UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K




(Mark One)☒
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the fiscal year ended December 31, 2008





☐
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the transition period from ___________ to ___________






Commission
File No. 000-53165




FSP
303 East Wacker Drive Corp.


(Exact
name of registrant as specified in its charter)




Delaware
              20-8061759(State
      or other jurisdiction of
                incorporation
      or organization)
              (I.R.S.
      Employer
                Identification
      No.)401 Edgewater Place,
      Suite 200, Wakefield, Massachusetts
              01880-6210(Address
      of principal executive offices)
              (Zip
      Code)




Registrant’s telephone number,
including area code:(781) 557-1300




Securities registered pursuant to
Section 12(b) of the Act:None




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




Preferred
Stock, $.01 par value per share




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes ☐  No ☒.




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.  Yes ☐  No ☒.




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 ☒  No ☐.




Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this
chapter) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.☒




Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company.  See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.




Large accelerated filer☐
            Accelerated filer☐Non-accelerated
      filer☐(Do not check if a smaller
      reporting company)
            Smaller reporting company☒





Indicate by check mark whether the
registrant is a shell company (as defined in Exchange Act Rule
12b-2).Yes☐No☒.




As of June 30, 2008 the aggregate fair
market value of Common Stock held by non-affiliates of the registrant was
$0.




The number of shares of Common Stock
outstanding was 1 and the number of shares of Preferred Stock outstanding was
2,210 as of February 28, 2009.







Documents incorporated by reference:
None.





TABLE
OF CONTENTS





PART
      I
            
            1ITEM
      1.
            BUSINESS.
            1ITEM
      1A.
            RISK
      FACTORS.
            5ITEM
      1B.
            UNRESOLVED
      STAFF COMMENTS.
            5ITEM
      2.
            PROPERTIES.
            5ITEM
      3.
            LEGAL
      PROCEEDINGS.
            8ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS.
            8PART
      II
            
            9ITEM
      5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
            9ITEM
      6.
            SELECTED
      FINANCIAL DATA.
            9ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.
            10ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
            16ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA.
            16ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.
            16ITEM
      9A.
            CONTROLS
      AND PROCEDURES.
            16ITEM
      9A(T)
            CONTROLS
      AND PROCEDURES.
            16ITEM
      9B.
            OTHER
      INFORMATION.
            17PART
      III
            
            18ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
            18ITEM
      11.
            EXECUTIVE
      COMPENSATION.
            19ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.
            20ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.
            21ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES.
            22PART
      IV
            
            23ITEM
      15.
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES.
            23SIGNATURES
            24











Item 1.
            Business





History





Our company, FSP 303 East Wacker Drive
Corp., which individually or together with its subsidiary, we refer to as the
Company, is a Delaware corporation formed to purchase, own and operate a
twenty-eight story multi-tenant office tower containing approximately 859,187
rentable square feet of office and retail space and a 294-stall underground
parking garage located in downtown Chicago, Illinois, which we refer to as the
Property.  The Company operates in a manner intended to qualify as a
real estate investment trust, or REIT, for federal income tax
purposes.





The Company was organized in December
2006 by FSP Investments LLC (member, FINRA and SIPC), a wholly-owned subsidiary
of Franklin Street Properties Corp., which we refer to as Franklin Street (NYSE
Alternext US: FSP).  FSP Investments LLC acted as a real estate
investment firm and broker/dealer with respect to (a) the organization of the
Company, (b) the acquisition of the Property by the Company and (c) the sale of
equity interests in the Company.





The Company purchased the Property from
an unaffiliated third party for $167,000,000 on January 5, 2007.  The
purchase price, which was determined based on arm’s-length negotiations, was
financed entirely by a loan from Franklin Street collateralized by a first
mortgage, which we refer to as the Acquisition Mortgage Loan.  The
Acquisition Mortgage Loan was repaid in its entirety on December 27, 2007 from
the proceeds of the sale of equity interests in the Company.  Total
interest and loan fees incurred on the Acquisition Mortgage Loan were
approximately $13,810,000.  The Company acquired the Property through
FSP 303 East Wacker Drive LLC, a wholly-owned subsidiary of the
Company.  The sole business of FSP 303 East Wacker Drive LLC is to own
and operate the Property.





The Company commenced operations in
January 2007.





Franklin Street holds the sole share of
the Company’s common stock, $.01 par value per share, which we refer to as the
Common Stock.  Between February 2007 and December 2007, FSP
Investments LLC completed the sale of equity interests in the Company through
the offering on a best efforts basis of 2,210 shares of preferred stock, $.01
par value per share, which we refer to as the Preferred Stock.  We
sold the Preferred Stock in a private placement offering to “accredited
investors” within the meaning of Regulation D under the Securities Act of
1933.  Between February 7, 2007 and December 27, 2007, the Company
held 17 investor closings, at each of which shares of Preferred Stock were sold
and funds were received.  On December 27, 2007, Franklin Street
purchased 965.75 shares of Preferred Stock (approximately 43.7%) of the Company
for consideration totaling $82,813,000, representing $96,575,000 at the offering
price net of commissions of $7,726,000 and fees of $6,036,000 that were
excluded.  Prior to purchasing any shares of Preferred Stock, Franklin
Street agreed to vote any shares held by it on any matter presented to the
holders of Preferred Stock in a manner that approximates as closely as possible
the votes cast in favor of and opposed to such matter by the holders of the
Preferred Stock other than Franklin Street and its affiliates.  For
purposes of determining how Franklin Street votes its shares of Preferred Stock,
abstentions and non-votes by stockholders other than Franklin Street are not
considered.  Funds from each individual closing were used to repay the
Acquisition Mortgage Loan and associated fees as well as other expenses payable
to Franklin Street’s wholly-owned subsidiary, FSP Investments
LLC.  The use of proceeds from the offerings of Preferred Stock,
including for payments to Franklin Street and its affiliates, is set forth in
the table below:





Use of
      proceeds:Type
                    Affiliate
      paid
                    
                    AmountOperating/Capital Reserve
      (1)
                    
                    
                    $
                    20,055,000Organizational, Offering
      andOther
      Expenditures for the Company(2)
                    FSP Investments
      LLC
                    
                    
                    1,200,000City of Chicago Transfer
      Taxes
                    
                    
                    
                    1,252,500Selling
      Commissions(3)
                    FSP Investments
      LLC
                    
                    
                    9,954,000Acquisition-Related
      Costs:Purchase Price of the
      Property(4)
                    Franklin Street Properties
      Corp.
                    
                    
                    167,000,000Loan Fee Paid to Franklin Street
      (5)
                    Franklin Street Properties
      Corp.
                    
                    
                    7,154,438Acquisition
      Fee(6)
                    FSP Investments
      LLC
                    
                    
                    622,125Total Uses of Gross Offering
      Proceeds
                    
                    
                    $
                    207,238,063





1




(1)
              The Operating/Capital Reserve
      proceeds were retained by the Company for operating and capital
      uses.
 (2)
              Organizational, Offering and Other
      Expenditures were paid for various expenses, including legal, accounting,
      appraisal, engineering and organizational expenses allocable to the
      offering, incurred in connection with the organization and syndication of
      the Company.
 (3)
              Selling Commissions were paid to
      FSP Investments LLC, as Selling
Agent.
 (4)
              The Purchase Price of the Property
      was financed by the Acquisition Mortgage Loan, which was repaid from
      proceeds of the offering.
 (5)
              The Loan Fee paid to Franklin
      Street was a fee (or points) payable to Franklin Street to obtain the
      Acquisition Mortgage Loan to purchase the Property in the amount of
      $7,154,438.  The Acquisition Mortgage Loan was in an original
      principal amount equal to the purchase price of the Property, and had a
      term of two years, which was pre-payable at any time without premium or
      penalty and carried an interest rate equal to the rate payable by Franklin
      Street on borrowings under its line of credit with its
      bank.
 (6)
              The Acquisition Fee was paid for
      various services related to the purchase of the
      Property.




Transactions between the Company and
Franklin Street and/or its affiliates were entered into without the benefit of
arm’s-length bargaining and involved conflicts of interest.  Although
Franklin Street sponsors the syndication of other REITs similar to the Company
and has in the past acquired some of those REITs, Franklin Street is under no
obligation to acquire or to offer to acquire the Company or the outstanding
shares of Preferred Stock, and any acquisition transaction would need to be
approved by the Company’s stockholders and the boards of directors of Franklin
Street and the Company.  Please see Part “III, Item 13. Certain
Relationships and Related Transactions, and Director
Independence”.





Our
Business





Our sole business is to own and operate
the Property and we do not intend to invest in or purchase any additional
properties.  We derive rental revenue from income paid to us by the
tenants of the Property.  Asset and property management services are
provided by third parties.





The Property was completed in 1979 and
is a twenty-eight story multi-tenant office tower located in downtown Chicago,
Illinois containing approximately 859,187 rentable square feet of office and
retail space and a 294-stall underground parking garage.





The Property underwent a re-measurement
of space in 2002.  This re-measurement concluded that the rentable
space in the Property could be increased from approximately 838,943 square feet
to approximately 859,187 square feet.  This Annual Report on Form 10-K
makes reference to the more recently determined 859,187 square foot number in
all of its general descriptions of the Property and at this time, lease
statistics are based on 842,717 square feet.  Management believes that
the potential exists in the future to gain greater amounts of rental income from
leasing this extra space and intends to do so.  However, the Company
also believes that any such potential gains will not come immediately as
existing tenants and their respective leases are mostly based upon the previous
838,943 square foot measurement.  Accordingly, principally all tenant
and lease descriptions set forth in this Annual Report on Form 10-K reflect the
terms and conditions of the respective lease documents, which generally are
based on the 838,943 square foot measurement instead of the 859,187 square foot
number.





The
Property, formerly known as Three Illinois Center, is part of the
multi-building, mixed-use development known as Illinois Center, which includes
office buildings, hotels, residential buildings, and a large athletic
club.  The Property was preceded in construction by One and Two
Illinois Center, which were developed in 1970 and 1972,
respectively.  The three towers share an aluminum and glass design
that is characteristic of contemporary international style, distinguished by a
curtain wall of bronze-finished aluminum and reflective glass.  The
Property is located on the eastern portion of the development along the southern
edge of the Chicago River.





The
office component of the Property is separated into low-rise, mid-rise and
high-rise sections. The Plaza, or first floor, has three elevator banks, each
containing five passenger elevators and a freight elevator which services the 27
floors of office space.  An additional elevator is also provided at
the Plaza level for direct access to the parking garage and
Concourse.  Access to the Concourse level from the Plaza level is
provided by an escalator system.  Access to the Plaza level from
street-level is provided by entrances on the West and East sides of the Property
and emergency exits on the south end.


2





The
Property was approximately 88% leased as of December 31, 2008 to a diverse group
of tenants with staggered lease expirations.  Management believes that
any tenant that leases 10% or more of the Property’s rentable space is
material.  The largest tenant is KPMG LLP, or KPMG, which leases
259,090 square feet (approximately 30%) of the Property’s rentable space through
August 2012.  Consoer Townsend Environdyne Engineers, Inc., or CTE,
leases 117,379 square feet (approximately 14%) of the Property’s rentable space
through September 2014.  KPMG is one of the largest accounting firms
in the world and CTE is a subsidiary of AECOM Technology Corporation, a
provider of professional, technical and management support services (NYSE: ACM),
which has guaranteed CTE's obligations under the lease. No other tenant leases
10% or more of the Property’s rentable space.  On February 16, 2009, KPMG notified the Company that it will be relocating to a
different property location following the expiration of its lease on August 31,
2012.  With approximately 3.5 years remaining on KPMG’s lease,
management will use that time to implement a marketing plan designed to locate a
replacement tenant (or tenants).  On December 31, 2008, CTE notified
the Company that it will be exercising its early termination option on a portion
of the 10th floor.  Effective October 1, 2009, CTE’s total leased
space will be reduced from 117,379 square feet to 104,086 square feet, or
approximately 12% of the Property’s total leasable space.  This
reduction represents approximately 2% of the Property’s total leasable
space.  Other prominent additional tenants include Equity Marketing,
Inc., a marketing services firm which leases approximately 60,494 square feet
(approximately 7%) through March 31, 2009.  Equity Marketing, Inc. has
signed a lease at another building and vacated the Property during the fourth
quarter of 2008.  As of December 31, 2008, 36 tenants were leasing
space at the Property.


.


In general, office leases at the
Property are structured on a triple-net (NNN) basis with respect to expenses, so
that the tenant is responsible for its respective pro-rata percentage of
expenses.  In general, concourse level (lower level) retail tenants
have full service gross rent leases under which gross rent includes
expenses.





FSP
Property Management LLC, a wholly-owned subsidiary of Franklin Street, provides
the Company with asset management and financial reporting
services.  The asset management agreement between the Company and FSP
Property Management LLC requires the Company to pay FSP Property Management LLC
a monthly fee equal to one-half of one percent (0.5%) of that month’s gross
revenues of the Property.  The asset management agreement between the
Company and FSP Property Management LLC may be terminated by either party
without cause at any time, upon at least thirty (30) days written
notice.





Hines Interests Limited Partnership
provides the Company with day-to-day property management, construction
management and leasing services relating to the operation of the
Property.  Hines Interests Limited Partnership is a third-party
service provider that is not related to or affiliated with Franklin
Street.  The management agreement between the Company and Hines
Interests Limited Partnership requires the Company to pay Hines Interests
Limited Partnership a monthly fee equal to two and one-half percent (2.5%) of
the net operating receipts collected in the preceding month.  The
management agreement between the Company and Hines Interests Limited Partnership
is for a term of five years ending in December 2011 and may be terminated for
cause.





Investment
Objectives





The Company's investment objectives are
to (i) obtain cash available to pay dividends through rental receipts from
operations of the Property, (ii) have that cash increase over time as a result
of rental rate step increases in existing leases and new leasing activity in
currently vacant space, (iii) have that cash potentially increase over time if
rental rates increase for new leases, (iv) provide a return of capital to
holders of our Preferred Stock if we obtain permanent mortgage financing or
another capital event occurs, (v) provide increased equity in the Property to
our holders of Preferred Stock as a result of potential appreciation in market
value, and (vi) preserve and protect the capital invested by the holders of our
Preferred Stock.  We cannot be sure of meeting our
objectives.





Our policy is not to make loans to other
persons, not to invest in the securities of other issuers for the purpose of
exercising control, not to underwrite the securities of other issuers, not to
offer securities in exchange for property and not to purchase or otherwise
reacquire our securities.  These policies may be changed by our
directors without a vote of the holders of shares of our Preferred
Stock.





We have issued our shares of Preferred
Stock in the offering described above.  No additional shares of
Preferred Stock are authorized by our charter, and authorization of any increase
in the number of authorized shares or the creation of any new series or class of
stock would require the affirmative vote of the holders of 66.67% of the
outstanding shares of Preferred Stock.


3


In our original private placement
offering of Preferred Stock, we disclosed that it was our intention to dispose
of the Property at a time determined by our directors, which we expected to be
within five to seven years.  While we still intend to dispose of the
Property at a time determined by our directors, it is possible that, given the
current state of the economy in the United States and given KPMG’s departure
from the Property in August 2012, that the hold period may be
longer.  We do not intend to reinvest the proceeds of any such
disposition.  We also do not intend to list our shares of Preferred
Stock on an exchange and therefore do not expect any trading market to develop
in such shares.





