WELLS REAL ESTATE FUND XII LP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]

For the fiscal year ended December 31, 2001
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[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [No Fee Required]

For the transition period from to
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Commission file number 0-30287
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WELLS REAL ESTATE FUND XII, L.P.
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(Exact name of registrant as specified in its charter)

Georgia 58-2438242
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)

6200 The Corners Parkway, Suite 250, Norcross, Georgia 30092
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (770) 449-7800
Securities registered pursuant to Section 12 (b) of the Act: ---------------------------------------

Title of each class Name of exchange on which registered
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NONE NONE
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Securities registered pursuant to Section 12 (g) of the Act:

CASH PREFERRED UNITS
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(Title of Class)

TAX PREFERRED UNITS
- --------------------------------------------------------------------------------
(Title of Class)

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 [ ]
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Aggregate market value of the voting stock held by non-affiliates: Not
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Applicable
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PART I

ITEM 1. BUSINESS

General

Wells Real Estate Fund XII, L.P. (the "Partnership") is a Georgia public limited
partnership having Leo F. Wells, III and Wells Partners, L.P. ("Wells
Partners"), a Georgia non-public limited partnership, as General Partners. The
Partnership was formed on September 15, 1998, for the purpose of acquiring,
developing, constructing, owning, operating, improving, leasing and otherwise
managing for investment purposes income-producing commercial properties. The
Partnership has two classes of limited partnership units. Upon subscription for
units, each Limited Partner must elect whether to have his units treated as Cash
Preferred Units or Tax Preferred Units. Thereafter, 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. Limited Partners may vote to, among other things: (a) amend
the partnership agreement, subject to certain limitations, (b) change the
business purpose or investment objectives of the Partnership, (c) remove a
General Partner, (d) elect a new General Partner, (e) dissolve the Partnership,
and (f) approve a sale involving all or substantially all of the Partnership's
assets, subject to certain limitations. The majority vote on any of the matters
described above will bind the Partnership, without the concurrence of the
General Partners. Each limited partnership unit has equal voting rights,
regardless of which class of unit is selected.

On March 22, 1999, the Partnership commenced a public offering of up to
$70,000,000 of limited partnership units ($10.00 per unit) pursuant to a
Registration Statement on Form S-11 filed under the Securities Act of 1933. The
Partnership commenced active operations on June 1, 1999, when it received and
accepted subscriptions for 125,000 units. The offering was terminated on March
21, 2001, at which time the Partnership had sold 2,688,861 Cash Preferred Units
and 872,258 Tax Preferred Units held by a total of 1,227 and 106 Cash Preferred
and Tax Preferred Limited Partners, respectively. As of December 31, 2001, the
Partnership had 2,778,607 Cash Preferred Units and 782,512 Tax Preferred Units,
held by a total of 1,233 and 102 Cash Preferred and Tax Preferred Limited
Partners, respectively, for total Limited Partner capital contributions of
$35,611,192. As of December 31, 2001, the Partnership has paid $1,246,403 in
acquisition and advisory fees and acquisition expenses, $4,451,400 in selling
commissions and organization and offering expenses, and has invested $5,300,000
in the Fund XI-XII-REIT Joint Venture and $24,613,401 in the Fund XII-REIT Joint
Venture.

Employees

The Partnership has no direct employees. The employees of Wells Capital, Inc.,
the General Partner of Wells Partners, and Wells Management Company, Inc.
perform a full range of real estate services including leasing and property
management, accounting, and asset management and investor relations for the
Partnership.

Insurance

Wells Management Company, Inc., an affiliate of the General Partners, carries
comprehensive liability and extended coverage with respect to all the properties
owned by the Partnership through investments in the joint ventures described in
Item 2. In the opinion of management, all such properties are adequately
insured.

2

Competition

The Partnership will experience competition for tenants from owners and managers
of competing projects, which may include the General Partners and their
affiliates. As a result, the Partnership may provide free rent, reduced charges
for tenant improvements and other inducements, all of which may have an adverse
impact on the results of operations. At the time the Partnership elects to
dispose of its properties, the Partnership will also be in competition with
sellers of similar properties to locate suitable purchasers for its properties.

ITEM 2. PROPERTIES

The Partnership owns interests in properties through its ownership in the
following joint ventures between the Partnership and other affiliated Wells
entities: (i) Fund XI-XII-REIT Associates ("Fund XI-XII-REIT Joint Venture"), a
joint venture among the Partnership, Wells Real Estate Fund XI, L.P. ("Wells
Fund XI") and Wells Operating Partnership, L.P. ("Wells OP"), a Delaware limited
partnership having Wells Real Estate Investment Trust, Inc. ("Wells REIT"), as
its General Partner, and (ii) the Fund XII-REIT Joint Venture, a joint venture
between the Partnership and Wells OP, ("Fund XII-REIT Joint Venture"). Wells
REIT is a Maryland Corporation that qualifies as a real estate investment trust.

As of December 31, 2001, the Partnership owned interests in the following
properties through its ownership in the foregoing joint ventures: (i) a
two-story manufacturing and office building located in Fountain Inn, South
Carolina (the "EBYL CarTex Building") (ii) a three-story office building located
in Leawood, Johnson County, Kansas (the "Sprint Building") (iii) a one-story
office building and warehouse located in Tredyffin Township, Chester County,
Pennsylvania (the "Johnson Matthey Building"), and (iv) a two story office
building located in Ft. Myers, Lee County, Florida, (the "Gartner Building"),
all of which are owned by the Fund XI-XII-REIT Joint Venture (v) a three-story
office building located in Troy, Oakland County, Michigan, (the "Siemens
Building"), (vi) a one-story office building and a two-story office building
located in Oklahoma City, Oklahoma County, Oklahoma (the "AT&T Oklahoma
Buildings"), and (vii) a three-story office building located in Williamson
County, Brentwood, Tennessee (the "Comdata Building"), all of which are owned by
the Fund XII-REIT Joint Venture.

The Partnership does not have control over the operations of the above joint
ventures; however, it does exercise significant influence. Accordingly,
investments in joint ventures are recorded using the equity method of
accounting. All properties owned by the partnership through its interests in the
foregoing joint ventures were 100% occupied at year-end in 2001, 2000 and 1999,
the year of inception.

The following table shows lease expirations during each of the next ten years
for leases at all properties owned by the joint ventures described above, as of
December 31, 2001, assuming no exercise of renewal options or termination
rights:

3

Partnership Percentage Percentage
Number Share of of Total of Total
Year of of Square Annualized Annualized Square Annualized
Lease Leases Feet Gross Base Gross Base Feet Gross Base
Expiration Expiring Expiring Rent (1) Rent (1) Expiring Rent
- ---------- -------- -------- ---------- ----------- ---------- ----------

2007(2) 2 198,900 $1,931,928 $ 330,147 31.3% 30.0%
2008(3) 3 256,910 1,732,632 385,061 40.3 26.8
2010(4) 2 180,554 2,784,288 1,253,988 28.4 43.2
- ------- --------- ---------- ----- -----
7 636,364 $6,448,848 $1,969,196 100.0% 100.0%
= ======= ========== ========== ===== =====

(1) Average monthly gross rent over the life of the lease, annualized
(2) Expiration of Sprint lease (68,900 squarefeet) and Johnson
Matthey lease (130,000 square feet).
(3) Expiration of Gartner lease (62,400 square feet), EYBL Cartex
lease (169,510 square feet), and Jordan lease (25,000 square
feet).
(4) Expiration of AT&T lease (103,500 square feet) and Siemens lease
(77,054 square feet).

Additional information about the properties in which the Partnership owns
interests as of December 31, 2001 is provided below:

Fund XI-XII-REIT Joint Venture

On June 21, 1999, Fund XI-REIT Joint Venture, a joint venture between Wells Fund
XI and Wells OP, was amended and restated to admit the Partnership as a joint
venture partner. The Fund XI-REIT Joint Venture, which changed its name to the
Wells Fund XI-XII-REIT Joint Venture, had previously acquired and owned the EYBL
CarTex Building located in Greenville, South Carolina. As of December 31, 2001,
the Partnership had contributed $5,300,000 for an approximate 17% equity
interest, Wells Fund XI had contributed $8,131,351 for an approximate 26% equity
interest, and Wells OP had contributed $17,585,310 for an approximate 57% equity
interest in the Fund XI-XII-REIT Joint Venture.

Sprint Building

On July 2, 1999, the Fund XI-XII-REIT Joint Venture acquired the Sprint
Building, a three-story office building with approximately 68,900 rentable
square feet on a 7.12 acre tract of land located in Leawood, Johnson County,
Kansas, for a purchase price of $9,500,000 plus closing costs of approximately
$46,210. As of December 31, 2001, the Partnership had contributed $1,000,000,
Wells Fund XI had contributed $3,000,000 and Wells OP had contributed $5,546,210
to the purchase of this property.

The entire 68,900 rentable square feet of the Sprint Building is currently under
a net lease agreement with Sprint Communications Company, L.P. ("Sprint") dated
February 14, 1997. The initial term of the lease ten years which commenced on
May 19, 1997 and expires on May 18, 2007. Sprint has the option to extend the
lease for two additional five-year periods. The monthly base rent payable under
the lease is $83,254 through May 18, 2002 and $91,867 for the remainder of the
lease term. The monthly base rent payable for each extended term of the lease
will be equal to 95% of the then current market rate which is calculated as a
full-service rental rate less anticipated annual operating expenses per rentable
square foot based on amounts charged for spaces of comparable location, size and
conditions in comparable office buildings in the suburban south Kansas City,
Missouri and south Johnson County, Kansas areas.

The lease contains a termination option, which may be exercised by Sprint
effective May 18, 2004, provided that Sprint has not exercised either expansion
option, as described below. Sprint must provide

4

notice to the Fund XI-XII-REIT Joint Venture of its intent to exercise its
termination option on or before August 21, 2003. If Sprint exercises its
termination option, it will be required to pay the Fund XI-XII-REIT Joint
Venture a termination payment equal to $6.53 per square foot, or $450,199.

