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

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

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

FORM 10-K405

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

For the fiscal year ended December 31, 1998
-----------------------------------------------

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

For the transition period from ______________ to_____________

Commission file number 0-14268
----------

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

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

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

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

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

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

All of the Registrant's 32,736,117 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 32

TOTAL OF 34 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 600, 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). During
the years 1991 through 1997, 518,750 Units were rescinded. In 1998, 79,000 Units
were relinquished leaving 32,736,117 Units (19,493,088 Current Income Units and
13,243,029 Growth/Shelter Units) outstanding at December 31, 1998.

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

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

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

On March 26, 1992, the limited partners approved a restructuring proposal that
provided for (i) the replacement of the Original General 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 real estate. At December 31, 1998, the
Partnership owned one income-producing property as described in Item 2 -
Properties.

<PAGE>
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:

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

Competitive Conditions:

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

<PAGE>
Forward Looking Information:

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

Environmental Matters:

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

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

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

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

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

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

The following table sets forth the investment portfolio of the Partnership at
December 31, 1998. The buildings and the land on which they are located are
owned in fee, subject 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". In the opinion of management, the property is adequately covered
by insurance.

<TABLE>
<CAPTION>
Net Basis of 1998 Date
Property Description Property Debt Property Tax Acquired
- -------- ----------- ------------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Harbour Club III (1) Apartments
Belleville, MI 331 units $ 5,131,904 $ 5,871,684 $ 166,626 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>
<CAPTION>
1998 1997 1996 1995 1994
------------- ------------- -------------- ------------- ----------
Harbour Club III
<S> <C> <C> <C> <C> <C>
Occupancy Rate............ 94% 92% 94% 96% 91%
Rent Per Square Foot...... $8.17 $7.69 $7.38 $7.21 $6.75
</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 is currently supporting an occupancy rate of 94% which is the

<PAGE>
current rate at Harbour Club III. Prior to 1997, the property had not increased
rents for six years due to restrictions imposed by the property's former
mortgage holder. In 1998, a 6% rent increase was implemented. Over the past
three years, approximately $1,060,000 has been invested in the property and
$138,800 has been budgeted for 1999. These capital improvements include paving
the parking lot, exercise equipment, hall renovations and interior upgrades. The
1999 capital expenditures will continue to enhance the curb appeal and allow the
property to compete more aggressively and increase occupancy.

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's business, except for the following:

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

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

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

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

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

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

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

The trial court granted summary judgment against the Affiliated
Partnerships based on the statute of limitations; however, on appeal, the
Dallas Court of Appeals reversed the trial court and remanded for trial the
Affiliated Partnerships' fraud claims against Ernst & Young. The Texas
Supreme Court denied Ernst & Young's application for writ of error on
January 11, 1996. Shortly before trial, the district court judge once again
granted summary judgment against the Affiliated Partnerships on December 2,
1996. The Partnership is continuing to pursue vigorously its claims against
Ernst & Young; however, the final outcome of this litigation cannot be
determined at this time.

For a discussion of the Southmark bankruptcy, see Item 1 - Business.

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

None.

PART II

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

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

(B) Title of Class Number of Record Unit Holders

Limited partnership units 2,175 as of February 1, 1999

(C) No distributions were made to the partners in 1998 or 1997 and none are
anticipated in 1999. The General Partner will continue to monitor the
cash reserves and working capital needs of the Partnership to determine
when cash flows will support distributions to the 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."

