MCNEIL REAL ESTATE FUND XXIII LP, 10-K405, 1998-03-31

MCNEIL REAL ESTATE FUND XXIII LP
10-K405, 1998-03-31
REAL ESTATE

Previous: WISCONSIN ENERGY CORP, 10-K405, 1998-03-31

Next: GLOBAL MAINTECH CORP, 10KSB, 1998-03-31

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

FORM 10-K405

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

For the fiscal year ended December 31, 1997
------------------------------------------------

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

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

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

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

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

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

11,507,696 of the Registrant's 11,512,696 limited partnership units are held by
non-affiliates. The aggregate market value of units held by non-affiliates is
not determinable since there is no public trading market for limited partnership
units and transfers of units are subject to certain restrictions.

Documents Incorporated by Reference: See Item 14, Page 32

TOTAL OF 34 PAGES
<PAGE>
PART I

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

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

McNeil Real Estate Fund 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 600, 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. On January 1, 1996,
pursuant to the Partnership's bankruptcy reorganization plan, the Partnership
redeemed 4,485,345 Units for cash consideration equal to 1/1,000th of a dollar
per Unit redeemed. In 1997, 110,000 Units were relinquished, leaving 11,512,696
Units (6,651,985 Current Income Units and 4,860,711 Growth/Shelter Units)
outstanding at December 31, 1997.

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

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

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

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

On March 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 Relationships 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,
1997, 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.

<PAGE>
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. The Partnership's financial statements include the accounts
of Beckley Associates ("Beckley"). Beckley, which owns Harbour Club II
Apartments, is 99.99% owned by the Partnership. Beckley was excluded from the
Chapter 11 filing.

Woodbridge Apartments, one of the Partnership's former 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;
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
proceedings.

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 an Illinois rescission suit. 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 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.

<PAGE>
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 dollar per Unit. The
limited partners were required to respond within 30 days, and at the close of
the 30 day period, 311 limited partners had elected to redeem 4,485,345 Units.
In connection with the redemption, the partnership obtained a "no-action" letter
from the 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, and was approved on February 15, 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" on the Statements of Operations.

Business Plan:

Pursuant to the Partnership's previously announced liquidation plans, the
Partnership has recently retained PaineWebber, Incorporated as its exclusive
financial advisor to explore alternatives to maximize the value of the
Partnership. The alternatives being considered by the Partnership include,
without limitation, a transaction in which limited partnership interests in the
Partnership are converted into cash. The General Partner of the Partnership or
entities or persons affiliated with the General Partner will not be involved as
a purchaser in any of the transactions contemplated above. Any transaction will
be subject to certain conditions including (i) approval by the limited partners
of the Partnership, and (ii) receipt of an opinion from an independent financial
advisory firm as to the fairness of the consideration received by the
Partnership pursuant to such transaction. Finally, there can be no assurance
that any transaction will be consummated, or as to the terms thereof.

Competitive Conditions:

Since the principal business of the Partnership is to own and operate real
estate, the Partnership is subject to all of the risks incident to ownership of
real estate and interests therein, many of which relate to the illiquidity of
this type of investment. These risks include changes in general or local
economic conditions, changes in supply or demand for competing properties in an
area, changes in interest rates and availability of permanent mortgage funds
which may render the sale or refinancing of a property difficult or
unattractive, changes in real estate and zoning laws, increases in real property

<PAGE>
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.

Forward-Looking Information:

Within this document, certain statements are made as to the expected occupancy
trends, financial condition, results of operations, and cash flows of the
Partnership for periods after December 31, 1997. All of these statements are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
historical and involve risks and uncertainties. The Partnership's actual
occupancy trends, financial condition, results of operations, and cash flows for
future periods may differ materially due to several factors. These factors
include, but are not limited to, the Partnership's ability to control costs,
make necessary capital improvements, negotiate the sale or refinancing of its
property and respond to changing economic and competitive factors.

Environmental Matters:

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.

Other Information:

Management has begun to review its information technology infrastructure to
identify any systems that could be affected by the year 2000 problem. The year
2000 problem is the result of computer programs being written using two digits
rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in major systems failure or
miscalculations. The information systems used by the Partnership for financial
reporting and significant accounting functions were made year 2000 compliant
during recent systems conversions. The Partnership is in the process of
evaluating the computer systems at the various properties. The Partnership also
intends to communicate with suppliers, financial institutions and others to
coordinate year 2000 issues. Management believes that the remediation of any
outstanding year 2000 conversion issues will not have a material or adverse
effect on the Partnership's operations.

