MCNEIL REAL ESTATE FUND XXI L P, 10-K405, 1999-03-31

MCNEIL REAL ESTATE FUND XXI L P
10-K405, 1999-03-31
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, 1998
-----------------------------------------------

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

For the transition period from ______________ to_____________

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

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

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No___

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

All of the Registrant's 46,948 outstanding limited partnership units are held by
non-affiliates. The aggregate market value of units held by non-affiliates is
not determinable since there is no public trading market for limited partnership
units and transfers of units are subject to certain restrictions.

Documents Incorporated by Reference: See Item 14, Page 38

TOTAL OF 40 PAGES

<PAGE>
PART I

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

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

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

On February 3, 1984, the Partnership registered with the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933 (File No. 2-88171) and
commenced a public offering for sale of $50,000,000 of limited partnership
units. There were two classes of limited partnership units offered, designated
as Current Income Units and Growth/Shelter Units, (referred to collectively as
"Units"). The Units represent equity interests in the Partnership and entitle
the holders thereof to participate in certain allocations and distributions of
the Partnership. The sale of Units closed on February 2, 1985 with 47,382 Units
(24,982 Current Income Units and 22,400 Growth/Shelter Units) sold at $1,000
each, or gross proceeds of $47,382,000 to the Partnership. The Partnership
subsequently filed a Form 8-A Registration Statement with the SEC and registered
its Units under the Securities Exchange Act of 1934 (File No. 0-13356). In 1994
through 1998, a total of 119 Current Income Units and 315 Growth/Shelter Units
were relinquished, leaving 46,948 Units (24,863 Current Income Units and 22,085
Growth/Shelter Units) outstanding at December 31, 1998.

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

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

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

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

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

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

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

General:

The Partnership is engaged in diversified real estate activities, including the
ownership, operation and management of residential real estate. As described in
Item 2 - Properties, at December 31, 1998, the Partnership owned five
revenue-producing properties.

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

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

<PAGE>
Business Plan:

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

Competitive Conditions:

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

Forward-Looking Information:

Within this document, certain statements are made as to the expected occupancy
trends, financial condition, results of operations, and cash flows of the
Partnership for periods after December 31, 1998. All of these statements are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
historical and involve risks and uncertainties. The Partnership's actual
occupancy trends, financial condition, results of operations, and cash flows for
future periods may differ materially due to several factors. These factors
include, but are not limited to, the Partnership's ability to control costs,
make necessary capital improvements, negotiate sales or refinancings of its
properties and respond to changing economic and competitive factors.

<PAGE>
Environmental Matters:

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

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

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

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

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

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

The following table sets forth the investment portfolio of the Partnership at
December 31, 1998. All of the buildings and the land on which they are located
are owned by the Partnership in fee and are subject to a first lien deed of
trust as described more fully in Item 8 - Note 5 - "Mortgage Notes Payable". See
also Item 8 - Note 4 - "Real Estate Investments" and Schedule III - "Real Estate
Investments and Accumulated Depreciation and Amortization." In the opinion of
management, the properties are adequately covered by insurance.

<TABLE>
<CAPTION>
Net Basis of 1998 Date
Property Description Property Debt Property Tax Acquired
- -------- ----------- ------------ ---- ------------ --------

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

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

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

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

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

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

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

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

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

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

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

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

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- ------------- -------------- ------------- -----------

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

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

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

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

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

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

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

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

Bedford Green Apartments is located in Bedford, Ohio, southeast of Cleveland,
Ohio. Bedford Green continues to be one of the nicest apartment communities in
the market with rental rates and occupancy comparable to its competitors.
Occupancy decreased slightly in 1998, mainly due to tenants purchasing new homes
or moving to competing apartment communities that offered rental discounts.
Management expects to maintain occupancy in the mid 90% range in 1999 by
completing interior upgrades.

<PAGE>
Breckenridge
- ------------

Breckenridge Apartments is located in a northwest residential area of Davenport,
Iowa. The property currently has no deferred maintenance and its curb appeal is
equal to that of its competition. The property floor plans are very small,
resulting in square foot rental rates which are significantly higher than market
rates. Although new apartment construction occurred in the area in 1997 and
1998, the property was able to maintain occupancy by offering discounts to
tenants. Due to the availability of affordable housing and discounts offered by
competitors, rental rate increases are expected to be minimal in 1999.
Management expects to maintain occupancy in the mid 90% range in 1999.

