MCNEIL REAL ESTATE FUND XXIII LP, 10-Q, 1995-08-15

MCNEIL REAL ESTATE FUND XXIII LP
10-Q, 1995-08-15
REAL ESTATE

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

FORM 10-Q

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

For the period ended June 30, 1995
---------------------------------------------------

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

For the transition period from ______________ to _____________
Commission file number 0-15459

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

California 33-0139793
------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

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

Registrant's telephone number, including area code (214) 448-5800
---------------------------

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
--- ---

<PAGE>

MCNEIL REAL ESTATE FUND XXIII, L.P.
(Debtor-in-possession)

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
----------------------------
BALANCE SHEETS
(Unaudited)
<TABLE>
June 30, December 31,
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
------
Real estate investments:
Land..................................................... $ 239,966 $ 239,966
Buildings and improvements............................... 5,736,193 5,711,776
--------- ---------
5,976,159 5,951,742
Less: Accumulated depreciation.......................... (2,517,164) (2,405,420)
---------- ----------
3,458,995 3,546,322

Asset held for sale......................................... - 2,373,130

Cash and cash equivalents ($323,716 and $79,303
restricted by the Bankruptcy Court at June 30, 1995
and December 31, 1994, respectively)..................... 385,798 107,815
Cash segregated for security deposits....................... 58,326 76,307
Accounts receivable......................................... 13,112 17,033
Escrow deposits............................................. 100,648 364,419
Prepaid expenses and other assets........................... 35,541 35,382
---------- ----------
$ 4,052,420 $ 6,520,408
========== ==========

LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
-----------------------------------------

Mortgage notes payable, net of discounts.................... $ 3,801,636 $ 3,814,667
Accounts payable and accrued expenses....................... 51,634 75,624
Accrued property taxes...................................... 63,702 123,773
Payable to affiliates - General Partner..................... 5,406 4,986
Security deposits and deferred rental income................ 60,183 56,348
---------- ----------
3,982,561 4,075,398
---------- ----------

Liabilities subject to compromise (including $1,455,349
payable to affiliates)................................... 1,708,719 4,184,977
---------- ----------

Partners' equity (deficit):
Limited partners - 45,000,000 Units authorized; 16,108,041
and 16,088,041 Units issued and outstanding at
June 30, 1995 and December 31, 1994, respectively,
(9,399,080 and 9,419,080 Current Income Units at
June 30, 1995 and December 31, 1994, respectively and
6,688,961 Growth/Shelter Units at June 30, 1995 and
December 31, 1994)..................................... (6,479,640) (6,579,736)
General Partner.......................................... 4,840,780 4,839,769
---------- ----------
(1,638,860) (1,739,967)
---------- ----------
$ 4,052,420 $ 6,520,408
========== ==========
</TABLE>

The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.

<PAGE>

McNEIL REAL ESTATE FUND XXIII, L.P.

STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------------
1995 1994 1995 1994
------- ------- --------- --------
<S> <C> <C> <C> <C>
Revenue:
Rental revenue................ $429,061 $475,115 $ 919,889 $ 918,062
Interest...................... 4,499 1,786 6,253 2,709
Gain on sale of real estate... 554,047 - 554,047 -
------- ------- --------- -------
Total revenue............... 987,607 476,901 1,480,189 920,771
------- ------- --------- -------

Expenses:
Interest...................... 115,425 152,374 266,605 307,983
Interest - affiliates......... 11,480 96,894 24,175 180,388
Depreciation.................. 81,368 85,746 175,484 187,881
Property taxes................ 35,976 52,275 77,736 104,550
Personnel costs............... 73,896 72,820 147,233 145,965
Utilities..................... 42,694 45,759 98,564 102,628
Repair and maintenance........ 67,713 75,525 144,574 131,447
Property management
fees - affiliates........... 19,673 22,745 40,351 44,565
Other property operating
expenses.................... 27,287 65,452 77,389 112,377
General and administrative.... 54,424 748 64,050 14,000
General and administrative -
affiliates.................. 43,268 52,707 92,355 103,797
Reorganization expense........ 170,566 - 170,566 -
Write-down for permanent
impairment of real estate... - - - 661,921
------- ------- --------- ---------
Total expenses.............. 743,770 723,045 1,379,082 2,097,502
------- ------- --------- ---------

Net income (loss)................ $243,837 $(246,144) $ 101,107 $(1,176,731)
======= ======== ========= ==========

