MCNEIL REAL ESTATE FUND XXV LP, 10-K405, 1999-03-31

MCNEIL REAL ESTATE FUND XXV LP
10-K405, 1999-03-31
REAL ESTATE

Previous: TOWER AIR INC, NT 10-K, 1999-03-31

Next: CNB CORP /MI/, 10-K405, 1999-03-31

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 0-15446
-----------

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

California 33-0120335
- --------------------------------------------------------------------------------
(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: 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 ]

82,916,363 of the registrant's 82,943,685 limited partnership units are held by
non-affiliates. The aggregate market value of units held by non-affiliates is
not determinable since there is no public trading market for limited partnership
units and transfers of units are subject to certain restrictions.

Documents Incorporated by Reference: See Item 14, Page 38

TOTAL OF 40 PAGES
<PAGE>
PART I

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

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

McNeil Real Estate Fund XXV, L.P. (the "Partnership"), formerly known as
Southmark Equity Partners II, Ltd., was organized on February 15, 1985 as a
limited partnership under the provisions of the California Revised Limited
Partnership Act to acquire and operate commercial office, retail 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 Equity Partners (the "Original
General Partner"), a Texas general partnership, which was formed by affiliates
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 December 23, 1985, the Partnership registered with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 33-746)
and commenced a public offering for sale of $72,000,000 of limited partnership
units ("Units"), with the general partner's right to increase the offering to
$84,000,000. 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 August 8, 1986 with 84,000,000
Units sold at one dollar each, or gross proceeds of $84,000,000 to the
Partnership. The Partnership subsequently filed a Form 8-A Registration
Statement with the SEC and registered its Units under the Securities Exchange
Act of 1934 (File No. 0-15446). 50,000, 49,473 and 5,879 Units were rescinded in
1986, 1991 and 1995, respectively. In 1996, an additional 950,963 Units were
rescinded, leaving 82,943,685 Units outstanding at December 31, 1998.

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

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

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

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.

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

Concurrent with the approval of the restructuring, the General Partner acquired
from Southmark and its affiliates, for aggregate consideration of $29,065, the
general partner interest of the Original General Partner. The General Partner
and its affiliates own in the aggregate less than 1% of the Units.

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, $73,122 in
cash, and common and preferred stock in the reorganized Southmark which
represents 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 $23,609, which combined with the cash proceeds from Southmark,
resulted in a gain on legal settlement of $96,731.

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

General:

The Partnership is engaged in the ownership, operation and management of
commercial office, retail and residential real estate. At December 31, 1998, the
Partnership owned five revenue-producing properties 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.

<PAGE>
Business Plan:

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

The Partnership placed Northwest Plaza on the market for sale effective August
1, 1997.

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

Forward-Looking Information:

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

<PAGE>
Environmental Matters:

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

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

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

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

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

Other Information:

In August 1995, High River Limited Partnership, a Delaware limited partnership
controlled by Carl C. Icahn ("High River") made an unsolicited tender offer to
purchase from holders of Units up to approximately 45% of the outstanding Units
of the Partnership for a purchase price of $0.24 per Unit. In September 1996,
High River made another unsolicited tender offer to purchase any and all of the
outstanding Units of the Partnership for a purchase price of $0.252 per Unit. In
addition, High River made unsolicited tender offers for certain other
partnerships controlled by the General Partner. The Partnership recommended that
the limited partners reject the tender offers made with respect to the
Partnership and not tender their Units. The General Partner believes that as of
February 1, 1999, High River has purchased 9.08% of the outstanding Units
pursuant to the tender offers. In addition, all litigation filed by High River,
Mr. Icahn and his affiliates in connection with the tender offers has been
dismissed without prejudice.

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

The following table sets forth the real estate investment portfolio of the
Partnership at December 31, 1998. All of the buildings and the land on which
they are located are owned by the Partnership in fee and are unencumbered by
mortgage indebtedness, with the exception of Harbour Club I Apartments, which is
subject to a first lien deed of trust as described more fully in Item 8 - Note 6
- - "Mortgage Note Payable" and Fidelity Plaza which is subject to four ground
leases as described more fully in Item 8 - Note 5 - "Leases." See also Item 8 -
Note 4 - "Real Estate Investments" and Schedule III - Real Estate Investments
and Accumulated Depreciation and Amortization. In the opinion of management, the
properties are adequately covered by insurance.

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

Real Estate Investments:

Century Park Office Building
<S> <C> <C> <C> <C> <C>
Las Vegas, NV 113,459 sq. ft. $ 7,602,939 $ - $ 79,328 5/86

Fidelity Plaza Office Building
Long Beach, CA 124,155 sq. ft. 4,483,982 152,791 77,033 12/85

Harbour Club I Apartments
Belleville, MI (1) 294 units 6,050,705 7,094,110 200,230 6/86

Kellogg Office Building
Littleton, CO 112,766 sq. ft. 5,116,920 - 186,205 12/85
-------------- ----------- ------------
$ 23,254,546 $ 7,246,901 $ 542,796
============== =========== ============

Asset Held for Sale:

Northwest Plaza Retail Center
Dayton, OH 443,551 sq. ft. $ 9,016,824 $ - $ 302,130 6/86
============== =========== =============
</TABLE>

- -----------------------------------------
Total: Apartments - 294 units
Retail Center - 443,551 sq. ft.
Office Buildings - 350,380 sq. ft.

<PAGE>

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

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

1998 1997 1996 1995 1994
------------- ------------- -------------- ------------- -----------
Real Estate Investments:

Century Park
<S> <C> <C> <C> <C> <C>
Occupancy Rate............ 89% 93% 93% 95% 92%
Rent Per Square Foot...... $17.94 $16.75 $17.93 $15.41 $15.21

Fidelity Plaza
Occupancy Rate............ 85% 93% 83% 79% 83%
Rent Per Square Foot...... $14.26 $13.96 $13.99 $14.04 $14.79

Harbour Club I
Occupancy Rate............ 93% 87% 93% 91% 90%
Rent Per Square Foot...... $ 7.83 $ 7.28 $ 7.11 $ 6.91 $ 6.39

Kellogg
Occupancy Rate............ 98% 100% 98% 99% 83%
Rent Per Square Foot...... $16.72 $15.50 $14.91 $12.53 $13.38

Asset Held for Sale:

Northwest Plaza
Occupancy Rate............ 86% 87% 87% 98% 97%
Rent Per Square Foot...... $ 4.25 $ 4.11 $ 4.53 $ 4.59 $ 5.24
</TABLE>

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

<PAGE>
Competitive Conditions
- ----------------------

Real Estate Investments:

Century Park
- ------------

Century Park consists of twin two-story office buildings located in the heart of
the East Flamingo Corridor in southeast Las Vegas. The area surrounding the
building is abundant with commercial activity. A series of professional
buildings line the busy thoroughfare. Development of office space over the past
several years continues to grow. Century Park's occupancy and rental rates are
comparable to the competing buildings in the immediate area. 36% of the leases
at Century Park are scheduled to expire in 1999. The Partnership expects
approximately 13% of the leases to be renewed and new leases to be signed for
the remaining vacated space. Management anticipates a slight decline in rental
revenue in 1999 due to these vacancies.

