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EX-31.2 - AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIPex31-221.txt
EX-32 - AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIPex32-21.txt
EX-31.1 - AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIPex31-121.txt

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

                            FORM 10-K

 Annual Report Pursuant to Section 13 or 15(d) of The Securities
                      Exchange Act of 1934

          For the Fiscal Year Ended:  December 31, 2010

               Commission file number:  000-29274

        AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
     (Exact name of registrant as specified in its charter)

      State of Minnesota                  41-1789725
(State or other jurisdiction of        (I.R.S. Employer
incorporation or organization)        Identification No.)

      30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101
            (Address of principal executive offices)

                           (651) 227-7333
                 (Registrant's telephone number)

Securities registered pursuant to Section 12(b) of the Act:
     Title of each className of each exchange on which registered
             None                          None

Securities registered pursuant to Section 12(g) of the Act:
                      Limited Partnership Units
                        (Title of class)

Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the
Securities Act.      Yes  [ ]       No  [X]

Indicate by check mark if the registrant is not required to  file
reports pursuant to Section 13 or
Section 15(d) of the Exchange Act.     Yes  [ ]   No  [X]

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
(or  for such shorter period that the registrant was required  to
file  such  reports),  and (2) has been subject  to  such  filing
requirements for the past 90 days.    Yes  [X]    No  [ ]

Indicate  by  check  mark  whether the registrant  has  submitted
electronically  and posted on its corporate  Web  site,  if  any,
every  Interactive Data File required to be submitted and  posted
pursuant  to Rule 405 of Regulation S-T (232.405 of this chapter)
during  the preceding 12 months (or for such shorter period  that
the  registrant was required to submit and post such files).
Yes [ ]    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]

Indicate  by  check  mark  whether  the  registrant  is  a  large
accelerated filer, an accelerated filer, a non-accelerated filer,
or  a  smaller reporting company.  See the definitions of  "large
accelerated  filer," "accelerated filer" and  "smaller  reporting
company" in Rule 12b-2 of the Exchange Act.

   Large accelerated filer  [ ]       Accelerated filer  [ ]
   Non-accelerated  filer   [ ]       Smaller  reporting company  [X]

Indicate by check mark whether the registrant is a shell  company
(as defined in Rule 12b-2 of the Act).   Yes  [ ]   No   [X ]

As  of  June  30,  2010, there were 22,779.113 Units  of  limited
partnership  interest outstanding and owned by  nonaffiliates  of
the  registrant, which Units had an aggregate market value (based
solely  on  the price at which they were sold since there  is  no
ready market for such Units) of $22,779,113.

               DOCUMENTS INCORPORATED BY REFERENCE
 The registrant has not incorporated any documents by reference
                        into this report.


                             PART I

ITEM 1. BUSINESS.

        AEI  Income  &  Growth Fund XXI Limited Partnership  (the
"Partnership" or the "Registrant") is a limited partnership which
was  organized pursuant to the laws of the State of Minnesota  on
August  22,  1994.   The  registrant is  comprised  of  AEI  Fund
Management XXI, Inc. ("AFM") as Managing General Partner,  Robert
P.  Johnson,  the  President and sole director  of  AFM,  as  the
Individual  General Partner, and purchasers of partnership  units
as  Limited  Partners.  The Partnership offered for  sale  up  to
$24,000,000  of  limited  partnership  interests  (the   "Units")
(24,000  Units  at  $1,000 per Unit) pursuant to  a  registration
statement  effective February 1, 1995.  The Partnership commenced
operations on April 14, 1995 when minimum subscriptions of  1,500
Limited Partnership Units ($1,500,000) were accepted.  On January
31,  1997,  the Partnership offering terminated when the  maximum
subscription   limit   of   24,000  Limited   Partnership   Units
($24,000,000) was reached.

        The  Partnership  was organized to acquire  existing  and
newly  constructed commercial properties located  in  the  United
States, to lease such properties to tenants under net leases,  to
hold  such  properties  and to eventually sell  such  properties.
From   subscription  proceeds,  the  Partnership  purchased   ten
properties including partial interests in seven properties, at  a
total  cost  of  $19,686,525.  The balance  of  the  subscription
proceeds  was  applied  to organization  and  syndication  costs,
working  capital reserves and distributions, which represented  a
return  of capital.  The properties are commercial, single tenant
buildings leased under net leases.

        The  Partnership's properties were purchased without  any
indebtedness.  The Partnership will not finance properties in the
future to obtain proceeds for new property acquisitions.   If  it
is  required  to  do  so, the Partnership  may  incur  short-term
indebtedness,  which  may  be  secured  by  a  portion   of   the
Partnership's  properties,  to  finance  day-to-day   cash   flow
requirements (including cash flow necessary to repurchase Units).
The amount of borrowings that may be secured by the properties is
limited  in  the aggregate to 10% of the purchase  price  of  all
properties.  The Partnership will not incur borrowings  prior  to
application  of  the proceeds from sale of the  Units,  will  not
incur  borrowings  to  pay  distributions,  and  will  not  incur
borrowings while there is cash available for distributions.

       The Partnership will hold its properties until the General
Partners  determine  that the sale or other  disposition  of  the
properties   is   advantageous  in  view  of  the   Partnership's
investment  objectives.  In deciding whether to sell  properties,
the  General  Partners will consider factors  such  as  potential
appreciation,  net cash flow and income tax considerations.   The
Partnership  expects to sell some or all of its properties  prior
to  its final liquidation and to reinvest the proceeds from  such
sales  in  additional properties.  The Partnership  reserves  the
right,  at  the  discretion of the General  Partners,  to  either
distribute  proceeds from the sale of properties to the  Partners
or  to  reinvest such proceeds in additional properties, provided
that  sufficient proceeds are distributed to the Limited Partners
to pay federal and state income taxes related to any taxable gain
recognized as a result of the sale.

ITEM 1. BUSINESS.  (Continued)

        The  prospectus  under which Units  were  initially  sold
indicated  that  the General Partners intended to  liquidate  the
Partnership  12 to 15 years after formation, depending  upon  the
then  current real estate and money markets, the economic climate
and   the  income  tax  consequences  to  the  Limited  Partners.
Although  it  has  been  16 years since the  first  admission  of
Limited Partners to the Partnership, the General Partners do  not
believe that current market conditions are particularly favorable
at  this  time.  As a result, the General Partners do not believe
that sale of properties and liquidation of the Partnership is  in
the  best  interest of the Limited Partners.  Until the  economic
conditions  improve,  it  is  difficult  to  estimate  when   the
Partnership may be able to commence its liquidation.

Leases

       Although there are variations in the specific terms of the
leases,  the following is a summary of the general terms  of  the
Partnership's  leases.   The properties  are  leased  to  various
tenants under net leases, classified as operating leases.   Under
a  net  lease,  the tenant is responsible for real estate  taxes,
insurance,  maintenance, repairs and operating expenses  for  the
property.   For  some leases, the Partnership is responsible  for
repairs  to the structural components of the building, the  roof,
and  the  parking lot.  At the time the properties were acquired,
the  remaining primary lease terms varied from 10  to  20  years.
The leases provide the tenants with two to five five-year renewal
options  subject to the same terms and conditions as the  primary
term.   The  leases  provide  for base  annual  rental  payments,
payable  in monthly installments, and contain rent clauses  which
entitle  the  Partnership to receive additional  rent  in  future
years based on stated rent increases.

Property Activity During the Last Three Years

         As  of  December  31,  2007,  the  Partnership  owned  a
significant  interest in ten properties and a minor  interest  in
three  properties  with  a total original  cost  of  $14,929,096.
During  the  years ended December 31, 2008, 2009  and  2010,  the
Partnership  sold five property interests and received  net  sale
proceeds  of $3,330,150, $329,208 and $1,102,212, which  resulted
in  net  gains  of $716,856, $135,884 and $253,923, respectively.
During  2008, 2009 and 2010, the Partnership expended $5,672,315,
$1,283,742   and  $1,433,468,  respectively,  to  purchase   four
additional  properties  as  it  reinvested  cash  generated  from
property sales.  As of December 31, 2010, the Partnership owned a
significant interest in eleven properties and a minor interest in
two properties with a total original cost of $18,327,700.

Major Tenants

        During 2010, five tenants each contributed more than  ten
percent  of  the Partnership's total rental revenue.   The  major
tenants  in aggregate contributed 76% of total rental revenue  in
2010.   It  is anticipated that, based on minimum rental payments
required  under  the leases, each major tenant will  continue  to
contribute  more than ten percent of rental revenue in  2011  and
future   years.   Any  failure  of  these  major  tenants   could
materially   affect  the  Partnership's  net  income   and   cash
distributions.


ITEM 1. BUSINESS.  (Continued)

Competition

        The  Partnership is a minor factor in the commercial real
estate  business.   There are numerous entities  engaged  in  the
commercial  real  estate  business which have  greater  financial
resources  than  the  Partnership.  At the time  the  Partnership
elects to dispose of its properties, the Partnership will  be  in
competition  with other persons and entities to find  buyers  for
its properties.

Employees

        The  Partnership  has  no direct  employees.   Management
services   are  performed  for  the  Partnership  by   AEI   Fund
Management, Inc., an affiliate of AFM.

ITEM 1A. RISK FACTORS.

       Not required for a smaller reporting company.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

       Not required for a smaller reporting company.

ITEM 2. PROPERTIES.

Investment Objectives

        The  Partnership's investment objectives are  to  acquire
existing or newly-developed commercial properties throughout  the
United  States  that  offer the potential for  (i)  regular  cash
distributions  of  lease  income; (ii)  growth  in  lease  income
through rent escalation provisions; (iii) preservation of capital
through all-cash sale-leaseback transactions; (iv) capital growth
through  appreciation in the value of properties; and (v)  stable
property  performance  through long-term  lease  contracts.   The
Partnership  does not have a policy, and there is no  limitation,
as  to the amount or percentage of assets that may be invested in
any  one  property.  However, to the extent possible, the General
Partners  attempt  to  diversify the type  and  location  of  the
Partnership's properties.

Description of Properties

       The Partnership's properties are commercial, single tenant
buildings.  The properties were acquired on a debt-free basis and
are  leased  to  various tenants under net leases, classified  as
operating leases.  The Partnership holds an undivided fee  simple
interest in the properties.

