MCNEIL REAL ESTATE FUND XXII L P, 10-K405, 1996-03-29

MCNEIL REAL ESTATE FUND XXII L P
10-K405, 1996-03-29
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, 1995
-----------------------------------------

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

For the transition period from ______________ to_____________

Commission file number 0-14268

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

California 33-0085680
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code (214) 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 33,208,117 limited partnership units are held by
non-affiliates. The aggregate market value of units held by non-affiliates is
not determinable since there is no public trading market for limited partnership
units and transfers of units are subject to certain restrictions.

Documents Incorporated by Reference: See Item 14, Page 39

TOTAL OF 41 PAGES

<PAGE>

PART I

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

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

McNeil Real Estate Fund XXII, L.P., (the "Partnership"), formerly known as
Southmark Realty Partners II, Ltd. was organized on November 30, 1984 as a
limited partnership under the provisions of the California Revised Limited
Partnership Act to acquire and operate commercial and residential properties.
The general partner of the Partnership is McNeil Partners, L.P. (the "General
Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil
("McNeil"). The General Partner was elected at a meeting of limited partners on
March 26, 1992, at which time an amended and restated partnership agreement (the
"Amended Partnership Agreement") was adopted. Prior to March 26, 1992, the
general partner of the Partnership was Southmark Investment Group, Inc. (the
"Original General Partner"), a wholly-owned subsidiary of Southmark Corporation
("Southmark"). The principal place of business for the Partnership and the
General Partner is 13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240.

On February 26, 1985, the Partnership registered with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 2-94740)
and commenced a public offering for sale of $55,000,000 of limited partnership
units. There were two classes of limited partnership units, designated as
Current Income Units and Growth/Shelter Units offered (referred to collectively
as "Units"). The Units represent equity interests in the Partnership and entitle
the holders thereof to participate in certain allocations and distributions of
the Partnership. The sale of Units closed on December 31, 1985, with 33,333,867
Units (19,922,588 Current Income Units and 13,411,279 Growth/Shelter Units) sold
at one dollar each, or gross proceeds of $33,333,867. The Partnership
subsequently filed a Form 8-A Registration Statement with the SEC and registered
its Units under the Securities Exchange Act of 1934 (File No. 0-14268). In 1991,
13,750 Units were rescinded, and in 1993, 1994 and 1995 20,000, 32,000 and
60,000 Units, respectively, were relinquished leaving 33,208,117 Units
(19,825,588 Current Income Units and 13,382,529 Growth/Shelter Units)
outstanding at December 31, 1995.

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, are being sold or liquidated for the benefit of
creditors.

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

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

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

Concurrent with the approval of the restructuring, the General Partner acquired
from Southmark and its affiliates, for aggregate consideration of $18,861, (i)
the right to receive payment on the advances owing from the Partnership to
Southmark and its affiliates in the amount of $16,397, and (ii) the general
partner interest of the Original General Partner. None of the Units are owned by
the General Partner or its affiliates.

Settlement Of Claims:

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

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

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

General:

The Partnership is engaged in real estate activities, including the ownership,
operation and management of residential and retail real estate. At December 31,
1995, the Partnership owned one income-producing property as described in Item 2
- - Properties.

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

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

Business Plan:

The Partnership's anticipated plan of operations for 1996 is to preserve or
increase the net operating income of its property whenever possible, while at
the same time making whatever capital expenditures are reasonable under the
circumstances in order to preserve and enhance the value of the Partnership's
property. The General Partner is evaluating market and other economic conditions
to determine the optimum time to commence a sale of the Partnership's last
property in accordance with the terms of the Amended Partnership Agreement. In
conjunction therewith, the General Partner will continue to explore potential
avenues to enhance the value of the Units in the Partnership, which may include,
among other things, asset sales or refinancings of the Partnership's properties
which may result in distributions to the limited partners. See Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

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 in the
Partnership's property, is described in Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations. For a detailed
discussion of the competitive conditions for the Partnership's property see Item
2 - Properties.

Other information:

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

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

The following table sets forth the investment portfolio of the Partnership at
December 31, 1995. The buildings and the land on which they are located are
owned in fee, subject in each case to a first lien deed of trust as set forth
more fully in Item 8 - Note 5 - "Mortgage Note Payable". See also Item 8 - Note
4 - "Real Estate Investment" and Schedule III - "Real Estate Investment and
Accumulated Depreciation and Amortization". In the opinion of management, the
property is adequately covered by insurance.
<TABLE>
Net Basis of 1995 Date
Property Description Property Debt Property Tax Acquired
- -------- ----------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Harbour Club III (1) Apartments
Belleville, MI 331 units $ 5,504,538 $ 6,026,515 $ 158,523 5/86
</TABLE>

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

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

<TABLE>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Harbour Club III
- ----------------
Occupancy Rate............ 96% 91% 90% 95% 93%
Rent Per Square Foot...... $7.21 $6.75 $6.74 $6.42 $6.33

</TABLE>

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

Competitive conditions
- ----------------------

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

Harbour Club III, located in Belleville, Michigan, was built in 1972 as a part
of a four-phase apartment complex. The property offers a complete package of
amenities including a golf course, clubhouse, exercise room, tanning beds,
tennis courts, saunas, boat docks and launch, and playgrounds. The apartments
located in this phase of the complex offer lake and golf course views. The
Belleville market has significantly rebounded to an occupancy rate of 96%.
Harbour Club III is operating at an occupancy rate of 96% and has not increased
rents for five years due to restrictions imposed by the Department of Housing
and Urban Development ("HUD"), the property's mortgage holder, as well as the
lack of capital improvements. The property is currently petitioning HUD to
increase rental rates. The property's closest competitor has rental rates
approximately $100 per month above Harbour Club III's rates. Security concerns
are prompting demands from tenants for improved lighting, limited access gates
and fencing, as offered by competitors. The property has a large amount of
deferred maintenance and the property is unable to generate cash to meet its
capital improvement needs. Management is currently seeking alternatives to fund
the needed capital improvements. The ability of the property to compete in the
market will be directly determined by the amount of capital dollars spent to
upgrade the property to community standards.

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

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

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

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

2) Martha Hess, et al. v. Southmark Equity Partners II, Ltd. (presently known
---------------------------------------------------------------------------
as McNeil Real Estate Fund XXV, L.P.), Southmark Income Investors, Ltd.,
---------------------------------------------------------------------------
Southmark Equity Partners, Ltd., Southmark Realty Partners III, Ltd., and
---------------------------------------------------------------------------
Southmark Realty Partners II, Ltd., et al. ("Hess"); Kotowski v. Southmark
---------------------------------------------------------------------------
Equity Partners, Ltd. and Donald Arceri v. Southmark Income Investors, Ltd.
---------------------------------------------------------------------------
These cases were previously pending in the Illinois Appellate Court for the
First District ("Appellate Court"), as consolidated Case No. 90-107.
Consolidated with these cases are an additional 14 matters against
unrelated partnership entities. The Hess case was filed on May 20, 1988, by
Martha Hess, individually and on behalf of a putative class of those
similarly situated. The original, first, second and third amended
complaints in Hess sought rescission, pursuant to the Illinois Securities
Act, of over $2.7 million of principal invested in five Southmark (now
McNeil) partnerships, and other relief including damages for breach of
fiduciary duty and violation of the Illinois Consumer Fraud and Deceptive
Business Practices Act. The original, first, second and third amended
complaints in Hess were dismissed against the defendant-group because the
Appellate Court held that they were not the proper subject of a class
action complaint. Hess was, thereafter, amended a fourth time to state
causes of action against unrelated partnership entities. Hess went to
judgment against that unrelated entity and the judgment, along with the
prior dismissal of the class action, was appealed. The Hess appeal was
decided by the Appellate Court during 1992. The Appellate Court affirmed
the dismissal of the breach of fiduciary duty and consumer fraud claims.
The Appellate Court did, however, reverse in part, holding that certain
putative class members could file class action complaints against the
defendant-group. Although leave to appeal to the Illinois Supreme Court was
sought, the Illinois Supreme Court refused to hear the appeal. The effect
of the denial is that the Appellate Court's opinion remains standing. On
June 15, 1994, the Appellate Court issued its mandate sending the case back
to Trial Court.

