

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

Mortgage notes payable, net ..................................... $ 49,362,167 $ 49,745,307
Accounts payable ................................................ -- 99,710
Accrued interest ................................................ 337,797 361,422
Accrued property taxes .......................................... 1,080,106 1,136,213
Other accrued expenses .......................................... 258,401 251,555
Payable to affiliates - General Partner ......................... 1,638,250 591,289
Security deposits and deferred rental revenue ................... 615,216 603,703
------------ ------------
53,291,937 52,789,199
------------ ------------
Partners' deficit:
Limited partners - 110,200 limited partnership units
authorized; 110,170 limited partnership units out-
standing at September 30, 1998 and December 31, 1997........ (7,876,950) (5,509,025)
General Partner .............................................. (4,108,898) (3,229,030)
------------ ------------
(11,985,848) (8,738,055)

$ 41,306,089 $ 44,051,144
============ ============
</TABLE>

The financial information included herein has been prepared by management
without audit by independent public accountants.

See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND IX, LTD.

STATEMENTS OF OPERATIONS
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
Revenue:
<S> <C> <C> <C> <C>
Rental revenue ..................... $ 5,207,861 $ 5,036,799 $ 15,408,397 $ 14,871,476
Interest on mortgage
note receivable .................. -- -- -- 15,500
Other interest ..................... 37,198 44,424 107,928 120,143
Gain on involuntary
conversion ....................... -- -- -- 417,024
------------ ------------ ------------ ------------
Total revenue .................... 5,245,059 5,081,223 15,516,325 15,424,143
------------ ------------ ------------ ------------

Expenses:
Interest ........................... 1,122,780 1,184,804 3,428,123 3,573,365
Depreciation ....................... 988,771 1,075,547 2,926,398 3,205,677
Property taxes ..................... 395,283 362,454 1,185,849 1,078,211
Personnel expense .................. 687,523 677,780 1,986,339 1,901,753
Repair and maintenance ............. 719,488 782,963 1,932,874 2,147,511
Property management
fees - affiliates ................ 256,983 249,934 764,601 740,691
Utilities .......................... 398,054 385,963 1,213,724 1,244,277
Other property operating
expenses ......................... 277,705 306,895 784,367 806,324
General and administrative ......... 161,874 42,451 583,234 134,084
General and administrative -
affiliates ....................... 122,086 108,609 377,073 335,237
------------ ------------ ------------ ------------
Total expenses ................... 5,130,547 5,177,400 15,182,582 15,167,130
------------ ------------ ------------ ------------
Net income (loss) before
extraordinary items ................ 114,512 (96,177) 333,743 257,013
------------ ------------ ------------ ------------
Extraordinary loss on
extinguishment of debt ............. (405,235) -- (405,235) --
------------ ------------ ------------ ------------

Net income (loss) ..................... $ (290,723) $ (96,177) $ (71,492) $ 257,013
============ ============ ============ ============

Net loss allocated to
limited partners ................... $ (276,186) $ (315,553) $ (67,917) $ (486,518)
Net income (loss) allocated to
General Partner .................... (14,537) 219,376 (3,575) 743,531
------------ ------------ ------------ ------------

Net income (loss) ..................... $ (290,723) $ (96,177) $ (71,492) $ 257,013
============ ============ ============ ============

Net loss per limited
partnership unit ................... $ (2.51) $ (2.87) $ (.62) $ (4.42)
============ ============ ============ ============

Distributions per limited
partnership unit ................... $ -- $ 4.54 $ 20.88 $ 24.96
============ ============ ============ ============
</TABLE>

The financial information included herein has been prepared by management
without audit by independent public accountants.

See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND IX, LTD.

