MCNEIL REAL ESTATE FUND XXIII LP, 10-K405, 1996-04-01

MCNEIL REAL ESTATE FUND XXIII LP
10-K405, 1996-04-01
REAL ESTATE

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

FORM 10-K405

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

For the fiscal year ended December 31, 1995
-----------------------------------------------

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

For the transition period from ______________ to_____________

Commission file number 0-15459

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

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

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

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

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

11,652,730 of the Registrant's 11,657,730 limited partnership units are held by
non-affiliates. The aggregate market value of units held by non-affiliates is
not determinable since there is no public trading market for limited partnership
units and transfers of units are subject to certain restrictions.

Documents Incorporated by Reference: See Item 14, Page 39

TOTAL OF 41 PAGES

<PAGE>

PART I

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

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

McNeil Real Estate Fund 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 Uniform 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 General Partner
was elected at a meeting of limited partners on March 30, 1992, at which time an
amended and restated partnership agreement (the "Amended Partnership Agreement")
was adopted. Prior to March 30, 1992, the general partner of the Partnership was
Southmark Investment Group 85, Inc. (the "Original General Partner"), a Nevada
corporation and a wholly-owned subsidiary of Southmark Corporation
("Southmark"). The principal place of business for the Partnership and the
General Partner is 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240.

On February 25, 1986, the Partnership registered with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 33-1620)
and commenced a public offering for sale of $45,000,000 of limited partnership
units. Two classes of limited partnership units were offered, designated as
Current Income Units and Growth/Shelter Units (referred to collectively as
"Units"). The Units represent equity interests in the Partnership and entitle
the holders thereof to participate in certain allocations and distributions of
the Partnership. The sale of Units closed on February 24, 1987, with 16,204,041
Units (9,461,580 Current Income Units and 6,742,461 Growth/Shelter Units) sold
at $1 each, or gross proceeds of $16,204,041. 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. 0-15459). In 1991, 76,000 Units
were rescinded and in 1994, 20,000 Units were relinquished leaving 16,108,041
Units (9,419,080 Current Income Units and 6,688,961 Growth/Shelter Units)
outstanding at December 31, 1995. On January 1, 1996, pursuant to the
Partnership's bankruptcy reorganization plan, the Partnership redeemed 4,450,311
Units for cash consideration equal to 1/1,000th of a cent per Unit redeemed.

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

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

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

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

On March 30, 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 XXIII, L.P. Under the Amended Partnership Agreement, the Partnership began
accruing an asset management fee, retroactive to February 14, 1991, which is
payable to the new General Partner. For a discussion of the methodology for
calculating the asset management fee, see Item 13 Certain Relationship and
Related Transactions. The proposals approved at the March 30, 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 $350,466 (i)
the right to receive payment on the advances owing from the Partnership to
Southmark and its affiliates in the amount of $4,375,661, and (ii) the general
partner interest of the Original General Partner. The General Partner owns in
the aggregate less than 1% of the Units.

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

General:

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

The Partnership filed for protection under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11") on June 30, 1994. The Partnership's
reorganization plan was confirmed by the Bankruptcy Court on May 17, 1995. See
Chapter 11 Reorganization below.

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
3 - "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.

Chapter 11 Reorganization:

On June 30, 1994, the Partnership filed a voluntary petition for Chapter 11
reorganization with the United States Bankruptcy Court - Northern District of
Texas, Dallas Division (the "Bankruptcy Court"). The Partnership continued to
conduct its affairs as a debtor-in-possession, subject to the jurisdiction and
supervision of the Bankruptcy Court. Concurrent with the Chapter 11 filing, the
General Partner contributed to the Partnership $4,375,661 of advances and
$704,482 of accrued interest on advances that were payable by the Partnership to
the General Partner. See Note 3 - Transactions with Affiliates. The
Partnership's financial statements include the accounts of Beckley Associates
("Beckley"). Beckley, which owns Harbour Club II Apartments, is 99.99% by the
Partnership. Beckley was excluded from the Chapter 11 filing.

Woodbridge Apartments, one of the Partnership's properties, 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
United States Department of Housing and Urban Development ("HUD"). The second
lien mortgage note payable was payable in monthly installments of interest only.
Such 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" was
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. The Chapter
11 proceeding was filed to prevent the foreclosure actions.

The Partnership's First Amended Plan of Reorganization (the "Reorganziation
Plan"), which contemplated a sale of Woodbridge Apartments, was submitted to the
Bankruptcy Court on February 13, 1995. 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 Item
3 - Legal Proceedings). The judgment lien creditors filed objections to
confirmation of the Reorganization Plan. On April 18, 1995, the Bankruptcy Court
did grant an order to sell Woodbridge Apartments but denied confirmation of the
Reorganization Plan. The Partnership filed an appeal of the Bankruptcy 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 17, 1995.
<PAGE>

Woodbridge Apartments was sold on May 25, 1995 and, in accordance with the
Reorganization Plan, the first and second mortgage notes payable 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 September 11, 1995, the Bankruptcy Court entered an Order Regarding
Objections to Claims that allowed the Partnership to pay outstanding
pre-petition claims totaling approximately $12,000 in October 1995.

As outlined in the Reorganization Plan, any payments of advances and fees owed
to affiliates of the General Partner were limited to remaining cash, after the
pre-petition and reorganization related costs were paid. The Partnership had
$37,228 of such cash available to distribute to affiliate creditors. The
remaining amounts owed to affiliates of the General Partner as of May 17, 1995
were discharged resulting in an extraordinary gain of $1,435,024.

On August 15, 1995, the Partnership sent an election form to each limited
partner which allowed them to choose whether to redeem their interest in the
Partnership. The redemption price was 1/1,000th of a cent per Unit. The limited
partners were required to respond within 30 days, and at the close of the 30 day
period, 310 limited partners had elected to redeem 4,450,311 Units. In
connection with the redemption, the partnership obtained a "no-action" letter
from the Securities and Exchange Commission ("SEC") that provided that (1) the
redemption could be accomplished without compliance with Rule 13e-3 of the
Securities Exchange Act of 1934, and (2) the SEC did not intend to pursue an
enforcement action if the Reorganization Plan was consummated. Redemption of the
affected Units was effective on January 1, 1996.

On November 18, 1995, the Partnership submitted to the Bankruptcy Court a
request for an Application to Close Case, which was entered on December 11,
1995. The Partnership was awaiting confirmation of the Order Approving the
Application to Close Case as of March 13, 1996.

Expenses incurred by the Partnership in connection with its Chapter 11 filing
have been expensed as "Reorganization expenses" in the accompanying Statements
of Operations. Interest earned on funds restricted by the Bankruptcy Court are
presented as "Interest on reorganization funds" in the Statements of Operations.

Business Plan:

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

Competitive Conditions:

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

Other Information:

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

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

The following table sets forth the investment portfolio of the Partnership at
December 31, 1995. The buildings and the land on which the property is located
are owned by the Partnership in fee, subject to a first lien deed of trust as
described more fully in Item 8 - Note 6 - "Mortgage Notes Payable." See also
Item 8 - Note 5 - "Real Estate Investment" and Schedule III - "Real Estate
Investment and Accumulated Depreciation." In the opinion of management, the
property is adequately covered by insurance.
<TABLE>
Net Basis of 1995 Date
Property Description Property Debt Property Taxes Acquired
- -------- ----------- ------------ ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Harbour Club II (1) Apartments
Belleville, MI 220 units $ 3,428,097 $ 3,787,802 $ 104,737 6/86
</TABLE>

(1) Harbour Club II Apartments is owned by Beckley Associates which is 99.99%
owned by the Partnership.

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

1995 1994 1993 1992 1991
------------- ------------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Harbour Club II
Occupancy Rate............ 92% 86% 85% 92% 80%
Rent Per Square Foot...... $6.55 $5.96 $5.79 $5.43 $5.55
</TABLE>

Occupancy rate represents all units leased divided by the total number of units
of the property as of December 31 of the given year. Rent per square foot
represents all revenue, except interest, derived from the property's operations
divided by the leasable square footage of the property. No residential tenant
leases 10% or more of the available rental space.

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

Harbour Club II, located in Belleville, Michigan, was built in 1971 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 Belleville
market has significantly rebounded to an average area occupancy rate of 95% and
the property's closest competitor has rental rates approximately $100 per month
above Harbour Club II's rates. Harbour Club II has had difficulty increasing
rents for four years due to lack of capital improvements. Security concerns are
prompting demands from tenants for improved lighting, limited access gates and
fencing, as offered by competitors. The property has a large amount of deferred
maintenance due to high debt service and is unable to generate cash to meet its
capital improvement needs. Management is currently seeking alternatives to fund
the needed capital improvements. The ability of the property to compete in the
market will be directly determined by the amount of capital dollars spent to
upgrade the property to community standards.

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

Except for the Partnership's Chapter 11 bankruptcy proceeding, the Partnership
is not party to, nor is the Partnership's property the subject of, any material
pending legal proceedings, other than ordinary, routine litigation incidental to
the Partnership's business, except for the following:

1) 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 Bankruptcy 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 17, 1995, and on June
2, 1995, the Partnership paid $156,566 to the plaintiffs.

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

Proceedings against the Partnership were stayed pursuant to the voluntary
petition for reorganization filed by the Partnership on June 30, 1994.
Plaintiffs have agreed that all claims against the Partnership have been
fully satisfied in the bankruptcy. The Court has dismissed the Partnership
as a party-defendant to the action.

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 948 as of February 16, 1996

(C) No distributions were made to the partners during 1995 or 1994 and none
are anticipated in 1996. 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 Supplemental Data.
<TABLE>
Years Ended December 31,
Statements of -------------------------------------------------------------------------
Operations 1995 1994 1993 1992 1991
- ------------------ ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Rental revenue............... $ 1,591,118 $ 1,894,443 $ 1,904,708 $ 1,922,007 $ 1,869,603
Write-down for permanent
impairment of real estate - (661,921) - (1,783,702) -
Gain on disposition of real
estate 554,047 - - - -
Income (loss) before
extraordinary items 14,174 (1,465,830) (806,303) (2,860,788) (1,068,771)
Extraordinary gain on
discharge of payable
to affiliates 1,435,024 - - - -
Extraordinary items.......... - - - 79,627 291,242
Net income (loss)............ 1,449,198 (1,465,830) (806,303) (2,781,161) (777,529)

Net income (loss) per thousand
limited partnership units:
Income (loss) before
extraordinary items:
Current Income Units $ 28.89 $ (14.01) $ (7.70) $ (27.33) $ (10.19)
Growth/Shelter Units (38.59) (197.23) (108.16) (383.77) (143.01)

Extraordinary items:
Current Income Units 88.20 - - .76 2.78
Growth/Shelter Units 88.20 - - 10.68 38.97

Net income (loss):
Current Income Units 117.09 (14.01) (7.70) (26.57) (7.41)
Growth/Shelter Units 49.61 (197.23) (108.16) (373.09) (104.04)

</TABLE>

<TABLE>

As of December 31,
-------------------------------------------------------------------------
Balance Sheets 1995 1994 1993 1992 1991
- -------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Real estate, net............... $ 3,428,097 $ 3,546,322 $ 6,855,858 $ 7,056,300 $ 9,194,023
Asset held for sale............ - 2,373,130 - - -
Total assets................... 3,825,824 6,520,408 7,486,894 7,798,950 9,949,459
Mortgage notes payable, net.... 3,787,802 3,814,667 6,300,793 6,347,862 6,378,173
Liabilities subject to
compromise.................. - 4,184,977 - - -
Partners' deficit.............. (290,769) (1,739,967) (5,354,280) (4,547,977) (1,766,816)
</TABLE>

See Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.