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

The following table sets forth the investment portfolio of the Partnership at
December 31, 1997. 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 Note 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>
<CAPTION>
Net Basis of 1997 Date
Property Description Property Debt Property Taxes Acquired
- -------- ----------- ------------ ------ -------------- ---------
<S> <C> <C> <C> <C> <C>
Harbour Club II (1) Apartments
Belleville, MI 220 units $ 3,302,956 $ 3,726,154 $ 104,476 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>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Harbour Club II
Occupancy Rate............ 89% 92% 92% 86% 85%
Rent Per Square Foot...... $6.99 $6.60 $6.55 $5.96 $5.79

</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 Apartments, 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. Average
occupancy rates in the Belleville market decreased in 1997 to an average of 92%.
The property's closest competitor has rental rates approximately $100 per month
above Harbour Club II's rates. The lack of capital improvements at Harbour Club
II Apartments has constricted the property's ability to increase rental rates.
The property has a large amount of deferred maintenance and has been unable to
generate cash to meet its capital improvement needs. The property's ability to
compete effectively in its market will be determined by the amount of capital
dollars spent to upgrade the property to market standards.

<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------

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

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

None.

PART II

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

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

(B) Title of Class Number of Record Unit Holders

Limited partnership units 789 as of January 31, 1998

(C) No distributions were made to the partners during 1997 or 1996 and none
are anticipated in 1998. See Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations and Item 8 - Note 1 -
"Organization and Summary of Significant Accounting Policies -
Distributions."

ITEM 6. SELECTED FINANCIAL DATA
- ------- ------------------------

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

<TABLE>
<CAPTION>
Statements of Years Ended December 31,
Operations 1997 1996 1995 1994 1993
- ------------------ ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Rental revenue............... $ 1,398,644 $ 1,324,331 $ 1,591,118 $ 1,894,443 $ 1,904,708
Write-down for impairment
of real estate............ - - - (661,921) -
Gain on disposition of real
estate.................... - - 554,047 - -
Income (loss) before
extraordinary items....... (92,549) (180,141) 14,174 (1,465,830) (806,303)
Extraordinary items.......... - - 1,435,024 - -
Net income (loss)............ (92,549) (180,141) 1,449,198 (1,465,830) (806,303)

Netincome (loss) per thousand
limited partnership units:
Income (loss) before
extraordinary items:
Current Income Units...... $ (1.25) $ (2.43) $ 28.89 $ (14.01) $ (7.70)
Growth/Shelter Units...... (17.14) (32.81) (38.59) (197.23) (108.16)

Extraordinary items:
Current Income Units...... - - 88.20 - -
Growth/Shelter Units...... - - 88.20 - -

Net income (loss):
Current Income Units...... (1.25) (2.43) 117.09 (14.01) (7.70)
Growth/Shelter Units...... (17.14) (32.81) 49.61 (197.23) (108.16)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
Balance Sheets 1997 1996 1995 1994 1993
- -------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Real estate investment, net.... $ 3,302,956 $ 3,354,442 $ 3,428,097 $ 3,546,322 $ 6,855,858
Asset held for sale............ - - - 2,373,130 -
Total assets................... 3,722,868 3,701,423 3,825,824 6,520,408 7,486,894
Mortgage notes payable, net.... 3,726,154 3,758,380 3,787,802 3,814,667 6,300,793
Liabilities subject to
compromise.................. - - - 4,184,977 -
Partners' deficit.............. (567,939) (475,390) (290,769) (1,739,967) (5,354,280)
</TABLE>

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

Woodbridge Apartments was sold on May 25, 1995. This property was placed on the
market for sale during 1994 and was classified as an asset held for sale at
December 31, 1994.

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."

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

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

Harbour Club II Apartments was 89% occupied at the end of December 1997, and 92%
occupied at the end of both 1996 and 1995. For 1997, Harbour Club II Apartments
was able to generate sufficient cash flow from operations to fund ordinary
operating expenses, required debt service payments on its mortgage note payable,
and limited capital improvements. However, the property is in need of major
capital repairs and improvements in order to compete effectively in its local
market. The Partnership does not have sufficient cash reserves to fund the
needed capital improvements, nor does the property generate sufficient cash flow
from operations to fund such capital improvements.

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

1997 compared to 1996

Revenue:

Rental revenue at Harbour Club II Apartments increased $74,313 or 5.6% for 1997
as compared to 1996. Management was able to implement small increases in base
rental rates at Harbour Club II Apartments during 1997. Average occupancy rates
and other rental losses were essentially unchanged in 1997 as compared to 1996.

<PAGE>
Interest income increased $3,184 or 38% for 1997 as compared to 1996. The
increase is the result of increased levels of Partnership cash and cash
equivalents invested in interest-earning accounts.

Expenses:

Total Partnership expenses decreased $10,195 or 0.7% for 1997 as compared to
1996. Decreases in interest expense and other property operating expenses were
partially offset by increased repair and maintenance expenses.