ITEM 2. PROPERTIES.  (Continued)

        The  Partnership's properties are subject to the  general
competitive conditions incident to the ownership of single tenant
investment  real estate.  Since each property is leased  under  a
long-term   lease,   there  is  little  competition   until   the
Partnership  decides to sell the property.   At  this  time,  the
Partnership will be competing with other real estate  owners,  on
both a national and local level, in attempting to find buyers for
the   properties.   In  the  event  of  a  tenant  default,   the
Partnership would be competing with other real estate owners, who
have  property vacancies, to attract a new tenant  to  lease  the
property.   The Partnership's tenants operate in industries  that
are  very  competitive and can be affected  by  factors  such  as
changes  in regional or local economies, seasonality and  changes
in consumer preference.

        The  following table is a summary of the properties  that
the Partnership acquired and owned as of December 31, 2010.

                                                       Annual    Annual
                Purchase    Property                   Lease     Rent Per
Property          Date        Cost      Tenant         Payment   Sq. Ft.

Arby's Restaurant
 Montgomery, AL                          RTM Gulf
 (2.6811%)       5/31/95    $   23,049  Coast, LLC    $  2,973   $37.40

Champps Americana Restaurant              Champps
 Livonia, MI                             Operating
 (.1534%)        5/19/98    $    6,366  Corporation   $    851   $60.62

KinderCare Daycare Center             KinderCare Learning
 Andover, MN     6/14/02    $1,264,207  Centers, Inc. $132,224   $15.33

KinderCare Daycare Center
 Ballwin, MO                          KinderCare Learning
 (44.5116%)      6/14/02    $  675,587  Centers, Inc. $ 70,561   $19.01

Winn-Dixie Store
 Panama City, FL                      Winn-Dixie Stores
 (20.4025%)      9/19/03    $  945,665   Leasing, LLC $ 76,305   $ 7.23

Jared Jewelry Store
 Hanover, MD                          Sterling Jewelers
 (50%)            2/9/04    $1,989,135      Inc.      $168,551   $58.04

Jared Jewelry Store
 Auburn Hills, MI                     Sterling Jewelers
 (40%)           1/14/05    $1,466,048      Inc.      $112,772   $48.95

CarMax Auto Superstore
   Lithia Springs, GA              CarMax Auto
   (20%)        3/18/05  $1,885,231Superstores, Inc.  $146,286   $38.01

Applebee's Restaurant
   Johnstown, PA
   (62%)        9/21/06  $1,682,887B.T. Woodlipp, Inc.$121,340   $37.68
ITEM 2.   PROPERTIES.  (Continued)

                                                       Annual    Annual
                Purchase    Property                   Lease     Rent Per
Property          Date        Cost      Tenant         Payment   Sq. Ft.

Best Buy Store
 Eau Claire, WI                        Best Buy
 (54%)          1/31/08  $3,637,706  Stores, L.P.     $256,001   $10.01

Fresenius Medical Center              Bio-Medical
 Shreveport, LA                     Applications of
 (55%)          10/2/08  $1,360,617 Louisiana, LLC    $102,520   $21.93

Tractor Supply Company Store
 Rapid City, SD                      Tractor Supply
 (63%)           8/6/09  $1,957,734     Company       $141,750   $11.78

Scott & White Clinic
 College Station, TX                  Scott & White
 (39%)         10/20/10  $1,433,468(1)  Healthcare    $120,120   $22.24

(1)  Does not include acquisition costs that were expensed.

        The  properties  listed above with  a  partial  ownership
percentage  are  owned  with  the following  affiliated  entities
and/or unrelated third parties:  Winn-Dixie store (AEI Net  Lease
Income & Growth Fund XIX Limited Partnership and unrelated  third
parties); Jared Jewelry store in Hanover, Maryland (AEI Net Lease
Income & Growth Fund XX Limited Partnership); Jared Jewelry store
in  Auburn  Hills, Michigan (AEI Income & Growth  Fund  25  LLC);
CarMax  auto  superstore (AEI Income & Growth Fund  24  LLC,  AEI
Income  & Growth Fund 25 LLC and AEI Private Net Lease Millennium
Fund  Limited Partnership); Applebee's restaurant (AEI  Income  &
Growth Fund XXII Limited Partnership); Best Buy store (AEI Income
&  Growth  Fund  23  LLC and AEI Income & Growth  Fund  26  LLC);
Fresenius  Medical  Center (AEI Income &  Growth  Fund  24  LLC);
Tractor  Supply Company store (AEI Income & Growth Fund  27  LLC)
and  Scott & White Healthcare (AEI Net Lease Income & Growth Fund
XX Limited Partnership and AEI Income & Growth Fund 25 LLC).  The
remaining  interests  in  the  Arby's  restaurant,  the   Champps
Americana  restaurant  and  the  KinderCare  daycare  center   in
Ballwin, Missouri are owned by unrelated third parties.

        The Partnership accounts for properties owned as tenants-
in-common with affiliated entities and/or unrelated third parties
using  the  proportionate consolidation method.  Each  tenant-in-
common  owns  a  separate, undivided interest in the  properties.
Any tenant-in-common that holds more than a 50% interest does not
control decisions over the other tenant-in-common interests.  The
financial  statements reflect only this Partnership's  percentage
share   of   the   properties'  land,  building  and   equipment,
liabilities, revenues and expenses.

        At  the  time the properties were acquired, the remaining
primary  lease  terms  varied from 10 to 20  years.   The  leases
provide  the  tenants with two to five five-year renewal  options
subject to the same terms and conditions as the primary term.

ITEM 2.   PROPERTIES.  (Continued)

       Pursuant to the lease agreements, the tenants are required
to provide proof of adequate insurance coverage on the properties
they  occupy.   The General Partners believe the  properties  are
adequately covered by insurance and consider the properties to be
well-maintained and sufficient for the Partnership's operations.

         For  tax  purposes,  the  Partnership's  properties  are
depreciated  under the Modified Accelerated Cost Recovery  System
(MACRS).  The largest depreciable component of a property is  the
building  which  is depreciated, using the straight-line  method,
over  39 or 40 years.  The remaining depreciable components of  a
property  are personal property and land improvements  which  are
depreciated,  using an accelerated method, over 5 and  15  years,
respectively.  Since the Partnership has tax-exempt Partners, the
Partnership is subject to the rules of Section 168(h)(6)  of  the
Internal  Revenue  Code  which  requires  a  percentage  of   the
properties' depreciable components to be depreciated over  longer
lives  using  the straight-line method.  In general, the  federal
tax  basis of the properties for tax depreciation purposes is the
same  as  the  basis  for book depreciation purposes  except  for
properties   purchased  after  January  1,   2009.    For   those
properties,  acquisition expenses that  were  expensed  for  book
purposes  were capitalized and added to the basis of the property
for tax depreciation purposes.

        At  December 31, 2010, all properties listed  above  were
100% occupied.

ITEM 3.   LEGAL PROCEEDINGS.

       None.

ITEM 4.   REMOVED AND RESERVED.


                             PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCK-
        HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

        (a) As of December 31, 2010, there were 1,237 holders  of
record  of the registrant's Limited Partnership Units.  There  is
no  other  class  of  security outstanding  or  authorized.   The
registrant's  Units  are  not a traded security  in  any  market.
During the period covered by this report, the Partnership did not
sell  any  equity  securities that are not registered  under  the
Securities Act of 1933.

       Cash distributions of $11,798 and $11,737 were made to the
General Partners and $1,167,994 and $1,161,996 were made  to  the
Limited   Partners   for  2010  and  2009,   respectively.    The
distributions  were made on a quarterly basis and  represent  Net
Cash   Flow,  as  defined,  except  as  discussed  below.   These
distributions  should  not be compared  with  dividends  paid  on
capital stock by corporations.

        As  part  of the Limited Partner distributions  discussed
above,  the Partnership distributed net sale proceeds of  $92,740
and $75,388 in 2010 and 2009, respectively.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCK-
        HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

       (b) Not applicable.

        (c) Pursuant to Section 7.7 of the Partnership Agreement,
each  Limited  Partner  has the right to  present  Units  to  the
Partnership  for  purchase by submitting notice to  the  Managing
General  Partner  during September of each  year.   The  purchase
price  of  the  Units  is  based on a formula  specified  in  the
Partnership  Agreement.  Units tendered to  the  Partnership  are
redeemed  on  October 1st of each year subject to  the  following
limitations.  The Partnership will not be obligated  to  purchase
in  any  year any number of Units that, when aggregated with  all
other  transfers of Units that have occurred since the  beginning
of  the  same  calendar  year (excluding Permitted  Transfers  as
defined  in the Partnership Agreement), would exceed  5%  of  the
total number of Units outstanding on January 1 of such year.   In
no event shall the Partnership be obligated to purchase Units if,
in  the  sole  discretion of the Managing General  Partner,  such
purchase   would   impair  the  capital  or  operation   of   the
Partnership.

      Small Business Issuer Purchases of Equity Securities

                                             Total Number      Maximum Number
                                             of Units          of Units that
                                             Purchased as      May Yet Be
                    Total Number   Average   Part of Publicly  Purchased Under
                      of Units   Price Paid  Announced Plans   the Plans or
Period               Purchased    per Unit   or Programs       Programs

10/1/10 to 10/31/10    105.5        $329.86     1,326.39(1)           (2)

11/1/10 to 11/30/10       --             --           --               --

12/1/10 to 12/31/10       --             --           --               --

  (1)The  Partnership's  repurchase plan is  mandated  by  the
     Partnership Agreement as included in the prospectus related to
     the original offering of the Units.

  (2)The Partnership Agreement contains annual limitations on
     repurchases described in the paragraph above and has no
     expiration date.

ITEM 6. SELECTED FINANCIAL DATA.

       Not required for a smaller reporting company.