Woodbridge Apartments was sold on May 25, 1995.

As a result of its Chapter 11 proceeding, the realization of assets and
liquidation of liabilities attributable to the Partnership were subject to
significant uncertainties. The Partnership's balance sheet as of December 31,
1994, reflects the liabilities that were deferred under the Chapter 11
proceeding as "Liabilities subject to compromise."

<PAGE>

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

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

The accompanying financial statements have been prepared assuming 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.

The Partnership's operating activities used $26,451 in 1995, as compared with
$149,667 provided by and $14,579 used by operating activities in 1994 and 1993,
respectively. The decrease in cash flow from operating activities is primarily
due to $248,057 of reorganization costs paid by the Partnership in connection
with its Chapter 11 bankruptcy filing. No such costs were paid in 1994. Also,
due to the Partnership's Reorganization Plan, the Partnership was allowed to pay
pre-petition claims in October 1995. Other changes in cash flows were primarily
the result of the sale of Woodbridge Apartments on May 25, 1995 including
decreases in cash received from tenants, cash paid to suppliers and property
taxes paid.

Cash used for capital expenditures totaled $124,698 during 1995 as compared to
$105,422 during 1994. Cash provided from the sale of Woodbridge Apartments
totaled $3,078,096. $2,641,421 of the proceeds from the sale of Woodbridge
Apartments were used to retire the mortgage notes secured by the property.

In the past, cash deficits from operating activities were partially funded
through advances from affiliates of the General Partner. The Reorganization
Plan, confirmed by the Bankruptcy Court on May 17, 1995, allowed for the
discharge of $459,364 of advances from the General Partner and from various
affiliates of the General Partner, as well as $88,429 of accrued interest
related to such advances. The Reorganization Plan also provided for the
discharge of $887,231 of reimbursable costs and asset management fees due to the
General Partner. The discharge of debts due to the General Partner and its
affiliates resulted in an extraordinary gain of $1,435,024.

Prior to the restructuring of the Partnership, affiliates of the Original
General Partner advanced funds to enable the Partnership to meet its working
capital requirements. These advances (the "Purchased Advances") were purchased
by, and were payable to, the General Partner. The Purchased Advances totaled
$4,375,661 plus accrued interest of $704,482. Concurrent with the Partnership's
Chapter 11 filing, the General Partner contributed the Purchased Advances to the
Partnership.

At December 31, 1995, the Partnership held cash and cash equivalents of
$233,222.

Short-term liquidity:

The General Partner has established a revolving credit facility not to exceed
$5,000,000 in the aggregate which is available on a "first-come, first-served"
basis to the Partnership and other affiliated partnerships if certain conditions
are met. Borrowings under the facility may be used to fund deferred maintenance,
refinancing obligations and working capital needs. As discussed above, the
Partnership had received advances under the revolving credit facility to fund
additions to the Partnership's real estate investments and costs incurred in
connection with the refinancing of the Partnership's mortgage note payable. Such
advances were discharged as a result of the Chapter 11 proceedings. There is no
assurance that the Partnership will receive any additional funds under the
facility because no amounts will be reserved for any particular partnership. As
of December 31, 1995, $2,662,819 remained available for borrowing under the
facility; however, additional funds could become available as other partnerships
repay existing borrowings. This commitment expires on March 30, 1997.

Additionally, the General Partner has, at its discretion, advanced funds to the
Partnership in addition to the revolving credit facility. As discussed above,
the Partnership received other advances that were used to fund working capital
requirements. Such advances were discharged as a result of the Chapter 11
proceedings. The General Partner is not obligated to advance funds to the
Partnership and there is no assurance that the Partnership will receive
additional funds.

<PAGE>

Although the sale of Woodbridge Apartments provided some additional cash
reserves for the Partnership, the Partnership still faces liquidity problems
because of urgently needed capital improvements at Harbour Club II Apartments
for which no financing has been secured. Operating activities at Harbour Club II
Apartments for 1996 are expected to provide sufficient positive cash flow for
normal operating expenses and debt service payments. However, the needed capital
improvements will require the use of other sources of cash. No such sources have
been identified. The Partnership has no established lines of credit from outside
sources. Other possible actions to provide financing for the capital
improvements may include refinancing or modifying the property's mortgage debt.
Should such refinancing or modification of Harbour Club II's mortgage debt prove
unfeasible, the Partnership could be forced to either sell the property or to
relinquish control of the property to the mortgage note holder.

Long-term liquidity:

The Partnership has been in a distressed cash situation for several years.
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 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.

Harbor Club II Apartments 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 the General Partner is the general partner; while Phase IV is owned by
University Real Estate Fund 12, Ltd., ("UREF 12") whose general partner is an
affiliate of Southmark. McREMI managed 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 its United
States Department of Housing and Urban Development ("HUD") mortgage note. 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 used by
all three phases are located on Phase I. As of year end, no steps have been
taken to foreclose on Phase I.

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

Distributions
- -------------

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

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

Harbour Club II Apartments was 92% occupied at the end of December 1995 as
compared to 86% and 85% at the end of December 1994 and 1993, respectively.
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 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.

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

<PAGE>

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

1995 compared to 1994

Revenue:

Rental revenue decreased $303,325 in 1995 compared to 1994 due to the sale of
Woodbridge Apartments on May 25, 1995. However, rental revenue increased
$118,455 or 9.9% at Harbour Club II Apartments as the Partnership was able to
implement modest increases in base rental rates accompanied by increased
occupancy. Total revenue increased $312,283 to $2,212,756 in 1995. The increased
revenue was the result of a $554,047 gain related to the sale of Woodbridge
Apartments and receipt of a $53,233 refund of property taxes due to a successful
appeal of the property tax assessments on Harbour Club II Apartments.

Expenses:

Total expenses decreased $1,167,721 during 1995 compared to 1994. Three one-time
transactions affect the comparison. First, the 1994 expenses include a $661,921
write-down for permanent impairment of real estate related to Woodbridge
Apartments. No such write-down was recorded in 1995. Second, the sale of
Woodbridge Apartments on May 25, 1995 eliminated operating expenses for that
property for seven months in 1995, whereas twelve months of operating expenses
at Woodbridge Apartments are reported in the Partnership's 1994 Statement of
Operations. Finally, the 1995 income statement includes a one-time charge of
$257,303 for reorganization expenses related to the Partnership's Chapter 11
Bankruptcy filing. No such expenses were recorded in 1994. Expenses related to
Harbour Club II Apartments decreased $67,911 or 5.0% in 1995 compared to 1994.

For comparability, the discussion of expenses to follow will generally exclude
the consideration of expenses incurred at Woodbridge Apartments.

Property taxes assessed against Harbour Club II Apartments decreased $15,123 or
12.2% in 1995 compared to 1994. The Partnership succeeded in having the assessed
value of Harbour Club II Apartments reduced for property tax purposes. Not only
were current year property taxes reduced, the Partnership also received a
$53,233 refund of prior year property taxes. The refund was recorded as an
income item on the 1995 Statement of Operations.

Repairs and maintenance expenses at Harbour Club II Apartments decreased $19,258
or 10.8% in 1995 compared to 1994. Expenses incurred for interior painting and
replacement of appliances were the significant items that led to the decrease.
These decreases were partially offset by increased expenses for grounds
maintenance and security on the property.

Other property operating expense incurred at Harbour Club II Apartments
decreased $14,943 or 11.9% in 1995. Due to significant efforts by management, as
well as an improving local economy, bad debt expenses, expenses for evictions
and other legal and credit-related expenses were significantly reduced.

General and administrative - affiliates expense decreased $33,184 or 15.0% in
1995 compared to 1994. These expenses represent reimbursable expenses incurred
by affiliates of the General Partner for administering the affairs of the
Partnership. Such expenses are generally incurred based upon the proportion of
properties owned by the Partnership to the total number of properties managed by
the General Partner and its affiliates for the Partnership and other affiliated
partnerships. The sale of Woodbridge Apartments reduced the costs allocated to
the Partnership in 1995.

Interest - affiliates decreased $186,321 during 1995 as compared to 1994. The
discharge of affiliated advances resulting from the Partnership's Reorganization
Plan also effectively reduced the interest charges on such debt.

All other expense line items (after eliminating expenses pertaining to
Woodbridge Apartments), both individually and as a group, changed less than 8%
in 1995 compared to 1994.

<PAGE>

1994 compared to 1993

Revenue:

Total Partnership revenues decreased by $145,728 in 1994 as compared to 1993
primarily due to recording $133,369 of property tax refunds for Harbour Club II
as income during 1993. No such refunds were recorded during 1994.

Expenses:

Total expenses increased by $513,799 in 1994 as compared to 1993. The 1994
expenses include a $661,921 write-down for permanent impairment of Woodbridge
Apartments.

Interest expense - affiliates decreased $129,349 in 1994 as compared to 1993 due
to the contribution of the Purchased Advances by the General Partner on June 30,
1994, as discussed in Liquidity and Capital Resources above.

Property tax expense decreased by $43,784 in 1994 as compared to 1993 due to the
lower appraisal value at Harbour Club II Apartments following a successful tax
appeal.

Repairs and maintenance expense decreased by $34,932 in 1994 as compared to
1993. Both of the Partnership's properties had been operating in distressed
financial conditions. As such, both properties had made cutbacks in service,
cleaning and decorating expenses.

Property management fees decreased by $13,419 in 1994 as compared to 1993.
During 1993, the Partnership received approval of HUD, the co-insurer of the
mortgage on the property, to change property management fees of Harbour Club II
Apartments from 4.25% to 5% retroactive to May 30, 1991. An additional $18,562
in property management fees were accrued in 1993 due to this change.

