MCNEIL REAL ESTATE FUND XXI L P, 10-K405, 1998-03-31

MCNEIL REAL ESTATE FUND XXI L P
10-K405, 1998-03-31
REAL ESTATE

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

FORM 10-K405

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

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

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

For the transition period from ______________ to_____________

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

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

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

All of the Registrant's 47,086 outstanding limited partnership units are held by
non-affiliates. The aggregate market value of units held by non-affiliates is
not determinable since there is no public trading market for limited partnership
units and transfers of units are subject to certain restrictions.

Documents Incorporated by Reference: See Item 14, Page 41

TOTAL OF 43 PAGES

<PAGE>
PART I

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

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

McNeil Real Estate Fund XXI, L.P., (the "Partnership"), formerly known as
Southmark Realty Partners, Ltd., was organized on November 23, 1983 as a limited
partnership under the provisions of the California Revised Limited Partnership
Act to acquire and operate commercial and residential properties. The general
partner of the Partnership is McNeil Partners, L.P. (the "General Partner") a
Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The
General Partner was elected at a meeting of limited partners on March 26, 1992,
at which time an amended and restated partnership agreement (the "Amended
Partnership Agreement") was adopted. Prior to March 26, 1992, the general
partner of the Partnership was Southmark Partners, Ltd. (the "Original General
Partner"), a Texas limited partnership of which the general partner is Southmark
Investment Group, Inc., a wholly-owned subsidiary of Southmark Corporation
("Southmark"). The principal place of business for the Partnership and the
General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240.

On February 3, 1984, the Partnership registered with the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933 (File No. 2-88171) and
commenced a public offering for sale of $50,000,000 of limited partnership
units. There were two classes of limited partnership units offered, designated
as Current Income Units and Growth/Shelter Units, (referred to collectively as
"Units"). The Units represent equity interests in the Partnership and entitle
the holders thereof to participate in certain allocations and distributions of
the Partnership. The sale of Units closed on February 2, 1985 with 47,382 Units
(24,982 Current Income Units and 22,400 Growth/Shelter Units) sold at $1,000
each, or gross proceeds of $47,382,000 to the Partnership. The Partnership
subsequently filed a Form 8-A Registration Statement with the SEC and registered
its Units under the Securities Exchange Act of 1934 (File No. 0-13356). In 1994,
1995 and 1996, a total of 33 Current Income Units and 61 Growth/Shelter Units
were relinquished. During 1997, 43 Current Income Units and 159 Growth/Shelter
Units were relinquished leaving 47,086 Units (24,906 Current Income Units and
22,180 Growth/Shelter Units) outstanding at December 31, 1997.

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

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

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

<PAGE>
On February 14, 1991, pursuant to the asset purchase agreement as amended on
that date, McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of
McNeil, acquired the assets relating to the property management and partnership
administrative business of Southmark and its affiliates and commenced management
of the Partnership's properties pursuant to an assignment of the existing
property management agreements from the Southmark affiliates.

On March 26, 1992, the limited partners approved a restructuring proposal that
provided for (i) the replacement of the Original General Partner with a new
general partner, the General Partner; (ii) the adoption of the Amended
Partnership Agreement which substantially alters the provisions of the original
partnership agreement relating to, among other things, compensation,
reimbursement of expenses and voting rights; (iii) the approval of an amended
property management agreement with McREMI, the Partnership's property manager;
and (iv) the approval to change the Partnership's name to McNeil Real Estate
Fund XXI, L.P. Under the Amended Partnership Agreement, the Partnership began
accruing an asset management fee, retroactive to February 14, 1991, which is
payable to the General Partner. For a discussion of the methodology for
calculating the asset management fee, see Item 13 - Certain Relationships and
Related Transactions. The proposals approved at the March 26, 1992 meeting were
implemented as of that date.