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

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

<TABLE>
<CAPTION>
Statements of Years Ended December 31,
Operations 1998 1997 1996 1995 1994
- ------------------ ------------- ------------- -------------- ------------- --------------

<S> <C> <C> <C> <C> <C>
Rental revenue............... $ 2,509,553 $ 2,340,806 $ 2,251,970 $ 2,456,308 $ 2,950,795
Loss on disposition of real
estate...................... - - - 245,637 -
Net income(loss)............. (89,405) 21,172 (220,762) (308,378) (565,993)

Net income(loss) per
thousand limited
partnership units:
Net Income(loss):
Current Income Units........ $ (.41) $ .53 $ (1.01) $ (1.40) $ (2.56)
Growth/Shelter Units........ (6.08) .78 (14.97) (20.74) (38.04)

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

Real estate investment, net.... $ 5,131,904 $ 5,389,429 $ 5,318,692 $ 5,504,538 $ 5,632,109
Asset held for sale............ - - - - 4,393,157
Total assets................... 6,448,454 6,341,340 6,164,365 6,407,931 11,314,161
Mortgage notes payable, net.... 5,871,684 5,928,021 5,979,501 6,026,515 9,534,751
Partners' deficit.............. (1,862,306) (1,772,901) (1,794,073) (1,419,024) (1,110,646)
</TABLE>

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
-------------------------

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

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. Competitive and overbuilt
markets, resulting in continuing cash flow problems, adversely affected the
Partnership's properties. In 1988, the lender foreclosed on Southmark Tower in

Houston, Texas in full settlement of the mortgage indebtedness on the property.
In 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. After the sale of Wyoming Mall in March
1995, the Partnership continues to operate its remaining property, Harbour Club
III.

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 $2,140,623 at December 31, 1998.

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
- ---------------------

1998 compared to 1997

Revenue:

Total Partnership revenues increased by $176,787 or 7% in 1998 as compared to
1997. Rental revenue increased to $2,509,553 in 1998 from $2,340,806 in 1997 due
to an increase in the occupancy rate and rental rates at Harbour Club III.
Interest income for 1998 increased by $8,040 as compared to the prior year due
to higher average cash balances being invested in interest bearing accounts.

Expenses:

Total expenses increased by $287,364 or 12% for the year ended December 31, 1998
as compared to 1997.

Depreciation expense increased $123,124 or 28% in 1998 as compared to 1997. The
increase can be attributed to depreciation of the capital improvements added
during 1998 and 1997, respectively, being amortized over useful lives ranging
from five to ten years.

General and administrative expenses increased by $119,881 or 130% in 1998 as
compared to 1997. The increase was primarily due to increased costs incurred to
explore alternatives to maximize the value of the Partnership (see Current
Operations).

<PAGE>
1997 compared to 1996

Revenue:

Total Partnership revenues in 1997 increased $92,592 or 4% for 1997 as compared
to 1996. Rental revenue was $2,340,806 for 1997, a 4% increase from $2,251,970
for 1996. Interest income increased $3,756 or 11% for 1997 as compared to the
prior year.

Expenses:

Total expenses decreased by $149,342 or 6% for the year ended December 31, 1997,
as compared to 1996. This decrease is primarily due to the interest incurred as
a result of the recession of limited partnership units in 1996. No such expense
occurred in 1997.

General and administrative expenses increased by $18,593 or 25% for 1997 as
compared to 1996. The increase is primarily due to costs incurred for investor
services that were paid to an unrelated third party in 1997. During 1996, such
costs were paid to an affiliate of the General Partner and were included in
general and administrative - affiliates on the Statement of Operations.

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

The Partnership was provided $723,850 of cash by operating activities during
1998 as compared to $794,323 for 1997. Cash paid to suppliers increased by
$255,313 mainly due to payments for increased general and administrative
expenses as discussed above. This increase was partially offset by cash received
from tenants which increased more than $224,000 at Harbour Club III Apartments.

The Partnership had $794,323 of cash provided by operations in 1997 as compared
to $452,443 in 1996. Cash paid to suppliers decreased by $149,047 mainly due to
a receipt of $83,000 for property replacements from escrow previously held by
HUD, the former mortgage holder of Harbour Club III Apartments. Cash paid to
affiliates increased by $52,662 due to the resumption of overhead payments to an
affiliate of the General Partner for administering the Partnership's affairs in
1997. The Partnership paid $145,713 of interest relating to the rescission of
limited partnership units in 1996.