Net income (loss) allocable
to limited partners - Current
Income Unit................... $ 21,945 $ (22,153) $ 9,100 $ (105,906)
Net income (loss) allocable to
limited partners - Growth/
Shelter Unit.................. 219,453 (221,530) 90,996 (1,059,058)
Net income (loss) allocable to
General Partner............... 2,439 (2,461) 1,011 (11,767)
------- -------- --------- ----------
Net income (loss)................ $243,837 $ (246,144) $ 101,107 $(1,176,731)
======= ========= ========= ==========

Net income (loss) per thousand
limited partnership units:
Current Income Units............. $ 2.33 $ (2.35) $ .97 $ (11.24)
======= ========= ========= ==========

Growth/Shelter Units............. $ 32.81 $ (33.02) $ 13.60 $ (157.86)
======= ========= ========= ==========
</TABLE>

The financial information included herein has been prepared by management
without audit by independent public accountants.

See accompanying notes to financial statements.

<PAGE>

MCNEIL REAL ESTATE FUND XXIII, L.P.
(Debtor-in-Possession)

STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)

For the Six Months Ended June 30, 1995 and 1994

<TABLE>
Total
General Limited Partners'
Partner Partners Equity (Deficit)
--------- ---------- ------------
<S> <C> <C> <C>
Balance at December 31, 1993.............. $ (225,716) $(5,128,564) $(5,354,280)

Contribution of advances purchased
by General Partner and accrued
interest............................... 5,080,143 - 5,080,143

Net loss
General Partner........................ (11,767) - (11,767)
Current Income Units................... - (105,906) (105,906)
Growth/Shelter Units................... - (1,059,058) (1,059,058)
--------- ---------- ----------
Total net loss............................ (11,767) (1,164,964) (1,176,731)
--------- ---------- ----------

Balance at June 30, 1994.................. $4,842,660 $(6,293,528) $(1,450,868)
========= ========== ==========

Balance at December 31, 1994.............. $4,839,769 $(6,579,736) $(1,739,967)

Net income
General Partner........................ 1,011 - 1,011
Current Income Units................... - 9,100 9,100
Growth/Shelter Units................... - 90,996 90,996
--------- ---------- ---------
Total net income.......................... 1,011 100,096 101,107
--------- ---------- ---------

Balance at June 30, 1995.................. $4,840,780 $(6,479,640) $(1,638,860)
========= ========== ==========
</TABLE>

The financial information included herein has been prepared by management
without audit by independent public accountants.

See accompanying notes to financial statements.

<PAGE>

MCNEIL REAL ESTATE FUND XXIII, L.P.
(Debtor-in-Possession)

STATEMENTS OF CASH FLOWS
(Unaudited)

Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
Six Months Ended
June 30,
--------------------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Cash received from tenants........................ $ 918,867 $ 896,329
Cash paid to suppliers............................ (522,201) (550,498)
Cash paid to affiliates........................... (42,718) (65,514)
Interest received................................. 6,253 2,709
Interest paid..................................... (263,695) (265,810)
Property taxes escrowed........................... (77,026) (89,383)
-------- ---------
Net cash provided by (used in)
operating activities.............................. 19,480 (72,167)
-------- --------

Cash flows from investing activities:
Additions to real estate investments.............. (24,417) (18,446)
Proceeds from sale of real estate................. 319,672 -
-------- -
Net cash provided by (used in)
investing activities.............................. 295,255 (18,446)
-------- --------

Cash flows from financing activities:
Principal payments on mortgage notes
payable......................................... (36,752) (41,623)
Advances from affiliates - General Partner........ - 54,604
- --------
Net cash provided by (used in)
financing activities.............................. (36,752) 12,981
-------- --------

Net increase (decrease) in cash and cash equivalents. 277,983 (77,632)

Cash and cash equivalents at beginning of
period............................................ 107,815 89,311
-------- --------

Cash and cash equivalents at end of period........... $ 385,798 $ 11,679
======== ========
</TABLE>

The financial information included herein has been prepared by management
without audit by independent public accountants.

See accompanying notes to financial statements.