We have the right to obtain a permanent
mortgage loan and a line of credit as described below.





Permanent
Mortgage Loan





Management believes that the Property
has the potential for increased occupancy and rental rates in the future and,
assuming that such increases occur, our management believes that the holders of
our Preferred Stock could benefit, in the form of a partial return of capital
that produces a positive total return on their original investment, from either
the Company’s obtaining some level of permanent mortgage debt financing, which
we refer to as the Permanent Mortgage Loan, or the sale of the Property or a
merger transaction at such time.  Management believes that the
Permanent Mortgage Loan, if obtained in an amount and on terms considered
favorable relative to the current and anticipated future performance of the
Property, could benefit the holders of our Preferred Stock by providing them
with a return of a portion of their original capital investment in the Company
and by decreasing the amount of their remaining capital investment in the
Company.  Assuming that the value of the Property appreciates over
time and that the Property is ultimately sold for such appreciated value,
Management believes that the Permanent Mortgage Loan could provide the holders
of our Preferred Stock with a leveraged rate of return on their remaining
capital investment in the Company that could be enhanced over the rate of return
without the Permanent Mortgage Loan.  However, there can be no
assurance that the Property will appreciate in value over time or that the
Company will be able to obtain the Permanent Mortgage Loan on terms considered
favorable relative to the current and anticipated future performance of the
Property.  Subject to any contrary REIT requirements (or any
Property-specific current or anticipated future capital needs requirements in
the case of the Permanent Mortgage Loan only), any proceeds from the closing of
the Permanent Mortgage Loan, the sale of the Property or a merger transaction
would be distributed to the holders of our Preferred Stock and Common Stock in
accordance with our charter.





The Company has the right, in its sole
and absolute discretion and without the consent of any holder of shares of our
Preferred Stock, to obtain the Permanent Mortgage Loan.  Although the
Company has no obligation to obtain the Permanent Mortgage Loan, if the Company
decides to obtain the Permanent Mortgage Loan, the Company will have the right,
in its sole and absolute discretion and without the consent of any holder of
shares of our Preferred Stock, to negotiate all of the terms and conditions of
the Permanent Mortgage Loan and any refinancing thereof including, without
limitation, the timing of the closing and funding, the identity of the lender,
the principal amount, the interest rate, the maturity and the
security.   As of March 12, 2009, the Company has neither sought
nor obtained the Permanent Mortgage Loan.





Revolving
Line of Credit





Given the amount of space that will need
to be re-leased upon the expiration of KPMG’s lease on August 31, 2012 and the
potential for significant tenant improvement allowances and leasing commissions,
it is possible that we may need to borrow funds in the future.  The
Company may, without the consent of any holder of shares of our Preferred Stock,
obtain a revolving line of credit of up to $66,800,000 on commercially
reasonable terms to be used for capital improvements or to pay operating
expenses of the Property, if needed.   As of February 28, 2009,
the Company has neither sought nor obtained a line of
credit.





Competition





The economy in the United States is
currently experiencing unprecedented disruptions, including increased levels of
unemployment, the failure and near failure of a number of large financial
institutions, reduced liquidity and increased credit risk premiums for a number
of market participants.  Economic conditions may be affected by
numerous factors, including but not limited to, inflation and employment levels,
energy prices, recessionary concerns, changes in currency exchange rates, the
availability of debt and interest rate fluctuations.  The current
disruptions in the U.S. economy have affected real estate values, occupancy
levels and property income levels and may continue or worsen in the
future.  At this time, we cannot predict the extent or duration of any
negative impact that the current disruptions in the U.S. economy will have on
our business.


4


The
Property is a multi-tenant office tower located in downtown Chicago,
Illinois.  The Property may encounter substantial competition from the
other office buildings which are or may become available in the general area in
which the Property is located and which may be priced at rental levels lower
than those for space in the Property or which may otherwise be more attractive
to tenants.  In order to maintain or increase rental revenues
following the expiration of our leases, the Property must be competitive, in
regards to cost and amenities, with other buildings of similar use near our
location.  Some of our competitors may have significantly more
resources than we do and may be able to offer more attractive rental rates or
services.  On the other hand, some of our competitors may be smaller
or have lower fixed overhead costs, less cash or other resources that make them
willing or able to accept lower rents in order to maintain a certain occupancy
level.  If there is no currently significant existing property
competition, our competitors may decide to enter the market and build new
buildings to compete with our Property.  Our competition is not only
with other developers, but also with property users who choose to own their
building and larger market forces (including the current disruptions in the U.S.
economy described above, changes in interest rates and tax treatment) that
increase competition among landlords for quality tenants and individual
decisions beyond our control.  Given that the Property is a
multi-tenant office tower that is leased to a diverse group of office and retail
tenants with staggered lease expirations, we cannot predict which competitive
factors will be relevant to prospective future tenants at this
time.





Employees





We had no employees as of December 31,
2008.





Available
Information





We are subject to the informational
requirements of the Securities Exchange Act of 1934, and, in accordance
therewith, we file reports and other information with the Securities and
Exchange Commission (SEC).   This Annual Report on Form 10-K and
other reports and other information we file can be inspected and copied at the
SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, on
official business days during the hours of 10 a.m. and 3 p.m.  Such
reports and other information may also be obtained from the web site that the
SEC maintains at http://www.sec.gov.  Further information about the
operation of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330.





We will make available and voluntarily
provide, free of charge upon written request at the address on the cover of this
Annual Report on Form 10-K, a copy of our Annual Report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon
as reasonably practicable after we electronically file such material with, or
furnish such material to, the SEC. We do not maintain a
website.





Item 1A.
            Risk
      Factors





Not applicable.





Item 1B.
            Unresolved
      Staff Comments





Not applicable.





Item 2.
            Properties





Set
forth below is information regarding the Property as of December 31,
2008:




Annual
      Rent RevenueDate
      of
            Approx.
            Percent
            Number
            Name
      of
            For
      the Year EndedProperty
      Location
            Purchase
            Square
      Feet
            Leased
            of
      Tenants
            Major
      Tenants
            December 31,
      2008303
      East Wacker Drive
            1/5/2007
            859,187
            88%
            36
            KPMG
      LLP
            $7,551,000Chicago,
      Illinois 60601
            
            
            
            
            CTE
      (1)
            $3,936,000





(1)           Consoer
Townsend Environdyne Engineers, Inc.




The average effective annual rent per
leased square foot for the years ended December 31, 2008 and 2007 was $17.52 and
$15.91, respectively.


5




Weacquired the Property on
January 5, 2007 through a limited liability company, all of whose equity
interest is owned, directly or indirectly, by the Company.  In the opinion of our management, the
Property is adequately covered by insurance.  The Property is not
currently encumbered by any mortgage indebtedness.





The Property was completed in 1979 and
is a twenty-eight story multi-tenant office tower located in downtown Chicago,
Illinois containing approximately 859,187 rentable square feet of office and
retail space and a 294-stall underground parking garage.





The Property underwent a re-measurement
of space in 2002.  This re-measurement concluded that the rentable
space in the Property could be increased to approximately 859,187 square
feet.  This Annual Report on Form 10-K makes reference to the more
recently determined 859,187 square foot number in all of its general
descriptions of the Property, including leasing
statistics.  Management believes that the potential exists in the
future to gain greater amounts of rental income from leasing this extra space
and intends to do so.  However, the Company also believes that any
such potential gains will not come immediately as existing tenants and their
respective leases are predominately based upon the previous 838,943 square foot
measurement.  Accordingly, all tenant and lease descriptions set forth
in this Annual Report on Form 10-K reflect the terms and conditions of the
respective lease documents, which generally are based on the 838,943 square foot
measurement instead of the 859,187 square foot number.





The following table reflects certain
information for the leases that are expiring over the next ten
years:





Annualized
                  
                  AnnualizedNumber
                  
                  
                  
                  Rents by
    Year
                  
                  Rents by
    Yearof Leases
                  
                  Square Feet
                  
                  of Lease
                  
                  of LeaseYear
                  
                  Expiring
                  
                  Expiring
                  
                  Expiration
    (1)
                  
                  Expiration2009
                  
                  11
                  
                  109,100
                  
                  $        2,240,895
                  
                  18.54%2010
                  
                  8
                  
                  55,788
                  
                  1,097,509
                  
                  9.08%2011
                  
                  2
                  
                  1,593
                  
                  58,039
                  
                  0.48%2012
                  
                  11
                  
                  264,586
                  
                  3,727,061
                  
                  30.83%2013
                  
                  4
                  
                  21,176
                  
                  311,974
                  
                  2.58%2014
                  
                  8
                  
                  157,262
                  
                  2,959,841
                  
                  24.49%2015
                  
                  3
                  
                  29,125
                  
                  570,880
                  
                  4.72%2016
                  
                  5
                  
                  59,256
                  
                  938,298
                  
                  7.76%2017
                  
                  3
                  
                  11,689
                  
                  32,898
                  
                  0.27%2018
                  
                  1
                  
                  6,585
                  
                  131,700
                  
                  1.09%2019
                  
                  1
                  
                  1,175
                  
                  18,800
                  
                  0.16%Total
                  
                  57
                  
                  717,335
                  
                  $      12,087,895
                  
                  100.00%





(1)
            Reflects the annualized
      contractual minimum rental income from non-cancelable leases at December
      31, 2008.





Below is certain information with
respect to the Property’s tenants and leases.




Tenants





The
Property was approximately 88% leased as of December 31, 2008 to a diverse group
of tenants with staggered lease expirations.  Management believes that
any tenant that leases 10% or more of the Property’s rentable space is
material.  The largest tenant is KPMG LLP, or KPMG, which leases
259,090 square feet (approximately 30%) of the Property’s rentable space through
August 2012.  Consoer Townsend Environdyne Engineers, Inc., or CTE,
leases 117,379 square feet (approximately 14%) of the Property’s rentable space
through September 2014.  KPMG is one of the largest accounting firms
in the world and CTE is a subsidiary of AECOM Technology Corporation, a
provider of professional, technical and management support services (NYSE: ACM),
which has guaranteed CTE's obligations under the lease.  On February
16, 2009, KPMG notified the Company that it will be relocating to a different
property location following the expiration of its lease on August 31,
2012.  With approximately 3.5 years remaining on KPMG’s lease,
management will use that time to implement a marketing plan designed to locate a
replacement tenant (or tenants).  No other tenant leases 10% or more
of the Property’s rentable space.  On December 31, 2008, CTE notified
the Company that it will be exercising its early termination option on a portion
of the 10th floor.  Effective October 1, 2009, CTE’s total leased
space will be reduced from 117,379 square feet to 104,086 square feet, or
approximately 12% of the Property’s total leasable space.  This
reduction represents approximately 2% of the Property’s total leasable
space.  Other prominent additional tenants include Equity Marketing,
Inc., a marketing services firm which leases 60,494 square feet (approximately
7%) through March 31, 2009.  Equity Marketing, Inc. has signed a lease
at another building and vacated the Property during the fourth quarter of
2008.  As of December 31, 2008, 36 tenants were leasing space at the
Property.


6


Leases





In
general, office leases at the Property are structured on a triple-net (NNN)
basis with respect to expenses, so that the tenant is responsible for its
respective pro-rata percentage of expenses.  In general, concourse
level (lower level) retail tenants have full service gross rent leases under
which gross rent includes expenses.





KPMG
LLP





KPMG
is currently the largest tenant of the Property and leases eight full floors
containing 259,090 net rentable square feet, which amount translates into
approximately 30% of the building as of December 31, 2008.  The lease
commenced in August 1997 with a fifteen-year term that expires on August 31,
2012.  On January 30, 2008 KPMG signed a lease for an additional
30,402 rentable square feet, which commenced on May 1, 2008 and also expires on
August 31, 2012.  On February 16, 2009, KPMG notified the Company that
it will be relocating to a different property location following the expiration
of its lease on August 31, 2012.  With approximately 3.5 years
remaining on KPMG’s lease, management will use that time to implement a
marketing plan designed to locate a replacement tenant (or
tenants).





Option
to Renew





As
long as KPMG is not in default of its lease obligations, KPMG has two
consecutive options to extend the expiration date of the lease for five years
each for a total of ten years.  KPMG must exercise each option with at
least 12 months' prior notification to landlord.  The monthly base
rental rate for each option will be the prevailing market rental rate, as agreed
by tenant and landlord, existing at the time of notification.  KPMG
has the right to renew for its entire space or a portion of its space as long as
the space is contiguous and includes at least one full floor.





Options
to Expand





As
long as KPMG is not in default of its lease obligations, KPMG has multiple
options to expand at prevailing market rental rates, as agreed by tenant and
landlord, existing at the time of notification.  KPMG also has a
continuing right of first refusal (“ROFR”) to lease any or all space in the
mid-rise elevator bank and floors 21 and 23.  The ROFR expires two
years prior to the expiration of the lease.





Other
Options





As
long as KPMG is not in default of its lease obligations, KPMG has exclusive
rights to exterior and interior signage.  As long as KMPG is the
largest tenant, KPMG has exclusive rights to exterior signage and naming rights
of the building.  KPMG also has the right to prevent the landlord from
leasing space to a specific list of public accounting competitors, any schools
and certain governmental agencies.  KPMG has the right to lease
storage space not exceeding 7,500 square feet at pre-determined rental
rates.  Although the original terms of the lease included options to
reduce the amount of space and included termination options, those options have
expired and KPMG does not have any remaining options to terminate the lease in
part or in its entirety.





Consoer
Townsend Environdyne Engineers, Inc.





CTE
is currently the second largest tenant of the Property and leases three full
floors and portions of two floors containing 117,379 net rentable square feet,
which amount translates into approximately 14% of the building.  The
lease commenced in January 1996 and expires on September 30,
2014.  The lease is guaranteed by AECOM Technology
Corporation.


7





Option
to Renew





As
long as CTE is not in default of its lease obligations, CTE has two consecutive
options to extend the expiration date of the lease for five years each, for a
total of ten years.  In order to exercise an option, CTE must give at
least nine months' prior notification to the landlord, but such notice may not
be given earlier than 12 months prior to expiration of the lease.  The
monthly base rental rate for each option will be the prevailing market rental
rate, as reasonably determined by the landlord. CTE has the right to renew as
long as the renewal includes not less than 50% of the total space
leased.





Options
to Expand





As
long as CTE is not in default of its lease obligations, CTE has a continuing
right of first offer (“ROFO”) on certain space, including floors 4, 7, 10 or
12.  The monthly base rental rate for the ROFO will be the prevailing
market rental rate as reasonably determined by the landlord.  The ROFO
expires two years prior to the expiration of the lease.





Giveback
Option





CTE
provided noticed on December 31, 2008 that indicated CTE was exercising a
termination option on a portion of the 10th floor.  CTE did not
exercise its separate right to terminate the entire 11th
floor.  Effective October 1, 2009, CTE’s total leased space will be
reduced from 117,379 square feet to 104,086 square feet, or approximately 12% of
the Property’s total leasable space.  This reduction represents
approximately 2% of the Property’s total leasable space.