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

        This  section contains "forward-looking statements" which
represent management's expectations or beliefs concerning  future
events, including statements regarding anticipated application of
cash, expected returns from rental income, growth in revenue, the
sufficiency  of  cash  to  meet  operating  expenses,  rates   of
distribution,  and  other  matters.  These,  and  other  forward-
looking  statements,  should be evaluated in  the  context  of  a
number  of  factors  that may affect the Partnership's  financial
condition and results of operations, including the following:

     Market  and  economic conditions which affect the  value
     of  the  properties the Partnership owns and  the  cash
     from rental income such properties generate;

     the  federal  income tax consequences of rental  income,
     deductions,  gain  on  sales and other  items  and  the
     effects of these consequences for the Partners;

     resolution  by  the General Partners of  conflicts  with
     which they may be confronted;

     the   success  of  the  General  Partners  of   locating
     properties with favorable risk return characteristics;

     the effect of tenant defaults; and

     the  condition of the industries in which the  tenants  of
     properties owned by the Partnership operate.

Application of Critical Accounting Policies

        The preparation of the Partnership's financial statements
requires  management to make estimates and assumptions  that  may
affect the reported amounts of assets, liabilities, revenues  and
expenses,  and  related  disclosure  of  contingent  assets   and
liabilities. Management evaluates these estimates on  an  ongoing
basis,   including  those  related  to  the  carrying  value   of
investments  in  real  estate  and the  allocation  by  AEI  Fund
Management,  Inc. of expenses to the Partnership  as  opposed  to
other funds they manage.

        The Partnership purchases properties and records them  in
the  financial  statements  at cost  (not  including  acquisition
expenses).    The   Partnership  tests  long-lived   assets   for
recoverability  when events or changes in circumstances  indicate
that  the  carrying value may not be recoverable.  For properties
the  Partnership  will  hold and operate,  management  determines
whether  impairment  has  occurred by  comparing  the  property's
probability-weighted  future  undiscounted  cash  flows  to   its
current carrying value.  For properties held for sale, management
determines  whether  impairment has  occurred  by  comparing  the
property's estimated fair value less cost to sell to its  current
carrying  value.  If the carrying value is greater than  the  net
realizable  value, an impairment loss is recorded to  reduce  the
carrying  value  of  the  property to its net  realizable  value.
Changes  in  these  assumptions or analysis  may  cause  material
changes in the carrying value of the properties.

        AEI  Fund Management, Inc. allocates expenses to each  of
the  funds  they manage primarily on the basis of the  number  of
hours  devoted  by their employees to each fund's affairs.   They
also  allocate  expenses at the end of each month  that  are  not
directly related to a fund's operations based upon the number  of
investors  in the fund and the fund's capitalization relative  to
other  funds  they  manage.   The  Partnership  reimburses  these
expenses  subject  to  detailed  limitations  contained  in   the
Partnership Agreement.


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

         Management   of  the  Partnership  has   discussed   the
development  and selection of the above accounting estimates  and
the management discussion and analysis disclosures regarding them
with the managing partner of the Partnership.

Results of Operations

        For  the  years  ended December 31, 2010  and  2009,  the
Partnership  recognized rental income from continuing  operations
of  $1,212,317  and $1,089,511, respectively.   In  2010,  rental
income increased mainly due to additional rent received from  two
property acquisitions in 2009 and 2010 and a rent increase on one
property.   Based on the scheduled rent for the properties  owned
as  of  February 28, 2011, the Partnership expects  to  recognize
rental   income   from  continuing  operations  of  approximately
$1,312,000 in 2011.

        For  the  years  ended December 31, 2010  and  2009,  the
Partnership  incurred  Partnership administration  expenses  from
affiliated parties of $235,117 and $240,887, respectively.  These
administration  expenses  include  costs  associated   with   the
management of the properties, processing distributions, reporting
requirements and communication with the Limited Partners.  During
the   same   periods,   the  Partnership   incurred   Partnership
administration  and property management expenses  from  unrelated
parties  of  $31,582 and $31,783, respectively.   These  expenses
represent  direct payments to third parties for legal and  filing
fees,  direct  administrative costs, outside audit costs,  taxes,
insurance and other property costs.

        For  the  year  ended December 31, 2010, the  Partnership
incurred property acquisition expenses of $31,422 related to  the
purchase of the Scott & White Clinic.

        For  the  years  ended December 31, 2010  and  2009,  the
Partnership  recognized interest income of $12,843  and  $53,446,
respectively.   In 2010, interest income decreased primarily  due
to  the  Partnership  receiving $40,189  of  interest  income  on
construction advances in 2009.

        Upon complete disposal of a property or classification of
a property as Real Estate Held for Sale, the Partnership includes
the  operating  results and sale of the property in  discontinued
operations.  In addition, the Partnership reclassifies the  prior
periods'  operating  results  of  the  property  to  discontinued
operations.    For  the  year  ended  December  31,   2010,   the
Partnership  recognized  income from discontinued  operations  of
$416,551,  representing  rental income less  property  management
expenses  and depreciation of $162,628 and a gain on disposal  of
real  estate of $253,923.  For the year ended December 31,  2009,
the Partnership recognized a loss from discontinued operations of
$251,420,  representing  a real estate  impairment  of  $606,839,
which  was  partially  offset  by  rental  income  less  property
management expenses and depreciation of $219,535 and  a  gain  on
disposal of real estate of $135,884.

        On  May  28,  2009,  the Partnership sold  its  remaining
1.1839%  interest  in the Johnny Carino's restaurant  in  Austin,
Texas to an unrelated third party.  The Partnership received  net
sale  proceeds of $22,722, which resulted in a net loss of  $210.
The  cost  and  related accumulated depreciation of the  interest
sold was $27,083 and $4,151, respectively.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

       On September 3, 2009, the Partnership sold 14.0515% of the
KinderCare  daycare center in Ballwin, Missouri to  an  unrelated
third  party.   The  Partnership received net  sale  proceeds  of
$306,486, which resulted in a net gain of $136,094.  The cost and
related  accumulated  depreciation  of  the  interest  sold   was
$213,271 and $42,879, respectively.

        During  2010, the Partnership sold an additional 33.6699%
of  the KinderCare daycare center in Ballwin, Missouri, in  three
separate   transactions,  to  unrelated   third   parties.    The
Partnership  received total net sale proceeds of $674,196,  which
resulted  in  a  net  gain of $265,907.   The  cost  and  related
accumulated  depreciation of the interests sold was $511,034  and
$102,745,  respectively.  The Partnership is attempting  to  sell
its remaining 44.5116% interest in the property.  At December 31,
2010  and  2009, the property was classified as Real Estate  Held
for  Sale  with  a  carrying  value  of  $539,759  and  $948,048,
respectively.

        In  March  2009,  Tumbleweed, Inc.,  the  tenant  of  the
Tumbleweed restaurant in Fort Wayne, Indiana filed for Chapter 11
bankruptcy reorganization.  Tumbleweed closed the restaurant  and
filed a motion with the bankruptcy court to reject the Lease  for
this  property.   The  court approved the motion  and  Tumbleweed
returned  possession  of the property to  the  Partnership.   The
Partnership  listed  the property for sale  with  a  real  estate
broker  in  the Fort Wayne area.  While the property was  vacant,
the  Partnership was responsible for real estate taxes and  other
costs  associated  with maintaining the property.   Based  on  an
analysis  of  market  conditions in  the  area,  the  Partnership
determined the property was impaired.  As a result, in the  first
quarter  of  2009, a charge to discontinued operations  for  real
estate  impairment  of  $396,839 was recognized,  which  was  the
difference  between  the carrying value  at  March  31,  2009  of
$1,046,839  and the estimated fair value of $650,000.   Based  on
marketing efforts and an updated analysis of market conditions in
the  area,  the Partnership recognized an additional real  estate
impairment  of  $210,000 to decrease the carrying  value  to  the
estimated  fair value of $440,000 as of September 30, 2009.   The
charges were recorded against the cost of the land and building.

         In  December  2009,  the  Partnership  entered  into  an
agreement to sell the Tumbleweed restaurant to an unrelated third
party.   On  March 12, 2010, the sale closed with the Partnership
receiving net sale proceeds of $428,016, which resulted in a  net
loss  of  $11,984.   At  December  31,  2009,  the  property  was
classified as Real Estate Held for Sale.

        On  January 19, 2011, the Partnership sold its  remaining
.1534%  interest in the Champps Americana restaurant in  Livonia,
Michigan  to an unrelated third party.  The Partnership  received
net  sale proceeds of approximately $7,800, which resulted  in  a
net   gain  of  approximately  $3,800.   The  cost  and   related
accumulated  depreciation of the interest  sold  was  $6,366  and
$2,409,  respectively.  At December 31, 2010,  the  property  was
classified as Real Estate Held for Sale with a carrying value  of
$3,957.

        The  Partnership  is  attempting  to  sell  its  20.4025%
interest  in  the Winn-Dixie store in Panama City,  Florida.   At
December 31, 2010 and 2009, the property was classified  as  Real
Estate Held for Sale with a carrying value of $785,099.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

         Management  believes  inflation  has  not  significantly
affected  income  from  operations.   Leases  may  contain   rent
increases, based on the increase in the Consumer Price Index over
a  specified period, which will result in an increase  in  rental
income over the term of the leases.  Inflation also may cause the
real  estate  to  appreciate in value.   However,  inflation  and
changing  prices  may  have an adverse impact  on  the  operating
margins  of  the  properties' tenants, which could  impair  their
ability  to  pay rent and subsequently reduce the Net  Cash  Flow
available for distributions.

Liquidity and Capital Resources

       During the year ended December 31, 2010, the Partnership's
cash  balances  decreased $493,854 as a result of  cash  used  to
purchase  property  and distributions paid  to  the  Partners  in
excess  of  cash generated from operating activities,  which  was
partially  offset  by cash generated from the sale  of  property.
During  the year ended December 31, 2009, the Partnership's  cash
balances  decreased  $1,059,550 as  a  result  of  cash  used  to
purchase  property  and distributions paid  to  the  Partners  in
excess  of  cash generated from operating activities,  which  was
partially offset by cash generated from the sale of property.