Interest expense decreased $22,850 or 6.2% for 1997 because the Partnership is
no longer required to pay mortgage insurance premiums. The former holder of the
mortgage note, the Department of Housing and Urban Development ("HUD"), required
mortgage insurance premiums be paid with the scheduled monthly debt service
payments. Early in 1997, HUD sold its interest in the mortgage note to another
unaffiliated holder. The new note holder does not require mortgage insurance
premiums. This change in interest payment requirement accounts for $20,026 of
the decrease in interest expense in 1997 compared to 1996.

Other property operating expenses decreased $18,029 or 23% for 1997 as compared
to 1996. Approximately 50% of the decrease is attributable to decreased expenses
for audits and other regulatory compliance costs associated with the mortgage
note held by HUD. The new mortgage note holder does not require the Partnership
to adhere to the restrictive government reporting standards that were required
when the mortgage note was held by HUD. The Partnership also experienced a
decrease in bad debt losses in 1997 compared to 1996.

Repair and maintenance expenses increased $21,166 or 13.5% for 1997 as compared
to 1996. Expenditures for floor covering replacements met the Partnership's
criteria for capitalization in 1996. However, such expenditures were expensed in
1997 as the amount of expenditures was not large enough to qualify for
capitalization.

1996 compared to 1995

Revenue:

Total Partnership revenues in 1996 decreased $880,256 or 40% as compared to
1995. Rental revenue decreased $266,787 or 16.8% primarily due to the May 25,
1995 sale of Woodbridge Apartments. Rental revenue at Harbour Club II Apartments
increased $10,053 or less than 1% in 1996 compared to 1995. The Partnership
increased base rental rates an average of 2% at Harbour Club II Apartments, but
the increase was offset by increased vacancy and other rental losses.

In 1995, the Partnership recognized a $554,047 gain related to the sale of
Woodbridge Apartments and received a $53,233 refund of property taxes due to a
successful appeal of the property tax assessments on Harbour Club II Apartments.
Both of these transactions were non-recurring events.

Expenses:

Total Partnership expenses decreased $685,941 or 31% in 1996 compared to 1995.
Most of the decrease is the result of the sale of Woodbridge Apartments in May
1995. The Partnership incurred no operating expenses pertaining to Woodbridge
Apartments in 1996. For 1995, expenses incurred at Woodbridge Apartments
amounted to $79,426 of interest, $63,740 of depreciation, and $205,606 of all
other operating expenses.

<PAGE>
Rental expenses incurred at Harbour Club II Apartments were practically
unchanged for the year. Such expenses increased only $3,857 in 1996 compared to
1995.

As a result of the Partnership's bankruptcy filing, all interest-bearing debt
due to affiliates was discharged. Consequently, there was no interest expense on
affiliate debt in 1996 compared to $17,846 in 1995. Reorganization expenses
decreased 98% from 1995 to $5,362 as the Partnership's bankruptcy filing was
substantially completed by the end of 1995. Finally, because of the disposition
of Woodbridge Apartments during 1995, expenses charged to the Partnership by
affiliates of the General Partner also decreased. Such expenses decreased 23% to
$144,560 in 1996.

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 in 1995.

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

Cash flows from operations increased 93% to $395,025 in 1997. The increase in
operating cash flows was due to increased receipts from tenants as well as
decreased expenditures for interest and suppliers. The local economy in the
Belleville, Michigan area remains strong, providing a good operating climate
Harbour Club II Apartments.

Cash used for capital additions increased 19.3% to $230,715 in 1997. The capital
additions were funded by cash flows from operations. Cash flows from operations
were also used to repay $49,851 of mortgage indebtedness through regularly
scheduled debt service payments. At December 31, 1997, the Partnership held cash
and cash equivalents of $308,271.

Short-term liquidity:

The Partnership's balance of cash and cash equivalents amounted to $308,271 at
December 31, 1997, an increase of $114,459 from the balance of cash and cash
equivalents at December 31, 1996. The General Partner considers the
Partnership's cash reserves adequate for anticipated operations during 1998.

Operating activities at Harbour Club II Apartments for 1998 are expected to
provide sufficient cash flow for operating expenses, debt service payments, and
limited capital improvements. However, Harbour Club II Apartments is in need of
extensive capital improvements to enable the property to compete effectively in
the local market. Projected cash flows from operations will not be adequate to
fund such extensive capital improvements. To date, the Partnership has been
unable to secure financing for the needed capital improvements. The Partnership
has no established lines of credit from outside sources.

In the past, the General Partner, at its discretion, has advanced funds to the
Partnership 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 any additional funds.

<PAGE>
Long-term liquidity:

The long-term operating viability of Harbour Club II Apartments is dependent on
the Partnership's ability to fund substantial capital improvements to the
property. If the Partnership does not liquidate, as contemplated below, it will
seek to obtain additional financing to allow the completion of the extensive
capital improvements, which will enable the Partnership to raise rental rates at
the property to market rates.

Harbour 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
an unaffiliated entity. McREMI managed all four phases of the complex until
December 1992, when the property management agreement between McREMI and Phase
IV was canceled.

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.