Additional Operating
Data





Additional information regarding the
amount of the Property’s annual realty taxes and insurance can be found in the
Statements of Operations that are included with this Form
10-K.  Additional information regarding the Property’s Federal tax
basis, rate, method and life claimed for purposes of depreciation can be found
in the Notes to Consolidated Financial Statements that are included with this
Annual Report on Form 10-K.





Item 3.
            Legal
      Proceedings





There are no material legal proceedings
to which the Company is a party. The Company from time to time may be involved
in lawsuits including, but not limited to, lawsuits relating to the real
property it owns for liability for slips and falls, damage to automobiles in the
parking garage, minor theft or similar matters.   The Company
expects that most of these suits will be covered by insurance, subject to
customary deductions. In addition, in the ordinary course of business, the
Company may become involved in litigation to collect rents or other income due
to it from tenants.





Item 4.
            Submission
      of Matters to a Vote of Security
Holders





No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.





8


PART II





Item 5.
            Market
      For Registrant’s Common Equity,  Related Stockholder Matters and
      Issuer Purchases of Equity Securities





There is no established public trading
market for the Company’s Common Stock or Preferred Stock.





As of March 4, 2009, Franklin Street was
the sole holder of record of the Common Stock and there were818holders of record of the Preferred
Stock.  This computation is based upon the number of record holders
reflected in our corporate records.  The final sale of Preferred Stock
occurred on December 27, 2007 and following that date no further distributions
have been or will be declared on the Common Stock.





Set forth below are the distributions
made to Common and Preferred Stockholders in respect of each quarter since our
inception.  Distributions are determined based on the Company’s Board
of Directors’ review of cash available for distribution and distribution
requirements necessary for the Company to continue to qualify as a real estate
investment trust. We cannot guarantee the future payment of dividends or the
amount of any such dividends.  See the Notes to Consolidated Financial
Statements that are included with this Annual Report on Form 10-K for additional
information.





FSP 303 East Wacker Drive
      Corp.Distributions
                    
                    
                    Distributionspaid to
                    
                    
                    paid toQuarter
                    
                    Common
                    
                    
                    PreferredEnded
                    
                    Stockholder
                    
                    
                    StockholdersMarch 31,
    2007
                    
                    $
                    -
                    
                    
                    $
                    -June 30,
    2007
                    
                    
                    532,000
                    
                    
                    
                    72,000September 30,
      2007
                    
                    
                    250,000
                    
                    
                    
                    1,149,000December 31,
      2007
                    
                    
                    228,000
                    
                    
                    
                    1,594,000March 31,
    2008
                    
                    
                    -
                    
                    
                    
                    1,708,000June 30,
    2008
                    
                    
                    -
                    
                    
                    
                    3,094,000September 30,
      2008
                    
                    
                    -
                    
                    
                    
                    3,094,000December 31,
      2008
                    
                    
                    -
                    
                    
                    
                    3,094,000





The following schedule summarizes tax
components of the distributions paid for the period ended December
31:





(in
    thousands)
                                  
                                  2008
                                  
                                  
                                  2007Preferred
                                  
                                  
                                  %
                                  
                                  
                                  Preferred
                                  
                                  
                                  Common
                                  
                                  
                                  %Ordinary
    income
                                  
                                  $
                                  8,464
                                  
                                  
                                  
                                  77
                                  %
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  -Return of
      Capital
                                  
                                  
                                  2,526
                                  
                                  
                                  
                                  23
                                  %
                                  
                                  
                                  2,815
                                  
                                  
                                  
                                  1,010
                                  
                                  
                                  
                                  100
                                  %Total
                                  
                                  $
                                  10,990
                                  
                                  
                                  
                                  100
                                  %
                                  
                                  $
                                  2,815
                                  
                                  
                                  $
                                  1,010
                                  
                                  
                                  
                                  100
                                  %





The Company does not have an equity
compensation plan or any outstanding stock options or other securities
convertible into the Company’s Common Stock.





Item 6.
            Selected
      Financial Data





Not applicable.


9





Item 7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.





The
following discussion should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this report.  Historical
results and percentage relationships set forth in the financial statements,
including trends which might appear, should not be taken as necessarily
indicative of future operations.  The following discussion and other
parts of this Annual Report on Form 10-K may also contain forward-looking
statements based on current judgments and current knowledge of management, which
are subject to certain risks, trends and uncertainties that could cause actual
results to differ materially from those indicated in such forward looking
statements.  Accordingly, readers are cautioned not to place undue
reliance on forward-looking statements.  Investors are cautioned that
our forward-looking statements involve risks and uncertainty, including without
limitation, economic conditions in the United States and in the market where we
own the Property, continued disruptions in the debt markets, risks of a
lessening of demand for the type of real estate owned by us, changes in
government regulations, and expenditures that cannot be anticipated such as
utility rate and usage increases, unanticipated repairs, additional staffing,
insurance increases and real estate tax valuation
reassessments.  Although we believe the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements.  We may not update
any of the forward-looking statements after the date this Annual Report on Form
10-K is filed to conform them to actual results or to changes in our
expectations that occur after such date, other than as required by
law.





Overview





The
Company operates in one business segment, which is real estate operations, and
owns a single property.  Our real estate operations involve real
estate rental operations, leasing services and property management
services.  The main factor that affects our real estate operations is
the broad economic market conditions in the United States and, more
specifically, the economic conditions in Chicago, Illinois, the relevant
submarket.  These market conditions affect the occupancy levels and
the rent levels on both a national and local level.  We have no
influence on national or local market conditions.





Trends and
Uncertainties





Economic
Conditions





The
economy in the United States is currently experiencing unprecedented
disruptions, including increased levels of unemployment, the failure and near
failure of a number of large financial institutions, reduced liquidity and
increased credit risk premiums for a number of market
participants.  Economic conditions may be affected by numerous
factors, including but not limited to, inflation and employment levels, energy
prices, recessionary concerns, changes in currency exchange rates, the
availability of debt and interest rate fluctuations.  The current
disruptions in the U.S. economy have affected real estate values, occupancy
levels and property income levels and may continue or worsen in the
future.  At this time, we cannot predict the extent or duration of any
negative impact that the current disruptions in the U.S. economy will have on
our business and, more specifically, on our efforts to lease vacant space and to
obtain the Permanent Mortgage Loan.





Real Estate
Operations





The
Property was approximately 88% leased as of December 31, 2008 to a diverse group
of tenants with staggered lease expirations.  Management believes that
any tenant that leases 10% or more of the Property’s rentable space is
material.  The largest tenant is KPMG LLP, or KPMG, which leases
259,090 square feet (approximately 30%) of the Property’s rentable space through
August 2012.  Consoer Townsend Environdyne Engineers, Inc., or CTE,
leases 117,379 square feet (approximately 14%) of the Property’s rentable space
through September 2014.  KPMG is one of the largest accounting firms
in the world and CTE is a subsidiary of AECOM Technology Corporation,
a provider of professional, technical and management support services (NYSE:
ACM), which has guaranteed CTE's obligations under the lease.  On
February 16, 2009, KPMG notified the Company that it will be relocating to a
different property location following the expiration of its lease on August 31,
2012.  With approximately 3.5 years remaining on KPMG’s lease,
management will use that time to implement a marketing plan designed to locate a
replacement tenant (or tenants).  No other tenant leases 10% or more
of the Property’s rentable space.  On December 31, 2008, CTE notified
the Company that it will be exercising its early termination option on a portion
of the 10th floor.  Effective October 1, 2009, CTE’s total leased
space will be reduced from 117,379 square feet to 104,086 square feet, or
approximately 12% of the Property’s total leasable space.  This
reduction represents approximately 2% of the Property’s total leasable
space.  Other prominent additional tenants include Equity Marketing,
Inc., a marketing services firm which leases  60,494 square feet
(approximately 7%) through March 31, 2009.  Equity Marketing, Inc. has
signed a lease at another building and vacated the Property during the fourth
quarter of 2008.  As of December 31, 2008, 36 tenants were leasing
space at the Property.


10





It is difficult for management to
predict what will happen to occupancy and rents at our Propertybecause the need for space and the price
tenants are willing to pay are tied to both the local economy and to the larger
trends in the national economy, such as job growth, interest rates, the
availability of credit and corporate earnings, which in turn are tied to even larger macroeconomic and
political factors, such as recessionary concerns, volatility in energy pricing
and the risk of terrorism.  In addition to the difficulty of
predicting macroeconomic factors, it is difficult to predict how our localmarket or tenants (existing and
potential) will suffer or benefit from changes in the larger
economy.  In addition, because the Property is in a single
geographical market, these macroeconomic trends may have a different effect on
the Property and on its tenants (existing and potential), some of
which may operate on a national level.  Although we cannot predict how
long it will take to lease vacant space at the Property or what the terms and
conditions of any new leases will be, we expect to sign new leasesat current market rates which may be
below the expiring rates.





For
the twelve months ended December 31, 2008, we believe that vacancy rates and
rental rates for buildings in Chicago’s East Loop office market remained
stable.  This trend may continue or worsen in the
future.  Continuing turmoil in the global financial markets has slowed
the pace of leasing activity in the Chicago office market and will likely
prolong the time it takes to lease the vacant space at the
Property.  Management believes that the position of the Property
within Chicago’s office market is strong and management is optimistic that the
existing vacant space will ultimately be leased to new
tenants.





Given
the current economic downturn, the potential for any of our tenants to default
on its lease or to seek the protection of bankruptcy laws has
increased.  If any of our tenants defaults on its lease, we may
experience delays in enforcing our rights as a landlord and may incur
substantial costs in protecting our investment.  In addition, at any
time, a tenant may seek the protection of bankruptcy laws, which could result in
the rejection and termination of such tenant’s lease and thereby cause a
reduction in cash available for distribution to our
stockholders.  Bankruptcy or a material adverse change in the
financial condition of a material tenant would likely have a material adverse
effect on our results of operations.





In light of the amount of space that
will need to be re-leased upon the expiration of KPMG’s lease on August 31, 2012
and the potential for significant tenant improvement allowances and leasing
commissions, it is possible that we may need to borrow funds in the
future.  The Company may, without the consent of any holder of shares
of our Preferred Stock, obtain a revolving line of credit of up to $66,800,000
on commercially reasonable terms to be used for capital improvements or to pay
operating expenses of the Property, if needed.   As of February
28, 2009, the Company has neither sought nor obtained a line of
credit.





Critical
Accounting Policies and Estimates





We have certain critical accounting
policies that are subject to judgments and estimates by our management and
uncertainties of outcome that affect the application of these
policies.  We base our estimates on historical experience and on
various other assumptions we believe to be reasonable under the
circumstances.  On an on-going basis, we evaluate our
estimates.  In the event estimates or assumptionsproveto be different from actual results,
adjustments are made in subsequent periods to reflect more current
information.  The accounting policies that we believe are most
critical to the understanding of our financial position and results of
operations and that require significant management estimates and judgments are
discussed below.





Critical accounting policies are those
that have the most impact on the reporting of our financial condition and
results of operations and those requiring significant judgments andestimates.  We believe that our
judgments and estimates are consistently applied and produce financial
information that fairly presents our results of operations.  Our most
critical accounting policies involve our investments in real
property.  These policies affect our:





·
            allocation
      of purchase prices between various asset categories and the related impact
      on our recognition of rental income and depreciation and amortization
      expense; and


·
            assessment
      of the carrying values and impairments of long-lived
    assets.





Allocation
of Purchase Price




We have allocated the purchase price of
the Property to land, buildings andimprovements.  Each component of purchase
price generally has a different useful life.  We allocate the value of
real estate acquired among land, buildings, improvements andidentified intangible assets and
liabilities, which may consist of the value of above market and below market
leases, the value of in-place leases, and the value of tenant
relationships.Purchase
price allocations and the determination of the useful lives are based on
management’s estimates, which were partially based upon an appraisal that we
obtained from an independent real estate appraisal firm.


11





Purchase price allocated to land and
building and improvements is based on management’s determination of the relative
fair values of these assets assuming the Property was vacant. Management
determines the fair value of the Property using methods similar to those usedbyindependent appraisers. Purchase price
allocated to above market leases is based on the present value (using an
interest rate which reflects the risks associated with the leases acquired) of
the difference between (i) the contractual amounts to be paid pursuant to
in-place leases and (ii) our estimate of fair market lease rates for leases,
measured over a period equal to the remaining non-cancelable term of the
leases.  Purchase price allocated toin-place leases and the tenant
relationships is determined as the excess of (i) the purchase price paid for the
Property after adjusting the existing in-place lease to market rental rates over
(ii) the estimated fair value of the Property as if vacant.  This
aggregate value is allocated between the in-place lease value and tenant
relationship based on management’s evaluation of the specific characteristics of
the tenant’s lease; however, the value of tenant relationships has not been
separated from in-place lease value because such value and its consequence to
amortization expense is immaterial for the acquisition reflected in our
financial statements.  Factors considered by us in performing these
analyses include (i) an estimate of carrying costs during the expected lease-up
periods, including real estate taxes, insurance and other operating income and
expenses, and (ii) costs to execute similar leases in current market conditions,
such as leasing commissions, legal and other related costs.





Depreciation
and Amortization




We compute depreciation expense using
the straight-line method over estimated useful lives of up to 39 years for the
building and improvements, and up to 15 years for personal
property.  The allocated cost of land is not
depreciated.The
capitalized above-market lease values, if any, are amortized as a reduction to
rental income over the remaining non-cancelable terms of the
lease.  The value of above or below-market leases is amortized over
the remaining non-cancelable periods of the lease.The value of in-place leases, exclusive
of the value of above-market and below-market in-place leases, is also amortized
over the remaining non-cancelable periods of the respective
leases.  If a lease is terminated prior to its stated expiration, all
unamortized amounts relating to that lease would be written
off.  Inappropriate allocation of acquisition costs, or incorrect
estimates of useful lives, could result in depreciation and amortization
expenses which do not appropriately reflect the allocation of our capital
expenditures over future periods, as is required by generally accepted
accounting principles.





Impairment




We periodically evaluate the Property
for impairment indicators.  These indicators may include declining
tenant occupancy, weak or declining tenant profitability, cash flow or
liquidity, our decision to dispose of an asset before the end of its estimated
useful life or legislative, economic or market changes that permanently reduce
the value of our investment.  If indicators of impairment are present,
we evaluate the carrying value of the Property by comparing it to its expected
future undiscounted cash flows.  If the sum of these expectedfuturecash flows is less than the carrying
value, we reduce the net carrying value of the Property to the present value of
these expected future cash flows. This analysis requires us to judge whether
indicators of impairment exist and to estimate likely future cash
flows.  If we misjudge or estimate incorrectly or if future tenant
profitability, market or industry factors differ from our expectations, we may
record an impairment charge which is inappropriate or fail to record a charge
when we should have done so, or the amount of such charges may be
inaccurate.




Lease
Classification




Each time we enter a new lease or
materially modify an existing lease we evaluate whether it is appropriately
classified as a capital lease or as an operating lease.  Theclassificationof a lease as capital or operating
affects the carrying value of a property, as well as our recognition of rental
payments as revenue.  These evaluations require us to make estimates
of, among other things, the remaining useful life and market value of a
property, discount rates and future cash flows.  Incorrect assumptions
or estimates may result in misclassification of our
leases.