Fidelity Plaza
- --------------

Fidelity Plaza is a ten-story office building located in downtown Long Beach,
California, on Ocean Boulevard, parallel to the Pacific Ocean. The area is a
strong business mix of legal and maritime businesses due to its close proximity
to the Ports of Long Beach and Los Angeles. Fidelity Plaza's occupancy is
currently above the average occupancy rate for the area. A competitor is nearing
completion of an extensive renovation and aggressive leasing campaign. Another
competitor is currently renovating their common areas in an effort to increase
occupancy. The Partnership anticipates increasing occupancy to around 90% in
1999 by offering responsive management, competitive rental rates and a
prestigious address.

Harbour Club I
- --------------

Harbour Club I, located in Belleville, Michigan, was built in 1969 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. Harbour
Club I's occupancy approximated the market average in 1998, with rental rates
slightly below that of its nearest competitor. During the four years prior to
1996, management's limited capital expenditures significantly affected the
property's ability to effectively compete in the marketplace. In 1996,
approximately $272,000 of escrow funds held by the mortgagee were released and
the property was able to complete approximately $445,000 of capital
improvements, which allowed the property to increase rents for the first time in
five years. Competitors are offering security lighting, fencing and limited
access gates which are not available at Harbour Club I. In addition, the
property's inefficient heating system has hindered management's leasing efforts
during the winter months. However, with the improving economy and planned
hallway and landscaping upgrades, management expects to increase rental rates in
1999 while maintaining occupancy in the low 90% range.

<PAGE>
Kellogg
- -------

Kellogg Building is located southwest of Denver and is the only high-rise office
building in the Littleton area. The building is located within a mile of one of
the strongest housing developments in the nation, with projected growth of over
100,000 residents annually expected over the next few years. The quality of
lifestyle in Colorado is placing higher demands for professionals to work closer
to home. Professionals are looking for nearby office space that replaces former
downtown locations. Four small office buildings were built in the area in 1998
and another business park is being developed. Kellogg Building's rental rates
are currently below that of newer competitors. Rental rates are scheduled to
increase for all tenants under signed lease agreements and rental rate increases
are projected for any new or renewing tenants. Approximately 28% of the
building's leases are scheduled to expire in 1999. However, the Partnership
expects to maintain occupancy in the mid 90% range in 1999 by offering superior
customer service and rental rates lower that the market average.

Asset Held for Sale:

Northwest Plaza
- ---------------

Northwest Plaza, located in Dayton, Ohio, is a retail strip shopping center with
three anchor tenants that occupy 64% of the total leasable area. Management has
increased security and lighting in the parking areas in response to increased
criminal activity in the area. An anchor tenant declared bankruptcy in late 1995
and relinquished 50,000 square feet in 1996 (approximately 11% of the leasable
area of the property). Management has entered into discussions with a tenant to
possibly lease all or part of this vacant space in 1999. The property's
occupancy at December 31, 1998 was above the market average of 76%. Management
expects to maintain or increase occupancy in 1999.

<PAGE>
The following schedule shows lease expirations for each of the Partnership's
commercial properties for 1999 through 2008:

<TABLE>
<CAPTION>
Number of Annual % of Gross
Expirations Square Feet Rent Annual Rent
----------- ----------- ------- -----------
Real Estate Investments:

Century Park
<C> <C> <C> <C> <C>
1999 15 37,122 $ 705,987 36%
2000 12 28,477 556,719 28%
2001 4 11,550 222,042 11%
2002 10 19,379 373,907 19%
2003 4 6,431 123,472 6%
2004-2008 - - - -

Fidelity Plaza
1999 15 20,390 $ 291,501 18%
2000 11 34,312 510,787 32%
2001 15 31,555 451,302 29%
2002 4 6,859 100,846 6%
2003 2 6,300 100,022 6%
2004-2006 - - - -
2007 2 8,441 139,491 9%
2008 - - - -

Kellogg
1999 13 30,227 $ 436,916 28%
2000 10 26,349 406,428 26%
2001 8 19,635 340,373 21%
2002 2 5,451 101,413 6%
2003 2 12,526 233,868 15%
2004 1 1,921 33,303 2%
2005 1 1,775 35,056 2%
2006-2008 - - - -

Asset Held for Sale:

Northwest Plaza
1999 6 16,056 $ 151,641 9%
2000 2 3,764 31,564 2%
2001 7 28,004 216,218 14%
2002 5 17,402 135,488 8%
2003 5 13,916 153,030 10%
2004 2 28,858 100,100 6%
2005 1 6,000 52,440 3%
2006 1 42,130 315,000 20%
2007 - - - -
2008 1 3,000 17,472 1%
</TABLE>

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

<TABLE>
<CAPTION>
Nature of
Business Square Footage Lease
Use Leased Annual Rent Expiration
- ---------- -------------- ----------- ----------
Real Estate Investments:

Century Park

None

Kellogg

<S> <C> <C> <C>
General Office 12,546 $ 176,424 2000

Fidelity Federal Plaza

None

Asset Held for Sale:

Northwest Plaza

Department Store 217,077 $ 434,148 2012

</TABLE>

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

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

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

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

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

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

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

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

None.

<PAGE>
PART II

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

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

(B) Title of Class Number of Record Unit Holders

Limited partnership units 6,922 as of February 1, 1999

(C) Cash distributions paid to the limited partners totaled $2,747,653 in
1998 and $999,995 in 1997 from cash from operations. No distributions
have been paid to the General Partner. During the last week of March
1999, the Partnership distributed approximately $995,300 to the limited
partners of record as of March 1, 1999. 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.

Statements of Years Ended December 31,
Operations 1998 1997 1996 1995 1994
- ------------------ ------------- ------------ -------------- ----------- -------------

<S> <C> <C> <C> <C> <C>
Rental revenue ...................... $ 9,872,315 $ 9,282,309 $ 9,494,477 $ 8,783,408 $ 9,110,749
Write-down for impairment
of real estate ................... -- 3,130,000 -- 4,633,000 --
Net income (loss) ................... 913,384 (3,192,087) (2,577,600) (5,943,886) (531,497)

Net income (loss) per
weighted average
thousand limited
partnership units ................ $ 10.90 $ (38.10) $ (30.47) $ (70.14) $ (6.27)
============= =========== ============= =========== =============

Distributions per weighted
average thousand
limited partnership units........ $ 33.13 $ 12.06 $ 2.99 $ -- $ 4.77
============= =========== ============= =========== =============

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

Real estate investments, net........ $ 23,254,546 $25,003,181 $ 38,731,648 $40,620,473 $ 46,683,563
Asset held for sale ................ 9,016,824 8,989,818 -- -- --
Total assets ....................... 37,448,501 38,562,904 44,105,856 47,723,941 53,432,562
Mortgage note payable .............. 7,094,110 7,155,626 7,381,507 7,381,507 7,381,507
Partners' equity ................... 27,954,970 29,789,239 33,981,321 37,464,982 43,408,868
</TABLE>
<PAGE>

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

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

The Partnership was formed to engage in the business of acquiring and operating
revenue-producing real properties and holding the properties for investment.
Since completion of its capital formation and property acquisition phases in
1986, when it completed the purchase of five properties, the Partnership has
operated its properties for production of income.

