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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



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(Mark One)



| | x |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| | - |  | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2004 or



| |  ̈ |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| | - |  | ----------------------------------------------------------------------------------------



For the transition period from
to



Commission file number 0-30287



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WELLS REAL ESTATE FUND XII, L.P.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Georgia                                                        |  | 58-2438242                          
|(State of other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|6200 The Corners Parkway, Norcross, Georgia                    |  | 30092-3365                          
|(Address of principal executive offices)                       |  | (Zip Code)                          
|                                                               | 
|Registrants telephone number, including area code             |  | (770) 449-7800                      



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(Former name, former address and former fiscal year, if changed since last report)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).



Yes ̈No  x



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS



Certain statements contained in this Form 10-Q of Wells Real Estate Fund XII, L.P. (the
Partnership) other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include, in
particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated.
Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward looking statements can generally be identified by our use of forward looking terminology such as may, will,
expect, intend, anticipate, estimate, believe, continue, or other similar words. Specifically, among others, we consider statements concerning projections of future operating
results and cash flows, our ability to meet future obligations, and the amount and timing of future distributions to limited partners to be forward-looking statements.



Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date that this report is
filed with the Securities and Exchange Commission. Neither the Partnership nor the general partners make any representations or warranties (expressed or implied) about the accuracy of any such forward-looking statements. Actual results could differ
materially from any forward-looking statements contained in this Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



Any such forward-looking statements are subject to known and unknown risks, uncertainties and
other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that
our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations; provide distributions to limited partners; and maintain the value of our real
estate properties, may be significantly hindered. Some of the risks and uncertainties, although not all risks and uncertainties, which could cause actual results to differ materially from those presented in certain forward-looking statements follow:



General economic risks



| |  |  | Adverse changes in general or local economic conditions; and
| | - |  | ------------------------------------------------------------



| |  |  | Adverse economic conditions affecting the particular industry of one or more tenants in properties owned by our joint ventures.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



Real estate risks inherent in properties owned through joint ventures



| |  |  | Ability to achieve appropriate occupancy levels resulting in sufficient rental amounts;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Supply of or demand for similar or competing rentable space, which may adversely impact retaining or obtaining new tenants upon lease expiration at acceptable rental amounts;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Tenant ability or willingness to satisfy obligations relating to our existing lease agreements;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | Potential need to fund tenant improvements, lease-up costs, or other capital expenditures out of operating cash flow;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | Increases in property operating expenses, including property taxes, insurance, and other costs not recoverable from tenants;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



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| |  |  | Ability to secure adequate insurance at reasonable and appropriate rates to avoid uninsured losses or losses in excess of insured amounts;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Discovery of previously undetected environmentally hazardous or other undetected adverse conditions;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | Unexpected costs of capital expenditures related to tenant build-out projects or other unforeseen capital expenditures; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | Ability to sell a property when desirable at an acceptable return, including the ability of the purchaser to satisfy any and all closing conditions.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



Other operational risks



| |  |  | Dependency on Wells Capital, Inc. (Wells Capital), the corporate general partner of one of our General Partners, its key personnel, and its affiliates for various
administrative services;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Wells Capitals ability to attract and retain high-quality personnel who can provide acceptable service levels to us and generate economies of scale for us over time;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increases in our administrative operating expenses, including increased expenses associated with operating as a public company in the current regulatory environment;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in governmental, tax, real estate, environmental, and zoning laws and regulations and the related costs of compliance;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ability to demonstrate compliance with any governmental, tax, real estate, environmental, and zoning law or regulation in the event that any such position is questioned by the
respective authority; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Actions of our joint venture partners including potential bankruptcy, business interests differing from ours, or other actions that may adversely impact the operations of joint
ventures.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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WELLS REAL ESTATE FUND XII, L.P.



TABLE OF CONTENTS



|         |  |                       |  |                                                                                                                           |  |         
|-------- |  | --------------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                       |  |                                                                                                                           |  | Page No.
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                                                          
|         |  |                       | 
|         |  | Item 1                |  | Financial Statements                                                                                                      |  |         
|         |  |                       | 
|         |  |                       |  | Balance SheetsSeptember 30, 2004 (unaudited) and December 31, 2003                                                       |  | 5       
|         |  |                       | 
|         |  |                       |  | Statements of Operations for the Three and Nine Months Ended September 30, 2004 (unaudited) and 2003 (unaudited)          |  | 6       
|         |  |                       | 
|         |  |                       |  | Statements of Partners Capital for the Year Ended December 31, 2003 and Nine Months Ended September 30, 2004 (unaudited) |  | 7       
|         |  |                       | 
|         |  |                       |  | Statements of Cash Flows for the Nine Months Ended September 30, 2004 (unaudited) and 2003 (unaudited)                    |  | 8       
|         |  |                       | 
|         |  |                       |  | Condensed Notes to Financial Statements (unaudited)                                                                       |  | 9       
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                     |  | 13      
|         |  |                       | 
|         |  | Item 3                |  | Quantitative and Qualitative Disclosures about Market Risks                                                               |  | 20      
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                   |  | 20      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  | 21                                                                                                                       



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WELLS REAL ESTATE FUND XII, L.P.



BALANCE SHEETS



ASSETS



|                                                                                                                      |  |                                |            |                  |   |           
|--------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ---------- | ---------------- | - | ----------
|                                                                                                                      |  | (unaudited) September 30, 2004 |            | December 31,2003
|Investments in joint ventures                                                                                         |  | $                              | 27,269,647 |                  | $ | 27,894,505
|Cash and cash equivalents                                                                                             |  |                                | 169,735    |                  |   | 14,922    
|Due from joint ventures                                                                                               |  |                                | 545,841    |                  |   | 658,908   
|Accounts receivable                                                                                                   |  |                                | 0          |                  |   | 1,377     
|                                                                                                                      |  |                                |            |                  |   |           
|Total assets                                                                                                          |  | $                              | 27,985,223 |                  | $ | 28,569,712
|                                                                                                                      |  |                                |            |                  |   |           
|                                                                                                                     
|LIABILITIES AND PARTNERS CAPITAL                                                                                    
|Liabilities:                                                                                                          |  |                                |            |                  |   |           
|Accounts payable and accrued expenses                                                                                 |  | $                              | 27,219     |                  | $ | 17,948    
|Partnership distributions payable                                                                                     |  |                                | 437,107    |                  |   | 660,161   
|                                                                                                                      |  |                                |            |                  |   |           
|Total liabilities                                                                                                     |  |                                | 464,326    |                  |   | 678,109   
|                                                                                                                      |  |                               
|Partners capital:                                                                                                    |  |                                |            |                  |   |           
|Limited partners:                                                                                                     |  |                                |            |                  |   |           
|Cash Preferred2,914,050 and 2,934,050 units outstanding as of September 30, 2004 and December 31, 2003, respectively |  |                                | 25,645,385 |                  |   | 25,536,652
|Tax Preferred647,069 and 627,069 units outstanding as of September 30, 2004 and December 31, 2003, respectively      |  |                                | 1,875,512  |                  |   | 2,354,951 
|General partners                                                                                                      |  |                                | 0          |                  |   | 0         
|                                                                                                                      |  |                                |            |                  |   |           
|Total partners capital                                                                                               |  |                                | 27,520,897 |                  |   | 27,891,603
|                                                                                                                      |  |                                |            |                  |   |           
|Total liabilities and partners capital                                                                               |  | $                              | 27,985,223 |                  | $ | 28,569,712
|                                                                                                                      |  |                                |            |                  |   |           



See accompanying notes.