<PAGE>

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

<TABLE>
<CAPTION>
Page
Number
-------
INDEX TO FINANCIAL STATEMENTS
- -----------------------------

Financial Statements:

<S> <C>
Report of Independent Public Accountants....................................... 13

Balance Sheets at December 31, 1997 and 1996................................... 14

Statements of Operations for each of the three years in the period
ended December 31, 1997........................................................ 15

Statements of Partners' Equity (Deficit) for each of the three years
in the period ended December 31, 1997.......................................... 16

Statements of Cash Flows for each of the three years in the period
ended December 31, 1997........................................................ 17

Notes to Financial Statements.................................................. 19

Financial Statement Schedule -

Schedule III - Real Estate Investment and Accumulated
Depreciation............................................................. 28

</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, 1997 and
1996, and the related statements of operations, partners' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1997.
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, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

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

/s/ Arthur Andersen LLP

Dallas, Texas
March 20, 1998

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

BALANCE SHEETS

December 31,
----------------------------------
1997 1996
--------------- -------------
ASSETS
- ------

Real estate investment:
<S> <C> <C>
Land..................................................... $ 239,966 $ 239,966
Buildings and improvements............................... 6,260,613 6,029,898
-------------- -------------
6,500,579 6,269,864
Less: Accumulated depreciation.......................... (3,197,623) (2,915,422)
-------------- -------------
3,302,956 3,354,442

Cash and cash equivalents................................... 308,271 193,812
Cash segregated for security deposits....................... 43,947 43,296
Accounts receivable and other assets........................ 16,818 13,249
Escrow deposits............................................. 50,876 96,624
-------------- -------------

$ 3,722,868 $ 3,701,423
============== =============

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

Mortgage note payable, net.................................. $ 3,726,154 $ 3,758,380
Accounts payable and accrued expenses....................... 66,691 73,579
Accrued property taxes...................................... 44,676 43,519
Payable to affiliates - General Partner..................... 402,922 258,782
Security deposits and deferred rental revenue............... 50,364 42,553
-------------- -------------
4,290,807 4,176,813
-------------- -------------

Partners' equity (deficit):
Limited partners - 45,000,000 Units authorized;
11,512,696 and 11,622,696 Units outstanding at
December 31, 1997 and 1996, respectively (6,651,985
and 6,681,985 Current Income Units outstanding at
December 31, 1997 and 1996, respectively, and
4,860,711 and 4,940,711 Growth/Shelter Units
outstanding at December 31, 1997 and 1996,
respectively).......................................... (5,419,474) (5,327,850)
General Partner.......................................... 4,851,535 4,852,460
-------------- -------------
(567,939) (475,390)
-------------- -------------

$ 3,722,868 $ 3,701,423
============== =============
</TABLE>

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

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1997 1996 1995
-------------- -------------- ---------------
Revenue:
<S> <C> <C> <C>
Rental revenue.............................. $ 1,398,644 $ 1,324,331 $ 1,591,118
Interest.................................... 11,253 8,169 5,112
Interest on reorganization funds............ - - 9,246
Gain on sale of real estate................. - - 554,047
Property tax refund......................... - - 53,233
------------- ------------- --------------
Total revenue............................. 1,409,897 1,332,500 2,212,756
------------- ------------- --------------

Expenses:
Interest.................................... 343,306 366,156 450,654
Interest - affiliates....................... - - 17,846
Depreciation................................ 282,201 267,079 306,663
Property taxes.............................. 104,476 101,291 118,771
Personnel expenses ......................... 188,365 193,887 240,099
Utilities................................... 91,947 97,183 141,102
Repairs and maintenance..................... 177,753 156,587 207,619
Property management fees - affiliates....... 70,248 65,869 73,021
Other property operating expenses........... 59,813 77,842 161,210
General and administrative.................. 40,435 36,825 35,755
Reorganization expenses..................... - 5,362 257,303
General and administrative - affiliates..... 143,902 144,560 188,539
------------- ------------- --------------
Total expenses............................ 1,502,446 1,512,641 2,198,582
------------- ------------- --------------

Income (loss) before extraordinary
item........................................ (92,549) (180,141) 14,174
Extraordinary gain on discharge of
payable to affiliates....................... - - 1,435,024
------------- ------------- --------------
Net income (loss).............................. $ (92,549) $ (180,141) $ 1,449,198
============= ============= ==============

Net income (loss) allocated to limited
partners - Current Income Units............. $ (8,330) $ (16,213) $ 1,102,877
Net income (loss) allocated to limited
partners - Growth/Shelter Units............. (83,294) (162,127) 331,829
Net income (loss) allocated to General
Partner..................................... (925) (1,801) 14,492
------------- ------------- --------------
Net income (loss).............................. $ (92,549) $ (180,141) $ 1,449,198
============= ============= ==============