Northwest Plaza, located in Dayton, Ohio, is a retail strip shopping center with
three anchor tenants that occupy 64% of the total leasable area. Management has
increased security and lighting in the parking areas in response to increased
criminal activity in the area. An anchor tenant declared bankruptcy in late 1995
and relinquished 50,000 square feet in 1996 (approximately 11% of the leasable
area of the property). On August 1, 1997, the General Partner placed Northwest
Plaza on the market for sale when it became evident that economic factors will
not allow for the Partnership to recover its costs over a reasonable period of
time. Based upon projected cash flows over the reduced holding period, the
Partnership revised its estimated net realizable value of the property; and
accordingly, a write-down for impairment of $3,130,000 was recorded in the
fourth quarter of 1997.

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

1998 compared to 1997

Revenue:

Total Partnership revenue increased by $765,078 in 1998 as compared to 1997,
mainly due to increases in rental revenue and other revenue, as discussed below.

Rental revenue in 1998 increased by $590,006, in relation to 1997. Rental
revenue increased at all of the Partnership's properties in 1998. The largest
increases occurred at Harbour Club I Apartments, Kellogg Building and Century
Park Office Building, where rental revenue increased by approximately $151,000,
$138,000 and $135,000, respectively, mainly due to an increase in rental rates.
In addition, there was an increase in occupancy at Harbour Club I in 1998. An
increase in rental rates and contingent rent based on the sales volume of an
anchor tenant resulted in an increase in rental revenue of approximately $61,000
at Northwest Plaza Shopping Center. Rental revenue increased by approximately
$37,000 at Fidelity Plaza Office Building due to an increase in parking revenue.

In 1998, the Partnership recognized $162,439 of other revenue consisting of the
collection of tenant accounts receivable that had previously been written off.
No such other revenue was recognized in the prior year.

Expenses:

Total expenses decreased by $3,340,393 in 1998 as compared to 1997. The decrease
was primarily due to a write-down for impairment of real estate recognized in
1997. In addition, there was a decrease in depreciation and amortization and
other property operating expenses, partially offset by an increase in general
and administrative expenses, as discussed below.

<PAGE>
Depreciation and amortization expense decreased by $579,586 in 1998 as compared
to 1997. The decrease was mainly due to Northwest Plaza being classified as an
asset held for sale by the Partnership effective August 1, 1997. In accordance
with the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," the Partnership ceased
recording depreciation and amortization expense on the asset at the time it was
placed on the market for sale. In addition, there was a decrease in amortization
of tenant improvements at Century Park and Kellogg office buildings due to the
expiration of several tenant leases in 1998.

In 1998, other property operating expenses decreased by $85,811 in relation to
the prior year. The decrease was partially due to decreased earthquake insurance
costs incurred in 1998 at Fidelity Plaza Office Building. In addition, there was
a decline in bad debts at Fidelity Plaza due to tenant receivables written off
in 1997 and then collected in 1998 (the receivables collected are included in
other revenue, as discussed above).

General and administrative expenses increased by $316,435 in 1998 as compared to
1997. The increase was mainly due to costs incurred to explore alternatives to
maximize the value of the Partnership (see Liquidity and Capital Resources).

In 1997, the Partnership recorded a $3,130,000 write-down for impairment of
Northwest Plaza. No such write-down was recorded in 1998.

1997 compared to 1996

Revenue:

Total revenue decreased by $286,332 in 1997 as compared to 1996 due to a decline
in rental revenue and interest income, as discussed below.

Rental revenue in 1997 decreased by $212,168 in relation to 1996. Rental revenue
decreased by approximately $187,000 at Northwest Plaza, mainly due to a decline
in income based on sales volume of tenants and a decrease in average occupancy
in 1997. At Century Park, two tenants paid a total of approximately $164,000 in
lease termination fees in 1996 which was a large factor in the approximately
$134,000 decrease in rental revenue in 1997. These decreases were partially
offset by increases of approximately $48,000 and $67,000 at Harbour Club I and
Kellogg Building, respectively, due to increases in rental rates in 1997.

Interest income declined by $74,164 in 1997 as compared to 1996 due to a
decrease in cash available for short-term investment in 1997. The Partnership
held approximately $4 million of cash and cash equivalents at the beginning of
1996 which decreased to approximately $3.3 million at the end of 1996, mainly
due to the payment of approximately $1.77 million to limited partners for the
rescission of partnership units in late 1996. Cash and cash equivalents further
decreased to approximately $3 million at December 31, 1997.

Expenses:

Total expenses increased by $328,155 in 1997 as compared to 1996. The increase
was due to a write-down for impairment of real estate in 1997, partially offset
by decreases in interest expense, depreciation and amortization, other property
operating expenses and general and administrative expenses, as discussed below.

In 1997, interest expense declined by $103,395 in relation to 1996. Interest on
both the Harbour Club I mortgage note payable and the Fidelity Plaza capital
lease is declining as the principal balance of the debt is reduced through
regular monthly debt service payments. In addition, the non-HUD lender that
purchased the Harbour Club I mortgage in January 1997 does not require the
Partnership to pay for mortgage insurance, which the Partnership had recorded as
interest expense.

<PAGE>
In 1996, the Partnership paid approximately $1.77 million to the plaintiffs in a
lawsuit. Of this amount, $1,115,480 represented interest on limited partnership
units that were rescinded by the Partnership. No such interest was paid in 1997.

Depreciation and amortization expense decreased by $467,945 in 1997 as compared
to 1996. The decrease was mainly due to Northwest Plaza being classified as an
asset held for sale by the Partnership effective August 1, 1997. In accordance
with the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," the Partnership ceased
recording depreciation on the asset at the time it was placed on the market for
sale.

Other property operating expenses in 1997 declined by $105,516 in relation to
1996. In 1996, the Partnership accrued approximately $88,000 of delinquent
mortgage payment penalties relating to the Harbour Club I mortgage note payable.
In addition, there was a greater amount of leasing commission amortization
recorded in 1996 at Fidelity Plaza due to a tenant vacating prior to the
expiration of their lease. In this case, the balance of the tenant's prepaid
commission was fully amortized when the tenant vacated.