12





Recent
Accounting Pronouncements





In September 2006, the Financial
Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value
Measurements”, and in February 2008 amended SFAS No. 157 with FASB Staff
Position SFAS 157-1 (“FSP FAS 157-1”), “Application of FASB Statement No. 157 to
FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair
Value Measurements for Purposes of Lease Classification or Measurement under
Statement 13” and was amended later with FASB Staff Position SFAS 157-2, “
Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”). SFAS 157 defines
fair value, establishes a framework for measuring fair value in GAAP and
provides for expanded disclosure about fair value measurements. SFAS 157 is
applied prospectively, including to all other accounting pronouncements that
require or permit fair value measurements. FSP FAS 157-1 amends SFAS 157 to
exclude from the scope of SFAS 157 certain leasing transactions accounted for
under Statement of Financial Accounting Standards No. 13, “Accounting for
Leases” for purposes of measurements and classifications. SFAS No. 157 and FSP
FAS 157-1 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years.  The adoption of SFAS No. 157 and FSP FAS 157-1 did not have a
material impact on the Company’s financial position, operations or cash
flows.  FSP FAS 157-2 amends SFAS 157 to defer the effective date of
SFAS 157 for all non-financial assets and non-financial liabilities except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis to fiscal years beginning after November 15,
2008.  The Company is currently assessing the potential impact that
the adoption of FSP FAS 157-2 will have on our financial position, results of
operations or cash flows.





In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities —
Including an amendment of FASB Statement No. 115”, which permits entities to
choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value and
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. This Statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007.
The adoption of this standard did not have an impact on the Company’s financial
position, results of operations or cash flows.





In May 2008, the FASB issued SFAS No.
162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS No.
162).  SFAS No. 162 identifies the sources of accounting principles
and the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles (GAAP) in the United
States (the GAAP hierarchy).  SFAS No. 162 is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
(PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.  The Company
is currently evaluating the impact of SFAS No. 162 on the Company’s consolidated
financial statements.





Results of
Operations





The
Company acquired the Property and commenced operations on January 5,
2007.  As of December 31, 2008, the Property was approximately 88%
leased to a diverse group of tenants with staggered lease
expirations.





Comparison
of the year ended December 31, 2008 to the period January 5, 2007 (date
operations commenced) to December 31, 2007





Revenue





Total revenue increased $0.9 million to
$23.0 million for the year ended December 31, 2008, as compared to $22.1 million
for the period January 5,
2007 (date operations commenced) to December 31, 2007.  This increase
was primarily due to an increase in revenue from base rents of $0.6 million and
an increase in recovery of expenses of approximately $0.3 million, as a result
of an additional four days of operations in the
2008 period compared to the 2007 period combined with an increase in leasing and
occupancy.





Expenses





Total expenses decreased $13.1 million
to $18.0 million for the year ended December 31, 2008 as compared to $31.1
million for the period
January 5, 2007 (date operations commenced) to December 31,
2007.  This decrease was predominately attributable to a $14.0 million
decrease in interest expense because the related Acquisition Mortgage Loan was
repaid on December 27,2007.  The Acquisition Mortgage
Loan was used to purchase the Property in January 2007 and was repaid by
proceeds from the sale of Preferred Stock.  The decrease was offset by
an increase of approximately $0.5 million in rental operating expenses and an
increase of approximately $0.4 million in
depreciation and amortization.


13


Liquidity and Capital
Resources





Cash
and cash equivalents decreased $1.5 million to $23.9 million at December 31,
2008 compared to $25.4 at December 31, 2007.  The $1.5 million
decrease is attributable to $12.5 million provided by operating activities,
which was offset by $3.0 million used for investing activities and $11.0 million
used for financing activities.





Management believes that existing cash
and cash anticipated to be generated internally by operations will be
sufficient to meet working capital expenditures for at least the next 12
months.





Operating Activities





The cash provided by operating
activities of $12.5 million for the year ended December 31, 2008 was primarily
attributable to net income
of approximately $5.6 million plus depreciation and amortization of
approximately $7.5 million and was offset by uses arising from other current
accounts of $0.2 million and by payments of deferred leasing costs of $0.4
million.





Investing Activities





The cash used for investing activities
for the year ended December 31, 2008 of approximately $3.0 million was
attributable to the purchase of real estate assets.





Financing Activities





The cash used for financing activities
of approximately $11.0
million for the year ended December 31, 2008 was primarily attributable to
distributions to stockholders.





Sources and Uses of
Funds





Our principal demands on liquidity are
cash for operations and distributions to equity holders.  As of
December 31, 2008, we had
approximately $9.5 million in accrued liabilities.  In the near term,
liquidity is generated by cash from operations.





Contingencies





We may be subject to various legal
proceedings and claims that arise in the ordinary course of our business.  Although occasional
adverse decisions or settlements may occur, we believe that the final
disposition of such matters will not have a material adverse effect on our
financial position or results of operations.





Related Party
Transactions





We have in the past engaged in and
currently engage in transactions with a related party, Franklin Street and its
subsidiaries, FSP Investments LLC and FSP Property Management LLC, which we
collectively refer to as FSP.  We expect to continue to have related
party transactions with FSP in the form of management fees paid to FSP to manage
the Company on behalf of our stockholders.  FSP Property Management
LLC currently provides us with asset management and financial reporting
services.  The asset management agreement between us and FSP Property
Management LLC requires us to pay FSP Property Management LLC a monthly fee
equal to one-half of one percent (0.5%) of the gross revenues of the Property
for the corresponding month.  The asset management agreement between
us and FSP Property Management LLC may be terminated by either party without
cause at any time, upon at least thirty (30) days’ written
notice.  For the year ended December 31, 2008 and for the period
January 5, 2007 (date operations commenced) to December 31, 2007, management
fees paid were $123,000 and $110,000, respectively.





Franklin Street is the sole holder of
the Company’s one share of Common Stock that is issued and
outstanding.  Subsequent to the completion of the private placement of
the Preferred Stock in December 2007, Franklin Street has not been entitled to
share in any earnings or any dividend related to the Common Stock of the
Company.


14





The following is a summary of related
party transactions that occurred with FSP for the period January 5, 2007 (date
operations commenced) to December 31, 2007.  The related party
transactions described below are not expected to significantly affect the
Company’s results of operations, financial position or liquidity for fiscal year
2009 or future periods.





·
            We paid acquisition fees of
      $622,000 and other costs of acquisition of $1,042,000 to FSP in
      2007.  Such fees were included in the cost of the real
      estate.  We also paid organizational costs of $27,000 to FSP in
      2007 which were expensed when incurred.  Since the completion of
      the final closing of the sale of shares of our Preferred Stock, which
      occurred on December 27, 2007, no acquisition fees have been paid to
      FSP.





·
            We paid syndication fees
      consisting of $9,954,000 for selling commissions and $132,000 for other
      expenses in 2007 to FSP for services related to syndication of our
      Preferred Stock.  Since the completion of the final closing of
      the sale of shares of our Preferred Stock, which occurred on December 27,
      2007, no syndication fees have been paid to
  FSP.





·
            We purchased the
      Property from an unaffiliated third party for $167,000,000 on January 5,
      2007.  The purchase price, which was determined by arm’s length
      negotiations, was financed entirely by a loan, which we refer to as the
      Acquisition Mortgage Loan, from Franklin Street with interest equal to the
      rate paid by Franklin Street on its line of credit.  The
      Acquisition Mortgage Loan was collateralized by a first mortgage against
      the Property.  During 2007, we repaid the entire principal
      balance of the Acquisition Mortgage Loan, with the final payment being
      made on December 27, 2007.  For the period ended December 31,
      2007, interest paid to Franklin Street on the Acquisition Mortgage Loan
      was $6,656,000.  The average interest rate during the time the
      Acquisition Mortgage Loan was outstanding was 6.53%.  No
      interest payments have been made since December 2007 because the
      Acquisition Mortgage Loan was
repaid.





·
            We paid commitment fees of
      $7,154,000 for the period ended December 31, 2007 to FSP for obtaining the
      Acquisition Mortgage Loan on the Property.  Such amounts are
      included in interest expense in the financial statements.  Since
      the completion of the final closing of the sale of shares of our Preferred
      Stock, which occurred on December 27, 2007, no commitment fees have been
      paid to FSP.





·
            We made distributions of
      $1,010,000 to Franklin Street as the sole holder of the one share of our
      Common Stock relating to earnings of the Company prior to the completion
      of the offering of Preferred Stock.  No distributions have been
      paid to Franklin Street subsequent to the final closing of the sale of
      shares of the Preferred Stock, and Franklin Street is not currently
      entitled to share in any future earnings or any related distribution of
      the Company as the sole holder of our one share of Common
      Stock.  On December 27, 2007, Franklin Street purchased 965.75
      shares of Preferred Stock (or approximately 43.7%), of the Company for
      consideration totaling $82,813,000.  Prior to purchasing any
      shares of Preferred Stock, Franklin Street agreed to vote any shares held
      by it on any matter presented to the holders of Preferred Stock in a
      manner that approximates as closely as possible the votes cast in favor of
      and opposed to such matter by the holders of the Preferred Stock other
      than Franklin Street and its affiliates.  For purposes of
      determining how Franklin Street votes its shares of Preferred Stock,
      abstentions and non-votes by stockholders other than Franklin Street are
      not considered. Franklin Street is entitled to distributions that are
      declared on the Preferred
Stock.





Rental
Income Commitments





Our
commercial real estate operations consist of the leasing of the
Property.  Approximate future minimum rental income under
non-cancelable operating leases as of December 31, 2008 is as
follows:





Year Ending
                        
                        AmountDecember
31,
                        
                        (in
    thousands)2009
                        
                        $
                        10,6622010
                        
                        
                        9,6072011
                        
                        
                        9,4192012
                        
                        
                        8,3152013
                        
                        
                        5,685Thereafter
                        
                        
                        7,692$
                        51,380





15





Off-Balance Sheet
Arrangements





The
Company is a party to management, construction management and leasing agreements
with an unaffiliated third party management company, Hines Interests Limited
Partnership, to provide property management, construction management and leasing
services, and is party to an asset management agreement with an affiliate, FSP
Property Management LLC, to provide asset management and financial reporting
services, all of which agreements may be terminated by either party without
cause at any time, upon at least thirty (30) days’ written
notice.  The asset management agreement between the Company and FSP
Property Management LLC requires the Company to pay FSP Property Management LLC
a monthly fee equal to one-half of one percent (0.5%) of the gross revenues of
the Property for the corresponding month.





Item
      7A.
            Quantitative and
      Qualitative Disclosure About Market
Risk





Not applicable.





Item 8.
            Financial
      Statements and Supplementary
Data





The
information required by this item is included elsewhere herein and incorporated
herein by reference.  Reference is made to the Index to Consolidated
Financial Statements in Item 15 of Part IV.





Item 9.
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure





Not applicable.





Item 9A.
            Controls
      and Procedures





Not applicable.





Item 9A(T).
            Controls
      and Procedures





Disclosure
Controls and Procedures





Our management, with the participation
of our principal executive officer and principal financial officer, evaluated
the effectiveness of our disclosure controls and procedures as of December 31,
2008. The term “disclosure controls and procedures,” as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the
Exchange Act, means controls and other procedures of a company that are designed
to ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the company’s management,
including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required
disclosure.  Management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.  Based on the evaluation of our disclosure controls and
procedures as of December 31, 2008, our principal executive officer and
principal financial officer concluded that, as of such date, our disclosure
controls and procedures were effective at the reasonable assurance level.





Changes
in Internal Control Over Financial Reporting





No
change in our internal control over financial reporting occurred during the year
ended December 31, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





This
Annual Report on Form 10-K does not include a report of management’s assessment
regarding internal control over financial reporting or an attestation report of
our registered public accounting firm due to a transition period established by
rules of the Securities and Exchange Commission for newly public
companies.


16


Item 9B.
            Other
      Information




Not applicable.




17


PART
III




Item 10.
            Directors,
      Executive Officers and Corporate
  Governance





Directors
and Executive Officers




Information regarding the executive
officers and directors of the Company as of February 28, 2009 is set forth
below:





George J. Carter, age 60, is President
and a director of the Company.  Since 1996 he has also been President
and Chief Executive Officer and a director of Franklin Street and is responsible
for all aspects of the business of Franklin Street and its affiliates, with
special emphasis on the evaluation, acquisition and structuring of real estate
investments.  From 1992 through 1996 he was President of Boston
Financial Securities, Inc. (“Boston Financial”).  Prior to joining
Boston Financial, Mr. Carter was owner and developer of Gloucester Dry Dock, a
commercial shipyard in Gloucester, Massachusetts.  From 1979 to 1988,
Mr. Carter served as Managing Director in charge of marketing of First Winthrop
Corporation, a national real estate and investment banking firm headquartered in
Boston, Massachusetts.  Prior to that, he held a number of positions
in the brokerage industry including those with Merrill Lynch & Co. and Loeb
Rhodes & Co.  Mr. Carter is a graduate of the University of Miami
(B.S.).  Mr. Carter is a FINRA General Securities Principal (Series
24) and holds a FINRA Series 7 general securities license.





Barbara J. Fournier, age 53, is the Vice
President, Chief Operating Officer, Treasurer and Secretary and a director of
the Company.  Since 1996, she has also been Chief Operating Officer,
Treasurer and Secretary and a director of Franklin Street.  In 2008,
Ms. Fournier became an Executive Vice President of Franklin
Street.  Ms. Fournier has as her primary responsibility, together with
Mr. Carter, the management of all operating business affairs of Franklin Street
and its affiliates.  From 1993 through 1996, she was Director of
Operations for the private placement division of Boston
Financial.  Prior to joining Boston Financial, Ms. Fournier served as
Director of Operations for Schuparra Securities Corp. and as the Sales
Administrator for Weston Financial Group.  From 1979 through 1986, Ms.
Fournier worked at First Winthrop Corporation in administrative and management
capacities, including Office Manager, Securities Operations and Partnership
Administration.  Ms. Fournier attended Northeastern University and the
New York Institute of Finance.  Ms. Fournier is a FINRA General
Securities Principal (Series 24).  She also holds other FINRA
supervisory licenses including Series 4 and Series 53, and a FINRA Series 7
general securities license.





William W. Gribbell, age 49, is an
Executive Vice President and a director of the Company.  Since 1996,
he has been an Executive Vice President of Franklin Street and has as his
primary responsibility the direct equity placement of Franklin Street-sponsored
investment programs.  From 1993 through 1996 he was an executive
officer of Boston Financial.  From 1989 to 1993, Mr. Gribbell worked
at Winthrop Financial Associates.  Mr. Gribbell is a graduate of
Boston University (B.A.).  Mr. Gribbell holds a FINRA Series 7 general
securities license.





R. Scott MacPhee, age 51, is an
Executive Vice President and a director of the Company.  Since 1996,
he has been an Executive Vice President of Franklin Street and has as his
primary responsibility the direct equity placement of Franklin Street-sponsored
investment programs.  From 1993 through 1996 he was an executive
officer of Boston Financial.  From 1985 to 1993, Mr. MacPhee worked at
Winthrop Financial Associates.  Mr. MacPhee attended American
International College.  Mr. MacPhee holds a FINRA Series 7 general
securities license.