Net income (loss) per thousand limited
partnership units:
Current Income Units:
Income (loss) before extraordinary
item.................................... $ (1.25) $ (2.43) $ 28.89
Extraordinary item........................ - - 88.20
------------- ------------- -------------
Net income (loss)......................... $ (1.25) $ (2.43) $ 117.09
============= ============= =============

Growth/Shelter Units:
Loss before extraordinary item............ $ (17.14) $ (32.81) $ (38.59)
Extraordinary item........................ - - 88.20
------------- ------------- -------------
Net income (loss)......................... $ (17.14) $ (32.81) $ 49.61
============= ============= =============
</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, 1997, 1996 and 1995

<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity (Deficit)
-------------- ---------------- ----------------
<S> <C> <C> <C>
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 loss............................ 14,492 1,434,706 1,449,198
------------- ------------- -------------

Balance at December 31, 1995.............. 4,854,261 (5,145,030) (290,769)

Redemption of limited partner units:
Current Income Units................... - (2,737) (2,737)
Growth/Shelter Units................... - (1,743) (1,743)
------------- ------------- -------------
Total redemption.......................... - (4,480) (4,480)
------------- ------------- -------------

Net loss:
General Partner........................ (1,801) - (1,801)
Current Income Units................... - (16,213) (16,213)
Growth/Shelter Units................... - (162,127) (162,127)
------------- ------------- -------------
Total net income.......................... (1,801) (178,340) (180,141)
------------- ------------- -------------

Balance at December 31, 1996.............. 4,852,460 (5,327,850) (475,390)

Net loss:
General Partner........................ (925) - (925)
Current Income Units................... - (8,330) (8,330)
Growth/Shelter Units................... - (83,294) (83,294)
------------- ------------- -------------
Total net loss............................ (925) (91,624) (92,549)
------------- ------------- -------------

Balance at December 31, 1997.............. $ 4,851,535 $ (5,419,474) $ (567,939)
============= ============= =============

</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>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1997 1996 1995
--------------- --------------- ----------------

Cash flows from operating activities:
<S> <C> <C> <C>
Cash received from tenants.............. $ 1,415,663 $ 1,339,047 $ 1,582,674
Cash paid to suppliers.................. (530,303) (621,756) (653,089)
Cash paid to affiliates................. (70,010) (65,865) (75,627)
Reorganization costs paid, net.......... - (5,362) (248,057)
Interest received....................... 11,253 8,169 5,112
Interest paid........................... (325,992) (349,610) (571,305)
Property taxes paid and escrowed........ (105,586) (99,871) (119,392)
Property taxes refunded................. - - 53,233
------------- ------------- --------------
Net cash provided by (used in)
operating activities.................... 395,025 204,752 (26,451)
------------- ------------- --------------

Cash flows from investing activities:
Additions to real estate
investments........................... (230,715) (193,424) (124,698)
Proceeds from sale of real estate....... - - 3,078,096
------------- ------------- --------------
Net cash provided by (used in)
investing activities.................... (230,715) (193,424) 2,953,398
------------- ------------- --------------

Cash flows from financing activities:
Principal payments on mortgage
notes payable......................... (49,851) (46,258) (58,616)
Redemption of limited partner units..... - (4,480) -
Repayment of advances from
affiliates - General Partner............... - - (1,129)
Repayment of claims settlement.......... - - (100,374)
Retirement of mortgage notes
payable due to disposition of
real estate investment................ - - (2,641,421)
------------- ------------- --------------
Net cash used in financing activities...... (49,851) (50,738) (2,801,540)
------------- ------------- --------------

Net increase (decrease) in cash and
cash equivalents...................... 114,459 (39,410) 125,407

Cash and cash equivalents at
beginning of year..................... 193,812 233,222 107,815
------------- ------------- --------------

Cash and cash equivalents at end
of year............................... $ 308,271 $ 193,812 $ 233,222
============= ============= ==============
</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

For the Years Ended December 31,
---------------------------------------------------
1997 1996 1995
--------------- --------------- --------------

<S> <C> <C> <C>
Net income (loss).......................... $ (92,549) $ (180,141) $ 1,449,198
------------- ------------- -------------

Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation............................ 282,201 267,079 306,663
Amortization of discounts on
mortgage notes payable................ 17,625 16,836 23,859
Interest added to advances from
affiliates - General Partner.......... - - 17,846
Gain on sale 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............................ (651) 11,625 21,386
Accounts receivable and
other assets........................ (3,569) 5,039 34,127
Escrow deposits....................... 45,748 (5,328) 273,123
Accounts payable and accrued
expenses............................ (6,888) (47,032) (211,621)
Accrued property taxes................ 1,157 377 (98,239)
Claims settlement payable............. - - (12,788)
Payable to affiliates - General
Partner............................. 144,140 144,564 185,934
Security deposits and deferred
rental revenue...................... 7,811 (8,267) (26,868)
------------- ------------- --------------

Total adjustments................. 487,574 384,893 (1,475,649)
------------- ------------- --------------

Net cash provided by (used in)
operating activities.................... $ 395,025 $ 204,752 $ (26,451)
============= ============= ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>

McNEIL REAL ESTATE FUND XXIII, L.P.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1997

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

The Partnership is engaged in real estate activities, including the ownership,
operation and management of residential real estate and other real estate
related assets. At December 31, 1997, the Partnership owned one income-producing
property as described in Note 5 - Real Estate Investment.