In late January 1995, Plaintiffs filed a Motion to File an Amended
Consolidated Class Action Complaint, which amends the complaint to name
McNeil Partners, L.P. as the successor general partner to Southmark
Investment Group. In February 1995, Plaintiffs filed a Motion for Class
Certification. The amended cases against the defendent-group, and others
are proceeding under the caption George and Joy Krugler v. I.R.E. Real
---------------------------------------
Estate Income Fund, Jerry and Barbara Neuman v. Southmark Equity Partners
---------------------------------------------------------------------------
II, Richard and Theresa Bartoszewski v. Southmark Realty Partners III, and
---------------------------------------------------------------------------
Edward and Rose Weskerna v. Southmark Realty Partners II.
--------------------------------------------------------

In September 1995, the court granted Plaintiffs' Motion to File an Amended
Complaint to Consolidate and for Class Certification. Defendants have
answered the Complaint and have plead that the Plaintiffs did not give
timely notice of their right to rescind within six months of knowing that
right. The ultimate outcome of this litigation cannot be determined at this
time. While the Partnership has objected to the Motion, the ultimate
resolution of this litigation, which is expected to occur within one year,
could result in a loss to the Partnership of up to $355,000 in addition to
related legal fees. No accrual has been recorded related to this
litigation.

3) Nicpon v. Southmark Realty Partners II (presently known as McNeil Real
---------------------------------------------------------------------------
Estate Fund XXII, L.P.) 89 CH 4118, seek rescission of certain partnership
----------------------
interests and damages for breach of fiduciary duty in violation of the
Illinois Consumer Fraud Act. These actions were tried to the court on
August 28, 1992 and the Court dismissed all but $21,269 of the claims.
Those claims represent rescission claims, agreed to by the defendant that
have now been paid by the defendant. The plaintiffs filed notices of appeal
from these dismissals. The plaintiffs presented, on February 3, 1995, their
motion to file an amended consolidated class action complaint and, on
February 15, 1995, their motion to certify a class. The defendant-group
intends to object to both of these motions. The Court has yet to rule on
either the motion for leave to file the amendment or the motion for class
certification. The ultimate outcome of this proceeding cannot be determined
at this time.

4) Dick and Aloma Anderson v. McNeil Real Estate Fund XXII, L.P. , McNeil
---------------------------------------------------------------------------
Partners, L.P., Wayne T. Shipp, the Wayne Shipp Agency, Inc., Southmark
---------------------------------------------------------------------------
Investment Group, Inc. and Southmark Realty Partners, Ltd. This lawsuit was
---------------------------------------------------------
filed in November 1993 in Washington State in the Clark County Superior
Court. In 1985, the plaintiffs apparently spent $22,000 to purchase limited
partnership interests in Southmark Realty Partners Ltd. II , (not named by
them as a defendant ) whose name is now McNeil Real Estate Fund XXII, L.P.
(the "Partnership"). Plaintiffs allege that in connection with the
transactions by which McNeil Partners, L.P. became general partner of the
Partnership, and by which certain changes were made in the Partnership, the
McNeil entities engaged in the offer and/or sale of unregistered securities
in violation of Washington law. The plaintiffs have alleged that certain of
the other defendants -- specifically Mr. Shipp and the Shipp Insurance
Agency -- engaged in fraud in connection with the sale of limited
partnership interests in the Partnership to plaintiffs. The plaintiffs have
not made fraud allegations against any of the McNeil or Southmark entities.
The majority of plaintiffs' claims against the Partnership are based on
allegations that the securities are not registered in the State of
Washington. Counsel's research indicates that there are two possible
exemptions to the registration of securities which apply to this matter.
These statutory exceptions are under review by the plaintiffs' attorney.
Counsel for the Partnership was contacted recently and asked whether the
Partnership would be interested in repurchasing Plaintiffs' units at a
discount. Plaintiffs will be advised of their option to abandon their units
back to the Partnership for no consideration. The ultimate outcome of this
proceeding cannot be determined at this time.

For a discussion of the Southmark bankruptcy, see Item 1 - Business. See also
Item 8 - Note 9 - "Gain on Legal Settlement".

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.

<PAGE>

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

Limited partnership units 2,648 as of February 16, 1996

(C) No distributions were made to the partners in 1995 or 1994 and none are
anticipated in 1996. The General Partner will continue to monitor the
cash reserves and working capital needs of the Partnership to determine
when cash flows will support distributions to the partners. See Item 7
- Management's Discussion and Analysis of Financial Condition and
Results of Operations, and Item 8 - Note 1 "Organization and Summary of
Significant Accounting Policies - Distributions."

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>
Years Ended December 31,
Statements of ---------------------------------------------------------------------
Operations 1995 1994 1993 1992 1991
- ------------------ --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Rental revenue................ $2,456,308 $2,950,795 $5,655,988 $6,168,199 $6,223,307
Write-down for permanent
impairment of real estate - - 735,288 5,101,763 -
Loss on disposition of real
estate...................... 245,637 - 1,443,330 - -
Loss before extraordinary
items....................... (308,378) (565,993) (3,829,270) (7,801,365) (2,272,922)
Extraordinary items........... - - 3,583,014 119,606 335,999
Net loss...................... (308,378) (565,993) (246,256) (7,681,759) (1,936,923)

Net loss per thousand
limited partnership
Units:
Loss before extraordinary
items:
Current Income Units........ $ (1.40) $ (2.56) $ (17.32) $ (35.24) $ (10.27)
Growth/Shelter Units........ (20.74) (38.04) (257.23) (524.05) (152.61)

Extraordinary items:
Current Income Units........ - - 16.20 .54 1.52
Growth/Shelter Units........ - - 240.69 8.03 22.56

Net loss:
Current Income Units........ (1.40) (2.56) (1.12) (34.70) (8.75)
Growth/Shelter Units........ (20.74) (38.04) (16.54) (516.02) (130.05)

</TABLE>

<TABLE>

As of December 31,
-----------------------------------------------------------------------
Balance Sheets 1995 1994 1993 1992 1991
- -------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Real estate, net............... $ 5,504,538 $ 5,632,109 $10,543,632 $26,473,696 $32,731,915
Asset held for sale............ - 4,393,157 - - -
Total assets................... 6,407,931 11,314,161 11,558,910 27,626,566 34,358,182
Mortgage notes payable, net.... 6,026,515 9,534,751 9,622,454 25,289,348 25,233,561
Partners' equity (deficit)..... (1,419,024) (1,110,646) (544,653) (298,397) 7,383,362
</TABLE>

Abbey Lane Apartments and Lexington Green Apartments were conveyed via a deed in
lieu of foreclosure on September 30, 1993. Wyoming Mall was sold on March 31,
1995. See Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.

<PAGE>

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

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

The Partnership was provided $448,347 of cash from operations during 1995 as
compared to $500,253 in 1994. The Partnership experienced a reduction in cash
received from tenants due to the sale of Wyoming Mall in March 1995. The
Partnership also experienced declines in cash paid to suppliers, interest paid
and property taxes paid as a result of the sale. With the proceeds from the sale
of Wyoming Mall, the Partnership was able make a $250,000 payment for asset
management fees and repay all the affiliate advances and accrued interest.
During 1995, the Partnership also received $38,749 for a legal settlement with
Southmark and $134,434 as a property tax refund as a result of a successful tax
appeal.

Cash provided by operations increased $184,266 in 1994 as compared to 1993. In
June 1993, the Partnership ceased making the interest only debt service payments
on the mortgage notes related to Abbey Lane and Lexington Green Apartments. In
September 1993, the Partnership transferred the two properties to unaffiliated
partnerships via a deed-in-lieu of foreclosure. These transactions, although
reducing the cash received from tenants, relieved the Partnership of significant
cash obligations, including cash paid to suppliers and interest, thereby
increasing the cash flow from operations.

Cash paid to affiliates decreased $171,292 in 1994 as compared to 1993 due to
the decrease in property management fees - affiliates expense because of the
loss of Lexington Green and Abbey Lane Apartments, as discussed above.

The Partnership expended $270,552, $146,836 and $346,003 for capital
improvements to its properties in 1995, 1994 and 1993, respectively. The 1994
decrease is attributable to the loss of Abbey Lane and Lexington Green
Apartments. The 1995 increase is attributable to Harbour Club III's capital
improvements. The Partnership also received proceeds of $738,914 for the sale of
Wyoming Mall on March 31, 1995.

Net cash used in financing activities was $876,173 for 1995 as compared to
$142,626 in 1994. During 1993, the Partnership received cash advances from the
General Partner or its affiliates of $250,207. Wyoming Mall required additional
cash of $100,000 in 1993 to meet operating requirements and the Partnership
received $150,207 of such advances to pay Partnership general and administrative
expenses, including costs associated with the proxy. The amounts of $20,874 and
$53,909 of such advances were repaid in 1994 and 1993, respectively. During
1995, the improved cash position allowed the Partnership to repay all
outstanding advances from affiliates of the General Partner in the amount of
$784,654.