<PAGE>

MCNEIL REAL ESTATE FUND XXIII, L.P.
(Debtor-in-Possession)

STATEMENTS OF CASH FLOWS
(Unaudited)

Reconciliation of Net Income (Loss) to Net Cash Provided by (Used in)
Operating Activities
<TABLE>
Six Months Ended
June 30,
----------------------------------
1995 1994
-------- --------
<S> <C> <C>
Net income (loss).................................... $ 101,107 $(1,176,731)
-------- ----------

Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation...................................... 175,484 187,881
Amortization of discounts on mortgage
notes payable................................... 15,830 16,651
Interest added to advances from affiliates -
General Partner................................. 24,175 180,388
Gain on sale of real estate....................... (554,047) -
Write-down for permanent impairment
of real estate.................................. - 661,921
Changes in assets and liabilities:
Cash segregated for security deposits........... 17,981 (658)
Accounts receivable............................. 3,921 12,614
Escrow deposits................................. 263,771 82,986
Prepaid expenses and other assets............... (159) (12,069)
Accounts payable and accrued expenses........... 89,775 (73,350)
Accrued property taxes.......................... (77,679) (26,119)
Claims settlement payable....................... (113,162) 3,534
Payable to affiliates - General Partner......... 89,988 82,848
Security deposits and deferred rental
income........................................ (17,505) (12,063)
-------- ----------

Total adjustments............................. (81,627) 1,104,564
-------- ----------

Net cash provided by (used in)
operating activities.............................. $ 19,480 $ (72,167)
======== ==========
</TABLE>

The financial information included herein has been prepared by management
without audit by independent public accountants.

See accompanying notes to financial statements.

<PAGE>

MCNEIL REAL ESTATE FUND XXIII, L.P.
(Debtor-in-Possession)

Notes to Financial Statements
(Unaudited)

June 30, 1995

NOTE 1.
------

McNeil Real Estate Partners XXIII, L.P., (the "Partnership"), formerly known as
Southmark Realty Partners III, Ltd. was organized on March 4, 1985 as a limited
partnership under the provisions of the California Revised Limited Partnership
Act to acquire and operate 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 principal place of
business for the Partnership and the General Partner is 13760 Noel Road, Suite
700, LB70, Dallas, Texas 75240.

In the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the Partnership's financial position and
results of operations. All adjustments were of a normal recurring nature.
However, the results of operations for the six months ended June 30, 1995 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1995.

NOTE 2.
------

The financial statements should be read in conjunction with the financial
statements contained in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1994, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Real Estate XXIII, L.P., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240.

NOTE 3.
------

The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. The Partnership has suffered
recurring losses from operations and has relied on advances from affiliates to
meet its debt obligations and to fund capital improvements. There is no
guarantee that such advances will continue to be available. As discussed in Note
6, the Partnership has filed a Voluntary Petition for reorganization under
Chapter 11 of the United States Bankruptcy Court. The Partnership's First
Amended Plan of Reorganization (the "Reorganization Plan") was filed with the
Bankruptcy Court on February 13, 1995, and the Partnership's Disclosure
Statement of Debtor-in-Possession (the "Disclosure Statement") was approved by
the Bankruptcy Court on February 14, 1995. The Partnership is operating in this
Chapter 11 proceeding as a debtor-in-possession. Accordingly, the General
Partner has continued to manage the business and affairs of the Partnership
subject to the jurisdiction and supervision of the United States Bankruptcy
Court - Northern District of Texas (the "Bankruptcy Court").

Additionally, the Partnership is involved in certain litigation, the ultimate
outcome of which could result in a significant loss to the Partnership. These
conditions raise substantial doubt about the Partnership's ability to continue
as a going concern. The accompanying financial statements have been prepared on
the basis of accounting principles applicable to a going concern that presume
the realization of assets and settlement of liabilities in the ordinary course
of business, rather than through a process of forced liquidations. Accordingly,
the statements do not include any adjustments relating to the realizable values
of all assets or the settlement amounts of all liabilities.

Under the bankruptcy proceedings, certain liabilities have priority and the
payment of certain other liabilities existing at June 30, 1994, have been
deferred. Such liabilities have been set forth separately in the financial
statements.

NOTE 4.
------

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

NOTE 5.
------

The Partnership pays property management fees equal to 5% of the gross rental
receipts for its residential properties to McNeil Real Estate Management, Inc.
("McREMI"), an affiliate of the General Partner, for providing property
management and leasing services. Due to the bankruptcy proceedings, the property
management fees paid by Woodbridge Apartments were reduced to 3% beginning
December 1, 1994.

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

The Partnership is incurring an asset management fee which is payable to the
General Partner. Through 1999, the asset management fee is calculated as 1% of
the Partnership's tangible asset value. Tangible asset value is determined by
using the greater of (i) an amount calculated by applying a capitalization rate
of 9% to the annualized net operating income of each property or (ii) a value of
$10,000 per apartment unit to arrive at the property tangible asset value. The
property tangible asset value is then added to the book value of all other
assets excluding intangible items. The fee percentage decreases subsequent to
1999. Total accrued but unpaid asset management fees of $371,177 were
outstanding at June 30, 1995.