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WELLS REAL ESTATE FUND XII, L.P.



STATEMENTS OF OPERATIONS

(unaudited)



|                                                                          |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|------------------------------------------------------------------------- |  | -------------------------------- | --------- | - | ------------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                                          |  | Three Months Ended September 30, |           |   | Nine Months Ended September 30, |  
|                                                                          |  | 2004                             |           |   | 2003                            |   |           | 2004 |  |   | 2003      |  
|EQUITY IN INCOME OF JOINT VENTURES (Note 2)                               |  | $                                | 433,713   |   |                                 | $ | 408,693   |      |  | $ | 1,285,021 |   |  | $ | 1,233,338 |  
|                                                                          |  |                                  |           |  
|EXPENSES:                                                                 |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|Partnership administration                                                |  |                                  | 43,374    |   |                                 |   | 17,656    |      |  |   | 126,124   |   |  |   | 132,967   |  
|Legal and accounting                                                      |  |                                  | 11,254    |   |                                 |   | 208       |      |  |   | 29,983    |   |  |   | 10,152    |  
|Other general and administrative                                          |  |                                  | 176       |   |                                 |   | 2,449     |      |  |   | 1,159     |   |  |   | 5,994     |  
|                                                                          |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|Total expenses                                                            |  |                                  | 54,804    |   |                                 |   | 20,313    |      |  |   | 157,266   |   |  |   | 149,113   |  
|                                                                          |  |                                  |           |  
|OTHER INCOME                                                              |  |                                  | 0         |   |                                 |   | 0         |      |  |   | 115       |   |  |   | 262       |  
|                                                                          |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|NET INCOME                                                                |  | $                                | 378,909   |   |                                 | $ | 388,380   |      |  | $ | 1,127,870 |   |  | $ | 1,084,487 |  
|                                                                          |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|NET INCOME ALLOCATED TO CASH PREFERRED LIMITED PARTNERS                   |  | $                                | 549,313   |   |                                 | $ | 666,606   |      |  | $ | 1,854,848 |   |  | $ | 1,919,081 |  
|                                                                          |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|NET LOSS ALLOCATED TO TAX PREFERRED LIMITED PARTNERS                      |  | $                                | (170,404  | ) |                                 | $ | (278,226  | )    |  | $ | (726,978  | ) |  | $ | (834,594  | )
|                                                                          |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|NET INCOME (LOSS) PER WEIGHTED-AVERAGE LIMITED PARTNER UNIT:              |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|CASH PREFERRED                                                            |  | $                                | 0.19      |   |                                 | $ | 0.23      |      |  | $ | 0.63      |   |  | $ | 0.67      |  
|                                                                          |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|TAX PREFERRED                                                             |  | $                                | (0.26     | ) |                                 | $ | (0.40     | )    |  | $ | (1.14     | ) |  | $ | (1.19     | )
|                                                                          |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|DISTRIBUTION OF OPERATING CASH PER WEIGHTED-AVERAGE LIMITED PARTNER UNIT: |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|CASH PREFERRED                                                            |  | $                                | 0.15      |   |                                 | $ | 0.23      |      |  | $ | 0.51      |   |  | $ | 0.65      |  
|                                                                          |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|TAX PREFERRED                                                             |  | $                                | 0.00      |   |                                 | $ | 0.00      |      |  | $ | 0.00      |   |  | $ | 0.00      |  
|                                                                          |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|WEIGHTED-AVERAGE LIMITED PARTNER UNITS OUTSTANDING:                       |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|CASH PREFERRED                                                            |  |                                  | 2,914,050 |   |                                 |   | 2,869,896 |      |  |   | 2,924,050 |   |  |   | 2,862,229 |  
|                                                                          |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|TAX PREFERRED                                                             |  |                                  | 647,069   |   |                                 |   | 691,223   |      |  |   | 637,069   |   |  |   | 698,890   |  
|                                                                          |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  



See accompanying notes.



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WELLS REAL ESTATE FUND XII, L.P.



STATEMENTS OF PARTNERS CAPITAL



FOR THE
YEAR ENDED DECEMBER 31, 2003 AND

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 (unaudited)



|                                     |  |                  |   |  |                  |            |                         |       |         |   |         |   |            |   |  |   |   |  |   |            |  
|------------------------------------ |  | ---------------- | - |  | ---------------- | ---------- | ----------------------- | ----- | ------- | - | ------- | - | ---------- | - |  | - | - |  | - | ---------- | -
|                                     |  | Limited Partners |   |  | General Partners |            | Total Partners Capital |      
|                                     |  | Cash Preferred   |   |  | Tax Preferred    |            |                         |      
|                                     |  | Units            |   |  | Amounts          |            |                         | Units |         |   | Amounts |   |            |  
|BALANCE, December 31, 2002           |  | 2,856,396        |   |  | $                | 25,158,289 |                         |       | 704,723 |   |         | $ | 3,800,870  |   |  | $ | 0 |  | $ | 28,959,159 |  
|                                     |  |                  |   |  |                  |           
|Net income (loss)                    |  | 0                |   |  |                  | 2,563,592  |                         |       | 0       |   |         |   | (1,112,820 | ) |  |   | 0 |  |   | 1,450,772  |  
|Distributions of operating cash flow |  | 0                |   |  |                  | (2,518,328 | )                       |       | 0       |   |         |   | 0          |   |  |   | 0 |  |   | (2,518,328 | )
|Tax preferred conversion elections   |  | 77,654           |   |  |                  | 333,099    |                         |       | (77,654 | ) |         |   | (333,099   | ) |  |   | 0 |  |   | 0          |  
|                                     |  |                  |   |  |                  |            |                         |       |         |   |         |   |            |   |  |   |   |  |   |            |  
|BALANCE at December 31, 2003         |  | 2,934,050        |   |  |                  | 25,536,652 |                         |       | 627,069 |   |         |   | 2,354,951  |   |  |   | 0 |  |   | 27,891,603 |  
|                                     |  |                  |   |  |                  |           
|Net income (loss)                    |  | 0                |   |  |                  | 1,854,848  |                         |       | 0       |   |         |   | (726,978   | ) |  |   | 0 |  |   | 1,127,870  |  
|Distributions of operating cash flow |  | 0                |   |  |                  | (1,498,576 | )                       |       | 0       |   |         |   | 0          |   |  |   | 0 |  |   | (1,498,576 | )
|Cash preferred conversion elections  |  | (30,000          | ) |  |                  | (286,259   | )                       |       | 30,000  |   |         |   | 286,259    |   |  |   | 0 |  |   | 0          |  
|Tax preferred conversion elections   |  | 10,000           |   |  |                  | 38,720     |                         |       | (10,000 | ) |         |   | (38,720    | ) |  |   | 0 |  |   | 0          |  
|                                     |  |                  |   |  |                  |            |                         |       |         |   |         |   |            |   |  |   |   |  |   |            |  
|BALANCE, September 30, 2004          |  | 2,914,050        |   |  | $                | 25,645,385 |                         |       | 647,069 |   |         | $ | 1,875,512  |   |  | $ | 0 |  | $ | 27,520,897 |  
|                                     |  |                  |   |  |                  |            |                         |       |         |   |         |   |            |   |  |   |   |  |   |            |  



