<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-Q
                                   ---------


[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the
     Securities Exchange Act of 1934

For the quarterly period ended September 30, 1998

[ ]  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 0-10430


                         DE ANZA PROPERTIES - XII, LTD.
             (Exact name of registrant as specified in its charter)

         CALIFORNIA                                          95-3601367
(State or other jurisdiction of                            (IRS Employer
incorporation or organization)                         Identification Number)

                       9171 WILSHIRE BOULEVARD, SUITE 627
                        BEVERLY HILLS, CALIFORNIA  90210
          (Address of principal executive offices, including zip code)

                                 (310) 550-1111
            (The registrant's telephone number, including area code)

                                   NO CHANGE

              (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 
                                    ---     ---

     Pursuant to the Securities Exchange Act of 1934 Release 15502 and Rule
240.0-3(b) (17 CFR 240.0-3(b)), the pages of this document have been numbered
sequentially.  The total number of pages contained herein is 16.

                                       1
<PAGE>
 
                               TABLE OF CONTENTS
                               -----------------

<TABLE> 
<S>                 <C>                                                    <C> 
PART I.             FINANCIAL INFORMATION
------              ---------------------

ITEM 1.             FINANCIAL STATEMENTS
 
                      Balance Sheets                                        3
 
                      Statements of Operations                              5
 
                      Statements of Changes in Partners'
                        Capital (Deficit)                                   7
 
                      Statements of Cash Flows                              8
 
                      Notes to Financial Statements                        10
 
ITEM 2.             MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF
                    OPERATIONS                                             14

PART II.            OTHER INFORMATION                                      15
-------             -----------------                                    
</TABLE> 

                                       2
<PAGE>
 
PART I.             FINANCIAL INFORMATION

ITEM 1.             FINANCIAL STATEMENTS


                        DE ANZA PROPERTIES - XII, LTD.
                            (A Limited Partnership)

                                Balance Sheets
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                           September 30,        December 31,
                                                               1998                 1997
                                                           -------------        ------------
<S>                                                        <C>                  <C> 
                                     ASSETS
 
CASH AND CASH EQUIVALENTS - Note 1                           $835,243          $   876,533

ACCOUNTS RECEIVABLE                                               980                2,289

PREPAID EXPENSES                                                   46               38,312
                                                             --------          -----------
                                                              836,269              917,134
                                                             --------          -----------

NOTES RECEIVABLE - Note 5                                      32,328              217,248
                                                             --------          -----------

PROPERTY AND EQUIPMENT - Notes 2 and 5
    Land                                                           -             1,179,884
    Land improvements                                              -             3,560,450
    Buildings and improvements                                     -             9,914,217
    Furniture and equipment                                        -               484,385
                                                             --------          -----------
                                                                   -            15,138,936

  Less accumulated depreciation                                    -             7,270,812
                                                             --------          -----------
                                                                   -             7,868,124
                                                             --------          -----------

OTHER ASSETS
  Loan costs - less accumulated amortization
    of $26,497 at December 31, 1997 -
    Note 2                                                         -                70,837
  Prepaid sale costs  Note 5                                       -                45,754
  Other                                                         1,000                1,000
                                                             --------          -----------
                                                                1,000              117,591
                                                             --------          -----------

                                                             $869,597          $ 9,120,097
                                                             ========          ===========
</TABLE>

See accompanying notes to financial statements.

                                       3
<PAGE>
 
                        DE ANZA PROPERTIES - XII, LTD.
                            (A Limited Partnership)

                          Balance Sheets (Continued)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                           September 30,       December 31,
                                                               1998                1997
                                                           -------------       ------------
<S>                                                        <C>                 <C> 
                      LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)

ACCOUNTS PAYABLE AND ACCRUED EXPENSES -
  including $6,760 and $8,768 due to
  related party at September 30, 1998
  and December 31, 1997, respectively                        $111,993          $   124,114

DEPOSITS AND ADVANCE RENTALS                                       -                43,885

SECURED NOTE PAYABLE - Note 2                                      -             4,170,474
                                                             --------          -----------
                                                              111,993            4,338,473
                                                             --------          -----------

PARTNERS' CAPITAL (DEFICIT)
  General partners                                                 -            (1,629,110)
  Limited partners, 22,719 units issued
    and outstanding                                           757,604            6,410,734
                                                             --------          -----------
                                                              757,604            4,781,624
                                                             --------          -----------

                                                             $869,597          $ 9,120,097
                                                             ========          ===========
</TABLE>

See accompanying notes to financial statements.