The Partnership's remaining property, through improved operations as well as
curtailment of expenses, has been able to provide sufficient cash flow to meet
its own working capital requirements. In addition, the sale of Wyoming Mall
enabled the Partnership to meet its general and administrative expenses;
therefore, no cash advances were required during 1995.

Short-term liquidity:

The General Partner has established a revolving credit facility not to exceed
$5,000,000 in the aggregate which is available on a "first-come, first-served"
basis to the Partnership and other affiliated partnerships if certain conditions
are met. Borrowings under the facility may be used to fund deferred maintenance,
refinancing obligations and working capital needs. There is no assurance that
the Partnership will receive any additional funds under the facility because no
amounts will be reserved for any particular partnership. As of December 31,
1995, $2,662,819 remained available for borrowing under the facility; however,
additional funds could become available as other partnerships repay existing
borrowings. This commitment will terminate on March 26, 1997.

Additionally, the General Partner has, at its discretion, advanced funds to the
Partnership in addition to the revolving credit facility. As discussed below,
the Partnership received other advances that were used to fund working capital
requirements which advances were repaid in full in 1995. The General Partner is
not obligated to advance funds to the Partnership and there is no assurance that
the Partnership will receive additional funds.

Prior to the restructuring of the Partnership, affiliates of the Original
General Partner advanced funds to enable the Partnership to meet its working
capital requirements. These advances were purchased by, and were repaid to, the
General Partner.

McNeil Real Estate Fund XXI, L.P., an affiliate of the General Partner and the
joint owner of Wyoming Mall, advanced $320,874 in 1992 to the Partnership for
use in tenant improvements and operations at Wyoming Mall. During 1994, the
Partnership repaid $20,874 of these advances. During 1995, the Partnership
repaid the $300,000 remaining advance. The advances were unsecured, due on
demand and accrued interest at a rate of prime plus 3 1/2%.

The total advances from affiliates at December 31, 1995 and 1994 consist of the
following:

<TABLE>
1995 1994
--------- --------
<S> <C> <C>
Advances from General Partner- revolving credit
facility $ - $ 167,102
Advances from General Partner - other - 301,155
Advances purchased by General Partner - 16,397
Advances from McNeil Real Estate Fund XXI, L.P. - 300,000
Accrued interest payable - 130,475
--------- --------
$ - $ 915,129
========= ========
</TABLE>

The advances from the General Partner were unsecured, due on demand and accrued
interest at the prime lending rate of Bank of America plus 1%. The prime lending
rate was 9% at April 4, 1995 (date of repayment of loans) and 8.5% at December
31, 1994. With the proceeds from the sale of Wyoming Mall, the Partnership was
able to repay all the advances outstanding.

Long-term liquidity:

While the outlook for maintenance of adequate levels of liquidity is adequate in
the short term, should operations deteriorate and present cash resources become
insufficient to fund current needs, the Partnership would require other sources
of working capital. No such sources have been identified. The Partnership has no
established lines of credit from outside sources. Other possible actions to
resolve cash deficiencies include refinancing, deferral of capital expenditures
except where improvements are expected to increase the competitiveness and
marketability of the property, arranging financing from affiliates or the
ultimate sale of the property. A sale or refinance is a possibility only, and as
previously discussed, management is seeking additional financing.

Distributions:

To maintain adequate cash balances of the Partnership, distributions to Current
Income Unit holders were suspended in 1988. There have been no distributions to
Growth/Shelter Units holders. Distributions to Unit holders will remain
suspended for the foreseeable future. The General Partner will continue to
monitor the cash reserves and working capital needs of the Partnership to
determine when cash flows will support distributions to the Unit holders.

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

The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. The Partnership incurred losses of
$308,378, $565,993, and $246,256 in 1995, 1994, and 1993, respectively.

At December 31, 1995, the Partnership held cash and cash equivalents of
$629,747. The balance of cash and cash equivalents can be no more than a minimum
level of cash reserves for the remaining property's operations. Operations of
the property in 1996 are expected to provide sufficient positive cash flow for
normal operations and debt service payments. However, Harbour Club III is in
need of major capital improvements in order to maintain occupancy and rental
rates at a level to continue to support operations and debt service. The
necessary capital improvements will have to be funded from outside sources. No
such sources have been identified. Management is currently seeking additional
financing to fund these improvements, however such financing is not assured. If
the property is unable to obtain additional funds and cannot maintain operations
at a level to support its current debt, the property may ultimately be
foreclosed on by the lender.

Harbour Club III is part of a four-phase apartment complex located in
Belleville, Michigan. Phases I and II of the complex are owned by partnerships
in which McNeil Partners, L.P. is the general partner; while Phase IV is owned
by University Real Estate Fund 12, Ltd., ("UREF 12") whose general partner is an
affiliate of Southmark. McREMI had been managing all four phases of the complex
until December 1992, when the property management agreement between McREMI and
UREF 12 was canceled. Additionally, in January 1993, Phase I defaulted on the
mortgage loan to HUD and, unless a refinancing agreement can be reached with the
lender, the property is subject to foreclosure. If Phase I is lost to
foreclosure, it would be extremely difficult to operate Phases II and III
because the pool and clubhouse are located in Phase I. As of year end, no steps
have been taken towards foreclosure of Phase I.

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

Harbour Club III Apartments was 96% occupied at the end of December 1995 as
compared to 91% and 90% at the end of December 1994 and 1993, respectively.
Harbour Club III was able to provide enough cash flow from operations to meet
ordinary operating expenses as well as the debt service for its related mortgage
during 1995; however, the property is in need of major capital repairs and
improvements in order to compete in its local market. The Partnership is seeking
alternatives to fund the necessary improvements, but at this time no sources
have been found.

The Partnership was formed to engage in the business of acquiring and operating
income-producing real properties and holding the properties for investment.
Since completion of its capital formation and property acquisition phases in
1986, when it completed the purchase of five properties, the Partnership has
operated its properties for production of income. The Partnership's properties
were adversely affected by competitive and over built markets, resulting in
continuing cash flow problems. In 1988, Southmark Tower in Houston, Texas, was
foreclosed on by the lender in full settlement of the mortgage indebtedness on
the property. On September 30, 1993, two of the Partnership's properties, Abbey
Lane and Lexington Green, were conveyed via a deed in lieu of foreclosure in
full settlement of the mortgage indebtedness on the properties. As a result, the
1993 Statement of Operations include a $1,443,330 loss on disposition of real
estate and an extraordinary gain on extinguishment of debt of $3,583,014. On
March 31, 1995 the Partnership sold Wyoming Mall. The Partnership received
$738,914 in net cash proceeds from the sale and recorded a loss on disposition
of real estate of $245,637. The Partnership paid a disposition fee of 3% of the
gross sales price to the General Partner in the amount of $138,750. See Item 8
Note 6 - "Property Dispositions". The Partnership continues to operate its
remaining property, Harbour Club III.

When McNeil took over management of Wyoming Mall in 1991, the property had been
experiencing large vacancy losses and negative cash flow. An intensive marketing
and leasing effort over the next several years was embarked upon to sign new
tenants for long-term leases in order to stabilize occupancy and the economic
performance of the property. This effort resulted in improved occupancy over the
ensuing periods and by the second quarter of 1993, occupancy had stabilized to a
level of 92%. Until a stable occupancy could be reached, management was not in a
position to determine if any permanent impairment had occurred because the size,
location and demographics of the mall were unique to the Albuquerque, N.M. area.
Accordingly, a "wait and see" posture was taken until such stabilization
occurred. At about that time, during the third quarter of 1993, the Partnership
received an unsolicited offer to buy the property. Management began serious
negotiations with the prospective purchaser, and although the decision was made
not to sell at that time, this offer from an unaffiliated third party
established a market value that was close to the value calculated by the future
cash flows of the stabilized leases. Accordingly, a write-down for permanent
impairment of $735,288 was recorded during the third quarter of 1993, to adjust
the carrying value to its estimated realizable value.

During 1994, management determined that Wyoming Mall had reached its optimum
value and therefore began actively marketing the property for sale. On March 31,
1995, Wyoming Mall was sold to an unrelated third party for a cash price of
$9,250,000. The Partnership had a 50% undivided interest in the assets,
liabilities and operations of Wyoming Mall, owned jointly with McNeil Real
Estate Fund XXI, L.P. The Partnership received net cash proceeds of $738,914
from the sale of the property and recorded a loss on disposition of real estate
of $245,637. The Partnership paid a disposition fee of 3% of the gross sales
price to the General Partner in the amount of $138,750. The Partnership recorded
$265,274 of revenue and $270,725 of expenses during 1995 for Wyoming Mall.

The Partnership has had little ready cash reserves since its inception, and has
been largely dependent on affiliates to support its operations. Payable to
affiliates for property management fees, Partnership general and administrative
expenses and asset management fees totaled $1,527,935 at December 31, 1995.