See accompanying notes.



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WELLS REAL ESTATE FUND XII, L.P.



STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                  |  |                                 |            |   |      |   |            |  
|--------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                  |  | Nine Months Ended September 30, |           
|                                                                                  |  | 2004                            |            |   | 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                                 |            |   |      |   |            |  
|Net income                                                                        |  | $                               | 1,127,870  |   |      | $ | 1,084,487  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                 |            |   |      |   |            |  
|Equity in income of joint ventures                                                |  |                                 | (1,285,021 | ) |      |   | (1,233,338 | )
|Operating distributions received from joint ventures                              |  |                                 | 2,072,946  |   |      |   | 2,006,391  |  
|Changes in operating assets and liabilities:                                      |  |                                 |            |   |      |   |            |  
|Accounts receivable                                                               |  |                                 | 1,377      |   |      |   | 2,127      |  
|Accounts payable and accrued expenses                                             |  |                                 | 9,271      |   |      |   | (2,914     | )
|                                                                                  |  |                                 |            |   |      |   |            |  
|Total adjustments                                                                 |  |                                 | 798,573    |   |      |   | 772,266    |  
|                                                                                  |  |                                 |            |   |      |   |            |  
|Net cash provided by operating activities                                         |  |                                 | 1,926,443  |   |      |   | 1,856,753  |  
|                                                                                  |  |                                 |            |   |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                                 |            |   |      |   |            |  
|Investments in joint ventures                                                     |  |                                 | (50,000    | ) |      |   | 0          |  
|                                                                                  |  |                                 |            |   |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                                 |            |   |      |   |            |  
|Distributions paid to limited partners                                            |  |                                 | (1,721,630 | ) |      |   | (1,875,025 | )
|                                                                                  |  |                                 |            |   |      |   |            |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                              |  |                                 | 154,813    |   |      |   | (18,272    | )
|                                                                                  |  |                                
|CASH AND CASH EQUIVALENTS, beginning of period                                    |  |                                 | 14,922     |   |      |   | 30,471     |  
|                                                                                  |  |                                 |            |   |      |   |            |  
|CASH AND CASH EQUIVALENTS, end of period                                          |  | $                               | 169,735    |   |      | $ | 12,199     |  
|                                                                                  |  |                                 |            |   |      |   |            |  
|SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:           |  |                                 |            |   |      |   |            |  
|Partnership distributions payable                                                 |  | $                               | 437,107    |   |      | $ | 645,727    |  
|                                                                                  |  |                                 |            |   |      |   |            |  



See accompanying notes.



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WELLS REAL ESTATE FUND XII, L.P.



CONDENSED NOTES TO FINANCIAL STATEMENTS



SEPTEMBER 30, 2004 (unaudited)



|1. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------



|(a) |  | Organization and Business
|--- |  | -------------------------



Wells Real Estate Fund XII, L.P. (the Partnership) is a Georgia public limited partnership with Leo F. Wells, III and Wells Partners, L.P. (Wells
Partners), a Georgia nonpublic limited partnership, as the general partners (collectively, the General Partners). The Partnership was formed on September 15, 1998 for the purpose of acquiring, developing, constructing, owning,
operating, improving, leasing, and managing income-producing commercial properties for investment purposes. Upon subscription, limited partners elect to have their units treated as Cash Preferred Units or Tax Preferred Units. Thereafter, the limited
partners have the right to change their prior elections to have some or all of their units treated as Cash Preferred Units or Tax Preferred Units one time during each quarterly accounting period. The limited partners may vote to, among other things:
(a) amend the partnership agreement, subject to certain limitations; (b) change the business purpose or investment objectives of the Partnership; (c) remove a General Partner; (d) elect a new General Partner; (e) dissolve the Partnership; and (f)
approve a sale involving all or substantially all of the Partnerships assets, subject to certain limitations. The majority vote on any of the matters described above will bind the Partnership without the concurrence of the General Partners.
Each limited partnership unit has equal voting rights regardless of class.



On
March 22, 1999, the Partnership commenced a public offering of up to $70,000,000 of limited partnership units pursuant to a Registration Statement on filed Form S-11 under the Securities Act of 1933. The Partnership commenced active operations on
June 1, 1999, upon receiving and accepting subscriptions for 125,000 units. The offering was terminated on March 21, 2001, at which time the Partnership had sold 2,688,861 Cash Preferred Units and 872,258 Tax Preferred Units to 1,227 and 106 Cash
Preferred and Tax Preferred Limited Partners, respectively, for total limited partner Capital Contributions of $35,611,192. Limited partners have the right to change their prior elections to have some or all of their units treated as Cash Preferred
Units or Tax Preferred Units one time during each quarterly accounting period.



The Partnership owns indirect interests in all of its real estate assets through joint ventures with other entities affiliated with the General Partners. During the periods presented, the Partnership owned interests in the following joint
ventures (the Joint Ventures):



|                                                                              |  |                                                                                                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Joint Venture                                                                 |  | Joint Venture Partners                                                                                            |  | Properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|The Wells Fund XIFund XIIREIT Joint Venture (Fund XI-XII-REIT Associates) |  |    Wells Real Estate Fund XI, L.P.
   Wells Real Estate Fund XII, L.P.    Wells Operating Partnership, L.P.(1) |  | 1. 111 Southchase Boulevard (formerly known as the EYBL
CarTex Building) A two-story manufacturing and office building located in Fountain Inn, South Carolina 2. 20/20 Building (formerly known as the Sprint Building) A three-story office building located in Leawood, Kansas 3. Johnson Matthey Building(2) A one-story office building and warehouse located in Wayne, Pennsylvania 4. Gartner Building A two-story office building located in Ft. Myers,
Florida



