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UNITED STATES

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, 2006 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 or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|6200 The Corners Pkwy., Norcross, Georgia                      |  | 30092-3365                             
|(Address of principal executive offices)                       |  | (Zip Code)                             
|                                                               | 
|Registrants telephone number, including area code             |  | (770) 449-7800                         

N/A

(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 a large
accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated
filer ̈Accelerated filer ̈Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (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 or the Registrant) 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, we consider, among others, statements concerning future operating results and cash flows, our ability
to meet future obligations, and the amount and timing of any 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 this report is filed with the Securities and Exchange Commission. We make no representations or warranties (express or implied) about the accuracy of any such 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 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 partners, and maintain the value of our real estate properties, may be significantly hindered. See Item 1A in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2005 for a discussion
of some of the risks and uncertainties, although not all risks and uncertainties, which could cause actual results to differ materially from those presented in our forward-looking statements.



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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, 2006 (unaudited) and December 31, 2005                                                       |  | 5       
|         |  |                       | 
|         |  |                       |  | Statements of Operations for the Three Months and Nine Months Ended September 30, 2006 (unaudited) and 2005 (unaudited)   |  | 6       
|         |  |                       | 
|         |  |                       |  | Statements of Partners Capital for the Year Ended December 31, 2005 and Nine Months Ended September 30, 2006 (unaudited) |  | 7       
|         |  |                       | 
|         |  |                       |  | Statements of Cash Flows for the Nine Months Ended September 30, 2006 (unaudited) and 2005 (unaudited)                    |  | 8       
|         |  |                       | 
|         |  |                       |  | Condensed Notes to Financial Statements (unaudited)                                                                       |  | 9       
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                     |  | 15      
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                                |  | 21      
|         |  |                       | 
|         |  | Item 4.               |  | Controls and Procedures                                                                                                   |  | 21      
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                                                          
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                                                         |  | 21      
|         |  |                       | 
|         |  | Item 1A.              |  | Risk Factors                                                                                                              |  | 22      
|         |  |                       | 
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                               |  | 22      
|         |  |                       | 
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                                                           |  | 22      
|         |  |                       | 
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                                       |  | 22      
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                                                         |  | 22      
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                                                                  |  | 22      



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PART I.    FINANCIAL STATEMENTS

The information furnished in the Partnerships
accompanying balance sheets and consolidated statements of operations, partners capital, and cash flows reflects all adjustments that are, in managements opinion, necessary for a fair and consistent presentation of the aforementioned
financial statements.

The accompanying financial statements should be read in conjunction with the notes to the Partnerships
financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations included both in this report on Form 10-Q and in the Partnerships Annual Report on Form 10-K for the year ended
December 31, 2005. The Partnerships results of operations for the three months and nine months ended September 30, 2006 are not necessarily indicative of the operating results expected for the full year.



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WELLS REAL ESTATE FUND XII, L.P.



BALANCE SHEETS

ASSETS



|                                                                                                                                   |  |                                |            |                  |   |           
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ---------- | ---------------- | - | ----------
|                                                                                                                                   |  | (Unaudited) September 30, 2006 |            | December 31,2005
|Investment in joint ventures                                                                                                       |  | $                              | 17,486,766 |                  | $ | 17,849,824
|Cash and cash equivalents                                                                                                          |  |                                | 242,115    |                  |   | 373,378   
|Due from joint ventures                                                                                                            |  |                                | 419,278    |                  |   | 392,216   
|Other assets                                                                                                                       |  |                                | 1,112      |                  |   | 0         
|                                                                                                                                   |  |                                |            |                  |   |           
|Total assets                                                                                                                       |  | $                              | 18,149,271 |                  | $ | 18,615,418
|                                                                                                                                   |  |                                |            |                  |   |           
|                                                                                                                                  
|LIABILITIES AND PARTNERS CAPITAL                                                                                                 
|                                                                                                                                   |  |                               
|LIABILITIES:                                                                                                                       |  |                                |            |                  |   |           
|Accounts payable and accrued expenses                                                                                              |  | $                              | 26,682     |                  | $ | 21,765    
|Due to affiliates                                                                                                                  |  |                                | 5,776      |                  |   | 7,427     
|Partnership distributions payable                                                                                                  |  |                                | 308,811    |                  |   | 413,761   
|                                                                                                                                   |  |                                |            |                  |   |           
|Total liabilities                                                                                                                  |  |                                | 341,269    |                  |   | 442,953   
|                                                                                                                                   |  |                               
|PARTNERS CAPITAL:                                                                                                                 |  |                                |            |                  |   |           
|Limited partners:                                                                                                                  |  |                                |            |                  |   |           
|Cash Preferred  3,003,500 and 3,000,000 units issued and outstanding as of September 30, 2006 and December 31, 2005,
respectively |  |                                | 17,317,697 |                  |   | 17,301,510
|Tax Preferred  557,619 and 561,119 units issued and outstanding as of September 30, 2006 and December 31, 2005,
respectively      |  |                                | 490,305    |                  |   | 870,955   
|General partners                                                                                                                   |  |                                | 0          |                  |   | 0         
|                                                                                                                                   |  |                                |            |                  |   |           
|Total partners capital                                                                                                            |  |                                | 17,808,002 |                  |   | 18,172,465
|                                                                                                                                   |  |                                |            |                  |   |           
|Total liabilities and partners capital                                                                                            |  | $                              | 18,149,271 |                  | $ | 18,615,418
|                                                                                                                                   |  |                                |            |                  |   |           

See accompanying notes.



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WELLS REAL ESTATE FUND XII, L.P.