General and administrative expenses decreased by $947,166 in 1997 as compared to
1996. In 1996, the Partnership incurred $690,000 of attorney fees relating to a
lawsuit that resulted in the rescission of limited partnership units. In
addition, in 1996 the Partnership incurred a greater amount of costs relating to
evaluation and dissemination of information regarding an unsolicited tender
offer. These decreases were partially offset by approximately $50,000 of costs
incurred for investor services, which were paid to an unrelated third party in
1997. In 1996, such costs were paid to an affiliate of the General Partner and
were included in general and administrative - affiliates on the Statements of
Operations.

In 1997, the Partnership recorded a $3,130,000 write-down for impairment of
Northwest Plaza. No such write-down was recorded in 1996.

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

The Partnership generated $4,038,203 of cash through operating activities in
1998 as compared to $2,313,018 in 1997 and $1,652,784 in 1996. The increase in
1998 as compared to 1997 was partially due to an increase in cash received from
tenants (see discussion of increase in rental revenue, above). In addition,
there was a decrease in cash paid to suppliers in 1998, mainly due to the
payment of $690,000 of attorney fees in 1997 related to the rescission of
partnership units. There was also a decrease in cash paid to affiliates in 1998.
A greater amount of interest was paid in 1997 when the Partnership paid all
previously delinquent amounts related to the Harbour Club mortgage note payable.
These increases in cash provided by operating activities were partially offset
by an increase in property taxes paid and escrowed in 1998. The lender on the
Harbour Club mortgage note payable required the Partnership to pay a greater
amount into an escrow account for the payment of property taxes in 1998. In
addition, the Partnership paid a greater amount in 1998 for property taxes
accrued in 1997 at Northwest Plaza and the Kellogg Building due to an increase
in the assessed taxable value of those two properties.

The increase in cash generated through operating activities in 1997 as compared
to 1996 was primarily due to $1,115,480 of interest paid to limited partners in
1996 to rescind partnership units. This was partially offset by an increase in
cash paid to suppliers in 1997, mainly due to the payment of $690,000 of
attorney fees related to the rescission of partnership units.

The Partnership expended $566,223, $1,258,789 and $1,446,558 on capital
additions to its real estate investments and asset held for sale in 1998, 1997
and 1996, respectively. The decrease in 1998 as compared to 1997 and 1996 was
primarily due to fewer tenant improvements performed at Century Park and Kellogg
office buildings. The decrease in 1997 as compared to 1996 was mainly due to a
greater amount of improvements completed at Harbour Club I Apartments in 1996,
which were partially made possible by the release of funds from an escrow
account held by the mortgagee.

<PAGE>
The Partnership made $61,516 and $225,881 of principal payments on its mortgage
note payable in 1998 and 1997, respectively. No such payments were made in 1996.
Effective January 1, 1993, the Partnership ceased making regularly scheduled
payments on its loan and began funding debt service with the excess cash flow of
the property. In the second quarter of 1997, the Partnership made all delinquent
payments and paid all accrued late charges. Regularly scheduled monthly debt
service payments were resumed in July 1997.

In 1996, the Partnership paid $656,055 to the limited partners to rescind
limited partnership units. This amount represents the return of the limited
partners' equity investments, net of all distributions previously paid to them.

The Partnership distributed $2,747,653, $999,995, and $250,006 to the limited
partners in 1998, 1997, and 1996, respectively.

Short-term liquidity:

At December 31, 1998, the Partnership held cash and cash equivalents of
$3,654,369. This balance provides a reasonable level of working capital for the
Partnership's immediate needs in operating its properties.

For the Partnership as a whole, management projects positive cash flow from
operations in 1999. Only one property, Harbour Club I Apartments, is encumbered
with mortgage debt and another property, Fidelity Plaza, is encumbered with
lease obligations. The Partnership has budgeted approximately $1,553,000 for
necessary capital improvements for all properties in 1999, which are expected to
be funded from available cash reserves or from operations of the properties.

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

During the last week of March 1999, the Partnership distributed approximately
$995,300 to the limited partners of record as of March 1, 1999.

Long-term liquidity:

While the outlook for maintenance of adequate levels of liquidity is favorable,
should operations deteriorate and present cash resources be insufficient for
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 refinancings, deferral of capital expenditures on
Partnership properties except where improvements are expected to increase the
competitiveness and marketability of the properties, arranging financing from
affiliates or the ultimate sale of the properties.
Sales and refinancings are possibilities only.

The Partnership placed Northwest Plaza on the market for sale effective August
1, 1997.

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

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

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

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

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

Cost
- ----

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

Risks
- -----

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

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....................................... 18

Balance Sheets at December 31, 1998 and 1997................................... 19

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

Statements of Partners' Equity (Deficit) for each of the three years in the
period ended December 31, 1998.............................................. 21

Statements of Cash Flows for each of the three years in the period
ended December 31, 1998..................................................... 22

Notes to Financial Statements.................................................. 24

Financial Statement Schedule -

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

</TABLE>

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

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

We have audited the accompanying balance sheets of McNeil Real Estate Fund XXV,
L.P. (a California limited partnership) as of December 31, 1998 and 1997, and
the related statements of operations, partners' equity (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 XXV,
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 XXV, L.P.

BALANCE SHEETS

December 31,
---------------------------------
1998 1997
------------ ------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land .............................................. $ 4,205,425 $ 4,205,425
Buildings and improvements ........................ 48,374,279 47,835,062
------------ ------------
52,579,704 52,040,487
Less: Accumulated depreciation and amortization .. (29,325,158) (27,037,306)
------------ ------------
23,254,546 25,003,181

Asset held for sale .................................. 9,016,824 8,989,818

Cash and cash equivalents ............................ 3,654,369 3,044,669
Cash segregated for security deposits ................ 389,318 340,879
Accounts receivable, net of allowance for doubtful
accounts of $530,164 and $730,668 at
December 31, 1998 and 1997, respectively .......... 506,774 539,431
Escrow deposits ...................................... 93,305 56,758
Deferred borrowing costs, net of accumulated
amortization of $95,019 and $85,887 at
December 31, 1998 and 1997, respectively .......... 223,731 232,863
Prepaid expenses and other assets .................... 309,634 355,305
------------ ------------
$ 37,448,501 $ 38,562,904
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- -------------------------------------------

Mortgage note payable ................................ $ 7,094,110 $ 7,155,626
Accounts payable and accrued expenses ................ 88,673 126,854
Accrued interest ..................................... 60,596 61,121
Accrued property taxes ............................... 566,683 561,973
Payable to affiliates ................................ 1,091,046 279,505
Land lease obligation ................................ 152,791 205,902
Security deposits and deferred rental revenue ........ 439,632 382,684
------------ ------------
9,493,531 8,773,665
------------ ------------

Partners' equity (deficit):
Limited partners - 84,000,000 limited partnership
units authorized; 82,943,685 limited partnership
units issued and outstanding at December 31, 1998
and 1997 ........................................ 28,437,132 30,280,535
General Partner ................................... (482,162) (491,296)
------------ ------------
27,954,970 29,789,239
------------ ------------
$ 37,448,501 $ 38,562,904
============ ============
</TABLE>

See accompanying notes to financial statements.