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|                                                                           |  |                                                                               |  |                                                                                                                                                                                                                                                                                       
|-------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Joint Venture                                                              |  | Joint Venture Partners                                                        |  | Properties                                                                                                                                                                                                                                                                            
|Wells Fund XIIREIT Joint Venture Partnership (Fund XII-REIT Associates) |  |    Wells Real Estate Fund XII, L.P.
   Wells Operating Partnership, L.P.(1) |  | 5. Siemens Building A three-story office building located in Troy, Michigan 6. AT&T Oklahoma Building A one-story office building and a two-story office building located in Oklahoma City, Oklahoma 7. Comdata Building A three-story office building
located in Brentwood, Tennessee



|(1) |  | Wells Operating Partnership, L.P. is a Delaware
limited partnership with Wells Real Estate Investment Trust, Inc. (Wells REIT) serving as its General Partner; Wells REIT is a Maryland corporation that qualifies as a real estate investment trust.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The Johnson Matthey Building was sold in October
2004.
|--- |  | ------------------------------------------------------



Each of the aforementioned properties
was acquired on an all-cash basis. Approval by the Partnership as well as the other Joint Venture partners is required for any major decision or any action that would materially affect the Joint Ventures, or their real property investments.For further information regarding the Joint Ventures and foregoing properties, refer to the Partnerships Form 10-K for the year ended December 31, 2003.



|(b) |  | Basis of Presentation
|--- |  | ---------------------



The financial statements of the Partnership have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, including the
instructions to Form 10-Q and Article 10 of Regulation S-X, and in accordance with such rules and regulations, do not include all of the information and footnotes required by accounting principles generally accepted in the United States
(GAAP) for complete financial statements. In the opinion of the General Partners, the statements for the unaudited interim periods presented include all adjustments that are of a normal and recurring nature and necessary to fairly
present the results for these periods. Results for interim periods are not necessarily indicative of full-year results. For further information, refer to the financial statements and footnotes included in the Partnerships Form 10-K for the
year ended December 31, 2003.



|(c) |  | Allocations of Net Income, Net Loss, and Gain on Sale
|--- |  | -----------------------------------------------------



For purpose of determining allocations per the partnership agreement, net income is defined as Net Income recognized by the Partnership, excluding deductions for
depreciation, amortization, and cost recovery and the gain on the sale of assets. Net Income, as defined, of the Partnership is generally allocated each year in the same proportions that net cash from operations is distributed to the limited
partners holding Cash Preferred Units and the General Partners. To the extent the Partnerships Net Income in any year exceeds net cash from operations, it will be allocated 99% to the limited partners and 1% to the General Partners.



Net loss, depreciation, amortization, and cost recovery deductions for each
fiscal year will be allocated as follows: (a) 99% to the limited partners holding Tax Preferred Units and 1% to the General Partners until their capital accounts are reduced to zero; (b) then to any partners having a positive balance in their
respective capital account in an amount not to exceed such positive balance; and (c) thereafter to the General Partners.



Gain on the sale or exchange of the Partnerships properties will be allocated generally in the same manner that the net proceeds from such sale are distributed to
partners after the following allocations are made, if applicable: (a) allocations made pursuant to the qualified income offset provisions of the partnership agreement; (b) allocations to partners having negative capital accounts until all negative
capital accounts have been restored to zero; and (c) allocations to limited partners holding Tax Preferred Units in amounts equal to the deductions for depreciation, amortization, and cost recovery previously allocated to them with respect to the
specific partnership property sold, but not in excess of the amount of gain on sale recognized by the Partnership with respect to the sale of such property.



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|(d) |  | Distribution of Net Cash from Operations
|--- |  | ----------------------------------------



Net cash from operations, if available, is generally distributed quarterly to the limited partners as follows:



| |  |  | First, to all Cash Preferred limited partners until such limited partners have received distributions equal to a 10% per annum return on their respective net capital contributions,
as defined.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Second, to the General Partners until the General Partners have received distributions equal to 10% of the total cumulative distributions paid by the Partnership to date.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Third, to the Cash Preferred limited partners and the General Partners allocated on a basis of 90% and 10%, respectively.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



No distributions will be made to the limited partners holding Tax Preferred Units.



|(e) |  | Distribution of Sale Proceeds
|--- |  | -----------------------------



Upon the sale of properties, the net sale proceeds will be distributed in the following order:



| |  |  | In the event that the particular property sold is sold for a price less than the original property purchase price, to the limited partners holding Cash Preferred Units until such
limited partners have received an amount equal to the excess of the original property purchase price over the price for which the property was sold, limited to the amount of depreciation, amortization, and cost recovery deductions taken by the
limited partners holding Tax Preferred Units with respect to such property;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To limited partners holding units which at any time have been treated as Tax Preferred Units until such limited partners have received an amount necessary to equal the net cash
available for distribution received by the limited partners holding Cash Preferred Units on a per-unit basis;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To all limited partners on a per-unit basis until the limited partners have received 100% of their respective net capital contributions, as defined;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To all limited partners on a per-unit basis until such limited partners have received a cumulative 10% per annum return on their respective net capital contributions, as defined;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To limited partners on a per-unit basis until the limited partners have received an amount equal to their respective preferential limited partner return (defined as the sum of a 10%
per annum cumulative return on net capital contributions for all periods during which the units were treated as Cash Preferred Units and a 15% per annum cumulative return on net capital contributions for all periods during which the units were
treated as Tax Preferred Units);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To the General Partners until they have received 100% of their respective capital contributions, as defined;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | Then, if limited partners have received any excess limited partner distributions (defined as distributions to limited partners over the life of their investment in the Partnership
in excess of their net capital contributions, as defined, plus their preferential limited partner return), to the General Partners until they have received distributions equal to 20% of the sum of any such excess limited partner distributions plus
distributions made to the General Partners pursuant to this provision;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Thereafter, 80% to the limited partners on a per-unit basis and 20% to the General Partners.
| | - |  | --------------------------------------------------------------------------------------------



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|(f) |  | Reclassifications
|--- |  | -----------------



Certain prior year amounts have been reclassified to conform with the current year financial statement presentation.



|2. |  | INVESTMENTS IN JOINT VENTURES
|-- |  | -----------------------------



|(a) |  | Basis of Presentation
|--- |  | ---------------------



The Partnership owned interests in seven properties during the periods presented through its ownership in the Joint Ventures. The Partnership does not have control over
the operations of the Joint Ventures; however, it does exercise significant influence. Approval by the Partnership, as well as the other Joint Venture partners, is required for any major decision or any action that would materially affect the Joint
Ventures, or their real property investments.Accordingly, the Partnerships investments in the Joint Ventures are recorded using the equity method of accounting, whereby original investments are recorded at cost and subsequently
adjusted for contributions, distributions, and net income (loss) attributable to the Partnership. For further information regarding investments in the Joint Ventures, refer to the financial statements and footnotes included in the Partnerships
Form 10-K for the year ended December 31, 2003.