STATEMENTS OF PARTNERS' DEFICIT
(Unaudited)

For the Nine Months Ended September 30, 1998 and 1997

<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
--------------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996 ............ $ (2,798,621) $ (3,029,682) $ (5,828,303)

Net income (loss) ....................... 743,531 (486,518) 257,013

Management Incentive Distribution........ (811,230) -- (811,230)

Distribution to limited partners ........ -- (2,749,992) (2,749,992)
-------------- ------------ ------------

Balance at September 30, 1997 ........... $ (2,866,320) $ (6,266,192) $ (9,132,512)
============== ============ ============

Balance at December 31, 1997 ............ $ (3,229,030) $ (5,509,025) $ (8,738,055)

Net loss ................................ (3,575) (67,917) (71,492)

Management Incentive Distribution ....... (876,293) -- (876,293)

Distribution to limited partners ........ -- (2,300,008) (2,300,008)
-------------- ------------ ------------

Balance at September 30, 1998 ........... $ (4,108,898) $ (7,876,950) $(11,985,848)
============== ============ ============
</TABLE>

The financial information included herein has been prepared by management
without audit by independent public accountants.

See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND IX, LTD.

STATEMENTS OF CASH FLOWS
(Unaudited)

Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1998 1997
------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from tenants ............................. $ 15,461,687 $ 14,898,716
Cash paid to suppliers ................................. (6,353,432) (6,250,288)
Cash paid to affiliates ................................ (971,006) (1,116,056)
Interest received ...................................... 107,928 135,643
Interest paid .......................................... (3,271,540) (3,372,995)
Property taxes paid and escrowed ....................... (940,983) (1,100,250)
------------ ------------
Net cash provided by operating activities ................. 4,032,654 3,194,770
------------ ------------

Cash flows from investing activities:
Additions to real estate investments ................... (1,317,497) (1,323,219)
Proceeds from mortgage note receivable ................. -- 1,550,000
Insurance proceeds for fire damage ..................... -- 494,547
------------ ------------
Net cash provided by (used in) investing activities........ (1,317,497) 721,328
------------ ------------

Cash flows from financing activities:
Net proceeds from refinancing mortgage
note payable ......................................... 198,107 --
Principal payments on mortgage notes
payable .............................................. (616,570) (670,128)
Additions to deferred borrowing costs .................. (179,217) --
Management Incentive Distribution ...................... -- (903,815)
Distributions to limited partners ...................... (2,300,008) (2,749,992)
------------ ------------
Net cash used in financing activities ..................... (2,897,688) (4,323,935)
------------ ------------

Decrease in cash and cash equivalents ..................... (182,531) (407,837)

Cash and cash equivalents at beginning of
period ................................................. 3,330,836 3,001,521
------------ ------------

Cash and cash equivalents at end of period ................ $ 3,148,305 $ 2,593,684
============ ============
</TABLE>

The financial information included herein has been prepared by management
without audit by independent public accountants.

See accompanying notes to financial statements.

<PAGE>
McNEIL REAL ESTATE FUND IX, LTD.

STATEMENTS OF CASH FLOWS
(Unaudited)

Reconciliation of Net Income (Loss) to Net Cash Provided by
Operating Activities

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1998 1997
------------ -----------
<S> <C> <C>
Net income (loss) ............................................ $ (71,492) $ 257,013
----------- -----------

Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation .............................................. 2,926,398 3,205,677
Amortization of deferred borrowing costs .................. 144,885 172,073
Amortization of mortgage discounts ........................ 35,323 33,713
Gain on involuntary conversion ............................ -- (417,024)
Extraordinary loss on extinguishment of debt .............. 405,235 --
Changes in assets and liabilities:
Cash segregated for security deposits ................... (384) (31,998)
Accounts receivable ..................................... 32,114 8,580
Insurance proceeds receivable ........................... -- (2,198)
Prepaid expenses and other assets ....................... 41,543 80,737
Escrow deposits ......................................... 509,447 (249,119)
Accounts payable ........................................ (99,710) --
Accrued interest ........................................ (23,625) (5,416)
Accrued property taxes .................................. (56,107) 185,929
Other accrued expenses .................................. 6,846 (52,916)
Payable to affiliates - General Partner ................. 170,668 (40,128)
Security deposits and deferred rental
revenue ............................................... 11,513 49,847
----------- -----------
Total adjustments ..................................... 4,104,146 2,937,757
----------- -----------

Net cash provided by operating activities .................... $ 4,032,654 $ 3,194,770
=========== ===========

</TABLE>

The financial information included herein has been prepared by management
without audit by independent public accountants.