STATEMENTS OF OPERATIONS



|                                                             |  |                                             |           |   |                                            |   |           |      |  |   |           |   |  |   |          
|------------------------------------------------------------ |  | ------------------------------------------- | --------- | - | ------------------------------------------ | - | --------- | ---- |  | - | --------- | - |  | - | ---------
|                                                             |  | (Unaudited) Three Months EndedSeptember 30, |           |   | (Unaudited) Nine Months EndedSeptember 30,
|                                                             |  | 2006                                        |           |   | 2005                                       |   |           | 2006 |  |   | 2005     
|EQUITY IN INCOME OF JOINT VENTURES                           |  | $                                           | 255,771   |   |                                            | $ | 260,272   |      |  | $ | 764,296   |   |  | $ | 5,029,544
|                                                             |  |                                             |           |  
|EXPENSES:                                                    |  |                                             |           |   |                                            |   |           |      |  |   |           |   |  |   |          
|Partnership administration                                   |  |                                             | 55,801    |   |                                            |   | 23,027    |      |  |   | 186,145   |   |  |   | 122,739  
|Legal and accounting                                         |  |                                             | 5,709     |   |                                            |   | 10,104    |      |  |   | 28,174    |   |  |   | 33,672   
|                                                             |  |                                             |           |   |                                            |   |           |      |  |   |           |   |  |   |          
|Total expenses                                               |  |                                             | 61,510    |   |                                            |   | 33,131    |      |  |   | 214,319   |   |  |   | 156,411  
|                                                             |  |                                             |           |  
|INTEREST AND OTHER INCOME                                    |  |                                             | 3,092     |   |                                            |   | 87,866    |      |  |   | 11,994    |   |  |   | 112,912  
|                                                             |  |                                             |           |   |                                            |   |           |      |  |   |           |   |  |   |          
|NET INCOME                                                   |  | $                                           | 197,353   |   |                                            | $ | 315,007   |      |  | $ | 561,971   |   |  | $ | 4,986,045
|                                                             |  |                                             |           |   |                                            |   |           |      |  |   |           |   |  |   |          
|                                                             |  |                                             |           |  
|NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS:             |  |                                             |           |   |                                            |   |           |      |  |   |           |   |  |   |          
|CASH PREFERRED                                               |  | $                                           | 322,405   |   |                                            | $ | 439,464   |      |  | $ | 937,188   |   |  | $ | 1,810,799
|                                                             |  |                                             |           |   |                                            |   |           |      |  |   |           |   |  |   |          
|TAX PREFERRED                                                |  | $                                           | (125,052  | ) |                                            | $ | (124,457  | )    |  | $ | (375,217  | ) |  | $ | 3,175,246
|                                                             |  |                                             |           |   |                                            |   |           |      |  |   |           |   |  |   |          
|                                                             |  |                                             |           |  
|NET INCOME (LOSS) PER WEIGHTED-AVERAGE LIMITED PARTNER UNIT: |  |                                             |           |   |                                            |   |           |      |  |   |           |   |  |   |          
|CASH PREFERRED                                               |  | $                                           | 0.11      |   |                                            | $ | 0.15      |      |  | $ | 0.31      |   |  | $ | 0.61     
|                                                             |  |                                             |           |   |                                            |   |           |      |  |   |           |   |  |   |          
|TAX PREFERRED                                                |  | $                                           | (0.22     | ) |                                            | $ | (0.22     | )    |  | $ | (0.67     | ) |  | $ | 5.40     
|                                                             |  |                                             |           |   |                                            |   |           |      |  |   |           |   |  |   |          
|                                                             |  |                                             |           |  
|WEIGHTED-AVERAGE LIMITED PARTNER UNITS OUTSTANDING:          |  |                                             |           |   |                                            |   |           |      |  |   |           |   |  |   |          
|CASH PREFERRED                                               |  |                                             | 3,003,500 |   |                                            |   | 2,998,500 |      |  |   | 3,003,500 |   |  |   | 2,972,850
|                                                             |  |                                             |           |   |                                            |   |           |      |  |   |           |   |  |   |          
|TAX PREFERRED                                                |  |                                             | 557,619   |   |                                            |   | 562,619   |      |  |   | 557,619   |   |  |   | 588,269  
|                                                             |  |                                             |           |   |                                            |   |           |      |  |   |           |   |  |   |          

See accompanying notes.



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WELLS REAL ESTATE FUND XII, L.P.



STATEMENTS OF PARTNERS CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2005 AND

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)



|                                                                                                                                   |  |                  |  |        |                  |   |                         |         |   |        |   |            |   |  |    |  |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- |  | ------ | ---------------- | - | ----------------------- | ------- | - | ------ | - | ---------- | - |  | -- |  | - | ----------- | -
|                                                                                                                                   |  | Limited Partners |  |        | General Partners |   | Total Partners Capital |        
|                                                                                                                                   |  | Cash Preferred   |  |        | Tax Preferred    |   |                         |        
|                                                                                                                                   |  | Units            |  | Amount |                  |   | Units                   |         |   | Amount |   |            |  
|BALANCE, December 31, 2004                                                                                                         |  | 2,939,050        |  | $      | 25,907,456       |   |                         | 622,069 |   |        | $ | 1,992,877  |   |  | $0 |  | $ | 27,900,333  |  
|                                                                                                                                   |  |                  |  |        |                  |  
|Tax preferred conversion elections                                                                                                 |  | 60,950           |  |        | 274,586          |   |                         | (60,950 | ) |        |   | (274,586   | ) |  | 0  |  |   | 0           |  
|Net income                                                                                                                         |  | 0                |  |        | 2,256,111        |   |                         | 0       |   |        |   | 3,055,084  |   |  | 0  |  |   | 5,311,195   |  
|Distributions of operating cash flow ($0.57 per weighted-average Cash Preferred Unit)                                              |  | 0                |  |        | (1,689,063       | ) |                         | 0       |   |        |   | 0          |   |  | 0  |  |   | (1,689,063  | )
|Distributions of net sale proceeds ($3.17 and $6.71 per weighted-average Cash Preferred Unit and Tax Preferred Unit,
respectively) |  | 0                |  |        | (9,447,580       | ) |                         | 0       |   |        |   | (3,902,420 | ) |  | 0  |  |   | (13,350,000 | )
|                                                                                                                                   |  |                  |  |        |                  |   |                         |         |   |        |   |            |   |  |    |  |   |             |  
|BALANCE, December 31, 2005                                                                                                         |  | 3,000,000        |  |        | 17,301,510       |   |                         | 561,119 |   |        |   | 870,955    |   |  | 0  |  |   | 18,172,465  |  
|                                                                                                                                   |  |                  |  |        |                  |  
|Tax preferred conversion elections                                                                                                 |  | 3,500            |  |        | 5,433            |   |                         | (3,500  | ) |        |   | (5,433     | ) |  | 0  |  |   | 0           |  
|Net income                                                                                                                         |  | 0                |  |        | 937,188          |   |                         | 0       |   |        |   | (375,217   | ) |  | 0  |  |   | 561,971     |  
|Distributions of operating cash flow ($0.31 per weighted-average Cash Preferred Unit)                                              |  | 0                |  |        | (926,434         | ) |                         | 0       |   |        |   | 0          |   |  | 0  |  |   | (926,434    | )
|                                                                                                                                   |  |                  |  |        |                  |   |                         |         |   |        |   |            |   |  |    |  |   |             |  
|BALANCE, September 30, 2006                                                                                                        |  | 3,003,500        |  | $      | 17,317,697       |   |                         | 557,619 |   |        | $ | 490,305    |   |  | $0 |  | $ | 17,808,002  |  
|                                                                                                                                   |  |                  |  |        |                  |   |                         |         |   |        |   |            |   |  |    |  |   |             |  

See accompanying notes.