Cash used for additions to the real estate investment was $306,696 during 1998
as compared to $511,834 during 1997. A greater amount was spent in 1998 at
Harbour Club III for landscape and signage improvements, as well as electrical
upgrades. In addition, hallway renovations were capitalized during 1998.

Cash used for principal payments on the mortgage note payable was $96,850 during
1998 as compared to $90,321 for 1997.

Short-term liquidity:

At December 31, 1998, the Partnership held $1,114,934 of cash and cash
equivalents. The General Partner considers this level of cash reserves to be
adequate to meet the Partnership's operating needs. The General Partner believes
that anticipated operating results for 1999 will be sufficient to fund the
Partnership's budgeted capital improvements for 1999 and to repay the current
portion of the Partnership's mortgage note.

<PAGE>

Long-term liquidity:

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.

YEAR 2000 DISCLOSURE
- --------------------

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

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

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

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

Cost
- ----

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

Risks
- -----

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

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

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

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

Not Applicable.

<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- --------------------------------------------
<TABLE>
<CAPTION>
Page
Number
--------
INDEX TO FINANCIAL STATEMENTS
- -----------------------------

Financial Statements:
<S> <C>
Report of Independent Public Accountants....................................... 14

Balance Sheets at December 31, 1998 and 1997................................... 15

Statements of Operations for each of the three years in the period
ended December 31, 1998........................................................ 16

Statements of Partners' Deficit for each of the three years in
the period ended December 31, 1998............................................. 17

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

Notes to Financial Statements.................................................. 20

Financial Statement Schedules -

Schedule III - Real Estate Investment and Accumulated
Depreciation............................................................. 27

</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, 1998 and 1997, and
the related statements of operations, partners' deficit and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements and the schedule referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.

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

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

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

/s/ Arthur Andersen LLP

Dallas, Texas
March 19, 1999

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

BALANCE SHEETS

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

ASSETS
- ------

Real estate investment:
<S> <C> <C>
Land ........................................................... $ 380,414 $ 380,414
Buildings and improvements ..................................... 10,902,583 10,595,887
------------ ------------
11,282,997 10,976,301
Less: Accumulated depreciation ................................ (6,151,093) (5,586,872)
------------ ------------
5,131,904 5,389,429

Cash and cash equivalents ......................................... 1,114,934 794,630
Cash segregated for security deposits ............................. 68,788 67,510
Accounts receivable ............................................... 4,867 11,508
Escrow deposits ................................................... 118,261 68,310
Prepaid expenses and other assets ................................. 9,700 9,953
------------ ------------
$ 6,448,454 $ 6,341,340
============ ============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------

Mortgage note payable, net ........................................ $ 5,871,684 $ 5,928,021
Accounts payable and accrued expenses ............................. 119,347 114,584
Accrued property taxes ............................................ 71,800 68,129
Payable to affiliates - General Partner ........................... 2,140,623 1,933,837
Security deposits and deferred rental income ...................... 107,306 69,670
------------ ------------
8,310,760 8,114,241
------------ ------------

Partners' deficit:
Limited partners - 55,000,000 Units authorized;
32,736,117 and 32,815,117 Units issued and outstanding
at December 31, 1998 and 1997, respectively,
(19,493,088 and 19,567,088 Current Income Units
outstanding at December 31, 1998 and 1997,
respectively, and 13,243,029 and 13,248,029
Growth/Shelter Units at December 31, 1998
and 1997, respectively) ...................................... (1,608,707) (1,520,196)
General Partner ................................................ (253,599) (252,705)
------------ ------------
(1,862,306) (1,772,901)
------------ ------------
$ 6,448,454 $ 6,341,340
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXII, L.P.
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------
1998 1997 1996
----------- ----------- -----------
Revenue:
<S> <C> <C> <C>
Rental revenue ............................ $ 2,509,553 $ 2,340,806 $ 2,251,970
Interest .................................. 46,257 38,217 34,461
----------- ----------- -----------
Total revenue ........................... 2,555,810 2,379,023 2,286,431
----------- ----------- -----------