<PAGE>
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 Investment
- ----------------------

The Partnership's real estate investment is generally stated at the lower of
depreciated cost or fair value. The Partnership reviews its real estate
investment for impairment whenever events or changes in circumstances indicate
that its carrying amount may not be recoverable. When the carrying value of the
property exceeds the sum of all estimated future cash flows, an impairment loss
is recognized. At such time, a write-down is recorded to reduce the basis of the
property to its estimated fair value.

The Partnership's method of accounting for its real estate investment is in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS 121"), which the Partnership adopted effective January 1, 1996. The
adoption of SFAS 121 did not have a material impact on the accompanying
financial statements.

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

<PAGE>
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. Carrying amounts
for cash and cash equivalents approximate fair value.

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

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

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

Discounts on mortgage notes payable are 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 refinancings
shall be allocated 1% to the General Partner and 99% to the limited partners
equally as a group.

<PAGE>
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 1997, 1996 and 1995 have been made
in accordance with these criteria.

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

At the discretion of the General Partner, distributable cash (other than cash
from sales or refinancings) 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, except for positive balances created by amounts contributed by the
General Partner related to the bankruptcy, as discussed 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 (loss) allocated to the
limited partners by the weighted average number of Units outstanding expressed
in thousands. Per thousand Unit information has been computed based on 6,652,
6,682 and 9,419 weighted average Current Income Units (in thousands) outstanding
in 1997, 1996 and 1995, respectively, and 4,861, 4,941 and 6,689 weighted
average Growth/Shelter Units outstanding in 1997, 1996 and 1995, respectively.

<PAGE>
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.

Woodbridge Apartments, one of the Partnership's former 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
proceedings.

The Partnership's 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 an Illinois rescission suit. The
judgment lien creditors filed objections to confirmation of the Reorganization
Plan. On April 18, 1995, the Bankruptcy Court granted 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 that
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.

The Partnership sold Woodbridge Apartments 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.

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.

<PAGE>
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 dollar per Unit. The limited
partners were required to respond within 30 days, and at the close of the 30 day
period, 311 limited partners had elected to redeem 4,485,345 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.

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, and approved on February 15, 1996.

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

Summarized below are statements of operations for that portion of the
Partnership included in the Chapter 11 filing for the period from January 1,
1995 through December 11, 1995, the date that the Partnership requested the
Bankruptcy Court close the bankruptcy filing. The revenues and expenses
pertaining to Beckley, which was excluded from the bankruptcy filing, are
excluded.

For the period
January 1, 1995
through
RESULTS OF OPERATIONS December 11, 1995
--------------------- -----------------

Rental revenue..................................... $ 279,120
Interest on reorganization funds................... 9,246
Gain on sale of real estate........................ 554,047
------------
Total revenue.................................... 842,413
------------

Interest........................................... 81,695
Interest - affiliates.............................. 17,846
Depreciation....................................... 63,740
Property taxes..................................... 10,121
Personnel expenses................................. 52,858
Utilities.......................................... 34,449
Repairs and maintenance............................ 48,732
Property management fees - affiliates.............. 8,735
Other property operating expenses.................. 50,711
General and administrative......................... 35,755
Reorganization expenses............................ 257,303
General and administrative - affiliates............ 188,539
------------
Total expenses................................... 850,484
------------

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

Net income......................................... $ 1,426,953
============
<PAGE>
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 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 during 1995.

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 during 1995.

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

For the Years Ended December 31,
-----------------------------------
1997 1996 1995
---------- --------- ---------

Property management fees - affiliates..... $ 70,248 $ 65,869 $ 73,021
Charged to interest - affiliates:
Interest on advances from
affiliates - General Partner......... - - 17,846
Charged to general and
administrative - affiliates:
Partnership administration............. 60,011 70,979 104,908
Asset management fee................... 83,891 73,581 83,631
--------- -------- --------

$ 214,150 $ 210,429 $ 279,406
========= ======== ========

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.

<PAGE>
The General Partner established a revolving credit facility not to exceed
$5,000,000 in the aggregate which was available on a "first-come, first-served"
basis to the Partnership and other affiliated partnerships if certain conditions
were met. Borrowings under the facility could be used to fund deferred
maintenance, refinancing obligations and working capital needs. The Partnership
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. This commitment expired
on March 30, 1997. The balance of the Partnership's outstanding loans under
terms of the revolving credit facility, in the amount of $75,670 together with
$6,696 of accrued interest thereon, were discharged during 1995 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 advances were unsecured, due on demand and
accrued interest at the prime lending rate of Bank of America plus 1%. 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 during 1995
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, were discharged during 1995 under terms of the Partnership's
Reorganization Plan.