See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND IX, LTD.

Notes to Financial Statements
(Unaudited)

September 30, 1998

NOTE 1.
- -------

McNeil Real Estate Fund IX, Ltd. (the "Partnership") is a limited partnership
organized under the laws of the State of California to invest in real property.
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 Partnership is governed by an amended and restated limited
partnership agreement ("Amended Partnership Agreement") that was adopted
September 20, 1991. The principal place of business for the Partnership and the
General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.

In the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the Partnership's financial position and
results of operations. All adjustments were of a normal recurring nature.
However, the results of operations for the nine months ended September 30, 1998
are not necessarily indicative of the results to be expected for the year ending
December 31, 1998.

NOTE 2.
- -------

The financial statements should be read in conjunction with the financial
statements contained in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1997, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Real Estate Fund IX, Ltd., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.

NOTE 3.
- -------

The Partnership pays property management fees equal to 5% of the gross rental
receipts of the Partnership's properties to McNeil Real Estate Management, Inc.
("McREMI"), an affiliate of the General Partner, for providing property
management and leasing services for the Partnership's properties.

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

Under terms of the Amended Partnership Agreement, the Partnership is paying a
Management Incentive Distribution ("MID") to the General Partner. The maximum
MID is calculated as 1% of the tangible asset value of the Partnership. The
maximum MID percentage decreases subsequent to 1999. Tangible asset value is
determined by using the greater of (i) an amount calculated by applying a
capitalization rate of 9% to the annualized net operating income of each
property or (ii) a value of $10,000 per apartment unit 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.

<PAGE>
MID will be paid to the extent of the lesser of the Partnership's excess cash
flow, as defined, or net operating income, as defined, and may be paid (i) in
cash, unless there is insufficient cash to pay the distribution in which event
any unpaid portion not taken in Units will be deferred and is payable, without
interest, from the first available cash and/or (ii) in Units. A maximum of 50%
of the MID may be paid in Units. The number of Units issued in payment of the
MID is based on the greater of $50 per Unit or the net tangible asset value, as
defined, per Unit.

Any amount of the MID that is paid to the General Partner in Units will be
treated as if cash is distributed to the General Partner and is then contributed
to the Partnership by the General Partner. The MID represents a return of equity
to the General Partner for increasing cash flow, as defined, and accordingly is
treated as a distribution.

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

Nine Months Ended
September 30,
-------------------------
1998 1997
---------- ----------

Property management fees - affiliates ......... $ 764,601 $ 740,691
Charged to general and administrative -
affiliates:
Partnership administration .................. 377,073 335,237
---------- ----------

$1,141,674 $1,075,928
========== ==========

Charged to General Partner's deficit:
Management Incentive Distribution ........... $ 876,293 $ 811,230
========== ==========

NOTE 4.
- -------

On March 20, 1998, the Partnership refinanced the Forest Park Village mortgage
note. The new mortgage note, in the amount of $5,925,000, bears interest at a
variable rate equal to 1.75% plus the London Interbank Offered Rate per annum.
The new mortgage note requires monthly interest-only payments and quarterly
principal payments in an amount necessary to reduce the principal balance of the
note by 5% annually. The maturity date of the new mortgage note is March 20,
2001. Cash proceeds from the refinancing transaction are as follows:

New mortgage note proceeds........................... $ 5,925,000
Amount required to payoff existing debt.............. (5,830,964)
-----------

Cash proceeds from refinancing....................... $ 94,036
===========

The Partnership incurred $75,479 of deferred borrowing costs related to the
refinancing of the Forest Park Village mortgage note.

<PAGE>
NOTE 5.
- -------

On August 31, 1998, the Partnership refinanced the Rolling Hills mortgage note.
The new mortgage note, in the amount of $6,650,000, bears interest at a variable
rate equal to 1.75% plus the London Interbank Offered Rate per annum. The new
mortgage note requires monthly interest-only payments and quarterly principal
payments in an amount necessary to reduce the principal balance of the note by
5% annually. The maturity date of the new mortgage note is September 1, 2001.
Cash proceeds from the refinancing transaction are as follows:

New mortgage note proceeds........................... $ 6,650,000
Amount required to payoff existing debt.............. (6,545,929)
------------

Cash proceeds from refinancing....................... $ 104,071
============

The Partnership incurred $74,203 of deferred borrowing costs related to the
refinancing of the Rolling Hills mortgage note.