        Net  cash provided by operating activities decreased from
$1,126,053  in  2009  to $1,052,343 in 2010  as  a  result  of  a
decrease  in  total rental and interest income in  2010  and  net
timing differences in the collection of payments from the tenants
and  the  payment of expenses, which were partially offset  by  a
decrease  in  Partnership administration and property  management
expenses  in  2010.  During 2010, cash from operations  was  also
reduced  by  $31,422  of  acquisition  expenses  related  to  the
purchase  of  real estate.  Pursuant to new accounting  guidance,
these   expenses  were  reflected  as  operating  cash  outflows.
However,  pursuant  to  the  Partnership  Agreement,  acquisition
expenses were funded with proceeds from property sales.

        The  major components of the Partnership's cash flow from
investing activities are investments in real estate and  proceeds
from  the  sale of real estate.  During the years ended  December
31,  2010 and 2009, the Partnership generated cash flow from  the
sale  of  real  estate of $1,102,212 and $329,208,  respectively.
During the same periods, the Partnership expended $1,433,468  and
$1,283,742,  respectively, to invest in real  properties  as  the
Partnership reinvested cash generated from property sales.

        On  November  21, 2008, the Partnership purchased  a  63%
interest  in  a  parcel of land in Rapid City, South  Dakota  for
$576,274.  The Partnership obtained title to the land in the form
of   an  undivided  fee  simple  interest  in  the  63%  interest
purchased.   Simultaneous  with the purchase  of  the  land,  the
Partnership entered into a Development Financing Agreement  under
which the Partnership advanced funds to Brad and Dad, LLC for the
construction of a Tractor Supply Company store on the site.   The
Partnership's share of the total acquisition costs, including the
cost of the land, was $1,957,734.  The remaining interest in  the
property  was purchased by AEI Income & Growth Fund  27  LLC,  an
affiliate of the Partnership.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

        The property is leased to Tractor Supply Company under  a
Lease  Agreement with a primary term of 15 years (as of the  date
of purchase) and initial annual rent of $141,750 for the interest
purchased.   Pursuant to the Lease, the tenant  commenced  paying
rent  on  August 6, 2009, the day the store opened for  business.
Pursuant  to the Development Financing Agreement, for the  period
from  November 21, 2008 to August 5, 2009, Brad and Dad, LLC paid
the  Partnership interest at a rate of 6.9% on the purchase price
of  the  land  and the amounts advanced for construction  of  the
building.   Pursuant to the Lease, any improvements to  the  land
during  the  term  of  the  Lease  become  the  property  of  the
Partnership.

        On  October  20,  2010, the Partnership purchased  a  39%
interest in a Scott & White Clinic in College Station, Texas  for
$1,433,468.   The property is leased to Scott & White  Healthcare
under  a  Lease Agreement with a remaining primary  term  of  9.7
years  and  initial  annual  rent of $120,120  for  the  interest
purchased.    The  remaining  interests  in  the  property   were
purchased  by  AEI  Net  Lease Income & Growth  Fund  XX  Limited
Partnership  and AEI Income & Growth Fund 25 LLC,  affiliates  of
the Partnership.

        The  Partnership's primary use of cash flow,  other  than
investment   in  real  estate,  is  distribution  and  redemption
payments  to  Partners.   The Partnership  declares  its  regular
quarterly distributions before the end of each quarter  and  pays
the distribution in the first week after the end of each quarter.
The  Partnership attempts to maintain a stable distribution  rate
from  quarter  to  quarter.   Redemption  payments  are  paid  to
redeeming Partners in the fourth quarter of each year.

        For  the  years  ended December 31, 2010  and  2009,  the
Partnership  declared distributions of $1,179,792 and $1,173,733,
respectively, which were distributed 99% to the Limited  Partners
and  1%  to the General Partners.  The Limited Partners  received
distributions  of  $1,167,994  and  $1,161,996  and  the  General
Partners  received distributions of $11,798 and $11,737  for  the
periods, respectively.

       During 2010 and 2009, the Partnership distributed net sale
proceeds  of  $93,677  and  $76,149 to the  Limited  and  General
Partners   as  part  of  their  quarterly  distributions,   which
represented  a return of capital of $4.08 and $3.31  per  Limited
Partnership Unit, respectively.  The Partnership anticipates  the
remaining  net  sale  proceeds  will  either  be  reinvested   in
additional property or distributed to the Partners in the future.

        The  Partnership may acquire Units from Limited  Partners
who have tendered their Units to the Partnership.  Such Units may
be acquired at a discount.  The Partnership will not be obligated
to purchase in any year any number of Units that, when aggregated
with  all  other transfers of Units that have occurred since  the
beginning   of  the  same  calendar  year  (excluding   Permitted
Transfers as defined in the Partnership Agreement), would  exceed
5%  of the total number of Units outstanding on January 1 of such
year.  In no event shall the Partnership be obligated to purchase
Units if, in the sole discretion of the Managing General Partner,
such  purchase  would  impair the capital  or  operation  of  the
Partnership.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

        During  2010, six Limited Partners redeemed  a  total  of
105.5  Partnership  Units  for $34,800  in  accordance  with  the
Partnership  Agreement.   The Partnership  acquired  these  Units
using   Net   Cash  Flow  from  operations.   During  2009,   the
Partnership  did not redeem any Units from the Limited  Partners.
In  prior years, a total of 60 Limited Partners redeemed 1,220.89
Partnership  Units  for $958,469.  The redemptions  increase  the
remaining   Limited   Partners'   ownership   interest   in   the
Partnership.   As  a  result  of these  redemption  payments  and
pursuant  to  the  Partnership Agreement,  the  General  Partners
received distributions of $351 in 2010.

       The continuing rent payments from the properties, together
with  cash  generated from property sales, should be adequate  to
fund   continuing   distributions  and  meet  other   Partnership
obligations on both a short-term and long-term basis.

The Economy and Market Conditions

       The impact of conditions in the current economy, including
the  turmoil  in the credit markets, has adversely affected  many
real  estate investment funds.  However, the absence of  mortgage
financing on the Partnership's properties eliminates the risks of
foreclosure and debt-refinancing that can negatively  impact  the
value  and  distributions  of leveraged  real  estate  investment
funds.  Nevertheless, a prolonged economic downturn may adversely
affect the operations of the Partnership's tenants and their cash
flows.  If a tenant were to default on its lease obligations, the
Partnership's  income  would decrease,  its  distributions  would
likely be reduced and the value of its properties might decline.

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

       Not required for a smaller reporting company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

       See accompanying index to financial statements.





        AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

                  INDEX TO FINANCIAL STATEMENTS






Report of Independent Registered Public Accounting Firm

Balance Sheet as of December 31, 2010 and 2009

Statements for the Years Ended December 31, 2010 and 2009:

     Income

     Cash Flows

     Changes in Partners' Capital

Notes to Financial Statements




     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Partners:
AEI Income & Growth Fund XXI Limited Partnership
St. Paul, Minnesota



     We have audited the accompanying balance sheet of AEI Income
&  Growth  Fund  XXI  Limited Partnership  (a  Minnesota  limited
partnership)  as of December 31, 2010 and 2009, and  the  related
statements of income, cash flows and changes in partners' capital
for  the  years  then  ended.   The Partnership's  management  is
responsible  for these financial statements.  Our  responsibility
is  to express an opinion on these financial statements based  on
our audits.

      We conducted our audits in accordance with the standards of
the  Public  Company Accounting Oversight Board (United  States).
Those  standards require that we plan and perform  the  audit  to
obtain   reasonable   assurance  about  whether   the   financial
statements are free of material misstatement.  The Partnership is
not required to have, nor were we engaged to perform, an audit of
its   internal  control  over  financial  reporting.   Our  audit
included   consideration  of  internal  control  over   financial
reporting  as  a  basis for designing audit procedures  that  are
appropriate  in  the circumstances, but not for  the  purpose  of
expressing  an  opinion on the effectiveness of the Partnership's
internal  control  over  financial  reporting.   Accordingly,  we
express no such opinion.  An audit also includes examining, on  a
test  basis,  evidence supporting the amounts and disclosures  in
the  financial  statements, 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  AEI  Income  &  Growth  Fund XXI Limited  Partnership  as  of
December 31, 2010 and 2009, and the results of its operations and
its  cash  flows  for  the years then ended, in  conformity  with
accounting principles generally accepted in the United States  of
America.




                           /s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
                                   Certified Public Accountants