Janet Prier Notopoulos, age 61, is a
Vice President and a director of the Company.  In addition, she is
President of FSP Property Management LLC and an Executive Vice President and a
director of Franklin Street and has as her primary responsibility the oversight
of the management of the real estate assets of Franklin Street and its
affiliates.  Prior to joining Franklin Street in 1997, Ms. Notopoulos
was a real estate and marketing consultant for various clients.  From
1975 to 1983, she was Vice President of North Coast Properties, Inc., a Boston
real estate investment company.  Between 1969 and 1973, she was a real
estate paralegal at Goodwin, Procter & Hoar.  Ms. Notopoulos is a
graduate of Wellesley College (B.A.) and the Harvard School of Business
Administration (M.B.A).





Jeffrey B. Carter, age 37, is a Vice
President and a director of the Company, and is George J. Carter's son. In
addition, he is a Senior Vice President and the Director of Acquisitions for
Franklin Street.  Prior to joining Franklin Street in 1998, Mr. Carter
worked in Trust Administration for Northern Trust Bank in Miami, Florida. Mr.
Carter is a graduate of Arizona State University (B.A.) and The George
Washington University (M.A.).  Mr. Carter holds a FINRA Series 7
general securities license.


18





Each of our directors holds office from
the time of his or her election until the next annual meeting and until a
successor is elected and qualified, or until such director’s earlier death,
resignation or removal.  Each of the above persons has been associated
with us since our inception in 2006.  Each of them is an employee of
FSP Investments LLC, a wholly-owned subsidiary of Franklin Street, which is the
sole owner of the Common Stock.  Each of our officers serves in that
capacity at the request of Franklin Street.





George
J. Carter, Barbara J. Fournier, R. Scott MacPhee, William W. Gribbell and Janet
P. Notopoulos also serve as directors of FSP Galleria North Corp., FSP Phoenix
Tower Corp. and FSP 50 South Tenth Street Corp., which are public reporting
companies sponsored by Franklin Street.  Jeffrey B. Carter also serves
as a director of FSP 50 South Tenth Street Corp.  In their capacities
as directors of FSP Galleria North Corp., FSP Phoenix Tower Corp. and FSP 50
South Tenth Street Corp., George J. Carter, Barbara J. Fournier, R. Scott
MacPhee, William W. Gribbell, Janet P. Notopoulos and Jeffrey B. Carter, as
applicable, each holds office from the time of his or her election until the
next annual meeting and until a successor is elected and qualified, or until
such director's earlier death, resignation or removal.





Sections
16(a) Beneficial Ownership Reporting Compliance




Based
solely on its review of copies of reports filed by the directors and executive
officers of the Company pursuant to Section 16(a) of the Exchange Act, the
Company believes that during 2008 all filings required to be made by its
reporting persons were timely made in accordance with the requirements of the
Exchange Act.




Corporate
Governance




Our
board of directors does not have standing compensation, nominating and corporate
governance or audit committees. Our officers are compensated by Franklin Street
in connection with their employment by Franklin Street and serve as our
executive officers at Franklin Street’s request.  Our directors are
officers of Franklin Street and we do not consider it necessary to establish a
nominating committee or a policy for reviewing nominees recommended by
stockholders.  We do not have a director who qualifies as an “audit
committee financial expert” under the regulations of the SEC.  We have
not adopted a code of business conduct or code of ethics for our executive
officers because all of our officers are officers of Franklin Street and are
governed by Franklin Street’s code of business conduct and ethics.





Item 11.
            Executive
      Compensation





Each of the executive officers of the
Company is compensated by Franklin Street in connection with his or her
employment by Franklin Street and serves as an executive officer of the Company
at Franklin Street’s request without compensation.Franklin Street is subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
files reports and other information with the Securities and Exchange Commission
(SEC).  Franklin Street’s common stock is traded on the NYSE Alternext
US under the symbol “FSP”.





19


Item 12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters





The following tables set forth the
beneficial ownership of the Company’s Common Stock and Preferred Stock as of
February 28, 2009 by each holder who beneficially owns more than five percent of
the Company’s Common Stock or Preferred Stock, by each director, by each of the
Company’s executive officers and by all current directors and executive officers
as a group.  To the Company’s knowledge, no person or group, other
than as set forth below, beneficially owns more than five percent of the
Company’s Common Stock or Preferred Stock.





Common Stock
                    Number of
      Shares
                    
                    Percentage ofBeneficially
                    
                    OutstandingName of Holder
                    Owned
                    
                    Common StockFranklin Street Properties Corp.
      (1)
                    1
                    
                    100%George J.
      Carter(2)
                    -
                    
                    0%Barbara J.
      Fournier(2)
                    -
                    
                    0%R. Scott
      MacPhee(2)
                    -
                    
                    0%William W.
      Gribbell(2)
                    -
                    
                    0%Jeffrey B.
      Carter(2)
                    -
                    
                    0%Janet P.
      Notopoulos(2)
                    -
                    
                    0%All Directors and Executive
      Officers as a Group(consisting of 6
      persons)(2)
                    -
                    
                    0%







Preferred
Stock
                    Number of
      Shares
                    
                    Percentage ofBeneficially
                    
                    OutstandingName of Holder
                    Owned
                    
                    Preferred  StockFranklin Street Properties Corp.
      (1)
                    965.75
                    
                    43.7%George J.
      Carter(2)
                    -
                    
                    0%Barbara J. Fournier(2)(3)
                    .50
                    
                    .02%R.Scott MacPhee(2)
                    -
                    
                    0%William W. Gribbell(2)(4)
                    .25
                    
                    .01%Jeffrey B.
      Carter(2)
                    -
                    
                    0%Janet P.
      Notopoulos(2)
                    -
                    
                    0%All Directors and Executive
      Officers as a Group(consisting of6persons)
                    966.50
                    
                    43.73%





(1)
            The address of Franklin Street
      Properties Corp. is401 Edgewater Place, Suite 200, Wakefield,
      Massachusetts 01880-6210.




(2)
            Each of the executive officers is
      employed by FSP Investments LLC, a subsidiary of Franklin Street
      Properties Corp.  Franklin Street Properties Corp. owns 100% of
      the issued and outstanding Common Stock of the
    Company.





(3)
            The fractional share is held by
      Ms. Fournier and her spouse.





(4)
            The fractional share is held by
      Mr. Gribbell’s spouse.





Equity Compensation Plan
Information




The
Company does not have any equity compensation plans.




20





Item 13.
            Certain
      Relationships and Related Transactions, and Director
      Independence





Certain Relationships and Related
Transactions





George J. Carter, Barbara J. Fournier,
R. Scott MacPhee, William W. Gribbell and Janet P. Notopoulos, each of whom is
an executive officer of the Company, are executive officers of Franklin Street
and, except for R. Scott MacPhee and William W. Gribbell, are directors of
Franklin Street.  None of such persons received any remuneration from
the Company for their services.





We have in the past engaged in and
currently engage in transactions with a related party, Franklin Street and its
subsidiaries, FSP Investments LLC and FSP Property Management LLC, which we
collectively refer to as FSP.  We expect to continue to have related
party transactions with FSP in the form of management fees paid to FSP to manage
the Company on behalf of our stockholders.  FSP Property Management
LLC currently provides us with asset management and financial reporting
services.  The asset management agreement between us and FSP Property
Management LLC requires us to pay FSP Property Management LLC a monthly fee
equal to one-half of one percent (0.5%) of the gross revenues of the Property
for the corresponding month.  The asset management agreement between
us and FSP Property Management LLC may be terminated by either party without
cause at any time, upon at least thirty (30) days’ written
notice.  For the year ended December 31, 2008 and for the period
January 5, 2007 (date operations commenced) to December 31, 2007, management
fees paid were $123,000 and $110,000, respectively.





Franklin Street is the sole holder of
the Company’s one share of Common Stock that is issued and
outstanding.  Subsequent to the completion of the private placement of
the Preferred Stock in December 2007, Franklin Street has not been entitled to
share in any earnings or any dividend related to the Common Stock of the
Company.





The following is a summary of related
party transactions that occurred with FSP for the period January 5, 2007 (date
operations commenced) to December 31, 2007.  The related party
transactions described below are not expected to significantly affect the
Company’s results of operations, financial position or liquidity for fiscal year
2009 or future periods.





·
            We paid acquisition fees of
      $622,000 and other costs of acquisition of $1,042,000 to FSP in
      2007.  Such fees were included in the cost of the real
      estate.  We also paid organizational costs of $27,000 to FSP in
      2007 which were expensed when incurred.  Since the completion of
      the final closing of the sale of shares of our Preferred Stock, which
      occurred on December 27, 2007, no acquisition fees have been paid to
      FSP.





·
            We paid syndication fees
      consisting of $9,954,000 for selling commissions and $132,000 for other
      expenses in 2007 to FSP for services related to syndication of our
      Preferred Stock.  Since the completion of the final closing of
      the sale of shares of our Preferred Stock, which occurred on December 27,
      2007, no syndication fees have been paid to
  FSP.





·
            We purchased the
      Property from an unaffiliated third party for $167,000,000 on January 5,
      2007.  The purchase price, which was determined by arm’s length
      negotiations, was financed entirely by a loan, which we refer to as the
      Acquisition Mortgage Loan, from Franklin Street with interest equal to the
      rate paid by Franklin Street on its line of credit.  The
      Acquisition Mortgage Loan was collateralized by a first mortgage against
      the Property.  During 2007, we repaid the entire principal
      balance of the Acquisition Mortgage Loan, with the final payment being
      made on December 27, 2007.  For the period ended December 31,
      2007, interest paid to Franklin Street on the Acquisition Mortgage Loan
      was $6,656,000.  The average interest rate during the time the
      Acquisition Mortgage Loan was outstanding was 6.53%.  No
      interest payments have been made since December 2007 because the
      Acquisition Mortgage Loan was
repaid.





·
            We paid commitment fees of
      $7,154,000 for the period ended December 31, 2007 to FSP for obtaining the
      Acquisition Mortgage Loan on the Property.  Such amounts are
      included in interest expense in the financial statements.  Since
      the completion of the final closing of the sale of shares of our Preferred
      Stock, which occurred on December 27, 2007, no commitment fees have been
      paid to FSP.


21





·
            We made distributions of
      $1,010,000 to Franklin Street as the sole holder of the one share of our
      Common Stock relating to earnings of the Company prior to the completion
      of the offering of Preferred Stock.  No distributions have been
      paid to Franklin Street subsequent to the final closing of the sale of
      shares of the Preferred Stock, and Franklin Street is not currently
      entitled to share in any future earnings or any related distribution of
      the Company as the sole holder of our one share of Common
      Stock.  On December 27, 2007, Franklin Street purchased 965.75
      shares of Preferred Stock (or approximately 43.7%), of the Company for
      consideration totaling $82,813,000.  Prior to purchasing any
      shares of Preferred Stock, Franklin Street agreed to vote any shares held
      by it on any matter presented to the holders of Preferred Stock in a
      manner that approximates as closely as possible the votes cast in favor of
      and opposed to such matter by the holders of the Preferred Stock other
      than Franklin Street and its affiliates.  For purposes of
      determining how Franklin Street votes its shares of Preferred Stock,
      abstentions and non-votes by stockholders other than Franklin Street are
      not considered. Franklin Street is entitled to distributions that are
      declared on the Preferred
Stock.





Director
Independence





Our securities are not listed on a
national securities exchange or in an inter-dealer quotation
system.  None of our directors qualifies as “independent” under the
standards of the NYSEAlternext US, where Franklin Street is
listed.





Item 14.
            Principal
      Accountant Fees and Services





Independent
Auditor Fees and Other Matters




The following tables summarize the
aggregate fees billed by the Company’s independent registered public accounting
firm, Braver PC, for audit services for each of the last two fiscal years and
for other services rendered to the Company in each of the last two fiscal
years.




Fee
      Category
                                    
                                    2008
                                    
                                    
                                    2007Audit Fees
    (1)
                                    
                                    $
                                    61,000
                                    
                                    
                                    $
                                    49,000Audit-Related Fees
      (2)Tax Fees
(3)
                                    
                                    
                                    5,000
                                    
                                    
                                    
                                    3,000All Other Fees
      (4)Total
      Fees
                                    
                                    $
                                    66,000
                                    
                                    
                                    $
                                    52,000




(1)
              Audit fees consist of fees for the
      audit of our financial statements, the review of the interim financial
      statements included in our quarterly reports on Form 10-Q, and other
      professional services provided in connection with statutory and regulatory
      filings or engagements.
 
 (2)
              Audit-related fees consist of fees
      for assurance and related services that are reasonably related to the
      performance of the audit and the review of our financial statements and
      which are not reported under “Audit
  Fees”.
 
 (3)
              Tax fees consist of fees for tax
      compliance, tax advice and tax planning services.   Tax
      compliance services, which relate to the preparation of tax returns,
      claims for refunds and tax payment-planning services, accounted for $5,000
      of the total tax fees incurred in 2008, and accounted for $3,000 of the
      total tax fees incurred in
2007.
 
 (4)
              The Company was not billed by its
      independent registered public accounting firm in 2008 or 2007 for any
      other fees.




Pre-Approval
Policy and Procedures





The
Company has not adopted policies and procedures relating to the pre-approval of
audit and non-audit services that are to be performed by the Company’s
independent registered public accounting firm.




22





PART IV





Item 15.
            Exhibits and Financial
      Statement Schedules





(a)
            The following documents are filed
      as part of this report.





1.
            Financial Statements: The
      Financial Statements listed in the accompanying Index to Consolidated
      Financial Statements are filed as part of this Annual Report on Form
      10-K.





2.
            Financial Statement Schedule: The
      Financial Statement Schedule listed on the accompanying Index to
      Consolidated Financial Statements is filed as part of this Annual Report
      on Form 10-K.





3.
            Exhibits: The Exhibits listed in
      the Exhibit Index are filed as part of this Annual Report on Form
      10-K.








23


SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf as
of March 12, 2009 by the undersigned, thereunto duly authorized.




FSP
      303 East Wacker Drive Corp.By:  /s/ George J.
      CarterGeorge
      J. CarterPresident




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.