Other property operating expenses increased $61,187 in 1994 as compared to 1993.
Due to the lack of funds available to maintain marketability, the Partnership's
properties have had difficulty attracting higher profile tenants. As a result,
bad debt expense and professional fees related to eviction of tenants have
increased.

General and administrative expense decreased $20,798 in 1994 as compared to 1993
primarily due to a decrease in tax preparation fees.

All other expenses in 1994 were comparable to 1993.

<PAGE>

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

<TABLE>

Page
Number
------

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

Report of Independent Public Accountants....................................... 14

Balance Sheets at December 31, 1995 and 1994................................... 15

Statements of Operations for each of the three years in the period
ended December 31, 1995........................................................ 16

Statements of Partners' Equity (Deficit) for each of the three years
in the period ended December 31, 1995.......................................... 17

Statements of Cash Flows for each of the three years in the period
ended December 31, 1995........................................................ 18

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

Financial Statement Schedule -

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

</TABLE>

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

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

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

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

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

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

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

/s/ Arthur Anderson LLP

Dallas, Texas
March 13, 1996

<PAGE>

McNEIL REAL ESTATE FUND XXIII, L.P.

BALANCE SHEETS

<TABLE>

December 31,
-----------------------------
1995 1994
--------- ----------
<S> <C> <C>
ASSETS
- ------

Real estate investment:
Land..................................................... $ 239,966 $ 239,966
Buildings and improvements............................... 5,836,474 5,711,776
---------- ----------
6,076,440 5,951,742
Less: Accumulated depreciation.......................... (2,648,343) (2,405,420)
---------- ----------
3,428,097 3,546,322

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

Cash and cash equivalents ($79,303 restricted by
the Bankruptcy Court at December 31, 1994)............... 233,222 107,815
Cash segregated for security deposits....................... 54,921 76,307
Accounts receivable......................................... 11,395 17,033
Escrow deposits............................................. 91,296 364,419
Prepaid expenses and other assets........................... 6,893 35,382
----------- ----------

$ 3,825,824 $ 6,520,408
=========== ==========

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

Mortgage notes payable, net of discounts.................... $ 3,787,802 $ 3,814,667
Accounts payable and accrued expenses....................... 120,611 75,624
Accrued property taxes...................................... 43,142 123,773
Payable to affiliates - General Partner..................... 114,218 4,986
Security deposits and deferred rental revenue............... 50,820 56,348
----------- ----------
4,116,593 4,075,398
----------- ----------

Liabilities subject to compromise (including $1,341,606
payable to affiliates at December 31, 1994).............. - 4,184,977
----------- ----------

Partners' equity (deficit):
Limited partners - 45,000,000 Units authorized;
16,108,041 Units issued and outstanding at
December 31, 1995 and 1994 (9,419,080 Current
Income Units and 6,688,961 Growth/Shelter Units
outstanding at December 31, 1995 and 1994)............. (5,145,030) (6,579,736)
General Partner.......................................... 4,854,261 4,839,769
---------- ----------
(290,769) (1,739,967)

$ 3,825,824 $ 6,520,408
========== ==========
</TABLE>

See accompanying notes to financial statements.

<PAGE>

McNEIL REAL ESTATE FUND XXIII, L.P.

STATEMENTS OF OPERATIONS

<TABLE>

For the Years Ended December 31,
-----------------------------------------------
1995 1994 1993
--------- ---------- ---------
<S> <C> <C> <C>
Revenue:
Rental revenue.......................... $1,591,118 $ 1,894,443 $1,904,708
Interest................................ 5,112 6,030 8,124
Interest on reorganization funds........ 9,246 - -
Gain on disposition of real estate...... 554,047 - -
Property tax refund..................... 53,233 - 133,369
---------- ---------- ---------
Total revenue......................... 2,212,756 1,900,473 2,046,201
---------- ---------- ---------

Expenses:
Interest................................ 450,654 634,412 614,976
Interest - affiliates................... 17,846 204,167 333,516
Depreciation............................ 306,663 379,907 391,213
Property taxes.......................... 118,771 160,787 204,571
Personnel costs ........................ 240,099 296,234 272,788
Utilities............................... 141,102 172,355 157,959
Repairs and maintenance................. 207,619 289,921 324,853
Property management fees -
affiliates............................ 73,021 92,207 105,626
Other property operating expenses....... 161,210 217,410 156,223
General and administrative.............. 35,755 35,259 56,057
Reorganization expenses................. 257,303 - -
General and administrative -
affiliates............................ 188,539 221,723 234,722
Write-down for permanent
impairment of real estate............. - 661,921 -
---------- ---------- ----------
Total expenses........................ 2,198,582 3,366,303 2,852,504
---------- ---------- ----------

Income (loss) before extraordinary item.... 14,174 (1,465,830) (806,303)
Extraordinary gain on discharge of
payable to affiliates................... 1,435,024 - -
---------- ---------- ----------
Net income (loss).......................... $ 1,449,198 $(1,465,830) $ (806,303)
========== ========== ==========

Net income (loss) allocated to limited
partners - Current Income Units......... $ 1,102,877 $ (131,925) $ (72,567)
Net income (loss) allocated to limited
partners - Growth/Shelter Units......... 331,829 (1,319,247) (725,673)
Net income (loss) allocated to General
Partner................................. 14,492 (14,658) (8,063)
---------- ---------- ----------
Net income (loss).......................... $ 1,449,198 $(1,465,830) $ (806,303)
========== ========== ==========

Net income (loss) per thousand limited
partnership units:
Current Income Units:
Income (loss) before extraordinary item $ 28.89 $ (14.01) $ (7.70)
Extraordinary item.................... 88.20 - -
---------- ---------- ----------
Net income (loss)..................... $ 117.09 $ (14.01) $ (7.70)
========== ========== ==========

Growth/Shelter Units:
Loss before extraordinary item........ $ (38.59) $ (197.23) $ (108.16)
Extraordinary item.................... 88.20 - -
---------- ---------- ----------
Net income (loss)..................... $ 49.61 $ (197.23) $ (108.16)
========== ========== ==========
</TABLE>

See accompanying notes to financial statements.
<PAGE>

McNEIL REAL ESTATE FUND XXIII, L.P.

STATEMENTS OF PARTNERS' EQUITY (DEFICIT)

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

<TABLE>

Total
General Limited Partners'
Partner Partners Equity (Deficit)
---------- ---------- ----------
<S> <C> <C> <C>
Balance at December 31, 1992.............. $ (217,653) $(4,330,324) $(4,547,977)

Net loss
General Partner........................ (8,063) - (8,063)
Current Income Units................... - (72,567) (72,567)
Growth/Shelter Units................... - (725,673) (725,673)
---------- ---------- ----------
Total net loss............................ (8,063) (798,240) (806,303)
---------- ---------- ----------

Balance at December 31, 1993.............. (225,716) (5,128,564) (5,354,280)

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

Net loss
General Partner........................ (14,658) - (14,658)
Current Income Units................... - (131,925) (131,925)
Growth/Shelter Units................... - (1,319,247) (1,319,247)
---------- ---------- ----------
Total net loss............................ (14,658) (1,451,172) (1,465,830)
---------- ---------- ----------

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

Net income
General Partner........................ 14,492 - 14,492
Current Income Units................... - 1,102,877 1,102,877
Growth/Shelter Units................... - 331,829 331,829
---------- ---------- ----------
Total net income.......................... 14,492 1,434,706 1,449,198
---------- ---------- ----------

Balance at December 31, 1995.............. $ 4,854,261 $(5,145,030) $ (290,769)
========== ========== ==========
</TABLE>

See accompanying notes to financial statements.

<PAGE>

McNEIL REAL ESTATE FUND XXIII, L.P.

STATEMENTS OF CASH FLOWS

Increase (Decrease) in Cash and Cash Equivalents

<TABLE>

For the Years Ended December 31,
-----------------------------------------------
1995 1994 1993
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from tenants.............. $1,582,674 $1,852,058 $ 1,860,862
Cash paid to suppliers.................. (653,089) (901,337) (1,060,683)
Cash paid to affiliates................. (75,627) (105,129) (91,539)
Reorganization costs paid, net.......... (248,057) - -
Interest received....................... 5,112 6,030 8,124
Interest paid........................... (571,305) (518,122) (578,204)
Interest paid to affiliates............. - - (11,683)
Property taxes paid..................... (119,392) (183,833) (274,825)
Property taxes refunded................. 53,233 - 133,369
---------- ---------- -----------
Net cash provided by (used in)
operating activities.................... (26,451) 149,667 (14,579)
---------- ---------- -----------

Cash flows from investing activities:
Additions to real estate
investments........................... (124,698) (105,422) (190,771)
Proceeds from disposition of
real estate........................... 3,078,096 - -
---------- ---------- ------------
Net cash provided by (used in)
investing activities.................... 2,953,398 (105,422) (190,771)
---------- ---------- ------------

Cash flows from financing activities:
Principal payments on mortgage
notes payable......................... (58,616) (84,774) (78,854)
Advances from affiliates - General
Partner............................... - 59,033 199,502
Repayment of advances from
affiliates - General Partner............... (1,129) - (61,316)
Repayment of claims settlement.......... (100,374) - -
Retirement of mortgage notes
payable due to disposition of
real estate investment................ (2,641,421) - -
---------- ---------- ------------
Net cash provided by (used in)
financing activities.................... (2,801,540) (25,741) 59,332
---------- ---------- ------------

Net increase (decrease) in cash and
cash equivalents...................... 125,407 18,504 (146,018)

Cash and cash equivalents at
beginning of year..................... 107,815 89,311 235,329
---------- ---------- ------------

Cash and cash equivalents at end
of year............................... $ 233,222 $ 107,815 $ 89,311
========== ========== ============
</TABLE>

See discussion of noncash investing and financing activities in Note 3 -
Transactions with Affiliates.

See accompanying notes to financial statements.

<PAGE>

McNEIL REAL ESTATE FUND XXIII, L.P.

