AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP, 10KSB, 1999-03-30

AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP
10KSB, 1999-03-30
REAL ESTATE

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

Annual Report Under Section 13 or 15(d)
Of The Securities Exchange Act Of 1934

For the Fiscal Year Ended: December 31, 1998

Commission file number: 0-29274

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP
(Name of Small Business Issuer in its Charter)

State of Minnesota 41-1789725
(State or other Jurisdiction of (I.R.S. Employer)
Incorporation or Organization) Identification No.)

1300 Minnesota World Trade Center, St. Paul, Minnesota 55101
(Address of Principal Executive Offices)

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

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
None None

Securities registered pursuant to Section 12(g) of the Act:

Limited Partnership Units
(Title of class)

Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 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

Check if disclosure of delinquent filers in response to Rule 405
of Regulation S-B is not contained in this Form, and no
disclosure will be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

The Issuer's revenues for year ended December 31, 1998 were
$1,854,751.

As of February 28, 1999, there were 23,828.87 Units of limited
partnership interest in the registrant 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 $23,828,870.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant has not incorporated any documents by reference
into this report.

Transitional Small Business Disclosure Format:

Yes No [X]

PART I

ITEM 1. DESCRIPTION OF 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 31, 1994. The registrant is comprised of AEI Fund
Management XXI, Inc. (AFM) as Managing General Partner, Robert P.
Johnson 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 triple net
leases, to hold such properties and to eventually sell such
properties. From subscription proceeds, the Partnership had
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 triple net leases.

The Partnership's properties were purchased with
subscription proceeds 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
the day-to-day cash flow requirements of the Partnership
(including cash flow necessary to repurchase Units). The amount
of borrowings that may be secured by the Partnership's properties
is limited in the aggregate to 10% of the purchase price of all
Partnership 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. In
addition, certain lessees may be granted options to purchase
properties after a specified portion of the lease term has
elapsed. 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. It is anticipated that the Partnership will
commence liquidation through the sale of its remaining properties
twelve to fifteen years after its formation, although final
liquidation may be delayed by a number of circumstances,
including market conditions and seller financing of properties.

ITEM 1. DESCRIPTION OF BUSINESS. (Continued)

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 triple net leases, which are classified as
operating leases. Under a triple net lease, the lessee is
responsible for all real estate taxes, insurance, maintenance,
repairs and operating expenses for the property. The initial
lease terms are for 18 to 20 years. 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.

The leases provide the lessees with two to five five-year
renewal options subject to the same terms and conditions as the
initial lease. Certain lessees have been granted options to
purchase the property. Depending on the lease, the purchase
price is either determined by a formula, or is the greater of the
fair market value of the property or the amount determined by a
formula. In all cases, if the option were to be exercised by the
lessee, the purchase price would be greater than the original
cost of the property.

On March 28, 1996, the Partnership purchased a 40.75%
interest in a Garden Ridge retail store in Pineville, North
Carolina for $3,644,391. The property is leased to Garden Ridge,
L.P. under a Lease Agreement with a primary term of 20 years and
annual rental payments of $383,973. The remaining interest in
the property was purchased by AEI Net Lease Income & Growth Fund
XIX Limited Partnership and AEI Net Lease Income & Growth Fund XX
Limited Partnership, affiliates of the Partnership.

On August 29, 1996, the Partnership purchased a 67.8%
interest in a Champps Americana restaurant in Columbus, Ohio for
$1,808,880. The property is leased to Americana Dining
Corporation under a Lease Agreement with a primary term of 20
years and annual rental payments of $191,259. The remaining
interest in the property was purchased by AEI Real Estate Fund
XVIII Limited Partnership, an affiliate of the Partnership.

On March 14, 1997, the Partnership purchased a parcel of
land in San Antonio, Texas for $1,032,299. The land is leased to
Champps Americana, Inc. (Champps) under a Lease Agreement with a
primary term of 20 years and annual rental payments of $83,451.
Effective September 9, 1997, the annual rent was increased to
$128,156. Simultaneously with the purchase of the land, the
Partnership entered into a Development Financing Agreement under
which the Partnership advanced funds to Champps for the
construction of a Champps Americana restaurant on the site.
Initially, the Partnership charged interest on the advances at a
rate of 7.0%. Effective September 9, 1997, the interest rate was
increased to 10.75%. On December 23, 1997, after the development
was completed, the Lease Agreement was amended to require annual
rental payments of $296,023. Total acquisition costs, including
the cost of the land, were $2,833,357.

On March 19, 1997, the Partnership purchased a Denny's
restaurant in Covington, Louisiana for $1,304,948. The property
is leased to Huntington Restaurants Group, Inc. under a Lease
Agreement with a primary term of 20 years and annual rental
payments of $141,243.

ITEM 1. DESCRIPTION OF BUSINESS. (Continued)

On April 21, 1997, the Partnership purchased a 49.6%
interest in a parcel of land in Schaumburg, Illinois for
$876,387. The land is leased to Champps under a Lease Agreement
with a primary term of 20 years and annual rental payments of
$66,906. Effective October 17, 1997, the annual rent was
increased to $102,749. Simultaneously with the purchase of the
land, the Partnership entered into a Development Financing
Agreement under which the Partnership advanced funds to Champps
for the construction of a Champps Americana restaurant on the
site. Initially, the Partnership charged interest on the
advances at a rate of 7.0%. Effective October 17, 1997, the
interest rate was increased to 10.75%. On December 31, 1997,
after the development was completed, the Lease Agreement was
amended to require annual rental payments of $236,479. The
Partnership's share of the total acquisition costs, including the
cost of the land, was $2,256,462. The remaining interests in the
property are owned by AEI Net Lease Income & Growth Fund XX
Limited Partnership and Net Lease Income & Growth Fund 84-A
Limited Partnership, affiliates of the Partnership.

On July 8, 1997, the Partnership purchased a parcel of
land in Livonia, Michigan for $1,074,384. The land is leased to
Champps under a Lease Agreement with a primary term of 20 years
and annual rental payments of $75,207. Effective January 3,
1998, the annual rent was increased to $115,496. Simultaneously
with the purchase of the land, the Partnership entered into a
Development Financing Agreement under which the Partnership
advanced funds to Champps for the construction of a Champps
Americana restaurant on the site. Initially, the Partnership
charged interest on the advances at a rate of 7.0%. Effective
January 3, 1998, the interest rate was increased to 10.75%. On
May 19, 1998, after the development was completed, the Lease
Agreement was amended to require annual rental payments of
$429,135. Total acquisition costs, including the cost of the
land, were $4,150,061.

On July 31, 1997, the Partnership purchased a 93.1%
interest in a Caribou Coffee store in Charlotte, North Carolina
for $1,310,598. The property is leased to Caribou Coffee
Company, Inc. under a Lease Agreement with a primary term of 18
years and annual rental payments of $146,438. The remaining
interest in the property is owned by AEI Institutional Net Lease
Fund '93 Limited Partnership, an affiliate of the Partnership.

On August 28, 1998, the Partnership purchased a 25%
interest in a parcel of land in Centerville, Ohio for $462,747.
The land is leased to Americana Dining Corporation (ADC) under a
Lease Agreement with a primary term of 20 years and annual rental
payments of $32,392. Simultaneously with the purchase of the
land, the Partnership entered into a Development Financing
Agreement under which the Partnership will advance funds to ADC
for the construction of a Champps Americana restaurant on the
site. Through December 31, 1998, the Partnership had advanced
$289,014 for the construction of the property and was charging
interest on the advances at a rate of 7%. Effective December 25,
1998, the interest rate was increased to 10.5%. On January 27,
1999, after the development was completed, the Lease Agreement
was amended to require annual rental payments of $101,365. The
Partnership's share of the total acquisition costs, including the
cost of the land, was approximately $984,500. The remaining
interests in the property are owned by AEI Real Estate Fund XVII
Limited Partnership, AEI Real Estate Fund XVIII Limited
Partnership and AEI Income & Growth Fund XXII Limited
Partnership, affiliates of the Partnership.

ITEM 1. DESCRIPTION OF BUSINESS. (Continued)

Through December 31, 1998, the Partnership sold 40.7615%
of its interest in the Champps Americana restaurant in Columbus,
Ohio, in six separate transactions to unrelated third parties.
The Partnership received total net sale proceeds of $1,383,508
which resulted in a total net gain of $341,928. The total cost
and related accumulated depreciation of the interests sold was
$1,087,502 and $45,922, respectively. For the years ended
December 31, 1998 and 1997, the net gain was $235,377 and
$106,551, respectively.