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

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

General:

The Partnership is engaged in diversified real estate activities, including the
ownership, operation and management of residential, commercial office, and
retail real estate. As described in Item 2 - Properties, at December 31, 1997,
the Partnership owned seven revenue-producing properties.

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

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

Business Plan:

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

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

Competitive Conditions:

Since the principal business of the Partnership is to own and operate real
estate, the Partnership is subject to all of the risks incident to ownership of
real estate and interests therein, many of which relate to the illiquidity of
this type of investment. These risks include changes in general or local
economic conditions, changes in supply or demand for competing properties in an
area, changes in interest rates and availability of permanent mortgage funds
which may render the sale or refinancing of a property difficult or
unattractive, changes in real estate and zoning laws, increases in real property
tax rates and Federal or local economic or rent controls. The illiquidity of
real estate investments generally impairs the ability of the Partnership to
respond promptly to changed circumstances. The Partnership competes with
numerous established companies, private investors (including foreign investors),
real estate investment trusts, limited partnerships and other entities (many of
which have greater resources than the Partnership) in connection with the sale,
financing and leasing of properties. The impact of these risks on the
Partnership, including losses from operations and foreclosures of the
Partnership's properties, is described in Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations. For a detailed
discussion of the competitive conditions for the Partnership's properties see
Item 2 - Properties.

Forward-Looking Information:

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

<PAGE>
Environmental Matters:

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

Other Information:

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

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

The following table sets forth the investment portfolio of the Partnership at
December 31, 1997. All of the buildings and the land on which they are located
are owned by the Partnership in fee and are subject to a first lien deed of
trust. Certain of the properties are also subject to one or more junior
mortgages as described more fully in Item 8 - Note 5 - "Mortgage Notes Payable"
and Note 6 - "Mortgage Notes Payable - Affiliate." See also Item 8 - Note 4 -
"Real Estate Investments" and Schedule III - "Real Estate Investments and
Accumulated Depreciation and Amortization." In the opinion of management, the
properties are adequately covered by insurance.

<TABLE>
<CAPTION>
Net Basis of 1997 Date
Property Description Property Debt Property Tax Acquired
- -------- ----------- ------------ ---- ------------ --------
Real Estate Investments:
<S> <C> <C> <C> <C> <C>
Bedford Green (1) Apartments
Bedford, OH 156 units $ 2,129,408 $ 3,238,088 $ 94,193 6/84

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

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

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

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

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

Asset Held for Sale:

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

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

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

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

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

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

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

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

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

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

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

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

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

Asset Held for Sale:

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

Occupancy rate represents all units leased divided by the total number of units
for residential properties and square footage leased divided by total square
footage for commercial properties as of December 31 of the given year. Rent per
square foot represents all revenue, except interest, derived from the property's
operations divided by the leasable square footage of the property.

Competitive Conditions
- ----------------------

Real Estate Investments:

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

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

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

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

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

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

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

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

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

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

Woodcreek
- ---------

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

Asset Held for Sale:

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

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

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

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

Wise County Plaza
1998 8 14,387 $ 110,136 14%
1999 5 12,035 66,766 8%
2000 3 5,517 38,302 5%
2001 4 37,904 283,468 36%
2002-2003 - - - -
2004 1 36,893 55,340 7%
2005-2007 - - - -
</TABLE>

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

<TABLE>
<CAPTION>
Nature of
Business Square Footage Lease
Use Leased Annual Rent Expiration
- --------- -------------- ----------- -----------
<S> <C> <C> <C>
Fort Meigs Plaza
Variety Store 30,000 $ 64,500 1999
Grocery Store 32,470 222,420 2001

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

</TABLE>

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

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

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

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

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

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

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

None.

<PAGE>
PART II

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

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

(B) Title of Class Number of Record Unit Holders

Limited partnership units 3,932 as of January 31, 1998

(C) No distributions were paid to the partners in 1997 or 1996 and none are
anticipated in 1998. The General Partner will continue to monitor the
cash reserves and working capital needs of the Partnership to determine
when cash flows will support distributions to the Unit holders. See
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations, and Item 8 - Note 1 - "Organization and Summary
of Significant Accounting Policies - Distributions."