Payable to affiliates - General Partner at December 31, 1997 and 1996 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 $2,314,356, $2,271,179
and $2,256,527 at December 31, 1997, 1996 and 1995, respectively.

<PAGE>

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

The basis and accumulated depreciation of the Partnership's real estate
investment at December 31, 1997 and 1996, are set forth in the following table:

Harbour Club II December 31,
Belleville, MI 1997 1996
----------------- ------------ -----------

Land $ 239,966 $ 239,966
Building and improvements 6,260,613 6,029,898
----------- ----------
6,500,579 6,269,864
Accumulated depreciation (3,197,623) (2,915,422)
----------- ----------

Net book value $ 3,302,956 $ 3,354,442
=========== ==========

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

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

The following table sets forth the mortgage note payable of the Partnership at
December 31, 1997 and 1996. The mortgage note payable is secured by the
Partnership's real estate investment.

<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position(a) Rates % Maturity Date 1997 1996
- -------- ----------- ------- -------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Harbour Club II First 7.50 $ 31,170 05/24 $ 4,295,201 $ 4,345,052
Discount (b) (569,047) (586,672)
--------- -----------

$ 3,726,154 $ 3,758,380
========== ===========
</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%.

<PAGE>
Scheduled principal maturities of the mortgage note under the existing
agreement, excluding the $569,047 discount, are as follows:

1998............................. $ 53,721
1999............................. 57,891
2000............................. 62,385
2001............................. 67,229
2002............................. 72,448
Thereafter ...................... 3,981,527
----------

Total $ 4,295,201
==========

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 $4,387,000 and $3,958,000 at December 31, 1997
and 1996, respectively.

NOTE 7 - SALE 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 sale of Woodbridge Apartments, are shown below:

Gain on Sale Cash Proceeds
------------ -------------

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
==========

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

<PAGE>

NOTE 9 - PRO FORMA DISCLOSURE (UNAUDITED)
- ------------------------------------------

The following unaudited pro forma information for the year ended December 31,
1995 reflects the results of operations of the Partnership as if the sale of
Woodbridge Apartments had occurred as of January 1, 1995. The unaudited 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.

Total revenue........................ $ 1,379,589
Net loss............................. (210,648)
Net loss per thousand
limited partner units:
Current Income units............... (2.01)
Growth/Shelter units............... (28.34)

<PAGE>

McNEIL REAL ESTATE FUND XXIII, L.P.
SCHEDULE III
REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION
December 31, 1997

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

APARTMENTS:

Harbour Club II (c)
<S> <C> <C> <C> <C> <C>
Belleville, MI $ 3,726,154 $ 311,119 $ 7,488,130 $ (2,104,290) $ 805,620
============= ============= ============= =========== ============
</TABLE>

(a) 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.

(b) The carrying value of Harbour Club II Apartments was reduced by $1,783,702
in 1992 and $320,588 in 1989.

(c) For Federal income tax purposes, the property is depreciated over lives
ranging from 7-27.5 years using ACRS or MACRS methods. The aggregate cost
of the real estate investment for Federal income tax purposes was
$9,210,200 and accumulated depreciation was $5,831,317 at December 31,
1997.

See accompanying notes to Schedule III.

<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
SCHEDULE III
REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION
December 31, 1997

<TABLE>
<CAPTION>
Gross Amount at
Which Carried at Close of Period
Buildings and Accumulated
Description Land Improvements Total (c) Depreciation
- ----------- ---- -------------- --------- -------------

APARTMENT:

Harbour Club II (c)
<S> <C> <C> <C> <C>
Belleville, MI $ 239,966 $ 6,260,613 $ 6,500,579 $ (3,197,623)
============= ============= =============== =============

</TABLE>

See accompanying notes to Schedule III.

<PAGE>
McNEIL REAL ESTATE FUND XXIII, L.P.
SCHEDULE III
REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION
December 31, 1997

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

APARTMENTS:

Harbour Club II (c)
<S> <C> <C> <C>
Belleville, MI 1971 6/86 5-25
</TABLE>

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

Notes to Schedule III

Real Estate Investment and Accumulated Depreciation

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

Improvements............................... 230,715 193,424 124,698
------------- ------------- --------------

Balance at end of year..................... $ 6,500,579 $ 6,269,864 $ 6,076,440
============= ============= ==============

Accumulated depreciation:

Balance at beginning of year............... $ 2,915,422 $ 2,648,343 $ 2,405,420

Depreciation............................... 282,201 267,079 242,923
------------- ------------- --------------