As of December 31, 1997, based on an analysis of market
conditions, it was determined the fair value of the Partnership's
interest in the Media Play retail store was approximately
$748,000. In the fourth quarter of 1997, a charge to operations
for real estate impairment of $580,200 was recognized, which is
the difference between the book value at December 31, 1997 of
$1,328,200 and the estimated market value of $748,000. The
charge was recorded against the cost of the land, building and
equipment.

Major Tenants

During 1998, two of the Partnership's lessees each
contributed more than ten percent of the Partnership's total
rental revenue. The major tenants in aggregate contributed 78%
of the Partnership's total rental revenue in 1998. 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 the Partnership's rental income in 1998 and
future years. Any failure of these major tenants or business
concepts could materially affect the Partnership's net income and
cash distributions.

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.

Year 2000 Compliance

The Year 2000 issue is the result of computer systems that
use two digits rather than four to define the applicable year,
which may prevent such systems from accurately processing dates
ending in the Year 2000 and beyond. This could result in
computer system failures or disruption of operations, including,
but not limited to, an inability to process transactions, to send
or receive electronic data, or to engage in routine business
activities.

AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. In 1998, AEI completed an
assessment of its computer hardware and software systems and has
replaced or upgraded certain computer hardware and software using
the assistance of outside vendors. AEI has received written
assurance from the equipment and software manufacturers as to
Year 2000 compliance. The costs associated with Year 2000
compliance have not been, and are not expected to be, material.

ITEM 1. DESCRIPTION OF BUSINESS. (Continued)

The Partnership intends to monitor and communicate with
tenants regarding Year 2000 compliance, although there can be no
assurance that the systems of the various tenants will be Year
2000 compliant.

ITEM 2. DESCRIPTION OF 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 triple net leases, which are
classified as operating leases. The Partnership holds an
undivided fee simple interest in the properties.

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, 1998.
<TABLE>
<CAPTION>
Total Property
Purchase Acquisition Annual Lease Annual Rent
Property Date Costs Lessee Payment Per Sq. Ft.
<S> <C> <C> <C> <C> <C>
Arby's Restaurant
Montgomery, AL RTM Gulf
(87.7193%) 5/31/95 $ 754,104 Coast, Inc. $ 81,367 $31.28

Media Play Retail Store
Apple Valley, MN
(34.0%) 12/21/95 $1,414,060 (1)

ITEM 2. DESCRIPTION OF PROPERTIES. (Continued)

Total Property
Purchase Acquisition Annual Lease Annual Rent
Property Date Costs Lessee Payment Per Sq. Ft.

Garden Ridge Retail Store
Pineville, NC Garden
(40.75%) 3/28/96 $ 3,644,391 Ridge, L.P. $ 383,973 $ 6.65

Champps
Americana Restaurant Americana
Columbus, OH Dining
(27.0385%) 8/29/96 $ 721,377 Corporation $ 76,273 $ 34.53

Huntington
Denny's Restaurant Restaurants
Covington, LA 3/19/97 $ 1,304,948 Group, Inc. $ 143,961 $ 33.49

Caribou Coffee Store
Charlotte, NC Caribou Coffee
(93.1%) 7/31/97 $ 1,310,598 Company, Inc. $ 146,438 $ 35.66

Champps Champps
Americana Restaurant Entertainment
San Antonio, TX 12/23/97 $ 2,833,357 of Texas, Inc. $ 296,023 $ 34.10

Champps
Americana Restaurant
Schaumburg, IL Champps
(49.6%) 12/31/97 $ 2,256,462 Americana, Inc. $ 236,479 $ 42.73

Champps
Americana Restaurant Champps
Livonia, MI 5/19/98 $ 4,150,061 Americana, Inc. $ 429,135 $ 46.88

Champps
Americana Restaurant
Centerville, OH Americana
(25.0%) Dining
(land only) (2) 8/28/98 $ 462,747 Corporation $ 32,392 $ 13.83

<FN>
(1) The property was vacated on January 31, 1997 and listed for
sale or lease.
(2) Restaurant is under construction as of December 31, 1998.
</FN>
</TABLE>

ITEM 2. DESCRIPTION OF PROPERTIES. (Continued)

The properties listed above with a partial ownership
percentage are owned with affiliates of the Partnership and/or
unrelated third parties. The remaining interests in the Arby's
and Caribou Coffee store are owned by AEI Institutional Net Lease
Fund '93 Limited Partnership. The remaining interests in the
Media Play and Garden Ridge retail stores are owned by AEI Net
Lease Income & Growth Fund XIX Limited Partnership and AEI Net
Lease Income & Growth Fund XX Limited Partnership. The remaining
interest in the Champps Americana restaurant in Columbus, Ohio is
owned by AEI Real Estate Fund XVIII Limited Partnership and
unrelated third parties. The remaining interest in the Champps
Americana restaurant in Schaumburg, Illinois is owned by Net
Lease Income & Growth Fund 84-A Limited Partnership and AEI Net
Lease Income & Growth Fund XX Limited Partnership. The remaining
interests in the Champps Americana restaurant in Centerville,
Ohio are owned by AEI Real Estate Fund XVII Limited Partnership,
AEI Real Estate Fund XVIII Limited Partnership and AEI Income &
Growth Fund XXII Limited Partnership.

The Partnership accounts for properties owned as tenants-
in-common with affiliated Partnerships 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.

The initial Lease terms are 20 years except for the
Caribou Coffee store, which is 18 years. The Leases contain
renewal options which may extend the Lease term an additional 10
years for the Arby's and Caribou Coffee, an additional 15 years
for the Champps and Denny's, and an additional 25 years for the
Garden Ridge retail store.

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 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
whose book value was reduced by a real estate impairment loss
pursuant to Financial Accounting Standards Board Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." The real estate impairment
loss, which was recorded against the book cost of the land and
depreciable property, was not recognized for tax purposes.

Through December 31, 1998, all properties were 100%
occupied by the lessees, except the Media Play retail store which
has been 100% vacant since January 31, 1997.

ITEM 3. LEGAL PROCEEDINGS.

None.

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

None.

PART II

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

As of December 31, 1998, there were 1,312 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.
However, the Partnership may purchase Units from Limited Partners
who have tendered their Units to the Partnership. Such Units may
be acquired at a discount. The Partnership is not obligated to
purchase in any year more than 5% of the total number of Units
outstanding at the beginning of the 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 1998, the Partnership did not redeem any Units from
the Limited Partners. In 1997, three Limited Partners redeemed a
total of 171.1 Partnership Units for $154,021 in accordance with
the Partnership Agreement. The redemptions increase the
remaining Limited Partners' ownership interest in the
Partnership.

Cash distributions of $19,091 and $17,788 were made to the
General Partners and $1,890,001 and $1,761,087 were made to the
Limited Partners in 1998 and 1997, respectively. The
distributions were made on a quarterly basis and represent Net
Cash Flow, as defined, and a partial return of contributed
capital. 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 $407,119 and $348,489 of
proceeds from property sales in 1998 and 1997, respectively.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.

Results of Operations

For the years ended December 31, 1998 and 1997, the
Partnership recognized rental income of $1,704,282 and
$1,005,113, respectively. During the same periods, the
Partnership also earned $150,469 and $507,981, respectively, in
investment income from subscription proceeds which were invested
in short-term money market accounts, commercial paper, federal
agency notes and construction and development advances. This
investment income constituted 8% and 34%, respectively, of total
income. The percentage of total income represented by investment
income declines as subscription proceeds are invested in
properties.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

Musicland Group, Inc. (MGI), the lessee of the Media Play
retail store in Apple Valley, Minnesota experienced financial
difficulties and was aggressively restructuring its organization.
As part of the restructuring, the Partnership and MGI reached an
agreement in December, 1996 in which MGI would buy out and
terminate the Lease Agreement by making a payment of $800,000,
which is equal to approximately two years' rent. The
Partnership's share of such payment was $272,000. Under the
Agreement, MGI remained in possession of the property and
performed all of its obligations under the net lease agreement
through January 31, 1997 at which time it vacated the property
and made it available for re-let to another tenant. MGI was
responsible for all maintenance and management costs of the
property through January 31, 1997 after which date the
Partnership became responsible for its share of expenses
associated with the property until it is re-let or sold. A
specialist in commercial property leasing has been retained to
locate a new tenant for the property.

As of December 31, 1997, based on an analysis of market
conditions in the area, it was determined the fair value of the
Partnership's interest in the Media Play was approximately
$748,000. In the fourth quarter of 1997, a charge to operations
for real estate impairment of $580,200 was recognized, which is
the difference between the book value at December 31, 1997 of
$1,328,200 and the estimated market value of $748,000. The
charge was recorded against the cost of the land, building and
equipment.