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WELLS REAL ESTATE FUND XII, L.P.



STATEMENTS OF CASH FLOWS



|                                                                                  |  |                                            |            |   |      |   |            |  
|--------------------------------------------------------------------------------- |  | ------------------------------------------ | ---------- | - | ---- | - | ---------- | -
|                                                                                  |  | (Unaudited) Nine Months EndedSeptember 30, |           
|                                                                                  |  | 2006                                       |            |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                                            |            |   |      |   |            |  
|Net income                                                                        |  | $                                          | 561,971    |   |      | $ | 4,986,045  |  
|Operating distributions received from joint ventures                              |  |                                            | 1,185,737  |   |      |   | 1,575,129  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                            |            |   |      |   |            |  
|Equity in income of joint ventures                                                |  |                                            | (764,296   | ) |      |   | (5,029,544 | )
|Changes in assets and liabilities:                                                |  |                                            |            |   |      |   |            |  
|Increase in other assets                                                          |  |                                            | (1,112     | ) |      |   | 0          |  
|Decrease in due from affiliate                                                    |  |                                            | 0          |   |      |   | 1,010      |  
|Increase (decrease) in accounts payable and accrued expenses                      |  |                                            | 4,917      |   |      |   | (17,948    | )
|(Decrease) increase in due to affiliates                                          |  |                                            | (1,651     | ) |      |   | 2,585      |  
|                                                                                  |  |                                            |            |   |      |   |            |  
|Net cash provided by operating activities                                         |  |                                            | 985,566    |   |      |   | 1,517,277  |  
|                                                                                  |  |                                           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                                            |            |   |      |   |            |  
|Investment in joint ventures                                                      |  |                                            | (85,445    | ) |      |   | (114,155   | )
|Net sales proceeds received from joint ventures                                   |  |                                            | 0          |   |      |   | 11,703,731 |  
|                                                                                  |  |                                            |            |   |      |   |            |  
|Net cash (used in) provided by investing activities                               |  |                                            | (85,445    | ) |      |   | 11,589,576 |  
|                                                                                  |  |                                           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                                            |            |   |      |   |            |  
|Operating distributions paid to limited partners                                  |  |                                            | (1,031,384 | ) |      |   | (1,344,773 | )
|Net sales proceeds distributions paid to limited partners                         |  |                                            | 0          |   |      |   | (1,450,000 | )
|                                                                                  |  |                                            |            |   |      |   |            |  
|Net cash used in financing activities                                             |  |                                            | (1,031,384 | ) |      |   | (2,794,773 | )
|                                                                                  |  |                                            |            |   |      |   |            |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                              |  |                                            | (131,263   | ) |      |   | 10,312,080 |  
|                                                                                  |  |                                           
|CASH AND CASH EQUIVALENTS, beginning of period                                    |  |                                            | 373,378    |   |      |   | 1,885,089  |  
|                                                                                  |  |                                            |            |   |      |   |            |  
|CASH AND CASH EQUIVALENTS, end of period                                          |  | $                                          | 242,115    |   |      | $ | 12,197,169 |  
|                                                                                  |  |                                            |            |   |      |   |            |  
|SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:           |  |                                            |            |   |      |   |            |  
|Partnership distributions payable                                                 |  | $                                          | 308,811    |   |      | $ | 371,386    |  
|                                                                                  |  |                                            |            |   |      |   |            |  

See accompanying notes.



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WELLS REAL ESTATE FUND XII, L.P.



CONDENSED NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2006 (unaudited)



|1. | 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 non-public limited partnership, serving as its
general partners (collectively, the General Partners). Wells Capital, Inc. (Wells Capital) serves as the corporate general partner of Wells Partners. Wells Capital is a wholly owned subsidiary of Wells Real Estate Funds, Inc.
Leo F. Wells, III is the president and sole director of Wells Capital and the president, sole director, and sole owner of Wells Real Estate Funds, Inc. 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 treat their units 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) add or 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.

The Partnership was formed to acquire and operate commercial real estate properties, including properties, which are either to be developed, are currently under construction, are newly constructed, or have operating histories.

On September 15, 1998, the Partnership was organized under the laws of the state of Georgia. On March 22, 1999, the Partnership commenced an
offering of up to $70,000,000 of Cash Preferred or Tax Preferred limited partnership units ($10.00 per unit) pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933. The Partnership commenced active operations upon
receiving and accepting subscriptions for 125,000 units on June 1, 1999. The offering was terminated on March 21, 2001, at which time the Partnership had sold approximately 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.



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##### Table of Contents

The Partnership owns 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) and properties:



|                                                                              |  |                                                                                                                |  |                                                                                                                                                                                                                                                                                          
|----------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 A two-story manufacturing and office building located in Fountain Inn, South Carolina 2. 20/20 Building A three-story office building located in Leawood, Kansas 3. Gartner Building(2) A
two-story office building located in Ft. Myers, Florida            
|Wells Fund XII-REIT Joint Venture Partnership (Fund XII-REIT Associates)    |  |   Wells Real Estate Fund XII, L.P.   Wells Operating Partnership, L.P.(1)                                    |  | 4. Siemens Building A three-story office building located in Troy, Michigan 5. AT&T Oklahoma Building(2) A one-story office building and a two-story office building located in Oklahoma
City, Oklahoma 6. Comdata Building A three-story office building located in Brentwood, Tennessee



| | (1) | Wells Operating Partnership, L.P. (Wells OP) 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) | These properties were sold in April 2005.
| | --- | -----------------------------------------

Wells Real Estate Fund XI, L.P. is affiliated with the Partnership through common general partners. Each of the
properties described above was acquired on an all-cash basis. For further information regarding the Joint Ventures and foregoing properties, refer to the Partnerships Annual Report on Form 10-K for the year ended December 31, 2005.