Signature
            Title
            Date/s/ George J.
      Carter
              George
      J. Carter
            President
      and Director
              (Principal
      Executive Officer)
            March
      12, 2009/s/ Barbara J.
      Fournier
              Barbara
      J. Fournier
            Vice
      President, Chief Operating Officer, Treasurer, Secretary and
      Director
              (Principal
      Financial Officer and Principal Accounting Officer)
            March
      12, 2009/s/ R. Scott
      MacPhee
              R.
      Scott MacPhee
            Director,
      Executive Vice President
            March
      12, 2009/s/ William W.
      Gribbell
              William
      W. Gribbell
            Director,
      Executive Vice President
            March
      12, 2009/s/ Janet P.
      Notopoulos
              Janet
      P. Notopoulos
            Director,
      Vice President
            March
      12, 2009/s/ Jeffrey B.
      Carter
            Director,
      Vice PresidentJeffrey
      B. Carter
            
            March
      12, 2009







24


EXHIBIT
INDEX


Exhibit
      No.
            Description3.1
            Certificate
      of Incorporation, incorporated herein by reference to Exhibit 3.1 to FSP
      303 East Wacker Drive Corp.’s Registration Statement on Form 10, as
      amended (File No. 000-53165)3.2
            By-Laws,
      incorporated herein by reference to Exhibit 3.2 to FSP 303 East Wacker
      Drive Corp.’s Registration Statement on Form 10, as amended (File No.
      000-53165)10.1
            Office
      Lease, dated August 1997, between Metropolitan Life Insurance Company and
      KPMG Peat Marwick LLP, as amended by that certain First Amendment, dated
      December 4, 1997, between Metropolitan Life Insurance Company and KPMG
      Peat Marwick LLP, as further amended by that certain Second Amendment to
      Lease, dated December 4, 1997, between Metropolitan Life Insurance Company
      and KPMG Peat Marwick LLP, as further amended by that certain Third
      Amendment to Lease, dated March 4, 2004, between 303 Wacker Realty L.L.C.
      and KPMG LLP, as further amended by that certain Fourth Amendment to
      Lease, dated January 8, 2008, between FSP 303 East Wacker Drive LLC and
      KPMG LLP, incorporated herein by reference to Exhibit 10.1 to FSP 303 East
      Wacker Drive Corp.’s Registration Statement on Form 10, as amended (File
      No. 000-53165)10.2
            Office
      Lease, dated January 1, 1996, between Metropolitan Life Insurance Company
      and Consoer Townsend Environdyne Engineers, Inc., as amended by that
      certain First Amendment to Lease, dated October 1, 1999, between 303
      Wacker Realty L.L.C. and Consoer Townsend Environdyne Engineers, Inc., as
      further amended by that certain Second Amendment to Lease, dated January
      22, 2001, between 303 Wacker Realty L.L.C. and Consoer Townsend
      Environdyne Engineers, Inc., as further amended by that certain Third
      Amendment to Lease, dated March 1, 2004, between 303 Wacker Realty L.L.C.
      and Consoer Townsend Environdyne Engineers, Inc., incorporated herein by
      reference to Exhibit 10.2 to FSP 303 East Wacker Drive Corp.’s
      Registration Statement on Form 10, as amended (File No.
      000-53165)10.3
            Asset
      Management Agreement, dated January 5, 2007, between FSP 303 East Wacker
      Drive LLC and FSP Property Management LLC, as amended by that certain
      First Amendment to Asset Management Agreement, dated August 23, 2007,
      between FSP 303 East Wacker Drive LLC and FSP Property Management LLC,
      incorporated herein by reference to Exhibit 10.3 to FSP 303 East Wacker
      Drive Corp.’s Registration Statement on Form 10, as amended (File No.
      000-53165)10.4
            Voting
      Agreement, dated January 1, 2007, among FSP 303 East Wacker Drive Corp.,
      George J. Carter and Franklin Street Properties Corp., incorporated herein
      by reference to Exhibit 10.4 to FSP 303 East Wacker Drive Corp.’s
      Registration Statement on Form 10, as amended (File No.
      000-53165)21.1
            Subsidiaries
      of FSP 303 East Wacker Drive Corp., incorporated herein by reference to
      Exhibit 21.1 to FSP 303 East Wacker Drive Corp.’s Registration Statement
      on Form 10, as amended (File No. 000-53165)31.1
            Certification
      of FSP 303 East Wacker Drive Corp.'s principal executive officer pursuant
      to Section 302 of the Sarbanes-Oxley Act of 200231.2
            Certification
      of FSP 303 East Wacker Drive Corp.'s principal financial officer pursuant
      to Section 302 of the Sarbanes-Oxley Act of 200232.1
            Certification
      of FSP 303 East Wacker Drive Corp.'s principal executive officer pursuant
      to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2
            Certification
      of FSP 303 East Wacker Drive Corp.'s principal financial officer pursuant
      to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002


25


FSP
303 East Wacker Drive Corp.


Index
to Consolidated Financial Statements





Table
of Contents





PageFinancial
      StatementsReport
      of Independent Registered Public Accounting Firm
            
            F-2Consolidated
      Balance Sheets as of December 31, 2008 and 2007
            
            F-3Consolidated
      Statements of Operations for the year ended December 31, 2008, and for the
      period January 5, 2007 (date operations commenced) to December 31,
      2007
            
            F-4Consolidated
      Statements of Changes in Stockholders’ Equity for the year ended December
      31, 2008 and for the period January 5, 2007 (date operations commenced) to
      December 31, 2007
            
            F-5Consolidated
      Statements of Cash Flows for the year ended December 31, 2008, and for the
      period January 5, 2007 (date operations commenced) to December 31,
      2007
            
            F-6Notes
      to Consolidated Financial Statements
            
            F-7Financial
      Statement Schedule – Schedule III
            
            F-17


F-1


[LETTERHEAD
OF BRAVER PC]








REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To
the Stockholders


FSP
303 East Wacker Drive Corp.


Wakefield,
Massachusetts








We
have audited the accompanying consolidated balance sheets of FSP 303 East Wacker
Drive Corp. as of December 31, 2008 and 2007, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year ended December 31, 2008 and for the period from January 5, 2007 (date
operations commenced) to December 31, 2007.  Our audits also included
the financial statement schedule listed in the Index at Item
15(a)(2).  These consolidated financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and schedule based on
our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FSP 303 East Wacker
Drive Corp. as of December 31, 2008 and 2007, and the results of its operations
and its cash flows for the year ended December 31, 2008 and for the period from
January 5, 2007 (date operations commenced) to December 31, 2007 in conformity
with accounting principles generally accepted in the United States of
America.  Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.








/s/
Braver PC


Newton,
Massachusetts


March
12, 2009


F-2





FSP
303 East Wacker Drive Corp.


Consolidated
Balance Sheets





December
      31,(in
      thousands, except share and par value amounts)
                    
                    2008
                    
                    
                    2007Assets:Real
      estate investments, at cost:Land
                    
                    $
                    26,200
                    
                    
                    $
                    26,200Buildings
      and improvements
                    
                    
                    131,541
                    
                    
                    
                    129,098157,741
                    
                    
                    
                    155,298Less
      accumulated depreciation
                    
                    
                    6,870
                    
                    
                    
                    3,292Real
      estate investments, net
                    
                    
                    150,871
                    
                    
                    
                    152,006Acquired
      real estate leases, net of accumulated amortization of $4,159 and $2,334,
      respectively
                    
                    
                    6,667
                    
                    
                    
                    8,888Acquired
      favorable real estate leases, net of accumulated amortization of $3,181
      and $1,719, respectively
                    
                    
                    4,601
                    
                    
                    
                    6,315Cash
      and cash equivalents
                    
                    
                    23,878
                    
                    
                    
                    25,353Tenant
      rent receivable
                    
                    
                    58
                    
                    
                    
                    107Step
      rent receivable
                    
                    
                    2,104
                    
                    
                    
                    1,466Deferred
      leasing costs, net of accumulated amortization of $98 and $41,
      respectively
                    
                    
                    677
                    
                    
                    
                    400Prepaid
      expenses and other assets
                    
                    
                    136
                    
                    
                    
                    137Total
      assets
                    
                    $
                    188,992
                    
                    
                    $
                    194,672Liabilities
      and Stockholders’ Equity:Liabilities:Accounts
      payable and accrued expenses
                    
                    $
                    8,595
                    
                    
                    $
                    8,588Distribution
      payable
                    
                    
                    -
                    
                    
                    
                    1,708Tenant
      security deposits
                    
                    
                    583
                    
                    
                    
                    790Acquired
      unfavorable real estate leases, net of accumulated amortization of $209
      and $139, respectively
                    
                    
                    368
                    
                    
                    
                    474Total
      liabilities
                    
                    
                    9,546
                    
                    
                    
                    11,560Commitments
      and Contingencies:
                    
                    
                    -
                    
                    
                    
                    -Stockholders’
      Equity:Preferred
      Stock, $.01 par value, 2,210 shares authorized, issued and outstanding at
      December 31, 2008 and 2007, respectively, aggregate liquidation preference
      $221,000
                    
                    
                    -
                    
                    
                    
                    -Common
      Stock, $.01 par value, 1 share authorized, issued and
      outstanding
                    
                    
                    -
                    
                    
                    
                    -Additional
      paid-in capital
                    
                    
                    197,162
                    
                    
                    
                    197,162Retained
      deficit and distributions in excess of earnings
                    
                    
                    (17,716
                    )
                    
                    
                    (14,050
                    )Total
      Stockholders’ Equity
                    
                    
                    179,446
                    
                    
                    
                    183,112Total
      Liabilities and Stockholders’ Equity
                    
                    $
                    188,992
                    
                    
                    $
                    194,672See
      accompanying notes to financial statements.


F-3





FSP
303 East Wacker Drive Corp.


Consolidated
Statements of Operations





(in
      thousands, except share and per share amounts)
                    
                    For
      the Year Ended December 31, 2008
                    
                    
                    For
      the Period
                      January
      5, 2007
                      (date
      operations commenced) to
                      December
      31, 2007Revenues:Rental
                    
                    $
                    23,033
                    
                    
                    $
                    22,118Total
      revenue
                    
                    
                    23,033
                    
                    
                    
                    22,118Expenses:Rental
      operating expenses
                    
                    
                    6,357
                    
                    
                    
                    5,856Real
      estate taxes and insurance
                    
                    
                    5,703
                    
                    
                    
                    5,735Depreciation
      and amortization
                    
                    
                    5,939
                    
                    
                    
                    5,667Interest
                    
                    
                    -
                    
                    
                    
                    13,810Total
      expenses
                    
                    
                    17,999
                    
                    
                    
                    31,068Income
      (loss) before interest income
                    
                    
                    5,034
                    
                    
                    
                    (8,950
                    )Interest
      income
                    
                    
                    582
                    
                    
                    
                    433Net
      income (loss)
                    
                    
                    5,616
                    
                    
                    
                    (8,517
                    )Distributions
      paid to common stockholder
                    
                    
                    -
                    
                    
                    
                    1,010Net
      income (loss) attributable to preferred stockholders
                    
                    $
                    5,616
                    
                    
                    $
                    (9,527
                    )Weighted
      average number of preferred shares outstanding, basic and
      diluted
                    
                    
                    2,210
                    
                    
                    
                    894Net
      income (loss) per preferred share, basic and diluted
                    
                    $
                    2,541
                    
                    
                    $
                    (10,657
                    )See
      accompanying notes to financial statements.


F-4





FSP
303 East Wacker Drive Corp.


Consolidated
Statements of Changes in Stockholders’ Equity


For
the Period January 5, 2007 (date operations commenced) to December 31, 2007
and


for
the Year Ended December 31, 2008








(in
      thousands, except per share and share amounts)
                      
                      Preferred
                        Stock
                      
                      
                      Common
                        Stock
                      
                      
                      Additional
                        Paid-in
                        Capital
                      
                      
                      Retained Deficit
                        and Distributions
                        in
      Excess of
                        Earnings
                      
                      
                      Total
                        Stockholders'
                        EquityIssuance
      of Common Share
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      10
                      
                      
                      $
                      -
                      
                      
                      $
                      10Private
      offering of 2,210 shares, net
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      197,152
                      
                      
                      
                      -
                      
                      
                      
                      197,152Distributions
      - common stockholdersor
      $1,010,000 per common share
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,010
                      )
                      
                      
                      (1,010
                      )Distributions
      - preferred stockholdersor
      $5,059 per preferred share
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (4,523
                      )
                      
                      
                      (4,523
                      )Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (8,517
                      )
                      
                      
                      (8,517
                      )Balance,
      December 31, 2007
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      197,162
                      
                      
                      
                      (14,050
                      )
                      
                      
                      183,112Distributions
      - preferred stockholdersor
      $4,200 per preferred share
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (9,282
                      )
                      
                      
                      (9,282
                      )Net
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      5,616
                      
                      
                      
                      5,616Balance,
      December 31, 2008
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      197,162
                      
                      
                      $
                      (17,716
                      )
                      
                      $
                      179,446See
      accompanying notes to financial statements.





F-5





FSP
303 East Wacker Drive Corp.


Consolidated
Statements of Cash Flows





(in
      thousands)
                  
                  For
      the Year Ended
                    December
      31, 2008
                  
                  
                  For
      the Period
                    January
      5, 2007
                    (date
      operations
                    commenced)
      to
                    December
      31, 2007Cash
      flows from operating activities:Net
      income (loss)
                  
                  $
                  5,616
                  
                  
                  $
                  (8,517
                  )Adjustments
      to reconcile net income (loss) to net cashprovided
      by operating activities:Depreciation
      and amortization
                  
                  
                  5,939
                  
                  
                  
                  5,667Amortization
      of favorable real estate leases
                  
                  
                  1,714
                  
                  
                  
                  1,719Amortization
      of unfavorable real estate leases
                  
                  
                  (106
                  )
                  
                  
                  (139
                  )Changes
      in operating assets and liabilities:Tenant
      rent receivable
                  
                  
                  49
                  
                  
                  
                  (107
                  )Step
      rent receivable
                  
                  
                  (638
                  )
                  
                  
                  (1,466
                  )Prepaid
      expenses and other assets
                  
                  
                  1
                  
                  
                  
                  (137
                  )Accounts
      payable and accrued expenses
                  
                  
                  551
                  
                  
                  
                  7,708Tenant
      security deposits
                  
                  
                  (207
                  )
                  
                  
                  790Payment
      of deferred leasing costs
                  
                  
                  (417
                  )
                  
                  
                  (441
                  )Net
      cash provided by operating activities
                  
                  
                  12,502
                  
                  
                  
                  5,077Cash
      flows from investing activities:Purchase
      of real estate assets
                  
                  
                  (2,987
                  )
                  
                  
                  (154,418
                  )Purchase
      of acquired real estate leases
                  
                  
                  -
                  
                  
                  
                  (11,222
                  )Purchase
      of acquired favorable / unfavorable real estate leases
                  
                  
                  -
                  
                  
                  
                  (7,421
                  )Net
      cash used for investing activities
                  
                  
                  (2,987
                  )
                  
                  
                  (173,061
                  )Cash
      flows from financing activities:Proceeds
      from sale of company stock
                  
                  
                  -
                  
                  
                  
                  140,849Syndication
      costs
                  
                  
                  -
                  
                  
                  
                  (10,086
                  )Distributions
      to stockholders
                  
                  
                  (10,990
                  )
                  
                  
                  (3,825
                  )Proceeds
      from long-term debt
                  
                  
                  -
                  
                  
                  
                  167,000Principal
      payments on long-term debt
                  
                  
                  -
                  
                  
                  
                  (100,601
                  )Net
      cash provided by (used for) financing activities
                  
                  
                  (10,990
                  )
                  
                  
                  193,337Net
      increase (decrease) in cash and cash equivalents
                  
                  
                  (1,475
                  )
                  
                  
                  25,353Cash
      and cash equivalents, beginning of period
                  
                  
                  25,353
                  
                  
                  
                  -Cash
      and cash equivalents, end of period
                  
                  $
                  23,878
                  
                  
                  $
                  25,353Supplemental disclosure of cash
      flow information:Cash
      paid for:Interest
                  
                  $
                  -
                  
                  
                  $
                  13,810Disclosure
      of non-cash investing activities:Accrued
      costs for purchase of real estate assets
                  
                  $
                  336
                  
                  
                  $
                  880Disclosure
      of non-cash financing activities:Distributions
      declared but not paid
                  
                  $
                  -
                  
                  
                  $
                  1,708First
      Mortgage Loan balance converted to preferred shares
                  
                  $
                  -
                  
                  
                  $
                  66,399See
      accompanying notes to financial statements.