During the years ended December 31, 1998 and 1997, the
Partnership paid Partnership administration expenses to
affiliated parties of $248,958 and $233,717, respectively. These
administration expenses include initial start-up costs and
expenses associated with processing distributions, reporting
requirements and correspondence to the Limited Partners. The
administrative expenses decrease after completion of the offering
and acquisition phases of the Partnership's operations. During
the same periods, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $107,932 and $115,217, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit and accounting
costs, taxes, insurance and other property costs.

The Partnership distributes all of its net income during
the offering and acquisition phases, and if net income after
deductions for depreciation is not sufficient to fund the
distributions, other available cash that constitutes capital for
accounting purposes may be distributed.

As of December 31, 1998, the Partnership's cash
distribution rate was 7.5% on an annualized basis. Distributions
of Net Cash Flow to the General Partners were subordinated to the
Limited Partners as required in the Partnership Agreement. As a
result, 99% of distributions and income were allocated to Limited
Partners and 1% to the General Partners.

Since the Partnership has only recently purchased its real
estate, inflation has had a minimal effect on income from
operations. The Leases contain cost of living increases which
will result in an increase in rental income over the term of the
Leases. Inflation also may cause the Partnership's real estate
to appreciate in value. However, inflation and changing prices
may also have an adverse impact on the operating margins of the
properties' tenants which could impair their ability to pay rent
and subsequently reduce the Partnership's Net Cash Flow available
for distributions.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

The Partnership intends to monitor and communicate with
tenants regarding Year 2000 compliance, although there can be no
assurance that the systems of the various tenants will be Year
2000 compliant.

Liquidity and Capital Resources

The Partnership's primary sources of cash are from
proceeds from the sale of Units, investment income, rental income
and proceeds from the sale of property. Its primary uses of cash
are investment in real properties, payment of expenses involved
in the sale of units, the organization of the Partnership, the
acquisition of properties, the management of properties, the
administration of the Partnership, and the payment of
distributions.

Until the offering of Units was completed, the
Partnership's primary source of cash flow was from the sale of
Limited Partnership Units. 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. From February 1, 1995 to
April 14, 1995, the minimum number of Limited Partnership Units
(1,500) needed to form the Partnership were sold and on April 14,
1995, a total of 2,937.444 Units ($2,937,444) were transferred
into the Partnership. On January 31, 1997, the Partnership
offering terminated when the maximum subscription limit of 24,000
Limited Partnership Units ($24,000,000) was reached. From
subscription proceeds, the Partnership paid organization and
syndication costs (which constitute a reduction of capital) of
$3,277,000.

Before the acquisition of properties, cash flow from
operating activities is not significant. Net income, after
adjustment for depreciation, is lower during the first few years
of operations as administrative expenses remain high and a large
amount of the Partnership's assets remain invested on a short-
term basis in lower-yielding cash equivalents. Net income will
become the largest component of cash flow from operating
activities and the largest component of cash flow after the
completion of the acquisition phase.

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. In 1998 and 1997, the Partnership
expended $2,671,415 and $8,078,957, respectively, to invest in
real properties (inclusive of acquisition expenses). During the
same periods, the Partnership generated cash flow from the sale
of real estate of $862,718 and $520,790, respectively.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

During 1998 and 1997, the Partnership distributed net sale
proceeds of $411,231 and $352,009 to the Limited and General
Partners as part of their regular quarterly distributions which
represented a return of capital of $17.09 and $14.57 per Limited
Partnership Unit, respectively. The remaining net sale proceeds
were reinvested in additional property.

After completion of the acquisition phase, the
Partnership's primary use of cash flow 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. The redemption payments generally are funded with cash
that would normally be paid as part of the regular quarterly
distributions. As a result, total distributions and
distributions payable have fluctuated from year to year due to
cash used to fund redemption payments.

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 is not obligated to
purchase in any year more than 5% of the number of Units
outstanding at the beginning of the 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 1998, the Partnership did not redeem any Units from
the Limited Partners. In 1997, three Limited Partners redeemed a
total of 171.1 Partnership Units for $154,021 in accordance with
the Partnership Agreement. The Partnership acquired these Units
using Net Cash Flow from operations. The redemptions increase
the remaining Limited Partners' ownership interest in the
Partnership.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)

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

Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995

The foregoing Management's Discussion and Analysis
contains various "forward looking statements" within the meaning
of federal securities laws 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, taxation levels,
the sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward
looking statements made by the Partnership, must 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:

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

<BULLET> the federal income tax consequences of rental
income, deductions, gain on sales and other items and
the affects of these consequences for investors;

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

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

<BULLET> the effect of tenant defaults; and

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

These and other risks to which the Partnership may be subject are
discussed in more detail in Exhibit 99 to this Form 10-KSB.

ITEM 7. FINANCIAL STATEMENTS.

See accompanying index to financial statements.

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

INDEX TO FINANCIAL STATEMENTS

Report of Independent Auditors

Balance Sheet as of December 31, 1998 and 1997

Statements for the Years Ended December 31, 1998 and 1997:

Income

Cash Flows

Changes in Partners' Capital

Notes to Financial Statements

REPORT OF INDEPENDENT AUDITORS

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, 1998 and 1997 and the related
statements of income, cash flows and changes in partners' capital
for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of AEI Income & Growth Fund XXI Limited Partnership as of
December 31, 1998 and 1997, and the results of its operations and
its cash flows for the years then ended, in conformity with
generally accepted accounting principles.

Minneapolis, Minnesota /s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
January 27, 1999 Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants

<PAGE>
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

BALANCE SHEET

DECEMBER 31

ASSETS

1998 1997

CURRENT ASSETS:
Cash and Cash Equivalents $ 557,646 $ 2,506,790
Receivables 16,052 162,677
----------- -----------
Total Current Assets 573,698 2,669,467
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 6,921,884 6,612,866
Buildings and Equipment 11,350,021 8,779,112
Construction in Progress 289,014 1,078,108
Property Acquisition Costs 10,782 88,696
Accumulated Depreciation (816,805) (399,150)
----------- -----------
Net Investments in Real Estate 17,754,896 16,159,632
----------- -----------
Total Assets $18,328,594 $18,829,099
=========== ===========

LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 54,136 $ 56,307
Distributions Payable 451,171 324,841
----------- -----------
Total Current Liabilities 505,307 381,148
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (30,953) (24,706)
Limited Partners, $1,000 Unit Value;
24,000 Units authorized and issued;
23,829 Units outstanding in 1998 and 1997 17,854,240 18,472,657
----------- -----------
Total Partners' Capital 17,823,287 18,447,951
----------- -----------
Total Liabilities and Partners' Capital $18,328,594 $18,829,099
=========== ===========

The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

STATEMENT OF INCOME

FOR THE YEARS ENDED DECEMBER 31

1998 1997

INCOME:
Rent $ 1,704,282 $ 1,005,113
Investment Income 150,469 507,981
----------- -----------
Total Income 1,854,751 1,513,094
----------- -----------

EXPENSES:
Partnership Administration - Affiliates 248,958 233,717
Partnership Administration and Property
Management - Unrelated Parties 107,932 115,217
Depreciation 448,810 251,272
Real Estate Impairment 0 580,200
----------- -----------
Total Expenses 805,700 1,180,406
----------- -----------

OPERATING INCOME 1,049,051 332,688

GAIN ON SALE OF REAL ESTATE 235,377 106,551
----------- -----------
NET INCOME $ 1,284,428 $ 439,239
=========== ===========

NET INCOME ALLOCATED:
General Partners $ 12,844 $ 4,392
Limited Partners 1,271,584 434,847
----------- -----------
$ 1,284,428 $ 439,239
=========== ===========

NET INCOME PER LIMITED PARTNERSHIP UNIT
(23,829 and 23,921 weighted average Units
outstanding in 1998 and 1997, respectively) $ 53.36 $ 18.18
=========== ===========

The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31

1998 1997

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,284,428 $ 439,239

Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 448,810 251,272
Real Estate Impairment 0 580,200
Gain on Sale of Real Estate (235,377) (106,551)
(Increase) Decrease in Receivables 146,625 (121,005)
Decrease in Payable to
AEI Fund Management, Inc. (2,171) (76,593)
----------- -----------
Total Adjustments 357,887 527,323
------------ -----------
Net Cash Provided By
Operating Activities 1,642,315 966,562
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (2,671,415) (8,078,957)
Proceeds from Sale of Real Estate 862,718 520,790
------------ -----------
Net Cash Used For
Investing Activities (1,808,697) (7,558,167)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from Limited Partners 0 436,651
Organization and Syndication Costs 0 (28,010)
Increase (Decrease) in Distributions Payable 126,330 (104,827)
Distributions to Partners (1,909,092) (1,778,875)
Redemption Payments 0 (155,577)
----------- -----------
Net Cash Used For
Financing Activities (1,782,762) (1,630,638)
----------- -----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (1,949,144) (8,222,243)