Sprint also has an expansion option for an additional 20,000 square feet of
office space, which may be exercised in two expansion phases. Sprint's expansion
rights involve building on unfinished ground-level space that is currently used
as covered parking within the existing building footprint and shell. At each
exercise of an expansion option, the remaining lease term will be extended to be
a minimum of an additional five years from the date of the completion of such
expansion space.

The average effective annual rental rate per square foot at the Sprint Building
was $15.45 for 2001 and $15.44 for 2000 and 1999, the first year of ownership.
The occupancy rate at year-end was 100% in 2001, 2000 and 1999.

EYBL CarTex Building

On May 18, 1999, the Fund XI-XII-REIT Joint Venture purchased the EYBL CarTex
Building, a manufacturing and office building located in Fountain Inn,
unincorporated Greenville County, South Carolina for a purchase price of
$5,085,000 plus closing cost of approximately $37,000. The purchase cost was
funded by capital contributions of $1,530,000 from Wells Fund XI and $3,591,827
from Wells OP.

The EYBL CarTex Building is a manufacturing and office building containing
approximately 169,510 rentable square feet, comprised of approximately 140,580
square feet of manufacturing space, 25,300 square feet of two-story office space
and 3,360 square feet of cafeteria/training space. An addition was constructed
to the EYBL CarTex Building in 1989, which contained approximately 64,000 square
feet of warehouse space.

The entire 169,510 rentable square feet of the EBYL CarTex Building is currently
leased to EYBL CarTex, Inc., a South Carolina corporation ("EBYL CarTex"). The
initial term of the Lease is ten years, beginning on March 1, 1998. EYBL CarTex
has the right to extend its lease for two additional five-year periods. Each
extension option must be exercised by giving notice to the landlord at least
twelve months prior to the expiration date of the then current lease term. The
annual rent payable is $508,530 for the first four years, $550,907 for years
five and six, $593,285 for years seven and eight, and $610,236 for years nine
and ten.

The average effective annual rental rate per square foot at the EBYL CarTex
Building was $3.31 for 2001, 2000 and 1999, the first year of ownership. The
occupancy rate at year-end was 100% in 2001, 2000 and 1999.

Johnson Matthey Building

On August 17, 1999, the Fund XI-XII-REIT Joint Venture purchased the Johnson
Matthey Building, a research and development office and warehouse building
located in Chester County, Pennsylvania, for a purchase price of $8,000,000 plus
closing costs of approximately $60,000. The purchase of the building was funded
by capital contributions of $1,500,000 from the Partnership, $3,494,727 from
Wells Fund XI and $3,061,594 from Wells OP.

The Johnson Matthey Building is a 130,000 square foot research and development,
office and warehouse building that was first constructed in 1973 as a
multi-tenant facility. It was subsequently converted into a

5

single-tenant facility in 1998. The site consists of a ten-acre tract of land
located at 434-436 Devon Park Drive in the Tredyffrin Township, Chester County,
Pennsylvania.

The entire 130,000 rentable square feet of the Johnson Matthey Building is
currently leased to Johnson Matthey. The annual base rent payable under the
Johnson Matthey lease for the remainder of the lease term is as follows: year
three - $789,750, year four - $809,250, year five - $828,750, year six -
$854,750, year seven - $874,250, year eight - $897,000, year nine - $916,500,
and year ten - $939,250. The current lease term expires in June 2007. Johnson
Matthey has the right to extend the lease for two additional three-year periods.

Johnson Matthey has a right of first refusal to purchase the Johnson Matthey
Building in the event that the Fund XI-XII-REIT Joint Venture desires to sell
the building to an unrelated third party. The joint venture must give Johnson
Matthey written notice of its intent to sell the Johnson Matthey Building, and
Johnson Matthey will have ten days from the date of such notice to provide
written notice of its intent to purchase the building. If Johnson Matthey
exercises its right of first refusal, it must purchase the Johnson Matthey
Building on the same terms contained in the third party offer.

The average effective annual rental rate per square foot at the Johnson Matthey
Building was $6.67 for 2001, 2000 and 1999, the first year of ownership. The
occupancy rate at year end was 100% for 2001, 2000 and 1999.

Gartner Building

On September 20, 1999, the Fund XI-XII-REIT Joint Venture purchased the Gartner
Building, a two-story office building with approximately 62,400 rentable square
feet on a 4.9-acre tract of land located at 12600 Gateway Boulevard in Fort
Meyers, Lee County, Florida for a purchase price of $8,320,000 plus closing
costs of approximately $27,600. The purchase was funded by capital contributions
of $2,800,000 by the Partnership, $106,554 by Wells Fund XI and $5,441,064 by
Wells OP.

The entire 62,400 rentable square feet of the Gartner Building is currently
under a net lease agreement with Gartner dated July 30, 1997 (the "Gartner
Lease"). The initial term of the Gartner Lease is ten years which commenced on
February 1, 1998 and expires on January 31, 2008. Gartner has the right to
extend the lease for two additional five-year periods. The annual base rent
payable for the remainder of the Gartner Lease term is $642,798 through January
2000, $790,642 though January, 2001, and thereafter will increase by 2.5 percent
through the remainder of the Gartner Lease.

Gartner also has two expansion options for additional buildings under the
Gartner Lease. The two option plans are described in the Gartner Lease as the
"Small Option Building" and the "Large Option Building".

The "Small Option Building" expansion option allows Gartner the ability to
expand into a separate, free- standing facility on the property containing
between 30,000 and 32,000 rentable square feet to be constructed by the Fund
XI-XII-REIT Joint Venture. Gartner may exercise its expansion right for the
"Small Option Building" by providing written notice to the Fund XI-XII-REIT
Joint Venture on or before April 15, 2002.

The "Large Option Building" expansion option allows Gartner the ability to
expand into a separate, free-standing facility on the property containing
between 60,000 and 75,000 rentable square feet to be constructed by the Fund
XI-XII-REIT Joint Venture. Gartner may exercise its expansion right for the

6

"Large Option Building" by providing notice in writing to the Fund XI-XII-REIT
Joint Venture on or before April 15, 2002.

The average effective annual rental rate per square foot at the Gartner Building
was $13.68 for 2001, 2000 and 1999, the first year of ownership. The occupancy
rate at year-end was 100% in 2001, 2000 and 1999.

Fund XII-REIT Joint Venture

On April 10, 2000, the Partnership and Wells OP formed the Fund XII-REIT Joint
Venture for the purpose of acquiring owning, leasing, operating and managing
real properties. As of December 31, 2001, the Partnership had contributed
$24,613,401 for an equity interest of approximately 45%, and Wells OP had
contributed $29,950,668 for an equity interest of approximately 55% equity
interest in the Fund XII-REIT Joint Venture.

Siemens Building

On May 10, 2000, the Fund XII-REIT Joint Venture purchased the Siemens Building,
a three-story office building containing 77,054 rentable square feet on a 5.3
acre tract of land located in Troy, Oakland County, Michigan. The purchase price
for the Siemens Building was $14,265,000. As of December 31, 2001, the purchase
price was funded by capital contributions of $7,096,245 from the Partnership and
$7,096,245 from Wells OP.

The entire Siemens Building is currently under a net lease agreement with
Siemens Automotive Corporation ("Siemens") that expires August 31, 2010. Siemens
has the right to extend the lease for two additional five-year periods at 95% of
the then current fair market rental rates.

The monthly rent payable under the Siemens lease for the remainder of the lease
term is $109,160 for year 1; $111,857 for year 2; $114,554 for year 3; $117,251
for year 4; $119,947 for year 5; $122,644 for year 6; $125,341 for year 7;
$128,038 for year 8; $130,735 for year 9; and $133,432 for year 10 and the first
six months of year 11.

Siemens has a one-time right to cancel the lease effective after the 90th month
of the term if Siemens (a) provides written notice of such cancellation on or
before the last day of the 78th month, and (b) pays a cancellation fee to the
Fund XII-REIT Joint Venture currently calculated to be approximately $1,234,160.

The average effective annual rental rate per square foot at the Siemens Building
was $19.01 for 2001 and 2000, the first year of ownership. The occupancy rate at
year-end was 100% in 2001 and 2000.

AT&T Oklahoma Buildings

On December 28, 2000, the Wells Fund XII-REIT Joint Venture purchased the AT&T
Oklahoma Buildings, a one-story office building and a two-story office building
containing an aggregate of approximately 128,500 rentable square feet on a 11.34
acre tract of land located in Oklahoma City, Oklahoma County, Oklahoma for a
purchase price of $15,300,000 plus closing costs of approximately $27,554. The
purchase of the building was funded by capital contributions of $8,591,000 by
the Partnership and $6,736,554 by Wells OP.

7

The entire 78,500 rentable square feet of the two-story office building and
25,000 rentable square feet of the one-story office building are currently under
a net lease agreement with AT&T Corp. ("AT&T"). The AT&T lease commenced on
April 1, 2000, and the initial term expires on November 30, 2010. AT&T has the
right to extend the AT&T lease for two additional five-year periods at the then
current fair market rental rate upon delivering written notice within 240 days
prior to expiration of the lease.

Annual base rent is payable for the initial term of the AT&T lease as follows:
Months 1 to 8--$300,000; months 9 to 35--$1,242,000, months 36 to
65--$1,293,750; months 66 to 95--$1,345,500 and months 96 to 125--$1,437,750,
all payable in equal monthly installments.

AT&T has a right of first offer for the space occupied by Jordan Associates,
Inc., ("Jordan"), as described below, if Jordan vacates the premises before the
Fund XII-REIT Joint Venture can lease the space to a third party.

Jordan currently occupies the remaining 25,000 rentable square feet contained in
the one-story office building under a net lease agreement. The initial term of
the Jordan lease commenced on April 1, 1998 for a period of ten years. Jordan
has the right to extend the lease for one five year period at the then current
fair market rental rate upon delivering written notice within 240 days prior to
expiration of the initial lease term.

Annual base rent is payable for the initial lease term of the Jordan lease as
follows: Months 1 to 60--$294,500 and months 61 to 120--$332,000 payable in
equal monthly installments.

The average effective annual rental rate per square foot at the AT&T Oklahoma
Buildings was $15.86 for 2001 and 2000, the first year of ownership. The
occupancy rate at year-end was 100% in 2001 and 2000.