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

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

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

Governour's Square Apartments, located in Wilmington, North Carolina, was built
in 1974. Exterior improvements as well as interior upgrades have enabled the
property to achieve an occupancy rate slightly above the market, even with some
new construction and renovations by competitors in the immediate area. The
Partnership anticipates a slight decrease in occupancy in 1999 due to increased
competition from new multi-family developments and leasing incentives being
offered to tenants by competitors. The Partnership expects to maintain occupancy
in the mid 90% range in 1999 by offering discounts and concessions to attract
and retain tenants.

Woodcreek
- ---------

Woodcreek Apartments, located in Fort Wayne, Indiana, was built in 1978 and
offers attractive floor plans. The immediate area consists of older, established
apartment communities that are not aggressive in raising rental rates. A strong
single-family housing market has negatively impacted the rental market, as well
as the construction of six multi-family communities in the area. Woodcreek's
rental rates are slightly higher than the average for the area, which has led to
occupancy rates that are slightly lower than the average. Increased customer
service, along with an aggressive marketing and leasing campaign, should allow
the property to maintain occupancy in the high 80% to low 90% range during 1999.

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

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

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

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

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

Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. The case was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing for Final Approval of
Settlement, initially scheduled for December 17, 1998, has been continued to May
25, 1999.

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

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

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

None.

PART II

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

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

(B) Title of Class Number of Record Unit Holders

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

(C) No distributions were paid to the partners in 1998 or 1997 and none are
anticipated in 1999. The General Partner will continue to monitor the
cash reserves and working capital needs of the Partnership to determine
when cash flows will support distributions to the Unit holders. See
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations, and Item 8 - Note 1 "Organization and
Summary of Significant Accounting Policies - Distributions."

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

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

<TABLE>
<CAPTION>
Statements of Years Ended December 31,
Operations 1998 1997 1996 1995 1994
- ------------------ ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Rental revenue............... $ 5,674,766 $ 6,478,023 $ 6,434,691 $ 6,642,725 $ 8,054,097
Write-down for impairment
of real estate............ - (330,000) - - -
Gain on disposition of
real estate............... 863,350 - - 1,615,811 29,440
Loss before extraordinary
items..................... (411,232) (1,478,604) (1,127,080) (170,804) (1,891,596)
Extraordinary items.......... 1,816,152 - - - -
Net income (loss)............ 1,404,920 (1,478,604) (1,127,080) (170,804) (1,891,596)

Net income (loss) per limited
partnership unit:

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

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

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

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

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

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

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

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

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

The Partnership's properties were adversely affected by competitive and
overbuilt markets, resulting in continuing cash flow problems. Commerce Tower in
Amarillo, Texas and Georgetown Apartments in Lakeland, Florida were foreclosed
on by the respective lenders in full settlement of mortgage indebtedness in 1990
and 1992, respectively. Hickory Lake Apartments was sold in December 1993, and
Homestead Manor Apartments was sold in February 1994. In March 1995, the
Partnership sold Suburban Plaza and Wyoming Mall shopping centers. Fort Meigs
Plaza was sold in April 1998 and Wise County Plaza was foreclosed on by the
lender in May 1998. The Partnership continues to operate the five remaining
properties.

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

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

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

1998 compared to 1997

Revenue:

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

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

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

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

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

Expenses:

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

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

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

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

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

1997 compared to 1996

Revenue:

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

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

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

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

Expenses:

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

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

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

In 1997, the Partnership recorded a $330,000 write-down for impairment of Wise
County Plaza Shopping Center. No such write-down was recorded in 1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------

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

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

The increase in 1997 as compared to 1996 was mainly due to a decrease in cash
paid to affiliates, partially offset by an increase in cash paid to suppliers.
In 1996, the Partnership paid $700,000 of previously accrued overhead
reimbursements to McREMI. No overhead reimbursements were paid to McREMI in
1997. The increase in cash paid to suppliers was due to the timing of the
payment of invoices at the end of the year.