|(b) |  | Summary of Operations
|--- |  | ---------------------



The following information summarizes the operations of the Joint Ventures for the three and the nine months ended September 30, 2004 and 2003, respectively:



|                            |  |                                  |           |                                  |   |           |  |   |           |     |  |   |          
|--------------------------- |  | -------------------------------- | --------- | -------------------------------- | - | --------- |  | - | --------- | --- |  | - | ---------
|                            |  | Total Revenues                   |           | Net Income                      
|                            |  | Three Months Ended September 30, |           | Three Months Ended September 30,
|                            |  | 2004                             |           | 2003                             |   | 2004      |  |   | 2003     
|Fund XII-REIT Associates    |  | $                                | 1,580,370 |                                  | $ | 1,550,233 |  | $ | 941,094   | (1) |  | $ | 786,345  
|Fund XI-XII-REIT Associates |  |                                  | 436,060   |                                  |   | 722,984   |  |   | 60,470    | (1) |  |   | 321,444  
|                            |  |                                  |           |                                  |   |           |  |   |           |     |  |   |          
|                            |  | $                                | 2,016,430 |                                  | $ | 2,273,217 |  | $ | 1,001,564 |     |  | $ | 1,107,789
|                            |  |                                  |           |                                  |   |           |  |   |           |     |  |   |          
|                            |  |                                 
|                            |  | Total Revenues                   |           | Net Income                      
|                            |  | Nine Months EndedSeptember 30,   |           | Nine Months Ended September 30, 
|                            |  | 2004                             |           | 2003                             |   | 2004      |  |   | 2003     
|Fund XII-REIT Associates    |  | $                                | 4,705,481 |                                  | $ | 4,590,084 |  | $ | 2,524,888 | (1) |  | $ | 2,366,456
|Fund XI-XII-REIT Associates |  |                                  | 2,085,147 |                                  |   | 2,254,658 |  |   | 872,634   | (1) |  |   | 987,285  
|                            |  |                                  |           |                                  |   |           |  |   |           |     |  |   |          
|                            |  | $                                | 6,790,628 |                                  | $ | 6,844,742 |  | $ | 3,397,522 |     |  | $ | 3,353,741
|                            |  |                                  |           |                                  |   |           |  |   |           |     |  |   |          

|(1) |  | Effective July 1, 2004, the Joint Ventures extended the weighted-average composite useful
life for all building assets from 25 years to 40 years, which resulted in an increase to net income for the three and nine months ended September 30, 2004 of approximately $189,977 and $114,310 for Fund XII-REIT Associates and Fund XI-XII-REIT
Associates, respectively. Management believes that this change more appropriately reflects the estimated useful lives of real estate assets and is consistent with prevailing industry practice.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|3. |  | RELATED-PARTY TRANSACTIONS
|-- |  | --------------------------



|(a) |  | Management and Leasing Fees
|--- |  | ---------------------------



Wells Management Company, Inc. (Wells Management), an affiliate of the General Partners, receives compensation for the management and leasing of the
Partnerships properties owned through the Joint Ventures equal to the lesser of (a) of the gross revenues collected monthly, 2.5% of the gross revenues for management and 2% of the gross revenues for leasing (aggregate maximum of 4.5%) plus a
separate competitive fee for the one-time initial lease-up of newly constructed properties in an amount not to exceed the fee customarily charged in arms-length transactions by others rendering similar services in the same geographic area for
similar properties or (b) in the case of commercial properties which are leased on a long-term net basis (ten or more years), the maximum property management fee from such leases shall be 1% of the gross revenues generally paid over the life of the
leases except for a one-time initial leasing fee of 3% of the gross revenues on each lease payable over the first five full years of the original lease term. The Partnerships share of management and leasing fees and lease acquisition costs
incurred through the Joint Ventures was $33,582 and $37,922 for the three months ended September 30, 2004 and 2003, respectively, and $106,193 and $109,916 for the nine months ended September 30, 2004 and 2003, respectively.



|(b) |  | Administration Reimbursements
|--- |  | -----------------------------



Wells Capital, Inc. (Wells Capital), the corporate general partner of Wells Partners, one of our General Partners, and its affiliates perform certain
administrative services for the Partnership, such as accounting, property management and other partnership administration, and incur the related expenses. Such expenses are allocated among various other entities affiliated with the General Partners
(the Wells Real Estate Funds) based on time spent on each fund by individual administrative personnel. In the opinion of management, this allocation is a reasonable estimation of such expenses. The Partnership reimbursed Wells Capital
$22,131 and $13,521 for the three months ended September 30, 2004 and 2003, respectively, and $64,090 and $36,178 for the nine months ended September 30, 2004 and 2003, respectively, for these services and expenses.



|(c) |  | Conflicts of Interest
|--- |  | ---------------------



The General Partners are also general partners of other Wells Real Estate Funds. In addition, Wells Capital sponsors and advises two affiliated real estate investment
trusts (the REITs) in which it retains a residual interest. As such, there may exist conflicts of interest where the General Partners in their capacity as general partners of other Wells Real Estate Funds, or as the advisor to the REITs,
may be in competition with the Partnership in connection with property acquisitions or for tenants in similar geographic markets.



|4. |  | SUBSEQUENT EVENT
|-- |  | ----------------



On October 5, 2004, Fund XI-XII-REIT Associates sold the Johnson Matthey Building to the current sole tenant, Johnson Matthey, Inc., for a gross sale price of $10,000,000. As a result of the sale, the Partnership
received net sale proceeds of approximately $1,653,000, and recognized a gain of approximately $413,000. The gain recognized from the sale of the Johnson Matthey Building may be adjusted as additional information becomes available in subsequent
periods.



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



The following discussion and analysis should be read in conjunction with the accompanying financial statements and notes thereto.



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|(a) |  | Overview
|--- |  | --------



We believe that we will operate through the following five key life cycle phases. The time expected to be spent in each phase is dependent upon various economic, industry, market, and other internal/external factors.
Some overlap naturally exists in the transition from one phase to the next.



| |  |  | Fundraising phase
| | - |  | -----------------

The period during which the
Partnership is raising capital through the sale and issuance of limited partner units to the public;



| |  |  | Investing phase
| | - |  | ---------------

The period during which the
Partnership invests the capital raised during the fundraising phase, less upfront fees, into the acquisition of real estate assets;



| |  |  | Holding phase
| | - |  | -------------

The period during which real
estate assets are owned and operated by the Partnership during the initial lease terms of the tenants;



| |  |  | Positioning-for-sale phase
| | - |  | --------------------------

The period during
which the leases in place at the time of acquisition expire and, thus, the Partnership expends time, effort, and funds to re-lease such space to existing and/or new tenants. Following the holding phase, the Partnership continues to own and operate
the real estate assets, evaluate various options for disposition, and market the real estate assets for sale; and



| |  |  | Disposition and Liquidation phase
| | - |  | ---------------------------------

The period
during which the Partnership sells its real estate investments and distributes net sale proceeds to the partners.