The General Partner has established a revolving credit facility not to exceed
$5,000,000 in the aggregate which is available on a "first-come, first-served"
basis to the Partnership and other affiliated partnerships if certain conditions
are met. Borrowings under the facility may be used to fund deferred maintenance,
refinancing obligations and working capital needs. There is no assurance that
the Partnership will receive any additional funds under the facility because no
amounts have been reserved for any particular partnership. As of June 30, 1995,
$2,362,004 remained available for borrowing under the facility; however,
additional funds could become available as other partnerships repay existing
borrowings.

The General Partner has, in its discretion, advanced funds to the Partnership to
meet its working capital requirements. These advances, which are unsecured and
due on demand, accrue interest at a rate equal to the prime lending rate plus
1%.

McNeil Real Estate Fund XXV, L.P., an affiliate which owns a phase of Harbour
Club Apartments, has advanced funds to the Partnership for working capital
requirements. The advance, which is unsecured and due on demand, accrues
interest at a rate equal to the prime lending rate plus 1%.

The total advances from affiliates at June 30, 1995 and December 31, 1994
consist of the following:
<TABLE>
June 30, December 31,
1995 1994
-------- --------
<S> <C> <C>
Advances from General Partner- revolving
credit facility..................................... $ 65,670 $ 65,670
Advances from General Partner - other................... 281,823 281,823
Advance from McNeil Real Estate Fund XXV, L.P........... 113,000 113,000
Accrued interest payable................................ 94,758 70,583
------- -------
$555,251 $531,076
======= =======
</TABLE>

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

<TABLE>
Six Months Ended
June 30,
-------------------------------
1995 1994
------- -------
<S> <C> <C>
Property management fees............................... $40,351 $ 44,565
Charged to interest - affiliates:
Interest on advances from affiliates - General
Partner........................................... 24,175 180,388
Charged to general and administrative -
affiliates:
Partnership administration.......................... 56,192 71,417
Asset management fee................................ 36,163 32,380
------ -------
$156,881 $328,750
======= =======
</TABLE>

The payable to affiliates - General Partner at June 30, 1995 and December 31,
1994 consisted primarily of unpaid asset management fees, property management
fees and partnership general and administrative expenses.

As discussed in Note 6, Advances from affiliates - General Partners and a
portion of Payable to affiliates - General Partner have been classified as
unsecured claims and are deferred under the Chapter 11 proceedings, therefore,
the amounts due have been reclassified as "Liabilities subject to compromise" on
the financial statements for the Partnership.

NOTE 6.
------

One of the Partnership's properties, Woodbridge Apartments, was encumbered by
two mortgage notes payable. The first lien mortgage note payable was co-insured
by the Federal Housing Administration and was, therefore, regulated by the
Department of Housing and Urban Development ("HUD"). The second lien mortgage
note payable, in the amount of $982,260, was payable in monthly installments of
interest only and payments were limited to "surplus cash", as defined by HUD,
and as calculated at June 30 and December 31 of each year. No "surplus cash" had
been available to make the interest payments on the second lien and therefore,
the Partnership ceased making such payments in April 1994. The Partnership was
unsuccessful in attempting to negotiate a restructuring of the mortgage and the
second lienholder was expected to initiate foreclosure proceedings. In an effort
to prevent the loss of the property, the Partnership filed a Voluntary Petition
for reorganization under Chapter 11 of the United States Bankruptcy Court,
Northern District of Texas on June 30, 1994.

As a result of its Chapter 11 proceeding, the realization of assets and
liquidation of liabilities attributable to the Partnership are subject to
significant uncertainties. The Partnership's financial statements include
adjustments and reclassifications to reflect the liabilities that have been
deferred under the Chapter 11 proceeding as "Liabilities subject to compromise."

The Partnership's First Amended Plan of Reorganization (the "Reorganization
Plan") was filed with the Bankruptcy Court on February 13, 1995, and the
Partnership's Disclosure Statement of Debtor-in-Possession (the "Disclosure
Statement") was approved by the Bankruptcy Court on February 14, 1995.

The Partnership's Reorganization Plan and Disclosure Statement were submitted
February 20, 1995 to a vote of the impaired creditors, as defined. The impaired
creditors included a class of creditors who had filed a judgment lien against
Woodbridge Apartments in connection with the Illinois rescission suit (See Note
7). The judgment lien creditors filed objections to confirmation of the
Reorganization Plan. On

<PAGE>

April 12, 1995, the Bankruptcy Court did grant the order to sell Woodbridge
Apartments but denied confirmation of the Reorganization Plan. The Partnership
filed an appeal of the Court's ruling and, in the meantime, attempted to settle
the matter with the judgment lien creditors, which would allow for confirmation
of the Reorganization Plan. On May 10, 1995, the Reorganization Plan was amended
to provide for full payment to the judgment lien creditors. The Reorganization
Plan, as amended, was subsequently confirmed by the Bankruptcy Court on May 23,
1995.