CASH AND CASH EQUIVALENTS, beginning of period 2,506,790 10,729,033
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 557,646 $ 2,506,790
=========== ===========

The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

STATEMENT OF CHANGES IN PARTNERS' CAPITAL

FOR THE YEARS ENDED DECEMBER 31

Limited
Partnership
General Limited Units
Partners Partners Total Outstanding

BALANCE, December 31, 1996 $ (9,754) $19,544,277 $19,534,523 23,563.35

Capital Contributions 0 436,651 436,651 436.65

Organization & Syndication Costs 0 (28,010) (28,010)

Distributions (17,788) (1,761,087) (1,778,875)

Redemption Payments (1,556) (154,021) (155,577) (171.13)

Net Income 4,392 434,847 439,239
--------- ----------- ----------- ----------
BALANCE, December 31, 1997 (24,706) 18,472,657 18,447,951 23,828.87

Distributions (19,091) (1,890,001) (1,909,092)

Net Income 12,844 1,271,584 1,284,428
--------- ----------- ----------- ----------
BALANCE, December 31, 1998 $ (30,953) $17,854,240 $17,823,287 23,828.87
========= =========== =========== ==========

The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

(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 of the Partnership.
Robert P. Johnson, the President and sole shareholder of
AFM, serves as the Individual General Partner of the
Partnership. An affiliate of AFM, AEI Fund Management, Inc.
(AEI), performs the administrative and operating functions
for the Partnership.

The terms of the Partnership offering call 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
Partnership offering terminated when the maximum
subscription limit of 24,000 Limited Partnership Units
($24,000,000) 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 the operation
of the Partnership, 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 the Partnership's 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.

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

(1) Organization - (Continued)

For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of the Partnership's
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.

For tax purposes, profits arising from the sale, financing,
or other disposition of the Partnership's 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.

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, 1998 AND 1997

(2) Summary of Significant Accounting Policies - (Continued)

Cash Concentrations of Credit Risk

At times throughout the year, the Partnership's cash
deposited in financial institutions may exceed FDIC
insurance limits.

Statement of Cash Flows

For purposes of reporting cash flows, cash and cash
equivalents may include cash in checking, cash invested
in money market accounts, certificates of deposit,
federal agency notes and commercial paper with a term of
three months or less.

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. Accordingly, no recognition has
been given to income taxes in the accompanying financial
statements.

The tax return, the qualification of the Partnership as
such for tax purposes, 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 with respect to the
Partnership qualification or in changes to distributable
Partnership income or loss, the taxable income of the
partners would be adjusted accordingly.

Real Estate

The Partnership's real estate is leased under triple net
leases classified as operating leases. The Partnership
recognizes rental revenue on the accrual basis according
to the terms of the individual leases. For leases which
contain cost of living increases, the increases are
recognized in the year in which they are effective.

Real estate is recorded at the lower of cost or estimated
net realizable value. The Partnership compares the
carrying amount of its properties to the estimated future
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.

The Partnership has 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.

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.

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

(2) Summary of Significant Accounting Policies - (Continued)

The Partnership accounts for properties owned as tenants-
in-common with affiliated Partnerships 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.

(3) Related Party Transactions -

The Partnership owns a 87.7193% interest in an Arby's
restaurant and a 93.1% interest in a Caribou Coffee store.
The remaining interests in these properties are owned by AEI
Institutional Net Lease Fund '93 Limited Partnership, an
affiliate of the Partnership. The Partnership owns a 34.0%
interest in a Media Play retail store and a 40.75% interest
in a Garden Ridge retail store. The remaining interests in
these properties are owned by AEI Net Lease Income & Growth
Fund XIX Limited Partnership and AEI Net Lease Income &
Growth Fund XX Limited Partnership, affiliates of the
Partnership. As of December 31, 1998, the Partnership owns
a 27.0385% interest in a Champps Americana restaurant in
Columbus, Ohio. The remaining interests in this property
are owned by AEI Real Estate Fund XVIII Limited Partnership,
an affiliate of the Partnership, and unrelated third
parties. The Partnership owns a 49.6% interest in a Champps
Americana restaurant in Schaumburg, Illinois. The remaining
interests in this property are owned by Net Lease Income &
Growth Fund 84-A Limited Partnership and AEI Net Lease
Income & Growth Fund XX Limited Partnership, affiliates of
the Partnership. The Partnership owns a 25.0% interest in a
Champps Americana restaurant in Centerville, Ohio. The
remaining interests in this property are owned by AEI Real
Estate Fund XVII Limited Partnership, AEI Real Estate Fund
XVIII Limited Partnership and AEI Income & Growth Fund XXII
Limited Partnership, affiliates of the Partnership.

AEI, AFM and AEI Securities, Inc. (ASI) (formerly AEI
Incorporated) received the following compensation and
reimbursements for costs and expenses from the Partnership:

Total Incurred by the Partnership
for the Years Ended December 31

1998 1997
a.AEI and AFM are reimbursed for all costs
incurred in connection with managing the
Partnership's operations, maintaining the
Partnership's books and communicating
the results of operations to the Limited
Partners. $ 248,958 $ 233,717
======== ========

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

(3) Related Party Transactions - (Continued)

Total Incurred by the Partnership
for the Years Ended December 31

1998 1997
b.AEI and AFM are reimbursed for all direct
expenses they have paid on the Partnership's
behalf to third parties. These expenses included
printing costs, legal and filing fees, direct
administrative costs, outside audit and
accounting costs, taxes, insurance and
other property costs. $ 107,932 $ 115,217
======== ========

c.AEI is reimbursed for all property acquisition
costs incurred by it in acquiring properties on
behalf of the Partnership. The amounts are net
of financing and commitment fees and expense
reimbursements received by the Partnership from
the lessees in the amount of $58,649 and $112,388
for 1998 and 1997, respectively. $ (14,854) $ 65,970
======== ========

d.ASI was the underwriter of the Partnership offering.
Robert P. Johnson is the sole stockholder of ASI,
which is a member of the National Association of
Securities Dealers, Inc. ASI received, as
underwriting commissions, 8% for sale of certain
subscription Units ($80 per unit sold, of which it
re-allowed up to $80 per unit to other participating
broker/dealers). ASI also received a 2% non-
accountable expense allowance for all Units it sold
through broker/dealers. These costs are treated as
a reduction of partners' capital. $ 0 $ 43,665
======== ========

e.AEI is reimbursed for all costs incurred in
connection with managing the Partnership's
offering and organization. $ 0 $ 9,104
======== ========

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

(3) Related Party Transactions - (Continued)

Total Incurred by the Partnership
for the Years Ended December 31

1998 1997

f.AEI is reimbursed for all expenses it has paid
on the Partnership's behalf relating to the
offering and organization of the Partnership.
These expenses included printing costs, legal
and filing fees, direct administrative costs,
underwriting costs and due diligence fees. $ 0 $ (24,759)
======== ========

The payable to AEI Fund Management, Inc. represents the
balance due for the services described in 3a, b, c, e and f.
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
through triple net leases, which are classified as operating
leases. Under a triple net lease, the lessee is responsible
for all real estate taxes, insurance, maintenance, repairs
and operating expenses of the property. The initial Lease
terms are 20 years except for the Caribou Coffee , which is
18 years, and the Media Play retail store discussed below.
The Leases contain renewal options which may extend the
Lease term an additional 10 years for the Arby's and Caribou
Coffee store, an additional 15 years for the Denny's and
Champps Americana restaurants and 25 years for the Garden
Ridge retail store. The Leases contain rent clauses which
entitle the Partnership to receive additional rent in future
years based on stated rent increases. Certain lessees have
been granted options to purchase the property. Depending on
the lease, the purchase price is either determined by a
formula, or is the greater of the fair market value of the
property or the amount determined by a formula. In all
cases, if the option were to be exercised by the lessee, the
purchase price would be greater than the original cost of
the property.

The Partnership's properties are commercial, single-tenant
buildings. The Arby's restaurant and Media Play were
constructed and acquired in 1995. The Champps Americana
restaurant in Livonia, Michigan was constructed and acquired
in 1998. The land for the Champps Americana restaurant in
Centerville, Ohio was acquired in 1998 and construction of
the restaurant will be completed in 1999. The remaining
properties were constructed and acquired in 1996 or 1997.
There have been no costs capitalized as improvements
subsequent to the acquisitions.