                                       4
<PAGE>
 
                        DE ANZA PROPERTIES - XII, LTD.
                            (A Limited Partnership)

                           Statements of Operations
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                         Nine Months          Nine Months
                                                            Ended                Ended
                                                         September 30,        September 30,
                                                             1998                 1997
                                                         -------------        -------------
<S>                                                       <C>                  <C> 
INCOME
  Rent                                                    $    84,626           $1,697,962
  Interest and dividends                                       89,017               38,159
  Other                                                         6,438              101,198
  Gain on sale of property and equipment                   11,748,033              236,094
                                                          -----------           ----------
                                                           11,928,114            2,073,413
                                                          -----------           ----------

EXPENSES
  Depreciation and amortization                                70,937              106,989
  Salaries - including $14,818 and $11,736
    paid to related party in 1998 and
    1997, respectively - Note 3                                64,961              149,211
  Professional fees and services -
    including $9,993 and $43,980 paid
    to related party in 1998 and 1997,
    respectively - Note 3                                      60,761              119,559
  Other                                                        36,935               54,745
  Interest                                                     11,359              230,975
  Maintenance, repairs and supplies                            11,307              183,728
  Insurance                                                    10,753               44,599
  Payroll taxes and employee benefits                           9,467               30,269
  Utilities                                                     6,363              135,789
  Real estate taxes                                             5,629              116,638
                                                          -----------           ----------
                                                              288,472            1,172,502
                                                          -----------           ----------

NET INCOME                                                $11,639,642           $  900,911
                                                          ===========           ==========

NET INCOME
  GENERAL PARTNERS                                        $ 1,629,110           $    9,009
                                                          ===========           ==========
  LIMITED PARTNERS                                        $10,010,532           $  891,902
                                                          ===========           ==========
                                                                                
INCOME PER 1% GENERAL
  PARTNER INTEREST - Note 4                               $ 16,291.10           $    90.09
                                                          ===========           ==========

INCOME PER LIMITED
  PARTNERSHIP UNIT - Note 4                               $    440.62           $    39.26
                                                          ===========           ==========
</TABLE>

See accompanying notes to financial statements.

                                       5
<PAGE>
 
                        DE ANZA PROPERTIES - XII, LTD.
                            (A Limited Partnership)

                           Statements of Operations
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                           Three Months        Three Months
                                                              Ended               Ended
                                                           September 30,       September 30,
                                                               1998                1997
                                                           -------------       -------------
<S>                                                        <C>                 <C> 
INCOME
  Rent                                                       $     -              $563,403
  Interest and dividends                                        7,284               12,919
  Other                                                            76                9,303
  Gain on sale of property and equipment                           -               159,096
                                                             --------             --------
                                                                7,360              744,721
                                                             --------             --------

EXPENSES
  Depreciation and amortization                                    -                 1,672
  Salaries - including $8,102 and $4,124
    paid to related party in 1998 and
    1997, respectively - Note 3                                 8,103               52,426
  Professional fees and services -
    including $1,110 and $14,923 paid
    to related party in 1998 and 1997,
    respectively - Note 3                                       4,823               20,943
  Other                                                        16,422               10,401
  Interest                                                         10               77,484
  Maintenance, repairs and supplies                                -                56,482
  Insurance                                                        17               14,761
  Payroll taxes and employee benefits                              -                 8,920
  Utilities                                                        24               47,282
  Real estate taxes                                                -                38,832
                                                             --------             --------
                                                               29,399              329,203
                                                             --------             --------

NET INCOME (LOSS)                                            $(22,039)            $415,518
                                                             ========             ========

NET INCOME (LOSS)
  GENERAL PARTNERS                                           $     -              $  4,155
                                                             ========             ========
  LIMITED PARTNERS                                           $(22,039)            $411,363
                                                             ========             ========
                                                                                
INCOME (LOSS) PER 1% GENERAL
  PARTNER INTEREST - Note 4                                  $     -              $  41.55
                                                             ========             ========

INCOME (LOSS) PER LIMITED
  PARTNERSHIP UNIT - Note 4                                  $  (0.97)            $  18.11
                                                             ========             ========
</TABLE>

See accompanying notes to financial statements.