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

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

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

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

Short-term liquidity:

In 1999, present cash balances and operations of the properties are expected to
provide sufficient cash for normal operating expenses, debt service payments and
budgeted capital improvements.

The Partnership has no established lines of credit from outside sources.
Although affiliates of the Partnership have previously funded cash deficits,
affiliates are not obligated to advance funds to the Partnership and there can
be no assurance the Partnership will receive additional funds. Other possible
actions to resolve cash deficiencies include refinancing, deferring major
capital or repair expenditures on Partnership properties except where
improvements are expected to enhance the competitiveness and marketability of
the properties, deferring payables to or arranging financing from affiliates or
the ultimate sale of Partnership properties.

<PAGE>
Prior to the restructuring of the Partnership, affiliates of the Original
General Partner advanced funds to enable the Partnership to meet its working
capital requirements. These advances were purchased by, and were payable to, the
General Partner. The balance of these advances, including accrued interest, was
repaid during 1998.

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

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

Long-term liquidity:

Operations of the Partnership's properties are expected to provide sufficient
cash flow for operating expenses, debt service payments and capital improvements
in the foreseeable future. The Partnership's working capital needs have been
supported by deferring certain affiliate payables. The Partnership owed payables
to affiliates for property management fees, Partnership general and
administrative expenses, asset management fees and disposition fees totaling
$5,446,918 at December 31, 1998.

Distributions

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

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

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

The year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in major systems failure or
miscalculations.

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

Management is in the process of evaluating the mechanical and embedded
technological systems at the various properties. Management has inventoried all
such systems and queried suppliers, vendors and manufacturers to determine year
2000 compliance. Management will complete assessment of findings by May 1, 1999.
In circumstances of non-compliance management will work with the vendor to
remedy the problem or seek alternative suppliers who will be in compliance.
Management believes that the remediation of any outstanding year 2000 conversion
issues will not have a material or adverse effect on the Partnership's
operations. However, no estimates can be made as to the potential adverse impact
resulting from the failure of third party service providers and vendors to be
year 2000 compliant.

Cost
- ----

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

Risks
- -----

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

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

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

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

Not Applicable.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------

<TABLE>
<CAPTION>
Page
Number
------

INDEX TO FINANCIAL STATEMENTS
- -----------------------------

Financial Statements:

<S> <C>
Report of Independent Public Accountants....................................... 16

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

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

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

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

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

Financial Statement Schedule -

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

</TABLE>

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

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

We have audited the accompanying balance sheets of McNeil Real Estate Fund XXI,
L.P. (a California limited partnership) as of December 31, 1998 and 1997, and
the related statements of operations, partners' deficit and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements and the schedule referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of McNeil Real Estate Fund XXI,
L.P. as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.

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

/s/ Arthur Andersen LLP

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

BALANCE SHEETS

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

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

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

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

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

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

Partners' deficit:
Limited partners - 50,000 Units authorized; 46,948
and 47,086 Units issued and outstanding at December
31, 1998 and 1997, respectively (24,863 Current
Income Units and 22,085 Growth/Shelter Units
outstanding at December 31, 1998 and 24,906 Current
Income Units and 22,180 Growth/Shelter Units
outstanding at December 31, 1997) .......................... (4,132,103) (5,522,974)
General Partner .............................................. (362,559) (376,608)
------------ ------------
(4,494,662) (5,899,582)
------------ ------------
$ 13,972,463 $ 23,063,962
============ ============
</TABLE>

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

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------
1998 1997 1996
----------- ----------- -----------
Revenue:
<S> <C> <C> <C>
Rental revenue ........................... $ 5,674,766 $ 6,478,023 $ 6,434,691
Interest ................................. 80,425 88,861 105,374
Gain on involuntary conversion ........... -- 66,655 27,252
Gain on disposition of real estate........ 863,350 -- --
----------- ----------- -----------
Total revenue .......................... 6,618,541 6,633,539 6,567,317
----------- ----------- -----------

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

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

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

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

Growth/Shelter Unit Holders:
Loss before extraordinary items ........ (16.76) (60.00) (45.41)
Extraordinary items .................... 74.01 -- --
----------- ----------- -----------
Net income (loss) ...................... $ 57.25 $ (60.00) $ (45.41)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXI, L.P.