Minneapolis, Minnesota
March 25, 2011


AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP BALANCE SHEET DECEMBER 31 ASSETS 2010 2009 CURRENT ASSETS: Cash $ 514,889 $ 1,008,743 Receivables 0 10,734 ----------- ----------- Total Current Assets 514,889 1,019,477 ----------- ----------- INVESTMENTS IN REAL ESTATE: Land 4,413,700 4,124,903 Buildings and Equipment 12,286,382 11,148,077 Accumulated Depreciation (1,956,885) (1,503,853) ----------- ----------- 14,743,197 13,769,127 Real Estate Held for Sale 1,328,815 2,173,147 ----------- ----------- Net Investments in Real Estate 16,072,012 15,942,274 ----------- ----------- Total Assets $16,586,901 $16,961,751 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 24,527 $ 56,124 Distributions Payable 294,949 294,947 Unearned Rent 27,010 43,649 ----------- ----------- Total Current Liabilities 346,486 394,720 ----------- ----------- PARTNERS' CAPITAL: General Partners 2,613 1,319 Limited Partners, $1,000 per Unit; 24,000 Units authorized and issued; 22,674 and 22,779 Units outstanding in 2010 and 2009, respectively 16,237,802 16,565,712 ----------- ----------- Total Partners' Capital 16,240,415 16,567,031 ----------- ----------- Total Liabilities and Partners' Capital $16,586,901 $16,961,751 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31 2010 2009 RENTAL INCOME $ 1,212,317 $ 1,089,511 EXPENSES: Partnership Administration - Affiliates 235,117 240,887 Partnership Administration and Property Management - Unrelated Parties 31,582 31,783 Property Acquisition 31,422 0 Depreciation 455,263 411,520 ----------- ----------- Total Expenses 753,384 684,190 ----------- ----------- OPERATING INCOME 458,933 405,321 OTHER INCOME: Interest Income 12,843 53,446 ----------- ----------- INCOME FROM CONTINUING OPERATIONS 471,776 458,767 Income (Loss) from Discontinued Operations 416,551 (251,420) ----------- ----------- NET INCOME $ 888,327 $ 207,347 =========== =========== NET INCOME ALLOCATED: General Partner $ 13,443 $ 155 Limited Partners 874,884 207,192 ----------- ----------- $ 888,327 $ 207,347 =========== =========== INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT: Continuing Operations $ 20.53 $ 19.94 Discontinued Operations 17.92 (10.84) ----------- ----------- Total $ 38.45 $ 9.10 =========== =========== Weighted Average Units Outstanding - Basic and Diluted 22,753 22,779 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 2010 2009 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 888,327 $ 207,347 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation 455,441 419,282 Real Estate Impairment 0 606,839 Gain on Sale of Real Estate (253,923) (135,884) (Increase) Decrease in Receivables 10,734 (5,702) Increase (Decrease) in Payable to AEI Fund Management, Inc. (31,597) 12,824 Increase (Decrease) in Unearned Rent (16,639) 21,347 ----------- ----------- Total Adjustments 164,016 918,706 ----------- ----------- Net Cash Provided By Operating Activities 1,052,343 1,126,053 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate (1,433,468) (1,283,742) Proceeds from Sale of Real Estate 1,102,212 329,208 ----------- ----------- Net Cash Used For Investing Activities (331,256) (954,534) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions Paid to Partners (1,179,790) (1,231,069) Redemption Payments (35,151) 0 ----------- ----------- Net Cash Used For Financing Activities (1,214,941) (1,231,069) ----------- ----------- NET DECREASE IN CASH (493,854) (1,059,550) CASH, beginning of year 1,008,743 2,068,293 ----------- ----------- CASH, end of year $ 514,889 $ 1,008,743 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement.
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31 Limited Partnership General Limited Units Partner Partners Total Outstanding BALANCE, December 31, 2008 $ 12,901 $17,520,516 $17,533,417 22,779.11 Distributions Declared (11,737) (1,161,996) (1,173,733) Net Income 155 207,192 207,347 ------- ----------- ----------- ---------- BALANCE, December 31, 2009 1,319 16,565,712 16,567,031 22,779.11 Distributions Declared (11,798) (1,167,994) (1,179,792) Redemption Payments (351) (34,800) (35,151) (105.50) Net Income 13,443 874,884 888,327 ------- ----------- ----------- ---------- BALANCE, December 31, 2010 $ 2,613 $16,237,802 $16,240,415 22,673.61 ======= =========== =========== ========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 (1) Organization - AEI Income & Growth Fund XXI Limited Partnership ("Partnership") was formed to acquire and lease commercial properties to operating tenants. The Partnership's operations are managed by AEI Fund Management XXI, Inc. ("AFM"), the Managing General Partner. Robert P. Johnson, the President and sole director of AFM, serves as the Individual General Partner. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder. AEI Fund Management, Inc. ("AEI"), an affiliate of AFM, performs the administrative and operating functions for the Partnership. The terms of the Partnership offering called for a subscription price of $1,000 per Limited Partnership Unit, payable on acceptance of the offer. The Partnership commenced operations on April 14, 1995 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. On January 31, 1997, the offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units was reached. Under the terms of the Limited Partnership Agreement, the Limited Partners and General Partners contributed funds of $24,000,000 and $1,000, respectively. During operations, any Net Cash Flow, as defined, which the General Partners determine to distribute will be distributed 90% to the Limited Partners and 10% to the General Partners; provided, however, that such distributions to the General Partners will be subordinated to the Limited Partners first receiving an annual, noncumulative distribution of Net Cash Flow equal to 10% of their Adjusted Capital Contribution, as defined, and, provided further, that in no event will the General Partners receive less than 1% of such Net Cash Flow per annum. Distributions to Limited Partners will be made pro rata by Units. Any Net Proceeds of Sale, as defined, from the sale or financing of properties which the General Partners determine to distribute will, after provisions for debts and reserves, be paid in the following manner: (i) first, 99% to the Limited Partners and 1% to the General Partners until the Limited Partners receive an amount equal to: (a) their Adjusted Capital Contribution plus (b) an amount equal to 10% of their Adjusted Capital Contribution per annum, cumulative but not compounded, to the extent not previously distributed from Net Cash Flow; (ii) any remaining balance will be distributed 90% to the Limited Partners and 10% to the General Partners. Distributions to the Limited Partners will be made pro rata by Units. For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of property, will be allocated first in the same ratio in which, and to the extent, Net Cash Flow is distributed to the Partners for such year. Any additional profits will be allocated in the same ratio as the last dollar of Net Cash Flow is distributed. Net losses from operations will be allocated 99% to the Limited Partners and 1% to the General Partners. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 (1) Organization - (Continued) For tax purposes, profits arising from the sale, financing, or other disposition of property will be allocated in accordance with the Partnership Agreement as follows: (i) first, to those partners with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Partners and 1% to the General Partners until the aggregate balance in the Limited Partners' capital accounts equals the sum of the Limited Partners' Adjusted Capital Contributions plus an amount equal to 10% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously allocated; (iii) third, the balance of any remaining gain will then be allocated 90% to the Limited Partners and 10% to the General Partners. Losses will be allocated 98% to the Limited Partners and 2% to the General Partners. The General Partners are not required to currently fund a deficit capital balance. Upon liquidation of the Partnership or withdrawal by a General Partner, the General Partners will contribute to the Partnership an amount equal to the lesser of the deficit balances in their capital accounts or 1% of total Limited Partners' and General Partners' capital contributions. (2) Summary of Significant Accounting Policies - Financial Statement Presentation The accounts of the Partnership are maintained on the accrual basis of accounting for both federal income tax purposes and financial reporting purposes. Accounting Estimates Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. Significant items, subject to such estimates and assumptions, include the carrying value of investments in real estate. The Partnership regularly assesses whether market events and conditions indicate that it is reasonably possible to recover the carrying amounts of its investments in real estate from future operations and sales. A change in those market events and conditions could have a material effect on the carrying amount of its real estate. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 (2) Summary of Significant Accounting Policies - (Continued) Cash Concentrations of Credit Risk The Partnership's cash is deposited in one financial institution and at times during the year it may exceed FDIC insurance limits. Receivables Credit terms are extended to tenants in the normal course of business. The Partnership performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral. Receivables are recorded at their estimated net realizable value. The Partnership follows a policy of providing an allowance for doubtful accounts; however, based on historical experience, and its evaluation of the current status of receivables, the Partnership is of the belief that such accounts, if any, will be collectible in all material respects and thus an allowance is not necessary. Accounts are considered past due if payment is not made on a timely basis in accordance with the Partnership's credit terms. Receivables considered uncollectible are written off. Income Taxes The income or loss of the Partnership for federal income tax reporting purposes is includable in the income tax returns of the partners. In general, no recognition has been given to income taxes in the accompanying financial statements. The tax return and the amount of distributable Partnership income or loss are subject to examination by federal and state taxing authorities. If such an examination results in changes to distributable Partnership income or loss, the taxable income of the partners would be adjusted accordingly. Primarily due to its tax status as a partnership, the Partnership has no significant tax uncertainties that require recognition or disclosure. Revenue Recognition The Partnership's real estate is leased under net leases, classified as operating leases. The leases provide for base annual rental payments payable in monthly installments. The Partnership recognizes rental revenue according to the terms of the individual leases. For leases that contain stated rental increases, the increases are recognized in the year in which they are effective. Contingent rental payments are recognized when the contingencies on which the payments are based are satisfied and the rental payments become due under the terms of the leases. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 (2) Summary of Significant Accounting Policies - (Continued) Investments in Real Estate The Partnership purchases properties and records them at cost. The Partnership tests real estate for recoverability when events or changes in circumstances indicate that the carrying value may not be recoverable. For properties the Partnership will hold and operate, it compares the carrying amount of the property to the estimated probability-weighted future undiscounted cash flows expected to result from the property and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the property, the Partnership recognizes an impairment loss by the amount by which the carrying amount of the property exceeds the fair value of the property. For properties held for sale, the Partnership determines whether impairment has occurred by comparing the property's estimated fair value less cost to sell to its current carrying value. If the carrying value is greater than the net realizable value, an impairment loss is recorded to reduce the carrying value of the property to its net realizable value. Prior to January 1, 2009, the Partnership capitalized as Investments in Real Estate certain costs incurred in the review and acquisition of the properties. The costs were allocated to the land, buildings and equipment. For acquisitions completed on or after January 1, 2009, acquisition-related transaction costs were expensed as incurred as a result of the Partnership adopting new guidance on business combinations that expands the scope of acquisition accounting. The buildings and equipment of the Partnership are depreciated using the straight-line method for financial reporting purposes based on estimated useful lives of 25 years and 5 years, respectively. Upon complete disposal of a property or classification of a property as Real Estate Held for Sale, the Partnership includes the operating results and sale of the property in discontinued operations. In addition, the Partnership reclassifies the prior periods' operating results of the property to discontinued operations. The Partnership accounts for properties owned as tenants- in-common with affiliated entities and/or unrelated third parties using the proportionate consolidation method. Each tenant-in-common owns a separate, undivided interest in the properties. Any tenant-in-common that holds more than a 50% interest does not control decisions over the other tenant-in-common interests. The financial statements reflect only this Partnership's percentage share of the properties' land, building and equipment, liabilities, revenues and expenses. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 (2) Summary of Significant Accounting Policies - (Continued) The Partnership's properties are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which the properties are located. These laws could require the Partnership to investigate and remediate the effects of the release or disposal of hazardous materials at these locations if found. For each property, an environmental assessment is completed prior to acquisition. In addition, the lease agreements typically strictly prohibit the production, handling, or storage of hazardous materials (except where incidental to the tenant's business such as use of cleaning supplies) in violation of applicable law to restrict environmental and other damage. Environmental liabilities are recorded when it is determined the liability is probable and the costs can reasonably be estimated. There were no environmental issues noted or liabilities recorded at December 31, 2010 and 2009. Fair Value Measurements Fair value, as defined by United States Generally Accepted Accounting Principles ("US GAAP"), is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. US GAAP establishes a hierarchy in determining the fair value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. US GAAP requires the utilization of the lowest possible level of input to determine fair value. Level 1 inputs include quoted market prices in an active market for identical assets or liabilities. Level 2 inputs are market data, other than Level 1 inputs, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data. The Tumbleweed restaurant, with a carrying amount of $1,046,839 at March 31, 2009, was written down to its estimated fair value of $650,000 after completing our long-lived asset valuation analysis. The resulting impairment charge of $396,839 was included in earnings for the first quarter of 2009. At September 30, 2009, after completing our long-lived asset valuation analysis, the Tumbleweed restaurant was further written down to $440,000, its estimated fair value at that date. The resulting impairment charge of $210,000 was included in earnings for the third quarter of 2009. In both instances, the fair value of the property was based upon comparable sales of similar properties, which are considered Level 2 inputs in the valuation hierarchy. The property was sold on March 12, 2010. At December 31, 2010, the Partnership had no assets or liabilities measured at fair value on a recurring basis or nonrecurring basis. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 (2) Summary of Significant Accounting Policies - (Continued) Recently Issued Accounting Pronouncements Management has reviewed recently issued, but not yet effective, accounting pronouncements and does not expect the implementation of these pronouncements to have a significant effect on the Partnership's financial statements. Reclassification Certain items related to discontinued operations in the prior year's financial statements have been reclassified to conform to 2010 presentation. These reclassifications had no effect on Partners' capital, net income or cash flows. (3) Related Party Transactions - The Partnership owns the percentage interest shown below in the following properties as tenants-in-common with the affiliated entities listed: Winn-Dixie store (20.4025% - AEI Net Lease Income & Growth Fund XIX Limited Partnership and unrelated third parties); Jared Jewelry store in Hanover, Maryland (50% - AEI Net Lease Income & Growth Fund XX Limited Partnership); Jared Jewelry store in Auburn Hills, Michigan (40% - AEI Income & Growth Fund 25 LLC); CarMax auto superstore (20% - AEI Income & Growth Fund 24 LLC, AEI Income & Growth Fund 25 LLC and AEI Private Net Lease Millennium Fund Limited Partnership); Applebee's restaurant (62% - AEI Income & Growth Fund XXII Limited Partnership); Best Buy store (54% - AEI Income & Growth Fund 23 LLC and AEI Income & Growth Fund 26 LLC); Fresenius Medical Center (55% - AEI Income & Growth Fund 24 LLC); Tractor Supply Company store (63% - AEI Income & Growth Fund 27 LLC) and Scott & White Clinic (39% - AEI Net Lease Income & Growth Fund XX Limited Partnership and AEI Income & Growth Fund 25 LLC). AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 (3) Related Party Transactions - (Continued) AEI received the following reimbursements for costs and expenses from the Partnership for the years ended December 31: 2010 2009 a.AEI is reimbursed for costs incurred in providing services related to managing the Partnership's operations and properties, maintaining the Partnership's books, and communicating with the Limited Partners. $ 235,117 $ 240,887 ======== ======== b.AEI is reimbursed for all direct expenses it paid on the Partnership's behalf to third parties related to Partnership administration and property management. These expenses included printing costs, legal and filing fees, direct administrative costs, outside audit costs, taxes insurance and other property costs. These amounts included $7,283 and $59,533 of expenses related to Discontinued Operations in 2010 and 2009, respectively. $ 38,865 $ 91,316 ======== ======== c.AEI is reimbursed for costs incurred in providing services and direct expenses related to the acquisition of properties on behalf of the Partnership. $ 31,422 $ 17,439 ======== ======== d.AEI is reimbursed for costs incurred in providing services related to the sale of property. $ 51,470 $ 15,668 ======== ======== The payable to AEI Fund Management, Inc. represents the balance due for the services described in 3a, b, c and d. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business. (4) Investments in Real Estate - The Partnership leases its properties to various tenants under net leases, classified as operating leases. Under a net lease, the tenant is responsible for real estate taxes, insurance, maintenance, repairs and operating expenses for the property. For some leases, the Partnership is responsible for repairs to the structural components of the building, the roof, and the parking lot. At the time the properties were acquired, the remaining primary lease terms varied from 10 to 20 years. The leases provide the tenants with two to five five-year renewal options subject to the same terms and conditions as the primary term. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 (4) Investments in Real Estate - (Continued) The Partnership's properties are commercial, single-tenant buildings. The Arby's restaurant was constructed and acquired in 1995. The Champps Americana restaurant was constructed and acquired in 1998. The KinderCare daycare center in Andover, Minnesota was constructed in 1998 and acquired in 2002. The KinderCare daycare center in Ballwin, Missouri was constructed in 1999 and acquired in 2002. The Winn-Dixie store was constructed in 1997 and acquired in 2003. The Jared Jewelry store in Hanover, Maryland was constructed in 2001 and acquired in 2004. The Jared Jewelry store in Auburn Hills, Michigan was constructed in 1999 and acquired in 2005. The CarMax auto superstore was constructed in 2003 and acquired in 2005. The Applebee's restaurant in Johnstown, Pennsylvania was constructed in 1996 and acquired in 2006. The Best Buy store was constructed in 1990, renovated in 1997 and acquired in 2008. The Fresenius Medical Center was constructed and acquired in 2008. The land for the Tractor Supply Company store was acquired in 2008 and construction of the store was completed in 2009. The Scott & White Clinic was constructed and acquired in 2010. There have been no costs capitalized as improvements subsequent to the acquisitions. The cost of the properties not held for sale and related accumulated depreciation at December 31, 2010 are as follows: Buildings and Accumulated Property Land Equipment Total Depreciation Arby's, Montgomery, AL $ 10,033 $ 13,016 $ 23,049 $ 8,116 KinderCare, Andover, MN 179,755 1,084,452 1,264,207 370,520 Jared Jewelry, Hanover, MD 861,065 1,128,070 1,989,135 310,220 Jared Jewelry, Auburn Hills, MI 280,993 1,185,055 1,466,048 282,437 CarMax, Lithia Springs, GA 815,180 1,070,051 1,885,231 247,895 Applebee's, Johnstown, PA 431,754 1,251,133 1,682,887 214,777 Best Buy, Eau Claire, WI 853,357 2,784,349 3,637,706 324,841 Fresenius Medical Center, Shreveport, LA 102,046 1,258,571 1,360,617 113,272 Tractor Supply, Rapid City, SD 588,967 1,368,767 1,957,734 75,283 Scott & White, College Station, TX 290,550 1,142,918 1,433,468 9,524 ---------- ----------- ----------- ---------- $4,413,700 $12,286,382 $16,700,082 $1,956,885 ========== =========== =========== ========== On November 21, 2008, the Partnership purchased a 63% interest in a parcel of land in Rapid City, South Dakota for $576,274. The Partnership obtained title to the land in the form of an undivided fee simple interest in the 63% interest purchased. Simultaneous with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to Brad and Dad, LLC for the construction of a Tractor Supply Company store on the site. The Partnership's share of the total acquisition costs, including the cost of the land, was $1,957,734. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 (4) Investments in Real Estate - (Continued) The property is leased to Tractor Supply Company under a Lease Agreement with a primary term of 15 years (as of the date of purchase) and initial annual rent of $141,750 for the interest purchased. Pursuant to the Lease, the tenant commenced paying rent on August 6, 2009, the day the store opened for business. Pursuant to the Development Financing Agreement, for the period from November 21, 2008 to August 5, 2009, Brad and Dad, LLC paid the Partnership interest at a rate of 6.9% on the purchase price of the land and the amounts advanced for construction of the building. Pursuant to the Lease, any improvements to the land during the term of the Lease become the property of the Partnership. On October 20, 2010, the Partnership purchased a 39% interest in a Scott & White Clinic in College Station, Texas for $1,433,468. The Partnership incurred $31,422 of acquisition expenses related to the purchase that were expensed. The property is leased to Scott & White Healthcare under a Lease Agreement with a remaining primary term of 9.7 years and initial annual rent of $120,120 for the interest purchased. The Partnership owns a 2.6811% interest in an Arby's restaurant in Montgomery, Alabama. The remaining interests in this property are owned by unrelated third parties, who own the property with the Partnership as tenants-in-common. For properties owned as of December 31, 2010, the minimum future rent payments required by the leases are as follows: 2011 $ 1,459,935 2012 1,478,281 2013 1,495,602 2014 1,503,788 2015 1,522,064 Thereafter 6,817,482 ----------- $14,277,152 =========== There were no contingent rents recognized in 2010 and 2009. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 (5) Major Tenants - The following schedule presents rent revenue from individual tenants, or affiliated groups of tenants, who each contributed more than ten percent of the Partnership's total rent revenue for the years ended December 31: Tenants Industry 2010 2009 Sterling Jewelers Inc. Retail $ 281,323 $ 271,071 Best Buy Stores, L.P. Retail 256,001 256,001 KinderCare Learning Centers, Inc. Child Care 225,176 271,135 CarMax Auto Superstores, Inc. Retail 150,309 146,286 Tractor Supply Company Retail 141,750 N/A ---------- ---------- Aggregate rent revenue of major tenants $1,054,559 $ 944,493 ========== ========== Aggregate rent revenue of major tenants as a percentage of total rent revenue 76% 69% ========== ========== (6) Discontinued Operations - On May 28, 2009, the Partnership sold its remaining 1.1839% interest in the Johnny Carino's restaurant in Austin, Texas to an unrelated third party. The Partnership received net sale proceeds of $22,722, which resulted in a net loss of $210. The cost and related accumulated depreciation of the interest sold was $27,083 and $4,151, respectively. On September 3, 2009, the Partnership sold 14.0515% of the KinderCare daycare center in Ballwin, Missouri to an unrelated third party. The Partnership received net sale proceeds of $306,486, which resulted in a net gain of $136,094. The cost and related accumulated depreciation of the interest sold was $213,271 and $42,879, respectively. During 2010, the Partnership sold an additional 33.6699% of the KinderCare daycare center in Ballwin, Missouri, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $674,196, which resulted in a net gain of $265,907. The cost and related accumulated depreciation of the interests sold was $511,034 and $102,745, respectively. The Partnership is attempting to sell its remaining 44.5116% interest in the property. At December 31, 2010 and 2009, the property was classified as Real Estate Held for Sale with a carrying value of $539,759 and $948,048, respectively. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 (6) Discontinued Operations - (Continued) In March 2009, Tumbleweed, Inc., the tenant of the Tumbleweed restaurant in Fort Wayne, Indiana filed for Chapter 11 bankruptcy reorganization. Tumbleweed closed the restaurant and filed a motion with the bankruptcy court to reject the Lease for this property. The court approved the motion and Tumbleweed returned possession of the property to the Partnership. The Partnership listed the property for sale with a real estate broker in the Fort Wayne area. While the property was vacant, the Partnership was responsible for real estate taxes and other costs associated with maintaining the property. Based on an analysis of market conditions in the area, the Partnership determined the property was impaired. As a result, in the first quarter of 2009, a charge to discontinued operations for real estate impairment of $396,839 was recognized, which was the difference between the carrying value at March 31, 2009 of $1,046,839 and the estimated fair value of $650,000. Based on marketing efforts and an updated analysis of market conditions in the area, the Partnership recognized an additional real estate impairment of $210,000 to decrease the carrying value to the estimated fair value of $440,000 as of September 30, 2009. The charges were recorded against the cost of the land and building. In December 2009, the Partnership entered into an agreement to sell the Tumbleweed restaurant to an unrelated third party. On March 12, 2010, the sale closed with the Partnership receiving net sale proceeds of $428,016, which resulted in a net loss of $11,984. At December 31, 2009, the property was classified as Real Estate Held for Sale. On January 19, 2011, the Partnership sold its remaining .1534% interest in the Champps Americana restaurant in Livonia, Michigan to an unrelated third party. The Partnership received net sale proceeds of approximately $7,800, which resulted in a net gain of approximately $3,800. The cost and related accumulated depreciation of the interest sold was $6,366 and $2,409, respectively. At December 31, 2010, the property was classified as Real Estate Held for Sale with a carrying value of $3,957. The Partnership is attempting to sell its 20.4025% interest in the Winn-Dixie store in Panama City, Florida. At December 31, 2010 and 2009, the property was classified as Real Estate Held for Sale with a carrying value of $785,099. During 2010 and 2009, the Partnership distributed net sale proceeds of $93,677 and $76,149 to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $4.08 and $3.31 per Limited Partnership Unit, respectively. The Partnership anticipates the remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 (6) Discontinued Operations - (Continued) The financial results for these properties are reflected as Discontinued Operations in the accompanying financial statements. The following are the results of discontinued operations for the years ended December 31: 2010 2009 Rental Income $ 170,089 $ 286,830 Property Management Expenses (7,283) (59,533) Depreciation (178) (7,762) Real Estate Impairment 0 (606,839) Gain on Disposal of Real Estate 253,923 135,884 --------- --------- Income (Loss) from Discontinued Operations $ 416,551 $(251,420) ========= ========= (7) Partners' Capital - For the years ended December 31, 2010 and 2009, the Partnership declared distributions of $1,179,792 and $1,173,733, respectively. The Limited Partners received distributions of $1,167,994 and $1,161,996 and the General Partners received distributions of $11,798 and $11,737 for the years, respectively. The Limited Partners' distributions represent $51.33 and $51.01 per Limited Partnership Unit outstanding using 22,753 and 22,779 weighted average Units in 2010 and 2009, respectively. The distributions represent $36.92 and $9.10 per Unit of Net Income and $14.41 and $41.91 per Unit of return of capital in 2010 and 2009, respectively. As part of the Limited Partner distributions discussed above, the Partnership distributed net sale proceeds of $92,740 and $75,388 in 2010 and 2009, respectively. The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During 2010, six Limited Partners redeemed a total of 105.5 Partnership Units for $34,800 in accordance with the Partnership Agreement. The Partnership acquired these Units using Net Cash Flow from operations. During 2009, the Partnership did not redeem any Units from the Limited Partners. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. As a result of these redemption payments and pursuant to the Partnership Agreement, the General Partners received distributions of $351 in 2010. After the effect of redemptions, the Adjusted Capital Contribution, as defined in the Partnership Agreement, is $1,058.50 per original $1,000 invested. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 (8) Income Taxes - The following is a reconciliation of net income for financial reporting purposes to income reported for federal income tax purposes for the years ended December 31: 2010 2009 Net Income for Financial Reporting Purposes $ 888,327 $ 207,347 Depreciation for Tax Purposes Under Depreciation for Financial Reporting Purposes 88,947 56,162 Income Accrued for Tax Purposes Over (Under) Income for Financial Reporting Purposes (16,638) 21,346 Acquisition Costs Expensed for Financial Reporting Purposes, Capitalized for Tax Purposes 31,422 0 Gain on Sale of Real Estate for Tax Purposes Over (Under) Gain for Financial Reporting Purposes (636,661) 607,284 --------- --------- Taxable Income to Partners $ 355,397 $ 892,139 ========= ========= The following is a reconciliation of Partners' capital for financial reporting purposes to Partners' capital reported for federal income tax purposes for the years ended December 31: 2010 2009 Partners' Capital for Financial Reporting Purposes $16,240,415 $16,567,031 Adjusted Tax Basis of Investments in Real Estate Over Net Investments in Real Estate for Financial Reporting Purposes 630,231 1,146,523 Income Accrued for Tax Purposes Over Income for Financial Reporting Purposes 27,010 43,648 Syndication Costs Treated as Reduction of Capital for Financial Reporting Purposes 3,208,043 3,208,043 ----------- ----------- Partners' Capital for Tax Reporting Purposes $20,105,699 $20,965,245 =========== =========== ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A. CONTROLS AND PROCEDURES. (a) Disclosure Controls and Procedures. Under the supervision and with the participation of management, including its President and Chief Financial Officer, the Managing General Partner of the Partnership evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based upon that evaluation, the President and Chief Financial Officer of the Managing General Partner concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to management, including the President and Chief Financial Officer of the Managing General Partner, in a manner that allows timely decisions regarding required disclosure. (b) Internal Control Over Financial Reporting. (i) Management's Report on Internal Control Over Financial Reporting. The Managing General Partner, through its management, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a- 15(f) under the Exchange Act, and for performing an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2010. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Partnership are being made only in accordance with authorizations of management of the Managing General Partner; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Partnership's assets that could have a material effect on the financial statements. Management of the Managing General Partner performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2010 based upon criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on our assessment, management of the Managing General Partner determined that our internal control over financial reporting was effective as of December 31, 2010 based on the criteria in Internal Control-Integrated Framework issued by the COSO. ITEM 9A. CONTROLS AND PROCEDURES. (Continued) This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report. (ii) Changes in Internal Control Over Financial Reporting. During the most recent period covered by this report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION. None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The registrant is a limited partnership and has no officers, directors, or direct employees. The General Partners manage and control the Partnership's affairs and have general responsibility and the ultimate authority in all matters affecting the Partnership's business. The General Partners are AEI Fund Management XXI, Inc. ("AFM"), the Managing General Partner, and Robert P. Johnson, Chief Executive Officer, President and sole director of AFM, the Individual General Partner. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder. AFM has only one senior financial executive, its Chief Financial Officer. The Chief Financial Officer reports directly to Mr. Johnson and is accountable for his actions to Mr. Johnson. Although Mr. Johnson and AFM require that all of their personnel, including the Chief Financial Officer, engage in honest and ethical conduct, ensure full, fair, accurate, timely, and understandable disclosure, comply with all applicable governmental laws, rules and regulations, and report to Mr. Johnson any deviation from these principles, because the organization is composed of only approximately 35 individuals, because the management of a partnership by an entity that has different interests in distributions and income than investors involves numerous conflicts of interest that must be resolved on a daily basis, and because the ultimate decision maker in all instances is Mr. Johnson, AFM has not adopted a formal code of conduct. Instead, the materials pursuant to which investors purchase Units disclose these conflicts of interest in detail and Mr. Johnson, as the CEO and sole director of AFM, resolves conflicts to the best of his ability, consistent with his fiduciary obligations to AFM and the fiduciary obligations of AFM to the Partnership. The director and officers of AFM are as follows: ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. (Continued) Robert P. Johnson, age 66, is Chief Executive Officer, President and sole director and has held these positions since the formation of AFM in August 1994, and has been elected to continue in these positions until December 2011. From 1970 to the present, he has been employed exclusively in the investment industry, specializing in limited partnership investments. In that capacity, he has been involved in the development, analysis, marketing and management of public and private investment programs investing in net lease properties as well as public and private investment programs investing in energy development. Since 1971, Mr. Johnson has been the president, a director and a registered principal of AEI Securities, Inc., which is registered with the SEC as a securities broker-dealer, is a member of the Financial Industry Regulatory Authority (FINRA) and is a member of the Security Investors Protection Corporation (SIPC). Mr. Johnson has been president, a director and the principal shareholder of AEI Fund Management, Inc., a real estate management company founded by him, since 1978. Mr. Johnson is currently a general partner or principal of the general partner in nine limited partnerships and a managing member in five LLCs. Patrick W. Keene, age 51, is Chief Financial Officer, Treasurer and Secretary and has held these positions since January 22, 2003 and has been elected to continue in these positions until December 2011. Mr. Keene has been employed by AEI Fund Management, Inc. and affiliated entities since 1986. Prior to being elected to the positions above, he was Controller of the various entities. From 1982 to 1986, Mr. Keene was with KPMG Peat Marwick Certified Public Accountants, first as an auditor and later as a tax manager. Mr. Keene is responsible