On April 13, 2005, Fund XI-XII-REIT Associates sold the Gartner Building to an unrelated third party for a gross sale price of
approximately $12,520,000. As a result of the sale of the Gartner Building, the Partnership received net sale proceeds of approximately $2,118,000 and was allocated a gain of approximately $766,000.

On April 13, 2005, Fund XII-REIT Associates sold the AT&T Oklahoma Building to an unrelated third party for a gross sale price of $21,430,000.
As a result of the sale of the AT&T Oklahoma Building, the Partnership received net sale proceeds of approximately $9,586,000 and was allocated a gain of approximately $3,259,000.



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------

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 U.S.
generally accepted accounting principles (GAAP) for complete financial statements. In the



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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 and consistently 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 Annual Report on Form 10-K for the year ended December 31, 2005.

Investment in Joint Ventures

The Partnership has evaluated the Joint Ventures and concluded that none are variable interest entities under the provisions of Financial Accounting
Standards Board Interpretation (FIN) No. 46(R), Consolidation of Variable Interest Entities, which supersedes FIN No. 46 and is an interpretation of Accounting Research Bulletin (ARB) No. 51,
Consolidated Financial Statements. 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, upon applying the provisions of Statement of Financial Accounting Standard (SFAS)
No. 94, Consolidation of All Majority-Owned Subsidiaries, ARB No. 51, and Statement of Position No. 78-9, Accounting for Investments In Real Estate Ventures, the Partnership accounts for its investments in the Joint
Ventures 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. Pursuant to the terms of the joint
venture agreements, all income (loss) and distributions are allocated to joint venture partners in accordance with their respective ownership interests. Distributions of net cash from operations, if available, are generally distributed to the joint
venture partners on a quarterly basis.

Other Assets

As of September 30, 2006, other assets is comprised of interest income receivable.

Distributions 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 each limited partner has received distributions equal to a 10% per annum return on his respective net
capital contributions, as defined.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Second, to the General Partners until the General Partners receive 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 of net cash from operations will be made to limited partners holding Tax Preferred Units.

Distribution of Sale Proceeds

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



| |  |  | In the event that the particular property sold is sold for a price that is less than the original property purchase price, to the limited partners holding Cash
Preferred Units until they 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 each limited partner has received an amount necessary to equal
the net cash available for distribution previously received by the limited partners holding Cash Preferred Units on a per-unit basis;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | To limited partners on a per-unit basis until each limited partner has received 100% of his net capital contributions, as defined;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | To all limited partners on a per-unit basis until each limited partner has received a cumulative 10% per annum return on his net capital contributions, as
defined;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | To limited partners on a per-unit basis until each limited partner has received an amount equal to his 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 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; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Allocations of Net Income, Net Loss, and Gain on Sale

For the 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 proportion that net cash from operations is distributed to the 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 holding Cash Preferred Units 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 partner having a positive balance in his capital account in an amount not to exceed such positive balance; and (c) thereafter, to the General Partners.

Gains 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.

Recent Accounting Pronouncements

In September 2006,
the Financial Accounting Standards Board issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures required for fair value measurements under GAAP.
SFAS No. 157 emphasizes that fair value is a market-based measurement, as opposed to an entity-specific measurement. SFAS No. 157 will be effective for the Partnership beginning January 1, 2008. The Partnership is currently assessing
provisions and evaluating the financial impact of SFAS No. 157 on its financial statements.

In September 2006, the SEC issued Staff
Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements(SAB No. 108), which



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provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a
materiality assessment. SAB No. 108 is effective for fiscal years ending after November 15, 2006, and will be effective for the Partnership beginning December 31, 2006. The Partnership is currently assessing provisions and evaluating
the financial statement impact of SAB No. 108 on its financial statements.



|3. | INVESTMENT IN JOINT VENTURES
|-- | ----------------------------

Summary of
Financial Information

Condensed financial information for the Joint Ventures for the three months and nine months ended
September 30, 2006 and 2005, respectively, is presented below:



|                            |  |                                 |  |                                         |  |             |                                           |  |            |                                 |  |           |   |  |              |   |  |            |   |  |              |  
|--------------------------- |  | ------------------------------- |  | --------------------------------------- |  | ----------- | ----------------------------------------- |  | ---------- | ------------------------------- |  | --------- | - |  | ------------ | - |  | ---------- | - |  | ------------ | -
|                            |  | Total Revenues                  |  | Income (Loss) FromContinuing Operations |  |             | Loss FromDiscontinued Operations          |  |            | Net Income (Loss)               | 
|                            |  | Three Months EndedSeptember 30, |  | Three Months EndedSeptember 30,         |  |             | Three Months EndedSeptember 30,           |  |            | Three Months EndedSeptember 30, | 
|                            |  | 2006                            |  | 2005                                    |  | 2006        |                                           |  | 2005       |                                 |  | 2006      |   |  | 2005         |   |  | 2006       |   |  | 2005         |  
|Fund XI-XII-REIT Associates |  | $              0                |  | $            39                         |  | $(307,886   | )                                         |  | $(274,020  | )                               |  | $(95      | ) |  | $  (8,949    | ) |  | $(307,981  | ) |  | $(282,969    | )
|Fund XII-REIT Associates    |  | 1,083,120                       |  | 1,071,992                               |  | 685,521     |                                           |  | 689,912    |                                 |  | 0         |   |  | (3,887       | ) |  | 685,521    |   |  | 686,025      |  
|                            |  |                                 |  |                                         |  |             |                                           |  |            |                                 |  |           |   |  |              |   |  |            |   |  |              |  
|                            |  | $1,083,120                      |  | $1,072,031                              |  | $ 377,635   |                                           |  | $ 415,892  |                                 |  | $(95      | ) |  | $(12,836     | ) |  | $ 377,540  |   |  | $ 403,056    |  
|                            |  |                                 |  |                                         |  |             |                                           |  |            |                                 |  |           |   |  |              |   |  |            |   |  |              |  
|                            |  |                                 |  |                                        
|                            |  | Total Revenues                  |  | Income (Loss) FromContinuing Operations |  |             | Income (Loss) FromDiscontinued Operations |  |            | Net Income (Loss)               | 
|                            |  | Nine Months EndedSeptember 30,  |  | Nine Months EndedSeptember 30,          |  |             | Nine Months EndedSeptember 30,            |  |            | Nine Months EndedSeptember 30,  | 
|                            |  | 2006                            |  | 2005                                    |  | 2006        |                                           |  | 2005       |                                 |  | 2006      |   |  | 2005         |   |  | 2006       |   |  | 2005         |  
|Fund XI-XII-REIT Associates |  | $              0                |  | $     20,048                            |  | $  (853,427 | )                                         |  | $ (712,239 | )                               |  | $   5,862 |   |  | $  4,684,542 |   |  | $ (847,565 | ) |  | $  3,972,303 |  
|Fund XII-REIT Associates    |  | 3,238,631                       |  | 3,223,300                               |  | 2,043,693   |                                           |  | 2,058,643  |                                 |  | (22,850   | ) |  | 7,612,197    |   |  | 2,020,843  |   |  | 9,670,840    |  
|                            |  |                                 |  |                                         |  |             |                                           |  |            |                                 |  |           |   |  |              |   |  |            |   |  |              |  
|                            |  | $3,238,631                      |  | $3,243,348                              |  | $1,190,266  |                                           |  | $1,346,404 |                                 |  | $(16,988  | ) |  | $12,296,739  |   |  | $1,173,278 |   |  | $13,643,143  |  
|                            |  |                                 |  |                                         |  |             |                                           |  |            |                                 |  |           |   |  |              |   |  |            |   |  |              |  