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

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

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

Net income (loss) per
limited partnership unit:

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

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

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

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

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

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

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

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

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

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

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

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

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

Short-term liquidity:

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

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

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

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

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

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

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

The advances are unsecured, due on demand and accrue interest at the prime
lending rate of Bank of America plus 1%. The prime lending rate was 8.50% and
8.25% at December 31, 1997 and 1996, respectively.

Long-term liquidity:

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

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

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

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

<PAGE>
Distributions

To maintain adequate cash balances of the Partnership, distributions to Current
Income Unit holders were suspended in 1989. There have been no distributions to
Growth/Shelter Units holders. Distributions to Unit holders will remain
suspended for the foreseeable future. The General Partner will continue to
monitor the cash reserves and working capital needs of the Partnership to
determine when cash flows will support distributions to the Unit holders.

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

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

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

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

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

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

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

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

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

1997 compared to 1996

Revenue:

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

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

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

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

Expenses:

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

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

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

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

<PAGE>
1996 compared to 1995

Revenue:

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

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

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

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

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

Expenses:

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

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

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

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

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

<PAGE>

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

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

Financial Statements:

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

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

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

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

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

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

Financial Statement Schedule -

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

</TABLE>

All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of McNeil Real Estate Fund XXI, L.P.:

We have audited the accompanying balance sheets of McNeil Real Estate Fund XXI,
L.P. (a California limited partnership) as of December 31, 1997 and 1996, and
the related statements of operations, partners' deficit and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements and the schedule referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of McNeil Real Estate Fund XXI,
L.P. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

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

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

/s/ Arthur Andersen LLP

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

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

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

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

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

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

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

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

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

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

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

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

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

Net income (loss) per limited partnership unit:

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

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

See accompanying notes to financial statements.
<PAGE>

McNEIL REAL ESTATE FUND XXI, L.P.

STATEMENTS OF PARTNERS' DEFICIT

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

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

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

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

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

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

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

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

STATEMENTS OF CASH FLOWS

Increase (Decrease) in Cash and Cash Equivalents

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

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

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

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

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

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

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

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

STATEMENTS OF CASH FLOWS

Reconciliation of Net Loss to Net Cash Provided by
Operating Activities

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

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

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

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

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1997

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

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

McNeil Real Estate Fund XXI, L.P., (the "Partnership"), formerly known as
Southmark Realty Partners, Ltd., was organized on November 23, 1983 as a limited
partnership under the provisions of the California Revised Limited Partnership
Act to acquire and operate commercial and residential properties. The general
partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a
Delaware limited partnership, an affiliate of Robert A. McNeil. The General
Partner was elected at a meeting of limited partners on March 26, 1992, at which
time an amended and restated partnership agreement (the "Amended Partnership
Agreement") was adopted. Prior to March 26, 1992, the general partner of the
Partnership was Southmark Partners, Ltd. (the "Original General Partner"), a
Texas limited partnership of which the general partner is Southmark Investment
Group, Inc., a wholly-owned subsidiary of Southmark Corporation. The principal
place of business for the Partnership and the General Partner is 13760 Noel
Road, Suite 600, LB70, Dallas, Texas, 75240.

The Partnership is engaged in diversified real estate activities, including the
ownership, operation and management of residential, commercial office, and
retail real estate. As described in Note 4 - "Real Estate Investments," at
December 31, 1997, the Partnership owned seven revenue-producing properties.

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>
Depreciation and Amortization
- -----------------------------

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

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

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

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

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

Prepaid Commissions
- -------------------

Leasing commissions incurred to obtain leases on commercial properties are
capitalized and amortized using the straight-line method over the term of the
related lease and are included in prepaid expenses and other assets on the
Balance Sheets.