                                       6
<PAGE>
 
                        DE ANZA PROPERTIES - XII, LTD.
                            (A Limited Partnership)

             Statements of Changes in Partners' Capital (Deficit)
                                  (Unaudited)

               For the Nine Months Ended September 30, 1998 and
                     For the Year Ended December 31, 1997

<TABLE>
<CAPTION>
                                                           General             Limited
                                         Total             Partners            Partners
                                     ------------        -----------         ------------
<S>                                  <C>                 <C>                 <C>
BALANCE - January 1, 1997            $  3,586,232        $(1,648,564)        $  5,234,796
 
DISTRIBUTIONS TO PARTNERS                (750,000)                -              (750,000)
 
NET INCOME - for the year
  ended December 31, 1997               1,945,392             19,454            1,925,938
                                     ------------        -----------         ------------
 
BALANCE - December 31, 1997             4,781,624         (1,629,110)           6,410,734
 
DISTRIBUTIONS TO PARTNERS             (15,663,662)                -           (15,663,662)
 
NET INCOME - for the nine
  months ended September 30,
  1998                                 11,639,642          1,629,110           10,010,532
                                     ------------        -----------         ------------
 
BALANCE - September 30, 1998         $    757,604                 -          $    757,604
                                     ============        ===========         ============
</TABLE>

See accompanying notes to financial statements.

                                       7
<PAGE>
 
                        DE ANZA PROPERTIES - XII, LTD.
                            (A Limited Partnership)

                           Statements of Cash Flows
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                           Nine Months           Nine Months
                                                              Ended                 Ended
                                                          September 30,         September 30,
                                                               1998                  1997
                                                          -------------         -------------
<S>                                                       <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Gross rents received from real estate
    operations                                            $     46,815            $1,694,912
  Cash paid to suppliers and employees -
    including $40,339 and $76,804
    paid to related party in 1998
    and 1997, respectively                                    (263,098)             (796,394)
  Interest paid                                                (25,571)             (231,402)
  Interest and other income received                            90,289               139,720
                                                          ------------            ----------

     Net cash (used in) provided by
       operating activities                                   (151,565)              806,836
                                                          ------------            ----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Additions to property and equipment                           (1,716)             (114,580)
  Payments received on notes receivable                        184,920                55,860
  Sale of property and equipment                            20,107,599               100,000
  Sales and closing costs                                     (444,072)              (29,761)
                                                          ------------            ----------

     Net cash provided by
       investing activities                                 19,846,731                11,519
                                                          ------------            ----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Adjustment for uncashed payments                              97,680                     -
  Principal payments on secured notes
    payable                                                 (4,170,474)              (38,987)
  Partner distributions                                    (15,663,662)             (562,500)
                                                          ------------            ----------

     Net cash used in
       financing activities                                (19,736,456)             (601,487)
                                                          ------------            ----------

NET (DECREASE) INCREASE IN CASH AND
  CASH EQUIVALENTS                                             (41,290)              216,868

CASH AND CASH EQUIVALENTS:
  BALANCE AT BEGINNING OF PERIOD                               876,533               631,598
                                                          ------------            ----------

  BALANCE AT END OF PERIOD                                $    835,243            $  848,466
                                                          ============            ==========
</TABLE>

See accompanying notes to financial statements.