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

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

1995 compared to 1994

Revenue:

Total Partnership revenues in 1995 decreased $312,327 or 11% as compared to
1994. This decrease is primarily due to the sale of Wyoming Mall in March 1995.

Rental revenue decreased $494,487 or 17% for the year ended December 31, 1995 as
compared to the same period in 1994, primarily due to the sale of Wyoming Mall.

Interest income increased $8,977 or 54% in 1995 as compared to 1994. The
increase is primarily due to higher average cash balances that resulted from the
sale proceeds of Wyoming Mall.

The Partnership recorded a $38,749 gain on legal settlement in 1995. In May
1995, the Partnership received cash of $29,292 and common and preferred stock in
the reorganized Southmark that was subsequently sold for $9,457, as full
satisfaction of claims previously filed in the Bankruptcy Court.

The Partnership also recorded $134,434 in other income during 1995 as a result
of 1993-1994 property tax refund on Harbour Club III. This was the result of the
successful tax appeal to reduce the property's taxable base value.

Expenses:

Total expenses decreased $569,942 or 16% for the year ended December 31, 1995 as
compared to the same period of 1994.

During 1995, Wyoming Mall was sold and the effects from the sale were declines
of $293,450 in interest, $225,217 in depreciation and amortization, $42,455 in
property taxes, $25,418 in personnel expenses, $35,249 in property management
fees - affiliates, $29,219 in repairs and maintenance and $79,833 in other
property operating expenses.

In addition to the sale of Wyoming Mall, other factors affected the level of
expenses reported by the remaining property.

Interest - affiliates decreased $53,034 or 74% in 1995 as compared to 1994. The
sale of Wyoming Mall enabled the Partnership to repay all outstanding affiliate
advances, thereby reducing affiliate interest expense.

Depreciation and amortization increased by $25,632 due to the capital
improvements made at Harbour Club III.

Property tax expense decreased $53,554 in 1995 as compared to 1994 due to the
reduction in property tax expense at Harbour Club III Apartments that occurred
from a successful tax appeal.

Property management fees-affiliates increased by $7,272 in 1995 as compared to
1994 due to the increase in rental revenue generated at Harbour Club III.

1994 compared to 1993

Revenue:

Rental revenue for 1994 was $2,950,795 as compared to $5,655,988 for 1993. The
decrease was primarily due to the loss of Abbey Lane and Lexington Green
Apartments via a deed in lieu of foreclosure in full settlement of the mortgage
indebtedness on the properties in September 1993. The Partnership recorded
$2,754,042 of rental revenue relating to Abbey Lane and Lexington Green
Apartments in 1993. This decrease in rental revenue was partially offset by
decreased vacancies at the Partnership's remaining two properties, due to
marketing efforts to lease available space.

Interest income increased by $2,257 in 1994 as compared to 1993 due to higher
average cash balances and higher interest rates. Cash and cash equivalents were
$589,211 at December 31, 1994 as compared to $378,420 at December 31, 1993.

Expenses:

Total expenses for 1994 decreased by $6,031,337 as compared to 1993. The
decrease was partially due to the loss of Abbey Lane and Lexington Green
Apartments as discussed above. The 1993 expenses include a write-down for
permanent impairment of real estate of $735,288 to reduce the carrying value of
Wyoming Mall and a $1,443,330 loss on disposition of real estate. See discussion
of "Financial Condition" and Item 8 - Note 4 - "Real Estate Investment".

Interest expense decreased by $1,307,678 as compared to 1993. Abbey Lane and
Lexington Green Apartments recorded $1,297,132 of interest expense in 1993.

Interest expense - affiliates increased $12,771 as compared to 1993 due to
higher average advance balances and increased interest rates.

Depreciation and amortization decreased by $591,919 as compared to 1993. The
decrease was primarily due to the loss of Abbey Lane and Lexington Green
Apartments in September 1993, as well as the reduction in basis of Wyoming Mall
resulting from the write-down for permanent impairment.

Property taxes decreased by $314,338 as compared to 1993. The decrease was due
to the loss of Abbey Lane and Lexington Green Apartments as well as a lower tax
expense for Harbour Club III Apartments due to a successful tax appeal.

Personnel costs decreased by $444,403 as compared to 1993. Abbey Lane and
Lexington Green Apartments recorded $474,743 of personnel expense in 1993. The
decrease attributable to the loss of these two properties was partially offset
by increases at Wyoming Mall and Harbour Club III due to staff additions to meet
service requirements as well as higher employee insurance rates.

Repairs and maintenance expense decreased by $434,215 as compared to 1993. The
Partnership recorded $388,903 of repair and maintenance expense for Abbey Lane
and Lexington Green Apartments in 1993. A decrease in floor covering recurring
replacements at Harbour Club III was responsible for the balance of the
decrease.

Property management fees - affiliates decreased $157,138 as compared to 1993.
The Partnership recorded $137,935 of management fees for Abbey Lane and
Lexington Green Apartments in 1993. Additionally, the mortgage note encumbering
Harbour Club III Apartments is insured by the Federal Housing Administration and
is, therefore, regulated by HUD under Sections 223(f) and 224 of the National
Housing Act. The Regulatory Agreement had limited the amount of property
management fees that can be charged to 4.25%; and the Partnership received the
approval of HUD to change the property management fees of Harbour Club III
Apartments from 4.25% to 5% retroactive to May 30, 1991. The Partnership
recorded $23,032 of such retroactive fees related to 1991 - 1992 during 1993.

Other property operating expenses decreased by $405,758 as compared to 1993.
Abbey Lane and Lexington Green Apartments recorded $456,900 of other property
operating expenses in 1993. The increase at the Partnership's two remaining
properties was attributable to increased bad debts and legal fees. During 1994,
a tenant occupying 10,123 square feet at Wyoming Mall moved out owing past due
rent of approximately $20,000. Additionally, lower tenant profiles at Harbour
Club III led to higher bad debt in 1994. Both properties incurred higher legal
expenses to process the evictions related to the above bad debt.

General and administrative - affiliates decreased by $206,571 as compared to
1993. The decrease was partially due to a decrease of $125,175 in asset
management fees in 1994 due to a decrease in the tangible asset value of the
Partnership, on which the fee is based. The remainder was due to a decrease in
cost reimbursements to affiliates. This was attributable to a decrease in the
number of properties, due to the loss of Abbey Lane and Lexington Green
Apartments, to which the overhead costs were allocated by McREMI.

<PAGE>

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

<TABLE>

Page
Number
------
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Financial Statements:

Report of Independent Public Accountants....................................... 15

Balance Sheets at December 31, 1995 and 1994................................... 16

Statements of Operations for each of the three years in the period
ended December 31, 1995........................................................ 17

Statements of Partners' Deficit for each of the three years in
the period ended December 31, 1995............................................. 18

Statements of Cash Flows for each of the three years in the period
ended December 31, 1995........................................................ 19

Notes to Financial Statements.................................................. 21

Financial Statement Schedules -

Schedule III - Real Estate Investment and Accumulated
Depreciation and Amortization............................................ 32

</TABLE>

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

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

We have audited the accompanying balance sheets of McNeil Real Estate Fund XXII,
L.P. (a California limited partnership) as of December 31, 1995 and 1994, and
the related statements of operations, partners' deficit and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements and the schedule referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of McNeil Real Estate Fund XXII,
L.P. as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 7 to the
financial statements, the Partnership has suffered recurring losses from
operations and the Partnership's only property is in need of major capital
improvements in order to maintain occupancy and rental rates at a level to
continue to support operations and debt service. Additionally, the property is
part of a four phase complex. Phase I of the complex defaulted on the mortgage
loan to the United States Department of Housing and Urban Development in January
1993. The property is subject to foreclosure unless a refinancing agreement can
be reached with the lender. If Phase I is lost to foreclosure, it would have a
significant impact on the operations of Phase III, owned by the Partnership, as
the pool and clubhouse are located in Phase I. As of year end, no steps have
been taken towards the foreclosure of Phase I. Management's plans in regard to
these matters are also described in Note 8. These conditions raise substantial
doubt about the Partnership's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.

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

/s/ Arthur Andersen LLP

Dallas, Texas
March 6, 1996

<PAGE>

McNEIL REAL ESTATE FUND XXII, L.P.