The Partnership allocates its share of earnings generated by the properties owned by the Joint
Ventures to its Cash Preferred and Tax Preferred limited partners pursuant to the partnership agreement provisions outlined in Note 2 for net income, net loss, and gain on sale, respectively. The components of income (loss) from discontinued
operations recognized by the Joint Ventures are provided below:



|                            |  |                                     |   |  |                                      |  |           |   |  |                 |  |              |  |             
|--------------------------- |  | ----------------------------------- | - |  | ------------------------------------ |  | --------- | - |  | --------------- |  | ------------ |  | ------------
|                            |  | Nine Months EndedSeptember 30, 2006 |   |  | Nine Months Ended September 30, 2005
|                            |  | OperatingIncome(Loss)               |   |  | Gain onSale                          |  | Total     |   |  | OperatingIncome |  | Gain on Sale |  | Total       
|Fund XI-XII-REIT Associates |  | $   5,862                           |   |  | $0                                   |  | $   5,862 |   |  | $204,646        |  | $  4,479,896 |  | $  4,684,542
|Fund XII-REIT Associates    |  | (22,850                             | ) |  | 0                                    |  | (22,850   | ) |  | 368,292         |  | 7,243,905    |  | 7,612,197   
|                            |  |                                     |   |  |                                      |  |           |   |  |                 |  |              |  |             
|                            |  | $(16,988                            | ) |  | $0                                   |  | $(16,988  | ) |  | $572,938        |  | $11,723,801  |  | $12,296,739 
|                            |  |                                     |   |  |                                      |  |           |   |  |                 |  |              |  |             

Due from Joint Ventures

As presented in the accompanying balance sheets, due from joint ventures as of September 30, 2006 and December 31, 2005 represents operating cash flow generated by the Joint Ventures for the three months
ended September 30, 2006 and December 31, 2005, respectively, which is attributable to the Partnership.



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|4. | RELATED-PARTY TRANSACTIONS
|-- | --------------------------

Management
and Leasing Fees

In accordance with the property management and leasing agreement, 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% for management services and 2% for leasing services, 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, which is assessed periodically based on market studies, or (b) in the case of commercial properties 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. Management and leasing fees are paid by the Joint Ventures and, accordingly, included in equity in income of joint ventures in the accompanying statements of operations. The Partnerships share of
management and leasing fees and lease acquisition costs incurred through the Joint Ventures is $24,470 and $22,376 for the three months ended September 30, 2006 and 2005, respectively, and $60,858 and $80,588 for the nine months ended
September 30, 2006 and 2005, respectively.

Administration Reimbursements

Wells Capital, the corporate general partner of Wells Partners, one of our General Partners, and Wells Management perform certain administrative services for the Partnership, relating to
accounting, property management, and other partnership administration, and incur the related expenses. Such expenses are allocated among other entities affiliated with the General Partners based on time spent on each fund by individual
administrative personnel. In the opinion of the General Partners, this allocation is a reasonable estimation of such expenses. The Partnership reimbursed Wells Capital and Wells Management for administrative expenses of $16,942 and $18,532 for the
three months ended September 30, 2006 and 2005, respectively, and $49,567 and $61,897 for the nine months ended September 30, 2006 and 2005, respectively. In addition, Wells Capital pays for certain operating expenses of the Partnership
(bill-backs) directly and invoices the Partnership for the reimbursement thereof. As of September 30, 2006 and December 31, 2005, the due to affiliates balances represent administrative reimbursements and bill-backs due to
Wells Management and/or Wells Capital.

Economic Dependency

We have engaged Wells Capital and Wells Management to provide certain essential services, including supervision of the management and leasing of our properties, asset acquisition and disposition services, as well as
other administrative responsibilities for us including accounting services and investor communications and relations. These agreements are terminable by either party upon 60 days written notice. As a result of these relationships, we are
dependent upon Wells Capital and Wells Management.

Wells Capital and Wells Management are all 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. Accordingly, we focus on the financial condition of WREF when assessing the financial condition of Wells
Capital and Wells Management. In the event that WREF was to become unable to meet its obligations as they become due, we might be required to find alternative service providers.

Future net income generated by WREF will be largely dependent upon the amount of fees earned by Wells Capital and Wells Management based on, among other things, the level of investor proceeds
raised from the sale of common stock for certain WREF-sponsored programs and the volume of future acquisitions and dispositions of real estate assets by WREF-sponsored programs. As of September 30, 2006, the General Partners believe that WREF
generates adequate cash flow from operations and has adequate liquidity available in the form of cash on hand and current receivables necessary to meet its current and future obligations as they become due.