Balance at end of year..................... $ 3,197,623 $ 2,915,422 $ 2,648,343
============= ============= ==============

Asset held for sale:

Balance at beginning of year............... $ - $ - $ 2,373,130

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

Sale of real estate........................ - - (2,309,390)
------------- ------------- --------------

Balance at end of year..................... $ - $ - $ -
============= ============= ==============
</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>
<CAPTION>
Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
<S> <C> <C>
Robert A. McNeil, 77 Mr. McNeil is also Chairman of the
Chairman of the Board and Director of McNeil Real Estate
Board and Director Management, Inc. ("McREMI"), which is an
affiliate of the General Partner. He has
held the foregoing positions since the
formation of such 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 54 Mrs. McNeil is Co-Chairman, with
Co-Chairman of the husband Robert A. McNeil, of McNeil
Board Investors, Inc. Mrs. McNeil has twenty
years of real estate experience, most
recently as a private investor from 1986
to 1993. In 1982, she founded Ivory &
Associates, a commercial real estate
brokerage firm in San Francisco, CA.
Prior to that, she was a commercial real
estate associate with the Madison
Company and, earlier, a commercial sales
associate and analyst with Marcus and
Millichap in San Francisco. In 1978,
Mrs. McNeil established Escrow Training
Centers, California's first accredited
commercial training program for title
company escrow officers and real estate
agents needing college credits to
qualify for brokerage licenses. She
began in real estate as Manager and
Marketing Director of Title Insurance
and Trust in Marin County, CA. Mrs.
McNeil serves on the International Board
of Directors of the Salk Institute.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------

<S> <C> <C>
Ron K. Taylor 40 Mr. Taylor is the President and Chief
President and Chief Executive Officer of McNeil Real Estate
Executive Officer Management which is an affiliate of the
General Partner. Mr. Taylor has been in
this capacity since the resignation of
Donald K. Reed on March 4, 1997. Prior
to assuming his current
responsibilities, Mr. Taylor served as a
Senior Vice President of McREMI. Mr.
Taylor has been in this capacity since
McREMI commenced operations in 1991.
Prior to joining McREMI, Mr. Taylor
served as an Executive Vice President
for a national syndication/property
management firm. In this capacity, Mr.
Taylor had the responsibility for the
management and leasing of a 21,000,000
square foot portfolio of commercial
properties. Mr. Taylor has been actively
involved in the real estate industry
since 1983.
</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, 1997, 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, 1997. 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.

<PAGE>
(B) Security ownership of management.

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

None.

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

The amendments to the Partnership compensation structure included in the Amended
Partnership Agreement provide for an asset management fee to replace all other
forms of General Partner compensation other than property management fees and
reimbursements of certain costs. Through 1999, the asset management fee is
calculated as 1% of the Partnership's tangible asset value. Tangible asset value
is determined by using the greater of (i) an amount calculated by applying a
capitalization rate of 9% 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, 1997, the
Partnership accrued $83,891 of such asset management fees. Total accrued but
unpaid asset management fees of $209,788 were outstanding at December 31, 1997.

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. Additionally, the
Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs. For the year ended December 31, 1997,
the Partnership incurred $130,259 of such property management fees and
reimbursements.

<PAGE>
PART IV

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

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

(A) Exhibits

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------

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

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

10.2 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)

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

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

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

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

10.8 Debtor's First Amended Plan of Reorganization
(as Modified), dated February 13, 1995. (5)
</TABLE>

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

<S> <C>
10.9 Order Confirming Plan, dated May 17, 1995.(5)

11. Statement regarding computation of net income
(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>

<TABLE>
<CAPTION>
Names Under
Jurisdiction Which It Is
Name of Subsidiary of 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.

<TABLE>
<CAPTION>
<S> <C>
(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.

(5) Incorporated by reference to the Annual
Report of the registrant on Form 10-K for the
period ended December 31, 1995, as filed on
April 1, 1996.
</TABLE>

(B) Reports on Form 8-K. There were no reports on Form 8-K filed by
the Partnership during the quarter ended December 31, 1997.
<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.

McNEIL REAL ESTATE FUND XXIII, L.P.

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

By: McNeil Investors, Inc., General Partner

March 31, 1998 By: /s/ Robert A. McNeil
- -------------- -----------------------------------------
Date Robert A. McNeil
Chairman of the Board and Director
Principal Executive Officer

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

March 31, 1998 By: /s/ Ron K. Taylor
- -------------- -----------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)

March 31, 1998 By: /s/ Carol A. Fahs
- -------------- -----------------------------------------
Date Carol A. Fahs
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 308,271
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,500,579
<DEPRECIATION> (3,197,623)
<TOTAL-ASSETS> 3,722,868
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,722,868
<SALES> 1,398,644
<TOTAL-REVENUES> 1,409,897
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,159,140
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 343,306
<INCOME-PRETAX> (92,549)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (92,549)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>