STATEMENTS OF PARTNERS' DEFICIT

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

<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1995.......... $ (350,551) $(2,943,347) $(3,293,898)

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

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

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

Balance at December 31, 1997 ......... (376,608) (5,522,974) (5,899,582)

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

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

</TABLE>

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

STATEMENTS OF CASH FLOWS

Increase (Decrease) in Cash and Cash Equivalents

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

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

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

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

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

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

Cash and cash equivalents at end
of year ..................................... $ 1,253,238 $ 1,817,585 $ 1,670,843
=========== =========== ===========
</TABLE>

See discussion of noncash investing and financing activities in Note 4 - "Real
Estate Investments," Note 6 - "Mortgage Notes Payable - Affiliate," Note 7 -
"Property Dispositions" and Note 8 - "Gain on Involuntary Conversion."

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

STATEMENTS OF CASH FLOWS

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

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

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

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

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

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

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998

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

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

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

The Partnership is engaged in diversified real estate activities, including the
ownership, operation and management of residential real estate. As described in
Note 4 - "Real Estate Investments," at December 31, 1998, the Partnership owned
five revenue-producing properties.

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

The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
<PAGE>
The Partnership's financial statements include the accounts of the following
listed tier partnerships. These single asset tier partnerships were formed to
accommodate the refinancing of the respective property. The Partnership has a
100% ownership interest in each of the following tier partnerships:

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

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

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

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

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

Real estate investments are generally stated at the lower of depreciated cost or
fair value. Real estate investments are reviewed for impairment whenever events
or changes in circumstances indicate that their carrying amounts may not be
recoverable in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". When the carrying value of a property exceeds the sum
of all estimated future cash flows, an impairment loss is recognized. At such
time, a write-down is recorded to reduce the basis of the property to its
estimated fair value.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Federal income tax law provides that the allocation of loss to a partner will
not be recognized unless the allocation is in accordance with a partner's
interest in the partnership or the allocation has substantial economic effect.
Internal Revenue Code Section 704(b) and accompanying Treasury Regulations
establish criteria for allocation of Partnership deductions attributable to
debt. The Partnership's tax allocations for 1998, 1997 and 1996 have been made
in accordance with these provisions.

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

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

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

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

Net income (loss) per limited partnership unit ("Unit") is computed by dividing
net income (loss) allocated to the limited partners by the weighted average
number of Units outstanding. Per Unit information has been computed based on
24,863, 24,906 and 24,949 Current Income Units outstanding in 1998, 1997 and
1996, respectively and 22,085, 22,180 and 22,339 Growth/Shelter Units
outstanding in 1998, 1997 and 1996, respectively.

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

The Partnership pays property management fees equal to 5% of gross rental
receipts for its residential properties and 6% of gross rental receipts for
commercial properties to McNeil Real Estate Management, Inc. ("McREMI"), an
affiliate of the General Partner, for providing property management services for
the Partnership's residential and commercial properties and leasing services for
its residential properties.

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

Under the terms of the Amended Partnership Agreement, the Partnership pays a
disposition fee to an affiliate of the General Partner equal to 3% of the gross
sales price for brokerage services performed in connection with the sale of the
Partnership's properties. The fee is due and payable at the time the sale
closes. The Partnership incurred $346,050 of such fees during 1995 in connection
with the sales of Suburban Plaza and Wyoming Mall. These fees have not yet been
paid by the Partnership and are included in payable to affiliates on the Balance
Sheets at December 31, 1998 and 1997.

<PAGE>
Under the terms of the Amended Partnership Agreement, the Partnership is paying
an asset management fee, retroactive to February 14, 1991, which is payable to
the General Partner. Through 1999, the asset management fee is calculated as 1%
of the Partnership's tangible asset value. Tangible asset value is determined by
using the greater of (i) an amount calculated by applying a capitalization rate
of 9 percent to the annualized net operating income of each property or (ii) a
value of $10,000 per apartment unit for residential property and $50 per gross
square foot for commercial property to arrive at the property tangible asset
value. The property tangible asset value is then added to the book value of all
other assets excluding intangible items. The fee percentage decreases to .75% in
2000, .50% in 2001 and .25% thereafter.