The Comdata Building

On May 15, 2001, the Wells Fund XII-REIT Joint Venture purchased the Comdata
Building, a three-story office building containing approximately 201,237
rentable square feet on a 12.3-acre tract of land located at 5301 Maryland Way,
Williamson County, Brentwood, Tennessee for a purchase price of $24,950,000 plus
closing costs of approximately $52,000. The purchase price was funded by capital
contributions of $8,926,156 from the Partnership and $16,075,863 from Wells OP.

The entire Comdata Building is currently under a triple-net lease agreement with
Comdata, a wholly owned subsidiary of Ceridian Corporation, the guarantor of the
lease. The Comdata lease commenced on April 1, 1997, and the current term
expires on May 31, 2016. Comdata has the right to extend the lease for one
additional five-year period at a rate equal to the greater of the base rent of
the final year of the initial term or 90% of the then-current fair market rental
rate.

Annual base rent is payable for the current term of the Comdata lease as
follows: $2,398,672 for year 1; $2,458,638 for years 2-6; $2,528,605 for years
7-11; and $2,578,572 for years 12-15.

The average effective annual rental rate per square foot at the Comdata Building
was $12.47 in 2001, the first year of ownership. The occupancy rate at year end
was 100% in 2001.

8

ITEM 3. LEGAL PROCEEDINGS

There were no material pending legal proceedings or proceedings known to be
contemplated by governmental authorities involving the Partnership during 2001.

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

No matters were submitted to a vote of the Limited Partners during 2001.

(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)

9

PART II

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

The offering for sale of Units in the Partnership terminated on March 21, 2001,
at which time the Partnership had sold 2,688,861 Cash Preferred Units and
872,258 Tax Preferred Units held by a total of 1,227 and 106 Limited Partners,
respectively. As of February 28, 2002, the Partnership had 2,778,607 outstanding
Cash Preferred Units held by a total of 1,233 Limited Partners and 782,512
outstanding Tax Preferred Units held by a total of 102 Limited Partners. The
capital contribution per unit is $10.00. There is no established public trading
for the Partnership's limited partnership units, and it is not anticipated that
a public trading market for the units will develop. Under the Partnership
Agreement, the General Partners have the right to prohibit transfers of units.

Pursuant to Section 15.2 of the Partnership Agreement, for the first three
fiscal years following the termination of the offering of units in the
Partnership, the per unit value is deemed to be $10.00 per unit. After the
expiration of this three year period, the General Partners are required to
determine a per unit value by estimating the amount a holder of Partnership
units would receive if the Partnership's properties were sold as of the close of
the Partnership's fiscal year at the estimated fair market values and the
proceeds from such sales (without reduction for selling expenses), together with
any other funds of the Partnership, were distributed in a liquidation of the
Partnership.

Cash Preferred Status Limited Partners are entitled to a distribution from Net
Cash From Operations, as defined in the Partnership Agreement to mean cash flow,
less adequate cash reserves for other obligations of the Partnership for which
there is no provision, on a per unit basis until they have received
distributions in each fiscal year of the Partnership equal to 10% of their
adjusted capital contributions. After this preference is satisfied, the General
Partners will receive an amount of Net Cash From Operations equal to 10% of the
total amount of Net Cash From Operations distributed. Thereafter, the Limited
Partners holding Cash Preferred Units will receive 90% of Net Cash From
Operations and the General Partners will receive 10%. No Net Cash From
Operations will be distributed to Limited Partners holding Tax Preferred Units.
Holders of Cash Preferred Units will, except in limited circumstances, be
allocated none of the Partnership's net loss, depreciation and amortization
deductions. These deductions will be allocated to the Tax Preferred Units, until
their capital account balances have been reduced to zero. No distributions have
been made to the Tax Preferred Status Limited Partners or the General Partners
as of December 31, 2001.

Cash available for distribution to the Limited Partners is distributed on a
quarterly basis unless Limited Partners elect to have their cash distributed
monthly. Cash distributions made to Cash Preferred Status Limited Partners
during 2001 and 2000 were as follows:

10

Per Cash Preferred Status Unit
--------------------------------
Total Cash Investment Return of General
Distribution for Quarter Ended Distributed Income Capital Partner
- ------------------------------ ----------- ---------- --------- -------
March 31, 2000 $ 142,481 $ 0.15 $ 0.00 $ 0.00
June 30, 2000 223,365 0.21 0.00 0.00
September 30, 2000 300,895 0.21 0.00 0.00
December 31, 2000 375,995 0.20 0.00 0.00
March 31, 2001 482,871 0.25 0.00 0.00
June 30, 2001 626,237 0.23 0.00 0.00
September 30, 2001 642,554 0.25 0.00 0.00
December 31, 2001 660,546 0.25 0.00 0.00

The fourth quarter distribution was accrued for accounting purposes in 2001 and
paid to Limited Partners in February, 2002.

ITEM 6. SELECTED FINANCIAL DATA

The following sets forth a summary of the selected financial data for the years
ended December 31, 2001 and 2000 and the seven months ended December 31, 1999.

2001 2000 1999
------------ ------------ -----------
Total assets $ 30,726,203 $ 22,251,384 $ 8,607,630
Total revenues 1,661,194 929,868 160,379
Net income 1,555,418 856,228 122,817
Net loss allocated
to General Partners 0 0 (500)
Net income allocated to
Cash Preferred Limited Partners 2,591,027 1,209,438 195,244
Net loss allocated to
Tax Preferred Limited Partners (1,035,609) (353,210) (71,927)
Net income per weighted
average (1) Cash Preferred
Limited Partner Unit $ 0.98 $ 0.89 $ 0.50
Net loss per weighted
average (1) Tax Preferred
Limited Partner Unit (1.31) (0.92) (0.56)
Cash Distributions per
weighted average (1)
Cash Preferred Limited Partner
Unit:
Investment income 0.91 0.77 0.55
Return of capital 0.00 0.00 0.00

(1) Weighted average units are calculated by averaging units over the period
they are outstanding during the time units were being purchased by Limited
Partners in the Partnership.

11

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATION

The following discussion and analysis should be read in conjunction with the
Selected Financial Data and the accompanying financial statements of the
Partnership and notes thereto.

Forward-Looking Statements

This Report contains forward-looking statements, within the meaning of Section
27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of
1934, including discussion and analysis of the financial condition of the
Partnership, anticipated capital expenditures required to complete certain
projects, amounts of cash distributions anticipated to be distributed to Limited
Partners in the future and certain other matters. Readers of this Report should
be aware that there are various factors that could cause actual results to
differ materially from any forward-looking statement made in the Report, which
include construction costs which may exceed estimates, construction delays,
lease-up risks, inability to obtain new tenants upon the expiration of existing
leases, and the potential need to fund tenant improvements or other capital
expenditures out of operating cash flow.

Results of Operations

Gross revenues of the Partnership were $1,661,194, $929,868 and $160,379 for the
years ended December 31, 2001, 2000, and 1999, respectively. The increases each
year are due to an increase in equity in income of joint ventures due to
purchases of properties through these joint ventures, offset by a decrease in
interest income earned on cash balances in 2001 as a result of capital
contributions being invested in properties. Expenses for the Partnership were
$105,776, $73,640 and $37,562 for the years ended December 31, 2001, 2000, and
1999, respectively. Expenses in all categories increased each year due to the
acquisitions aforementioned. As a result, net income of the Partnership was
$1,555,418, $856,228 and $122,817 for the years ended December 31, 2001, 2000
and 1999, respectively.

Refer to footnotes of Audited Financial Statements where a complete summary of
operations is disclosed.

Liquidity and Capital Resources

The Partnership's net cash used in operating activities was $73,029 for the year
ended December 31, 2001, compared to net cash provided by operating activities
of $247,244 and $3,783 for the years ended December 31, 2000 and 1999,
respectively, primarily due to an increase in partnership administrative
expenses in 2001. The increase from 1999 to 2000 is due to an increase in
interest income on funds received from investors during the open period of the
Partnership. Net cash used in investing activities decreased to $7,261,248 for
2001 from $15,509,219 in 2000. This was the result of increased investment in
joint ventures to fund investments in additional properties. Net cash used in
investing activities increased in 2000 as compared to $5,553,777 in 1999 due to
the Partnership having a full year to receive funds from investors in 2000 and
invest those same funds in additional properties through joint ventures. Net
cash provided by financing activities was $7,158,585, $12,885,560 and $8,134,128
for the years ended December 31, 2001, 2000 and 1999, respectively. The changes
are a result of paying increased distributions to Limited Partners and receiving
partner contributions offset by sales costs related to selling limited partner
units of 1,062,543 in 2001, 1,561,757 in 2000 and 936,819 in 1999.

Due to the purchases of the Siemens Building in May 2000, AT&T-Oklahoma
Buildings in December 2000 and the Comdata Building in May 2001, operating
results of the prior year periods are not

12

comparable to the year ended December 31, 2001.

All distributions payable through December 31, 2001 have been paid from net
operating cash flows. The Partnership expects to continue to meet its short-term
liquidity requirements generally through net cash provided by operations which
the Partnership believes will continue to be adequate to meet both operating
requirements and distributions to Limited Partners. Although there is no
assurance, the General Partners anticipate that cash distributions to Limited
Partners holding Cash Preferred Status Units will continue in 2002 at a level at
least comparable with 2001 cash distributions on an annual basis. At this time,
given the nature of the joint ventures and properties in which the Partnership
has invested, there are no known improvements or renovations to the properties
that will be required to be funded from cash flow from operations.

Since properties are acquired on an all-cash basis, the Partnership has no
permanent long-term liquidity requirements.

Inflation

The real estate market has not been affected significantly by inflation in the
past three years due to the relatively low inflation rate. There are provisions
in the majority of tenant leases to protect the Partnership from the impact of
inflation. Most leases contain common area maintenance 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. These provisions should reduce the Partnership's exposure to
increases in costs and operating expenses resulting from inflation.

Critical Accounting Policies

The Partnership's accounting policies have been established and conformed to in
accordance with accounting principles generally accepted in the United States
("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 our 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 our financial
statements. Below is a discussion of the accounting policies that we consider to
be critical in that they may require complex judgment in their application or
require estimates about matters, which are inherently uncertain. Additional
discussion of accounting policies that we consider to be significant, including
further discussion of the critical accounting policies described below, is
presented in the notes to the Partnership's financial statements in Item 14(a).