In connection with the refinancing of the Rolling Hills mortgage note, the
Partnership wrote off $405,235 of deferred borrowing costs related to the prior
mortgage note. The write off of deferred borrowing costs resulted in a $405,235
extraordinary loss shown on the accompanying Statement of Operations.

NOTE 6.
- -------

On September 1, 1998, the Partnership and the holder of the Sheraton Hills
mortgage note agreed to modify the terms of the Sheraton Hills mortgage note.
The mortgage note's interest rate was changed from a variable rate to a 6.9%
fixed rate. The maturity date of the mortgage note was extended until November
1, 2001. The Partnership incurred $29,535 of deferred borrowing costs related to
the modification of the Sheraton Hills mortgage note.

NOTE 7.
- -------

On July 30, 1996, the Partnership sold Westridge Apartments to an unaffiliated
purchaser for a cash sales price of $2,110,500. The Partnership financed a
portion of the sales price by accepting a short-term, $1,550,000 mortgage note.
The mortgage note accrued interest at 10.0% per annum and required monthly
interest-only payments. On February 5, 1997, the purchaser repaid the $1,550,000
mortgage note to the Partnership together with all accrued interest thereon.
Interest revenue earned on the Westridge mortgage note is included in interest
on the accompanying financial statements.

NOTE 8.
- -------

On April 24, 1996, a fire damaged 12 units at Sheraton Hills Apartments. The
cost to repair the fire damage was $562,560, of which, the Partnership received
$546,069 in insurance reimbursements. The Partnership recognized a $474,376 gain
on involuntary conversion equal to the insurance proceeds received less the
adjusted basis of the property damaged by the fire. $417,024 of the gain on
involuntary conversion was recognized during the second quarter of 1997 when the
Partnership received the bulk of the insurance proceeds. The remainder of the
gain was recognized in the fourth quarter of 1997.
<PAGE>
NOTE 9.
- -------

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

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

Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. The case was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing on final Court
approval is scheduled for December 17, 1998.

Plaintiff's counsel intend to seek an order awarding attorney's fees and
reimbursements of their out-of-pocket expenses. The amount of such award is
undeterminable until final approval is received from the court. Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis, based
upon tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------

The Partnership was formed to acquire, operate and ultimately dispose of a
portfolio of income-producing real properties. At September 30, 1998, the
Partnership owned 13 apartment properties. All of the Partnership's properties
are subject to mortgage notes.

In March 1998, the Partnership distributed $2,300,008 ($20.88 per limited
partnership unit) to the limited partners. The distribution was funded from
operations and cash reserves of the Partnership.

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

The Partnership reported a net loss of $290,723 for the three month period ended
September 30, 1998, as compared to a net loss of $96,177 for the same period of
1997. For the nine month period ended September 30, 1998, the Partnership's net
loss amounted to $71,492 as compared to net income of $257,013 for the same
period of 1997. However, the nine month period ended September 30, 1997 included
a $417,024 gain on involuntary conversion, while the nine month period ended
September 30, 1998 included a $405,235 extraordinary loss on extinguishment of
debt. Excluding the gain and the extraordinary loss, the Partnership's income
increased $210,689 and $493,754 for the three month and nine month periods ended
September 30, 1998 as compared to the same periods of 1997.

Revenue:

Rental revenue increased 3.4% and 3.6% for the three month and nine month
periods ended September 30, 1998 as compared to the same periods of 1997. Rental
revenues increased at eleven of the Partnership's thirteen properties. The
largest increases in rental revenues were reported by Forest Park Village
Apartments, Pennbrook Apartments, Rockborough Apartments and Ruskin Place
Apartments. These properties achieved increased rental revenue ranging from 4.8%
to 7.1% through improved rental and occupancy rates. Cherry Hills Apartments
reported rental revenue that was unchanged for 1998 as compared to 1997. Rental
revenue at Lantern Tree Apartments decreased 1.8% due to increased vacancy
losses. The rest of the Partnership's properties also reported increased vacancy
and other rental losses, but were also able to increase base rental rates
sufficiently to report increases in rental revenue ranging between 1.9% and
3.7%.