Portfolio Overview



We are in the holding phase of our life cycle. We invested in the Joint Ventures, which originally acquired seven properties, of which one property, the Johnson Matthey
Building, was sold in October 2004. Four of the remaining properties in the Joint Ventures are 100% leased to tenants in the beginning to middle of their lease terms, and two properties, 111 Southchase Boulevard and the 20/20 Building, are both
vacant. Our focus at this time involves leasing the two vacant properties in the portfolio and maximizing operating performance in the remaining assets in the Joint Ventures in order to deliver what we believe will be the best overall performance
for our investors.



The Johnson Matthey Building was sold on October 5, 2004
for a sale price which was well above the original acquisition price. We have extended the lease to the Gartner Group, the sole tenant at the Gartner Building, for an additional five years through January 2013. This extension will provide additional
stability to the portfolio through its holding phase.



While the portfolio
maintains a relatively high overall occupancy level, currently, we face some near-term leasing issues that may impact future operating performance. In response to these leasing challenges, we are assisting the Joint Ventures to work aggressively
with existing and potential tenants within these markets in order to minimize the negative effects to the Partnership.



The third quarter 2004 operating distributions to the Cash Preferred unit holders were consistent with the second quarter distribution rate at 6.0% annualized of the
limited partners net capital contributions, as defined. Our General Partners anticipate that operating distributions will remain at a similar level in the near term as we fund our pro-rata share of future capital needs, including (i) potential
re-leasing costs for the Gartner Building, the 20/20 Building, and 111 Southchase Boulevard, and (ii) other capital improvements required at the Comdata Building and the 20/20 Building.



As of September 30, 2004, Cash Preferred unit holders have received cumulative net operating cash flow distributions of approximately $13.3
million since inception, which equates to approximately 46% of the 29.1 million originally invested.



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Limited partners who have held Tax Preferred units since inception have cumulatively received $3.58 per unit in allocated
tax losses through December 31, 2003. No operating distributions have been made to investors holding Tax Preferred units or to the General Partners.



Property Summary



Information related to the properties owned by the Joint Ventures follows:



| |  |  | 111 Southchase Boulevard in Greenville, South Carolina, is currently vacant. We are pursuing a number of market opportunities for this asset;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | As noted above, Sprint exercised an early termination option at the 20/20 Building, effective in May 2004. The tenant has vacated the property, and we have engaged our local leasing
team to begin the marketing effort;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Johnson Matthey Building was sold on October 5, 2004, and approximately $1,653,000 in net sale proceeds was allocated to the Partnership. Our General Partners are reviewing
potential capital costs for the Partnership to determine if all, or a portion, of these proceeds can be distributed in 2005;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Gartner Building is located in Fort Myers, Florida. During the third quarter, we completed a five-year extension of the Gartner lease for the entire building through January
2013;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Siemens Building is located in Detroit, Michigan. The property is 100% leased, and the lease extends to 2010;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | The AT&T  Oklahoma Building is located in Oklahoma City, Oklahoma. This asset is fully leased to two tenants, with lease expirations in 2008 and 2010; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Comdata Building in Brentwood, Tennessee, outside Nashville, is 100% leased through 2016.
| | - |  | ---------------------------------------------------------------------------------------------



As we continue to operate in the holding phase, we will continue to focus on re-leasing vacant space and space that may become vacant upon
the expiration of our current leases. In doing so, we will seek to maximize returns to the limited partners by negotiating long-term leases at market rental rates while attempting to minimize down time, re-leasing expenditures, ongoing property
level costs, and portfolio costs. As we move into the positioning-for-sale and disposition and liquidation phases, our attention will shift to locating suitable buyers, negotiating purchase-sale contracts that will attempt to maximize the total
return to the limited partners and minimize contingencies and our post-closing involvement with the buyer.



Industry Factors



Our results
continue to be impacted by a number of factors influencing the real estate industry.



General Economic and Real Estate Market Commentary



The U.S. economy appears to be on the road to recovery. The economy has shown signs of growth recently, as companies have recommenced making investments
in new employees. Job growth is the most significant demand driver for office markets. Market fundamentals are improving, and new office jobs are slowly being created. In general, the real estate office market lags behind the overall economic
recovery and, therefore, recovery is not expected until late 2004 or 2005 at the earliest, and then will vary by market.



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Overall, real estate market fundamentals are weak; however, capital continues to flow into this asset
class. The increase in capital drives the prices of many properties upward and investor returns downward. There is a significant pricing differential in the underwriting parameters of well-leased assets with credit tenants and those with either
existing vacancies or substantial near-term tenant rollover. Properties with long-term leases to strong credit tenants have seen an increase in value.



The office market has significant excess space. Vacancy levels are believed to have peaked, and are expected to trend downward moderately through the end
of 2004. There is some encouraging news in that construction continues to taper off and has come to a complete halt in many markets. As a result of the slowdown in new construction and the modest decline in sublease space, net absorption has turned
positive. Many industry professionals believe that office market fundamentals have bottomed-out; however, a recovery cannot be expected until job growth and corresponding demand for office space begin to significantly increase.



Wells Real Estate Funds with Current Vacancy or Near-term Rollover
Exposure



Real estate funds, such as the Partnership,
that invest in properties with current vacancies or near-term tenant rollover may face a challenging leasing environment. In connection with re-leasing vacant space, the properties within these funds will encounter lower market rental rates and
higher concession packages to tenants.



From a valuation
standpoint, it is generally preferable to either re-new an existing tenant lease or re-lease the property prior to marketing it for sale. Generally, buyers will heavily discount their offering price to compensate for the existing or pending
vacancies.



|(b) |  | Results of Operations
|--- |  | ---------------------



Equity in Income of Joint Ventures



Equity in income of Joint Ventures was $433,713 and $408,693 for the three months ended September 30, 2004 and 2003, respectively, and $1,285,021 and $1,233,338 for the
nine months ended September 30, 2004 and 2003, respectively. The 2004 increases resulted primarily from (i) a decline in depreciation due to expense changing estimated weighted-average composite useful life from 25 years to 40 years for all building
assets owned through the Joint Ventures effective July 1, 2004, (ii) recognition of an early lease termination fee from Sprint, the sole tenant of the 20/20 Building, effective in May 2004, partially offset by (iii) the decrease in operating income
generated by Fund XI-XII-REIT Associates, as the sole tenant of the 20/20 Building, Sprint, vacated the property in May 2004, (iv) foregone operating income due to the September 2003 sale of the Cort Building, and the following nonrecurring items:
(v) receipt of a property tax refund in 2003 from the taxing authority for 111 Southchase Boulevard due to a reassessment, and (vi) the recovery of receivables (previously reserved in 2002) from the sole tenant of the Gartner Building in the first
quarter of 2003.