                                       8
<PAGE>
 
                        DE ANZA PROPERTIES - XII, LTD.
                            (A Limited Partnership)

                     Statements of Cash Flows (Continued)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                         Nine Months            Nine Months
                                                            Ended                  Ended
                                                         September 30,          September 30,
                                                             1998                   1997
                                                         -------------          -------------
<S>                                                      <C>                    <C>
RECONCILIATION OF NET INCOME TO NET CASH
  (USED IN) PROVIDED BY OPERATING ACTIVITIES
    Net income                                           $ 11,639,642             $ 900,911
    Adjustments to reconcile net income
     to net cash (used in) provided by
      operating activities
        Depreciation and amortization                          70,937               106,989
        Gain on sale of property and equipment            (11,748,033)             (236,094)
    Changes in operating assets and
     liabilities
        Decrease in accounts receivable                         1,309                 3,337
        Decrease (increase) in prepaid expenses                38,266               (13,134)
        Decrease (increase) in accounts
           payable and accrued expenses                      (109,801)               50,449
        Decrease in deposits and advance
          rentals                                             (43,885)               (5,622)
                                                         ------------             ---------
                                                                                
          Net cash (used in) provided by
             operating activities                        $   (151,565)            $ 806,836
                                                         ============             =========
</TABLE>

See accompanying notes to financial statements.

                                       9
<PAGE>
 
                        DE ANZA PROPERTIES - XII, LTD. 
                            (A Limited Partnership)

                        Notes to Financial Statements 
                                  (Unaudited)

                 September 30, 1998 and December 31, 1997 and
        For the Nine and Three Months Ended September 30, 1998 and 1997


NOTE 1 -  BASIS OF PRESENTATION

          The accompanying financial statements have been prepared in accordance
          with generally accepted accounting principles for interim financial
          information and with the instructions to Form 10-Q and Regulation S-X.
          Accordingly, they do not include all of the information and footnotes
          required by generally accepted accounting principles for complete
          financial statements. In the opinion of management, all adjustments
          (consisting of normal recurring accruals) have been included.
          Operating results during the nine and three months ended September 30,
          1998 are not necessarily indicative of the results that may be
          expected for the year ending December 31, 1998. For further
          information, refer to the financial statements and footnotes thereto
          included in the Partnership's annual report on Form 10-K for the year
          ended December 31, 1997.

          Cash and Cash Equivalents
          -------------------------

          The Partnership invests its cash not needed for working capital in
          highly liquid short-term investments consisting primarily of money
          market funds and certificates of deposit, with original maturities
          ranging generally from one to three months. The Partnership considers
          all such items to be cash equivalents.

          Depreciation
          ------------

          Pursuant to generally accepted accounting principles the Partnership
          ceased to depreciate Warner Oaks Apartments ("Warner Oaks") from the
          time it determined to sell the property (see Note 5).

 
NOTE 2 -  SECURED NOTE PAYABLE

          Secured note payable at December 31, 1997 consisted of the following:
 
               Note collateralized by a first trust deed,
               payable in monthly installments of $29,997,
               including interest until December 15, 1997.
               Thereafter, the monthly payment changes
               annually on each December 15th. Interest
               accrues at 2.5% over the FHLB's 11th District
               Cost of Funds Index, not to exceed 12.9%,
               adjusted monthly. Unpaid principal and
               accrued interest are due November 15, 2008.
               The interest rate in effect at December 31,
               1997 was 7.44%. The note was paid on January
               14, 1998 upon the sale of Warner Oaks.            $4,170,474
                                                                 ==========
 

                                       10
<PAGE>
 
                        DE ANZA PROPERTIES - XII, LTD.
                            (A Limited Partnership)

                   Notes to Financial Statements (Continued)
                                  (Unaudited)

                 September 30, 1998 and December 31, 1997 and
        For the Nine and Three Months Ended September 30, 1998 and 1997


