UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10 - Q

(Mark One)

      |X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

            For the quarterly period ended September 30, 2006.

                                       OR

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

            For the transition period from _________ to __________.

                        Commission File Number: 001-32470


                        Franklin Street Properties Corp.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


            Maryland                                   04-3578653
-------------------------------           ------------------------------------
(State or other jurisdiction of           (IRS Employer Identification Number)
 incorporation or organization)


                         401 Edgewater Place, Suite 200
                            Wakefield, MA 01880-6210
               --------------------------------------------------
               (Address of principal executive offices)(Zip Code)

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

                                       N/A
              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

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

         YES  |X|                                     NO |_|

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large Accelerated Filer |X|   Accelerated Filer |_|   Non-Accelerated Filer |_|


Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

         YES  |_|                                     NO |X|

The number of shares of common stock outstanding as of October 31, 2006 was
70,766,305.

<PAGE>

                        Franklin Street Properties Corp.

                                    Form 10-Q

                                Quarterly Report
                               September 30, 2006

                                Table of Contents

<TABLE>
<S>                                                                                                               <C>
Part I.  Financial Information
                                                                                                                   Page
                                                                                                                   ----
         Item 1.  Financial Statements

                  Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005....................      3

                  Consolidated Statements of Income for the three and nine months ended
                  September 30, 2006 and 2005...................................................................      4

                  Consolidated Statements of Cash Flows for the nine months ended
                  September 30, 2006 and 2005...................................................................    5-6

                  Notes to Consolidated Financial Statements....................................................   7-17

         Item 2.  Management's Discussion and Analysis of Financial Condition
                  and Results of Operations.....................................................................  18-29

         Item 3.  Quantitative and Qualitative Disclosures about Market Risk....................................     30

         Item 4.  Controls and Procedures.......................................................................     31

Part II. Other Information

         Item 1.  Legal Proceedings.............................................................................     32

         Item 1A. Risk Factors..................................................................................  32-37

         Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds...................................     38

         Item 3.  Defaults Upon Senior Securities...............................................................     38

         Item 4.  Submission of Matters to a Vote of Security Holders...........................................     39

         Item 5.  Other Information.............................................................................     39

         Item 6.  Exhibits......................................................................................     40

Signatures        ..............................................................................................     41
</TABLE>

<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                        Franklin Street Properties Corp.
                           Consolidated Balance Sheets
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                September 30,    December 31,
(in thousands, except share and par value amounts)                                  2006             2005
=============================================================================================================

<S>                                                                              <C>             <C>
Assets:
Real estate assets:
          Land                                                                   $ 103,879       $  68,325
          Buildings and improvements                                               734,784         451,488
          Fixtures and equipment                                                       612             602
-------------------------------------------------------------------------------------------------------------
                                                                                   839,275         520,415
          Less accumulated depreciation                                             40,921          29,016
-------------------------------------------------------------------------------------------------------------
Real estate assets, net                                                            798,354         491,399
Acquired real estate leases, less accumulated amortization
   of $19,471 and $10,402, respectively                                             45,206          30,172
Investment in non-consolidated REITs                                                 5,011           5,006
Assets held for sale                                                                    --          69,952
Cash and cash equivalents                                                           60,968          69,715
Restricted cash                                                                        471             461
Tenant rent receivables, less allowance for doubtful accounts
   of $350 and $350, respectively                                                      833           1,447
Straight-line rent receivable, less allowance for doubtful accounts
   of $163 and $163, respectively                                                    5,102           4,569
Prepaid expenses                                                                     1,451             805
Other assets                                                                         3,001           1,200
Office computers and furniture, net of accumulated depreciation
   of $822 and $729, respectively                                                      327             311
Deferred leasing commissions, net of accumulated amortization
   of $1,177, and $731, respectively                                                 6,112           2,136
-------------------------------------------------------------------------------------------------------------
          Total assets                                                           $ 926,836       $ 677,173
=============================================================================================================