Expenses:
Interest .................................. 535,848 543,730 581,533
Interest - rescission of limited
partnership units ....................... -- -- 145,713
Depreciation .............................. 564,221 441,097 427,053
Property taxes ............................ 166,626 158,102 153,318
Personnel expenses ........................ 310,345 284,143 291,417
Repairs and maintenance ................... 290,895 269,458 266,224
Property management fees -
affiliates .............................. 124,342 116,572 112,374
Other property operating expenses ......... 206,503 226,895 227,802
General and administrative ................ 212,042 92,161 73,568
General and administrative -
affiliates .............................. 234,393 225,693 228,191
----------- ----------- -----------
Total expenses .......................... 2,645,215 2,357,851 2,507,193
----------- ----------- -----------

Net income (loss) ............................ $ (89,405) $ 21,172 $ (220,762)
=========== =========== ===========

Net income (loss) allocable to limited
partners - Current Income Unit ............ $ (8,046) $ 10,480 $ (19,868)
Net income (loss) allocable to limited
partners - Growth/Shelter Unit ............ (80,465) 10,480 (198,686)
Net income (loss) allocable to General
Partner ................................... (894) 212 (2,208)
----------- ----------- -----------
Net income (loss) ............................ $ (89,405) $ 21,172 $ (220,762)
=========== =========== ===========

Net income (loss) per thousand limited
partnership units:
Current Income Units ......................... $ (.41) $ .53 $ (1.01)
=========== =========== ===========

Growth/Shelter Units ......................... $ (6.08) $ .78 $ (14.97)
=========== =========== ===========

</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, 1998, 1997 and 1996

<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1995 ............. $ (250,709) $(1,168,315) $(1,419,024)

Rescission of 178,000 limited
partnership units (net of distribution
previously paid of $23,713) ........... -- (154,287) (154,287)

Net loss
General Partner ....................... (2,208) -- (2,208)
Current Income Units .................. -- (19,868) (19,868)
Growth/Shelter Units .................. -- (198,686) (198,686)
----------- ----------- -----------
Total net loss ........................... (2,208) (218,554) (220,762)
----------- ----------- -----------

Balance at December 31, 1996 ............. (252,917) (1,541,156) (1,794,073)

Net income
General Partner ....................... 212 -- 212
Current Income Units .................. -- 10,480 10,480
Growth/Shelter Units .................. -- 10,480 10,480
----------- ----------- -----------
Total net income ......................... 212 20,960 21,172
----------- ----------- -----------

Balance at December 31, 1997 ............. (252,705) (1,520,196) (1,772,901)

Net loss
General Partner ....................... (894) -- (894)
Current Income Units .................. -- (8,046) (8,046)
Growth/Shelter Units .................. -- (80,465) (80,465)
----------- ----------- -----------
Total net loss ........................... (894) (88,511) (89,405)
----------- ----------- -----------

Balance at December 31, 1998 ............. $ (253,599) $(1,608,707) $(1,862,306)
=========== =========== ===========
</TABLE>

See accompanying notes to financial statements.
<PAGE>

McNEIL REAL ESTATE FUND XXII, L.P.

STATEMENTS OF CASH FLOWS

Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Cash received from tenants ................ $ 2,563,536 $ 2,339,524 $ 2,261,315
Cash paid to suppliers .................... (1,025,188) (769,875) (918,922)
Cash paid to affiliates ................... (151,949) (164,795) (112,133)
Interest received ......................... 46,257 38,217 34,461
Interest paid ............................. (495,900) (505,417) (544,804)
Interest paid to limited partners for
rescission of units ..................... -- -- (145,713)
Property taxes paid ....................... (212,906) (143,331) (121,761)
----------- ----------- -----------
Net cash provided by operating
activities ................................ 723,850 794,323 452,443
----------- ----------- -----------

Net cash used in investing activities:
Additions to real estate
investments ............................. (306,696) (511,834) (241,207)
----------- ----------- -----------