F-6


FSP
303 East Wacker Drive Corp.


Notes
to Consolidated Financial Statements





1.
            Organization





FSP 303 East Wacker Drive Corp. (the
“Company”) was organized on December 13, 2006 as a corporation under the laws of
the State of Delaware to purchase, own, and operate a twenty-eight story Class
“A” multi-tenant office tower containing approximately 859,187 rentable square
feet of space located in downtown Chicago, Illinois (the
“Property”).  The Company acquired the Property and commenced
operations on January 5, 2007.  Franklin Street Properties Corp.
(“Franklin Street”) (NYSE Alternext US: FSP) holds the sole share of the
Company’s common stock, $.01 par value per share (the “Common
Stock”).  Between February 2007 and December 2007, FSP Investments LLC
(member, FINRA and SIPC), a wholly-owned subsidiary of Franklin Street,
completed the sale on a best efforts basis of 2,210 shares of preferred stock,
$.01 par value per share (the “Preferred Stock”) in the Company.  FSP
Investments LLC sold the Preferred Stock in a private placement offering to
“accredited investors” within the meaning of Regulation D under the Securities
Act of 1933.





All references to the Company refer to
FSP 303 East Wacker Drive Corp. and its consolidated subsidiary, collectively,
unless the context otherwise requires.





2.
            Summary
      of Significant Accounting Policies





BASIS OF
PRESENTATION





The accompanying consolidated financial
statements include all of the accounts of the Company and its wholly-ownedsubsidiary.  All
significant intercompany accounts and transactions have been eliminated in
consolidation.





The
results of operations from operation commencement date to December 31, 2007 are
not necessarily indicative of the results to be obtained for other interim
periods or for the full fiscal year.





ESTIMATES
AND ASSUMPTIONS





The
Company prepares its consolidated financial statements and related notes in
conformity with accounting principles generally accepted in the United States of
America (“GAAP”).  These principles require 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 statements and the reported amounts of revenue and expenses during
the reporting period.  Actual results could differ from those
estimates.





REAL ESTATE AND
DEPRECIATION





Real estate assets are stated at the
lower of cost or fair value, as appropriate, less accumulated
depreciation.





Costs related to property acquisition
and improvements are capitalized.  Typical capital items include new
roofs, site improvements, various exterior building improvements and major
interior renovations.  Funding for capital improvements typically is
provided by cash set aside at the time the Property was
purchased.





Routine replacements and ordinary
maintenance and repairs that do not extend the life of the asset are expensed as
incurred.   Typical expense items include interior painting,
landscaping and minor carpet replacements. Funding for repairs and maintenance
items typically is provided by cash flows from operating
activities.





Depreciation is computed using the
straight-line method over the assets' estimated useful lives as
follows:





Category
              YearsBuilding -
      Commercial
              39Building
      Improvements
              15-39Furniture &
      Equipment
              5-7





The Company evaluates its assets used in
operations by identifying indicators of impairment and by comparing the sum of
the estimated undiscounted future cash flows for each asset to the asset’s
carrying value.  When indicators of impairment are present and the sum
of the undiscounted future cash flows is less than the carrying value of such
asset, an impairment loss is recorded equal to the difference between the
asset’s current carrying value and its fair value based on discounting its
estimated future cash flows.  At December 31, 2008 and 2007, no such
indicators of impairment were identified.


F-7





FSP 303 East Wacker Drive
Corp.


Notes
to Consolidated Financial Statements





2.
            Summary of Significant Accounting
      Policies (continued)





REAL ESTATE AND DEPRECIATION
(continued)





Depreciation expense of $3,578,000 and
$3,292,000 is included in Depreciation and Amortization in the Company’s
Consolidated Statements of Operations for the year ended December 31, 2008 and
the period January 5, 2007 (date operations commenced) to December 31, 2007,
respectively.





ACQUIRED
REAL ESTATE LEASES





Acquired
real estate leases represent the estimated value of legal and leasing costs
related to acquired leases that were included in the purchase price when the
Company acquired the Property.  Under Statement of Financial
Accounting Standards (“SFAS”) No. 141 “Business Combinations”, which was
approved by the Financial Accounting Standards Board (“FASB”) in June 2001, the
Company is required to segregate these costs from its investment in real
estate.  The Company subsequently amortizes these costs on a
straight-line basis over the remaining life of the related leases. Amortization
expense of $2,221,000 and $2,334,000 is included in Depreciation and
Amortization in the Company’s Consolidated Statements of Operations for the year
ended December 31, 2008 and the period January 5, 2007 (date operations
commenced) to December 31, 2007, respectively. Acquired
real estate lease costs included in the purchase price of the Property were
$11,222,000 and are being amortized over the weighted-average period of five
years in respect of the leases assumed. Detail of the acquired real estate
leases are as follows:





(in
      thousands)
                
                December
31,2008
                
                
                2007Cost
                
                $
                10,826
                
                
                $
                11,222Accumulated
      amortization
                
                
                (4,159
                )
                
                
                (2,334
                )Book value
                
                $
                6,667
                
                
                $
                8,888





The
estimated annual amortization expense for the five years succeeding December 31,
2008 is as follows:





(in
      thousands)2009
                    $         1,6662010
                    $         1,3332011
                    $         1,2582012
                    $         1,0482013
                    $            632





ACQUIRED
FAVORABLE REAL ESTATE LEASES





Acquired
favorable real estate leases represent the value related to the leases when the
lease payments due under a tenant’s lease exceed the market rate of the lease at
the date the Property was acquired.  Under SFAS 141 the Company is
required to report this value separately from its investment in real
estate.  The Company subsequently amortizes this amount on a
straight-line basis over the remaining life of the tenant’s
lease.  Amortization of $1,714,000 and $1,719,000 is shown as a
reduction of rental income in the Company’s Consolidated Statements of
Operations for the year ended December 31, 2008 and the period January 5, 2007
(date operations commenced) to December 31, 2007, respectively.







The
acquired favorable real estate leases included in the purchase price of the
property were $8,034,000 and are being amortized over a weighted-average period
of five years in respect of the leases assumed. Detail of the acquired favorable
real estate leases are as follows:





(in
      thousands)
                
                December
31,2008
                
                
                2007Cost
                
                $
                7,782
                
                
                $
                8,034Accumulated
      amortization
                
                
                (3,181
                )
                
                
                (1,719
                )Book value
                
                $
                4,601
                
                
                $
                6,315


F-8






FSP 303 East Wacker Drive
Corp.


Notes
to Consolidated Financial Statements





2.
            Summary of Significant Accounting
      Policies (continued)





ACQUIRED
FAVORABLE REAL ESTATE LEASES (continued)





The
estimated annual amortization for the five years succeeding December 31, 2008 is
as follows:





(in
      thousands)2009
                  $         1,1182010
                  $            7822011
                  $            7032012
                  $            6782013
                  $            628





ACQUIRED
UNFAVORABLE REAL ESTATE LEASES





The
Company accounts for leases acquired via direct purchase of real estate assets
under the provisions of SFAS No. 141.  Acquired unfavorable real
estate leases represent the value relating to leases with rents below the market
rate.  Amortization is computed using the straight-line method over
the lives of the leases assumed.  Amortization of $106,000 and
$139,000 is included with rental revenue in the Company’s Consolidated
Statements of Operations for the year ended December 31, 2008 and the period
January 5, 2007 (date operations commenced) to December 31, 2007,
respectively.





The
acquired unfavorable real estate leases included in the purchase price of the
property were $613,000 and are being amortized over a weighted average period of
four years in respect of the leases assumed.  Detail of the acquired
unfavorable real estate leases are as follows:





(in
      thousands)
                
                December
31,2008
                
                
                2007Cost
                
                $
                577
                
                
                $
                613Accumulated
      amortization
                
                
                (209
                )
                
                
                (139
                )Book value
                
                $
                368
                
                
                $
                474





The
estimated annual amortization for the five years succeeding December 31, 2008 is
as follows:





(in
      thousands)2009
                  $             862010
                  $             432011
                  $             422012
                  $             422013
                  $             42





CASH AND CASH
EQUIVALENTS





The Company considers all highly liquid
debt instruments with an initial maturity of three months or less to be cash
equivalents. The Company has set aside funded reserves of $15,895,000 and
$19,505,000 at December 31, 2008 and 2007, respectively, in anticipation of
future capital needs of the Property.  These funds typically are used
for the payment of real estate assets and deferred leasing commissions; however,
there is no legal restriction on their use and they may be used for any Company
purpose.


F-9





FSP
303 East Wacker Drive Corp.


Notes
to Consolidated Financial Statements





2.
            Summary
      of Significant Accounting Policies
(continued)





CONCENTRATION
OF CREDIT RISKS





Cash, cash equivalents and short-term
investments are financial instruments that potentially subject the Company to a
concentration of credit risk.   The Company maintains its cash
balances and short-term investments principally in banks which the Company
believes to be creditworthy.  The Company periodically assesses the
financial condition of the banks and believes that the risk of loss is
minimal.  Cash balances held with various financial institutions
frequently exceed the insurance limit of $250,000 provided by the Federal
Deposit Insurance Corporation.





For
the year ended December 31, 2008 and for the period January 5, 2007 (date
operations commenced) to December 31, 2007, rental income was derived from
various tenants.  As such, future receipts are dependent upon the
financial strength of the lessees and their ability to perform under the lease
agreements.





The following tenants represent greater
than 10% of rental revenue as of December 31, 2008 and 2007:







2008
              2007KPMG LLP
              29.0%
              26.2%CTE Engineers,
      Inc
              16.5%
              16.9%Equity Mktg, DBA
      Upshot
              11.3%
              10.9%





FINANCIAL
INSTRUMENTS





The Company estimates that the carrying
value of cash and cash equivalents approximate their fair values based on their
short-term maturity and prevailing interest rates.





STEP RENT RECEIVABLE





Certain leases provide for fixed rental
increases over the life of the lease. Rental revenue is recognized on the
straight-line basis over the related lease term; however, billings by the
Company are based on required minimum rentals in accordance with the lease
agreements.  Step rent receivable, which is the cumulative revenue
recognized in excess of amounts billed by the Company, is $2,104,000 and
$1,466,000 at December 31, 2008 and 2007, respectively.





TENANT
RENT RECEIVABLE





Tenant
rent receivable is reported at the amount the Company expects to collect on
balances outstanding at year-end.  Management monitors outstanding
balances and tenant relationships and concluded that any realization losses
would be immaterial.





DEFERRED LEASING
COSTS





Deferred leasing commissions represent
direct and incremental external leasing costs incurred in the leasing of
commercial space.  These costs are capitalized and are amortizedon a straight-line basis over a weighted average period of seven years in
respect of the terms of the related lease agreements. Amortization expense was $140,000 and
$41,000 for the year ended December 31, 2008 and for the period January 5, 2007
(date operations commenced) to December 31, 2007,
respectively.  Details of the deferred leasing costsare as
follows:





(in
      thousands)
                
                December
31,2008
                
                
                2007Cost
                
                $
                775
                
                
                $
                441Accumulated
      amortization
                
                
                (98
                )
                
                
                (41
                )Book value
                
                $
                677
                
                
                $
                400





F-10





FSP
303 East Wacker Drive Corp.


Notes
to Consolidated Financial Statements





2.
            Summary
      of Significant Accounting Policies
(continued)





DEFERRED LEASING COSTS
(continued)





The
estimated annual amortization expense for the five years succeeding December 31,
2008 is as follows:





(in
      thousands)2009
                $            1272010
                $            1222011
                $            1182012
                $            1032013
                $              54




SYNDICATION FEES





Syndication fees are selling commissions
and other costs associated with the initial offering of shares of the Company’s
Preferred Stock.  Such costs, in the amount of $10,086,000 have been
reported as a reduction in Stockholders’ Equity in the Company’s Consolidated
Balance Sheets.





REVENUE RECOGNITION





The Company has retained substantially
all of the risks and benefits of ownership of the Company's commercial property
and accounts for its leases as operating leases. Rental income from leases,
which may include rent concession (including free rent and tenant improvement
allowances) and scheduled increases in rental rates during the lease term, is
recognized on a straight-line basis. The Company does not have any percentage
rent arrangements with its commercial property tenants. Reimbursable costs are
included in rental income in the period earned.





A schedule showing the components of
rental revenue is shown below.





Year Ended
                
                
                Period
EndedDecember
31,
                
                
                December
31,(in
    thousands)
                
                2008
                
                
                2007Income from
      leases
                
                $
                12,238
                
                
                $
                11,246Straight-line rent
      adjustment
                
                
                638
                
                
                
                1,063Reimbursable expenses and
      parking
                
                
                11,765
                
                
                
                11,389Amortization of favorable
      leases
                
                
                (1,714
                )
                
                
                (1,719
                )Amortization of unfavorable
      leases
                
                
                106
                
                
                
                139Total
                
                $
                23,033
                
                
                $
                22,118








INTEREST INCOME





Interest income is recognized when the
earnings process is complete.





INCOME TAXES





The Company files as a Real Estate
Investment Trust (“REIT”) under the Internal Revenue Code of 1986, as
amended.  As a REIT, the Company generally is entitled to a tax
deduction for dividends paid to its stockholders, thereby effectively subjecting
the distributed net income of the Company to taxation at the stockholder level
only.  The Company must comply with a variety of restrictions to
maintain its status as a REIT.  These restrictions include the type of
income it can earn, the type of assets it can hold, the number of stockholders
it can have and the concentration of their ownership, and the amount of the
Company’s taxable income that must be distributed
annually.


F-11





FSP
303 East Wacker Drive Corp.


Notes
to Consolidated Financial Statements





2.
            Summary
      of Significant Accounting Policies
(continued)





NET INCOME PER SHARE





The Company follows SFAS No. 128
"Earnings per Share", which specifies the computation, presentation and
disclosure requirements for the Company's net income per share. Basic net income
per share of Preferred Stock is computed by dividing net income by the weighted
average number of shares of Preferred Stock outstanding during the period.
Diluted net income per share of Preferred Stock reflects the potential dilution
that could occur if securities or other contracts to issue shares were exercised
or converted into shares.  There were no potential dilutive shares
outstanding at December 31, 2008 and December 31, 2007. Subsequent to the
completion of the offering shares of Preferred Stock, the holder of Common Stock
is not entitled to share in any income nor in any related
dividend.