Woodbridge Apartments was sold on May 23, 1995 and, in accordance with the
Reorganization Plan, the first and second mortgage notes and the related
outstanding accrued interest were paid. The Partnership also utilized $156,566
of the proceeds from the sale to pay the settlement and legal fees to the
judgment lien creditors, as discussed above.

On or before 120 days after the date the Reorganization Plan is confirmed, the
Partnership will send an election form for each limited partner to choose
whether to redeem their interest in the Partnership. The election to redeem the
limited partner interests must be returned to the Partnership within thirty
days. The redemption price would be 1/1000th of a cent per Unit. Notwithstanding
any other provision of the Reorganization Plan, if the Partnership is not able
to secure a "no-action" letter from the Securities and Exchange Commission
("SEC") in a form satisfactory to the Partnership in its sole and absolute
discretion, then this election shall be void and the limited partners will
retain their interests. The "no-action" letter shall, at a minimum, provide (1)
that the purchase of partnership interests can be accomplished without
compliance with Rule 13e-3 of the Securities Exchange Act of 1934 and (2) that
the SEC has not been advised by the Division of the SEC issuing the letter to
pursue an enforcement action if the Reorganization Plan is consummated. In the
event that a "no-action" letter satisfactory to the Partnership is not issued by
the SEC, the limited partners shall retain their interests. If one hundred
percent (100%) of the limited partners elect to redeem their interest or the
General Partner of the Partnership determines that the level of redemption could
potentially result in the treatment of the Partnership as a corporation for tax
purposes, then this provision shall be void and the limited partners will retain
their interests.

The Partnership's financial statements include the accounts of Beckley
Associates Limited Partnership. Beckley Associates, which owns Harbour Club II
Apartments, is wholly-owned by the Partnership and the General Partner. Beckley
Associates was not included in the bankruptcy filing. Summarized below is a
statement of assets, liabilities and partners' equity of the portion of the
Partnership included in the Chapter 11 reorganization as of June 30, 1995, and
the results of operations for the six months ended June 30, 1995, prepared on a
going concern basis. The assets, liabilities and transactions of Beckley
Associates have been excluded.
<TABLE>
June 30,
1995
--------
<S> <C>
ASSETS
------

Cash and cash equivalents...................... $ 323,716
Prepaid expenses and other assets.............. 23,791
---------
$ 347,507

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

Accounts payable and accrued expenses.......... $ 253,370
Payable to affiliates - General Partner........ 900,098
Advances from affiliates - General Partner..... 555,251
---------
1,708,719

Partners' deficit.............................. (1,361,213)
---------
$ 347,507
</TABLE>

<TABLE>

Six Months Ended
June 30, 1995
--------
<S> <C>
Rental revenue................................. $279,119
Interest....................................... 3,858
Gain on sale of real estate.................... 554,047
-------
Total revenues............................... 837,024

Interest....................................... 81,695
Interest - affiliates.......................... 24,176
Depreciation................................... 63,740
Property taxes................................. 14,034
Personnel costs................................ 52,540
Utilities...................................... 33,830
Repairs and maintenance........................ 52,588
Property management fees - affiliates.......... 8,735
Other property operating....................... 38,187
General and administrative..................... 64,050
General and administrative - affiliates........ 92,355
Reorganization expense......................... 170,566
-------
Total expenses............................... 696,496
-------
Net income $140,528
=======
</TABLE>
The ultimate outcome of the Chapter 11 proceedings cannot be determined at this
time. Concurrent with the filing of the Voluntary Petition for reorganization,
the General Partner contributed to the Partnership the purchased advances of
$4,375,661 plus accrued interest of $704,482 owing to the General Partner from
the Partnership.