NOTE 3 -  TRANSACTIONS WITH RELATED PARTIES

          Pursuant to a former management agreement dated October 1, 1985, as
          amended, De Anza Assets, Inc., a former affiliate of the operating
          general partner (OGP), was paid a management fee in the amount of 5%
          of the annual gross receipts from the operations of the Partnership's
          properties. The payment of this fee is subordinated to the priority
          distribution to the limited partners of 7% of their adjusted capital
          contributions each year and is noncumulative, except in the case of a
          sale, refinancing or other disposition of the Partnership's
          properties. In that case, the difference between the management fee
          actually paid and the management fee that would have been paid if it
          were not subordinated is payable out of proceeds of the sale,
          refinancing or other disposition after payment of the limited
          partners' priority return and capital contribution and the general
          partners' incentive interest. However, management fees payable
          subsequent to a consummated refinancing are not subordinated to the
          limited partners' priority return to the extent the subordination
          would have been caused by increased debt service charges. At December
          31, 1996, cumulative accrued fees of $565,022 to De Anza Assets, Inc.
          were subordinated and included in management and condominium
          conversion fees payable to affiliate or related party. Shortly before
          the sale to an affiliate of Manufactured Home Communities, Inc. (MHC),
          as discussed in Note 5, De Anza Assets, Inc. assigned its rights to
          receipt of these fees to the Gelfand Family Trust. In December 1997,
          this payable was written off when it became apparent that it would not
          be paid from proceeds from the then pending sale of Warner Oaks
          Apartments under the terms of the partnership agreement.

          On August 18, 1994, subsequent to the sale of the Mark and the
          property management business of De Anza Group, Inc. (DAG), as
          discussed in Note 5, the property management of Warner Oaks and the
          two remaining spaces at San Luis Bay was assumed by Terra Vista
          Management, Inc. (Terra Vista). Terra Vista is wholly owned by Michael
          D. Gelfand, president of the OGP and the son of Herbert M. Gelfand.
          Herbert M. Gelfand, together with Beverly Gelfand, is the sole
          shareholder of the OGP and an individual general partner. At December
          31, 1996, cumulative accrued fees to Terra Vista of $153,500, were
          subordinated and included in management and condominium conversion
          fees payable to affiliate or related party. In December 1997, this
          payable was written off when it became apparent that it would not be
          paid from proceeds from the then pending sale of Warner Oaks
          Apartments under the terms of the partnership agreement.

          Pursuant to the partnership agreement, a condominium conversion fee
          equal to 1% of the sales price of the San Luis Bay homesites sold is
          due to DAG (see Note 5). Payment of this fee was deferred pursuant to
          the partnership agreement's requirement regarding subordination to
          payment of the limited partners' priority return and capital
          contribution, the general partners' incentive interest and deferred
          management fees. Subordinated cumulative accrued fees of $77,809 were
          included in management and condominium conversion fees payable to an
          affiliate or related party at December 31, 1996. Shortly before the
          sale to MHC, De Anza Assets, Inc. assigned its rights to receive these
          fees to the Gelfand Family Trust. In December 1997, this payable was
          written off when it became apparent that it would not be paid from
          proceeds from the then

                                       11
<PAGE>
 
                        DE ANZA PROPERTIES - XII, LTD.
                            (A Limited Partnership)

                   Notes to Financial Statements (Continued)
                                  (Unaudited)

                 September 30, 1998 and December 31, 1997 and
        For the Nine and Three Months Ended September 30, 1998 and 1997


NOTE 3 -  TRANSACTIONS WITH RELATED PARTIES (Continued)

          pending sale of Warner Oaks Apartments under the terms of the
          partnership agreement.

          In addition, Terra Vista was paid $40,339 and $76,804 during the nine
          months ended September 30, 1998 and 1997, respectively, for performing
          bookkeeping, legal, regional management, computer, disposition and
          investor relations services necessary for the operation of the
          Partnership and its properties. Of the $40,339, $9,347 is attributable
          to the three months ended September 30, 1998 (compared to $37,814 paid
          for the three months ended September 30, 1997).

NOTE 4 -  INCOME (LOSS) PER 1% GENERAL PARTNER INTEREST AND LIMITED
          PARTNERSHIP UNIT

          Income (loss) per limited partnership unit is computed based on the
          limited partners' share of net income (loss) as shown on the
          Statements of Operations and Changes in Partners' Capital (Deficit)
          and the number of limited partnership units outstanding (22,719
          units). The general partners' share of net income (loss) has not been
          included in this computation. Income (loss) per 1% general partner
          interest is computed based on the general partners' share of net
          income (loss) as shown on the Statements of Operations and Changes in
          Partners' Capital (Deficit).