STATEMENTS OF CASH FLOWS

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

<TABLE>

For the Years Ended December 31,
-----------------------------------------------
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Net income (loss).......................... $1,449,198 $(1,465,830) $ (806,303)
--------- ---------- ----------

Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation............................ 306,663 379,907 391,213
Amortization of discounts on
mortgage notes payable................ 23,859 33,301 31,785
Interest added to advances from
affiliates - General Partner.......... 17,846 204,167 321,832
Write-down for permanent
impairment of real estate............. - 661,921 -
Gain on disposition of real estate...... (554,047) - -
Extraordinary gain on discharge
of payable to affiliates.............. (1,435,024) - -
Changes in assets and liabilities:
Cash segregated for security
deposits............................ 21,386 (17,787) (5,845)
Accounts receivable................... 5,638 15,273 (20,446)
Escrow deposits....................... 273,123 66,717 (30,209)
Prepaid expenses and other
assets.............................. 28,489 (15,619) 22,097
Accounts payable and accrued
expenses............................ (211,621) 59,327 (132,653)
Accrued property taxes................ (98,239) 10,712 (33,699)
Claims settlement payable............. (12,788) 6,919 (4,293)
Payable to affiliates - General
Partner............................. 185,934 208,801 248,809
Security deposits and deferred
rental revenue...................... (26,868) 1,858 3,133
---------- ---------- ----------

Total adjustments................. (1,475,649) 1,615,497 791,724
---------- ---------- ----------

Net cash provided by (used in)
operating activities.................... $ (26,451) $ 149,667 $ (14,579)
========== ========== ==========
</TABLE>

See accompanying notes to financial statements.

<PAGE>

McNEIL REAL ESTATE FUND XXIII, L.P.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1995

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

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

McNeil Real Estate Fund 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. The General Partner was elected
at a meeting of limited partners on March 30, 1992, at which time an amended and
restated partnership agreement (the "Amended Partnership Agreement") was
adopted. Prior to March 30, 1992, the general partner of the Partnership was
Southmark Investment Group 85, Inc. (the "Original General Partner"), a Nevada
corporation and a wholly-owned subsidiary of Southmark Corporation. The
principal place of business for the Partnership and the General Partner is 13760
Noel Road, Suite 700, LB70, Dallas, Texas 75240.

The Partnership is engaged in real estate activities, including the ownership,
operation and management of residential real estate and other real estate
related assets. At December 31, 1995, the Partnership owned one income-producing
property as described in Note 5 - Real Estate Investment.

Chapter 11 Reorganization
- -------------------------

On June 30, 1994, the Partnership filed a voluntary petition for protection
under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). The
Partnership filed its First Amended Plan of Reorganization (the "Reorganization
Plan") with the United States Bankruptcy Court - Northern District of Texas,
Dallas Division (the "Bankruptcy Court"), on February 13, 1995. The Partnership
conducted its affairs as a debtor-in-possession until the Reorganization Plan
was confirmed by the Bankruptcy Court on May 17, 1995. Pursuant to the
Reorganization Plan, the Partnership sold its interest in Woodbridge Apartments
to an unaffiliated buyer on May 25, 1995. The Partnership used the proceeds from
the sale of Woodbridge Apartments to satisfy all pre-petition liabilities of the
Partnership that were not otherwise discharged by the Bankruptcy Court. See Note
2 - "Chapter 11 Reorganization."

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

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

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

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

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

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

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

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

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

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

Cash and cash equivalents include cash on hand and cash on deposit in financial
institutions with original maturities of three months or less. Cash and cash
equivalents at December 31, 1994, also included cash balances of $79,303 which
were restricted by the Bankruptcy Court. Carrying amounts for cash and cash
equivalents approximate fair value.

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

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

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

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

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

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

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

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

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

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

For financial statement purposes, net income arising from sales or refinancing
shall be allocated one percent (1%) to the General Partner and ninety-nine
percent (99%) to the limited partners equally as a group.

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

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

Distributions
- -------------

At the discretion of the General Partner, distributable cash (other than cash
from sales or refinancing) shall be distributed 100% to the limited partners,
with such distributions first paying the Current Income Priority Return and then
the Growth/Shelter Priority Return. Also at the discretion of the General
Partner, the limited partners will receive 100% of distributable cash from sales
or refinancing with such distributions first paying the Current Income Priority
Return, then the Growth/Shelter Priority Return, then repayment of Original
Invested Capital, and of the remainder, 5.88% to limited partners owning Current
Income Units and 94.12% to limited partners owning Growth/Shelter Units. The
limited partners' Current Income and Growth/Shelter Priority Returns represent a
10% and 8%, respectively, cumulative return on their Adjusted Invested Capital
balance, as defined. No distributions of Current Income Priority Return have
been made since 1988, and no distributions of Growth/Shelter Priority Return
have been made since the Partnership began.

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

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

Net income (loss) per thousand limited partner Current Income and Growth/Shelter
units ("Units") is computed by dividing net income (losses) 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 9,419
weighted average Current Income Units (in thousands) outstanding in 1995, 1994,
and 1993, and 6,689, 6,689 and 6,709 weighted average Growth/Shelter Units
outstanding in 1995, 1994, and 1993, respectively.

NOTE 2 - CHAPTER 11 REORGANIZATION
- ----------------------------------

On June 30, 1994, the Partnership, excluding Beckley, filed a voluntary petition
for Chapter 11 reorganization. The Partnership continued to conduct its affairs
as a debtor-in-possession, subject to the jurisdiction and supervision of the
Bankruptcy Court. Concurrent with the Chapter 11 filing, the General Partner
contributed to the Partnership $4,375,661 of advances and $704,482 of accrued
interest on advances that were payable by the Partnership to the General
Partner. See Note 3 - Transactions with Affiliates.

Woodbridge Apartments, one of the Partnership's properties, 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
United States Department of Housing and Urban Development ("HUD"). The second
lien mortgage note payable was payable in monthly installments of interest only.
Such 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" was
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. The Chapter
11 proceeding was filed to prevent the foreclosure actions.

The Partnership's First Amended Plan of Reorganization (the "Reorganization
Plan"), which contemplated a sale of Woodbridge Apartments, was submitted to the
Bankruptcy Court on February 13, 1995. 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
9 - Legal Proceedings). The judgment lien creditors filed objections to
confirmation of the Reorganization Plan. On April 18, 1995, the Bankruptcy Court
did grant an order to sell Woodbridge Apartments but denied confirmation of the
Reorganization Plan. The Partnership filed an appeal of the Bankruptcy 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 17, 1995.

Woodbridge Apartments was sold on May 25, 1995, and, in accordance with the
Reorganization Plan, the first and second mortgage notes payable 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 August 15, 1995, the Partnership sent an election form to each limited
partner which allowed them to choose whether to redeem their interest in the
Partnership. The redemption price was 1/1000th of a cent per Unit. The limited
partners were required to respond within 30 days, and at the close of the 30 day
period, 310 limited partners had elected to redeem 4,450,311 Units. In
connection with the redemption, the partnership obtained a "no-action" letter
from the Securities and Exchange Commission ("SEC") that provided that (1) the
redemption could be accomplished without compliance with Rule 13e-3 of the
Securities Exchange Act of 1934, and (2) the SEC did not intend to pursue an
enforcement action if the Reorganization Plan was consummated. Redemption of the
affected Units was completed on January 1, 1996.

Expenses incurred by the Partnership in connection with its Chapter 11 filing
have been expensed as "reorganization expenses" in the accompanying Statements
of Operations. Interest earned on funds restricted by the Bankruptcy Court are
presented as "interest on reorganization funds" in the Statements of Operations.

<PAGE>

The Partnership's financial statements include the accounts of Beckley, which
owns Harbour Club II Apartments. Beckley was not included in the bankruptcy
filing. Summarized below is a statement of assets, liabilities and partners'
deficit of the portion of the Partnership included in the Chapter 11 filing as
of December 31, 1994. No such statement is presented as of December 31, 1995, as
the Partnership is effectively no longer subject to the Chapter 11 proceedings.
The assets, liabilities and partners' equity pertaining to Beckley, which were
not included in the Chapter 11 filing, are excluded.
<TABLE>

December 31,
1994
---------
<S> <C>
ASSETS
------

Asset held for sale................................ $2,373,130
Cash and cash equivalents.......................... 79,303
Cash segregated for security deposits.............. 24,059
Accounts receivable................................ 2,642
Prepaid expenses and other assets.................. 26,024
Escrow deposits.................................... 178,078
---------

$2,683,236
=========

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

Mortgage notes payable, net of discounts........... $2,434,653
Accounts payable and accrued expenses.............. 256,608
Accrued property taxes............................. 17,608
Claims settlement payable.......................... 113,162
Payable to affiliates - General Partner............ 810,530
Advances from affiliates - General Partner......... 531,076
Security deposits and deferred
rental revenue................................... 21,340
---------
4,184,977
---------
Partners' deficit.................................. (1,501,741)
----------

$2,683,236
=========
</TABLE>

Summarized on the next page are statements of operations for that portion of the
Partnership included in the Chapter 11 filing for the period from the June 30,
1994 filing date through December 31, 1994 and for the period from January 1,
1995 through December 11, 1995, the date that the Partnership requested the
Bankruptcy Court dismiss the bankruptcy filing. The revenues and expenses
pertaining to Beckley, which were excluded from the bankruptcy filing, are
excluded.

<PAGE>

<TABLE>
For the period For the period
January 1, 1995 June 30, 1994
through through
RESULTS OF OPERATIONS December 11, 1995 December 31, 1994
--------------------- ----------------- -----------------
<S> <C> <C>
Rental revenue..................................... $ 279,120 $ 376,280
Interest........................................... - 1,342
Interest on reorganization funds................... 9,246 -
Gain on disposition of real estate................. 554,047 -
--------- --------
Total revenue.................................... 842,413 377,622
--------- --------

Interest........................................... 81,695 143,776
Interest - affiliates.............................. 17,846 23,779
Depreciation....................................... 63,740 77,717
Property taxes..................................... 10,121 18,168
Personnel costs.................................... 52,858 60,719
Utilities.......................................... 34,449 31,224
Repairs and maintenance............................ 48,732 40,927
Property management fees - affiliates.............. 8,735 17,980
Other property operating expenses.................. 50,712 47,189
General and administrative......................... 35,755 20,130
Reorganization expenses............................ 257,303 -
General and administrative - affiliates............ 188,539 117,926
--------- --------
Total expenses................................... 850,484 599,535
--------- --------

Loss before extraordinary item..................... (8,071) (221,913)
Extraordinary gain on discharge of
payable to affiliates............................ 1,435,024 -
--------- --------

Net income (loss).................................. $1,426,953 $(221,913)
========= ========
</TABLE>

NOTE 3 - TRANSACTIONS WITH AFFILIATES
- -------------------------------------

The Partnership pays property management fees equal to 5% of the Partnership's
gross rental receipts to McNeil Real Estate Management, Inc. ("McREMI"), an
affiliate of the General Partner, for providing property management and leasing
services for the Partnership's residential properties. The Partnership received
approval from HUD to increase the property management fees of Harbour Club II
Apartments from 4.25% to 5% of the property's gross rental receipts retroactive
to May 30, 1991. An additional $18,562 of property management fees were accrued
in 1993 due to this change. The Bankruptcy Court required that the property
management fees for Woodbridge Apartments be reduced to 3% of the property's
gross rental receipts for the period from December 1, 1994 until May 25, 1995,
the date the Partnership sold Woodbridge Apartments.