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

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
Revenue:
<S> <C> <C> <C>
Rental revenue ............................ $ 9,872,315 $ 9,282,309 $ 9,494,477
Interest .................................. 166,247 153,614 227,778
Other revenue ............................. 162,439 -- --
------------ ------------ ------------
Total revenue ........................... 10,201,001 9,435,923 9,722,255
------------ ------------ ------------

Expenses:
Interest .................................. 789,649 781,344 884,739
Interest - rescission of limited
partnership units ....................... -- -- 1,115,480
Depreciation and amortization ............. 2,287,852 2,867,438 3,335,383
Property taxes ............................ 844,926 831,111 785,113
Personnel expenses ........................ 836,508 814,264 808,310
Repairs and maintenance ................... 1,048,523 1,049,909 1,065,820
Property management fees -
affiliates .............................. 574,867 541,462 544,865
Utilities ................................. 800,775 789,895 826,634
Other property operating expenses ......... 744,022 829,833 935,349
General and administrative ................ 469,637 153,202 1,100,368
General and administrative -
affiliates .............................. 890,858 839,552 897,794
Write-down for impairment of
real estate ............................. -- 3,130,000 --
------------ ------------ ------------
Total expenses .......................... 9,287,617 12,628,010 12,299,855
------------ ------------ ------------

Net income (loss) ............................ $ 913,384 $ (3,192,087) $ (2,577,600)
============ ============ ============

Net income (loss) allocable to limited
partners ................................. $ 904,250 $ (3,160,166) $ (2,551,824)
Net income (loss) allocable to General
Partner .................................. 9,134 (31,921) (25,776)
------------ ------------ ------------
Net income (loss) ............................ $ 913,384 $ (3,192,087) $ (2,577,600)
============ ============ ============

Net income (loss) per weighted average
thousand limited partnership
units ..................................... $ 10.90 $ (38.10) $ (30.47)
============ ============ ============

Distributions per weighted
average thousand limited
partnership units ......................... $ 33.13 $ 12.06 $ 2.99
============ ============ ============
</TABLE>

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

STATEMENTS OF PARTNERS' EQUITY (DEFICIT)

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

Total
General Limited Partners'
Partner Partners Equity
------------- ------------ -------------
<S> <C> <C> <C>
Balance at December 31, 1995 ..................... $ (433,599) $ 37,898,581 $ 37,464,982

Rescission of 950,963 limited
partnership units (net of distributions
previously paid of $294,908) .................. -- (656,055) (656,055)

Net loss ......................................... (25,776) (2,551,824) (2,577,600)

Distributions to limited partners ................ -- (250,006) (250,006)
------------ ------------ ------------

Balance at December 31, 1996 ..................... (459,375) 34,440,696 33,981,321

Net loss ......................................... (31,921) (3,160,166) (3,192,087)

Distributions to limited partners ................ -- (999,995) (999,995)
------------ ------------ ------------

Balance at December 31, 1997 ..................... (491,296) 30,280,535 29,789,239

Net income ....................................... 9,134 904,250 913,384

Distributions to limited partners ................ -- (2,747,653) (2,747,653)
------------ ------------ ------------

Balance at December 31, 1998 ..................... $ (482,162) $ 28,437,132 $ 27,954,970
============ ============ ============

</TABLE>

See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XXV, 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 ................. $ 10,037,457 $ 9,507,421 $ 9,467,928
Cash paid to suppliers ..................... (3,853,111) (4,456,481) (4,048,866)
Cash paid to affiliates .................... (654,184) (1,248,507) (1,394,068)
Interest received .......................... 166,247 153,614 227,778
Interest paid .............................. (781,042) (889,368) (784,518)
Interest paid to limited partners for
rescission of partnership units .......... -- -- (1,115,480)
Property taxes paid and escrowed ........... (877,164) (753,661) (699,990)
------------ ------------ ------------
Net cash provided by operating
activities ................................. 4,038,203 2,313,018 1,652,784
------------ ------------ ------------

Cash flows from investing activities:
Additions to real estate investments
and asset held for sale .................. (566,223) (1,258,789) (1,446,558)
------------ ------------ ------------

Cash flows from financing activities:
Principal payments on mortgage note
payable .................................. (61,516) (225,881) --
Payments on capitalized land
lease obligation ......................... (53,111) (40,430) (30,800)
Rescission of limited partnership
units .................................... -- -- (656,055)
Distributions to limited partners .......... (2,747,653) (999,995) (250,006)
------------ ------------ ------------
Net cash used in financing activities ......... (2,862,280) (1,266,306) (936,861)
------------ ------------ ------------

Net increase (decrease) in cash
and cash equivalents ....................... 609,700 (212,077) (730,635)

Cash and cash equivalents at
beginning of year .......................... 3,044,669 3,256,746 3,987,381
------------ ------------ ------------

Cash and cash equivalents at end
of year .................................... $ 3,654,369 $ 3,044,669 $ 3,256,746
============ ============ ============

</TABLE>

See discussion of noncash investing and financing activities in Note 4 - "Real
Estate Investments."

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

STATEMENTS OF CASH FLOWS

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

For the Years Ended December 31,
----------------------------------------------------
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Net income (loss) .................................. $ 913,384 $(3,192,087) $(2,577,600)
----------- ----------- -----------

Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization ................... 2,287,852 2,867,438 3,335,383
Amortization of deferred borrowing
costs ......................................... 9,132 9,132 9,132
Allowance for doubtful accounts ................. (200,504) 53,545 (36,927)
Write-down for impairment of
real estate ................................... -- 3,130,000 --
Changes in assets and liabilities:
Cash segregated for security deposits.......... (48,439) (26,117) (14,539)
Accounts receivable ........................... 233,161 198,860 47,517
Escrow deposits ............................... (36,547) 18,569 904,611
Prepaid expenses and other
assets ...................................... 45,671 (5,988) 88,831
Accounts payable and accrued
expenses .................................... (38,181) (868,909) 301,139
Accrued interest .............................. (525) (117,156) (508,225)
Accrued property taxes ........................ 4,710 59,831 51,612
Payable to affiliates ......................... 811,541 132,507 48,591
Security deposits and deferred
rental revenue .............................. 56,948 53,393 3,259
----------- ----------- -----------

Total adjustments ......................... 3,124,819 5,505,105 4,230,384
----------- ----------- -----------

Net cash provided by operating
activities ...................................... $ 4,038,203 $ 2,313,018 $ 1,652,784
=========== =========== ===========
</TABLE>

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

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998

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

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

McNeil Real Estate Fund XXV, L.P. (the "Partnership"), formerly known as
Southmark Equity Partners II, Ltd., was organized on February 15, 1985 as a
limited partnership under the provisions of the California Revised Limited
Partnership Act to acquire and operate commercial and residential properties.
The general partner of the Partnership is McNeil Partners, L.P. (the "General
Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil. The
General Partner was elected at a meeting of limited partners on March 26, 1992,
at which time an amended and restated partnership agreement (the "Amended
Partnership Agreement") was adopted. The principal place of business for the
Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas,
Texas, 75240.