NOTE 5 -  SALE OF PROPERTY AND EQUIPMENT

          San Luis Bay
          ------------

          On May 2, 1989, the Partnership entered into an agreement to sell San
          Luis Bay Mobile Estates (the 162-space mobile home community in Avila
          Beach, California) to the residents for an aggregate sales price of
          $8,850,000 and, pursuant to that agreement, subdivided the property
          into condominium units in 1991. The Partnership provided purchase
          money financing for up to 80% of the individual homesite price,
          payable in monthly payments, including interest at 10%, based on a
          loan amortization schedule of 30 years, with a balloon payment of
          unpaid principal and interest due at the end of seven years. At
          September 30, 1998 and December 31, 1997, respectively, the
          outstanding amounts due under such notes totaled $32,328 and $217,248.
          Those residents who purchased their homesites for cash received a 10%
          discount off their purchase price.

          The Partnership sold 160 homesites prior to 1995. On May 1, 1997, the
          Partnership sold one of the two remaining spaces at San Luis Bay for
          $100,000. Net proceeds, after commission and sale and closing costs of
          $7,112, was $92,888. On June 30, 1998, the Partnership sold the last
          remaining homesite for $107,599. Net proceeds, after sale and closing
          costs of $2,609, were $104,990.

                                       12
<PAGE>
 
                        DE ANZA PROPERTIES - XII, LTD.
                            (A Limited Partnership)

                   Notes to Financial Statements (Continued)
                                  (Unaudited)

                 September 30, 1998 and December 31, 1997 and
        For the Nine and Three Months Ended September 30, 1998 and 1997

NOTE 5 -  SALE OF PROPERTY AND EQUIPMENT (Continued)
 
          The Mark
          --------

          On August 18, 1994 the Partnership sold The Mark to an affiliate of
          MHC, a real estate investment trust, as part of an overall transaction
          for the sale of the related management business of DAG and other
          mobile home communities affiliated with DAG. In connection with the
          sale, the Partnership established various reserves totaling $230,097.
          The $230,097 was used to establish the following cash reserves:

<TABLE>
              <S>                                         <C>
              MHC Reserve                                 $ 42,000
              General Reserve                              130,094
              Independent Committee Reserve                 58,003
</TABLE>

          The MHC Reserve was required by MHC. It was released in 1995, at which
          time the gain on sale was recognized. The General Reserve and
          Independent Committee Reserve were established to fund contingent
          liabilities that may arise out of the MHC transaction. During 1996 and
          1995, $29,001 of the Independent Committee Reserve and the $42,000 MHC
          Reserve, respectively, were released and distributed to the limited
          partners as a return of original capital. During 1997, the balance of
          the reserves, $159,096, was released.

          Pursuant to the guidelines of Financial Accounting Standards No. 66,
          "Accounting for Sales of Real Estate," the Partnership deferred in
          1994 the recognition of gain on that portion of the sales proceeds,
          represented by the MHC Reserve, General Reserve and Independent
          Committee Reserve, totaling $230,097. As these reserves were released
          or expended, gain on sale was recognized. During 1996 and 1995, the
          Partnership recognized as income $29,001 attributable to the
          Independent Committee Reserve released and $42,000 attributable to the
          MHC Reserve released, respectively. During 1997, the Partnership
          recognized as income $29,001 and $130,094 attributable to the
          Independent Committee Reserve released and the General Reserve
          released, respectively.

          Warner Oaks Apartments
          ----------------------

          In March 1997, the Partnership began actively marketing the Warner
          Oaks Apartment complex. In accordance with Statement of Financial
          Accounting Standards No. 121, the Partnership ceased depreciating the
          assets' carrying value at that time. On October 15, 1997, the
          Partnership entered into a contract to sell Warner Oaks Apartments to
          Bay Apartment Communities, Inc., a Maryland Corporation, unaffiliated
          with the Partnership, for an all-cash price of $20,000,000. The sale
          closed on January 14, 1998. After payment of mortgage debt of
          $4,170,474, broker's commission of $300,000, transfer taxes of
          $112,000 and sales costs of approximately $75,217, the Partnership
          netted sale proceeds of $15,342,309. On February 19, 1998, net
          proceeds of $15,329,526 were distributed to the limited partners as a
          combination of gain distributions and return of original capital.