Interest income decreased 16.3% and 20.4% for the three month and nine month
periods ended September 30, 1998 as compared to the same periods of 1997.
Included in interest revenue for 1997 was $15,500 of interest on the Westridge
mortgage note receivable. The Westridge mortgage note receivable was repaid in
full on February 5, 1997. The Partnership also had decreased amounts of cash and
cash equivalents invested in interest bearing accounts in 1998 as compared to
1997.

The Partnership reported a $417,024 gain on involuntary conversion during the
second quarter of 1997. No such transaction occurred during 1998.

<PAGE>
Expenses:

Partnership expenses decreased $46,853 or 0.9% and increased $15,452 or 0.1% for
the three month and nine month periods ended September 30, 1998, respectively,
as compared to the same periods of 1997. Decreases in repair and maintenance
expenses and depreciation were offset by increases in property taxes, general
and administrative expenses, and general and administrative expenses paid to
affiliates.

Repair and maintenance expense decreased 8.1% and 10.0% for the three month and
nine month periods ended September 30, 1998, respectively, as compared to the
same periods of 1997. The decrease is attributable to the replacement of carpet
and appliances, which met the Partnership's criteria for capitalization in 1998
but were expensed in 1997. In addition, because Cherry Hills Apartments no
longer rents apartment units to corporate clients, furniture rental expense
decreased $61,295.

Depreciation expense decreased 8.1% and 8.7% for the three month and nine month
periods ended September 30, 1998, respectively, as compared to the same periods
of 1997. In accordance with accounting standards, the Partnership ceased
depreciating its investment in Sheraton Hills Apartments beginning August 1,
1997, the date the Partnership placed that property on the market for sale.

Property tax expense increased 9.1% and 10.0% for the three month and nine month
periods ended September 30, 1998, respectively, as compared to the same periods
of 1997. Local taxing jurisdictions have increased the assessed property values
of Berkley Hills Apartments, Heather Square Apartments, Rockborough Apartments,
Ruskin Place Apartments, and Sheraton Hills Apartments.

General and administrative expenses increased $119,423 to $161,874 and $449,150
to $583,234 for the three month and nine month periods ended September 30, 1998.
The Partnership incurred significant costs in 1998 to explore alternatives to
maximize the value of the Partnership (see Liquidity and Capital Resources). The
increase was partially offset by decreases attributable to costs incurred for
investor services. During 1997, charges for investor services were provided by a
third party vendor and were recorded in general and administrative expenses.
Beginning in 1998, investor services have been provided by affiliates of the
General Partner. As a consequence, general and administrative expenses paid to
affiliates increased $41,836 or 12.5% for the nine months ended September 30,
1998 as compared to the nine months ended September 30, 1997.

In connection with the recent refinancing of the Rolling Hills mortgage note,
the Partnership wrote off $405,235 of unamortized deferred borrowing costs
associated with the prior Rolling Hills mortgage note. The write off resulted in
a $405,235 extraordinary loss.

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

Cash provided by operating activities increased 26% to $4,032,654 for the nine
months ended September 30, 1998 as compared to the nine months ended September
30, 1997. Increased cash received from tenants and decreases in property taxes
paid and cash paid to affiliates accounted for most of the increase in cash
provided by operating activities.

<PAGE>
The Partnership expended $1,317,497 for capital improvements during the period
ended September 30, 1998, comparable to the amount invested in 1997. Budgeted
capital improvements for 1998 total $1,579,000. The General Partner believes
these capital improvements are necessary to allow the Partnership to increase
its rental revenues in the competitive markets in which the Partnership's
properties operate. These expenditures also allow the Partnership to reduce
future repair and maintenance expenses from amounts that would otherwise be
incurred.