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

<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1998 1997 1996
-------------- -------------- ---------------
<S> <C> <C> <C>
Property management fees - affiliates........ $ 291,009 $ 335,087 $ 331,145
Charged to interest - affiliates:
Interest on advances from
affiliates.............................. 17,684 59,728 58,652
Interest on mortgage notes
payable - affiliate..................... 119,687 93,540 61,556
Charged to general and
administrative - affiliates:
Partnership administration................ 271,987 261,701 295,106
Asset management fee...................... 318,430 390,476 397,394
------------- ------------- --------------
$ 1,018,797 $ 1,140,532 $ 1,143,853
============= ============= ==============
</TABLE>

Prior to the restructuring of the Partnership, affiliates of the Original
General Partner advanced funds to enable the Partnership to meet its working
capital requirements. These advances were purchased by, and were payable to, the
General Partner. The advances were unsecured, due on demand and accrued interest
at the prime lending rate of Bank of America plus 1%. During 1998, the $630,574
balance of these advances and the related accrued interest of $182,091 were
repaid.

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

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

<PAGE>
NOTE 3 - TAXABLE INCOME (LOSS)
- ------------------------------

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

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

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

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

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

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

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

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

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

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

Wise County Plaza was a shopping center located in Wise, Virginia in an area
besieged by high unemployment rates and a lackluster economy due to the
declining coal industry. The mortgage notes payable secured by Wise County Plaza
matured in August 1997 and the Partnership was unable to negotiate a
modification and extension of the loans. The Partnership received an offer from
a non-affiliate to purchase the center for $4.9 million, which was more than $1
million less than the principal balance owed on the loans secured by the
property. Based on this offer and the reduced anticipated holding period of the
property, the Partnership recorded a $330,000 write-down for impairment of value
during the fourth quarter of 1997 to record the property at its fair value less
costs to sell. On May 29, 1998, Wise County Plaza was foreclosed on by the
lender in full settlement of the mortgage indebtedness secured by the property.
In connection with this transaction, the Partnership recognized an extraordinary
gain on retirement of mortgage note payable of $1,625,715.

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

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

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

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

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

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

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

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

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

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

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

(b) Financing was obtained under the terms of a Real Estate Mortgage
Investment Conduit financing. The mortgage notes payable are
cross-collateralized. Principal prepayments made before July 2000 are
subject to a Yield Maintenance premium, as defined. Additionally, the
Partnership must pay a release payment equal to 25% of the prepaid
balance which will be applied to the remaining mortgage notes in the
collateral pool.

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

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

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

Bedford Green $ 3,074,442 07/02
Woodcreek 2,620,263 07/02
Breckenridge 1,436,695 07/03
Evergreen Square 1,650,679 07/03
Governour's Square 2,588,992 07/03

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

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

Based on borrowing rates currently available to the Partnership for mortgage
loans with similar terms and average maturities, the fair value of mortgage
notes payable was approximately $12,524,000 at December 31, 1998 and $18,527,000
at December 31, 1997.

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

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

<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position(a) Rates % Maturity 1998 1997
- -------- ------------ ------- ------------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Fort Meigs Plaza First 12.81 $ 33,333 03/98 $ - $ 2,996,176
Second 8.25 $ 4,073(b) 09/97 - 733,900
------------- -------------
$ - $ 3,730,076
============= =============
</TABLE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>
Under the terms of its partnership agreement, the Partnership normally pays a
disposition fee to the General Partner equal to 3% of the gross sales price for
brokerage services performed in connection with the sale of the Partnership's
properties. The fee is due and payable at the time the sale closes. In
connection with the sale of Fort Meigs Plaza, the General Partner waived its
right to receive such fee, which would have totaled $114,000.

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

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

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

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

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

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

NOTE 8 - GAIN ON INVOLUNTARY CONVERSION
- ---------------------------------------

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

<PAGE>
NOTE 9 - LEGAL PROCEEDINGS
- --------------------------

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

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

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

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

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

The following unaudited pro forma information for the years ended December 31,
1998 and 1997 reflects the results of operations of the Partnership as if the
sale of Fort Meigs Plaza and the foreclosure of Wise County Plaza had occurred
as of January 1, 1997. The unaudited pro forma information is not necessarily
indicative of the results of operations which actually would have occurred or
those which might be expected to occur in the future.