BALANCE SHEETS

<TABLE>
December 31,
------------------------------
1995 1994
---------- ----------
ASSETS
- ------
<S> <C> <C>
Real estate investments:
Land..................................................... $ 380,414 $ 380,414
Buildings and improvements............................... 9,842,846 9,579,406
---------- ----------
10,223,260 9,959,820
Less: Accumulated depreciation and
amortization........................................... (4,718,722) (4,327,711)
---------- ----------
5,504,538 5,632,109

Asset held for sale - 4,393,157

Cash and cash equivalents................................... 629,747 589,211
Cash segregated for security deposits....................... 76,490 87,838
Accounts receivable......................................... 4,683 141,268
Escrow deposits............................................. 180,537 357,858
Prepaid expenses and other assets, net...................... 11,936 112,720
---------- ----------
$ 6,407,931 $11,314,161
========== ==========
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------

Mortgage notes payable, net................................. $ 6,026,515 $ 9,534,751
Accounts payable and accrued expenses....................... 133,150 147,771
Accrued property taxes...................................... 65,931 234,143
Payable to affiliates - General Partner..................... 1,527,935 1,501,947
Advances from affiliates.................................... - 915,129
Security deposits and deferred rental income................ 73,424 91,066
---------- ----------
7,826,955 12,424,807
---------- ----------

Partners' deficit:
Limited partners - 55,000,000 Units authorized; 33,208,117
and 33,268,117 Units issued and outstanding at
December 31, 1995 and 1994, respectively,(19,825,588 and
19,875,588 Current Income Units outstanding at
December 31, 1995 and 1994, respectively, and 13,382,529
and 13,392,529 Growth/Shelter Units at December 31, 1995
and 1994 respectively)................................. (1,168,315) (863,021)
General Partner.......................................... (250,709) (247,625)
---------- ----------
(1,419,024) (1,110,646)
---------- ----------
$ 6,407,931 $11,314,161
========== ==========

</TABLE>

See accompanying notes to financial statements.

<PAGE>

McNEIL REAL ESTATE FUND XXII, L.P.
STATEMENTS OF OPERATIONS
<TABLE>

For the Years Ended December 31,
-----------------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Revenue:
Rental revenue.......................... $2,456,308 $2,950,795 $5,655,988
Interest................................ 25,649 16,672 14,415
Gain on settlement of legal
expenses.............................. 38,749 - -
Other income............................ 134,434 - 65,124
--------- --------- ---------
Total revenue......................... 2,655,140 2,967,467 5,735,527
--------- --------- ---------

Expenses:
Interest................................ 683,664 981,281 2,288,959
Interest - affiliates................... 18,568 71,602 58,831
Depreciation and amortization........... 465,617 665,202 1,257,121
Property taxes.......................... 169,039 265,048 579,386
Personnel expenses...................... 317,753 350,089 794,492
Repairs and maintenance................. 313,668 310,645 744,860
Property management fees -
affiliates............................ 126,807 154,784 311,922
Other property operating expenses....... 279,043 365,478 771,236
General and administrative.............. 64,085 73,968 77,438
General and administrative -
affiliates............................ 279,637 295,363 501,934
Write-down for permanent
impairment of real estate............. - - 735,288
Loss on disposition of real estate...... 245,637 - 1,443,330
--------- --------- ---------
Total expenses........................ 2,963,518 3,533,460 9,564,797
--------- --------- ---------

Loss before extraordinary items............ (308,378) (565,993) (3,829,270)
Extraordinary items........................ - - 3,583,014
---------- --------- ---------
Net loss................................... $ (308,378) $ (565,993) $ (246,256)
========== ========= =========

Net loss allocable to limited
partners - Current Income Unit.......... $ (27,754) $ (50,939) $ (22,163)
Net loss allocable to limited
partners - Growth/Shelter Unit.......... (277,540) (509,394) (221,630)
Net loss allocable to General
Partner................................. (3,084) (5,660) (2,463)
---------- --------- ---------
Net loss................................... $ (308,378) $ (565,993) $ (246,256)
========== ========= =========

Net loss per thousand limited partnership
units:
Current Income Units:
Loss before extraordinary items......... $ (1.40) $ (2.56) $ (17.32)
Extraordinary items..................... - - 16.20
---------- --------- ---------
Net loss................................ $ (1.40) $ (2.56) $ (1.12)
========== ========= =========

Growth/Shelter Units:
Loss before extraordinary items......... $ (20.74) $ (38.04) $ (257.23)
Extraordinary items..................... - - 240.69
---------- --------- ---------
Net loss................................ $ (20.74) $ (38.04) $ (16.54)
========== ========= =========

</TABLE>

See accompanying notes to financial statements.

<PAGE>

McNEIL REAL ESTATE FUND XXII, L.P.

STATEMENTS OF PARTNERS' DEFICIT

For the Years Ended December 31, 1995, 1994 and 1993

<TABLE>
Total
General Limited Partners'
Partner Partners Deficit
-------- --------- ---------
<S> <C> <C> <C>
Balance at December 31, 1992.............. $(239,502) $ (58,895) $ (298,397)

Net loss
General Partner........................ (2,463) - (2,463)
Current Income Units................... - (22,163) (22,163)
Growth/Shelter Units................... - (221,630) (221,630)
-------- --------- ---------
Total net loss............................ (2,463) (243,793) (246,256)
-------- --------- ---------

Balance at December 31, 1993.............. (241,965) (302,688) (544,653)

Net loss
General Partner........................ (5,660) - (5,660)
Current Income Units................... - (50,939) (50,939)
Growth/Shelter Units................... - (509,394) (509,394)
-------- --------- ---------
Total net loss............................ (5,660) (560,333) (565,993)
-------- --------- ---------

Balance at December 31, 1994.............. (247,625) (863,021) (1,110,646)

Net loss
General Partner........................ (3,084) - (3,084)
Current Income Units................... - (27,754) (27,754)
Growth/Shelter Units................... - (277,540) (277,540)
-------- --------- ---------
Total net loss............................ (3,084) (305,294) (308,378)
-------- --------- ---------

Balance at December 31, 1995.............. $(250,709) $(1,168,315) $(1,419,024)
======== ========== ==========
</TABLE>

See accompanying notes to financial statements.

<PAGE>

McNEIL REAL ESTATE FUND XXII, L.P.

STATEMENTS OF CASH FLOWS

Increase in Cash and Cash Equivalents

<TABLE>
For the Years Ended December 31,
-----------------------------------------------
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from tenants.............. $2,527,267 $ 2,945,966 $ 5,561,856
Cash received from legal settlement..... 38,749 - -
Cash paid to suppliers.................. (945,403) (1,021,436) (2,604,510)
Cash paid to affiliates................. (380,456) (153,489) (324,781)
Interest received....................... 25,649 16,672 14,415
Interest paid........................... (676,971) (936,355) (1,990,475)
Interest paid to affiliates............. (149,043) - -
Property taxes paid..................... (125,879) (351,105) (405,642)
Property taxes refunded................. 134,434 - 65,124
--------- --------- ----------
Net cash provided by operating
activities.............................. 448,347 500,253 315,987
--------- --------- ----------

Cash flows from investing activities:
Additions to real estate
investments........................... (270,552) (146,836) (346,003)
Proceeds from sale of real estate.......... 738,914 - -
---------- --------- ----------
Net cash provided by (used in)
financing activities 468,362 (146,836) (346,003)
---------- --------- ----------

Cash flows from financing activities:
Principal payments on mortgage
notes payable......................... (91,519) (121,752) (111,838)
Advances from affiliates................ - - 250,207
Repayment of advances from
affiliates - General Partner.......... (784,654) (20,874) (53,909)
---------- --------- ----------
Net cash provided by (used in)
financing activities.................. (876,173) (142,626) 84,460
---------- --------- ----------

Net increase in cash and cash
equivalents........................... 40,536 210,791 54,444

Cash and cash equivalents at
beginning of year..................... 589,211 378,420 323,976
---------- ---------- ----------

Cash and cash equivalents at end
of year............................... $ 629,747 $ 589,211 $ 378,420
========== ========== =========
</TABLE>

See discussion of noncash investing and financing activities in Note 6.

See accompanying notes to financial statements.

<PAGE>

McNEIL REAL ESTATE FUND XXII, L.P.