Straight-Lined Rental Revenues

The Partnership recognizes rental income generated from all leases on real
estate assets in which the Partnership has an ownership interest, either
directly or through investments in joint ventures, on a straight-line basis over
the terms of the respective leases. If a tenant was to encounter financial
difficulties in future periods, the amount recorded as receivable may not be
realized.

13

Operating Cost Reimbursements

The Partnership generally bills tenants for operating cost reimbursements,
either directly or through investments in joint ventures, on a monthly basis at
amounts estimated largely based on actual prior period activity and the
respective lease terms. Such billings are generally adjusted on an annual basis
to reflect reimbursements owed to the landlord based on the actual costs
incurred during the period and the respective lease terms. Financial
difficulties encountered by tenants may result in receivables not being
realized.

Real Estate

Management continually monitors events and changes in circumstances indicating
that the carrying amounts of the real estate assets in which the Partnership has
an ownership interest, either directly or through investments in joint ventures,
may not be recoverable. When such events or changes in circumstances are
present, management assesses the potential impairment by comparing the fair
market value of the asset, estimated at an amount equal to the future
undiscounted operating cash flows expected to be generated from tenants over the
life of asset and from its eventual disposition, to the carrying value of the
asset. In the event that the carrying amount exceeds the estimated fair market
value, the Partnership would recognize an impairment loss in the amount required
to adjust the carrying amount of the asset to its estimated fair market value.
Neither the Partnership nor its joint ventures have recognized impairment losses
on real estate assets in 2001, 2000 or 1999.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements of the Registrant and supplementary data are detailed
under Item 14 (a) and filed as part of the report on the pages indicated.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There were no disagreements with the Partnership's accountants or other
reportable events during 2001.

(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)

14

PART III

ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP

Wells Partners, L.P

The sole General Partner of Wells Partners is Wells Capital, Inc. The executive
offices of Wells Capital, Inc. are located at 6200 The Corners Parkway Suite
250, Norcross, Georgia 30092.

Leo F. Wells, III

Mr. Wells is a resident of Atlanta, Georgia, is 58 years of age and holds a
Bachelor of Business Administration Degree in Economics from the University of
Georgia. Mr. Wells is the President and sole Director of Wells Capital, Inc. Mr.
Wells is the President of Wells & Associates, Inc., a real estate brokerage and
investment company formed in 1976 and incorporated in 1978, for which he serves
as the principal broker. Mr. Wells is also the President, sole Director and sole
shareholder of Wells Real Estate Investment Funds, Inc., the parent corporation
of Wells Capital, Inc., and the sole Director and President of Wells Management
Company, Inc., a property management company he founded in 1983. In addition,
Mr. Wells is the President and Chairman of the Board of Wells Investment
Securities, Inc., Wells & Associates, Inc., and Wells Management Company, Inc.,
all of which are affiliates of the General Partners. From 1980 to February 1985,
Mr. Wells served as vice-president of Hill-Johnson, Inc., a Georgia corporation
engaged in the construction business. From 1973 to 1976, he was associated with
Sax Gaskin Real Estate Company, and from 1970 to 1973, he was a real estate
salesman and property manager for Roy D. Warren & Company, an Atlanta real
estate company.

ITEM 11. COMPENSATION OF GENERAL PARTNERS AND AFFILIATES

The following table summarizes the compensation and fees (including
reimbursement of expenses) paid to the General Partners and their affiliates
during the year ended December 31, 2001.

CASH COMPENSATION TABLE

Name of Individual or Capacities in which served -
Number in Group Form of Compensation Cash Compensation
- --------------------------------------------------------------------------

Wells Capital, Inc. General Partner of Wells $ 371,902
Partners, L.P.
Acquisition and Advisory Fees
and Expenses

Wells Capital, Inc. General Partner of Wells $ 318,763
Partners, L.P. Reimbursement
of Organization and Offering
Expenses
Leo F. Wells, III General Partner -0-

Wells Investment Dealer Manager - $1,009,416(1)
Securities, Inc. Selling Commissions

Wells Management Property Manager - $ 125,302(2)
Company, Inc. Management and Leasing Fees

15

(1) This amount includes all selling commissions paid or payable to Wells
Investment Securities, Inc., a substantial portion of which were
reallocated to other broker-dealers.

(2) These fees are not paid directly by the Partnerships but are paid by
the joint venture entities which own properties for which the property
management and leasing services relate and include management and
leasing fees, some of which were accrued for accounting purposes in
2001 but not actually paid until January, 2002. The Partnership does
not own any properties directly. Accordingly, these fees are payable
to Wells Management, Inc. by the joint ventures described in Item 1
and represent the partnership's ownership interest in amounts
attributable to the properties owned directly by these joint ventures
for services rendered during 2001.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

No Limited Partner is known by the Partnership to own beneficially more than 5%
of the outstanding units of the Partnership.

Set forth below is the security ownership of management as of February 28, 2002.

Name of Beneficial Amount and Nature of
Title of Class Owner Beneficial Ownership Percent of Class
- -------------- ------------------ ----------------------- ----------------

Cash Preferred Leo F. Wells, III 23.501 Units (IRA, Less than 1%
Status Units 401 (k) Plan and Profit
Sharing)

No arrangements exist which would, upon execution thereof, result in a change in
control of the Partnership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The compensation and fees paid or to be paid by the Partnership to the General
Partners and their affiliates in connection with the operation of the
Partnership are as follows:

Interest in Partnership Cash Flow and Net Sales Proceeds

The General Partners will receive a subordinated participation in net cash flow
from operations equal to 10% of net cash flow after the Limited Partners holding
Cash Preferred Units have received preferential distributions equal to 10% of
their adjusted capital accounts in each fiscal year. The General Partners will
also receive a subordinated participation in net sales proceeds and net
financing proceeds equal to 20% of residual proceeds available for distribution
after Limited Partners holding Cash Preferred Units have received a return of
their adjusted capital contributions plus a 10% cumulative return on their
adjusted capital contributions and Limited Partners holding Tax Preferred Units
have received a return of their adjusted capital contributions plus a 15%
cumulative return on their adjusted capital contributions; provided, however,
that in no event shall the General Partners receive in the aggregate in excess
of 15% of net sales proceeds and net financing proceeds remaining after payments
to Limited Partners from such proceeds of amounts equal to the sum of their
adjusted capital contributions plus a 6% cumulative return on their adjusted
capital contributions. The General Partners did not receive any distributions
from net cash flow from operations or net sales proceeds for the year ended
December 31, 2001.

16

Property Management and Leasing Fees

Wells Management Company, Inc., an affiliate of the General Partners, will
receive compensation for supervising the management of the Partnership
properties equal to the lesser of (a) fees that would be paid to a comparable
outside firm or (b) 4.5% of the gross revenues generally paid over the life of
the lease plus a separate competitive fee for the one-time initial lease-up of
newly constructed properties generally paid in conjunction with the receipt of
the first month's rent. In the case of commercial properties which are leased on
a long-term (ten or more years) net basis, 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.

Real Estate Commissions

In connection with the sale of Partnership properties, the General Partners or
their affiliates may receive commissions not exceeding the lesser of (A) 50% of
the commissions customarily charged by other brokers in arm's-length
transactions involving comparable properties in the same geographic area or (B)
3% of the gross sales price of the property, and provided that payments of such
commissions will be made only after Limited Partners have received prior
distributions totaling 100% of their capital contributions plus a 6% cumulative
return on their adjusted capital contributions. No real estate commissions were
paid to the General Partners or affiliates for the year ended December 31, 2001.

Deferred Project Costs

The Partnership pays Acquisition and Advisory Fees and Acquisition Expenses to
Wells Capital, Inc., the General Partner of Wells Partners, for acquisition and
advisory services as a reimbursement for acquisition expenses. These payments,
as provided by the Partnership Agreement, may not exceed 3.5% of the Limited
Partners' capital contributions. Acquisition and Advisory Fees and Acquisition
Expenses paid as of December 31, 2001, amounted to $1,246,403 and represented
approximately 3.5% of the Limited Partners' capital contributions. These fees
are allocated to specific properties as they are purchased.

Deferred Offering Costs

Wells Capital, Inc. (the "Company"), the General Partner of Wells Partners, pays
all the organization and offering expenses for the Partnership. The Company may
be reimbursed by the Partnership to the extent that such offering expenses do
not exceed 3% of total Limited Partners' capital contributions. As of December
31, 2001, the Partnership had reimbursed the Company for $1,068,336 in
organization and offering expenses, which amounted to approximately 3% of
Limited Partners' capital contributions.

17

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)1. Financial Statements
The Financial Statements are contained on pages F-2 through F-22 of
this Annual Report on Form 10-K, and the list of the Financial
Statements contained herein is set forth on page F-1, which is hereby
incorporated by reference.

(a)2. The Exhibits filed in response to Item 601 of Regulation S-K are
listed on the Exhibit Index attached hereto.

(b) No reports on Form 8-K were filed with the Commission during the
fourth quarter of 2001.

(c) The Exhibits filed in response to Item 601 of Regulation S-K are
listed on the Exhibits Index attached hereto.

(d) See (a)2 above.

18

SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 22nd day of March
2002.

Wells Real Estate Fund XII, L.P.
(Registrant)

By: /s/ Leo F. Wells, III
-----------------------------------------
Leo F. Wells, III
Individual General Partner and
as President and Chief Financial
Officer of Wells Capital, Inc., the
General Partner of Wells Partners, L.P.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacity as and on the date indicated.

Signature Title Date
- ------------------------- --------------------------- --------------

/s/ Leo F. Wells, III
- -------------------------
Leo F. Wells, III Individual General Partner, March 22, 2002
President and Sole Director
of Wells Capital, Inc., the
General Partner of Wells
Partners, L.P.

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRARS WHICH HAVE NOT BEEN REGISTERED PURSUANT TO
SECTION 12 OF THE ACT.

No annual report or proxy material relating to an annual or other meeting of
security holders has been sent to security holders.