Expenses of the Partnership



Our total expenses were $54,804 and $20,313 for the three months ended September 30, 2004
and 2003, respectively, and $157,266 and $149,113 for the nine months ended September 30, 2004 and 2003, respectively. The 2004 increases resulted primarily from an increase in administrative salaries, accounting fees, legal fees, and printing costs
associated with increased reporting and regulatory requirements. We anticipate additional increases related to implementing and adhering to such reporting and regulatory requirements going forward.



|(c) |  | Liquidity and Capital Resources
|--- |  | -------------------------------



Our operating strategy entails funding expenses related to the recurring operations of the properties owned by the Joint Ventures with rental revenues collected, and
assessing the amount of remaining cash flows that will be required to fund portfolio expenses, known re-leasing costs and other capital improvements. Any residual operating cash flows are distributed from the Joint Ventures to the Partnership, and
are considered available for distribution to the limited partners. Distributions are generally paid to the limited partners quarterly. As a result, the ongoing monitoring of our cash position is



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critical to ensuring that adequate liquidity and capital resources are available. Economic downturns in one or more of
our core markets could adversely impact the ability of the Joint Ventures tenants to honor lease payments and our ability to assist the Joint Ventures in re-leasing space on favorable terms as leases expire or space otherwise becomes vacant.
In the event of either situation, cash flows and, consequently, our ability to provide funding for capital needs would be adversely affected.



Short-Term Liquidity



During the nine months ended September 30, 2004 and 2003, we generated net operating cash flows, including distributions received from the Joint Ventures, of
approximately $1.9 million. Distributions from the Joint Ventures are generally representative of rental revenues and tenant reimbursements, less property operating expenses, management fees, general administrative expenses, and capital
expenditures. The majority of such operating cash flows were used to pay operating distributions to limited partners.



Our General Partners anticipate that operating distributions to limited partners will remain at a similar level in the near term as we fund our pro-rata share of (i)
re-leasing costs for the 20/20 Building and 111 Southchase Boulevard, both of which are vacant, (ii) cost associated with the early lease renewal at the Gartner Building, and (iii) capital improvements for the Comdata Building and the 20/20
Building.



We believe that the cash on hand and distributions due from the
Joint Ventures are sufficient to cover our working capital needs, including liabilities of approximately $91,000 as of September 30, 2004. During the remainder of 2004, our General Partners anticipate that the Partnership will fund its proportionate
share of capital expenditures noted above. We anticipate our future operating cash flow to decline by approximately $35,000 per quarter as a result of selling the Johnson Matthey Building on October 5, 2004.



Long-Term Liquidity



We expect that our future sources of capital will be primarily derived from operating cash
flows generated from the Joint Ventures and net proceeds generated from the selective and strategic sale of properties. Our future long-term liquidity requirements will include, but not be limited to, tenant improvements, renovations, expansions,
and other significant capital improvements necessary for properties owned through the Joint Ventures. We expect to continue to use substantially all future net cash flows from operations. Future cash flows from operating activities will be primarily
effected by distributions received from the Joint Ventures, which are dependent upon net operating income generated by the Joint Ventures properties, less reserves from known capital expenditures.



Capital Resources



The Partnership is an investment vehicle formed for the purpose of acquiring, owning, and
operating income-producing real properties, or investing in joint ventures formed for the same purpose, and has invested all of the partners original capital contributions. Thus, it is unlikely that we will acquire interests in any additional
properties or joint ventures. Historically, our investment strategy has generally involved acquiring properties that are pre-leased to creditworthy tenants on an all-cash basis through joint ventures with affiliated partnerships.



The Joint Ventures incur capital expenditures primarily in the form of building improvements
for the purpose of maintaining the quality of our properties, and tenant improvements for the purpose of readying its properties for re-leasing. As leases expire, we will work with the Joint Ventures to attempt to re-lease space to an existing
tenant or market the space to prospective new tenants. Generally, tenant improvements funded in connection with lease renewals require less capital than those funded in connection with new leases. However, external conditions, such as the supply of
and demand for comparable space available within a given market, drive capital costs as well as rental rates. Any capital or other expenditures not provided for by the operations of the Joint Ventures will be funded by the Partnership and respective
Joint Venture partners on a pro-rata basis.



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Operating cash flows, if available, are generally distributed from the Joint Ventures to the Partnership during the
second month following each calendar quarter-end. Our cash management policy typically includes first utilizing current period operating cash flow until depleted, at which point operating reserves are utilized to fund capital and other required
expenditures. In the event that current and prior period accumulated operating cash flows are insufficient to fund such costs, net property sale proceeds reserves, if available, would then be utilized. Approximately $1.7 million of additional net
sale proceeds are attributable to the Partnership as a result of the sale of the Johnson Matthey Building on October 5, 2004.



|(d) |  | Related-Party Transactions and Agreements
|--- |  | -----------------------------------------



We have entered into agreements with Wells Capital, the General Partner of Wells Partners, L.P., and its affiliates, whereby we pay certain fees or reimbursements to
Wells Capital or its affiliates (e.g., property management and leasing fees, administrative salary reimbursements, etc.). See Note 3 to our financial statements included in this report for a discussion of the various related-party transactions,
agreements, and fees.



|(e) |  | Inflation
|--- |  | ---------



The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. However, there are provisions in the majority of tenant leases, which would
protect the Partnership from the impact of inflation. These provisions include reimbursement billings for operating expense pass-through charges, real estate tax, and insurance reimbursements on a per-square-foot basis, or in some cases, annual
reimbursement of operating expenses above a certain per-square-foot allowance. There is no assurance, however, that we would be able to replace existing leases with new leases at higher base rental rates.



|(f) |  | Application of Critical Accounting Policies
|--- |  | -------------------------------------------



Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in
the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements
and the reported amounts of revenue and expenses during the reporting periods. If managements judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different
accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of
companies in similar businesses.



Below is a discussion of the accounting
policies used by the Partnership and the Joint Ventures, which are considered to be critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain.



Investment in Real Estate Assets



We will be required to make subjective assessments as to the useful lives of its depreciable
assets. We will consider the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income. We expect that the estimated useful lives of the Joint Ventures assets by class
will be as follows:



|                      |  |            
|--------------------- |  | -----------
|Buildings             |  | 40 years   
|Building improvements |  | 10-25 years
|Land improvements     |  | 20 years   
|Tenant improvements   |  | Lease term 



Effective July 1, 2004, the Joint
Ventures extended the weighted-average composite useful life for all building assets from 25 years to 40 years, which resulted in an increase to our net income for the three and nine months ended September 30, 2004. We believe that this change more
appropriately reflects the estimated useful lives of real estate assets and is consistent with prevailing industry practice. In the event that the Joint Ventures utilize inappropriate useful lives or methods of depreciation, our net income would be
misstated.