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|5. | COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------

The Partnership and its General Partners are from time to time a party to legal proceedings, which arise in the ordinary course of its business. The Partnership is not currently involved in any legal proceedings of which the outcome is
reasonably possible to have a material adverse effect on results of operations or financial condition. The Partnership is not aware of any legal proceedings contemplated by governmental authorities.



|6. | SUBSEQUENT EVENT
|-- | ----------------

On
October 27, 2006, Fund XI-XII-REIT Associates entered into a 60-month lease agreement (Agreement) with Caterpillar, Inc. (Caterpillar) to occupy the entire building of 111 Southchase Boulevard. The lease is scheduled to
commence January 1, 2007. Monthly base rent payable is approximately $54,000 and scheduled to increase by approximately 2.5% annually. As a result of entering into the Agreement, Caterpillar is entitled to a landlord-funded tenant improvement
allowance of up to approximately $911,350.



|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. See also Cautionary Note Regarding Forward-Looking
Statements preceding Part I, as well as the notes to our financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations provided in our Annual Report on Form 10-K for the year ended
December 31, 2005.

Overview

The
Partnership typically operates in the following five life cycle phases and, during which, typically focuses on the following key operating objectives. The duration of 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 the Partnership owns and operates its real estate assets 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, distributes net sale proceeds to the partners, liquidates, and terminates the Partnership.

Portfolio Overview

We are currently operating in the
holding phase of our life cycle. We currently own interests in four properties, following the sale of the Gartner Building and the AT&T Oklahoma Building in April 2005. Three of the



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buildings in which we currently own interests are 100% leased to tenants in the early to middle stages of their lease terms, and the other building is
vacant. Our focus at this time involves leasing the vacant property and maximizing the operating performance of the remaining assets in order to deliver what we believe will be the best overall performance for our limited partners.

Following the third quarter of 2006, Fund XI-XII-REIT Associates entered into a 60-month lease agreement with Caterpillar to occupy the entire office
building at 111 Southchase Boulevard targeted to commence January 1, 2007. While the forgoing property sales have delivered positive results, we are facing some near-term leasing issues with regard to the vacancy at the 20/20 Building. These
leasing challenges may impact future operating performance; however, we are aggressively working with prospective tenants in the respective markets in an attempt to minimize negative financial effects.

Operating distributions payable to the Cash Preferred limited partners for the third quarter of 2006 remained consistent with the level paid in the prior
quarter. The General Partners anticipate that operating distributions will decline in the near-term, as we fund our pro-rata share of re-leasing costs for and 111 Southchase Boulevard and the anticipated capital improvements and re-leasing costs for
the 20/20 Building.

Property Summary

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. Later, as we move into the positioning-for-sale and
disposition-and-liquidation phases, our attention will shift to locating suitable buyers and negotiating purchase-sale contracts that will attempt to maximize the total return to the limited partners, and to minimize contingencies and our
post-closing involvement with the buyer.

Information relating to the properties owned, or previously owned, by the Joint
Ventures is provided below:



| |  |  | The Johnson Matthey Building was sold on October 5, 2004.
| | - |  | ---------------------------------------------------------



| |  |  | The Gartner Building was sold on April 13, 2005.
| | - |  | ------------------------------------------------



| |  |  | The AT&T Oklahoma Building was sold on April 13, 2005.
| | - |  | ------------------------------------------------------



| |  |  | The 111 Southchase Boulevard property, located in Fountain Inn, South Carolina, will be 100% leased following the 60-month lease execution with Caterpillar.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The 20/20 Building located in Leawood, Kansas, is currently vacant. We have engaged our local leasing team and are marketing this property aggressively for
lease.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Siemens Building, located in Troy, Michigan, is 100% leased through 2010.
| | - |  | -----------------------------------------------------------------------------



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

Liquidity and Capital Resources

Overview

Our operating strategy entails funding expenditures related to the recurring operations of the Joint Ventures properties and the portfolio with
operating cash flows, including current and prior period operating distributions received from the Joint Ventures, and assessing the amount of remaining cash flows that will be required to fund known future re-leasing costs and other capital
improvements. Any residual operating cash flows are generally considered available for distribution to the Cash Preferred limited partners and, unless reserved, are generally paid quarterly. As a result, the ongoing monitoring of our cash position
is critical to ensuring that adequate



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liquidity and capital resources are available. Economic downturns in one or more of our core markets could adversely impact the ability of our tenants to
honor lease payments and our ability to re-lease 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 could be
adversely affected.

Short-Term Liquidity

During the nine months ended September 30, 2006, we generated net operating cash flows, including operating distributions received from the Joint Ventures, of approximately $986,000, as compared to approximately $1,517,000 for the nine
months ended September 30, 2005. The 2006 decline is primarily due to (i) a payment of additional accrued Tennessee partnership franchise and excise taxes incurred in the first quarter of 2006 as a result of gains recognized on the sale of
properties in the portfolio in 2005, and (ii) a decline in operating distributions received from the Joint Ventures as a result of the sales of the Gartner Building and the AT&T Oklahoma Building in April 2005. 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.

Future operating distributions from the Joint Ventures are expected to decline in the near-term as a result of funding our pro-rata share of the
re-leasing costs for 111 Southchase Boulevard and the anticipated capital improvements and re-leasing costs for the 20/20 Building, which is currently vacant. Future operating distributions paid to limited partners will be largely dependent upon the
amount of cash generated from the Joint Ventures, our expectations of future cash flows, and determination of near-term cash needs for tenant re-leasing costs and other capital improvements for properties owned by the Joint Ventures.

We invested approximately $85,000 and approximately $114,000 in Fund XI-XII-REIT Associates during the nine months ended September 2006 and 2005,
respectively, due to the vacancies at the properties owned by the joint venture.

We believe that the cash on hand and operating
distributions due from the Joint Ventures are sufficient to cover our working capital needs, including liabilities of approximately $341,000, as of September 30, 2006. We anticipate using operating cash flow to fund our proportionate share of
capital expenditures noted above over the next twelve months.