19

INDEX TO FINANCIAL STATEMENTS

Financial Statements Page
- ------------------------------------------------------------------------------------ ----

Independent Auditors' Report F-2

Balance Sheets as of December 31, 2001 and 2000 F-3

Statements of Income for the Years Ended December 31, 2001, 2000 and 1999 F-4

Statements of Partners' Capital for the Years Ended December 31, 2001, 2000 and 1999 F-5

Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 F-6

Notes to Financial Statements for December 31, 2001, 2000 and 1999 F-7

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Wells Real Estate Fund XII, L.P.:

We have audited the accompanying balance sheets of WELLS REAL ESTATE FUND XII,
L.P. (a Georgia public limited partnership) as of December 31, 2001 and 2000 the
related statements of income, partners' capital, and cash flows for each of the
three years in the period ended December 31, 2001. These financial statements
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Real Estate Fund XII,
L.P. as of December 31, 2001 and 2000 the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Atlanta, Georgia
January 25, 2002

F-2

WELLS REAL ESTATE FUND XII, L.P.

(A Georgia Public Limited Partnership)

BALANCE SHEETS

DECEMBER 31, 2001 AND 2000

2001 2000
----------- -----------

ASSETS
INVESTMENT IN JOINT VENTURES $30,003,597 $21,567,551

CASH AND CASH EQUIVALENTS 32,627 208,319

ACCOUNTS RECEIVABLE 2,867 10,718

DEFERRED PROJECT COSTS 0 27

DEFERRED OFFERING COSTS 0 180,409

DUE FROM AFFILIATES 687,112 284,360
----------- -----------
Total assets $30,726,203 $22,251,384
=========== ===========

LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES:
Accounts payable $ 2,490 $ 47,653
Due to affiliate 0 204,398
Partnership distributions payable 659,919 376,001
----------- -----------
662,409 628,052
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 9)

PARTNERS' CAPITAL:
Limited partners:
Cash preferred--2,778,607 and 1,881,142 units as of December 31,
2001 and 2000, respectively 24,613,370 16,589,551
Tax preferred--782,512 and 617,434 units as of December 31, 2001
and 2000, respectively 5,450,424 5,033,781
----------- -----------
Total partners' capital 30,063,794 21,623,332
----------- -----------
Total liabilities and partners' capital $30,726,203 $22,251,384
=========== ===========

The accompanying notes are an integral part of these balance sheets.

F-3

WELLS REAL ESTATE FUND XII, L.P.

(A Georgia Public Limited Partnership)

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

2001 2000 1999
----------- ----------- ---------

REVENUES:
Equity in income of joint ventures $ 1,577,523 $ 664,401 $ 124,542
Interest income 83,671 265,467 35,837
----------- ----------- ---------
1,661,194 929,868 160,379
----------- ----------- ---------
EXPENSES:
Partnership administration 52,111 32,215 12,517
Legal and accounting 24,257 17,500 11,439
Operating costs, net of reimbursements 16,623 12,030 8,431
Computer costs 12,785 11,895 5,175
----------- ----------- ---------
105,776 73,640 37,562
----------- ----------- ---------
NET INCOME $ 1,555,418 $ 856,228 $ 122,817
=========== =========== =========
NET LOSS ALLOCATED TO GENERAL PARTNERS $ 0 $ 0 $ (500)
=========== =========== =========
NET INCOME ALLOCATED TO CASH PREFERRED LIMITED PARTNERS $ 2,591,027 $ 1,209,438 $ 195,244
=========== =========== =========
NET LOSS ALLOCATED TO TAX PREFERRED LIMITED PARTNERS $(1,035,609) $ (353,210) $ (71,927)
=========== =========== =========
NET INCOME PER WEIGHTED AVERAGE CASH
PREFERRED LIMITED PARTNER UNIT $ 0.98 $ 0.89 $ 0.50
=========== =========== =========
NET LOSS PER WEIGHTED AVERAGE TAX
PREFERRED LIMITED PARTNER UNIT $ (1.31) $ (0.92) $ (0.56)
=========== =========== =========
DISTRIBUTION PER WEIGHTED AVERAGE CASH
PREFERRED LIMITED PARTNER UNIT $ 0.91 $ 0.77 $ 0.55
=========== =========== =========

The accompanying notes are an integral part of these statements.

F-4

WELLS REAL ESTATE FUND XII, L.P.

(A Georgia Public Limited Partnership)

STATEMENTS OF PARTNERS' CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

Limited Partners
------------------------------------------------------------
Cash Preferred Tax Preferred Total
------------------------ --------------------- General Partners'
Original Units Amount Units Amount Partners Capital
-------- --------- ------------ ------- ----------- --------- ------------

BALANCE, December 31, 1998 $ 100 0 $ 0 0 $ 0 $ 500 $ 600

Net income (loss) 0 0 195,244 0 (71,927) (500) 122,817
Partnership distributions 0 0 (176,018) 0 0 0 (176,018)
Limited partner contributions 0 752,426 7,524,260 184,393 1,843,926 0 9,368,186
Sales commissions and discounts 0 0 (714,805) 0 (175,173) 0 (889,978)
Other offering expenses 0 0 (225,728) 0 (55,318) 0 (281,046)
Return of capital (100) 0 0 0 0 0 (100)
----- --------- ------------ ------- ----------- --------- ------------
BALANCE, December 31, 1999 0 752,426 6,602,953 184,393 1,541,508 0 8,144,461

Net income (loss) 0 0 1,209,438 (353,210) 0 856,228
Partnership distributions 0 0 (1,042,735) 0 0 0 (1,042,735)
Limited partner contributions 0 1,112,517 11,125,166 449,240 4,492,409 0 15,617,575
Sales commissions and discounts 0 0 (1,096,641) 0 (387,029) 0 (1,483,670)
Other offering expenses 0 0 (334,055) 0 (134,472) 0 (468,527)
Tax preferred conversion elections 0 16,199 125,425 (16,199) (125,425) 0 0
----- --------- ------------ ------- ----------- --------- ------------
BALANCE, December 31, 2000 0 1,881,142 16,589,551 617,434 5,033,781 0 21,623,332

Net income (loss) 0 0 2,591,027 0 (1,035,609) 0 1,555,418
Partnership distributions 0 0 (2,412,208) 0 0 0 (2,412,208)
Limited partner contributions 0 823,918 8,239,183 238,625 2,386,248 0 10,625,431
Sales commissions and discounts 0 0 (782,723) 0 (226,693) 0 (1,009,416)
Other offering expenses 0 0 (247,176) 0 (71,587) 0 (318,763)
Tax preferred conversion elections 0 73,547 635,716 (73,547) (635,716) 0 0
----- --------- ------------ ------- ----------- --------- ------------
BALANCE, December 31, 2001 $ 0 2,778,607 $ 24,613,370 782,512 $ 5,450,424 $ 0 $ 30,063,794
===== ========= ============ ======= =========== ========= ============

The accompanying notes are an integral part of these statements.

F-5

WELLS REAL ESTATE FUND XII, L.P.

(A Georgia Public Limited Partnership)

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

2001 2000 1999
------------ ------------ -----------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,555,418 $ 856,228 $ 122,817
------------ ------------ -----------
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Equity in income of joint venture (1,577,523) (664,401) (124,542)
Changes in assets and liabilities:
Accounts receivable 7,851 (10,718) 0
Accounts payable (45,163) 42,146 5,508
Due to affiliates (13,612) 23,989 0
------------ ------------ -----------
Total adjustments (1,628,447) (608,984) (119,034)
------------ ------------ -----------
Net cash (used in) provided by operating
activities (73,029) 247,244 3,783
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions received from joint venture 2,036,837 737,266 61,485
Investment in joint venture (8,926,183) (15,687,245) (5,300,000)
Deferred project costs paid (371,902) (559,240) (315,262)
------------ ------------ -----------
Net cash used in investing activities (7,261,248) (15,509,219) (5,553,777)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Limited partners' contributions 10,625,431 15,617,575 9,368,186
Sales commissions and discounts paid (1,009,416) (1,483,670) (889,978)
Offering costs paid (329,140) (468,527) (281,046)
Distributions to partners from accumulated earnings (2,128,290) (779,818) (62,934)
Return of capital 0 0 (100)
------------ ------------ -----------
Net cash provided by financing activities 7,158,585 12,885,560 8,134,128
------------ ------------ -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (175,692) (2,376,415) 2,584,134
CASH AND CASH EQUIVALENTS, beginning of year 208,319 2,584,734 600
------------ ------------ -----------
CASH AND CASH EQUIVALENTS, end of year $ 32,627 $ 208,319 $ 2,584,734
============ ============ ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Deferred project costs contributed to joint venture $ 371,929 $ 653,639 $ 220,835
============ ============ ===========
Deferred project costs due to affiliate 0 $ 10,376 $ 12,625
============ ============ ===========
Deferred offering costs due to affiliate 0 $ 190,786 $ 222,814
============ ============ ===========
Write-off of deferred offering costs due to affiliate $ 180,409 $ 151,544 $ 0
============ ============ ===========

The accompanying notes are an integral part of these statements.

F-6

WELLS REAL ESTATE FUND XII, L.P.

(A Georgia Public Limited Partnership)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2001, 2000, AND 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business

Wells Real Estate Fund XII, L.P. (the "Partnership") is a public limited
partnership organized on September 15, 1998 under the laws of the state of
Georgia. The general partners are Leo F. Wells, III and Wells Partners, L.P
("Wells Partners"), a Georgia nonpublic limited partnership. The
Partnership has two classes of limited partnership units. Upon subscription
for units, each limited partner must elect whether to have his or her units
treated as cash preferred units or tax preferred units. Thereafter, 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. Limited partners may vote to,
among other things: (a) amend the partnership agreement, subject to certain
limitations, (b) change the business purpose or investment objectives of
the Partnership, (c) remove a general partner, (d) elect a new general
partner, (e) dissolve the Partnership, and (f) approve a sale of all or
substantially all of the Partnership's assets, subject to certain
limitations. The majority vote on any of the described matters will bind
the Partnership, without the concurrence of the general partners. Each
limited partnership unit has equal voting rights, regardless of which class
of unit is selected. The Partnership commenced operations as of June 1,
1999.