Liabilities and Stockholders' Equity:
Liabilities:
   Accounts payable and accrued expenses                                         $  16,943       $  11,583
   Accrued compensation                                                              1,525           1,891
   Tenant security deposits                                                          1,541           1,293
   Acquired unfavorable real estate leases, less accumulated amortization
      of $416, and $134, respectively                                                2,410             823
-------------------------------------------------------------------------------------------------------------
Total liabilities                                                                   22,419          15,590
-------------------------------------------------------------------------------------------------------------

Commitments and contingencies

Stockholders' Equity:
   Preferred stock, $.0001 par value, 20,000,000 shares
     authorized, none issued or outstanding                                             --              --
   Common stock, $.0001 par value, 180,000,000 shares authorized,
     70,766,305 and 59,794,608 shares issued and outstanding, respectively               7               6
   Additional paid-in capital                                                      907,794         677,397
   Treasury stock, 731,898 and 731,898 shares at cost, respectively                (14,008)        (14,008)
   Earnings (distributions) in excess of accumulated earnings/distributions         10,624          (1,812)
-------------------------------------------------------------------------------------------------------------

       Total stockholders' equity                                                  904,417         661,583
-------------------------------------------------------------------------------------------------------------

       Total liabilities and stockholders' equity                                $ 926,836       $ 677,173
=============================================================================================================
                                                  See accompanying notes to consoldated financial statements.
</TABLE>


                                       3
<PAGE>

                        Franklin Street Properties Corp.
                        Consolidated Statements of Income
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                     For the                     For the
                                                               Three Months Ended           Nine Months Ended
                                                                  September 30,               September 30,
---------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)                       2006           2005         2006         2005
===============================================================================================================

<S>                                                          <C>            <C>          <C>          <C>
Revenue:
     Rental                                                  $ 27,703       $18,582      $72,547      $46,373
Related party revenue:
     Syndication fees                                             861         2,856        6,287        6,977
     Transaction fees                                           1,140         2,850        6,548        6,888
     Management fees and interest income from loans               210           149        1,079        1,602
Other                                                               4             4           26           --
---------------------------------------------------------------------------------------------------------------
             Total revenue                                     29,918        24,441       86,487       61,840
---------------------------------------------------------------------------------------------------------------

Expenses:
     Real estate operating expenses                             6,523         4,335       16,306        9,928
     Real estate taxes and insurance                            4,030         2,512        9,974        6,386
     Depreciation and amortization                              6,782         3,711       17,515        9,606
     Selling, general and administrative                        2,027         2,034        5,785        5,601
     Commissions                                                  458         1,457        3,290        3,648
     Interest                                                     119         1,082        1,259        2,825
---------------------------------------------------------------------------------------------------------------

       Total expenses                                          19,939        15,131       54,129       37,994
---------------------------------------------------------------------------------------------------------------

Income before interest income, equity in earnings of
   non-consolidated REITs and taxes on income                   9,979         9,310       32,358       23,846
Interest income                                                   735           451        2,080        1,048
Equity in earnings of non-consolidated REITs                      481           328          717        1,295
---------------------------------------------------------------------------------------------------------------

Income before taxes on income                                  11,195        10,089       35,155       26,189
Income tax expense (benefit)                                     (131)          184          273          298
---------------------------------------------------------------------------------------------------------------

     Income from continuing operations                         11,326         9,905       34,882       25,891
     Income from discontinued operations                          143         2,594        2,095        7,541
     Gain on sale of assets, net                                6,361        14,316       34,469       13,260
---------------------------------------------------------------------------------------------------------------

Net income                                                   $ 17,830       $26,815      $71,446      $46,692
===============================================================================================================

Weighted average number of shares outstanding,
   basic and diluted                                           70,766        60,526       65,944       55,697
===============================================================================================================