NOTE 6.
------

On May 23, 1995, Woodbridge Apartments was sold to an unrelated third party for
a cash price of $3,2000,000. Cash proceeds and the gain on the disposition is
detailed below:
<TABLE>
Gain on Sale Cash Proceeds
---------- -----------
<S> <C> <C>
Sales Price.......................................... $ 3,200,000 $ 3,200,000

Selling costs........................................ (121,904) (121,904)
Retirement of mortgage discounts..................... (214,659)
Carrying value....................................... (2,309,390)
----------
Gain on disposition of real estate................... $ 554,047
==========

Retirement of mortgage notes......................... (2,641,421)
Payment of accrued interest.......................... (117,003)
----------
Net cash proceeds.................................... $ 319,672
==========
</TABLE>

<PAGE>

NOTE 7.
------

Robert and Jeanette Kotowski, et al, v. Southmark Realty Partners III, Ltd.
(presently known as McNeil Real Estate Fund XXIII, L.P.) and Southmark
Investment Group 85, Inc. The plaintiffs sought rescission, pursuant to the
Illinois Securities Act, of principal invested in McNeil Real Estate Fund XXIII,
L.P. and other relief including damages for breach of fiduciary duty and
violation of the Illinois Consumer Fraud and Deceptive Business Practices Act.
The defendants filed an answer denying all of the allegations set forth in the
plaintiff's complaint. The defendants filed a motion to dismiss the case, and
two out of the three counts were dismissed. The remaining count was limited to
the plaintiffs who purchased the securities within three years of the date the
suit was filed. In this regard, the Partnership agreed to rescind 76,000 Units
and settled claims totaling $116,374. The claims consisted of the $76,000
original purchase price of the units plus $51,395 interest less distributions of
$11,021 previously paid. The $64,979 original purchase price net of
distributions paid was charged to limited partners' deficit in 1991 and accrued
interest was charged to interest expense in 1993, 1992 and 1991. On September
15, 1992, the Partnership entered into an agreement with the plaintiffs whereby
the Partnership agreed to pay the settled claims over 60 months at an interest
rate of 8%, and pursuant to terms and conditions as outlined in the agreement.
The Partnership made the first two payments due under the agreement; however,
the October 1993 installment and both installments due during 1994 were not made
due to the lack of funds available to the Partnership. An appeal had been filed
by the plaintiffs who lost on the two dismissed counts. On November 30, 1992,
the Court dismissed all but $116,374 of claims that had previously been agreed
to by the Partnership. The plaintiffs presented, on February 3, 1995, their
motion to file an amended consolidated class action complaint and, on February
15, 1995, their motion to certify a class. The Partnership's Reorganization Plan
and Disclosure Statement were submitted February 20, 1995 to a vote of the
impaired creditors, as defined. The plaintiffs filed objections to confirmation
of the Partnership's First Amended Plan of Reorganization. On April 12, 1995,
the Bankruptcy Court did grant the order to sell Woodbridge Apartments but
denied confirmation of the Reorganization Plan. The Partnership filed an appeal
of the Court's ruling and, in the meantime, attempted to settle the matter with
the plaintiffs, which would allow for confirmation of the Reorganization Plan.
On May 10, 1995, the Reorganization Plan was amended to provide for full payment
to the plaintiffs, including legal costs. The Reorganization Plan, as amended,
was subsequently confirmed by the Bankruptcy Court on May 23, 1995 and on June
2, 1995 the Partnership paid $156,566 to the plaintiffs.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------ ----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------

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

Net income for the three and six months ended June 30, 1995 was $243,837 and
$101,107, respectively, as compared to a net loss of $246,144 and $1,176,731 for
the same periods of 1994.

The Partnership ceased making the interest only payments on the second lien on
the Woodbridge Apartments in April 1994 which constituted a default under the
mortgage agreement. The Partnership was unsuccessful in attempting to negotiate
a restructuring of the mortgage, and the second lienholder was expected to
initiate foreclosure proceedings. Accordingly, the Partnership recorded a
write-down for permanent impairment of real estate of $661,921 on Woodbridge
Apartments during the first quarter of 1994, to write down the property to its
estimated net realizable value. In an effort to prevent the loss of the
property, the Partnership filed a Voluntary Petition for reorganization under
Chapter 11 in the United States Bankruptcy Court, Northern District of Texas on
June 30, 1994. In January 1995, the Partnership received an offer to buy the
property from an unaffiliated third party for a purchase price that was higher
than its book value, after the write-down. The sale closed on May 23, 1995, and
the Partnership recorded a gain on the sale of $554,047. The Partnership
recorded $837,024 of revenue and $343,083 of expense related to Woodbridge
Apartments during the first six months of 1995.

<PAGE>

Harbour Club II is part of a four-phase apartment complex located in Belleville,
Michigan. Phases I and III of the complex are owned by partnerships in which
McNeil Partners, L.P. is the general partner; while Phase IV is owned by
University Real Estate Fund 12, Ltd., ("UREF 12"). McREMI had been managing all
four phases of the complex until December 1992, when the property management
agreement between McREMI and UREF 12 was canceled. Additionally, in January
1993, Phase I defaulted on the mortgage loan to HUD and unless a refinancing
agreement can be reached with the lender, the property is subject to
foreclosure. If Phase I is lost to foreclosure, it would be extremely difficult
to operate Phases II and III because the pool and clubhouse are located in Phase
I.