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. The Partnership owns an interest in four properties through a
joint venture between Wells Real Estate Fund XI, L.P. ("Wells Fund XI"),
the Partnership, and Wells Operating Partnership, L.P. (the "Operating
Partnership"), a Delaware limited partnership having Wells Real Estate
Investment Trust, Inc., a Maryland corporation, as its general partner,
which is referred to as the Fund XI, XII, and REIT Joint Venture. In
addition, the Partnership owns an interest in three properties through a
joint venture with the Operating Partnership, which is referred to as the
Fund XII and REIT Joint Venture.

Through its investment in the Fund XI, XII, and REIT Joint Venture, the
Partnership owns interests in the following properties: (i) a two-story
manufacturing and office building in Fountain Inn, South Carolina (the
"EYBL CarTex Building"), (ii) a three-story office building in Leawood,
Kansas (the "Sprint Building"), (iii) an office and warehouse building in
Chester County, Pennsylvania (the "Johnson Matthey Building"), and (iv) a
two-story office building in Fort Myers, Florida (the "Gartner Building").

The following properties are owned by the Partnership through its
investment in the Fund XII and REIT Joint Venture: (i) a three-story office
building in Troy, Michigan (the "Siemens Building"), (ii) a one-story
office building and a two-story office building in Oklahoma City, Oklahoma
(collectively referred to as the "AT&T Call Center Buildings"), and (iii) a
three-story office building in Brentwood, Tennessee (the "Comdata
Building").

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial

F-7

statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

The carrying values of the real estate assets are based on management's
current intent to hold the real estate assets as long-term investments. The
success of the Partnership's future operations and the ability to realize
the investment in its assets will be dependent on the Partnership's ability
to maintain an appropriate level of rental rates, occupancy, and operating
expenses in future years. Management believes that the steps it is taking
will enable the Partnership to realize its investment in its assets.

Income Taxes

The Partnership is not subject to federal or state income taxes; therefore,
none have been provided for in the accompanying financial statements. The
partners are required to include their respective shares of profits and
losses in their individual income tax returns.

Distributions of Net Cash From Operations

Cash available for distribution, as defined by the partnership agreement,
will be distributed to the limited partners on a quarterly basis. In
accordance with the partnership agreement, distributions are paid first to
limited partners holding cash preferred units until they have received a
10% per annum return on their net capital contributions, as defined. Then,
such distributions are paid to the general partners until they have
received 10% of the total amount distributed thus far. Any remaining cash
available for distribution is split 90% to the limited partners holding
cash preferred units and 10% to the general partners. No such distributions
will be made to the limited partners holding tax preferred units.

Distribution of Sale Proceeds

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

. To limited partners holding units which at any time have been
treated as tax preferred units until they receive an amount
necessary to equal the net cash available for distribution
received by the limited partners holding cash preferred units

. To limited partners on a per unit basis until each limited
partner has received 100% of his/her net capital contributions,
as defined

. To all limited partners on a per unit basis until they receive a
cumulative 10% per annum return on their net capital
contributions, as defined

. To limited partners on a per unit basis until they receive an
amount equal to their 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 his/her investment in the Partnership
in excess of their net capital contributions, as defined, plus
their preferential limited partner return), to the general
partners until they have received distributions equal to 20% of
the sum of any such excess limited partner distributions plus
distributions made to the general partners pursuant to this
provision

. Thereafter, 80% to the limited partners on a per unit basis and
20% to the general partners

F-8

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

Net income is defined as net income recognized by the Partnership,
excluding deductions for depreciation, amortization, and cost recovery. Net
income, as defined, of the Partnership will be allocated each year in the
same proportion that net cash from operations is distributed to the
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/her capital account in an amount not to exceed such
positive balance, and (c) thereafter to the general partners.

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

Investment in Joint Ventures

Basis of Presentation

The Partnership does not have control over the operations of the joint
ventures; however, it does exercise significant influence.
Accordingly, the Partnership's investments in joint ventures are
recorded using the equity method of accounting.

Real Estate Assets

Real estate assets held by the joint venture are stated at cost less
accumulated depreciation. Major improvements and betterments are
capitalized when they extend the useful life of the related asset. All
ordinary repairs and maintenance expenditures are expensed as
incurred.

Management continually monitors events and changes in circumstances
which could indicate that carrying amounts of real estate assets may
not be recoverable. When events or changes in circumstances are
present that indicate the carrying amounts of real estate assets may
not be recoverable, management assesses the recoverability of real
estate assets by determining whether the carrying value of such real
estate assets will be recovered through the future cash flows expected
from the use of the asset and its eventual disposition. Management has
determined that there has been no impairment in the carrying value of
real estate assets held by the joint ventures as of December 31, 2001
or 2000.

Depreciation for buildings and improvements is calculated using the
straight-line method over 25 years. Tenant improvements are amortized
over the life of the related lease or the life of the asset, whichever
is shorter.

Revenue Recognition

All leases on real estate assets held by the joint venture are
classified as operating leases, and the related rental income is
recognized on a straight-line basis over the terms of the respective
leases.

F-9

Partner's Distributions and Allocations of Profit and Loss

Cash available for distribution and allocations of profit and loss to
the Partnership by the joint ventures are made in accordance with the
terms of the joint venture agreements. Generally, these items are
allocated in proportion to the partners' respective ownership
interests. Cash is paid from the joint ventures to the Partnership
quarterly.

Deferred Lease Acquisition Costs

Costs incurred to procure operating leases are capitalized and
amortized on a straight-line basis over the terms of the related
leases. Deferred lease acquisition costs are included in prepaid
expenses and other assets, net, in the balance sheets presented in
Note 5.

Cash and Cash Equivalents

For the purposes of the statements of cash flows, the Partnership considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market
accounts.

Per Unit Data

Net income (loss) per unit with respect to the Partnership for the years
ended December 31, 2001 and 2000 is computed based on the weighted average
number of units outstanding during the period.

Reclassifications

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

2. DEFERRED PROJECT COSTS

The Partnership paid a percentage of limited partner contributions to Wells
Capital, Inc. (the "Company"), general partner of Wells Partners, for
acquisition and advisory services. These payments, as stipulated by the
partnership agreement, can be up to 3.5% of the limited partner
contributions, subject to certain overall limitations contained in the
partnership agreement. Aggregate fees paid through December 31, 2001 were
$1,246,403 and amounted to 3.5% of the limited partners' contributions
received. These fees are allocated to specific properties as they are
purchased or developed and are included in the capitalized assets of the
joint venture. Deferred project costs at December 31, 2000 represent fees
not yet applied to properties.

3. DEFERRED OFFERING COSTS

Offering expenses, to the extent they exceed 3% of gross offering proceeds,
will be paid by the Company and not by the Partnership. Offering expenses
include such costs as legal and accounting fees, printing costs, and other
offering expenses and do not include sales or underwriting commissions.

As of December 31, 2001, the Company paid offering expenses on behalf of
the Partnership in the aggregate amount of $1,248,745, of which the
Partnership reimbursed the Company for $1,068,336, approximately 3% of
aggregate gross offering proceeds.

F-10

4. RELATED-PARTY TRANSACTIONS

Due from affiliates at December 31, 2001 and 2000 represents the
Partnership's share of the cash to be distributed from its joint venture
investments for the fourth quarter of 2001 and 2000, respectively, as
follows:

2001 2000
-------- --------

Fund XI, XII, and REIT Joint Venture $129,449 $125,193
Fund XII and REIT Joint Venture 557,663 159,167
-------- --------
$687,112 $284,360
======== ========

The Partnership entered into a property management and leasing agreement
with Wells Management Company, Inc. ("Wells Management"), an affiliate of
the general partners. In consideration for supervising the management and
leasing of the Partnership's properties, the Partnership will pay Wells
Management management and leasing fees equal to the lesser of (a) fees that
would be paid to a comparable outside firm or (b) 4.5% of the gross
revenues generally paid over the life of the lease plus a separate
competitive fee for the one-time initial lease-up of newly constructed
properties generally paid in conjunction with the receipt of the first
month's rent. In the case of commercial properties which are leased on a
long-term net basis (ten or more years), the maximum property management
fee from such leases shall be 1% of the gross revenues generally paid over
the life of the leases except for a one-time initial leasing fee of 3% of
the gross revenues on each lease payable over the first five full years of
the original lease term.

The Partnership incurred management and leasing fees and lease acquisition
costs, at the joint venture level, of $125,302, $42,873, and $8,268 for the
years ended December 31, 2001, 2000, and 1999, respectively.

The Company performs certain administrative services for the Partnership,
such as accounting and other partnership administration, and incurs the
related expenses. Such expenses are allocated among the various Wells Real
Estate Funds based on time spent on each fund by individual administrative
personnel. In the opinion of management, such allocation is a reasonable
estimation of such expenses.

The general partners are also general partners in other Wells Real Estate
Funds. As such, there may exist conflicts of interest where the general
partners in the capacity as general partners for other Wells Real Estate
Funds may be in competition with the Partnership for tenants in similar
geographic markets.

5. INVESTMENT IN JOINT VENTURES

The Partnership's investment and percentage ownership in joint ventures at
December 31, 2001 and 2000 are summarized as follows:

2001 2000
--------------------- ---------------------
Amount Percent Amount Percent
----------- ------- ----------- -------

Fund XI, XII, and REIT Joint
Venture $ 5,174,703 17% $ 5,325,424 17%
Fund XII and REIT Joint Venture 24,828,894 45 16,242,127 53
----------- -----------
$30,003,597 $21,567,551
----------- -----------

F-11

The following is a roll forward of the Partnership's investment in joint
ventures for the years ended December 31, 2001 and 2000:

2001 2000
------------ ------------

Investment in joint venture, beginning of year $ 21,567,551 $ 5,467,634
Equity in income of joint venture 1,577,523 664,401
Contributions to joint venture 9,298,112 16,340,884
Distributions from joint venture (2,439,589) (905,368)
------------ ------------
Investment in joint venture, end of year $ 30,003,597 $ 21,567,551
============ ============

Fund XI, XII, and REIT Joint Venture

On May 1, 1999, the Partnership entered into a joint venture with Wells
Fund XI and the Operating Partnership. On May 18, 1999, the joint venture
purchased a 169,510-square foot, two-story manufacturing and office
building, known as the EYBL CarTex Building, in Fountain Inn, South
Carolina. On July 21, 1999, the joint venture purchased a 68,900-square
foot, three-story-office building, known as the Sprint Building, in
Leawood, Kansas. On August 17, 1999, the joint venture purchased a
130,000-square foot office and warehouse building, known as the Johnson
Matthey Building, in Chester County, Pennsylvania. On September 20, 1999,
the joint venture purchased a 62,400-square foot, two-story office
building, known as the Gartner Building, in Fort Myers, Florida.