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

(4) Investments in Real Estate - (Continued)

The cost of the property and related accumulated
depreciation at December 31, 1998 are as follows:

Buildings and Accumulated
Property Land Equipment Total Depreciation

Arby's, Montgomery, AL $ 328,310 $ 425,794 $ 754,104 $ 61,030
Media Play, Apple Valley, MN 239,690 594,170 833,860 107,964
Garden Ridge, Pineville, NC 1,181,253 2,463,138 3,644,391 270,945
Champps Americana,
Columbus, OH 242,937 478,440 721,377 50,240
Denny's, Covington, LA 532,844 772,104 1,304,948 62,959
Caribou Coffee, Charlotte, NC 705,394 605,204 1,310,598 36,830
Champps Americana,
San Antonio, TX 1,127,016 1,706,341 2,833,357 83,585
Champps Americana,
Schaumburg, IL 959,278 1,297,184 2,256,462 57,703
Champps Americana,
Livonia, MI 1,142,415 3,007,646 4,150,061 85,549
Champps Americana,
Centerville, OH 462,747 0 462,747 0
----------- ----------- ----------- ----------
$ 6,921,884 $11,350,021 $18,271,905 $ 816,805
=========== =========== =========== ==========

On December 21, 1995, the Partnership purchased a 34.0%
interest in a Media Play retail store in Apple Valley,
Minnesota for $1,414,060. The property was leased to The
Musicland Group, Inc. (MGI) under a Lease Agreement with a
primary term of 18 years and annual rental payments of
$139,587.

In December, 1996, the Partnership and MGI reached an
agreement in which MGI would buy out and terminate the Lease
Agreement by making a payment of $800,000, which was equal
to approximately two years' rent. The Partnership's share
of such payment was $272,000. Under the Agreement, MGI
remained in possession of the property and performed all of
its obligations under the net lease agreement through
January 31, 1997 at which time it vacated the property and
made it available for re-let to another tenant. MGI was
responsible for all maintenance and management costs of the
property through January 31, 1997 after which date the
Partnership became responsible for its share of expenses
associated with the property until it is re-let or sold. A
specialist in commercial property leasing has been retained
to locate a new tenant for the property.

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

(4) Investments in Real Estate - (Continued)

As of December 31, 1997, based on an analysis of market
conditions in the area, it was determined the fair value of
the Partnership's interest in the Media Play was
approximately $748,000. In the fourth quarter of 1997, a
charge to operations for real estate impairment of $580,200
was recognized, which is the difference between the book
value at December 31, 1997 of $1,328,200 and the estimated
market value of $748,000. The charge was recorded against
the cost of the land, building and equipment.

On March 14, 1997, the Partnership purchased a parcel of
land in San Antonio, Texas for $1,032,299. The land is
leased to Champps Americana, Inc. (Champps) under a Lease
Agreement with a primary term of 20 years and annual rental
payments of $83,451. Effective September 9, 1997, the
annual rent was increased to $128,156. Simultaneously with
the purchase of the land, the Partnership entered into a
Development Financing Agreement under which the Partnership
advanced funds to Champps for the construction of a Champps
Americana restaurant on the site. Initially, the
Partnership charged interest on the advances at a rate of
7.0%. Effective September 9, 1997, the interest rate was
increased to 10.75%. On December 23, 1997, after the
development was completed, the Lease Agreement was amended
to require annual rental payments of $296,023. Total
acquisition costs, including the cost of the land, were
$2,833,357.

On March 19, 1997, the Partnership purchased a Denny's
restaurant in Covington, Louisiana for $1,304,948. The
property is leased to Huntington Restaurants Group, Inc.
under a Lease Agreement with a primary term of 20 years and
annual rental payments of $141,243.

On April 21, 1997, the Partnership purchased a 49.6%
interest in a parcel of land in Schaumburg, Illinois for
$876,387. The land is leased to Champps under a Lease
Agreement with a primary term of 20 years and annual rental
payments of $66,906. Effective October 17, 1997, the annual
rent was increased to $102,749. Simultaneously with the
purchase of the land, the Partnership entered into a
Development Financing Agreement under which the Partnership
advanced funds to Champps for the construction of a Champps
Americana restaurant on the site. Initially, the
Partnership charged interest on the advances at a rate of
7.0%. Effective October 17, 1997, the interest rate was
increased to 10.75%. On December 31, 1997, after the
development was completed, the Lease Agreement was amended
to require annual rental payments of $236,479. The
Partnership's share of the total acquisition costs,
including the cost of the land, was $2,256,462.

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

(4) Investments in Real Estate - (Continued)

On July 8, 1997, the Partnership purchased a parcel of land
in Livonia, Michigan for $1,074,384. The land is leased to
Champps under a Lease Agreement with a primary term of 20
years and annual rental payments of $75,207. Effective
January 3, 1998, the annual rent was increased to $115,496.
Simultaneously with the purchase of the land, the
Partnership entered into a Development Financing Agreement
under which the Partnership advanced funds to Champps for
the construction of a Champps Americana restaurant on the
site. Initially, the Partnership charged interest on the
advances at a rate of 7.0%. Effective January 3, 1998, the
interest rate was increased to 10.75%. On May 19, 1998,
after the development was completed, the Lease Agreement was
amended to require annual rental payments of $429,135.
Total acquisition costs, including the cost of the land,
were $4,150,061.

On August 28, 1998, the Partnership purchased a 25% interest
in a parcel of land in Centerville, Ohio for $462,747. The
land is leased to Americana Dining Corporation (ADC) under a
Lease Agreement with a primary term of 20 years and annual
rental payments of $32,392. Simultaneously with the
purchase of the land, the Partnership entered into a
Development Financing Agreement under which the Partnership
will advance funds to ADC for the construction of a Champps
Americana restaurant on the site. Through December 31,
1998, the Partnership had advanced $289,014 for the
construction of the property and was charging interest on
the advances at a rate of 7%. Effective December 25, 1998,
the interest rate was increased to 10.5%. On January 27,
1999, after the development was completed, the Lease
Agreement was amended to require annual rental payments of
$101,365. The Partnership's share of the total acquisition
costs, including the cost of the land, was approximately
$984,500.

Through December 31, 1998, the Partnership sold 40.7615% of
its interest in the Champps Americana restaurant in
Columbus, Ohio, in six separate transactions to unrelated
third parties. The Partnership received total net sale
proceeds of $1,383,508 which resulted in a total net gain of
$341,928. The total cost and related accumulated
depreciation of the interests sold was $1,087,502 and
$45,922, respectively. For the years ended December 31,
1998 and 1997, the net gain was $235,377 and $106,551,
respectively.

During 1998 and 1997, the Partnership distributed net sale
proceeds of $411,231 and $352,009 to the Limited and General
Partners as part of their regular quarterly distributions
which represented a return of capital of $17.09 and $14.57
per Limited Partnership Unit, respectively. The remaining
net sale proceeds were reinvested in additional property.

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

(4) Investments in Real Estate - (Continued)

The Partnership has incurred net costs of $433,447 relating
to the review of potential property acquisitions. Of these
costs, $422,665 have been capitalized and allocated to land,
building and equipment. The remaining costs of $10,782 have
been capitalized and will be allocated to properties
acquired subsequent to December 31, 1998.

The minimum future rentals on the Leases for years
subsequent to December 31, 1998 are as follows:

1999 $ 1,845,028
2000 1,849,070
2001 1,853,185
2002 1,857,374
2003 1,861,638
Thereafter 24,968,567
-----------
$34,234,862
===========

There were no contingent rents recognized in 1998 or 1997.

(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:

1998 1997
Tenants Industry

Champps Americana Group Restaurant $ 949,723 $ 357,559
Garden Ridge, L.P. Retail 383,973 383,973
Huntington Restaurants
Group, Inc. Restaurant N/A 110,868
---------- ----------

Aggregate rent revenue of major tenants $1,333,696 $ 852,400
========== ==========

Aggregate rent revenue of major tenants as
a percentage of total rent revenue 78% 85%
========== ==========

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

(6) Partners' Capital -

Cash distributions of $19,091 and $17,788 were made to the
General Partners and $1,890,001 and $1,761,087 were made to
the Limited Partners for the years ended December 31, 1998
and 1997, respectively. The Limited Partners' distributions
represent $79.32 and $73.62 per Limited Partnership Unit
outstanding using 23,829 and 23,921 weighted average Units
in 1998 and 1997, respectively. The distributions represent
$53.36 and $11.59 per Unit of Net Income and $25.96 and
$62.03 per Unit of return of contributed capital in 1998 and
1997, respectively.