During the first nine months of 1998, the Partnership refinanced the Forest Park
Village mortgage note and the Rolling Hills mortgage note. The new mortgage
notes both bear interest at a variable rate equal to 1.75% plus the London
Interbank Offered Rate per annum. Both mortgage notes have three year terms.
Proceeds from the refinancing transactions amounted to only $198,107, of which
$149,682 was used to fund various deferred borrowing costs related to the new
mortgages.

On September 1, 1998, the Partnership and the holder of the Sheraton Hills
mortgage note agreed to modify the Sheraton Hills mortgage note. Terms of the
modification changed the interest rate from a variable rate to a fixed rate
equal to 6.9% per annum. More importantly, the modification extended the
maturity date of the mortgage note to November 1, 2001. The Partnership incurred
$29,535 of deferred borrowing costs related to the modification of the Sheraton
Hills mortgage note.

The Partnership used its cash flows from operations to distribute $2,300,008 to
the limited partners in March 1998. The distribution amounted to $20.88 per
limited partnership unit.

Short-term liquidity:

At September 30, 1998, the Partnership held $3,148,305 of cash and cash
equivalents, down $182,531 from the balance at the beginning of 1998. The
General Partner anticipates that cash generated from operations for the
remainder of 1998 will be sufficient to fund the Partnership's budgeted capital
improvements and to repay the current portion of the Partnership's mortgage
notes. The General Partner considers the Partnership's cash reserves adequate
for anticipated operations for the remainder of 1998.

As a result of the mortgage note modification and refinancing transactions
discussed above, the Partnership's next maturing mortgage note is not until
February 2000.

Long-term liquidity:

For the long term, property operations will remain the primary source of funds.
In this regard, the General Partner expects that the capital improvements made
by the Partnership during the past three years will yield improved cash flow
from property operations in 1998. Furthermore, the General Partner has budgeted
approximately $262,000 of additional capital improvements for the remainder of
1998.

<PAGE>
While the present outlook for the Partnership's liquidity is favorable, market
conditions may change and property operations can deteriorate. In that event,
the Partnership would require other sources of working capital. No such other
sources have been identified, and the Partnership has no established lines of
credit. Other possible actions to resolve working capital deficiencies include
refinancing or renegotiating terms of existing loans, deferring major capital
expenditures on Partnership properties except where improvements are expected to
enhance the competitiveness or marketability of the properties, or arranging
working capital support from affiliates. No affiliate support has been required
in the past, and there is no assurance that support from affiliates would be
provided in the future, since neither the General Partner nor any affiliates
have any obligation in this regard.

As previously announced, the Partnership has retained PaineWebber, Incorporated
("PaineWebber") as its exclusive financial advisor to explore alternatives to
maximize the value of the Partnership including, without limitation, a
transaction in which limited partnership interests in the Partnership are
converted into cash. The Partnership, through PaineWebber, has provided
financial and other information to interested parties and is currently
conducting discussions with one such party in an attempt to reach a definitive
agreement with respect to a sale transaction. It is possible that the General
Partner and its affiliates will receive non-cash consideration for their
ownership interests in connection with any such transaction. There can be no
assurance that any such agreement will be reached nor the terms thereof.

Income Allocations and Distributions:

Terms of the Amended Partnership Agreement specify that income before
depreciation is allocated to the General Partner to the extent of MID paid in
cash. Depreciation is allocated in the ratio of 95:5 to the limited partners and
the General Partner, respectively. Therefore, for the nine month periods ended
September 30, 1998 and 1997, the Partnership allocated net loss of $67,917 and
$486,518, respectively, to the limited partners. The Partnership allocated net
loss of $3,575 and net income of $743,531 to the General Partner for the nine
month periods ended September 30, 1998 and 1997, respectively.

During 1997, the Partnership distributed $2,749,991 to the limited partners.
Approximately $2,042,000 of the 1997 distributions represents proceeds from the
1996 sale of Westridge Apartments. On March 30, 1998, the Partnership
distributed $2,300,008 ($20.88 per limited partnership unit) to the limited
partners from the Partnership's cash reserves. In light of the discussions
relating to a sale transaction as disclosed, the Partnership is presently
deferring any decision with respect to the amount or timing of distributions to
limited partners.