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

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

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

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

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

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

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

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

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

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

The Amended Partnership Agreement generally provides that net income (other than
net income arising from sales or refinancing) shall be allocated one percent
(1%) to the General Partner and ninety-nine percent (99%) to the limited
partners equally as a group, and net loss shall be allocated one percent (1%) to
the General Partner, nine percent (9%) to the limited partners owning Current
Income Units and ninety percent (90%) to the limited partners owning
Growth/Shelter Units.

For financial statement purposes, net income arising from sales or refinancing
shall be allocated one percent (1%) to the General Partner and ninety-nine
percent (99%) to the limited partners equally as a group, and net loss shall be
allocated one percent (1%) to the General Partner, nine percent (9%) to the
limited partners owning Current Income Units and ninety percent (90%) to the
limited partners owning Growth/Shelter Units.

For tax reporting purposes, net income arising from sales or refinancing shall
be allocated as follows: (a) first, amounts of such net income shall be
allocated among the General Partner and limited partners in proportion to, and
to the extent of, the portion of such partner's share of the net decrease in
Partnership Minimum Gain determined under Treasury Regulations, (b) second, to
the General Partner and limited partners in proportion to, and to the extent of,
the amount by which their respective capital account balances are negative by
more than their respective remaining shares of the Partnership's Minimum Gain
attributable to properties still owned by the Partnership and (c) third, 1% of
such net income shall be allocated to the General Partner and 99% of such net
income shall be allocated to the limited partners.

Federal income tax law provides that the allocation of loss to a partner will
not be recognized unless the allocation is in accordance with a partner's
interest in the partnership or the allocation has substantial economic effect.
Internal Revenue Code Section 704(b) and accompanying Treasury Regulations
establish criteria for allocation of Partnership deductions attributable to
debt. The Partnership's tax allocations for 1997, 1996 and 1995 have been made
in accordance with these provisions.

<PAGE>
Distributions
- -------------

At the discretion of the General Partner, distributable cash (other than cash
from sales or refinancing) shall be distributed 100% to the limited partners,
with such distributions first paying the Current Income Priority Return and then
the Growth/Shelter Priority Return. Also at the discretion of the General
Partner, the limited partners will receive 100% of distributable cash from sales
or refinancing with such distributions first paying the Current Income Priority
Return, then the Growth/Shelter Priority Return, then repayment of Original
Invested Capital, and of the remainder, 16.66% to limited partners owning
Current Income Units and 83.34% to limited partners owning Growth/Shelter Units.
The limited partners' Current Income and Growth/Shelter Priority Returns
represent a 10% and 8%, respectively, cumulative return on their Adjusted
Invested Capital balance, as defined. No distributions of Current Income
Priority Return have been made since 1988, and no distributions of
Growth/Shelter Priority Return have been made since the Partnership began.

In connection with a Terminating Disposition, as defined, cash from sales or
refinancing and any remaining reserves shall be allocated among, and distributed
to, the General Partner and limited partners in proportion to, and to the extent
of, their positive capital account balances after the net income has been
allocated pursuant to the above.

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

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

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

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

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

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

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

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

Under the terms of the Amended Partnership Agreement, the Partnership is paying
an asset management fee, retroactive to February 14, 1991, which is payable to
the General Partner. Through 1999, the asset management fee is calculated as 1%
of the Partnership's tangible asset value. Tangible asset value is determined by
using the greater of (i) an amount calculated by applying a capitalization rate
of 9 percent to the annualized net operating income of each property or (ii) a
value of $10,000 per apartment unit for residential property and $50 per gross
square foot for commercial property to arrive at the property tangible asset
value. The property tangible asset value is then added to the book value of all
other assets excluding intangible items. The fee percentage decreases subsequent
to 1999.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

</TABLE>

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

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

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

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

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

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

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

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

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

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

NOTE 9 - LEGAL PROCEEDINGS
- --------------------------

<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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

RETAIL CENTERS:

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

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

Asset Held for Sale (d):

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

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

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

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

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

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

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

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

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

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

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

RETAIL CENTERS:

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

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

Asset Held for Sale (d):

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

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

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

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

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

Breckenridge
Davenport, IA 1974 10/84 5-25

Evergreen
Tupelo, MS 1970 11/84 5-25

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

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

RETAIL CENTERS:

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

Asset Held for Sale (d):

Fort Meigs Plaza
Perrysburg, OH 1974 10/84

</TABLE>

See accompanying notes to Schedule III.