Cash flows from financing activities:
Principal payments on mortgage
notes payable ........................... (96,850) (90,321) (84,234)
Rescission of limited partnership
units ................................... -- -- (154,287)
----------- ----------- -----------
Net cash used in financing activities ........ (96,850) (90,321) (238,521)
----------- ----------- -----------

Net increase (decrease) in cash and
cash equivalents .......................... 320,304 192,168 (27,285)

Cash and cash equivalents at
beginning of year ......................... 794,630 602,462 629,747
----------- ----------- -----------

Cash and cash equivalents at end
of year ................................... $ 1,114,934 $ 794,630 $ 602,462
=========== =========== ===========

</TABLE>

See accompanying notes to financial statements.
<PAGE>

McNEIL REAL ESTATE FUND XXII, L.P.

STATEMENTS OF CASH FLOWS

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

<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Net income (loss) .......................... $ (89,405) $ 21,172 $(220,762)
--------- --------- ---------

Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation ............................ 564,221 441,097 427,053
Amortization of discount on
mortgage note payable ................. 40,513 38,841 37,220
Changes in assets and liabilities:
Cash segregated for security
deposits ............................ (1,278) (1,000) 9,980
Accounts receivable ................... 6,641 (6,894) 69
Escrow deposits ....................... (49,951) 92,332 19,895
Prepaid expenses and other
assets .............................. 253 1,492 491
Accounts payable and accrued
expenses ............................ 4,763 24,012 (42,578)
Accrued property taxes ................ 3,671 1,702 496
Payable to affiliates - General
Partner ............................. 206,786 177,470 228,432
Security deposits and deferred
rental income ....................... 37,636 4,099 (7,853)
--------- --------- ---------

Total adjustments ................. 813,255 773,151 673,205
--------- --------- ---------

Net cash provided by
operating activities .................... $ 723,850 $ 794,323 $ 452,443
========= ========= =========
</TABLE>

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

NOTES TO FINANCIAL STATEMENTS

December 31, 1998

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

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. The principal place of business
for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70,
Dallas, Texas, 75240.

The Partnership is engaged in real estate activities, including the ownership,
operation and management of residential and retail real estate and other real
estate related assets. At December 31, 1998, the Partnership owned one
income-producing property as described in Note 4 - Real Estate Investment.

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

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

<PAGE>
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.

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

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

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

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

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

Depreciation
- ------------

Buildings and improvements are depreciated using the straight-line method over
the estimated useful lives of the assets, ranging from 5 to 25 years.

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 its mortgage indebtedness agreement. These escrow accounts are
controlled by the mortgagee and are used for payment of property taxes.
Carrying amounts for escrow deposits approximate fair value.

Discount on Mortgage Note Payable
- ---------------------------------

Discount on mortgage note payable is being amortized over the remaining term of
the related note using the effective interest method. Amortization of discount
on mortgage note payable is included in interest expense on the Statements of
Operations.

<PAGE>
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.

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

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

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

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

For financial statement purposes, net income arising from sales or refinancings
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 1998, 1997 and 1996 have been made
in accordance with these provisions.
<PAGE>
Distributions
- -------------

At the discretion of the General Partner, distributable cash (other than cash
from sales or refinancing) shall be distributed 100% to the limited partners,
with such distributions first paying the Current Income Priority Return and then
the Growth/Shelter Priority Return. Also at the discretion of the General
Partner, the limited partners will receive 100% of distributable cash from sales
or refinancings, 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
refinancings and any remaining reserves shall be allocated among, and
distributed to, the General Partner and limited partners in proportion to, and
to the extent of, their positive capital account balances after the net income
has been allocated pursuant to the above.

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

Net income (loss) per thousand limited partnership units ("Units") is computed
by dividing net income (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 19,493, 19,567 and
19,713 weighted average Current Income Units outstanding in 1998, 1997 and 1996,
respectively, and 13,243, 13,248 and 13,275 weighted average Growth/Shelter
Units outstanding in 1998, 1997, and 1996, respectively.

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

The Partnership pays property management fees equal to 5% of the gross rental
receipts for its residential 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.