As part of the Limited Partner distributions discussed
above, the Partnership distributed $407,119 and $348,489 of
proceeds from property sales in 1998 and 1997, respectively.

Distributions of Net Cash Flow to the General Partners
during 1998 and 1997 were subordinated to the Limited
Partners as required in the Partnership Agreement. As a
result, 99% of distributions and income were allocated to
the Limited Partners and 1% to the General Partners.

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 is not obligated
to purchase in any year more than 5% of the number of Units
outstanding at the beginning of the 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 1998, the Partnership did not redeem any Units from
the Limited Partners. In 1997, three Limited Partners
redeemed a total of 171.1 Partnership Units for $154,021 in
accordance with the Partnership Agreement. The Partnership
acquired these Units using Net Cash Flow from operations.
The redemptions increase the remaining Limited Partners'
ownership interest in the Partnership.

After the effect of redemptions, the Adjusted Capital
Contribution, as defined in the Partnership Agreement, is
$1,007.18 per original $1,000 invested.

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

(7) 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:

1998 1997

Net Income for Financial
Reporting Purposes $ 1,284,428 $ 439,239

Depreciation for Tax Purposes
Under Depreciation for Financial
Reporting Purposes 122,145 74,859

Amortization of Start-Up and
Organization Costs (67,172) (50,373)

Real Estate Impairment Loss
Not Recognized for Tax Purposes 0 580,200

Gain on Sale of Real Estate
for Tax Purposes Under Gain
for Financial Reporting Purposes (5,937) (3,952)
----------- -----------
Taxable Income to Partners $ 1,333,464 $ 1,039,973
=========== ===========

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

(7) Income Taxes - (Continued)

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:

1998 1997

Partners' Capital for
Financial Reporting Purposes $17,823,287 $18,447,951

Adjusted Tax Basis of Investments
in Real Estate Over Net Investments
in Real Estate for Financial
Reporting Purposes 814,732 698,524

Capitalized Start-Up Costs
Under Section 195 329,865 329,865

Amortization of Start-Up and
Organization Costs (130,803) (63,631)

Organization and Syndication Costs
Treated as Reduction of Capital
for Financial Reporting Purposes 3,214,043 3,214,043
----------- -----------
Partners' Capital for
Tax Reporting Purposes $22,051,124 $22,626,752
=========== ===========

AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998 AND 1997

(8) Fair Value of Financial Instruments -

The estimated fair values of the financial instruments, none
of which are held for trading purposes, for the years ended
December 31:

1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value

Cash $ 195 $ 195 $ 188 $ 188
Money Market Funds 557,451 557,451 267,421 267,421
Commercial Paper
(held to maturity) 0 0 2,239,181 2,239,181
---------- ---------- ---------- ----------
Total Cash and
Cash Equivalents $ 557,646 $ 557,646 $2,506,790 $2,506,790
========== ========== ========== ==========

The amortized cost basis of the commercial paper is not
materially different from its carrying amount or fair value.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

The registrant is a limited partnership and has no
officers, directors, or direct employees. The General Partners
of the registrant are Robert P. Johnson and AFM. 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 director and officers
of AFM are as follows:

Robert P. Johnson, age 54, is Chief Executive Officer,
President and 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, 1999. From 1970 to
the present, he had been employed exclusively in the investment
industry, specializing in tax-advantaged 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. (formerly AEI Incorporated), which is registered
with the Securities and Exchange Commission as a securities
broker-dealer, is a member of the National Association of
Securities Dealers, Inc. (NASD) 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 seventeen other limited
partnerships.

Mark E. Larson, age 46, is Executive Vice President,
Secretary, Treasurer and Chief Financial Officer and has held
these positions since the formation of AFM in August, 1994, and
has been elected to continue in these positions until December,
1999. Mr. Larson has been employed by AEI Fund Management, Inc.
and affiliated entities since 1985. From 1979 to 1985, Mr.
Larson was with Apache Corporation as manager of Program
Accounting responsible for the accounting and reports for
approximately 46 public partnerships. Mr. Larson is responsible
for supervising the accounting functions of AFM and the
registrant.

ITEM 10. 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 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 and management services.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.

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, 1999:

Name and Address Number of Percent
of Beneficial Owner Units Held of Class

AEI Fund Management XXI, Inc. 0 0%
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101

Robert P. Johnson 0 0%
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101

Mark E. Larson 0 0%
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101

The General Partners know of no holders of more than 5% of the
outstanding Units.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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.

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, 1998.

Person or Entity Amount Incurred From
Receiving Form and Method Inception (August 31, 1994)
Compensation of Compensation To December 31, 1998

AEI Securities, Inc. Selling Commissions equal to 8% $2,400,000
of 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 $ 433,447
Affiliates Acquisition Expenses

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(Continued)

Person or Entity Amount Incurred From
Receiving Form and Method Inception (August 31, 1994)
Compensation of Compensation To December 31, 1998

General Partners 1% of Net Cash Flow in any fiscal $ 48,780
year 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.

General Partners and Reimbursement at Cost for all $ 874,116
Affiliates Administrative Expenses attributable
to the Fund, including all expenses
related to management and disposition
of the Fund's properties and all other
transfer agency, reporting, partner
relations and other administrative
functions.

General Partners 1% of distributions of Net Proceeds $ 7,632
of 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.

The limitations included in the Partnership Agreement
require that the cumulative reimbursements to the General
Partners and their affiliates for administrative expenses not
allowed under the NASAA Guidelines ("Guidelines") will not exceed
the sum of (i) the front-end fees allowed by the Guidelines less
the front-end fees paid, (ii) the cumulative property management
fees allowed but not paid, (iii) any real estate commission
allowed under the Guidelines, and (iv) 10% of Net Cash Flow less
the Net Cash Flow actually distributed. The reimbursements not
allowed under the guidelines include a controlling person's
salary and fringe benefits, rent and depreciation. As of
December 31, 1998, the cumulative reimbursements to the General
Partners and their affiliates did not exceed these amounts.

PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A.

A. Exhibits -
Description

3.1 Certificate of Limited
Partnership (incorporated by reference to
Exhibit 3.1 of the registrant's
Registration Statement on Form SB-2 filed
with the Commission on October 10, 1994
[File No. 33-85076C]).

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued)

A. Exhibits -
Description

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 with the
Commission on January 20, 1995 [File No. 33-
85076C]).

10.1 Net Lease Agreement dated
May 31, 1995, between the Partnership and
RTM Gulf Coast, Inc., relating to the
property at 2719 Zelda Road, Montgomery,
Alabama (incorporated by reference to
Exhibit A of Form 8-K filed with the
Commission on June 14, 1995).

10.2 Net Lease Agreement dated
August 2, 1995, between TKC X, LLC and
Garden Ridge, Inc. relating to the property
at 11415 Carolina Place Parkway, Pineville,
North Carolina (incorporated by reference
to Exhibit 10.1 of Form 8-K filed with the
Commission on April 10, 1996).

10.3 First Amendment to Lease
Agreement dated March 1, 1996 between TKC
X, LLC and Garden Ridge, L.P. relating to
the property at 11415 Carolina Place
Parkway, Pineville, North Carolina
(incorporated by reference to Exhibit 10.2
of Form 8-K filed with the Commission on
April 10, 1996).

10.4 Assignment and Assumption of
Lease dated March 28, 1996 between the
Partnership, AEI Net Lease Income & Growth
Fund XIX Limited Partnership, AEI Net Lease
Income & Growth Fund XX Limited
Partnership, and TKC X, LLC relating to the
property at 11415 Carolina Place Parkway,
Pineville, North Carolina (incorporated by
reference to Exhibit 10.3 of Form 8-K filed
with the Commission on April 10, 1996).

10.5 Net Lease Agreement dated
August 29, 1996 between the Partnership,
AEI Real Estate Fund XVIII Limited
Partnership and Americana Dining
Corporation relating to the property at 161
E. Campus View Boulevard, Columbus, Ohio
(incorporated by reference to Exhibit 10.3
of Form 8-K filed with the Commission on
September 12, 1996).

10.6 Surrender and Termination of
Lease Agreement dated November 22, 1996
between the Partnership, AEI Net Lease
Income & Growth Fund XIX Limited
Partnership, AEI Net Lease Income & Growth
Fund XX Limited Partnership and The
Musicland Group, Inc. relating to the
property at 7370 W. 153rd Street, Apple
Valley, Minnesota (incorporated by
reference to Exhibit 10.19 of Form 10-KSB
filed with the Commission on March 6,
1997).