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

Notes to Schedule III
Real Estate Investments and Accumulated Depreciation and Amortization

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

<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
Real estate investments:

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

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

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

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

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

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

Accumulated depreciation and amortization:

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

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

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

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

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

Assets held for sale:

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

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

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

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

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

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

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------

Neither the Partnership nor the General Partner has any directors or executive
officers. The names and ages of, as well as the positions held by, the officers
and directors of McNeil Investors, Inc., the general partner of the General
Partner, are as follows:

<TABLE>
<CAPTION>
Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
<S> <C> <C>
Robert A. McNeil, 77 Mr. McNeil is also Chairman of the
Chairman of the Board and Director of McNeil Real Estate
Board and Director Management, Inc. ("McREMI") which is an
affiliate of the General Partner. He has
held the foregoing positions since the
formation of such entity in 1990. Mr.
McNeil received his B.A. degree from
Stanford University in 1942 and his
L.L.B. degree from Stanford Law School
in 1948. He is a member of the State Bar
of California and has been involved in
real estate financing since the late
1940's and in real estate acquisitions,
syndications, and dispositions since
1960. From 1986 until active operations
of McREMI and McNeil Partners, L.P.
began in February 1991, Mr. McNeil was a
private investor. Mr. McNeil has been a
member of the International Board of
Directors of the Salk Institute, which
promotes research in improvements in
health care.

Carole J. McNeil 54 Mrs. McNeil is Co-Chairman, with
Co-Chairman of the husband Robert A. McNeil, of McNeil
Board Investors, Inc. Mrs. McNeil has twenty
years of real estate experience, most
recently as a private investor from 1986
to 1993. In 1982, she founded Ivory &
Associates, a commercial real estate
brokerage firm in San Francisco, CA.
Prior to that, she was a commercial real
estate associate with the Madison
Company and, earlier, a commercial sales
associate and analyst with Marcus and
Millichap in San Francisco. In 1978,
Mrs. McNeil established Escrow Training
Centers, California's first accredited
commercial training program for title
company escrow officers and real estate
agents needing college credits to
qualify for brokerage licenses. She
began in real estate as Manager and
Marketing Director of Title Insurance
and Trust in Marin County, CA. Mrs.
McNeil serves on the International Board
of Directors of the Salk Institute.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
<S> <C> <C>
Ron K. Taylor 40 Mr. Taylor is the President and Chief
President and Chief Executive Officer of McNeil Real Estate
Executive Officer Management which is an affiliate of the
General Partner. Mr. Taylor has been in
this capacity since the resignation of
Donald K. Reed on March 4, 1997. Prior
to assuming his current
responsibilities, Mr. Taylor served as a
Senior Vice President of McREMI. Mr.
Taylor has been in this capacity since
McREMI commenced operations in 1991.
Prior to joining McREMI, Mr. Taylor
served as an Executive Vice President
for a national syndication/property
management firm. In this capacity, Mr.
Taylor had the responsibility for the
management and leasing of a 21,000,000
square foot portfolio of commercial
properties. Mr. Taylor has been actively
involved in the real estate industry
since 1983.
</TABLE>

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

ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------

No direct compensation was paid or payable by the Partnership to directors or
officers (since it does not have any directors or officers) for the year ended
December 31, 1997, nor was any direct compensation paid or payable by the
Partnership to directors or officers of the general partner of the General
Partner for the year ended December 31, 1997. The Partnership has no plans to
pay any such remuneration to any directors or officers of the general partner of
the General Partner in the future.