Harbour Club II had an improved average occupancy of 91% for the first six
months of 1995 as compared to an average occupancy of 87% for the same period of
1994. Harbour Club II was able to provide enough cash flow from operations to
meet ordinary operating expenses as well as the debt service for its related
mortgage during the first six months of 1995; however, the property is in need
of major capital repairs and improvements in order to compete in its local
market. The Partnership is seeking alternatives to fund the necessary
improvements, but at this time no sources have been found.

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

Revenue:

Total Partnership revenues were $987,607 and $1,480,189 for the three and six
months ended June 30, 1995, respectively, as compared to $476,901 and $920,771
for the same periods of 1994. The revenue for the three and six months ended
June 30, 1995 includes $554,047 gain from the sale of Woodbridge Apartments on
May 23, 1995.

Expenses:

Total expenses were $743,770 and $1,379,082 for the three and six months ended
June 30, 1995, respectively, as compared to $723,045 and $2,097,502 for the same
periods of 1994. The 1994 expenses include a $661,921 write-down for permanent
impairment of real estate related to Woodbridge Apartments. As previously
discussed, Woodbridge Apartments was sold on May 23, 1995, therefore the 1995
expenses include only five months of activity related to Woodbridge.

Interest - affiliates decreased $85,414 and $156,213 for the three and six
months ended June 30, 1995, respectively, as compared to the same periods of
1994. The decrease was due to the decrease in the balance of advances purchased
by the General Partner which were contributed to the Partnership in June 1994.

Property taxes decreased $16,299 and $26,814 for the three and six months ended
June 30, 1995, respectively, primarily due to reduced tax expense at Harbour
Club II Apartments. The remaining decrease is due to the sale of Woodbridge
Apartments.

Repairs and maintenance expense decreased $7,812 and increased $13,127 for the
three and six months ended June 30, 1995, respectively, as compared to the same
periods of 1994. Carpet and appliance replacements at Harbour Club II Apartments
increased due to increased occupancy as well as a renovation of vacant units to
improve marketability. This increase was offset during the second quarter of
1995 by the sale of Woodbridge Apartments.

Other property operating expense decreased $38,165 and $34,988 for the three and
six months ended June 30, 1995, as compared to the same periods of 1994
primarily due to a decrease in legal and bad debt expense at Harbour Club II
Apartments that has resulted from the improved economic conditions in
Belleville, Michigan, where the property is located.

<PAGE>

General and administrative expense increased $53,676 and $50,050 for the three
and six months ended June 30, 1995, as compared to the same period of 1994.
During the second quarter of 1995, the Partnership incurred $41,136 for legal
fees related to the settlement of the judgment lien rendered in connection with
the Illinois rescission suit (see Item 1 - Note 2 and Note 7). No such fees were
incurred during 1994. The remaining increase is primarily due to higher audit
fees.

During the second quarter of 1995, the Partnership incurred $170,566 of
reorganization expense for legal and professional fees related to the
Partnership's bankruptcy proceeding. No such expenses were incurred in 1994.

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

The Partnership was provided with $19,480 of cash flow from operations for the
six months ended June 30, 1995 as compared to $72,167 of cash used in operations
for the same period of 1994. Cash received from tenants increased primarily due
to the improved occupancy at Harbour Club II Apartments. Cash paid to suppliers
decreased due to the sale of Woodbridge Apartments. During 1994, the Partnership
paid approximately $13,000 of property management fees accrued in the prior year
for Harbour Club II Apartments. The remaining decrease in cash paid to
affiliates is due to the reduced management fee rate for Woodbridge Apartments.

The minimal cash balances of the Partnership have continued to limit capital
improvements. Additions to real estate totaled $24,417 for the first six months
of 1995 as compared to $18,446 for the same period of 1994. The Partnership
received $319,672 of proceeds from the sale of Woodbridge Apartments. The use of
these proceeds is restricted by the Bankruptcy Court.

During the first six months of 1994, the Partnership received $54,604 of
advances from affiliates of the General Partner to fund operating cash
shortfalls. The Partnership has received no such advances during the first six
months of 1995.

At June 30, 1995, the Partnership held cash and cash equivalents of $385,798, of
which $323,716 was in segregated accounts which have been restricted by the
Bankruptcy Court, and accordingly was not available for general use by the
Partnership.