Earnings per share, basic and diluted, attributable to:
     Continuing operations                                   $   0.16       $  0.16      $  0.53      $  0.46
     Discontinued operations                                     0.00          0.04         0.03         0.14
     Gains on sales of assets, net                               0.09          0.24         0.52         0.24
---------------------------------------------------------------------------------------------------------------
Net income per share, basic and diluted                      $   0.25       $  0.44      $  1.08      $  0.84
===============================================================================================================
                                                   See accompanying notes to consolidated financial statements.
</TABLE>


                                       4
<PAGE>

                        Franklin Street Properties Corp.
                      Consolidated Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                         For the
                                                                                    Nine Months Ended
                                                                                      September 30,
                                                                                --------------------------
(in thousands)                                                                      2006          2005
==========================================================================================================

<S>                                                                             <C>             <C>
Cash flows from operating activities:
   Net income                                                                   $  71,446       $ 46,692
   Adjustments to reconcile net income to net cash
        provided by  operating activities:
      Gains on assets sold, net                                                   (34,469)       (13,260)
      Depreciation and amortization expense                                        18,198         13,030
      Amortization of above market lease                                            5,208          2,956
      Equity in earnings from non-consolidated REITs                                 (912)        (1,295)
      Distributions from non-consolidated REITs                                       724          1,087
      Shares issued as compensation                                                    --             31
  Changes in operating assets and liabilities:
     Restricted cash                                                                  (10)          (305)
     Tenant rent receivables, net                                                     614            133
     Straight-line rents, net                                                        (529)        (1,167)
     Prepaid expenses and other assets, net                                           570             56
     Accounts payable and accrued expenses                                          1,358            799
     Accrued compensation                                                            (366)           896
     Tenant security deposits                                                         248            351
  Payment of deferred leasing commissions                                          (4,422)          (510)
----------------------------------------------------------------------------------------------------------
        Net cash provided by operating activities                                  57,658         49,494
----------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
      Cash acquired through issuance of common stock in merger transaction         13,849         10,621
      Purchase of real estate assets, office computers and
         furniture, capitalized merger costs                                     (112,253)       (75,517)
      Merger costs paid                                                              (838)          (402)
      Purchase of acquired favorable and unfavorable leases                        (5,106)       (12,425)
      Investment in non-consolidated REITs                                         (4,127)            (9)
      Investment in assets held for syndication, net                                   --         59,532
      Changes in deposits on real estate assets                                    (2,540)            --
      Proceeds received on sale of real estate assets                             103,739         52,967
----------------------------------------------------------------------------------------------------------
      Net cash (used for) provided by investing activities                         (7,276)        34,767
----------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
      Distributions to stockholders                                               (59,010)       (48,445)
      Purchase of treasury shares                                                      --            (16)
      Offering costs                                                                 (119)            --
      Deferred financing costs                                                         --            (33)
      Repayments under the bank note payable, net                                      --        (22,304)
----------------------------------------------------------------------------------------------------------
      Net cash used for financing activities                                      (59,129)       (70,798)
----------------------------------------------------------------------------------------------------------

Net decrease in cash and cash equivalents                                          (8,747)        13,463
Cash and cash equivalents, beginning of period                                     69,715         52,752
----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                                        $  60,968       $ 66,215
==========================================================================================================
                                              See accompanying notes to consolidated financial statements.
</TABLE>


                                       5
<PAGE>

                        Franklin Street Properties Corp.
                Consolidated Statements of Cash Flows (continued)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                         For the
                                                                                    Nine Months Ended
                                                                                      September 30,
                                                                                ----------------------------
(in thousands)                                                                     2006           2005
============================================================================================================

<S>                                                                                <C>           <C>
Supplemental disclosure of cash flow information:
    Cash paid for:
      Interest                                                                     $  1,219      $  2,272
      Income taxes                                                                      515           481
Non-cash investing and financing activities:
      Assets acquired through the issuance of common stock in merger, net           230,517       153,943
      Investment in non-consolidated REITs converted to real estate assets
         and acquired real estate leases in conjunction with merger                   4,018            --

                                             See accompanying notes to consolidated financial statements.
</TABLE>


                                       6
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.    Organization, Properties, Basis of Presentation and Recent Accounting
      Pronouncements

Organization

Franklin Street Properties Corp. ("FSP Corp." or the "Company") holds, directly
and indirectly, 100% of the interest in FSP Investments LLC, FSP Property
Management LLC, and FSP Holdings LLC. The Company also has a non-controlling
common stock interest in nine corporations organized to operate as real estate
investment trusts ("REITs") and a non-controlling preferred stock interest in
two of those REITs.