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

The Partnership placed Northwest Plaza on the market for sale effective August
1, 1997.

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 Van Buren
Associates Limited Partnership ("Van Buren"), a single asset limited partnership
formed to accommodate the refinancing of Harbour Club I Apartments. The
Partnership is the general partner of Van Buren, and holds a 99.99% interest in
Van Buren. The Partnership exercises effective control of Van Buren. 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.

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

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

Depreciation and Amortization
- -----------------------------

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

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

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

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

The Partnership is required to maintain escrow accounts in accordance with the
terms of its mortgage indebtedness agreement. 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.

<PAGE>
Deferred Borrowing Costs
- ------------------------

Loan fees and other related costs incurred to obtain long-term financing on real
property are capitalized and amortized using a method that approximates the
effective interest method over the term of the related mortgage note payable.
Amortization of deferred borrowing costs 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 revenue
is recognized as earned.

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

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

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

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

The Amended Partnership Agreement generally provides that net income and net
loss (other than net income arising from sales or refinancing) shall be
allocated 1% to the General Partner and 99% to the limited partners.

For financial statement purposes, net income arising from sales or refinancing
shall be allocated 1% to the General Partner and 99% to the limited partners.

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 partners' share of the net decrease in
Partnership Minimum Gain determined under Treasury Regulations, (b) second, to
the General Partner and limited partners in proportion to, and to the extent of,
the amount by which their respective capital account balances are negative by
more than their respective remaining shares of the Partnership's Minimum Gain
attributable to properties still owned by the Partnership and (c) third, 1% of
such net income shall be allocated to the General Partner and 99% of such net
income shall be allocated to the limited partners.

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

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 limited partners' Priority Return and
then to all limited partners on a per limited partnership unit ("Unit") basis.
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 limited partners' Priority Return, then repayment of Original
Invested Capital, and of the remainder, to the limited partners on a per Unit
basis. The limited partners' Priority Return represents a 9.25% cumulative
return on their Adjusted Invested Capital balance, as defined.

<PAGE>
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.

The Partnership distributed $2,747,653, $999,995, and $250,006 of cash from
operations to the limited partners in 1998, 1997, and 1996, respectively. No
distributions have been paid to the General Partner. During the last week of
March 1999, the Partnership distributed approximately $995,300 to the limited
partners of record as of March 1, 1999.

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

Net income (loss) per thousand limited partnership units is computed by dividing
net income (loss) allocated to the limited partners by the weighted average
number of Units outstanding expressed in thousands. Per thousand Unit
information has been computed based on 82,944, 82,944 and 83,736 weighted
average thousand 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 and 6% of gross rental receipts for
commercial properties to McNeil Real Estate Management, Inc. ("McREMI"), an
affiliate of the General Partner, for providing property management services for
the Partnership's residential and commercial properties and leasing services for
its residential properties. McREMI may also choose to provide leasing services
for the Partnership's commercial properties, in which case McREMI will receive
property management fees from such commercial properties equal to 3% of the
property's gross rental receipts plus leasing commissions based on the
prevailing market rate for such services where the property is located.

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

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 properties and $50 per gross square foot for commercial
properties 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:

<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1998 1997 1996
-------------- -------------- ---------------
<S> <C> <C> <C>
Property management fees - affiliates...... $ 574,867 $ 541,462 $ 544,865
Charged to general and
administrative - affiliates:
Partnership administration.............. 187,990 168,639 225,956
Asset management fee.................... 702,868 670,913 671,838
------------- ------------- --------------
$ 1,465,725 $ 1,381,014 $ 1,442,659
============= ============= ==============
</TABLE>

<PAGE>
Payable to affiliates 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 INCOME (LOSS)
- ------------------------------

McNeil Real Estate Fund XXV, 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 $24,638,976 in 1998,
$21,953,215 in 1997 and $22,409,365 in 1996.

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

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

<TABLE>
<CAPTION>
Accumulated
Buildings and Depreciation Net Book
1998 Land Improvements and Amortization Value
---- ----------- ------------- ---------------- -----------
Century Park
<S> <C> <C> <C> <C>
Las Vegas, NV ........................ $ 1,439,077 $15,186,310 $ (9,022,448) $ 7,602,939
Fidelity Plaza
Long Beach, CA ....................... 553,946 13,091,803 (9,161,767) 4,483,982
Harbour Club I
Belleville, MI ....................... 1,069,513 9,878,876 (4,897,684) 6,050,705
Kellogg Office Building
Littleton, CO ........................ 1,142,889 10,217,290 (6,243,259) 5,116,920
----------- ----------- ------------ -----------
$ 4,205,425 $48,374,279 $(29,325,158) $23,254,546
=========== =========== ============ ===========

Accumulated
Buildings and Depreciation Net Book
1997 Land Improvements and Amortization Value
---- ----------- ------------- ---------------- -----------
Century Park ........................... $ 1,439,077 $15,134,798 $ (8,313,761) $ 8,260,114
Fidelity Plaza .......................... 553,946 12,985,775 (8,529,701) 5,010,020
Harbour Club I .......................... 1,069,513 9,638,815 (4,393,057) 6,315,271
Kellogg Office Building ................. 1,142,889 10,075,674 (5,800,787) 5,417,776
----------- ----------- ------------ -----------
$ 4,205,425 $47,835,062 $(27,037,306) $25,003,181
=========== =========== ============ ===========
</TABLE>

On August 1, 1997, the General Partner placed Northwest Plaza, located in
Dayton, Ohio, on the market for sale. Northwest Plaza was classified as such at
December 31, 1998 and 1997 with a net book value of $9,016,824 and $8,989,818,
respectively.

<PAGE>
The results of operations for the asset held for sale were $1,120,719, $401,153
and $244,207 for the years ended December 31, 1998, 1997 and 1996, respectively.
Results of operations are operating revenues less operating expenses including
depreciation and amortization and interest expense.

Northwest Plaza, located in Dayton, Ohio, is a retail strip shopping center with
three anchor tenants that occupy 64% of the total leasable area. Management has
increased security and lighting in the parking areas in response to increased
criminal activity in the area. An anchor tenant declared bankruptcy in late 1995
and relinquished 50,000 square feet in 1996 (approximately 11% of the leasable
area of the property). On August 1, 1997, the General Partner placed Northwest
Plaza on the market for sale when it became evident that economic factors will
not allow for the Partnership to recover its costs over a reasonable period of
time. Based upon projected cash flows over the reduced holding period, the
Partnership revised its estimated net realizable value of the property; and
accordingly, a write-down for impairment of $3,130,000 was recorded in the
fourth quarter of 1997.