for all accounting functions of AFM and the registrant. Since Mr. Johnson serves as the Individual General Partner of the Partnership, as well as the sole director of AFM, all of the duties that might be assigned to an audit committee are assigned to Mr. Johnson. Mr. Johnson is not an audit committee financial expert, as defined. As an officer and majority owner, through a parent company, of AFM, and as the Individual General Partner, Mr. Johnson is not a "disinterested director" and may be subject to a number of conflicts of interests in his capacity as sole director of AFM. Before the independent auditors are engaged, Mr. Johnson, as the sole director of AFM, approves all audit-related fees, and all permissible nonaudit fees, for services of our auditors. Section 16(a) Beneficial Ownership Reporting Compliance Under federal securities laws, the directors and officers of the General Partner of the Partnership, and any beneficial owner of more than 10% of a class of equity securities of the Partnership, are required to report their ownership of the Partnership's equity securities and any changes in such ownership to the Securities and Exchange Commission (the "Commission"). Specific due dates for these reports have been established by the Commission, and the Partnership is required to disclose in this Annual Report on 10-K any delinquent filing of such reports and any failure to file such reports during the fiscal year ended December 31, 2010. Based upon information provided by officers and directors of the General Partner, all officers, directors and 10% owners filed all reports on a timely basis in the 2010 fiscal year. ITEM 11. EXECUTIVE COMPENSATION. The General Partner and affiliates are reimbursed at cost for all services performed on behalf of the registrant and for all third party expenses paid on behalf of the registrant. The cost for services performed on behalf of the registrant is based on actual time spent performing such services plus an overhead burden. These services include organizing the registrant and arranging for the offer and sale of Units, reviewing properties for acquisition and rendering administrative, property management and property sales services. The amount and nature of such payments are detailed in Item 13 of this annual report on Form 10- K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The following table sets forth information pertaining to the ownership of the Units by each person known by the Partnership to beneficially own 5% or more of the Units, by each General Partner, and by each officer or director of the Managing General Partner as of February 28, 2011: Name and Address Number of Percent of Beneficial Owner Units Held of Class AEI Fund Management XXI, Inc. 0 0% Robert P. Johnson 0 0% Patrick W. Keene 0 0% Address for all: 1300 Wells Fargo Place 30 East 7th Street, St. Paul, Minnesota 55101 The General Partners know of no holders of more than 5% of the outstanding Units. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. The registrant, AFM and its affiliates have common management and utilize the same facilities. As a result, certain administrative expenses are allocated among these related entities. All of such activities and any other transactions involving the affiliates of the General Partner of the registrant are governed by, and are conducted in conformity with, the limitations set forth in the Limited Partnership Agreement of the registrant. Reference is made to Note 3 of the Financial Statements, as presented, and is incorporated herein by reference, for details of related party transactions for the years ended December 31, 2010 and 2009. Neither the registrant, nor the Managing General Partner of the registrant, has a board of directors consisting of any members who are "independent." The sole director of the Managing General Partner, Robert P. Johnson, is also the Individual General Partner of the registrant, and is the Chief Executive Officer, and indirectly the principal owner, of the Managing General Partner. Accordingly, there is no disinterested board, or other functioning body, that reviews related party transactions, or the transactions between the registrant and the General Partners, except as performed in connection with the audit of its financial statements. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. (Continued) The limitations included in the Partnership Agreement require that the cumulative reimbursements to the General Partners and their affiliates for certain expenses will not exceed an amount equal to the sum of (i) 20% of gross offering proceeds, (ii) 5% of Net Cash Flow for property management, (iii) 3% of Net Proceeds of Sale, and (iv) 10% of Net Cash Flow less the Net Cash Flow actually distributed to the General Partners. The cumulative reimbursements subject to this limitation are reimbursements for (i) organization and offering expenses, including commissions, (ii) acquisition expenses, (iii) services provided in the sales effort of properties, and (iv) expenses of controlling persons and overhead expenses directly attributable to the forgoing services or attributable to administrative services. As of December 31, 2010, these cumulative reimbursements to the General Partners and their affiliates did not exceed the limitation amount. The following table sets forth the forms of compensation, distributions and cost reimbursements paid by the registrant to the General Partners or their Affiliates in connection with the operation of the Fund and its properties for the period from inception through December 31, 2010. Person or Entity Amount Incurred From Receiving Form and Method Inception (August 31, 1994) Compensation of Compensation To December 31, 2010 AEI Securities, Inc. Selling Commissions equal to 8% of $2,400,000 proceeds plus a 2% nonaccountable expense allowance, most of which was reallowed to Participating Dealers. General Partners and Reimbursement at Cost for other $ 877,000 Affiliates Organization and Offering Costs. General Partners and Reimbursement at Cost for all $ 743,758 Affiliates Acquisition Expenses. General Partners and Reimbursement at Cost for providing $3,732,330 Affiliates administrative services to the Fund, including all expenses related to management of the Fund's properties and all other transfer agency, reporting, partner relations and other administrative functions. General Partners and Reimbursement at Cost for providing $1,066,989 Affiliates services related to the disposition of the Fund's properties. General Partners 1% of Net Cash Flow in any fiscal year $ 213,998 until the Limited Partners have received annual, non-cumulative distributions of Net Cash Flow equal to 10% of their Adjusted Capital Contributions and 10% of any remaining Net Cash Flow in such fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. (Continued) Person or Entity Amount Incurred From Receiving Form and Method Inception (August 31, 1994) Compensation of Compensation To December 31, 2010 General Partners 1% of distributions of Net Proceeds of $ 62,031 Sale until Limited Partners have received an amount equal to (a) their Adjusted Capital Contributions, plus (b) an amount equal to 12% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously distributed. 10% of distributions of Net Proceeds of Sale thereafter. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. The following is a summary of the fees billed to the Partnership by Boulay, Heutmaker, Zibell & Co. P.L.L.P. for professional services rendered for the years ended December 31, 2010 and 2009: Fee Category 2010 2009 Audit Fees $ 16,670 $ 16,325 Audit-Related Fees 0 0 Tax Fees 0 0 All Other Fees 0 0 --------- -------- Total Fees $ 16,670 $ 16,325 ========= ======== Audit Fees - Consists of fees billed for professional services rendered for the audit of the Partnership's annual financial statements and review of the interim financial statements included in quarterly reports, and services that are normally provided by Boulay, Heutmaker, Zibell & Co. P.L.L.P. in connection with statutory and regulatory filings or engagements. Audit-Related Fees - Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of financial statements and are not reported under "Audit Fees." These services include consultations concerning financial accounting and reporting standards. Tax Fees - Consists of fees billed for professional services for federal and state tax compliance, tax advice and tax planning. All Other Fees - Consists of fees for products and services other than the services reported above. Policy for Preapproval of Audit and Permissible Non-Audit Services of Independent Auditors Before the Independent Auditors are engaged by the Partnership to render audit or non-audit services, the engagement is approved by Mr. Johnson acting as the Partnership's audit committee. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (a) (1) A list of the financial statements contained herein is set forth on page 14. (a) (2) Schedules are omitted because of the absence of conditions under which they are required or because the required information is presented in the financial statements or related notes. (a) (3) The Exhibits filed in response to Item 601 of Regulation S-K are listed below. 3.1 Certificate of Limited Partnership (incorporated by reference to Exhibit 3.1 of the registrant's Registration Statement on Form SB-2 filed October 10, 1994 [File No. 33- 85076C]). 3.2 Restated Limited Partnership Agreement to the Prospectus (incorporated by reference to Exhibit A of Amendment No. 2 of the registrant's Registration Statement on Form SB-2 filed January 20, 1995 [File No. 33-85076C]). 10.1 Net Lease Agreement dated June 14, 2002 between the Partnership and ARAMARK Educational Resources, Inc. relating to the Property at 1485 Bunker Lake Boulevard NW, Andover, Minnesota (incorporated by reference to Exhibit 10.4 of Form 8-K filed June 27, 2002). 10.2 Net Lease Agreement dated June 14, 2002 between the Partnership and ARAMARK Educational Resources, Inc. relating to the Property at 497 Big Bend Road, Ballwin, Missouri (incorporated by reference to Exhibit 10.5 of Form 8-K filed June 27, 2002). 10.3 Assignment and Assumption of Lease Agreement dated September 19, 2003 between the Partnership, AEI Net Lease Income & Growth Fund XIX Limited Partnership, AEI Income & Growth Fund 24 LLC and Transmitter Crossing, LLC relating to the Property at 3621 Highway 231 North, Panama City, Florida (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed November 13, 2003). 10.4 Assignment and Assumption of Lease dated February 9, 2004 between the Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership and Transmills, LLC relating to the Property at 7684 Arundel Mills, Hanover, Maryland (incorporated by reference to Exhibit 10.2 of Form 8-K filed February 24, 2004). 10.5 Assignment and Assumption of Lease dated January 14, 2005 between the Partnership, AEI Income & Growth Fund 25 LLC and LMB Auburn Hills I LLC relating to the Property at 3960 Baldwin Road, Auburn Hills, Michigan (incorporated by reference to Exhibit 10.26 of Form 10-KSB filed March 30, 2005). 10.6 Assignment and Assumption of Lease dated March 18, 2005 between the Partnership, AEI Income & Growth Fund 24 LLC, AEI Income & Growth Fund 25 LLC, AEI Private Net Lease Millennium Fund Limited Partnership and Silver Capital Net Lease Fund II, LLC relating to the Property at 1977 Thornton Road, Lithia Springs, Georgia (incorporated by reference to Exhibit 10.28 of Form 10-KSB filed March 30, 2005). 10.7 Net Lease Agreement dated September 21, 2006 between the Partnership, AEI Income & Growth Fund XXII Limited Partnership and B.T. Woodlipp, Inc. relating to the Property at 425 Galleria Drive, Johnstown, Pennsylvania (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed November 14, 2006). 10.8 Assignment and Assumption of Lease dated January 31, 2008 between the Partnership, AEI Income & Growth Fund 23 LLC, AEI Income & Growth Fund 26 LLC and Eau Claire Equity Fund Limited Partnership relating to the Property at 4090 Commonwealth Avenue, Eau Claire, Wisconsin (incorporated by reference to Exhibit 10.2 of Form 8-K filed February 6, 2008). ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (Continued) 31.1 Certification of Chief Executive Officer of General Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer of General Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Chief Financial Officer of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AEI INCOME & GROWTH FUND XXI Limited Partnership By: AEI Fund Management XXI, Inc. Its Managing General Partner March 25, 2011 By: /s/ ROBERT P JOHNSON Robert P. Johnson, President 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. Name Title Date /s/ROBERT P JOHNSON President (Principal Executive Officer) March 25, 2011 Robert P.Johnson and Sole Director of Managing General Partner /s/PATRICK W KEENE Chief Financial Officer and Treasurer March 25, 2011 Patrick W. Keene (Principal Accounting Officer)