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Valuation of Real Estate Assets



We continually monitor events and changes in circumstances that could indicate that the carrying amounts of the real estate assets in which
we have an ownership interest, either directly or through investments in the Joint Ventures, may not be recoverable. When indicators of potential impairment are present which indicate that the carrying amounts of real estate assets may not be
recoverable, management assesses the recoverability of the real estate assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future operating cash flows expected from the use of the
asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, management adjusts the real estate assets to the fair value and recognizes an impairment loss. We have determined
that there has been no impairment in the carrying value of real estate assets held by the Partnership as of September 30, 2004.



Projections of expected future cash flows require management to estimate future market rental income amounts subsequent to the expiration of current lease agreements,
property operating expenses, discount rates, the number of months it takes to re-lease the property, and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in
an incorrect assessment of the propertys future cash flows and fair value, and could result in the overstatement of the carrying value of real estate assets held by the Joint Ventures and net income of the Partnership.



|(g) |  | Subsequent Event
|--- |  | ----------------



On October 5, 2004, Fund XI-XII-REIT Associates sold the Johnson Matthey Building to the current sole tenant, Johnson Matthey, Inc., for a gross sale price of $10,000,000. As a result of the sale, we received net sale
proceeds of approximately $1,653,000, and recognized a gain of approximately $413,000. The gain recognized from the sale of the Johnson Matthey Building may be adjusted as additional information becomes available in subsequent periods.



|(h) |  | Economic Dependency
|--- |  | -------------------



We have engaged Wells Management to supervise the management and leasing of properties owned through the Joint Ventures, and Wells Capital to perform certain administrative services, including accounting, shareholder
communications, and investor relations. As a result of these relationships, we are dependent upon Wells Management, Wells Capital, and other affiliates thereof to provide certain services that are essential to the Partnerships operations,
including asset management and property management services, asset acquisition and disposition services, and other administrative responsibilities under agreements, some of which have terms of one year or less.



Wells Management and Wells Capital are owned and controlled by Wells Real Estate Funds, Inc.
(WREF). The operations of Wells Capital and Wells Management represent substantially all of the business of WREF. Due to their common ownership and importance to WREF, we focus on the financial condition of WREF when assessing the
financial condition of Wells Capital and Wells Management. In the event that WREF were to become unable to meet its obligations as they become due, it may become necessary for the Partnership and/or the Joint Ventures to find alternative service
providers.



For the nine months ended September 30, 2004, WREFs operating
expenses exceeded operating revenues by approximately $11 million. During the first two quarters of 2004, WREF incurred net losses primarily due to the fact that revenues from acquisition, advisory, asset management services and property management
services were less than the costs to provide such services. In planning for 2004, WREF anticipated incurring short-term losses and, accordingly, has reserved funds adequate to cover such a shortfall. WREF anticipated generating lower revenues in
2004, as compared to 2003, primarily due to the fact that the majority of its revenues are earned as a percentage of sales of affiliated investment products. The sale of shares of Wells Real Estate Investment Trust II, Inc. (REIT II), an
investment product sponsored by



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##### Table of Contents

WREF whose offering commenced in December 2003, was anticipated to be significantly less in 2004 than the sale of shares
of Wells Real Estate Investment Trust, Inc. (REIT I), another investment product sponsored by WREF whose offering closed in December 2003. Consistent with sale of shares of REIT I during the beginning of its offering period, the sale of
shares of REIT II was anticipated to remain relatively low in the beginning of its offering period.



For the three months ended September 30, 2004, on a consolidated basis, WREFs operating revenues exceeded operating expenses by approximately $6 million. WREF is also expecting operating revenues to exceed
operating expenses during the fourth quarter of 2004. WREF believes that the cash availability provided by both funds on hand and borrowing capacity through various credit facilities will be adequate to meet its obligations.



|ITEM 3. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
|------- |  | -----------------------------------------------------------



Since the Partnership does not borrow any money, make any foreign investments, or invest in any market risk-sensitive instruments, it is not subject to risks relating to
interest rates, foreign current exchange rate fluctuations, or the other market risks contemplated by Item 305 of Regulation S-K.



|ITEM 4. |  | CONTROLS AND PROCEDURES
|------- |  | -----------------------



The Partnership carried out an evaluation, under the supervision and with the participation of management of Wells Capital, the corporate general partner of one of the
General Partners of the Partnership, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Partnerships disclosure controls and procedures as of the end of the period
covered by this report pursuant to the Securities Exchange Act of 1934. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Partnerships disclosure controls and procedures were
effective.



There were no significant changes in the Partnerships
internal controls or other factors that could significantly affect such controls subsequent to the date of their evaluation.



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##### Table of Contents

PART II.    OTHER INFORMATION



|ITEM 6. |  | EXHIBITS
|------- |  | --------



The Exhibits to this report are set forth on Exhibit Index to Third Quarter Form 10-Q attached hereto.



SIGNATURES



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



|                  |  |                                                                       
|----------------- |  | ----------------------------------------------------------------------
|                  |  | WELLS REAL ESTATE FUND XII, L.P.                                      
|                  |  | (Registrant)                                                          
|                  | 
|                  |  | By:    WELLS PARTNERS, L.P.                                           
|                  |  | (General Partner)                                                     
|                  | 
|                  |  | By:    WELLS CAPITAL, INC.                                            
|                  |  | (Corporate General Partner)                                           
|                  | 
|November 12, 2004 |  | /s/    LEO F. WELLS, III                                              
|                  |  | Leo F. Wells, III President                                           
|                 
|                  | 
|November 12, 2004 |  | /s/    DOUGLAS P.
WILLIAMS                                            
|                  |  | Douglas P. Williams Principal
Financial Officer of Wells Capital, Inc.
|                 
|                 



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##### Table of Contents

EXHIBIT INDEX

TO

THIRD QUARTER FORM 10-Q

OF

WELLS REAL ESTATE FUND XII, L.P.



|            |  |                                                                                                                                                                                                                                                                                                     
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                         
|10.1        |  | Purchase and Sale Agreement for the Johnson Matthey Building (previously filed with the Commission as Exhibit 10.2 to the Form 10-Q of Wells Real Estate Fund XI, L.P. for the period ending
September 30, 2004, Commission File No. 0-25731, and hereby incorporated by this reference)            
|            | 
|10.2        |  | Amendment to Lease Agreement with Gartner, Inc. for the Gartner Building (previously filed with the Commission as Exhibit 10.3 to the Form 10-Q of Wells Real Estate Fund XI, L.P. for the
period ending September 30, 2004, Commission File No. 0-25731, and hereby incorporated by this reference)
|            | 
|31.1        |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                              
|            | 
|31.2        |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                              
|            | 
|32.1        |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                      

|
|