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued)

A. Exhibits -
Description

10.7 Net Lease Agreement dated
March 14, 1997 between the Partnership and
Champps Entertainment of Texas, Inc.
relating to the property at 11440
Interstate Highway 10, San Antonio, Texas
(incorporated by reference to Exhibit 10.2
of Form 8-K filed with the Commission March
25, 1997).

10.8 Net Lease Agreement dated
March 19, 1997 between the Partnership and
Huntington Restaurants Group, Inc. relating
to the property at 720 North Highway 190,
Covington, Louisiana (incorporated by
reference to Exhibit 10.6 of Form 8-K filed
with the Commission March 25, 1997).

10.9 Development Financing
Agreement dated April 21, 1997 between the
Partnership, AEI Net Lease Income & Growth
Fund XX Limited Partnership, Net Lease
Income & Growth Fund 84-A Limited
Partnership and Champps Americana, Inc.
relating to the property at 955 Golf Road,
Schaumburg, Illinois (incorporated by
reference to Exhibit 10.1 of Form 10-QSB
filed with the Commission on May 13, 1997).

10.10 Net Lease Agreement dated April
21, 1997 between the Partnership, AEI Net
Lease Income & Growth Fund XX Limited
Partnership, Net Lease Income & Growth Fund
84-A Limited Partnership and Champps
Americana, Inc. relating to the property at
955 Golf Road, Schaumburg, Illinois
(incorporated by reference to Exhibit 10.2
of Form 10-QSB filed with the Commission on
May 13, 1997).

10.11 Development Financing
Agreement dated July 8, 1997 between the
Partnership and Champps Americana, Inc.
relating to the property at 19470 Haggerty
Road, Livonia, Michigan (incorporated by
reference to Exhibit 10.1 of Form 10-QSB
filed with the Commission on August 5,
1997).

10.12 Net Lease Agreement
dated July 8, 1997 between the Partnership
and Champps Americana, Inc. relating to the
property at 19470 Haggerty Road, Livonia,
Michigan (incorporated by reference to
Exhibit 10.2 of Form 10-QSB filed with the
Commission on August 5, 1997).

10.13 Net Lease Agreement
dated July 31, 1997 between the Partnership
and Caribou Coffee Company, Inc. relating
to the property at East Boulevard and
Garden Terrace, Charlotte, North Carolina
(incorporated by reference to Exhibit 10.3
of Form 10-QSB filed with the Commission on
August 5, 1997).

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued)

A. Exhibits -
Description

10.14 Purchase Agreement
dated September 12, 1997 between the
Partnership and the Ainslie Living Trust
relating to the property at 161 E. Campus
View Boulevard, Columbus, Ohio
(incorporated by reference to Exhibit 10.21
of Form 10-KSB filed with the Commission on
March 16, 1998).

10.15 Purchase Agreement
dated September 16, 1997 between the
Partnership and Richard J. Abbott and
Marjory T. Abbott relating to the property
at 161 E. Campus View Boulevard, Columbus,
Ohio (incorporated by reference to Exhibit
10.1 of Form 10-QSB filed with the
Commission on November 4, 1997).

10.16 Purchase Agreement
dated December 15, 1997 between the
Partnership and James Edward Amend relating
to the property at 161 E. Campus View
Boulevard, Columbus, Ohio (incorporated by
reference to Exhibit 10.23 of Form 10-KSB
filed with the Commission on March 16,
1998).

10.17 First Amendment to Net
Lease Agreement dated December 23, 1997
between the Partnership and Champps
Entertainment of Texas, Inc. relating to
the property at 11440 Interstate Highway
10, San Antonio, Texas (incorporated by
reference to Exhibit 10.2 of Form 8-K filed
with the Commission on January 5, 1998).

10.18 First Amendment to Net
Lease Agreement dated December 31, 1997
between the Partnership, AEI Net Lease
Income & Growth Fund XX Limited
Partnership, Net Lease Income & Growth Fund
84-A, and Champps Americana, Inc. relating
to the property at 955 Golf Road,
Schaumburg, Illinois (incorporated by
reference to Exhibit 10.2 of Form 8-K filed
with the Commission on January 5, 1998).

10.19 Purchase Agreement
dated February 13, 1998 between the
Partnership and Edward C. and Virginia L.
Thulin relating to the property at 161 E.
Campus View Boulevard, Columbus, Ohio
(incorporated by reference to Exhibit 10.26
of Form 10-KSB filed with the Commission on
March 16, 1998).

10.20 Purchase Agreement dated March
24, 1998 between the Partnership and Carlos
W. Appleton and Mary V. Appleton relating
to the property at 161 E. Campus View
Boulevard, Columbus, Ohio (incorporated by
reference to Exhibit 10.1 of Form 10-QSB
filed with the Commission on May 12, 1998).

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued)

A. Exhibits -
Description

10.21 First Amendment to Net Lease
Agreement dated May 19, 1998 between the
Partnership and Champps Americana, Inc.
relating to the property at 19470 Haggerty
Road, Livonia, Michigan (incorporated by
reference to Exhibit 10.2 of Form 8-K filed
with the Commission on June 16, 1998).

10.22 Purchase Agreement dated July 28,
1998 between the Partnership and Tall Pines
Farm Limited Partnership relating to the
property at 161 E. Campus View Boulevard,
Columbus, Ohio (incorporated by reference
to Exhibit 10.1 of Form 10-QSB filed with
the Commission on November 9, 1998).

10.23 Assignment of the Development
Financing Agreement and Net Lease Agreement
dated August 27, 1998 between the
Partnership, AEI Real Estate Fund XVII
Limited Partnership, AEI Real Estate Fund
XVIII Limited Partnership, AEI Income &
Growth Fund XXII Limited Partnership, and
Americana Dining Corporation relating to
the property at 7880 Washington Village
Drive, Centerville, Ohio (incorporated by
reference to Exhibit 10.2 of Form 10-QSB
filed with the Commission on November 9,
1998).

10.24 Development Financing Agreement
dated June 29, 1998 between AEI Income &
Growth Fund XXII Limited Partnership and
Americana Dining Corporation relating to
the property at 7880 Washington Village
Drive, Centerville, Ohio (incorporated by
reference to Exhibit 10.3 of Form 10-QSB
filed with the Commission on November 9,
1998).

10.25 Net Lease Agreement dated June
29, 1998 between AEI Income & Growth Fund
XXII Limited Partnership and Americana
Dining Corporation relating to the property
at 7880 Washington Village Drive,
Centerville, Ohio (incorporated by
reference to Exhibit 10.4 of Form 10-QSB
filed with the Commission on November 9,
1998).

10.26 First Amendment to Net Lease
Agreement dated January 27, 1999 between
the Partnership, AEI Real Estate Fund XVII
Limited Partnership, AEI Real Estate Fund
XVIII Limited Partnership, AEI Income &
Growth Fund XXII Limited Partnership and
Americana Dining Corp. relating to the
property at 7880 Washington Village Drive,
Centerville, Ohio.

27 Financial Data Schedule for
year ended December 31, 1998.

B. Reports on Form 8-K - None.

SIGNATURES

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

AEI INCOME & GROWTH FUND XXI
Limited Partnership
By: AEI Fund Management XXI, Inc.
Its Managing General Partner

March 12, 1999 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 12, 1999
Robert P. Johnson and Sole Director of Managing General
Partner

/s/ Mark E. Larson Executive Vice President, Treasurer March 12, 1999
Mark E. Larson and Chief Financial Officer
(Principal Accounting Officer)

FIRST AMENDMENT TO NET LEASE AGREEMENT

THIS AMENDMENT TO NET LEASE AGREEMENT, made and entered
into effective as of the 27th day of January, 1999, by and
between AEI Income & Growth Fund XXII Limited Partnership, a
Minnesota limited partnership whose corporate general partner is
AEI Fund Management XXI, Inc., a Minnesota corporation ("Fund
XXII"); AEI Income & Growth Fund XXI Limited Partnership, a
Minnesota limited partnership whose corporate general partner is
AEI Fund Management XXI, Inc., a Minnesota corporation ("Fund
XXI"); AEI Real Estate Fund XVIII Limited Partnership, a
Minnesota limited partnership whose corporate general partner is
AEI Fund Management XVIII, Inc., a Minnesota corporation ("Fund
XVIII"); and AEI Real Estate Fund XVII Limited Partnership, a
Minnesota limited partnership whose corporate general partner is
AEI Fund Management XVII, Inc., a Minnesota corporation ("Fund
XVII"), all of whose principal business address is 1300 Minnesota
World Trade Center, 30 East Seventh Street, St. Paul, Minnesota
55101 (hereinafter collectively referred to as "Lessor"), and
Americana Dining Corp. (hereinafter referred to as "Lessee"),
whose principal business address is One Corporate Place, 55
Ferncroft Road, Danvers, MA 01923;

WITNESSETH:

WHEREAS, Lessor is the fee owner of a certain parcel of real
property and improvements located at Washington Village Drive,
Dayton, Ohio, and legally described in Exhibit "A", which is
attached hereto and incorporated herein by reference; and

WHEREAS, Lessee has constructed the building and
improvements (together the "Building") on the real property
described in Exhibit "A", which Building is described in the
plans and specifications heretofore submitted to Lessor; and

WHEREAS, Lessee and Lessor Fund XXII have entered into that
certain Net Lease Agreement dated June 29, 1998 (the "Lease")
providing for the lease of said real property and Building (said
real property and Building hereinafter referred to as the "Leased
Premises"), from Lessor upon the terms and conditions therein
provided in the Lease;

Whereas, effective as of August 27, 1998, Lessor Fund XXII
transferred for good value: a 25% undivided interest as tenant in
common in the Leased Premises and the Lease to Fund XXI; a 38%
undivided interest as tenant in common in the Leased Premises
and the Lease to Fund XVIII; and a 14% undivided interest as
tenant in common in the Leased Premises and the Lease to Fund
XVII.