STATEMENTS OF CASH FLOWS

Reconciliation of Net Loss to Net Cash Provided by
Operating Activities

<TABLE>
For the Years Ended December 31,
---------------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net loss................................... $(308,378) $(565,993) $(246,256)
-------- -------- --------

Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization........... 465,617 665,202 1,257,121
Amortization of discounts on
mortgage notes payable................ 35,620 34,049 129,403
Amortization of deferred borrowing
costs................................. 2,936 11,744 11,744
Interest added to advances from
affiliates - General Partner.......... - 71,602 51,740
Write-down for permanent
impairment of real estate............. - - 735,288
Loss on disposition of real estate...... 245,637 - 1,443,330
Extraordinary items..................... - - (3,583,014)
Changes in assets and liabilities:
Cash segregated for security
deposits............................ 11,348 (14,465) 114,021
Accounts receivable................... 54,836 32,100 (44,728)
Escrow deposits....................... 177,321 (101,497) 59,218
Prepaid expenses and other assets..... 7,902 9,292 27,205
Accounts payable and accrued
expenses............................ (145,096) 28,306 (124,609)
Accrued property taxes ............... (130,323) 17,911 127,948
Payable to affiliates - General
Partner............................. 25,988 296,658 489,075
Security deposits and deferred
rental income....................... 4,939 15,344 (131,499)
-------- --------- ---------

Total adjustments................. 756,725 1,066,246 562,243
-------- --------- ---------

Net cash provided by
operating activities.................... $ 448,347 $ 500,253 $ 315,987
======== ========= =========
</TABLE>

See accompanying notes to financial statements.

<PAGE>

McNEIL REAL ESTATE FUND XXII, L.P.

NOTES TO FINANCIAL STATEMENTS

December 31, 1995

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

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

The Partnership is engaged in real estate activities, including the ownership,
operation and management of residential and retail real estate and other real
estate related assets. At December 31, 1995, the Partnership owned one
income-producing property as described in Note 4 - Real Estate Investment.

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

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

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

% of Ownership Interest
Tier Partnership Partnership General Partner
- ---------------- ----------- ---------------

General Partnerships:
Harbour Club Associates 99% 1%

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

Real estate investments are generally stated at the lower of cost or net
realizable value. Real estate investments are monitored on an ongoing basis to
determine if the property has sustained a permanent impairment in value. At such
time, a write-down is recorded to reduce the basis of the property to its net
realizable value. A permanent impairment is determined to have occurred when a
decline in property value is considered to be other than temporary based upon
management's expectations with respect to projected cash flows and prevailing
economic conditions.

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

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This statement is effective for financial statements for fiscal
years beginning after December 15, 1995. The Partnership has not adopted the
principles of this statement within the accompanying financial statements;
however, it is not anticipated that adoption will have a material effect on the
carrying value of the Partnership's long-lived assets.

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 with
financial institutions with original maturities of three months or less.
Carrying amounts for cash and cash equivalents approximate fair value.

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

The Partnership is required to maintain escrow accounts in accordance with the
terms of 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.

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

Loan fees and other related costs incurred to obtain long-term financing on real
property are capitalized and are included in prepaid expenses and other assets.
Amortization is recorded 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 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 property under short-term operating
leases. Lease terms generally are less than one year in duration. Rental income
is recognized as earned.

The Partnership leased its commercial property under non-cancelable operating
leases. Certain leases provided concessions and/or periods of escalating or free
rent. Rental income was recognized on a straight-line basis over the term of the
related lease. The excess of the rental income recognized over the contractual
rental payments was recorded as accrued rent receivable and included in accounts
receivable on the Balance Sheets in 1994.

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.

<PAGE>

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 property still owned by the Partnership and (c) third, 1% of
such net income shall be allocated to the General Partner and 99% of such net
income shall be allocated to the limited partners.

Federal income tax law provides that the allocation of loss to a partner will
not be recognized unless the allocation is in accordance with a partner's
interest in the partnership or the allocation has substantial economic effect.
Internal Revenue Code Section 704(b) and accompanying Treasury Regulations
establish criteria for allocation of Partnership deductions attributable to
debt. The Partnership's tax allocations for 1995, 1994 and 1993 have been made
in accordance with these provisions.

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

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

Net loss per thousand limited partnership units ("Units") is computed by
dividing net loss allocated to the limited partners by the weighted average
number of limited partnership Units outstanding expressed in thousands. Per
thousand unit information has been computed based on 19,826, 19,876, and 19,903
weighted average Current Income Units outstanding in 1995, 1994 and 1993,
respectively, and 13,383, 13,393 and 13,398 weighted average Growth/Shelter
Units outstanding in 1995, 1994, and 1993, respectively.

<PAGE>

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

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

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

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

Compensation and reimbursements paid to or accrued for the benefit of the
General Partner or its affiliates are as follows:
<TABLE>
For the Years Ended December 31,
---------------------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Property management fees - affiliates...... $126,807 $154,784 $311,922
Interest on expense - affiliates........... 18,568 71,602 58,831
Charged to general and
administrative - affiliates:
Partnership administration.............. 114,003 114,924 196,320
Asset Management Fee.................... 165,634 180,439 305,614
Charged to loss on disposition of real
estate sale:
Disposition fee - Wyoming Mall.......... 138,750 - -
------- ------- -------
$563,762 $521,749 $872,687
======= ======= =======
</TABLE>

Payable to affiliates - General Partner at December 31, 1995 and 1994 consisted
primarily of unpaid property management fees, Partnership general and
administrative expenses, and asset management fees and are due and payable from
current operations.

The General Partner has established a revolving credit facility not to exceed
$5,000,000 in the aggregate which is available on a "first-come, first-served"
basis to the Partnership and other affiliated partnerships if certain conditions
are met. Borrowings under the facility may be used to fund deferred maintenance,
refinancing obligations and working capital needs. The Partnership received
advances under the revolving credit facility to meet operating expenses at
Lexington Green Apartments and Wyoming Mall which were repaid in full in 1995.
There is no assurance that the Partnership will receive any additional funds
under the facility because no amounts will be reserved for any particular
partnership. As of December 31, 1995, $2,662,819 remained available for
borrowing under the facility; however, additional funds could become available
as other partnerships repay existing borrowings. This commitment will terminate
on March 26, 1997.

Additionally, the General Partner has, at its discretion, advanced funds to the
Partnership in addition to the revolving credit facility. As discussed below,
the Partnership received such other advances that were used to fund working
capital requirements. The General Partner is not obligated to advance funds to
the Partnership and there is no assurance that the Partnership will receive
additional funds.

In April 1995, the Partnership utilized the proceeds from the sale of Wyoming
Mall to repay all outstanding affiliate advances and the related accrued
interest.

The total advances from affiliates at December 31, 1995 and 1994 consist of the
following:
<TABLE>
1995 1994
----------- -----------
<S> <C> <C>
Advances from General Partner- revolving credit
facility $ - $ 167,102
Advances from General Partner - other - 301,155
Advances purchased by General Partner - 16,397
Advances from McNeil Real Estate Fund XXI, L.P. - 300,000
Accrued interest payable - 130,475
----------- -----------
$ - $ 915,129
============ ===========
</TABLE>

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

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

The Partnership's net assets and liabilities for tax purposes exceeded the net
assets and liabilities for financial reporting purposes by $6,235,169 in 1995,
$6,774,370 in 1994 and $6,811,846 in 1993.

NOTE 4 - REAL ESTATE INVESTMENT
- ------ ----------------------

The basis and accumulated depreciation of the Partnership's real estate
investment at December 31, 1995 and 1994, is set forth in the following tables:

<TABLE>
Buildings and Accumulated Net Book
Land Improvements Depreciation Value
------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Harbour Club III
Belleville, MI

1995 $380,414 $ 9,842,846 $(4,718,722) $5,504,538
======= ========== ========== =========

1994 $380,414 $ 9,579,406 $ (4,327,711) $5,632,109
======= ========== =========== =========
</TABLE>

On March 31, 1995, Wyoming Mall was sold to an unrelated third party for a cash
price of $9,250,000. The Partnership had a 50% undivided interest in the assets,
liabilities and operations of Wyoming Mall, owned jointly with McNeil Real
Estate Fund XXI, L.P. The Partnership received net cash proceeds of $738,914
from the sale of the property and recorded a loss on disposition of real estate
of $245,637. The Partnership recorded $265,274 of revenue (excluding loss on
sale of real estate) and $270,725 of expenses during 1995 for Wyoming Mall.
<PAGE>

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

The following sets forth mortgage notes payable of the Partnership at December
31, 1995 and 1994. All mortgage notes are secured by the underlying real estate
investment.
<TABLE>
Mortgage Annual Monthly December 31,
Lien Interest Payments/ -----------------------------
Property Position (a) Rates % Maturity 1995 1994
- -------- ------------- ------- ------------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Harbour Club III First 7.000 $ 49,395 04/24 $ 7,302,661 $ 7,381,214
Discount(b) (1,276,146) (1,311,766)
---------- ----------
6,026,515 6,069,448
---------- ----------

Wyoming Mall (50%) First(c) 10.875 35,688 07/99 - 3,465,303
---------- ----------
$ 6,026,515 $ 9,534,751
========== ==========
</TABLE>

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

(b) Discount for Harbour Club III is based on an effective interest rate of
9.09%.