The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs. Reimbursable costs that were incurred
prior to the Partnership's bankruptcy filing, in the amount of $520,902, were
discharged under terms of the Partnership's Reorganization Plan.

Under the terms of the Amended Partnership Agreement, the Partnership incurs an
asset management fee 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
for each property to arrive at the property tangible asset value. The property
tangible asset value is then added to the book value of all other assets
excluding intangible items. The fee percentage decreases subsequent to 1999.
Asset management fees that were incurred but unpaid prior to the Partnership's
bankruptcy filing, in the amount of $366,329, were discharged under terms of the
Partnership's Reorganization Plan.

<PAGE>

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

For the Years Ended December 31,
---------------------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Property management fees - affiliates........ $ 73,021 $ 92,207 $105,626
Charged to interest - affiliates:
Interest on advances from
affiliates - General Partner............ 17,846 204,167 333,516
Charged to general and
administrative - affiliates:
Partnership administration................ 104,908 147,404 137,554
Asset management fees..................... 83,631 74,319 97,168
------- ------- -------

$279,406 $518,097 $673,864
======= ======= =======
</TABLE>

Prior to 1992, affiliates of the Original General Partner advanced funds (the
"Purchased Advances") to enable the Partnership to meet its working capital
requirements. The Purchased Advances were purchased by, and were payable to, the
General Partner. Concurrent with the Partnership's bankruptcy filing, the
General Partner contributed the Purchased Advances to the Partnership. The
Purchased Advances contributed to the Partnership totaled $4,375,661 plus
accrued interest of $704,482.

The General Partner has established a revolving credit facility not to exceed
$5,000,000 in the aggregate which is available on a "first-come, first-served"
basis to the Partnership and other affiliated partnerships if certain conditions
are met. Borrowings under the facility may be used to fund deferred maintenance,
refinancing obligations and working capital needs. The Partnership had received
advances under the revolving credit facility to fund additions to the
Partnership's real estate investments and costs incurred in connection with the
refinancing of the Partnership's mortgage notes payable. There is no assurance
that the Partnership will receive any additional funds under the facility
because no amounts will be reserved for any particular partnership. As of
December 31, 1995, $2,662,819 remained available for borrowing under the
facility; however, additional funds could become available as other partnerships
repay existing borrowings. The balance of the Partnership's outstanding loans
under terms of the revolving credit facility, in the amount of $65,670 together
with $6,696 of accrued interest thereon, were discharged under terms of the
Partnership's Reorganization Plan.

Additionally, the General Partner has, at its discretion, advanced funds to the
Partnership in addition to the revolving credit facility to fund working capital
requirements of the Partnership. The General Partner is not obligated to advance
funds to the Partnership and there is no assurance that the Partnership will
receive additional funds. The Partnership's other advances from the General
Partner, in the amount of $280,694 together with $49,090 of accrued interest
thereon, were discharged under terms of the Partnership's Reorganization Plan.

During 1992, the Partnership received an unsecured loan of $113,000 for working
capital requirements from McNeil Real Estate Fund XXV, L.P. ("Fund XXV"). Fund
XXV owns Phase I of the Harbour Club Apartments (the Partnership owns Phase II
of Harbour Club Apartments), and is affiliated with the General Partner. The
$113,000 unsecured loan due to Fund XXV, together with $32,643 of accrued
interest thereon, was discharged under terms of the Partnership's Reorganization
Plan.

<PAGE>

Advances from affiliates at December 31, 1995 and 1994, consist of the
following:
<TABLE>
1995 1994
-------- -------
<S> <C> <C>
Advances from General Partner - revolving
credit facility.................................. $ - $ 65,670
Advances from General Partner - other.............. - 281,823
Unsecured loan due to Fund XXV..................... - 113,000
Accrued interest on advances and loans............. - 70,583
-------- -------

$ - $531,076
======== =======
</TABLE>

The advances were unsecured, due on demand and accrued interest at the prime
lending rate of Bank of America plus 1%. The prime lending rate of Bank of
America was 8.5% at December 31, 1994.

Payable to affiliates - General Partner at December 31, 1995 and 1994, consists
of property management fees, reimbursable costs and asset management fees that
are due and payable from current operations.

NOTE 4 - TAXABLE INCOME (LOSS)
- ------------------------------

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

The Partnership's net assets and liabilities for tax reporting purposes exceeded
the net assets and liabilities for financial purposes by $2,256,527, $2,787,669
and $3,539,334 at December 31, 1995, 1994 and 1993, respectively.

NOTE 5 - REAL ESTATE INVESTMENT
- -------------------------------

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

Buildings and Accumulated Net Book
1995 Land Improvements Depreciation Value
---- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Harbour Club II
Belleville, MI $ 239,966 $ 5,836,474 $(2,648,343) $ 3,428,097
========= ========== ========== ==========

Buildings and Accumulated Net Book
1994 Land Improvements Depreciation Value
---- --------- ---------- ---------- ----------

Harbour Club II $ 239,966 $ 5,711,776 $(2,405,420) $ 3,546,322
========= ========== ========== ==========
</TABLE>

The Partnership's real estate investment is encumbered by a mortgage note
as discussed in Note 6 - "Mortgage Notes Payable."

During 1994, the General Partner placed Woodbridge Apartments on the market for
sale. Woodbridge Apartments was sold on May 25, 1995. See Note 7 - "Disposition
of Real Estate." Woodbridge Apartments is classified as an asset held for sale
at December 31, 1994.

<PAGE>

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

The following table sets forth the mortgage notes payable of the Partnership at
December 31, 1995 and 1994. All mortgage notes payable are secured by real
estate investments.
<TABLE>
Mortgage Annual Monthly December 31,
Lien Interest Payments/ --------------------------------
Property Position(a) Rates % Maturity 1995 1994
- -------- ----------- ------- -------------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Harbour Club II First 7.50 $ 31,170 05/24 $ 4,391,310 $ 4,434,236
Discount (b) (603,508) (619,569)
---------- ----------
3,787,802 3,814,667

Woodbridge First (c) 7.00 13,658 04/13 - 1,674,850
Discount (d) - (216,308)
Second (e) 12.00(e) (e) 03/96(e) - 982,260
Discount (d) - (6,149)
---------- ----------
- 2,434,653

Total $ 3,787,802 $ 6,249,320
========== ==========
</TABLE>

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

(b) The discount for Harbour Club II mortgage note is based on an effective
interest rate of 9.13%.

(c) As discussed in Note 2 - "Chapter 11 Reorganization," the mortgage note
payable was fully secured by Woodbridge Apartments. The cash collateral
order permitted payments on the mortgage note to the extent of excess
cash.

(d) Discounts for the Woodbridge mortgage notes were based on effective
interest rates of 9%.

(e) The mortgage note payable was fully secured by Woodbridge Apartments.
Payments on the second mortgage note were limited to surplus cash as
defined by HUD. See Note 2 - "Chapter 11 Reorganization." There was no
surplus cash available to make these interest payments. In 1994, the
Partnership ceased making debt service payments, which constituted a
default under the mortgage note agreement. In May 1994, the holder of
the second mortgage note accelerated the interest rate on the second
mortgage note to 12% in accordance with the mortgage note agreement.

Scheduled principal maturities of the mortgage note under the existing
agreement, excluding the $603,508 discount, are as follows:

1996 .............................................. $ 46,259
1997 .............................................. 49,851
1998 .............................................. 53,721
1999 .............................................. 57,891
2000 .............................................. 62,385
Thereafter ........................................ 4,121,203
---------

Total $4,391,310
=========

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 $4,112,000 at December 31, 1995.

<PAGE>

NOTE 7 - DISPOSITION OF REAL ESTATE
- -----------------------------------

On May 25, 1995, the Partnership sold Woodbridge Apartments to an unrelated
third party for a cash purchase price of $3,200,000. Cash proceeds from the
sale, as well as the gain on disposition of Woodbridge Apartments, are shown
below:

<TABLE>

Gain on Sale Cash Proceeds
---------- ----------
<S> <C> <C>
Sales Price........................................ $ 3,200,000 $ 3,200,000

Selling costs...................................... (121,904) (121,904)
Write-off mortgage discounts....................... (214,659)
Basis of real estate sold.......................... (2,309,390)
----------

Gain on disposition of real estate................. $ 554,047
========== ----------
Proceeds from disposition of real estate........... 3,078,096
Retirement of mortgage notes....................... (2,641,421)
----------

Net cash proceeds.................................. $ 436,675
==========
</TABLE>

NOTE 8 - FINANCIAL CONDITION AND GOING CONCERN CONSIDERATIONS
- -------------------------------------------------------------

The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. The Partnership had suffered
recurring losses from operations and has relied on advances from affiliates to
meet its debt obligations and to fund capital improvements.

Operations at Harbour Club II, the Partnership's sole remaining property, are
expected to be sufficient to provide cash for operating expenses and debt
service for 1996. However, the property is in need of major capital improvements
in order to maintain occupancy and rental rates at a level sufficient to fund
operating expenses and debt service in future years. The Partnership's cash
reserves are inadequate to fund the needed capital improvements, and it is
unlikely that cash flow from operating activities will be sufficient to provide
for the needed capital improvements. No outside sources of financing have been
identified. Although affiliates of the Partnership have previously provided
working capital for the Partnership, there can be no assurance that the
Partnership will receive additional funds from the General Partner or other
affiliates. Management is currently seeking additional financing to fund the
needed capital improvements; however, such financing is not assured. If the
property is unable to obtain additional funds and cannot maintain operations at
a level to pay operating expenses and debt service, the property may ultimately
be foreclosed on by the lender.

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") whose general partner is an
affiliate of Southmark. McREMI had been managing all four phases of the complex
until December 1992, when the property management agreement between McREMI and
UREF 12 was canceled. Additionally, in January 1993, Phase I defaulted on its
mortgage loan to the United States Department of Housing and Urban Development
("HUD") and, unless a refinancing agreement can be reached with the lender, the
property is subject to foreclosure. If Phase I is lost to foreclosure, it would
be extremely difficult to operate Phases II and III because the pool and
clubhouse are located in Phase I. As of year end, no steps have been taken
towards the foreclosure of Phase I.