The Partnership leases its commercial properties under non-cancelable operating
leases. Future minimum rents to be received as of December 31, 1998 are as
follows:

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

1999.................................. $ 4,385,744 $ 1,496,224
2000.................................. 3,035,569 1,429,217
2001.................................. 1,921,225 1,299,702
2002.................................. 1,091,815 1,101,648
2003.................................. 538,091 1,002,814
Thereafter............................ 729,918 4,871,134
------------ ------------
Total................................ $ 11,702,362 $ 11,200,739
============ ============

Future minimum rentals do not include contingent rentals based on sales volume
of tenants. Contingent rentals amounted to $140,247, $91,143 and $227,311 for
the years ended December 31, 1998, 1997 and 1996, respectively. Future minimum
rents also do not include expense reimbursements for common area maintenance,
property taxes and other expenses. These expense reimbursements amounted to
$335,448, $244,032 and $401,820 for the years ended December 31, 1998, 1997 and
1996, respectively. These contingent rents and expense reimbursements, which
include amounts related to the asset held for sale, are included in rental
revenue on the Statements of Operations.

Harbour Club I Apartments is encumbered by mortgage indebtedness as discussed in
Note 6 - "Mortgage Note Payable." Fidelity Plaza is subject to four ground
leases as discussed in Note 5 - "Leases."

<PAGE>
NOTE 5 - LEASES
- ---------------

The Partnership leases the land on which Fidelity Plaza is located under four
ground leases (one capital lease and three noncancelable operating leases). At
December 31, 1998, minimum rental payments under such leases were as follows.

Capital Operating
Lease Leases
---------- -------------
1999............................... $ 103,538 $ 213,258
2000............................... 94,910 213,258
2001............................... - 213,258
2002............................... - 213,258
2003............................... - 213,258
Thereafter......................... - 11,993,050
--------- ------------
Total minimum payments due......... 198,448 $ 13,059,340
============

Less amount representing
interest......................... ( 45,657)
---------

Present value of land lease
obligation....................... $ 152,791
=========

Monthly payments are required under the terms of the leases. The capital lease
expires in December 2000. The largest operating lease expires in December 2065,
while the other two operating leases expire in June and August 2021.

Land recorded under the capital lease totaled $553,946 at December 31, 1998 and
1997. The lease contains an option to purchase the land for $1 in 2001.

Ground lease expense of $210,416, $206,096 and $203,704 relating to the three
operating leases is included in the Statements of Operations with other property
operating expenses for the years ended December 31, 1998, 1997 and 1996,
respectively.

The ground leases contain certain provisions that may give the lessor the right
to terminate the leases as a result of the March 1992 restructuring of the
Partnership. The lessors have been requested to waive their right to terminate
the leasehold, and they may require the payment of fees as a condition to
granting such waiver. If the waivers are not obtained, the leases could be
terminated. However, management believes the likelihood of this outcome is
remote.

NOTE 6 - MORTGAGE NOTE PAYABLE
- ------------------------------

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

<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position (a) Rate % Maturity 1998 1997
- -------- ------------ -------- ----------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Harbour Club I First 10.25 $66,011 06/23 $ 7,094,111 $ 7,155,626
============ =============
</TABLE>

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

<PAGE>
Effective January 1, 1993, the Partnership ceased making regularly scheduled
debt service and escrow payments. In lieu of the aforementioned payments, the
Partnership funded debt service with the excess cash flow of the property. The
Partnership was notified that the mortgage note payable was in default. During
1996, the mortgagee applied approximately $599,000 of mortgagee held escrow
funds to the outstanding interest payable balance. Effective January 23, 1997,
the mortgage note payable was sold by the mortgagee to an unaffiliated lender.
In July 1997, the mortgage note was brought current after the Partnership made
all delinquent payments and paid all accrued late charges. Regular monthly
payments were resumed in July 1997.

Scheduled principal maturities of the mortgage note payable under existing
agreements are as follows:

1999................................ $ 68,125
2000................................ 75,446
2001................................ 83,553
2002................................ 92,531
2003................................ 102,474
Thereafter.......................... 6,671,982
-----------
$ 7,094,111
===========

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 $8,846,000 at December 31, 1998 and $9,163,000 at
December 31, 1997.

NOTE 7 - ACCOUNTS RECEIVABLE
- ----------------------------

The accounts receivable balance includes amounts due from tenants for base rent,
common area maintenance, percentage rents and other miscellaneous amounts. In
addition, accounts receivable includes amounts relating to rental guarantees
from the seller of Century Park Office Building of approximately $470,000 at
December 31, 1998 and 1997 which are not expected to be collected. The reserve
for this amount is included in allowance for doubtful accounts.

In 1998, the Partnership recognized $162,439 of other revenue consisting of the
collection of tenant accounts receivable that had previously been written off.

NOTE 8 - RESCISSION OF LIMITED PARTNERSHIP UNITS
- ------------------------------------------------

On October 26, 1996, a judgment was entered against the Partnership which
effectively rescinded 950,963 Units of the Partnership as of October 31, 1996.
Pursuant to the court order, the Partnership made settlement payments to an
escrow agent on behalf of the plaintiff limited partners totaling $1,771,535 on
October 30, 1996. The payments consisted of two components. The first component
of $656,055, which was recorded as a rescission of limited partnership units on
the Statements of Partners' Equity (Deficit), represented the return of the
limited partners' equity investments, net of all distributions previously paid
to them. The second component of $1,115,480, which was recorded as interest -
rescission of limited partnership units on the Statements of Operations,
represented interest paid on the rescinded Units pursuant to the court judgment.
Additionally, on February 6, 1997, the Partnership agreed to pay the plaintiffs
$690,000 for attorney fees in exchange for a release of all claims against the
Partnership and General Partner. This attorney fees settlement amount was
accrued at December 31, 1996, and was recorded as a general and administrative
expense on the Statements of Operations. The settlement was paid in full during
1997.

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

<PAGE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------

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

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

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

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

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

Harbour Club I
<S> <C> <C> <C> <C> <C>
Belleville, MI $ 7,094,110 $ 763,364 $ 8,792,575 $ (338,092) $ 1,730,542

OFFICE BUILDINGS:

Century Park
Las Vegas, NV - 1,549,077 12,537,373 (1,000,000) 3,538,937

Fidelity Plaza
Long Beach, CA 152,791 541,239 13,172,687 (4,633,000) 4,564,823

Kellogg Office Building
Littleton, CO - 1,743,070 12,804,735 (5,003,041) 1,815,415
------------- ------------ ------------- ------------- ------------
$ 7,246,901 $ 4,596,750 $ 47,307,370 $ (10,974,133) $ 11,649,717
============= ============= ============= ============= =============

Asset Held for Sale (d):

Northwest Plaza
Dayton, OH

</TABLE>

(b) The carrying value of Century Park and Kellogg Office Building were
reduced by $1,000,000 and $4,000,000, respectively, in 1989. In 1992, the
carrying value of Kellogg Office Building was further reduced by $1,003,041
and the carrying value of Harbour Club I Apartments was reduced by
$338,092. The carrying value of Fidelity Plaza was reduced by $4,633,000 in
1995.