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

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

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

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

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

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

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

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

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

$ 12,372,591 $ 1,842,544 $ 18,049,019 $ (491,000) $ 4,910,868
============== ============== ============= ============ ============
</TABLE>

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

(c) The carrying value of Evergreen Square Apartments was reduced by $176,568
in 1989, and was further reduced by $314,432 in 1991.

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

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

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

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

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

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

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

$ 1,842,544 $ 22,468,887 $ 24,311,431 $ (12,611,818)
============= ============= =============== ============
</TABLE>

(a) For Federal income tax purposes, the properties are depreciated over lives
ranging from 5-39 years using ACRS or MACRS methods. The aggregate cost of
real estate investments for Federal income tax purposes was $28,009,154 and
accumulated depreciation was $18,996,326 at December 31, 1998.

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

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

APARTMENTS:

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

Breckenridge
Davenport, IA 1974 10/84 5-25

Evergreen
Tupelo, MS 1970 11/84 5-25

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

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

</TABLE>

See accompanying notes to Schedule III.
<PAGE>

McNEIL REAL ESTATE FUND XXI, L.P.

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

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

<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------------
1998 1997 1996
------------- ------------ -------------
Real estate investments:
<S> <C> <C> <C>
Balance at beginning of year ................... $ 33,241,437 $ 32,782,941 $ 36,949,217

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

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

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

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

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

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

Accumulated depreciation and amortization:

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

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

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

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

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

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

Asset held for sale:

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

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

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

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

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

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

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

None.
PART III

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

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

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

Robert A. McNeil, 78 Mr. McNeil is also Chairman of the
Chairman of the Board and Director of McNeil Real Estate
Board and Director Management, Inc. ("McREMI") which is an
affiliate of the General Partner. He has
held the foregoing positions since the
formation of such an entity in 1990. Mr.
McNeil received his B.A. degree from
Stanford University in 1942 and his
L.L.B. degree from Stanford Law School
in 1948. He is a member of the State Bar
of California and has been involved in
real estate financing since the late
1940's and in real estate acquisitions,
syndications and dispositions since
1960. From 1986 until active operations
of McREMI and McNeil Partners, L.P.
began in February 1991, Mr. McNeil was a
private investor. Mr. McNeil is a member
of the International Board of Directors
of the Salk Institute, which promotes
research in improvements in health care.

<PAGE>
Carole J. McNeil 55 Mrs. McNeil is Co-Chairman, with husband
Co-Chairman of the Robert A. McNeil, of McNeil Investors,
Board Inc. Mrs. McNeil has twenty years of
real estate experience, most recently as
a private investor from 1986 to 1993. In
1982, she founded Ivory & Associates, a
commercial real estate brokerage firm in
San Francisco, CA. Prior to that, she
was a commercial real estate associate
with the Madison Company and, earlier, a
commercial sales associate and analyst
with Marcus and Millichap in San
Francisco. In 1978, Mrs. McNeil
established Escrow Training Centers,
California's first accredited commercial
training program for title company
escrow officers and real estate agents
needing college credits to qualify for
brokerage licenses. She began in real
estate as Manager and Marketing Director
of Title Insurance and Trust in Marin
County, CA. Mrs. McNeil serves on the
International Board of Directors of the
Salk Institute.

Ron K. Taylor 41 Mr. Taylor is the President and Chief
President and Chief Executive Officer of McNeil Real Estate
Executive Officer Management which is an affiliate of the
General Partner. Mr. Taylor has been in
this capacity since the resignation of
Donald K. Reed on March 4, 1997. Prior
to assuming his current
responsibilities, Mr. Taylor served as a
Senior Vice President of McREMI. Mr.
Taylor has been in this capacity since
McREMI commenced operations in 1991.
Prior to joining McREMI, Mr. Taylor
served as an Executive Vice President
for a national syndication/property
management firm. In this capacity, Mr.
Taylor had the responsibility for the
management and leasing of a 21,000,000
square foot portfolio of commercial
properties. Mr. Taylor has been actively
involved in the real estate industry
since 1983.