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, funding 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, including distributions received from the Joint Ventures, less, expenses related to the recurring operations of the properties and the portfolio and
reserves for known capital expenditures, to pay operating distributions to the limited partners.

Capital Resources

The Partnership is an investment vehicle formed for the purpose of acquiring, owning, and operating income-producing real properties and has invested all
of the partners original capital contributions. Thus, it is unlikely that we will acquire interests in any additional properties. 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 fund capital
expenditures primarily related to building improvements for the purpose of maintaining the quality of our properties, and tenant improvements for the purpose of readying our properties for



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re-leasing. As leases expire, we typically 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.

Operating cash flows, if available, are generally distributed from the Joint Ventures to the
Partnership approximately one month following quarter-ends. However, the Joint Ventures will reserve operating distributions, or a portion thereof, as needed in order to fund known capital and other expenditures. 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. Any capital or other expenditures not provided for by the operations of the Joint Ventures will be required to be funded by the
Partnership and the respective joint venture partners on a pro-rata basis.

As of September 30, 2006, we have received, used,
distributed, and held net sale proceeds allocated to the Partnership from the sale of properties as presented below:



|                                       |  |                   |  |                                       |   |         |                                              |  |                          |  |                                                                   |  |                                                         |  |          
|-------------------------------------- |  | ----------------- |  | ------------------------------------- | - | ------- | -------------------------------------------- |  | ------------------------ |  | ----------------------------------------------------------------- |  | ------------------------------------------------------- |  | ---------
|Property Sold                          |  | Net Sale Proceeds |  | Partnerships Approximate Ownership % |   |         | Net SaleProceeds Allocated tothe Partnership |  | Use of Net Sale Proceeds |  | Net Sale Proceeds Distributed toPartners as of September 30, 2006 |  | Undistributed NetSale Proceeds as of September 30, 2006
|                                       |  |                   |  | Amount                                |   | Purpose |                                              | 
|                                       |  |                   |  |                                       |   |         |                                             
|Johnson Matthey Building(sold in 2004) |  | $9,675,000        |  | 17.10                                 | % |         | $  1,653,361                                 |  | $0                       |  |                                                                  |  | $  1,653,361                                            |  | $       0
|                                       |  |                   |  |                                       |   |         |                                             
|Gartner Building(sold in 2005)         |  | $12,396,859       |  | 17.10                                 | % |         | 2,118,499                                    |  | 0                        |  |                                                                  |  | 2,117,051                                               |  | 1,448    
|                                       |  |                   |  |                                       |   |         |                                             
|AT&T Oklahoma Building(sold in 2005)   |  | $21,307,577       |  | 44.99                                 | % |         | 9,585,853                                    |  | 0                        |  |                                                                  |  | 9,579,588                                               |  | 6,265    
|                                       |  |                   |  |                                       |   |         |                                              |  |                          |  |                                                                   |  |                                                         |  |          
|                                       |  |                   |  |                                       |   |         |                                             
|Total                                  |  |                   |  |                                       |   |         | $13,357,713                                  |  | $0                       |  |                                                                   |  | $13,350,000                                             |  | $7,713   
|                                       |  |                   |  |                                       |   |         |                                              |  |                          |  |                                                                   |  |                                                         |  |          

Upon evaluating the capital needs of the properties in which we currently hold an interest, our
General Partners have decided to reserve the net sale proceeds on hand as of September 30, 2006.

Results of Operations

Equity in Income of Joint Ventures

Equity in income
of Joint Ventures was relatively stable at $255,771 and $260,272 for the three months ended September 30, 2006 and 2005, respectively.

Equity in income of the Joint Ventures was $764,296 and $5,029,544 for the nine months ended September 30, 2006 and 2005, respectively. The decrease in equity in income of the Joint Ventures for 2006, as compared to 2005, are primarily
attributable to (i) the gain recognized on the sales of the Gartner Building and the AT&T Oklahoma Building in April 2005, and (ii) a decline in operating income resulting from the sales of the Gartner Building and the AT&T
Oklahoma Building in April 2005.

We expect equity in income of Joint Ventures to increase as a result of the lease execution with
Caterpillar at 111 Southchase Boulevard.

Expenses

Total expenses of the Partnership were $61,510 and $33,131 for the three months ended September 30, 2006 and 2005, respectively, and $214,319 and $156,411 for the nine months ended September 30, 2006 and
2005, respectively. The 2006 increases, as compared to 2005, are primarily a result of incurring additional Tennessee partnership franchise and excise taxes incurred, partially offset by a decline in administrative costs relative to the decrease in
the size of the portfolio as a result of the sales of properties in previous periods. We estimate Tennessee partnership franchise and excise taxes based on an estimate of the



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apportionment of income allocable to the Partnership from properties in Tennessee relative to income allocable to the Partnership from all properties as if
earned ratably during the calendar year. Thus, our future estimates of Tennessee partnership franchise and excise tax expenses will fluctuate as the relationship of income earned by the Partnership from properties in Tennessee fluctuates relative to
income earned by the Partnership from all properties in the future. Accordingly, nonrecurring items, such as gains on the sales of properties, will have a significant impact on these estimates.

We anticipate additional increases in administrative expenses in future periods resulting from increased costs relating to compliance with reporting and
regulatory requirements.

Interest and Other Income

Interest and other income was $3,092 and $87,866 for the three months ended September 30, 2006 and 2005, respectively, and $11,994 and $112,912 for the nine months ended September 30, 2006 and 2005,
respectively. The 2006 decreases, as compared to 2005, are primarily a result of a decrease in the average amount of net sale proceeds held during 2006 due to distributions of net proceeds in May 2005 and November 2005.

Future levels of interest income will be largely dependent upon the timing of future dispositions and net sale proceeds distributions to the investors.

Inflation

We are exposed to inflation
risk as income from long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that would protect us from the impact of inflation. These provisions include rent steps,
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.
However, due to the long-term nature of our leases, the leases may not readjust their reimbursement rates frequently enough to cover inflation.

Application of Critical Accounting Policies

Summary

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.



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Investment in Real Estate Assets

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



|                      |  |                                       
|--------------------- |  | --------------------------------------
|Buildings             |  | 40 years                              
|Building improvements |  | 5-25 years                            
|Land improvements     |  | 20 years                              
|Tenant improvements   |  | Shorter of lease term or economic life

In the event that the Joint Ventures utilize inappropriate useful lives or methods of
depreciation, our net income would be misstated.