F-12

Following are the financial statements for the Fund XI, XII, and REIT Joint
Venture:

The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000

2001 2000
----------- -----------

Assets
Real estate assets, at cost:
Land $ 5,048,797 $ 5,048,797
Building and improvements, less accumulated depreciation of $2,692,116
in 2001 and $1,599,263 in 2000 24,626,336 25,719,189
----------- -----------
Total real estate assets 29,675,133 30,767,986
Cash and cash equivalents 775,805 541,089
Accounts receivable 675,022 394,314
Prepaid assets and other expenses 26,486 26,486
----------- -----------
Total assets $31,152,446 $31,729,875
=========== ===========

Liabilities and Partners' Capital

Liabilities:
Accounts payable $ 114,612 $ 114,180
Partnership distributions payable 757,500 453,395
----------- -----------
Total liabilities 872,112 567,575
----------- -----------
Partners' capital:
Wells Real Estate Fund XI 7,917,646 8,148,261
Wells Real Estate Fund XII 5,174,703 5,325,424
Wells Operating Partnership, L.P. 17,187,985 17,688,615
----------- -----------
Total partners' capital 30,280,334 31,162,300
----------- -----------
Total liabilities and partners' capital $31,152,446 $31,729,875
=========== ===========

F-13

The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999

2001 2000 1999
---------- ---------- ----------

Revenues:
Rental income $3,346,227 $3,345,932 $1,443,446
Interest income 24,480 2,814 0
Other income 360 440 57
---------- ---------- ----------
3,371,067 3,349,186 1,443,503
---------- ---------- ----------
Expenses:
Depreciation 1,092,853 1,092,680 506,582
Management and leasing fees 156,987 157,236 59,230
Operating costs, net of reimbursements (27,449) (30,718) 4,639
Property administration 65,765 36,707 15,979
Legal and accounting 18,000 14,725 4,000
---------- ---------- ----------
1,306,156 1,270,630 590,430
---------- ---------- ----------
Net income $2,064,911 $2,078,556 $ 853,073
========== ========== ==========

Net income allocated to Wells Real Estate Fund XI $ 539,930 $ 543,497 $ 240,031
========== ========== ==========

Net income allocated to Wells Real Estate Fund XII $ 352,878 $ 355,211 $ 124,542
========== ========== ==========

Net income allocated to Wells Operating Partnership, L.P. $1,172,103 $1,179,848 $ 488,500
========== ========== ==========

The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2001, 2000, and 1999

Wells
Wells Real Wells Real Operating Total
Estate Estate Partnership, Partners'
Fund XI Fund XII L.P. Capital
---------- ---------- ------------ -----------

Balance, December 31, 1998 $ 0 $ 0 $ 0 $ 0
Net income 240,031 124,542 488,500 853,073
Partnership contributions 8,470,160 5,520,835 18,376,267 32,367,262
Partnership distributions (344,339) (177,743) (703,797) (1,225,879)
---------- ---------- ------------ -----------
Balance, December 31, 1999 8,365,852 5,467,634 18,160,970 31,994,456
Net income 543,497 355,211 1,179,848 2,078,556
Partnership distributions (761,088) (497,421) (1,652,203) (2,910,712)
---------- ---------- ------------ -----------
Balance, December 31, 2000 8,148,261 5,325,424 17,688,615 31,162,300
Net income 539,930 352,878 1,172,103 2,064,911
Partnership distributions (770,545) (503,599) (1,672,733) (2,946,877)
---------- ---------- ------------ -----------
Balance, December 31, 2001 $7,917,646 $5,174,703 $17,187,985 $30,280,334
========== ========== ============ ===========

F-14

The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999

2001 2000 1999
----------- ----------- -----------

Cash flows from operating activities:
Net income $ 2,064,911 $ 2,078,556 $ 853,073
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,092,853 1,092,680 506,582
Changes in assets and liabilities:
Accounts receivable (280,708) (260,537) (133,777)
Prepaid expenses and other assets 0 0 (26,486)
Accounts payable 432 1,723 112,457
----------- ----------- -----------
Total adjustments 812,577 833,866 458,776
----------- ----------- -----------
Net cash provided by operating activities 2,877,488 2,912,422 1,311,849
Cash flows from financing activities:
Distributions to joint venture partners (2,642,772) (3,137,611) (545,571)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 234,716 (225,189) 766,278
Cash and cash equivalents, beginning of year 541,089 766,278 0
----------- ----------- -----------
Cash and cash equivalents, end of year $ 775,805 $ 541,089 $ 766,278
=========== =========== ===========

Supplemental disclosure of noncash activities:

Deferred project costs contributed to joint venture $ 0 $ 0 $ 1,294,686
=========== =========== ===========

Contribution of real estate assets to joint venture $ 0 $ 0 $31,072,562
=========== =========== ===========

Fund XII and REIT Joint Venture

On May 10, 2000, the Partnership entered into a joint venture with the
Operating Partnership. The joint venture, Fund XII and REIT Joint Venture,
was formed to acquire, develop, operate, and sell real property. On May 10,
2000, the joint venture purchased a 77,054-square foot, three-story office
building, known as the Siemens Building in Troy, Oakland County, Michigan.
On December 28, 2000, the joint venture purchased a 50,000-square foot
one-story office building and a 78,500-square foot, two-story office
building, collectively known as the AT&T Call Center Buildings, in Oklahoma
City, Oklahoma County, Oklahoma. On May 15, 2001, the joint venture
purchased a 201,237-square foot, three-story office building, known as the
Comdata Building, in Brentwood, Williamson County, Tennessee.

F-15

Following are the financial statements for Fund XII and REIT Joint Venture:

Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000

2001 2000
----------- -----------

Assets
Real estate assets, at cost:
Land $ 8,899,574 $ 4,420,405
Building and improvements, less accumulated depreciation of $2,131,838
in 2001 and $324,732 in 2000 45,814,781 26,004,918
----------- -----------
Total real estate assets 54,714,355 30,425,323
Cash and cash equivalents 1,345,562 207,475
Accounts receivable 442,023 130,490
----------- -----------
Total assets $56,501,940 $30,763,288
=========== ===========

Liabilities and Partners' Capital

Liabilities:
Accounts payable $ 134,969 $ 0
Partnership distributions payable 1,238,205 208,261
----------- -----------
Total liabilities 1,373,174 208,261
----------- -----------
Partners' capital:
Wells Real Estate Fund XII 24,828,894 16,242,127
Wells Operating Partnership, L.P. 30,299,872 14,312,900
----------- -----------
Total partners' capital 55,128,766 30,555,027
----------- -----------
Total liabilities and partners' capital $56,501,940 $30,763,288
=========== ===========

F-16

Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Income
for the Year Ended December 31, 2001 and
the Period From May 10, 2000 (Inception) Through
December 31, 2000

2001 2000
---------- --------

Revenues:
Rental income $4,683,323 $974,796
Interest income 25,144 2,069
---------- --------
4,708,467 976,865
---------- --------
Expenses:
Depreciation 1,807,106 324,732
Management and leasing fees 224,033 32,756
Partnership administration 38,928 3,917
Legal and accounting 16,425 0
Operating costs, net of reimbursements 10,453 1,210
---------- --------
2,096,945 362,615
---------- --------
Net income $2,611,522 $614,250
========== ========

Net income allocated to Wells Real Estate Fund XII $1,224,645 $309,190
========== ========

Net income allocated to Wells Operating Partnership, L.P. $1,386,877 $305,060
========== ========

Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Year Ended December 31, 2001 and
the Period From May 10, 2000 (Inception) Through
December 31, 2000

Wells Real Wells Total
Estate Operating Partners'
Fund XII Partnership, L.P. Capital
------------ ----------------- ------------

Balance, May 10, 2000 (inception) $ 0 $ 0 $ 0
Net income 309,190 305,060 614,250
Partnership contributions 16,340,884 14,409,171 30,750,055
Partnership distributions (407,948) (401,330) (809,278)
------------ ------------ ------------
Balance, December 31, 2000 16,242,126 14,312,901 30,555,027
Net income 1,224,645 1,386,877 2,611,522
Partnership contributions 9,298,084 16,795,441 26,093,525
Partnership distributions (1,935,961) (2,195,347) (4,131,308)
------------ ------------ ------------
Balance, December 31, 2001 $ 24,828,894 $ 30,299,872 $ 55,128,766
============ ============ ============

F-17

Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Cash Flows
for the Year Ended December 31, 2001 and
the Period From May 10, 2000 (Inception) Through
December 31, 2000

2001 2000
------------ ------------

Cash flows from operating activities:
Net income $ 2,611,522 $ 614,250
------------ ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 1,807,106 324,732
Changes in assets and liabilities:
Accounts receivable (311,533) (130,490)
Accounts payable 134,969 0
------------ ------------
Total adjustments 1,630,542 194,242
------------ ------------
Net cash provided by operating activities 4,242,064 808,492
------------ ------------
Cash flows from investing activities:
Investment in real estate (26,096,138) (29,520,043)
------------ ------------
Cash flows from financing activities:
Distributions to joint venture partners (3,101,364) (601,017)
Contributions received from partners 26,093,525 29,520,043
------------ ------------
Net cash provided by financing activities 22,992,161 28,919,026
------------ ------------
Net increase in cash and cash equivalents 1,138,087 207,475
Cash and cash equivalents, beginning of period 207,475 0
------------ ------------
Cash and cash equivalents, end of year $ 1,345,562 $ 207,475
============ ============

Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 1,230,012
============ ============

F-18

6. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL

The Partnership's income tax basis net income for the years ended December
31, 2001 and 2000 is recalculated as follows:

2001 2000
----------- ---------

Financial statement net income $ 1,555,418 $ 856,228
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting purposes in
excess of amounts for income tax purposes 475,914 116,721
Rental income accrued for financial reporting purposes in
excess of amounts for income tax purposes (180,658) (109,459)
----------- ---------
Income tax basis net income $ 1,850,674 $ 863,490
=========== =========

The Partnership's income tax basis partners' capital at December 31, 2001
and 2000 is computed as follows:

2001 2000
------------ ------------

Financial statement partners' capital $ 30,063,794 $ 21,623,332
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes
in excess of amounts for income tax purposes 620,176 144,262
Capitalization of syndication costs for income tax
purposes, which are accounted for as cost of
capital for financial reporting purposes 4,451,400 3,123,221
Accumulated rental income accrued for financial
reporting purposes in excess of amounts for income
tax purposes (310,367) (129,709)
Partnership's distributions payable 659,919 376,001
------------ ------------
Income tax basis partners' capital $ 35,484,922 $ 25,137,107
============ ============

7. RENTAL INCOME

The future minimum rental income due from the Partnership's respective
ownership interest in the joint venture under noncancelable operating
leases at December 31, 2001 is as follows:

Year ended December 31:
2002 $ 2,968,898
2003 3,005,597
2004 3,056,732
2005 3,079,838
2006 3,104,246
Thereafter 16,052,342
-----------
$31,267,653
===========

Three tenants contributed 23%, 21%, and 20% of rental income. In addition,
three tenants will contribute 53%, 19%, and 17% of future minimum rental
income.