<PAGE>

NOTE 9 - LEGAL PROCEEDINGS
- --------------------------

1) 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 17, 1995, and on June
2, 1995, the Partnership paid $156,566 to the plaintiffs.

NOTE 10 - PRO FORMA DISCLOSURE
- ------------------------------

The following pro forma information for the years ended December 31, 1995 and
1994, reflects the results of operations of the Partnership as if the sale of
Woodbridge Apartments had occurred as of January 1, 1994. The pro forma
information is not necessarily indicative of the results of operations that
actually would have occurred or those which might be expected to occur in the
future.
<TABLE>

For the Years Ended December 31,
--------------------------
1995 1994
--------- ---------
<S> <C> <C>
Total revenue........................ $1,379,589 $1,220,924
Net loss............................. (210,648) (609,919)
Net income (loss) per thousand
limited partnership units:
Current Income units............... (2.01) (3.41)
Growth/Shelter units............... (28.34) (34.08)
</TABLE>

<PAGE>

McNEIL REAL ESTATE FUND XXIII, LTD.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
December 31, 1995
<TABLE>

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

Harbour Club II (c)
Belleville, MI $ 3,787,802 $ 311,119 $ 7,488,130 $ (2,104,290) $ 381,481
============= ============= ============= =========== ============
</TABLE>

See accompanying notes to Schedule III.

<PAGE>

McNEIL REAL ESTATE FUND XXIII, LTD.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
December 31, 1995
<TABLE>
Gross Amount at
Which Carried at Close of Period
-------------------------------------------------- Accumulated
Buildings and Depreciation
Description Land Improvements Total (a) and Amortization
- ----------- ------------ ------------- --------------- --------------
<S> <C> <C> <C> <C>
APARTMENTS:

Harbour Club II (c)
Belleville, MI $ 239,966 $ 5,836,474 $ 6,076,440 $ (2,648,343)
============= ============= =============== =============
</TABLE>

(a) For Federal Income tax purposes, the properties are depreciated over lives
ranging from 15-25 years using ACRS or MACRS methods. The aggregate cost of
real estate investments for Federal income tax purposes was approximately
$8,786,061 and accumulated depreciation was $5,016,189 at December 31,
1995.

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

See accompanying notes to Schedule III.

<PAGE>

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

<TABLE>

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

Harbour Club II (c)
Belleville, MI 1971 06/86 5-25
</TABLE>

<PAGE>

MCNEIL REAL ESTATE FUND XXIII, L.P.

Notes to Schedule III

Real Estate Investments and Accumulated Depreciation

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

For the Years Ended December 31,
-----------------------------------------------
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Real estate investments:

Balance at beginning of year............... $5,951,742 $10,226,009 $10,035,238

Improvements............................... 124,698 105,422 190,771

Reclassification to asset held for sale.... - (3,717,768) -

Write-down for permanent
impairment of real estate........... - (661,921) -
--------- ---------- ----------

Balance at end of year..................... $6,076,440 $ 5,951,742 $10,226,009
========= ========== ==========

Accumulated depreciation:

Balance at beginning of year............... $2,405,420 $ 3,370,151 $ 2,978,938

Depreciation............................... 242,923 379,907 391,213

Reclassification to asset held for sale.... (1,344,638) -
--------- ---------- ----------

Balance at end of year..................... $2,648,343 $ 2,405,420 $ 3,370,151
========= ========== ==========

Asset Held for Sale:
Balance at beginning of year............... $2,373,130 $ - $ -

Depreciation............................... (63,740) - -

Reclassification from real estate
investment, net......................... - 2,373,130 -

Disposition of real estate................. 2,309,390 - -
---------- ----------- ----------

Balance at end of year..................... $ - $ 2,373,130 $ -
========== =========== ==========
</TABLE>

<PAGE>

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
Neither the Partnership nor the General Partner has any directors or executive
officers. The names and ages of, as well as the positions held by, the officers
and directors of McNeil Investors, Inc., the general partner of the General
Partner, are as follows:
<TABLE>
Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
<S> <C> <C>
Robert A. McNeil, 75 Mr. McNeil is also Chairman of the Board and Director of McNeil Real
Chairman of the Estate Management, Inc. ("McREMI"), which is an affiliate of the General
Board and Director Partner. He has held the foregoing positions since the formation of such
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 real estate
acquisitions, syndications and dispositions since 1960. From 1986 until
active operations of McREMI and McNeil Partners L.P. began in February
1991, Mr. McNeil was a private investor. Mr. McNeil is a member of the
International Board of Directors of the Salk Institute, which promotes
research in improvements in health care.

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

<PAGE>

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

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

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

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

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

No direct compensation was paid or payable by the Partnership to directors or
officers (since it does not have any directors or officers) for the year ended
December 31, 1995, nor was any direct compensation paid or payable by the
Partnership to directors or officers of the general partner of the General
Partner for the year ended December 31, 1995. The Partnership has no plans to
pay any such remuneration to any directors or officers of the General Partner in
the future.

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

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

(A) Security ownership of certain beneficial owners.

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

(B) Security ownership of management.

The General Partner owns 5,000 limited partnership units, which
represents less than 1% of the outstanding Units.

None.

<PAGE>

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% 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. For the year ended December 31, 1995, the
Partnership paid or accrued $83,631 of such asset management fees. Total accrued
but unpaid asset management fees of $52,316 were outstanding at December 31,
1995. Asset management fees that were incurred but unpaid prior to the
Partnership's Chapter 11 filing, in the amount of $366,329, were discharged
under terms of the Partnership's Reorganization Plan.

The Partnership pays property management fees equal to 5% of the gross rental
receipts of its residential properties to McREMI, an affiliate of the General
Partner, for providing property management services. Due to the bankruptcy
proceedings, the property management fees paid by Woodbridge Apartments were
reduced to 3% beginning December 1, 1994. Additionally, the Partnership
reimburses McREMI for its costs, including overhead, of administering the
Partnership's affairs. For the year ended December 31, 1995, the Partnership
paid or accrued $177,929 of such property management fees and reimbursements.
Reimbursable costs that were incurred prior to the Partnership's Chapter 11
filing, in the amount of $520,902, were discharged under terms of the
Partnership's Reorganization Plan.

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. As of December 31, 1994, the
Partnership borrowed $65,670 under this revolving credit facility. In addition
to the revolving credit facility, the General Partner had advanced funds to the
Partnership in the amount of $280,694. In 1992, the Partnership also received an
unsecured loan of $113,000 from McNeil Real Estate Funds XXV, L.P., an affiliate
of the General Partner that owns a Phase I of Harbour Club Apartments. The
advances from the General Partner and the Fund XXV loan (the "affiliate
advances") were unsecured and due on demand, and accrued interest at a rate
equal to the prime lending rate of Bank of America plus 1%. The affiliate
advances, together with $88,438 of accrued interest thereon, were discharged
under terms of the Partnership's Reorganization Plan. See Item 1 - Business,
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations, and Item 8 - Note 3 - "Transactions with Affiliates."

<PAGE>

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

See accompanying Index to Financial Statements at Item 8.

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

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

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).

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

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

10.4 Property Management Agreement dated March 30,
1992, between McNeil Real Estate Fund XXIII,
L.P. and McNeil Real Estate Management, Inc.
(2)

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

10.6 Revolving Credit Agreement dated August 6,
1991, between McNeil Partners, L.P. and
various selected partnerships, including the
Registrant. (3)

10.7 Property Management Agreement dated March 30,
1992 between Beckley Associates and McNeil
Real Estate Management, Inc. (3)

10.8 Disclosure Statement of Debtor-in-Possession
pursuant to Section 1125 of the Bankruptcy
Code.(4)

10.9 Debtor's First Amended Plan of Reorganization
(as Modified), dated February 13, 1995.

10.10 Order Confirming Plan, dated May 17, 1995.

11. Statement regarding computation of Net Loss
per Limited Partnership Unit (see Note 1 to
Financial Statements appearing in Item 8).

22. Following is a list of subsidiaries of the
Partnership:
<TABLE>
Names Under
Jurisdiction Which It Is
Name of Subsidiary Incorporation Doing Business
------------------ ------------- --------------
<S> <C> <C>
Beckley Associates Michigan None
</TABLE>

The Partnership has omitted certain documents pertaining to the
Partnership's Chapter 11 filing and other instruments with respect to
long-term debt where the total amount of the securities authorized
thereunder does not exceed 10% of the total assets of the Partnership.
The Partnership agrees to furnish a copy of each such instrument to the
Commission upon request.

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

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

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

(4) Incorporated by reference to the Annual
Report of the registrant, on Form 10-K for
the period ended December 31, 1994, as filed
on March 30, 1995.

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

<PAGE>

MCNEIL REAL ESTATE FUND XXIII, L.P.

SIGNATURE PAGE

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

McNEIL REAL ESTATE FUND XXIII, L.P.

<S> <C>
By: McNeil Partners, L.P., General Partner

By: McNeil Investors, Inc., General Partner

April 1, 1996 By: /s/ Robert A. McNeil
- ------------------------ -----------------------------------------
Date Robert A. McNeil
Chairman of the Board and Director
Principal Executive Officer

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

April 1, 1996 By: /s/ Donald K. Reed
- ------------------------ -----------------------------------------
Date Donald K. Reed
President and Director of McNeil Investors, Inc.

April 1, 1996 By: /s/ Ron K. Taylor
- ------------------------ -----------------------------------------
Date Ron K. Taylor
Acting Chief Financial Officer
of McNeil Investors, Inc.

April 1, 1996 By: /s/ Carol A. Fahs
- ------------------------ -----------------------------------------
Date Carol A. Fahs
Chief Accounting Officer of McNeil Real Estate
Management, Inc.