On April 30, 2005, the Company acquired four real estate investment trusts (the
"2005 Target REITs") by the merger of the four 2005 Target REITs with and into
four of the Company's wholly-owned subsidiaries. The merger was effective April
30, 2005 and, as a result, the Company issued 10,894,994 shares in a tax-free
exchange for all outstanding preferred shares of the 2005 Target REITs. The
mergers were accounted for as a purchase and the acquired assets and liabilities
were recorded at their fair value.

On April 30, 2006, the Company acquired five real estate investment trusts (the
"2006 Target REITs"), by the merger of the five 2006 Target REITs with and into
five of the Company's wholly-owned subsidiaries. The merger was effective April
30, 2006 and, as a result, the Company issued 10,971,697 shares in a tax-free
exchange for all outstanding preferred shares of the 2006 Target REITs. The
mergers were accounted for as a purchase and the acquired assets and liabilities
were recorded at their fair value.

The Company operates in two business segments: real estate operations and
investment banking/investment services. FSP Investments provides real estate
investment and broker/dealer services. FSP Investments' services include: (i)
the organization of REIT entities (the "Sponsored REITs"), which are syndicated
through private placements; (ii) sourcing of the acquisition of real estate on
behalf of the Sponsored REITs; and (iii) the sale of preferred stock in
Sponsored REITs. FSP Property Management provides asset management and property
management services for the Sponsored REITs.

Properties

The following table summarizes the Company's investment in real estate assets,
excluding assets held for syndication and assets held for sale:

                                                 As of
                                             September 30,
                                          2006            2005
                                      -------------   -------------
      Residential real estate:
         Number of properties                  --              1
         Number of apartments                  --            228

      Commercial real estate:
         Number of properties                  31             27
         Square feet                    5,301,847      4,018,544

Basis of Presentation

The unaudited consolidated financial statements of the Company include all the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. These financial
statements should be read in conjunction with the Company's financial statements
and notes thereto contained in the Company's Annual Report on Form 10-K for its
fiscal year ended December 31, 2005, as filed with the Securities and Exchange
Commission.

The accompanying interim financial statements are unaudited; however, the
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and in conjunction with the rules and regulations of the Securities
and Exchange Commission. Accordingly, they do not include all of the disclosures
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting solely of normal recurring matters) necessary for a fair
presentation of the financial statements for these interim periods have been
included. Operating results for the three months and nine months ended September
30, 2006 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2006 or for any other period.


                                       7
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.    Organization, Properties, Basis of Presentation and Recent Accounting
      Pronouncements (continued)

Reclassifications

Certain balances from the 2005 balance sheet and interim financial statements
have been reclassified to conform to the 2006 presentation. The
reclassifications primarily were related to the disposition of six properties
sold in 2005 and four properties sold in 2006, which are reported as
discontinued operations for all periods presented. These reclassifications
changed rental revenues, operating and maintenance expenses, depreciation and
amortization, other income and the related assets, which are segregated on the
financial statements. There was no change to total assets or net income for any
period presented as a result of these reclassifications.

Recent Accounting Standards

In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, which clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109, "Accounting for Income Taxes". This interpretation prescribes
a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. This interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting for interim periods,
disclosure and transition. The guidance is effective for periods beginning after
December 15, 2006. The Company is evaluating the impact of this interpretation,
if any, on the Company's results of operations, financial position, or
liquidity.