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

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

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

Property management fees................... $124,342 $116,572 $112,374
Charged to general and
administrative - affiliates:
Partnership administration.............. 65,845 63,367 81,704
Asset management fee.................... 168,548 162,326 146,487
------- ------- -------
$358,735 $342,265 $340,565
======= ======= =======

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

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 $6,236,358 in 1998,
$6,119,845 in 1997 and $6,503,402 in 1996.

<PAGE>
NOTE 4 - REAL ESTATE INVESTMENT
- -------------------------------

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

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

Harbour Club III
Belleville, MI

<S> <C> <C> <C> <C> <C>
1998 $ 380,414 $ 10,902,583 $ (6,151,093) $ 5,131,904
========= =========== =========== ==========

1997 $ 380,414 $ 10,595,887 $ (5,586,872) $ 5,389,429
========= =========== =========== ==========
</TABLE>
<PAGE>
NOTE 5 - MORTGAGE NOTE PAYABLE
- ------------------------------

The following sets forth the mortgage note payable of the Partnership at
December 31, 1998 and 1997. The mortgage note is secured by the underlying real
estate investment.

<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position (a) Rates % Maturity 1998 1997
- -------- --------------- ------- ------------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Harbour Club III First 7.000 $ 49,395 05/24 $ 7,031,256 $ 7,128,106
Discount (b) (1,159,572) (1,200,085)
---------- -----------
$ 5,871,684 $ 5,928,021
========== ===========
</TABLE>

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

(b) The discount 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 $1,159,572, are as follows:

1999.................................... $ 103,852
2000.................................... 111,360
2001.................................... 119,410
2002.................................... 128,042
2003.................................... 137,298
Thereafter.............................. 6,431,294
----------
Total $ 7,031,256
==========

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 $6,701,000 as of December 31, 1998 and $6,937,000
as of December 31, 1997.

NOTE 6 - 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:

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

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

<PAGE>
The trial court granted summary judgment against the Affiliated
Partnerships based on the statute of limitations; however, on appeal, the
Dallas Court of Appeals reversed the trial court and remanded for trial the
Affiliated Partnerships' fraud claims against Ernst & Young. The Texas
Supreme Court denied Ernst & Young's application for writ of error on
January 11, 1996. Shortly before trial, the district court judge once again
granted summary judgment against the Affiliated Partnerships on December 2,
1996. The Partnership is continuing to pursue vigorously its claims against
Ernst & Young; however, the final outcome of this litigation cannot be
determined at this time.

3) 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. Although it is the Partnership's position that it did not
violate Washington law, in order to avoid any claims of successor liability
and to avoid further legal costs, the Partnership and the Shipp defendants
agreed to settle with the plaintiffs by each paying $15,000 to plaintiffs
in exchange for a release of all claims. Settlement documents have been
executed. An Order of Dismissal was issued by the Court on August 3, 1998.

<PAGE>
NOTE 7 - RESCISSION OF LIMITED PARTNERSHIP UNITS
- ------------------------------------------------

On October 22, 1996, a judgment was entered against the Partnership, which
effectively rescinded 188,000 Units of the Partnership as of October 31, 1996.
The judgment was for $347,809. As part of a negotiation, however, the plaintiffs
agreed to accept $300,000 as full and complete settlement of all claims,
including attorney fees. Accordingly, the Partnership made settlement payments
to an escrow agent on behalf of the plaintiff limited partners totaling $300,000
on December 23, 1996. The payments consisted of two components. The first
component of $154,287, which is recorded as a rescission of limited partnership
units on the Statements of Partners' Deficit, represents the return of the
limited partners' equity investments net of all distributions previously paid to
them. The second component of $145,713, which is recorded as interest -
rescission of limited partnership units on the Statements of Operations,
represents interest paid on the rescinded Units pursuant to the court judgment.