Scheduled principal maturities of the mortgage note under the existing
agreement, excluding the discount of $1,276,146, are as follows:

1996.................................... $ 84,232
1997.................................... 90,321
1998.................................... 96,851
1999.................................... 103,852
2000.................................... 111,360
Thereafter.............................. 6,816,045
---------
Total $7,302,661
=========

Based on borrowing rates currently available to the Partnership for a mortgage
loan with similar terms and average maturities, the fair value of the mortgage
note payable was approximately $6,507,000 as of December 31, 1995.

<PAGE>

NOTE 6 - PROPERTY DISPOSITIONS
- ------ ---------------------

<TABLE>

Loss on Sale Cash Proceeds
---------- ---------
<S> <C> <C>
Sales Price.......................................... $ 4,625,000 $4,625,000

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

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

Retirement of mortgage note.......................... (3,452,337)
Payment of 1994 taxes at closing..................... (23,735)
Real estate tax proration............................ (14,154)
Credit for security deposit liability................ (22,581)
----------

Net cash proceeds.................................... $ 738,914
==========
</TABLE>

The selling costs above include a disposition fee at 3% of the gross sales price
paid the to General Partner in the amount of $138,750.

In July 1993, the Partnership discontinued payments on the mortgage notes of
Lexington Green Apartments and Abbey Lane Apartments, both located in Columbus,
Ohio. In an agreement with the lender, the properties were conveyed to
unaffiliated entities via a deed in lieu of foreclosure in full settlement of
the mortgage indebtedness

On September 30, 1993, the Partnership transferred Lexington Green Apartments to
Lex Green Realty, Inc., an unaffiliated entity. The property was transferred
subject to the wraparound mortgage in the principal amount of $9,975,000.

Additionally, on September 30, 1993, the Partnership transferred Abbey Lane
Apartments to Abbey Lane Apartments, Inc., an unaffiliated entity. The property
was transferred subject to the first mortgage in the principal amount of
$6,025,000.

In consideration for these transactions, the Partnership paid $291,353,
representing cash on hand and security deposits, less certain credits.

Based on appraisals obtained by the transferee, the fair values of the
properties were established to be less than their book value; and accordingly, a
loss on disposition of real estate totaling $1,443,330, and an extraordinary
gain on extinguishment of debt totaling $3,583,014 were recorded in connection
with these transactions. The amounts are determined as follows:

<PAGE>

<TABLE>
Lexington Green Abbey Lane
--------------- ----------
<S> <C> <C>

Estimated fair value of real estate.................. $ 7,750,000 $ 4,650,000
Carrying value....................................... (9,145,589) (4,697,741)
---------- ----------
Loss on disposition of real estate................... $(1,395,589) $ (47,741)
========== ==========

Amount of mortgage and accrued interest
settled........................................... $ 9,997,307 $ 5,985,707
Estimated fair value of real estate.................. (7,750,000) (4,650,000)
---------- ----------
Gain on extinguishment of debt....................... $ 2,247,307 $ 1,335,707
========== ==========
</TABLE>

NOTE 7 - FINANCIAL CONDITION AND GOING CONCERN CONSIDERATIONS
- ------ ----------------------------------------------------

Harbour Club III is part of a four-phase apartment complex located in
Belleville, Michigan. Phases I and II of the complex are owned by partnerships
in which McNeil Partners, L.P. is the general partner; while Phase IV is owned
by University Real Estate Fund 12, Ltd., ("UREF 12") whose general partner is an
affiliate of Southmark. McREMI had been managing all four phases of the complex
until December 1992, when the property management agreement between McREMI and
UREF 12 was canceled. Additionally, in January 1993, Phase 1 defaulted on the
mortgage loan to the United States Department of Housing and Urban Development
("HUD") and, unless a refinancing agreement can be reached with the lender, the
property is subject to foreclosure. If Phase I is lost to foreclosure, it would
be extremely difficult to operate Phases II and III because the pool and
clubhouse are located in Phase I. As of year end, no steps have been taken
towards the foreclosure of Phase I.

NOTE 8 - LEGAL PROCEEDINGS
- ------ -----------------

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

4) Dick and Aloma Anderson v. McNeil Real Estate Fund XXII, L.P. , McNeil
---------------------------------------------------------------------------
Partners, L.P., Wayne T. Shipp, the Wayne Shipp Agency, Inc., Southmark
---------------------------------------------------------------------------
Investment Group, Inc. and Southmark Realty Partners, Ltd. This lawsuit was
---------------------------------------------------------
filed in November 1993 in Washington State in the Clark County Superior
Court. In 1985, the plaintiffs apparently spent $22,000 to purchase limited
partnership interests in Southmark Realty Partners Ltd. II , (not named by
them as a defendant ) whose name is now McNeil Real Estate Fund XXII, L.P.
(the "Partnership"). Plaintiffs allege that in connection with the
transactions by which McNeil Partners, L.P. became general partner of the
Partnership, and by which certain changes were made in the Partnership, the
McNeil entities engaged in the offer and/or sale of unregistered securities
in violation of Washington law. The plaintiffs have alleged that certain of
the other defendants -- specifically Mr. Shipp and the Shipp Insurance
Agency -- engaged in fraud in connection with the sale of limited
partnership interests in the Partnership to plaintiffs. The plaintiffs have
not made fraud allegations against any of the McNeil or Southmark entities.
The majority of plaintiffs' claims against the Partnership are based on
allegations that the securities are not registered in the State of
Washington. Counsel's research indicates that there are two possible
exemptions to the registration of securities which apply to this matter.
These statutory exceptions are under review by the plaintiffs' attorney.
Counsel for the Partnership was contacted recently and asked whether the
Partnership would be interested in repurchasing Plaintiffs' units at a
discount. Plaintiffs will be advised of their option to abandon their units
back to the Partnership for no considerations. The ultimate outcome of this
proceeding cannot be determined at this time.

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

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

An Order Granting Motion to Distribute Funds to Class 8 Claimants dated April
14, 1995 was issued by the Bankruptcy Court. In accordance with the Order, in
May 1995 the Partnership received in full satisfaction of its claims, $29,292 in
cash, and common and preferred stock in the reorganized Southmark subsequently
sold for $9,457, which amounts represent the Partnership's pro-rata share of
Southmark assets available for Class 8 Claimants.
<PAGE>

NOTE 10 - PRO FORMA INFORMATION (UNAUDITED)
- ------- --------------------------------

The following pro forma information for the years ended December 31, 1995 and
1994 reflects the results of operations of the Partnership as if the sale of
Wyoming Mall had occurred as of January 1, 1994. The 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.
<TABLE>
1995 1994
--------- ---------
<S> <C> <C>
Total revenue $2,389,866 $2,086,148
Net loss (57,289) (445,746)

Net loss per thousand limited partnership units:
Current Income Units (.26) (2.02)
Growth/Shelter Units (3.85) (29.95)

</TABLE>
<PAGE>

McNEIL REAL ESTATE FUND XXII, LTD.
SCHEDULE III
REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION AND AMORTIZATION
December 31, 1995
<TABLE>
Initial Cost (b) Cumulative Costs
------------------------------ Write-down Capitalized
Related (b) Buildings and and Permanent Subsequent
Description Encumbrances Land Improvements Impairment To Acquisition
- ----------- ------------ ------------------------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Apartments:

Harbour Club
Belleville, MI (c) $6,026,515 $ 561,491 $13,475,784 $(4,526,936) $ 712,921
========= ======== ========== ========== ===========
</TABLE>

See accompanying notes to Schedule III.

<PAGE>

McNEIL REAL ESTATE FUND XXII, LTD.
SCHEDULE III
REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION AND AMORTIZATION
December 31, 1995

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

Harbour Club III
Belleville, MI (c) $ 380,414 $ 9,842,846 $ 10,223,260 $ (4,718,722)
============= ============= =============== =============

</TABLE>

(a) For Federal Income tax purposes, the properties are depreciated over lives
ranging from 15-25 years using ACRS or MACRS methods. The aggregate cost of
real estate investments for Federal income tax purposes was $16,232,088 and
accumulated depreciation was $9,193,055 at December 31, 1995.

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

See accompanying notes to Schedule III.