Short-term liquidity
--------------------

As previously discussed in Item 1 - Note 6, the Partnership is operating under
Chapter 11 proceedings as a debtor-in-possession. On May 23, 1995, in accordance
with the Reorganization Plan, the Partnership sold Woodbridge Apartments. A
portion of the net proceeds from the sale of the property were used to pay the
settlement and related legal fees of the judgment lien creditors. The
Partnership is currently awaiting the Final Resolution of Fees & Expenses in
order to distribute funds to the remaining creditors as outlined in the
Reorganization Plan.

The balance of cash and cash equivalents can be considered no more than a
minimum level of cash reserves for the properties operations. For the rest of
1995, operations of Harbour Club II Apartments is expected to provide sufficient
positive cash flow for normal operating expenses and debt service

<PAGE>

payments. However, any needed capital improvements will require the use of
existing cash reserves or other sources of cash. No such sources have been
identified. The Partnership has no established lines of credit from outside
sources. Although affiliates of the Partnership have previously funded such cash
deficits, there can be no assurance that the Partnership will receive additional
funds Other possible actions to resolve cash deficiencies include refinancings,
deferring capital expenditures on the Partnership property except where
improvements are expected to enhance the competitiveness and marketability of
the property, or property sale. A sale or refinancing of the property is only a
possibility.

Long-term liquidity
-------------------

The Partnership has been in a distressed cash situation for several years. After
the sale of Woodbridge Apartments, the Partnership has one remaining property,
Harbour Club II Apartments. Although Harbour Club II is able to operate in such
a manner to provide for operating expenses and debt service payments, the
property has not proven the capability to produce the cash flow necessary for
capital improvements nor to support Partnership general and administrative
operations. The inability to make necessary capital improvements has led to
deteriorating conditions at the property. In the opinion of management, if
capital improvements are not made to make the property more marketable, the net
realizable value of the property may be further impaired.

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

Distributions

To maintain adequate cash balances of the Partnership, distributions to Current
Income Unit holders were suspended in 1988. There have been no distribution to
Growth/Shelter Units holders. Distributions to Unit holders will remain
suspended for the foreseeable future.

<PAGE>

PART II. OTHER INFORMATION

ITEM 2. LEGAL PROCEEDINGS
------ -----------------

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------ --------------------------------

(a) Exhibits.
<TABLE>
Exhibit
Number Description
------- -----------
<S> <C>
4. Amended and Restated Limited Partnership Agreement dated March 30, 1992.
(Incorporated by reference to the Current Report of the Registrant on Form 8-K
dated March 30, 1992, as filed on April 10, 1992).

11. Statement regarding computation of Net Income (Loss) per Thousand Limited
Partnership Units: Net income (loss) per thousand limited partner units is
computed by dividing net income (loss) allocated to the limited partners by
the weighted average number of limited partnership units outstanding expressed
in thousands. Per unit information has been computed based on 9,399 and 9,419
Current Income Units (in thousands) outstanding in 1995 and 1994 and 6,689 and
6,709 Growth/Shelter Units (in thousands) outstanding in 1995 and 1994,
respectively.
</TABLE>
b) Reports on Form 8-K. A current report on Form 8-K dated May 18, 1995
was filed on June 2, 1995, reporting the confirmation of the Plan of
Reorganization and the subsequent sale of Woodbridge Apartments on
May 25, 1995.

<PAGE>

MCNEIL REAL ESTATE FUND XXIII, L.P.
(Debtor-in-Possession)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:

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

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

By: McNeil Investors, Inc., General Partner

August 14, 1995 By: /s/ Donald K. Reed
--------------------------------- -----------------------------------
Date Donald K. Reed
President and Chief Executive Officer

August 14, 1995 By: /s/ Robert C. Irvine
--------------------------------- -----------------------------------
Date Robert C. Irvine
Chief Financial Officer of McNeil Investors, Inc.
Principal Financial Officer

August 14, 1995 By: /s/ Carol A. Fahs
--------------------------------- -----------------------------------
Date Carol A. Fahs
Chief Accounting Officer of McNeil Real Estate
Management, Inc.

</TABLE>

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 444,124
<SECURITIES> 0
<RECEIVABLES> 13,112
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,976,159
<DEPRECIATION> (2,517,164)
<TOTAL-ASSETS> 4,052,420
<CURRENT-LIABILITIES> 0
<BONDS> 3,801,636
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,052,420
<SALES> 919,889
<TOTAL-REVENUES> 554,047
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,088,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 290,780
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,107
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>