In June 2005, the FASB ratified the consensus reached by the Emerging Issues
Task Force ("EITF") regarding EITF No. 05-6, "Determining the Amortization
Period for Leasehold Improvements." The guidance requires that leasehold
improvements acquired in a business combination, or purchased subsequent to the
inception of a lease, be amortized over the lesser of the useful life of the
assets or a term that includes renewals that are reasonably assured at the date
of the business combination or purchase. The guidance is effective for periods
beginning after June 29, 2005. The Company has adopted EITF 05-6, which did not
materially impact the Company's results of operations, financial position, or
liquidity.

2.    Investment Banking/Investment Services Activity

During the nine months ended September 30, 2006, the Company sold on a best
efforts basis, through private placements, preferred stock in the following
Sponsored REIT:

<TABLE>
<CAPTION>
                                                        Date Syndication
Sponsored REIT                  Property Location           Completed       Gross Proceeds (1)
===============================================================================================
                                                                              (in thousands)
<S>                             <C>                  <C>                         <C>
FSP Phoenix Tower Corp.         Houston, TX          September 22, 2006          $100,200
                                                                                 ========

      1.    The syndication of FSP Phoenix Tower Corp. commenced in February
            2006.
</TABLE>

3.    Related Party Transactions and Investments in Non-Consolidated Entities

Investment in Sponsored REITs:

At September 30, 2006, the Company held an interest in nine Sponsored REITs, all
of which had been fully syndicated and the Company no longer derives economic
benefits or risks from the common stock interest that is retained in them. The
Company holds a preferred stock investment in two of these Sponsored REITs, FSP
Park Ten Development Corp. ("Park Ten Development") and FSP Phoenix Tower Corp
("Phoenix Tower"), from which it continues to derive economic benefit and risk.
Prior to April 2006, the Company held a preferred stock investment in FSP Blue
Lagoon Drive Corp. ("Blue Lagoon"), which was one of the 2006 Target REITs
acquired by merger on April 30, 2006, and accordingly was eliminated when
recording the merger.


                                       8
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

3.    Related Party Transactions and Investments in Non-consolidated Entities
      (continued)

The table below shows the Company's share of income and expenses from Sponsored
REITs prior to consolidation. Management fees of $11,000 and interest expense
are eliminated in consolidation.

                                                     Nine Months Ended
                                                       September 30,
      (in thousands)                                       2006
                                                           ----
      Operating Data:
      Rental revenues                                    $ 1,215
      Operating and maintenance
          expenses                                           554
      Depreciation and amortization                          288
      Interest expense                                       479
      Interest income                                          9
                                                         -------
                                                         $   (97)
                                                         =======

Equity in earnings of investment in non-consolidated REITs:

The following table includes equity in earnings of investments in
non-consolidated REITs:

                                                           Nine Months Ended
                                                             September 30,

      (in thousands)                                       2006          2005
                                                           ----          ----

      Equity in earnings of Sponsored REITs               $  623        $1,101
      Equity in earnings of Blue Lagoon                       75           194
      Equity in earnings of Park Ten Development              16            --
      Equity in earnings of Phoenix Tower                      3            --
                                                          ------        ------
                                                          $  717        $1,295
                                                          ======        ======

Equity in earnings of investments in Sponsored REITs is derived from the
Company's share of income following the commencement of syndication of Sponsored
REITs. Following the commencement of syndication, the Company exercises
influence over, but does not control these entities, and investments are
accounted for using the equity method. Equity in earnings of Blue Lagoon, Park
Ten Development and Phoenix Tower was derived from the Company's preferred stock
investment in those entities, which were acquired in January 2004, September
2005 and September 2006, respectively. Blue Lagoon was one of the 2006 Target
REITs that the Company acquired by merger on April 30, 2006, which was accounted
for as a purchase, and the acquired assets and liabilities were recorded at
their fair value. In September 2006 the Company purchased 48 preferred shares or
4.57% of the outstanding preferred shares of Phoenix Tower for $4,116,000 (which
represented $4,800,000 at the offering price net of commissions of $384,000 and
fees of $300,000 that were excluded).