<PAGE>

McNEIL REAL ESTATE FUND XXII, LTD.
SCHEDULE III
REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION AND AMORTIZATION
December 31, 1995

<TABLE>

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

Harbour Club III
Belleville, MI (c) 1972 05/86 5-25

</TABLE>

<PAGE>

McNEIL REAL ESTATE FUND XXII, 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>
For the Years Ended December 31,
-----------------------------------------------
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Real estate investments:
- -----------------------

Balance at beginning of year............... $9,959,820 $16,906,946 $37,627,163

Improvements............................... 263,440 146,836 346,003

Reclassification to asset held for sale.... - (7,093,962) -

Write-down for permanent
impairment of real estate............... - - (735,288)

Dispositions............................... - - (20,330,932)
--------- ---------- ----------

Balance at end of year..................... $10,223,260 $ 9,959,820 $16,906,946
========== ========== ==========

Accumulated depreciation and amortization:
- -----------------------------------------

Balance at beginning of year............... $ 4,327,711 $ 6,363,314 $11,153,467

Depreciation and amortization.............. 391,011 665,202 1,257,121

Reclassification to asset held for sale.... - (2,700,805) -

Dispositions............................... - - (6,047,274)
---------- ---------- ----------

Balance at end of year..................... $ 4,718,722 $ 4,327,711 $ 6,363,314
========== ========== ==========

Asset held for sale:
- -------------------

Balance at beginning of year............... $ 4,393,157 $ - $ -

Improvements............................... 7,112 - -

Depreciation and amortization.............. (74,606) - -

Reclassification from real estate
investment.............................. - 4,393,157 -

Dispositions............................... (4,325,663) - -
---------- ---------- ----------

Balance at end of year..................... $ - $ 4,393,157 $ -
========== ========== ==========
</TABLE>

<PAGE>

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

None.

PART III

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

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

Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
<S> <C> <C>
Robert A. McNeil, 75 Mr. McNeil is also Chairman of the Board and Director of McNeil Real
Chairman of the Estate Management, Inc. ("McREMI") which is an affiliate of the General
Board and Director 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.

Carole J. McNeil 52 Mrs. McNeil is Co-Chairman, with husband Robert A. McNeil, of McNeil
Co-Chairman of the Investors, Inc. Mrs. McNeil has twenty years of real estate experience,
Board most recently as a private investor from 1986 to 1993. In 1982, she
founded Ivory & Associates, a commercial real estate brokerage firm in San
Francisco, CA. Prior to that, she was a commercial real estate associate
with the Madison Company and, earlier, a commercial sales associate and
analyst with Marcus and Millichap in San Francisco. In 1978, Mrs.
McNeil established Escrow Training Centers, California's first accredited
commercial training program for title company escrow officers and real
estate agents needing college credits to qualify for brokerage licenses.
She began in real estate as Manager and Marketing Director of Title
Insurance and Trust in Marin County, CA. Mrs. McNeil serves on the
International Board of Directors of the Salk Institute.

</TABLE>

<PAGE>

<TABLE>

Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
<S> <C> <C>
Donald K. Reed, 50 Mr. Reed is President, Chief Executive Officer and Director of McREMI
Director, President, which is an affiliate of the General Partner. Prior to joining McREMI in
and Chief Executive March 1993, Mr. Reed was President, Chief Operating Officer and Director
Officer of Duddlesten Management Corporation and Duddlesten Realty Advisors, Inc.,
with responsibility for a management portfolio of office, retail,
multi-family and mixed-use land projects representing $2 billion in asset
value. He was also Chief Operating Officer, Director and member of the
Executive Committee of all Duddlesten affiliates. Mr. Reed started with
the Duddlesten companies in 1976 and served as Senior Vice President and
Chief Financial Officer and as Executive Vice President and Chief Operating
Officer of Duddlesten Management Corporation before his promotion to
President in 1982. He was President and Chief Operating Officer of
Duddlesten Realty Advisors, Inc., which has been engaged in real estate
acquisitions, marketing and dispositions, since its formation in 1989.

Ron K. Taylor 38 Mr. Taylor is a Senior Vice President of McREMI and has been in this
Vice President capacity since McREMI commenced active operations in 1991. He also serves
as Acting Chief Financial Officer of McREMI since the resignation of
Robert C. Irvine on January 31, 1996. Mr. Taylor is primarily responsible
for Asset Management functions at McREMI, including property
dispositions, commercial leasing, real estate finance and portfolio
management. Prior to joining McREMI, Mr. Taylor served as an Executive
Vice President for a national syndication/property management company.
Mr. Taylor has been involved in the real estate industry since 1983.
</TABLE>

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

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

No direct compensation was paid or payable by the Partnership to directors or
officers (since it does not have any directors or officers) for the year ended
December 31, 1995, 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, 1995. The Partnership has no plans to
pay any such remuneration to any directors or officers of the General Partner in
the future.

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

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

(A) Security ownership of certain beneficial owners.

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

(B) Security ownership of management.

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

None.

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

The amendments to the Partnership compensation structure included in the Amended
Partnership Agreement provide for an asset management fee to replace all other
forms of General Partner compensation other than property management fees and
reimbursements of certain costs. Through 1999, the asset management fee is
calculated as 1% of the Partnership's tangible asset value. Tangible asset value
is determined by using the greater of (i) an amount calculated by applying a
capitalization rate of 9 percent to the annualized net operating income of each
property or (ii) a value of $10,000 per apartment unit for residential property
and $50 per gross square foot for commercial property to arrive at the property
tangible asset value. The property tangible asset value is then added to the
book value of all other assets excluding intangible items. The fee percentage
decreases subsequent to 1999. For the year ended December 31, 1995, the
Partnership paid or accrued $165,634 of such asset management fees. Total
accrued but unpaid asset management fees of $988,791 were outstanding at
December 31, 1995.

The Partnership pays property management fees equal to 5% of the gross receipts
of the residential property and paid 6% for the commercial property to McREMI,
an affiliate of the General Partner, for providing property management services.
Additionally, the Partnership reimburses McREMI for its costs, including
overhead of administering the Partnership's affairs. For the year ended December
31, 1995, the Partnership paid or accrued $240,810 of such property management
fees and reimbursements.

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 $138,750 of such
fees for the year ended December 31, 1995 in connection with the sale of
properties.

<PAGE>

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

See accompanying Index to Financial Statements at Item 8.

(A) Exhibits
--------

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

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

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

10.2 Portfolio Services Agreement, dated February
14, 1991, between Southmark Realty Partners
II, Ltd. and McNeil Real Estate Management,
Inc. (1)

10.3 Promissory Note, dated June 14, 1989, among
Southmark Realty Partners, Ltd., Southmark
Realty Partners II, Ltd. and Woodmen of the
World Life Insurance Society relating to
Wyoming Mall. (1)

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

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

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

10.9 Revolving Credit Agreement dated August 6,
1991, between McNeil Partners, L.P. and
various selected partnerships, including the
Registrant. (Incorporated by reference to
the Annual Report of McNeil Real Estate Fund
XI, Ltd., on Form 10-K for the period ended
December 31, 1991 as filed on March 29,
1992.)

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

11. Statement regarding computation of Net Loss
per Limited Partnership Unit (see Note 1 to
Financial Statements).

<PAGE>

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

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

Names Under
Jurisdiction Which It Is
Name of Subsidiary Incorporation Doing Business
------------------ ------------- --------------

Harbour Club Associates
Limited Partnership Michigan None

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

(1) Incorporated by reference to the Quarterly
Report of the Registrant, on Form 10-Q for the
period ended March 31, 1991, as filed on May
14, 1991.

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

(B) Reports on Form 8-K. There were no reports on Form 8-K filed
during the quarter ended December 31, 1995.

<PAGE>

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

SIGNATURE PAGE

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

<TABLE>
McNEIL REAL ESTATE FUND XXII, L.P.
<S> <C>

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

By: McNeil Investors, Inc., General Partner

March 29, 1996 By: /s/ Robert A. McNeil
- ----------------------------------- ----------------------------------------
Date Robert A. McNeil
Chairman of the Board and Director
Principal Executive Officer

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

March 29, 1996 By: /s/ Donald K. Reed
- ------------------------------------ ----------------------------------------
Date Donald K. Reed
President and Director of McNeil Investors, Inc.

March 29, 1996 By: /s/ Ron K. Taylor
- ------------------------------------ ---------------------------------------
Date Ron K. Taylor
Acting Chief Financial Officer
of McNeil Investors, Inc.

March 29, 1996 By: /s/ Carol A. Fahs
- ------------------------------------ ---------------------------------------
Date Carol A. Fahs
Chief Accounting Officer of McNeil Real Estate
Management, Inc.

</TABLE>

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 629,747
<SECURITIES> 0
<RECEIVABLES> 4,683
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,223,260
<DEPRECIATION> (4,718,722)
<TOTAL-ASSETS> 6,407,931
<CURRENT-LIABILITIES> 0
<BONDS> 6,026,515
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,407,931
<SALES> 2,456,308
<TOTAL-REVENUES> 2,655,140
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,261,286
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 702,232
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (308,378)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (308,378)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>