NOW, THEREFORE, in consideration of the Rents, terms,
covenants, conditions, and agreements hereinafter described to be
paid, kept, and performed by Lessee, including the completion of
the Building and other improvements constituting the Leased
Premises, Lessee and Lessor do hereby agree to amend the Lease as
follows:

1. Article 2(A) and (B) of the Lease shall henceforth read as
follows:

ARTICLE 2. TERM

(A) The term of this Lease ("Term") shall be Twenty (20)
consecutive "Lease Years", as hereinafter defined, commencing
January 27th, 1999, plus the period commencing June 29, 1998
("Occupancy Date") through January 31, 1999 with the contemplated
initial term hereof ending on January 31, 2019.

(B) The first full Lease Year shall commence on the date of
this First Amendment and continue through January 31, 2000.

2. Article 4(A) of the Lease shall henceforth read as follows:

ARTICLE 4. RENT PAYMENTS

(A) Annual Rent Payable for the first and second Lease
Years: Lessee shall pay to Lessor an annual Base Rent of
$405,460.65, which amount shall be payable in advance on the
first day of each month in equal monthly installments of
$7,771.33 to Fund XXII, $8,447.10 to Fund XXI, $12,839.59 to Fund
XVIII, and $ 4,730.37 to Fund XVII. If the first day of the
first full Lease Year of the Lease Term is not the first day of a
calendar month, then the monthly Rent payable for that partial
month shall be a prorated portion of the equal monthly
installment of Base Rent.

Article 35 is hereby deleted in its entirety; Lessor and Lessee
agree that the referenced Development Financing Agreement is
terminated in accordance with its terms. All other terms and
conditions of the Lease shall remain in full force and effect.

Lessee has accepted delivery of the Leased Premises and has
entered into occupancy thereof.

Lessee has fully inspected the Premises and found the same to be
as required by the Lease, in good order and repair, and all
conditions under the Lease to be performed by the Lessor have
been satisfied.

As of this date, the Lessor is not in default under any of the
terms, conditions, provisions or agreements of the Lease and the
undersigned has no offsets, claims or defenses against the Lessor
with respect to the Lease.

This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original and all of which shall
constitute one and the same instrument.

IN WITNESS WHEREOF, Lessor and Lessee have respectively signed
and sealed this Lease as of the day and year first above written.

LESSEE: Americana Dining Corp.,

By: /s/ Donna Depoian
Its: Secretary

Attest
/s/ Muriel Smith
Muriel Smith
Print Name

Attest
/s/ Cheryl N. Carver
Cheryl N Carver
Print Name

STATE OF MASSACHUSETTS)
)SS.
COUNTY OF ESSEX)

The foregoing instrument was acknowledged before me this
25th day of January 1999, by Donna Depoian, as Sectray of
Americana Dining Corp. on behalf of said company.

/S/ Donna M Luciano

Notary Public [notary seal]

[Remainder of page intentionally left blank]

LESSOR: AEI INCOME & GROWTH FUND XXII
LIMITED PARTNERSHIP

By: AEI Fund Management XXI, Inc.
Attest
/s/ Rick J Vitale By: /s/ Robert P Johnson
Rick J Vitale Robert P. Johnson, President
Print Name

Attest
/s/ Stacey R.E. Jones
Stacey R.E. Jones
Print Name

STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )

The foregoing instrument was acknowledged before me the 26th
day of January, 1999, by Robert P Johnson , the President of AEI
Fund Management XXI, Inc., a Minnesota corporation, corporate
general partner of AEI Income & Growth Fund XXII Limited
Partnership, on behalf of said limited partnership.

/s/ Barbara J Kochevar
Notary Public

[notary seal]

[Remainder of page intentionally left blank]

AEI INCOME & GROWTH FUND XXI
LIMITED PARTNERSHIP

By: AEI Fund Management XXI, Inc.
Attest
/s/ Rick J Vitale By: /s/ Robert P Johnson
Rick J Vitale Robert P. Johnson, President
Print Name

Attest
/s/ Stacey R.E. Jones
Stacey R.E. Jones
Print Name

STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )

The foregoing instrument was acknowledged before me the 26th
day of January, 1999, by Robert P Johnson , the President of AEI
Fund Management XXI, Inc., a Minnesota corporation, corporate
general partner of AEI Income & Growth Fund XXI Limited
Partnership, on behalf of said limited partnership.

[Remainder of page intentionally left blank]

AEI REAL ESTATE FUND XVIII
LIMITED PARTNERSHIP

By: AEI Fund Management XVIII, Inc.
Attest
/s/ Rick J Vitale By: /s/ Robert P Johnson
Rick J Vitale Robert P. Johnson, President
Print Name

Attest
/s/ Stacey R.E. Jones
Stacey R.E. Jones
Print Name

STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )

The foregoing instrument was acknowledged before me the 26th
day of January, 1999, by Robert P Johnson , the President of AEI
Fund Management XVIII, Inc., a Minnesota corporation, corporate
general partner of AEI Real Estate Fund XVIII Limited
Partnership, on behalf of said limited partnership.

/s/ Barbars J Kochevar
Notary Public

[Remainder of page intentionally left blank]

AEI REAL ESTATE FUND XVII
LIMITED PARTNERSHIP

By: AEI Fund Management XVII, Inc.
Attest
/s/ Rick J Vitale By: /s/ Robert P Johnson
Rick J Vitale Robert P. Johnson, President
Print Name

Attest
/s/ Stacey R.E. Jones
Stacey R.E. Jones
Print Name

STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )

The foregoing instrument was acknowledged before me the 26th
day of January, 1999, by Robert P Johnson , the President of AEI
Fund Management XVII, Inc., a Minnesota corporation, corporate
general partner of AEI Real Estate Fund XVII Limited Partnership,
on behalf of said limited partnership.

/s/ Barbara J Kochevar
Notary Public

[Remainder of page intentionally left blank]

LAWYERS TITLE INSURANCE CORPORATION

EXHIBIT A 2507DC

MF 94-676-303

Situate in the Township of Washington, County of Montgomery and
State of Ohio and being Lot Numbered Twelve (12) Washington
Village Park, Section 12, as recorded in Plat Book 155, page 50
of the plat records of Montgomery County, Ohio ("Lot 12").

Together with a perpetual, nonexclusive easement for vehicular
ingress and egress on, over and across a certain 1.061 acre area,
more or less known as Lot Numbered Thirteen (13) Washington
Village Pare, Section Twelve, as recorded in Plat Book 156, Page
50 of the Plat Records of Montgomery County, Ohio ("Lot 13"), a
private roadway presently known as Jdrexel Park Lane ("Roadway
Easement Area"), to provde ingress and egress between the
Premises and the public roadways presently know as Washington
Village Drive and Lyons Road.

<ARTICLE> 5
<CIK> 0000931755
<NAME> AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 557,646
<SECURITIES> 0
<RECEIVABLES> 16,052
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 573,698
<PP&E> 18,571,701
<DEPRECIATION> (816,805)
<TOTAL-ASSETS> 18,328,594
<CURRENT-LIABILITIES> 505,307
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,823,287
<TOTAL-LIABILITY-AND-EQUITY> 18,328,594
<SALES> 0
<TOTAL-REVENUES> 1,854,751
<CGS> 0
<TOTAL-COSTS> 805,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,284,428
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,284,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,284,428
<EPS-PRIMARY> 53.36
<EPS-DILUTED> 53.36

</TABLE>