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

<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------

No direct compensation was paid or payable by the Partnership to directors or
officers (since it does not have any directors or officers) for the year ended
December 31, 1998, nor was any direct compensation paid or payable by the
Partnership to directors or officers of the general partner of the General
Partner for the year ended December 31, 1998. The Partnership has no plans to
pay any such remuneration to any directors or officers of the general partner of
the General Partner in the future.

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

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

(A) Security ownership of certain beneficial owners.

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

(B) Security ownership of management.

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

None.

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

The amendments to the Partnership compensation structure included in the Amended
Partnership Agreement provide for an asset management fee to replace all other
forms of General Partner compensation other than property management fees and
reimbursements of certain costs. Through 1999, the asset management fee is
calculated as 1% of the Partnership's tangible asset value. Tangible asset value
is determined by using the greater of (i) an amount calculated by applying a
capitalization rate of 9 percent to the annualized net operating income of each
property or (ii) a value of $10,000 per apartment unit for residential property
and $50 per gross square foot for commercial property to arrive at the property
tangible asset value. The property tangible asset value is then added to the
book value of all other assets excluding intangible items. The fee percentage
decreases to .75% in 2000, .50% in 2001 and .25% thereafter. For the year ended
December 31, 1998, the Partnership accrued $318,430 of such asset management
fees. Total accrued but unpaid asset management fees of $3,636,836 were
outstanding at December 31, 1998.

<PAGE>

The Partnership pays property management fees equal to 5% of the gross rental
receipts for its residential properties and 6% of gross rental receipts for
commercial properties to McREMI, an affiliate of the General Partner, for
providing property management services. Additionally, the Partnership reimburses
McREMI for its costs, including overhead of administering the Partnership's
affairs. For the year ended December 31, 1998, the Partnership paid or accrued
$562,996 of such property management fees and reimbursements. See Item 1 -
Business, Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations and Item 8 - Note 2 - "Transactions With Affiliates."

Prior to the restructuring of the Partnership, affiliates of the Original
General Partner advanced funds to enable the Partnership to meet its working
capital requirements. These advances were purchased by, and were payable to the
General Partner. Interest expense related to these advances totaled $17,684 for
the year ended December 31, 1998. During 1998, the $630,574 balance of these
advances and the related accrued interest of $182,091 were repaid.

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

<PAGE>
PART IV

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

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

(A) Exhibits

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

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

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

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

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

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

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

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

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

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

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

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

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

Breckenridge Fund XXI
Limited Partnership Delaware None

Evergreen Fund XXI
Limited Partnership Delaware None

Governour's Square Fund
XXI Limited Partnership Delaware None

Woodcreek Fund XXI
Limited Partnership Texas None

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

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

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

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

(B) There were no reports on Form 8-K filed by the Partnership during the
quarter ended December 31, 1998.
<PAGE>
McNEIL REAL ESTATE FUND XXI, L.P.
A Limited Partnership

SIGNATURE PAGE

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

McNEIL REAL ESTATE FUND XXI, L.P.

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

By: McNeil Investors, Inc., General Partner

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

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

March 31, 1999 By: /s/ Ron K. Taylor
- -------------- -------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)

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

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,253,238
<SECURITIES> 0
<RECEIVABLES> 25,391
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 24,311,431
<DEPRECIATION> (12,611,818)
<TOTAL-ASSETS> 13,972,463
<CURRENT-LIABILITIES> 0
<BONDS> 12,372,597
0
0
<COMMON> 0
<OTHER-SE> (4,494,662)
<TOTAL-LIABILITY-AND-EQUITY> 13,972,463
<SALES> 5,674,766
<TOTAL-REVENUES> 6,618,541
<CGS> 3,118,002
<TOTAL-COSTS> 4,475,924
<OTHER-EXPENSES> 1,043,609
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,510,240
<INCOME-PRETAX> (411,232)
<INCOME-TAX> 0
<INCOME-CONTINUING> (411,232)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,816,152
<CHANGES> 0
<NET-INCOME> 1,404,920
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>