</TABLE>

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 233,222
<SECURITIES> 0
<RECEIVABLES> 11,395
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,076,440
<DEPRECIATION> (2,648,343)
<TOTAL-ASSETS> 3,825,824
<CURRENT-LIABILITIES> 0
<BONDS> 3,787,802
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,825,824
<SALES> 1,591,118
<TOTAL-REVENUES> 2,212,756
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,730,082
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 468,500
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,174
<DISCONTINUED> 0
<EXTRAORDINARY> 1,435,024
<CHANGES> 0
<NET-INCOME> 1,449,198
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

IN RE:

McNEIL REAL ESTATE FUND Case No. 394-33903-HCA-11
XXIII, L.P.,
Chapter 11
Debtor

ORDER CONFIRMING PLAN
---------------------

The First Amended Plan of Reorganization under Chapter 11 of the

Bankruptcy Code filed by McNeil Real Estate Fund XXIII, L.P. ("Debtor") on

January 27, 1995, as modified by Modifications of Debtor's First Amended Plan of

Reorganization filed on February 7, 1995, Debtor's Second Motion to Modify Plan

filed on April 12, 1995, and Debtor's Emergency Third Motion to Modify Plan

filed on May 10, 1995 (the "Plan") or a summary thereof, having been transmitted

to creditors and equity security holders; and

It having been determined after hearing on notice that the requirements

for confirmation set forth in 11 U.S.C.1129 (a) have been satisfied as

follows:

1. The Plan complies with the applicable provision of Title 11 of the
United States Code (the "Bankruptcy Code");

2. The Plan proponent, the Debtor, has complied with the applicable
provisions of the Bankruptcy Code;

3. The Plan has been proposed in good faith and not by any means
forbidden by law;

4. Payments made or to be made by the Debtor for services or for
costs and expenses in or in connection with the Plan or case have
been approved by or are subject to the approval of the Court;

5. The Debtor has disclosed the identities of insiders to be retained
by the reorganized Debtor;

6. No governmentally regulated rates are involved in the case;

<PAGE>

7. Each impaired Class of Claims or Interests has accepted the Plan
as a result of the change of votes of the Class 5 Creditors to
accept the Plan, which is hereby approved;

8. Each Class of Claims or Interests has accepted the Plan or is not
impaired under the Plan;

9. Claims entitled to priority under 11 U.S.C.507(a)(1)-(7) will be
paid in full on the Effective Date;

10. At least one Class of impaired Claims has accepted the Plan
without including any acceptance of the Plan by an insider;

11. Confirmation of the Plan is not likely to be followed by the
liquidation, or need for further financial reorganization of the
Debtor;

12. All fees payable under 28 U.S.C. 1930, have been paid or the Plan
provides for the payment of such fees on the Effective Date;

13. No retiree benefits are involved in this case;

The Court further determines that it has jurisdiction over this matter

which a core proceeding pursuant to 28 U.S.C. 156(b)(2)(A), (L), and (O).

The Debtor's Emergency Third Motion to Modify Plan is hereby granted and

the Court determines that such modifications do not require further solicitation

of acceptances or rejections.

Therefore, it is

ORDERED that the Plan is CONFIRMED.

A copy of the confirmed plan is attached.

SIGNED the 17th day of May, 1995.

/s/ Harold C. Abramson
--------------------------------
THE HONORABLE HAROLD C. ABRAMSON
UNITED STATES BANKRUPTCY JUDGE

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

IN RE:

McNEIL REAL ESTATE FUND Case No. 394-33903-HCA-11
XXIII, L.P.,
Chapter 11
Debtor

DEBTOR'S FIRST AMENDED PLAN OF REORGANIZATION
---------------------------------------------
(AS MODIFIED)

This First Amended Plan of Reorganization is being proposed by McNeil
Real Estate Fund XXIII, L.P., Debtor and Debtor in Possession, for the benefit
of its creditors and interest holders:

DEFINITIONS
-----------

For the purposes of this Plan, the following terms shall have the
following meanings unless the context requires otherwise:

1. "Allowed Claim or Allowed Interest" means a Claim against or
interest in the Debtor (a) to the extent that a proof of claim was filed on or
before the claims Bar Date, or with leave of the Court or without objection by a
party in interest, filed after such date, or (b) as to which a party in
interest, including the Debtor, does not file an objection, or the claim or
interest is allowed by a Final Order of the Court, or (c) that was listed on the
Debtor's schedules and statement of affairs, or any amendments thereto, as
undisputed, liquidated and noncontingent and is not the subject of a proof of
claim or objection.

2. "Affiliate(s)" shall mean affiliate(s) as defined under 101(2) of
the Bankruptcy Code.

3. "Bankruptcy Code" or "Code" means the Bankruptcy Reform Act of 1978,
as amended, principally codified in 11 U.S.C. 101, et seq.

4. "Bar Date" means November 1, 1994.

5. "Beckley" means the partnership interest in the limited partnership
known as Beckley Associates Limited Partnership which owns the Harbour Club II
Apartment in Belleville, Michigan.

6. "Claim" means a right to payment, whether or not asserted, or as
otherwise set forth in 11 U.S.C. 101(4).

7. "Closing" means the date that Debtor completes the sale of the
Woodbridge Apartments as provided and defined in the Sales Agreement.

8. "Confirmation" and "Confirmation Date" mean, respectively, (a) the
entry by the Court of an Order confirming the Plan, or at or after a hearing
pursuant to 1129 of the Code, and (b) the date on which such order is signed.

9. "Consummation" shall occur upon the payment in full of the Classes
1, 2, 3, 4, and 6.

10. "Costs of Administration" means Allowed Claims pursuant to Section
503(b) of the Code that are entitled to priority under Section 507(a)(1) of the
Code.

11. "Court" means the United states Bankruptcy Court for the Northern
District of Texas, Dallas Division, or any court or tribunal subsequently
constituted to adjudicate matters arising under the Bankruptcy Code or any other
bankruptcy laws.

12. "Creditor" means a person or entity holding a Claim.

13. "Debtor" means McNeil Real Estate Fund XXIII, L.P., debtor and
debtor in possession in this bankruptcy case, a limited partnership, and as
reorganized pursuant to this Plan.

14. "Effective Date" means the first day after ten (10) business days
after the entry of the Order of the Court confirming the Plan, unless such Order
is stayed.

15. "Final Order" means an order of the Court as to which any appeal
that has been taken or may be taken has been resolved or the time for appeal has
expired.

16. "General Partner" shall mean the general partner of the Debtor,
McNeil Partners, L.P.

17. "HUD" means the United States Department of Housing and Urban
Development, which is the first lienholder of the Woodbridge Apartments.

18. "Interest Holder(s)" means the General and Limited Partners of the
Debtor, collectively or individually.

19. "Net Operating Income" shall mean income from property operations
(exclusive of refundable tenant deposits) minus operating expenses (including
but not limited to professional property management fees, monthly estimates for
property taxes and insurance, utility expenses, owner and general and
administrative expenses, and required property repairs and improvements,
including capital improvements).

20. "Plan" means this Plan of Reorganization, including any
modifications, amendments or corrections made in accordance with the provisions
of the Code.

21. "Purchaser" means the purchaser of the Woodbridge Apartments
pursuant to this Plan.

<PAGE>

22. "Sales Agreement" shall mean the Real Estate Sales Agreement dated
as of January 24, 1995 between the Debtor and TGM Realty Corp. #4 which provides
for, among other things, the sale of the Woodbridge Apartments free and clear of
all liens, encumbrances, security interests, assignments and all other adverse
interests (other than the Permitted Exceptions as defined therein), including,
without limitation, all claims (as such term is defined in Section 101(5) of the
Bankruptcy Code) for a purchase price of $3,200,000, and terms of which are
incorporated herein by reference and in the event of a conflict between the Plan
and the Sales Agreement, the Sales Agreement shall control.

23. "Secured Claim" means an Allowed Claim or a portion of that Claim
as set forth in Section 506 of the Bankruptcy Code for which there is collateral
consisting of assets of the debtor which have been pledged to the holder of the
Claim for repayment of the Claim or for which the holder has a duly perfected
security interest under the federal or state law applicable to that type of
collateral. To the extent not a Secured Claim, a Claim or a portion of a Claim
is an Unsecured Claim.

24. "Unsecured Claim" means an Allowed Claim which is in whole or in
part: (1) not secured by a lien, security interest or other charge against or
interest in property on which Debtor has an interest; or (2) not subject to
setoff under Section 553 of the Bankruptcy Code. Unsecured Claims include
Creditors holding rejection claims pursuant to the rejection of any executory
contract under Section 365 of the Code.

25. "Woodbridge Apartments" means the Woodbridge Apartments located in
Wichita, Kansas.

26. "Woodbridge Company" means Woodbridge Company, L.P. which is the
second lienholder of the Woodbridge Apartments.

II.

CLASSIFICATION OF CLAIMS AND INTERESTS
--------------------------------------

27. A Claim is in a particular class only to the extent the Claim
qualifies within the description of that class and is in a different class to
the extent the remainder of the Claim qualifies within the description of a
different class. A subclass shall constitute a separate class for voting
purposes. A Claim or Interest is in a particular class only to the extent the
Claim or Interest is an Allowed Claim or Interest as defined herein. Under this
Plan Classes 1, 2, 3 and 5 are unimpaired. Classes 4, 6, 7, 8 and 9 are
impaired. Administrative expenses are to be paid in the ordinary course of
business and are not separately classified.

28. Classification of Claims or Interests

Class 1: Class 1 consists of all holders of those claims
arising under ss.507(a)(1) through (a)(6), and any quarterly fees due and owing
the U.S. Trustee.

Class 2: Class 2 consists of all holders of priority tax
Claims as set forth in Section 507 of the Bankruptcy Code.

Class 3: Class 3 consists of the secured claim of HUD.

Class 4: Class 4 consists of the secured claim of the
Woodbridge Company.

Class 5: Class 5 consists of the holders of claims based on
claims for recision of limited partnership interest or other claims for damages
arising from the purchase or sale of a security of the Debtor. Subclass 5(a)
consists of those claimants in Class 5 who claim a judgment lien on assets of
the Debtor. Subclass 5(b) consists of those claimants in Class 5 who assert
unsecured claims.

Class 6: Class 6 consists of the holders of all general
Unsecured Claims, not included in Class 5 or Class 7.

Class 7: Class 7 consists of the holders of Unsecured Claims
of insiders of Affiliates of the Debtor.

Class 8: Class 8 consists of the Interest Holders of the
Debtor.

Class 9: Class 9 consists of all Secured Creditors who hold
mechanic's liens or materialmen's liens against the Woodbridge Apartments.

III.

TREATMENT OF CLASSES
--------------------

29. Class 1: The Allowed Claims of the Class 1 Creditors, including all
quarterly fees due and owing the U.S. Trustee, will be paid in cash in full on
the Effective Date of the Plan, or as soon thereafter as the allowed amount of
any such Claims are determined by Final Order. Class I is not impaired.

30. Class 2: The Allowed Claims of the Class 2 Creditors will be paid
in cash in full on the Effective Date of the Plan, or as soon thereafter as the
allowed amount of any such Claims are determined by Final Order. Class 2 is not
impaired.