                                       13
<PAGE>
 
ITEM 2.              MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Liquidity and Capital Resources
-------------------------------

  The Partnership's quick ratio increased to 7.5:1 from 5.2:1, including cash
  balances of $835,243 and $876,533 at September 30, 1998 and December 31, 1997,
  respectively. The increase is due to a decrease in deposits and advance
  rentals and operating payables following the sale of Warner Oaks Apartments,
  the sale of the remaining space at San Luis Bay and the receipt of balloon
  payments on notes receivable. The Partnership's cash balance is its immediate
  source of liquidity.

  On January 14, 1998, the Partnership sold Warner Oaks Apartments, as discussed
  in Note 5 to the financial statements, and expects to wind up its operations
  in 1998 and dissolve. The Warner Oaks Apartments sale and related
  distribution, sale of the one remaining space at San Luis Bay in June 1998 and
  receipt of the balance of some note receivables, leaves the Partnership with
  only one remaining note receivable and cash reserves as assets. The
  Partnership expects to collect its note receivable (which matures December 31,
  1998) in order to liquidate and terminate the Partnership in 1998. No
  assurance can be given, however, that such termination will occur. As of
  September 30, 1998, the amount of the note receivable outstanding was
  approximately $32,328.

  Other than as described elsewhere, there are no known trends, demands,
  commitments, events or uncertainties which are reasonably likely to materially
  affect the Partnership's liquidity.


Results of Operations
---------------------

  The comparison of results of operations for the nine and three months ended
  September 30, 1998 and 1997 is dominated by the sale of Warner Oaks
  Apartments.

  Rental and other income decreased 95.0% and 100.0% during the nine and three
  months ended September 30, 1998 over the same periods in 1997 due to the sale
  of Warner Oaks Apartments on January 14, 1998. Interest and dividend income
  increased 133.3% and decreased 43.6%, respectively, during the nine and three
  months ended September 30, 1998 over the same periods in 1997 because interest
  was earned on sale proceeds held for a short period in the first quarter of
  1998 until their distribution.

  Expenses decreased 75.4% and 91.1% during the nine and three months ended
  September 30, 1998 over the same periods in 1997 primarily due to the sale of
  Warner Oaks Apartments on January 14, 1998. Additionally, according to
  generally accepted accounting principles, from the time the Partnership
  determined to sell Warner Oaks Apartments it ceased to depreciate the carrying
  value of the assets. This decrease in depreciation expense is offset in part
  by the write off of loan costs in 1998 following the repayment of mortgage
  debt with Warner Oaks Apartments sale proceeds.

  Other than as described above, there are no known trends or uncertainties
  which have had or can be reasonably expected to have a material effect on
  continuing operations.

                                       14
<PAGE>
 
PART II.  OTHER INFORMATION

ITEM NUMBER
-----------

  1. LEGAL PROCEEDINGS

     No new material legal proceedings were commenced during the three months
     ended September 30, 1998 and there are none pending.

  2. CHANGES IN SECURITIES

     None.

  3. DEFAULTS UPON SENIOR SECURITIES

     None.

  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

  5. OTHER INFORMATION

     None.

  6. EXHIBITS AND REPORTS ON FORM 8-K

     None.

                                       15
<PAGE>
 
PART II.  OTHER INFORMATION (Continued)



                                  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.


                                            DE ANZA PROPERTIES - XII, LTD.
                                                    (Registrant)
 
 
                                            By     DE ANZA CORPORATION
                                                   A California Corporation
                                                   Operating General Partner
 
 
Date:  November 11, 1998                    By     /s/ Michael D. Gelfand
                                                   ----------------------
                                                   Michael D. Gelfand
                                                   President and
                                                     Chief Financial Officer

                                       16