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

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

(A) Security ownership of certain beneficial owners.

No individual or group, as defined by Section 13(d)(3) of the Securities
Exchange Act of 1934, known to the Partnership is the beneficial owner of
more than 5 percent of the Partnership's securities.

<PAGE>
(B) Security ownership of management.

Neither the General Partner nor any of its officers or directors of its
general partner own any limited partnership units.

None.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------

The amendments to the Partnership compensation structure included in the Amended
Partnership Agreement provide for an asset management fee to replace all other
forms of General Partner compensation other than property management fees and
reimbursements of certain costs. Through 1999, the asset management fee is
calculated as 1% of the Partnership's tangible asset value. Tangible asset value
is determined by using the greater of (i) an amount calculated by applying a
capitalization rate of 9 percent to the annualized net operating income of each
property or (ii) a value of $10,000 per apartment unit for residential property
and $50 per gross square foot for commercial property to arrive at the property
tangible asset value. The property tangible asset value is then added to the
book value of all other assets excluding intangible items. The fee percentage
decreases subsequent to 1999. For the year ended December 31, 1997, the
Partnership accrued $390,476 of such asset management fees. Total accrued but
unpaid asset management fees of $3,318,406 were outstanding at December 31,
1997.

The Partnership pays property management fees equal to 5% of the gross rental
receipts for its residential properties and 6% of gross rental receipts for
commercial properties to McREMI, an affiliate of the General Partner, for
providing property management services. Additionally, the Partnership reimburses
McREMI for its costs, including overhead of administering the Partnership's
affairs. For the year ended December 31, 1997, the Partnership paid or accrued
$596,788 of such property management fees and reimbursements. See Item 1 -
Business, Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations and Item 8 - Note 2 - "Transactions With Affiliates."

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

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

<PAGE>
PART IV

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

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

<TABLE>
<CAPTION>
(A) Exhibits

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

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

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

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

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

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

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

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

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

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

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

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

Breckenridge Fund XXI
Limited Partnership Delaware None

Evergreen Fund XXI
Limited Partnership Delaware None

Governour's Square Fund
XXI Limited Partnership Delaware None

Woodcreek Fund XXI
Limited Partnership Texas None

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

(1) Incorporated by reference to the Annual
Report of the registrant on Form 10-K for the
period ended December 31, 1992, as filed on
March 30, 1993.

<PAGE>

(2) Incorporated by reference to the Annual
Report of the registrant on Form 10-K for the
period ended December 31, 1993, as filed on
March 30, 1994.

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

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

<PAGE>

McNEIL REAL ESTATE FUND XXI, L.P.
A Limited Partnership

SIGNATURE PAGE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

McNEIL REAL ESTATE FUND XXI, L.P.

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

By: McNeil Investors, Inc., General Partner

March 31, 1998 By: /s/ Robert McNeil
- -------------- -----------------------------------------
Date Robert A. McNeil
Chairman of the Board and Director
Principal Executive Officer

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

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

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

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,817,585
<SECURITIES> 0
<RECEIVABLES> 229,435
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 33,241,437
<DEPRECIATION> (16,177,771)
<TOTAL-ASSETS> 23,063,962
<CURRENT-LIABILITIES> 0
<BONDS> 22,264,579
0
0
<COMMON> 0
<OTHER-SE> (5,899,582)
<TOTAL-LIABILITY-AND-EQUITY> 23,003,962
<SALES> 6,478,023
<TOTAL-REVENUES> 6,633,539
<CGS> 3,285,208
<TOTAL-COSTS> 4,801,963
<OTHER-EXPENSES> 828,623
<LOSS-PROVISION> 330,000
<INTEREST-EXPENSE> 2,151,557
<INCOME-PRETAX> (1,478,604)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,478,604)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,478,604)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>