31. Class 3: The Woodbridge Apartments shall be sold pursuant to the
terms and conditions of the Sales Agreement. The Class 3 Creditor's liens shall
attach in accordance with their priority to the proceeds generated by the sale
of the Woodbridge Apartments and will be paid in full on the later of the
Effective Date or Closing. The Class 3 Creditor shall not be allowed to seek the
appointment of a receiver or foreclose on its collateral unless Closing does not
occur on or before June 1, 1995. Class 4 is impaired.

32. Class 4: The Class 4 Creditor's liens shall attach in accordance
with their priority to the proceeds generated by the sale of the Woodbridge
Apartments and will be paid on the later of the Effective Date or Closing. The
Class 4 Creditor will receive from the sale of the Woodbridge Apartments on the
later of the Effective Date or Closing the amount of its claim less $40,000.00
in full satisfaction of their Claims against the Debtor. The Class 4 Creditor
shall not be allowed to seek the appointment of a receiver or foreclose on its
collateral unless Closing does not occur on or before June 1, 1995. Class 4 is
impaired.

33. Class 5: In satisfaction of the Class 5 Claims, each Class 5(a)
creditor will receive, in full satisfaction of their Claims against the Debtor,
their pro rata share of the cash proceeds from the sale of the Woodbridge
Apartments after payment of the Class 3 and Class 4 Claims under the plan in the
amount of $156,566.00 which includes all interest and attorneys' fees. This
amount will be paid on the later of the Effective Date or Closing. Class 5(b)
claims will be subordinated to the level of the Class 8 Interest Holders
pursuant to 11 U.S.C. ss. 510(b) and they will retain their limited partnership
interests under Class 8 in full satisfaction of their Claims against the Debtor.

34. Class 6: The Class 6 Unsecured Claims will be paid their pro rata
share of cash proceeds realized from the sale of the Woodbridge Apartments after
payment to the Class 1, 2, 3 and 4 Creditors on the later of (a) the next
business day after 30 days after Closing, and (b) the date such claim becomes an
Allowed Claim by Final Order in full satisfaction of their claims against the
Debtor. If Closing does not occur on or before June 1, 1995, the Class 6
Unsecured Claims will receive their pro rata share of unencumbered cash of the
Debtor. Class 6 is impaired.

35. Class 7: The Class 7 Unsecured Creditors will be paid their pro
rata share of the cash proceeds from the sale of the Woodbridge Apartments after
payment to the Class 1, 2, 3, 4 and 6 Creditors in full satisfaction of their
Claims against the Debtor. Class 7 is impaired.

36. Class 8: The Class 8 Interest Holders shall have the option (a) to
retain their ownership interests in the percentages and amounts set forth in the
debtor's Partnership Agreement, except as modified by the treatment provided to
Class 5, or (b) to redeem their interest pursuant to paragraph 45 of the Plan.
Class 8 is impaired.

37. Class 9: The Class 9 Creditors, if any, will be paid in full on the
later of the Effective Date or Closing. The Class 9 Creditors' liens shall
remain in effect until Closing. If Closing does not occur by June 1, 1995, then
the Class 9 Creditors will receive their pro rata share of unencumbered cash of
the Debtor. Class 9 is impaired.

IV.

Execution and Implementation of the Plan
----------------------------------------

38. The Debtor or any other party in interest may object to any Claim.
All objections to Claims must be filed on or before the later to occur of (1)
ninety (90) days after the Effective Date, or (2) ninety (90) days after the
receipt by the Debtor of a Proof of Claim of such Claim made after the Effective
Date.

39. No distribution or payment shall be made under this Plan which
would result in any Creditor receiving any payment or property in excess of that
specifically provided for in this Plan. To the extent that any distribution or
payment would result in any Creditor receiving more than specifically provided
for in this Plan, such distribution or payment, to such extent, shall be made to
the Debtor.

40. Upon Confirmation, all assets and property of every nature
of the Debtor, other than the distributions to be made hereunder, shall vest in
the Debtor.

41. Upon the Effective Date, Debtor shall execute all promissory notes,
mortgages, deeds, and other documentation which may be attached as exhibits to
this Plan and Disclosure Statement or which are necessary to document the
obligations set forth herein.

42. The Debtor will sell, pursuant to 11 U.S.C. ss.363(f), the
Woodbridge Apartments in an arm's length transaction, for a total purchase price
in excess of the Class 3 and Class 4 Claims, free and clear of all liens, claims
and encumbrances, except for Permitted Exceptions (as defined in the Real Estate
Sales Agreement). If Closing does not occur on or prior to June 1, 1995, the
Class 3 and Class 4 Creditors shall be allowed to have a receiver appointed for
the Woodbridge Apartments and foreclose on the Woodbridge Apartments.

43. The limited partnership agreement shall be modified to authorize
the issuance of additional units of limited partnership interests as provided in
this Plan.

44. The Debtor shall retain its interest in Beckley.

45. On or before 120 days after the Effective Date, the Debtor will
send an election form for each limited partner to make a one-time choice whether
to redeem their interest to the Debtor. The election to redeem the limited
partner interest must be returned to the Debtor within 30 days after it is
distributed. The redemption price would be 1/1000th of a cent per unit of
limited partnership interest. Notwithstanding any other provision of this plan,
if the Debtor is not able to secure a "no action" letter from the Securities and
Exchange Commission in a form satisfactory to the Debtor in its sole and
absolute discretion within 120 days after the Effective Date, then this
paragraph shall be void and the limited partners will retain their interests.
The "no-action" letter shall, at a minimum, provide that the purchase of
partnership interests can be accomplished without compliance with Rule 13e-3 of
the Securities Exchange Act of 1934 and that the Securities Exchange Commission
has not been advised by the Division issuing the letter to pursue an enforcement
action if the Plan is consummated. In the event that a "no-action" letter
satisfactory to the Debtor 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 interests, then this paragraph shall be void and the
limited partners will retain their interests.

EXECUTORY CONTRACTS
-------------------

46. Unless the Debtor files an application to assume executory
contracts prior to or within thirty (30) days after the Closing, or unless
rejected or modified during the proceedings in this bankruptcy case, including
through this Plan, each executory contract or unexpired lease of Debtor shall be
rejected as of Closing. The Debtor shall assume and assign to the Purchaser all
leases with tenants, as well as such service contracts as the Purchaser
designates pursuant to the Real Estate Sales Agreement to sell the Woodbridge
Apartments. Executory contracts or unexpired leases modified during the case, if
not already assumed, shall be rejected, as modified, as of Closing.

VI.

PROVISIONS FOR THE RETENTION, ENFORCEMENT,
------------------------------------------
SETTLEMENT OR ADJUSTMENT OF CLAIMS BELONGING
--------------------------------------------
TO THE DEBTOR OR TO THE ESTATE
------------------------------

47. All rights pursuant to Sections 502, 544, 545, 546, 547, 548, and
553 of the Bankruptcy Code, all claims relating to post-petition transactions
under Section 549 of the Bankruptcy Code, all claims and causes of action
against any third party on account of an indebtedness or any other claim owed to
or in favor of the Debtor and on account of any action or omission by any third
party creating liability to or in favor of the Debtor are hereby preserved and
retained for enforcement by the Debtor for the benefit of their creditors
subsequent to the Effective Date of the Plan. Such claims of the Debtor against
third parties may be used by the Debtor to offset any payment due to such person
under the Plan.

VII.

RETENTION OF JURISDICTION
-------------------------

48. Until this case is closed, the Court shall have jurisdiction of all
matters arising under, arising out of or relating to those proceedings,
notwithstanding the limitations set forth in 28 U.S.C ss. 157(b), including, but
not limited to proceedings:

(i) To insure that the purpose and intention of the Plan are carried
out;

(ii) To approve sales or refinancing relating to the assets of the
Debtor;

(iii) To consider any modification of this Plan under Section 1127 of
the Bankruptcy Code and/or modification of this Plan after substantial
consummation as defined in Section 1101 of the Bankruptcy Code;

(iv) To hear and determine all claims, controversies, suits and
disputes against the Debtor;

(v) To hear, determine and enforce all claims and causes of actions
which may exist on behalf of the Debtor or its estate, including, but not
limited to, any right of the Debtor or its estate to recover assets pursuant to
the provisions of the Bankruptcy Code; whether or not such claims, causes or
rights are enumerated in Article VI hereinabove;

(vi) To hear and determine all controversies, suits and disputes that
may arise in connection with the interpretation or enforcement of the Plan;

(vii) To hear and determine all requests for compensation and/or
reimbursement of expense which may be made under the Effective Date of the Plan;

(viii) To hear and determine all objections to claims, reinstatement of
debt issues, controversies, suits and disputes that may be pending at or
initiated after the Effective Date of the Plan, except as provided in the Final
Order confirming the Plan;

(ix) To consider and act on the compromise and settlement of any claim
against or cause of action in behalf of the Debtor or its estate;

(x) To enforce and interpret by injunction or otherwise the terms and
conditions of the Plan;

(xi) To enter any order, including injunction, necessary to enforce the
title, rights and powers of the Debtor and to impose such limitations,
restrictions, terms and conditions on such title, rights and powers as this
Court may deem necessary;

(xii) To enter an order concluding and terminating this case;

(xiii) To correct any defect, cure any omission, or reconcile any
inconsistency in the Plan or Final Order confirming the Plan which may be
necessary or helpful to carry out the purpose and intent of the Plan;

(xiv) To determine all questions and disputes regarding title to the
assets of the Debtor and its estate;

(xv) To classify the claims of any creditors and to re-examine claims
which have been allowed for purposes of voting, and to determine objections
which may be filed to creditors' claims;

(xvi) To consider and act on such other matters consistent with this
Plan as may be provided in the Final Order confirming the Plan;

(xvii) To consider the rejection of executory contracts that are not
discovered prior to confirmation and allow claims for damages with respect to
the rejections of any such executory contracts within such further time as this
Court may direct.

(xviii) To determine all offset rights, if any, of the Debtor including
but not limited to the right to offset payments due to Class 3 or 4 claimants
under the terms of the modified notes and deeds set forth herein due to their
failure to improperly apply or allocate payments received prior to confirmation.

VIII.

DISCHARGE
---------

1. Confirmation of this Plan and the Debtor's compliance with the terms
of the Plan shall confer upon the Debtor a discharge of all obligations treated
herein as provided for under Section 1141 of the Code.

RESPECTFULLY SUBMITTED this _____ day of February, 1995.

McNEIL REAL ESTATE FUND XXIII, L.P.

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

By: McNeil Investors, Inc.,
Its General Partner,

By:
------------------------------
Name:
------------------------------
Vice President

/s/ Harold C. Abramson
-------------------------------
THE HONORABLE HAROLD C. ABRAMSON
UNITED STATES BANKRUPTCY JUDGE