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

See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XXV, L.P.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
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 I
<S> <C> <C> <C> <C>
Belleville, MI $ 1,069,513 $ 9,878,876 $ 10,948,389 $ (4,897,684)

OFFICE BUILDINGS:

Century Park
Las Vegas, NV 1,439,077 15,186,310 16,625,387 (9,022,448)

Fidelity Plaza
Long Beach, CA 553,946 13,091,803 13,645,749 (9,161,767)

Kellogg Office Building
Littleton, CO 1,142,889 10,217,290 11,360,179 (6,243,259)
------------- ------------- --------------- --------------
$ 4,205,425 $ 48,374,279 $ 52,579,704 $ (29,325,158)
============= ============= =============== ==============

Asset Held for Sale (d):

Northwest Plaza
Dayton, OH $ 9,016,824
===============
</TABLE>

(a) For Federal income tax purposes, the properties are depreciated over lives
ranging from 5-39 years using ACRS or MACRS methods. The aggregate cost of
real estate investments for Federal income tax purposes was $84,310,472 and
accumulated depreciation was $39,915,246 at December 31, 1998.

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

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

APARTMENTS:

Harbour Club I
<S> <C> <C> <C>
Belleville, MI 1969 06/86 5-25

OFFICE BUILDINGS:

Century Park
Las Vegas, NV 1984 05/86 5-25

Fidelity Plaza
Long Beach, CA 1968 12/85 5-25

Kellogg Office Building
Littleton, CO 1983 12/85 5-25

Asset Held for Sale (d):

Northwest Plaza
Dayton, OH 1964/1980 06/86

</TABLE>

See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XXV, 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:

For the Years Ended December 31,
-----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
Real estate investments:

<S> <C> <C> <C>
Balance at beginning of year .................... $ 52,040,487 $ 71,301,477 $ 69,854,919

Improvements .................................... 539,217 1,221,917 1,446,558

Reclassification to asset held for sale ......... -- (20,482,907) --
------------ ------------ ------------

Balance at end of year .......................... $ 52,579,704 $ 52,040,487 $ 71,301,477
============ ============ ============

Accumulated depreciation and amortization:

Balance at beginning of year .................... $ 27,037,306 $ 32,569,829 $ 29,234,446

Depreciation and amortization ................... 2,287,852 2,867,438 3,335,383

Reclassification to asset held for
sale ......................................... -- (8,399,961) --
------------ ------------ ------------

Balance at end of year .......................... $ 29,325,158 $ 27,037,306 $ 32,569,829
============ ============ ============

Asset held for sale:

Balance at beginning of year .................... $ 8,989,818 $ -- $ --

Reclassification to asset held for sale ......... -- 12,082,946 --

Improvements .................................... 27,006 36,872 --

Write-down for impairment of real
estate ....................................... -- (3,130,000) --
------------ ------------ ------------

Balance at end of year .......................... $ 9,016,824 $ 8,989,818 $ --
============ ============ ============
</TABLE>

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

None.

PART III

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

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

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

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

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

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

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

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

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

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

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

(A) Security ownership of certain beneficial owners.

No individual or group, as defined by Section 13(d)(3) of the Securities
Exchange Act of 1934, was known by the Partnership to own more than 5% of the
Units, other than High River Limited Partnership which owns 7,534,383 Units at
February 1, 1999 (9.08% of the outstanding Units). The business address for High
River Limited Partnership is 100 South Bedford Road, Mount Kisco, New York
10549.

(B) Security ownership of management.

Affiliates of the General Partner and the officers and directors of its general
partner, collectively own 27,322 limited partnership units, which represents
less than 1% of the outstanding limited partnership units at February 1, 1999.

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
properties and $50 per gross square foot for commercial properties to arrive at
the property tangible asset value. The property tangible asset value is then
added to the book value of all other assets excluding intangible items. The fee
percentage decreases to .75% in 2000, .50% in 2001 and .25% thereafter. For the
year ended December 31, 1998, the Partnership paid or accrued $702,868 of such
asset management fees.

<PAGE>
The Partnership pays property management fees equal to 5% of the gross rental
receipts of residential properties and 6% for commercial properties to McREMI,
an affiliate of the General Partner, for providing property management services.
Additionally, the Partnership reimburses McREMI for its costs, including
overhead, of administering the Partnership's affairs. For the year ended
December 31, 1998, the Partnership paid or accrued $762,857 of such property
management fees and reimbursements. See Item 1 - Business, Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Item 8 - Note 2 - "Transactions With Affiliates."

<PAGE>
PART IV

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

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

(A) Exhibits

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

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).

4.1 Amendment No. 1 to the Amended
and Restated Limited Partnership
Agreement of McNeil Real Estate Fund
XXV, L.P. dated June 1995
(incorporated by reference to the
Quarterly Report of the registrant
on Form 10-Q for the period ended
June 30, 1995, as filed on August
14, 1995).

4.2 Certificate and Agreement of Van
Buren Associates Limited Partnership
(incorporated by reference to the
Annual Report of the registrant on
Form 10-K for the period ended
December 31, 1991, as filed on March
24, 1992).

10.3 Mortgage note dated May 6, 1988,
among Van Buren Associates Limited
Partnership, Southmark Equity
Partners II, Ltd. and DRG Funding
Corporation relating to Harbour Club
I. (1)

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

10.5 Amendment of Property Management
Agreement dated March 5, 1993 by
McNeil Real Estate Fund XXV, L.P.
and McNeil Real Estate Management,
Inc. (2)

10.6 Property Management Agreement dated
March 26, 1992 between Van Buren
Associates Limited Partnership and
McNeil Real Estate Management, Inc.
(2)

10.7 Amendment of Property Management
Agreement dated March 5, 1993, by
Van Buren Associates Limited
Partnership and McNeil Real Estate
Management, Inc. (2)

11. Statement regarding computation of
net income (loss) per thousand
limited partnership units (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:

Names Under
Jurisdiction of Which It Is
Name of Subsidiary Incorporation Doing Business
------------------ --------------- --------------
Van Buren Associates
Limited Partnership Michigan None

(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 XXV, 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 XXV, 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> 3,654,369
<SECURITIES> 0
<RECEIVABLES> 1,036,938
<ALLOWANCES> (530,164)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 52,579,704
<DEPRECIATION> (29,325,158)
<TOTAL-ASSETS> 37,448,501
<CURRENT-LIABILITIES> 0
<BONDS> 7,094,110
0
0
<COMMON> 0
<OTHER-SE> 27,954,970
<TOTAL-LIABILITY-AND-EQUITY> 37,448,501
<SALES> 9,872,315
<TOTAL-REVENUES> 10,201,001
<CGS> 4,849,621
<TOTAL-COSTS> 7,137,473
<OTHER-EXPENSES> 1,360,495
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 789,649
<INCOME-PRETAX> 913,384
<INCOME-TAX> 0
<INCOME-CONTINUING> 913,384
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 913,384
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>