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 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 assets and their 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, as defined by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and recognizes an impairment
loss. Estimated fair values are calculated based on the following information, dependent upon availability, in order of preference: (i) recently quoted market prices, (ii) market prices for comparable properties, or (iii) the present
value of undiscounted cash flows, including estimated salvage value. We have determined that there has been no impairment in the carrying value of any of the real estate assets held by the Partnership as of September 30, 2006.

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 any of the real estate assets held by the Joint Ventures and net income of the
Partnership.

Related-Party Transactions and Agreements

We have entered into agreements with Wells Capital and Wells Management, affiliates of our General Partners, and their affiliates, whereby we pay certain fees and expense reimbursements to Wells Capital, Wells
Management and their affiliates for asset management; the management and leasing of our properties; administrative services relating to accounting, property management, and other partnership administration; and incur the related expenses. See
Note 4 to our financial statements included in this report for a description of these fees and expense reimbursements we have incurred.

Potential
Tax Impact on Limited Partners Holding Tax Preferred Units  American Jobs Creation Act of 2004

The American Jobs Creation Act of
2004 added Section 470 to the Internal Revenue Code, which provides for certain limitations on the utilization of losses by investors that are attributable to leased property owned by a partnership having both taxable and tax-exempt partners
such as the Partnership. If Section 470 were deemed to



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apply to the Partnership, passive losses allocable to limited partners holding Tax Preferred Units could only be utilized to offset passive income generated
from the same property or potentially from properties owned by the same partnership. In March 2005, the Internal Revenue Service (IRS) announced that the IRS would not apply Section 470 to partnerships for the taxable year 2004
based solely on the fact that a partnership had both taxable and tax-exempt partners, and in December 2005, the IRS extended the period for transitional relief through the 2005 tax year. In addition, pursuant to Section 403(ff) of the Gulf
Opportunity Zone Act of 2005, the effective date provisions regarding the applicability of Section 470 were amended to provide that, in the case of leased property treated as tax-exempt use property by reason of its being owned by a partnership
having both taxable and tax-exempt partners, Section 470 will apply only to property acquired after March 12, 2004. Since the Partnership acquired all of its properties prior to March 12, 2004, and is not expected to acquire interests
in any additional properties in the future, we do not believe that the provisions of Section 470 should apply to limit the utilization of losses attributable to the properties owned by the Partnership; however, due to the uncertainties and lack
of guidance relating to this provision, it is unclear as to whether the acquisition of a limited partnership interest in the Partnership after the March 12, 2004 effective date may be deemed to be an acquisition of property within the meaning
of the effective date provisions of Section 470.



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

Since we do not borrow any money, make any foreign investments, or invest in any market risk-sensitive instruments, we are 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
|------- | -----------------------

We carried out an
evaluation, under the supervision and with the participation of management of Wells Capital, our corporate General Partner, including the Principal Executive Officer and the Principal Financial Officer of Wells Capital, of the effectiveness of the
design and operation of the Partnerships disclosure controls and procedures as defined in rule 13a-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation, the Principal
Executive Officer and the Principal Financial Officer of Wells Capital concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report in providing a reasonable level of assurance
that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in applicable SEC rules and forms, including
providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial Officer of Wells
Capital, as appropriate, to allow timely decisions regarding required disclosure.

There were no significant changes in our internal
control over financial reporting during the quarter ended September 30, 2006 that have materially affected, or are likely to materially affect, our internal control over financial reporting.



|PART II. | OTHER INFORMATION
|-------- | -----------------



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

We are from time to time a party
to other legal proceedings, which arise in the ordinary course of our business. We are not currently involved in any litigation the outcome of which would, in managements judgment based on information currently available, have a material
adverse effect on our results of operations or financial condition, nor is management aware of any such litigation threatened against us during the quarter ended September 30, 2006, requiring disclosure under Item 103 of Regulation S-K.



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|ITEM 1A. | RISK FACTORS
|-------- | ------------

There have been no material changes
from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------



|(a) | We did not sell any equity securities that were not registered under the Securities Act of 1933 during the quarter ended September 30, 2006.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Not applicable.
|--- | ---------------



|(c) | We did not redeem any securities during the quarter ended September 30, 2006.
|--- | -----------------------------------------------------------------------------



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------



|(a) | We were not subject to any indebtedness and, therefore, did not default with respect to any indebtedness during the quarter ended September 30, 2006.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Not applicable.
|--- | ---------------



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

No matters were submitted to a vote of our limited partners during the quarter ended September 30, 2006.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------



|(a) | During the quarter ended September 30, 2006, there was no information required to be disclosed in a report on Form 8-K which was not disclosed in a report
on Form 8-K.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Not applicable.
|--- | ---------------



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

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



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SIGNATURES

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



|                  |  |  |  |                                                                                                    |  |                            
|----------------- |  |  |  | -------------------------------------------------------------------------------------------------- |  | ---------------------------
|                  |  |  |  | WELLS REAL ESTATE FUND XII, L.P. (Registrant)                                                     
|                  |  |  | 
|                  |  |  |  | By:                                                                                                |  | WELLS PARTNERS, L.P.       
|                  |  |  |  |                                                                                                    |  | (General Partner)          
|                  |  |  | 
|                  |  |  |  | By:                                                                                                |  | WELLS CAPITAL, INC.        
|                  |  |  |  |                                                                                                    |  | (Corporate General Partner)
|                  |  | 
|November 13, 2006 |  |  |  | /s/    LEO F. WELLS,
III                                                                          
|                  |  |  |  | Leo F. Wells, III President, Principal Executive Officer, and Sole Director of Wells Capital, Inc.
|                  |  | 
|November 13, 2006 |  |  |  | /s/    DOUGLAS P.
WILLIAMS                                                                        
|                  |  |  |  | Douglas P. Williams Principal Financial Officer of Wells Capital, Inc.                            



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WELLS REAL ESTATE FUND XII, L.P.



EXHIBIT INDEX

TO THIRD QUARTER FORM 10-Q

OF

WELLS REAL ESTATE FUND XII, L.P.



|            |  |                                                                                                                               
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                   
|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