NOTE 8 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------

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

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

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

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

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

Harbour Club III
<S> <C> <C> <C> <C> <C>
Belleville, MI (c) $ 5,871,684 $ 561,491 $ 13,475,784 $ (4,526,936) $ 1,772,658
============= ============ ============= ============ ===========
</TABLE>

(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, L.P.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1998
<TABLE>
<CAPTION>
Gross Amount at
Which Carried at Close of Period Accumulated
Buildings and Depreciation
Description Land Improvements Total (a) and Amortization
- ----------- -------------- -------------- -------------- ----------------
APARTMENTS:

Harbour Club III
<S> <C> <C> <C> <C>
Belleville, MI (c) $ 380,414 $ 10,902,583 $ 11,282,997 $ (6,151,093)
============= ============= ============ =============
</TABLE>

(a) For Federal income tax purposes, the property is depreciated over lives
ranging from 5-27.5 years using ACRS or MACRS methods. The aggregate cost
of real estate investments for Federal income tax purposes was $17,294,962
and accumulated depreciation was $11,485,723 December 31, 1998.

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

Date of Date Depreciable
Description Construction Acquired lives (years)
- ----------- ------------ -------- -------------
APARTMENTS:

Harbour Club III
<S> <C> <C> <C>
Belleville, MI (c) 1972 5/86 5-25

</TABLE>

See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XXII, L.P.

Notes to Schedule III

Real Estate Investments and Accumulated Depreciation

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

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

Real estate investment:
<S> <C> <C> <C>
Balance at beginning of year........ $10,976,301 $10,464,467 $10,223,260

Improvements ....................... 306,696 511,834 241,207
----------- ----------- -----------

Balance at end of year ............. $11,282,997 $10,976,301 $10,464,467
=========== =========== ===========

Accumulated depreciation:

Balance at beginning of year ....... $ 5,586,872 $ 5,145,775 $ 4,718,722

Depreciation ....................... 564,221 441,097 427,053
----------- ----------- -----------

Balance at end of year ............. $ 6,151,093 $ 5,586,872 $ 5,145,775
=========== =========== ===========
</TABLE>

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

None.
PART III

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

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

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

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

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

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

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

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

No direct compensation was paid or payable by the Partnership to directors or
officers (since it does not have any directors or officers) for the year ended
December 31, 1998, nor was any direct compensation paid or payable by the
Partnership to directors or officers of the general partner of the General
Partner for the year ended December 31, 1998. The Partnership has no plans to
pay any such remuneration to any directors or officers of the General Partner 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
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. For the year ended December 31, 1998, the Partnership paid or accrued
$168,548 of such asset management fees. Total accrued but unpaid asset
management fees of $1,466,152 were outstanding at December 31, 1998. The fee
percentage decreases to .75% in 2000, .50% in 2001 and .25% thereafter.

<PAGE>

The Partnership pays property management fees equal to 5% of the gross receipts
of the residential 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, 1998, the Partnership paid or accrued
$190,187 of such property management fees and reimbursements.

<PAGE>
PART IV

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

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

(A) Exhibits

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).

10.6 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)

10.10 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
Income (Loss) per Limited Partnership Unit
(see Item 8 - Note 1 - "Organization and
Summary of Significant Accounting
Policies".)

<PAGE>
Exhibit
Number Description
------- -----------
22. Following is a list of subsidiaries of the
Partnership:

<TABLE>
<CAPTION>
Names Under
Jurisdiction Which It Is
Name of Subsidiary Incorporation Doing Business
------------------ ------------- --------------

Harbour Club Associates
<S> <C> <C>
Limited Partnership Michigan None

</TABLE>

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

(1) Incorporated by reference to the 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, 1998.

<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.

McNEIL REAL ESTATE FUND XXII, L.P.

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

By: McNeil Investors, Inc., General Partner

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

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

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,114,934
<SECURITIES> 0
<RECEIVABLES> 4,867
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 11,282,997
<DEPRECIATION> (6,151,093)
<TOTAL-ASSETS> 6,448,454
<CURRENT-LIABILITIES> 0
<BONDS> 5,871,684
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,448,454
<SALES> 2,509,553
<TOTAL-REVENUES> 2,555,810
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,109,367
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 535,848
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (89,405)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (89,405)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>