For the first nine months of 1998, the Partnership recorded MID of $876,293.
However, the Partnership has not paid MID to the General Partner in 1998. The
balance of accrued MID outstanding totaled $1,230,464 at September 30, 1998.

<PAGE>
Forward-Looking Information:

Within this document, certain statements are made as to the expected occupancy
trends, financial condition, results of operations, and cash flows of the
Partnership for periods after September 30, 1998. All of these statements are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
historical and involve risks and uncertainties. The Partnership's actual
occupancy trends, financial condition, results of operations, and cash flows for
future periods may differ materially due to several factors. These factors
include, but are not limited to, the Partnership's ability to control costs,
make necessary capital improvements, negotiate sales or refinancings of its
properties, and respond to changing economic and competitive factors.

Other Information:

Management has reviewed its information technology infrastructure to identify
any systems that could be affected by the year 2000 problem. The year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. Any programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in major systems failure or miscalculations. The
information systems used by the Partnership for financial reporting and
significant accounting functions were made year 2000 compliant during recent
systems conversions.

Management is in the process of evaluating the mechanical and embedded
technological systems at the various properties. Management intends to inventory
all such systems and query suppliers, vendors and manufacturers to determine
year 2000 compliance. In circumstances of non-compliance management will work
with the vendor to remedy the problem or seek alternative suppliers who will be
in compliance. Management believes that the remediation of any outstanding year
2000 conversion issues will not have a material or adverse effect on the
Partnership's operations. However, no estimates can be made as to the potential
adverse impact resulting from the failure of third party service providers and
vendors to be year 2000 compliant. Management is in the process of identifying
those risks as well as developing a contingency plan to mitigate potential
adverse effects from non-compliance.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------

James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil,
Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd.,
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate
Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., et al. - Superior Court of
the State of California for the County of Los Angeles, Case No. BC133799 (Class
and Derivative Action Complaint).
<PAGE>
The action involves purported class and derivative actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their fiduciary duties and certain obligations under the respective Amended
Partnership Agreement. Plaintiffs allege that Defendants have rendered such
Units highly illiquid and artificially depressed the prices that are available
for Units on the resale market. Plaintiffs also allege that Defendants engaged
in a course of conduct to prevent the acquisition of Units by an affiliate of
Carl Icahn by disseminating purportedly false, misleading and inadequate
information. Plaintiffs further allege that Defendants acted to advance their
own personal interests at the expense of the Partnerships' public unit holders
by failing to sell Partnership properties and failing to make distributions to
unitholders.

<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------

(a) Exhibits.

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

4. Amended and Restated Partnership Agreement, dated
November 12, 1991. (Incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1991).

11. Statement regarding computation of net loss per
limited partnership unit: Net loss per limited
partnership unit is computed by dividing net loss
allocated to the limited partners by the number of
limited partnership units outstanding. Per unit
information has been computed based on 110,170
limited partnership units outstanding in 1998 and
1997.

27. Financial Data Schedule for the quarter ended
September 30, 1998.

(b) Reports on Form 8-K. There were no reports on Form 8-K filed during the
quarter ended September 30, 1998.

<PAGE>

McNEIL REAL ESTATE FUND IX, LTD.

SIGNATURES

Pursuant to the requirements 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 IX, Ltd.

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

By: McNeil Investors, Inc., General Partner

November 16, 1998 By: /s/ Ron K. Taylor
- ----------------- -------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)

November 16, 1998 By: /s/ Brandon K. Flaming
- ----------------- -------------------------------------------
Date Brandon K. Flaming
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,148,305
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 84,091,196
<DEPRECIATION> (52,393,350)
<TOTAL-ASSETS> 41,306,089
<CURRENT-LIABILITIES> 0
<BONDS> 49,362,167
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 41,306,089
<SALES> 15,408,397
<TOTAL-REVENUES> 15,516,325
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,754,459
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,428,123
<INCOME-PRETAX> 333,743
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (405,235)
<CHANGES> 0
<NET-INCOME> (71,492)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>