F-19

The future minimum rental income due Fund XI, XII, and REIT Joint Venture
under noncancelable operating leases at December 31, 2001 is as follows:

Year ended December 31:
2002 $ 3,277,512
2003 3,367,510
2004 3,445,193
2005 3,495,155
2006 3,552,724
Thereafter 2,616,855
-----------
$19,754,949
===========

Four tenants contributed approximately 30%, 28%, 24%, and 18% of rental
income for the year ended December 31, 2001. In addition, four tenants will
contribute approximately 30%, 27%, 25%, and 18% of future minimum rental
income.

The future minimum rental income due Fund XII and REIT Joint Venture under
noncancelable operating leases at December 31, 2001 is as follows:

Year ended December 31:
2002 $ 5,352,097
2003 5,399,451
2004 5,483,564
2005 5,515,926
2006 5,548,289
Thereafter 34,677,467
-----------
$61,976,794
===========

Three tenants contributed approximately 31%, 29%, and 27% of rental income
for the year ended December 31, 2001. In addition, three tenants will
contribute approximately 58%, 21%, and 18% of future minimum rental income.

F-20

8. QUARTERLY RESULTS (UNAUDITED)

Presented below is a summary of the unaudited quarterly financial
information for the years ended December 31, 2001 and 2000:

2001 Quarters Ended
-----------------------------------------------------
March 31 June 30 September 30 December 31
--------- --------- ------------ -----------

Revenues $ 360,142 $ 409,099 $ 457,271 $ 434,682
Net income 338,856 378,460 430,119 407,983
Net income allocated to cash preferred
limited partners 545,893 634,064 706,992 704,078
Net loss allocated to tax preferred limited
partners (207,037) (255,604) (276,873) (296,095)
Net income per weighted average cash
preferred limited partner unit
outstanding (a) $ 0.24 $ 0.27 $ 0.25 $ 0.25
Net loss per weighted average tax preferred
limited partner unit outstanding (a) (0.27) (0.33) (0.35) (0.38)
Distribution per weighted average cash
preferred limited partner unit outstanding 0.22 0.26 0.23 0.20

(a) The totals of the four quarterly amounts for the year ended
December 31, 2001 do not equal the totals for the year. This
difference results from the use of a weighted average to compute
the number of units outstanding for each quarter and the year.

2000 Quarters Ended
-----------------------------------------------------
March 31 June 30 September 30 December 31
--------- --------- ------------ -----------

Revenues $ 134,213 $ 214,333 $ 278,564 $ 302,758
Net income 108,854 192,717 266,737 287,920
Net income allocated to cash preferred
limited partners 155,965 292,043 349,597 411,833
Net loss allocated to tax preferred limited
partners (47,111) (99,326) (83,360) (123,413)
Net income per weighted average cash
preferred limited partner unit
outstanding (a) $ 0.11 $ 0.21 $ 0.26 $ 0.30
Net loss per weighted average tax preferred
limited partner unit outstanding (0.12) (0.26) (0.22) (0.32)
Distribution per weighted average cash
preferred limited partner unit outstanding 0.16 0.21 0.21 0.19

(a) The totals of the four quarterly amounts for the year ended
December 31, 2000 do not equal the totals for the year. This
difference results from the use of a weighted average to compute
the number of units outstanding for each quarter and the year.

F-21

9. COMMITMENTS AND CONTINGENCIES

Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Partnership or Wells Partners.
In the normal course of business, the Partnership or Wells Partners may
become subject to such litigation or claims.

F-22

EXHIBIT INDEX
-------------

(Wells Real Estate Fund XII, L.P.)

The following documents are filed as exhibits to this report. Those
exhibits previously filed and incorporated herein by reference are identified
below by an asterisk. For each such asterisked exhibit, there is shown below the
description of the previous filing. Exhibits which are not required for this
report are omitted.

Exhibit
Number Description of Document
- ------ -----------------------

*3(a) Amended and Restated Agreement of Limited Partnership of Wells Real
Estate Fund XII, L.P. (Exhibit 3.1 to Form S-11 Registration Statement
of Wells Real Estate Fund XII, L.P., as amended to date, Commission
File No. 33-66657)

*3(b) Certificate of Limited Partnership of Wells Real Estate Fund XII, L.P.
(Exhibit 3.2 to Form S-11 Registration Statement of Wells Real Estate
Fund XII, L.P., as amended to date, Commission File No. 33-66657)

*10(a) Leasing and Tenant Coordinating Agreement with Wells Management
Company, Inc. (Exhibit 10.2 to Form S-11 Registration Statement of
Wells Real Estate Fund XII, L.P., as amended to date, Commission File
No. 33-66657)

*10(b) Management Agreement with Wells Management Company, Inc. (Exhibit 10.3
to Form S-11 Registration Statement of Wells Real Estate Fund XII,
L.P., as amended to date, Commission File No. 33-66657)

*10(c) Amended and Restated Joint Venture Partnership Agreement of The Wells
Fund XI - Fund XII - REIT Joint Venture (Exhibit 10.28 to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc., as
amended to date, Commission File No. 333-83933)

*10(d) Agreement of Sale and Purchase relating to the EYBL CarTex Building
(Exhibit 10.54 to Form S-11 Registration Statement of Wells Real
Estate Investment Trust, Inc., as amended to date, Commission File No.
333-32099)

*10(e) Agreement of Purchase and Sale for the Sprint Building (Exhibit 10.5
to Form S-11 Registration Statement of Wells Real Estate Fund XII,
L.P., as amended to date, Commission File No. 33-66657)

*10(f) Agreement of Sale and Purchase for the Johnson Matthey Building
(Exhibit 10.6 to Form S-11 Registration Statement of Wells Real Estate
Fund XII, L.P., as amended to date, Commission File No. 33-66657)

*10(g) Fifth Amendment to Lease for the Johnson Matthey Building (Exhibit
10.7 to Form S-11 Registration Statement of Wells Real Estate Fund
XII, L.P., as amended to date, Commission File No. 33-66657)

*10(h) Agreement of Purchase and Sale relating to the Gartner Building
(Exhibit 10.63 to Form S-11 Registration Statement of Wells Real
Estate Investment Trust, Inc., as amended to date, Commission File No.
333-32009)

*10(i) Lease Agreement for the Gartner Building (Exhibit 10.64 to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc., as
amended to date, Commission File No. 333-32099)

*10(j) Joint Venture Partnership Agreement of Wells Fund XII-REIT Joint
Venture Partnership (Exhibit 10.11 to Form S-11 Registration Statement
of Wells Real Estate Fund XII, L.P., as amended to date, Commission
File No. 33-66657)

*10(k) Agreement for the Purchase and Sale of Property for the Siemens
Building (Exhibit 10.12 to Form S-11 Registration Statement of Wells
Real Estate Fund XII, L.P., as amended to date, Commission File No.
33-66657)

*10(l) Office Lease for the Siemens Building (Exhibit 10.13 to Form S-11
Registration Statement of Wells Real Estate Fund XII, L.P., as amended
to date, Commission File No. 33-66657)

*10(m) Agreement for the Purchase and Sale of Property for the AT&T Call
Center Buildings in Oklahoma City, Oklahoma (Exhibit 10.14 to Form
S-11 Registration Statement of Wells Real Estate Fund XII, L.P., as
amended to date, Commission File No. 333-66657)

*10(n) First Amendment to Agreement for the Purchase and Sale of Property for
the AT&T Call Center Buildings in Oklahoma City, Oklahoma (Exhibit
10.15 to Form S-11 Registration Statement of Wells Real Estate Fund
XII, L.P., as amended to date, Commission File No. 333-66657)

*10(o) Lease Agreement with AT&T Corp. for a portion of the AT&T Call Center
Buildings in Oklahoma City, Oklahoma (Exhibit 10.16 to Form S-11
Registration Statement of Wells Real Estate Fund XII, L.P., as amended
to date, Commission File No. 333-66657)

*10(p) Lease Agreement with Jordan Associates, Inc. for a portion of the AT&T
Call Center Buildings in Oklahoma City, Oklahoma (Exhibit 10.17 to
Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P.,
as amended to date, Commission File No. 333-66657)

*10(q) Agreement for the Purchase and Sale of Property for the Comdata
Building (Exhibit 10.82 to Form S-11 Registration Statement of Wells
Real Estate Investment Trust, Inc., as amended to date, Commission
File No. 333-44900)

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*10(r) Lease Agreement for the Comdata Building (Exhibit 10.83 to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc., as
amended to date, Commission File No. 333-44900)

*10(s) First Amendment to Lease Agreement for the Comdata Building (Exhibit
10.84 to Form S-11 Registration Statement of Wells Real Estate
Investment Trust, Inc., as amended to date, Commission File No.
333-44900)

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