RECENT
ACCOUNTING PRONOUNCEMENTS





In September 2006, the Financial
Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value
Measurements”, and in February 2008 amended SFAS No. 157 with FASB Staff
Position SFAS 157-1 (“FSP FAS 157-1”), “Application of FASB Statement No. 157 to
FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair
Value Measurements for Purposes of Lease Classification or Measurement under
Statement 13” and was amended later with FASB Staff Position SFAS 157-2, “
Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”). SFAS 157 defines
fair value, establishes a framework for measuring fair value in GAAP and
provides for expanded disclosure about fair value measurements. SFAS 157 is
applied prospectively, including to all other accounting pronouncements that
require or permit fair value measurements. FSP FAS 157-1 amends SFAS 157 to
exclude from the scope of SFAS 157 certain leasing transactions accounted for
under Statement of Financial Accounting Standards No. 13, “Accounting for
Leases” for purposes of measurements and classifications. SFAS No. 157 and FSP
FAS 157-1 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years.  The adoption of SFAS No. 157 and FSP FAS 157-1 did not have a
material impact on the Company’s financial position, operations or cash
flows.  FSP FAS 157-2 amends SFAS 157 to defer the effective date of
SFAS 157 for all non-financial assets and non-financial liabilities except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis to fiscal years beginning after November 15,
2008.  The Company is currently assessing the potential impact that
the adoption of FSP FAS 157-2 will have on our financial position, results of
operations or cash flows.





In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities —
Including an amendment of FASB Statement No. 115”, which permits entities to
choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value and
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. This Statement is effective for
financial statements issued for fiscal years beginning after November 15,
2007.  The adoption of this standard did not have an impact on the
Company’s financial position, results of operations or cash
flows.





In May 2008, the FASB issued SFAS No.
162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS No.
162).  SFAS No. 162 identifies the sources of accounting principles
and the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with GAAP in the United States (the GAAP hierarchy).  SFAS
No. 162 is effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board (PCAOB) amendments to AU Section 411, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting
Principles.  The Company is currently evaluating the impact of SFAS
No. 162 on the Company’s consolidated financial statements.





3.
            Income
  Taxes





The Company files as a REIT under
Sections 856-860 of the Internal Revenue Code of 1986, as amended.  In
order to qualify as a REIT, the Company is required to distribute at least 90%
of its taxable income to stockholders and to meet certain asset and income tests
as well as certain other requirements.  The Company will generally not
be liable for federal income taxes, provided it satisfies these
requirements.  Even as a qualified REIT, the Company is subject to
certain state and local taxes on its income and
property.


F-12


FSP
303 East Wacker Drive Corp.


Notes
to Consolidated Financial Statements





3.
            Income
      Taxes (continued)





The
Company’s adoption of the provisions of FASB Interpretation No. 48 “Accounting
for Uncertainty in Income Taxes”, (“FIN 48”) effective January 1, 2007 did not
result in recording a liability, nor was any accrued interest and penalties
recognized with the adoption of FIN 48.  Accrued interest and
penalties will be recorded as income tax expense, if the Company records a
liability in the future.  The Company’s effective tax rate was not
affected by the adoption of FIN 48.  The Company files income tax
returns in the U.S federal jurisdiction and the state of
Illinois.  The statute of limitations for the Company’s income tax
returns is generally three years and as such, the Company’s returns that remain
subject to examination would be from 2006 and thereafter.





For
the periods ended December 31, 2007 and 2006, the Company incurred a net
operating loss for income tax purposes of approximately $5,866,000 and $10,000
that can be carried forward until it expires in the year 2027 and 2026,
respectively.





At
December 31, 2008, the Company’s net tax basis of its real estate assets was
$168,935,000





The
following schedule reconciles net income (loss) to taxable income (loss) subject
to dividend requirements:





Year Ended
                
                
                Period
EndedDecember
31,
                
                
                December
31,(in
    thousands)
                
                2008
                
                
                2007Net income
      (loss)
                
                $
                5,616
                
                
                $
                (8,517
                )Add:   Book
      depreciation and amortization
                
                
                5,939
                
                
                
                5,667Amortization
      of favorable real estate leases
                
                
                1,714
                
                
                
                1,719Deferred
      rent
                
                
                (132
                )
                
                
                144Organization
      costs
                
                
                -
                
                
                
                27Less:  Tax depreciation
      and amortization
                
                
                (3,970
                )
                
                
                (3,654
                )Amortization
      of unfavorable real estate leases
                
                
                (106
                )
                
                
                (139
                )Straight-line
      rent adjustment
                
                
                (638
                )
                
                
                (1,113
                )Taxable income (loss)[1]
                
                $
                8,423
                
                
                $
                (5,866
                )





1A tax loss is not subject to a dividend
requirement.




The following schedule summarizes the
tax components of the distributions paid for the years ended December
31,:




(in
    thousands)
                                
                                2008
                                
                                
                                2007Preferred
                                
                                
                                %
                                
                                
                                Preferred
                                
                                
                                Common
                                
                                
                                %Ordinary
    income
                                
                                $
                                8,464
                                
                                
                                
                                77
                                %
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                
                                -Return of
      Capital
                                
                                
                                2,526
                                
                                
                                
                                23
                                %
                                
                                
                                2,815
                                
                                
                                
                                1,010
                                
                                
                                
                                100
                                %Total
                                
                                $
                                10,990
                                
                                
                                
                                100
                                %
                                
                                $
                                2,815
                                
                                
                                $
                                1,010
                                
                                
                                
                                100
                                %





4.
            Capital
      Stock





PREFERRED
STOCK





Generally,
each holder of shares of Preferred Stock is entitled to receive ratably all
dividends, if any, declared by the Board of Directors out of funds legally
available.  The right to receive dividends is non-cumulative, and no
right to dividends shall accrue by reason of the fact that no dividend has been
declared in any prior year.  Each holder of shares of Preferred Stock
will be entitled to receive, to the extent that funds are available therefore,
$100,000 per share of Preferred Stock, before any payment to the holder of
Common Stock, out of distributions to stockholders upon liquidation, dissolution
or the winding up of the Company; the balance of any such funds available for
distribution will be distributed among the holders of shares of Preferred Stock
and the holder of Common Stock, pro rata based on the number of shares held by
each; provided, however, that for these purposes, one share of Common Stock will
be deemed to equal one-tenth of a share of Preferred Stock.


F-13


FSP
303 East Wacker Drive Corp.


Notes
to Consolidated Financial Statements





4.
            Capital
      Stock (continued)




PREFERRED STOCK
(continued)




In
addition to certain rights to remove and replace directors with or without
cause, the holders of a majority of the then outstanding shares of Preferred
Stock shall have the further right to approve or disapprove a proposed sale of
the Property, the merger of the Company with any other entity and amendments to
the corporate charter.  A vote of the holders of not less than 66.67%
of the then outstanding shares of Preferred Stock is required for the issuance
of any additional shares of capital stock.  Holders of shares of
Preferred Stock have no redemption or conversion rights.





COMMON
STOCK





Franklin Street is the sole holder of
the Company’s Common Stock.  Franklin Street has the right to vote to
elect the directors of the Company and to vote on all matters, subject to the
voting rights of the Preferred Stock set forth above.  Subsequent to
the completion of the offering of the shares of Preferred Stock in December
2007, Franklin Street, as the holder of Common Stock, was not, and is not
entitled to share in any earnings or any related dividend with respect to the
Common Stock.





5.
            Related Party
      Transactions





The Company has in the past engaged in
and currently engage in transactions with a related party, Franklin Street and
its subsidiaries, FSP Investments LLC and FSP Property Management LLC
(collectively, “FSP”).  The Company expects to continue to have
related party transactions with FSP in the form of management fees paid to FSP
to manage the Company on behalf of its stockholders.  FSP Property
Management LLC currently provides the Company with asset management and
financial reporting services.  The asset management agreement between
the Company and FSP Property Management LLC requires the Company to pay FSP
Property Management LLC a monthly fee equal to one-half of one percent (0.5%) of
the gross revenues of the Property for the corresponding month.  The
asset management agreement between the Company and FSP Property Management LLC
may be terminated by either party without cause at any time, upon at least
thirty (30) days’ written notice.  For the year ended December 31,
2008 and for the period January 5, 2007 (date operations commenced) to December
31, 2007, management fees paid were $123,000 and $110,000,
respectively.





Franklin Street is the sole holder of
the Company’s one share of Common Stock that is issued and
outstanding.  Subsequent to the completion of the private placement of
the Preferred Stock in December 2007, Franklin Street has not been entitled to
share in any earnings or any dividend related to the Common Stock of the
Company.





The following is a summary of related
party transactions that occurred with FSP for the period January 5, 2007 (date
operations commenced) to December 31, 2007.  The related party
transactions described below are not expected to significantly affect the
Company’s results of operations, financial position or liquidity for fiscal year
2009 or future periods.





The Company paid acquisition fees of
$622,000 and other costs of acquisition of $1,042,000 to FSP in
2007.  Such fees were included in the cost of the real
estate.  The Company also paid organizational costs of $27,000 to FSP
in 2007 which were expensed when incurred.  Since the completion of
the final closing of the sale of shares of the Preferred Stock, which occurred
on December 27, 2007, no acquisition fees have been paid to
FSP.





The Company paid syndication fees
consisting of $9,954,000 for selling commissions and $132,000 for other expenses
in 2007 to FSP for services related to syndication of the Preferred
Stock.  Since the completion of the final closing of the sale of
shares of the Preferred Stock, which occurred on December 27, 2007, no
syndication fees have been paid to FSP.





The Company purchased the Property from
an unaffiliated third party for $167,000,000 on January 5, 2007.  The
purchase price, which was determined by arm’s length negotiations, was financed
entirely by a loan (the “Acquisition Mortgage Loan”) from Franklin Street with
interest equal to the rate paid by Franklin Street on its line of
credit.  The Acquisition Mortgage Loan was collateralized by a first
mortgage against the Property.  During 2007, the Company repaid the
entire principal balance of the Acquisition Mortgage Loan, with the final
payment being made on December 27, 2007.  For the period ended
December 31, 2007, interest paid to Franklin Street on the Acquisition Mortgage
Loan was $6,656,000.  The average interest rate during the time the
Acquisition Mortgage Loan was outstanding was 6.53%.  No interest
payments have been made since December 2007 because the Acquisition Mortgage
Loan was repaid.







F-14





FSP
303 East Wacker Drive Corp.


Notes to Consolidated Financial
Statements





5.
            Related Party Transactions
      (continued)





The Company paid commitment fees of
$7,154,000 for the period ended December 31, 2007 to FSP for obtaining the
Acquisition Mortgage Loan on the Property.  Such amounts are included
in interest expense in the financial statements.  Since the completion
of the final closing of the sale of shares of the Preferred Stock, which
occurred on December 27, 2007, no commitment fees have been paid to
FSP.




The Company made distributions of
$1,010,000 to Franklin Street as the sole holder of the one share of the Common
Stock relating to earnings of the Company prior to the completion of the
offering of the Preferred Stock.  No distributions have been paid to
Franklin Street subsequent to the final closing of the sale of shares of the
Preferred Stock, and Franklin Street is not currently entitled to share in any
future earnings or any related distribution of the Company as the sole holder of
the one share of the Common Stock.  On December 27, 2007, Franklin
Street purchased 965.75 shares of the Preferred Stock (or approximately 43.7%),
of the Company for consideration totaling $82,813,000.  Prior to
purchasing any shares of the Preferred Stock, Franklin Street agreed to vote any
shares held by it on any matter presented to the holders of the Preferred Stock
in a manner that approximates as closely as possible the votes cast in favor of
and opposed to such matter by the holders of the Preferred Stock other than
Franklin Street and its affiliates.  For purposes of determining how
Franklin Street votes its shares of the Preferred Stock, abstentions and
non-votes by stockholders other than Franklin Street are not considered.
Franklin Street is entitled to distributions that are declared on the Preferred
Stock.





6.
            Commitments and
      Contingencies





The
Company, as lessor, has minimum future rentals due under non-cancelable
operating leases as follows:




Year Ending(in thousands)
                            
                            December 31,
                            
                            Amount2009
                            
                            $
                            10,6622010
                            
                            
                            9,6072011
                            
                            
                            9,4192012
                            
                            
                            8,3152013
                            
                            
                            5,685Thereafter
                            
                            
                            7,692$
                            51,380





In
addition, the lessees are liable for certain real estate taxes and certain
operating expenses of the Property pursuant to lease agreements.





Upon
acquiring the commercial rental property on January 5, 2007, the Company was
assigned the lease agreements between the seller of the Property and the
existing tenants.





7.
            Segment
      Reporting





The
Company operates in one industry segment – real estate ownership of commercial
property.  As of December 31, 2008 and 2007 the Company owned and
operated a twenty-eight story office tower in that one segment.







F-15




FSP
303 East Wacker Drive Corp.
 Notes
to Consolidated Financial Statements




8.
            Accounts
      Payable and Accrued Expenses





Accounts
payable and accrued expenses consists of the components shown
below:





December
31,(in
    thousands)
                      
                      2008
                      
                      
                      2007Accrued property
      tax
                      
                      $
                      5,471
                      
                      
                      $
                      5,450Deferred rental
      income
                      
                      
                      1,009
                      
                      
                      
                      1,086Accrued capital
      expenditures
                      
                      
                      5
                      
                      
                      
                      487Accounts payable and other accrued
      expenses
                      
                      
                      1,779
                      
                      
                      
                      1,172Due to tenant - tenant
      improvements
                      
                      
                      331
                      
                      
                      
                      393Total
                      
                      $
                      8,595
                      
                      
                      $
                      8,588





9.
            Subsequent
      Event





On
January 16, 2009, the Board of Directors of the Company declared a cash
distribution of $3,094,000 payable on February 20, 2009 to stockholders of
record on January 30, 2009.


F-16





SCHEDULE
III





FSP
303 East Wacker Drive Corp.


Real
Estate and Accumulated Depreciation


December
31, 2008





(in
thousands)


Initial
      Cost
              
              Historical
      CostsDescription
              Encumbrances
      (1)
              Land
              Buildings
                Improvements
                  and
                  Equipment
              Costs
                  Capitalized
                  (Disposals)
                  Subsequent to
                  Acquisition
              
              Land
              Buildings
                Improvements
                  and
                  Equipment
              Total
      (2)
              Accumulated
                  Depreciation
              Total
      Costs,
                  Net
      of
                  Accumulated
                  Depreciation
              Depreciable
                  Life
                  (Years)
              Date
      of
                  Acquisition(in
      thousands)303 East Wacker, Chicago,
      Illinois
              
              $26,200
              $128,502
              $3,039
              
              $26,200
              $131,541
              $157,741
              $6,870
              $150,871
              39
              2007





(1)
            There
      are no encumbrances on this
property.


(2)
            The
      aggregate cost for Federal Income Tax purposes is
  $176,385





F-17


FSP
303 East Wacker Drive Corp.





The
following table summarizes the changes in the Company’s real estate investments
and accumulated depreciation:





December
31,
                
                
                December
31,(in
    thousands)
                
                2008
                
                
                2007Real estate investments, at
      cost:Balance,
      beginning of period
                
                $
                155,298
                
                
                $
                -Acquisitions
                
                
                -
                
                
                
                154,702Improvements
                
                
                2,443
                
                
                
                596Balance, end of
      period
                
                $
                157,741
                
                
                $
                155,298Accumulated
      depreciation:Balance,
      beginning of period
                
                $
                3,292
                
                
                $
                -Depreciation
                
                
                3,578
                
                
                
                3,292Balance,
      end of period
                
                $
                6,870
                
                
                $
                3,292







F-18