The Company recorded distributions declared or received of $724,000 and
$1,087,000 from Sponsored REITs during the nine months ended September 30, 2006
and 2005, respectively.

Non-consolidated REITs:

The Company has in the past acquired by merger entities similar to the Sponsored
REITs, including on April 30, 2005, the four 2005 Target REITS, and on April 30,
2006, the five 2006 Target REITs. The Company's business model for growth
includes the potential acquisition by merger in the future of Sponsored REITs.
The Company has no legal or any other enforceable obligation to acquire or to
offer to acquire any Sponsored REIT. In addition, any offer (and the related
terms and conditions) that might be made in the future to acquire any Sponsored
REIT would require the approval of the boards of directors of the Company and
the Sponsored REIT and the approval of the stockholders of the Sponsored REIT.

At September 30, 2006, December 31, 2005 and September 30, 2005, the Company had
ownership interests in nine, thirteen and twelve Sponsored REITs, respectively.


                                       9
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                  (Unaudited)

3.    Related Party Transactions and Investments in Non-consolidated Entities
      (continued)

Summarized financial information for these Sponsored REITs is as follows:

                                                 September 30,     December 31,
                                                     2006              2005
                                                     ----              ----
                                                        (in thousands)
      Balance Sheet Data (unaudited):
      Real estate, net                            $ 316,134          $ 403,161
      Other assets                                   66,198             82,163
      Total liabilities                             (46,892)           (46,831)
                                                  ---------          ---------
      Shareholders' equity                        $ 335,440          $ 438,493
                                                  =========          =========

                                                               For the
                                                          Nine Months Ended
                                                            September 30,
                                                        2006             2005
                                                        ----             ----
                                                          (in thousands)
Operating Data (unaudited):
Rental revenue                                        $ 42,393         $ 45,954
Other revenue                                            2,137              779
Operating and maintenance expenses                     (21,526)         (18,759)
Depreciation and amortization                           (9,623)         (10,109)
Interest expense and commitment fees                    (8,602)          (5,499)
                                                      --------         --------
Net income                                            $  4,779         $ 12,366
                                                      ========         ========

Syndication fees and Transaction fees:

The Company provides syndication and real estate acquisition advisory services
for Sponsored REITs. Syndication and transaction fees from non-consolidated
entities amounted to approximately $12,835,000 and $13,865,000 for the nine
months ended September 30, 2006 and 2005, respectively.

Management fees and interest income from loans:

Asset management fees range from 1% to 5% of collected rents and the applicable
contracts are cancelable with 30 days notice. Asset management fee income from
non-consolidated entities amounted to approximately $476,000 and $514,000 for
the nine months ended September 30, 2006 and 2005, respectively. The Company is
typically entitled to interest on funds advanced to Sponsored REITs. The Company
recognized interest income of approximately $603,000 and $1,088,000 for the nine
months ended September 30, 2006 and 2005, respectively, relating to these loans.


                                       10
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

4.    Merger and Acquisition Transactions

On April 30, 2006, the Company issued 10,971,697 shares of common stock, $0.0001
par value per share, in exchange for all of the outstanding preferred stock of
the 2006 Target REITs (other than the shares of preferred stock in Blue Lagoon
held by the Company, which were cancelled) and paid approximately $12,000 in
lieu of fractional shares. The results of operations for each 2006 Target REIT
have been included in the Company's consolidated financial statements since May
1, 2006. The aggregate purchase price for the 2006 Target REITs was
approximately $235,384,000.

On June 27, 2006 the Company acquired a fifteen-story Class A office property
located at 3625 Cumberland Boulevard in Atlanta, Georgia ("One Overton Park")
for an aggregate purchase price of approximately $85,177,000.

With respect to the acquisition of each 2006 Target REIT, the excess of the
purchase price of the property over the historical cost of the property was
allocated to real estate investments and leases, including lease origination
costs. With respect to the acquisition of One Overton Park, the purchase price
of the property was allocated to real estate investments and leases, including
lease origination costs. Lease origination costs represent the value associated
with acquiring an in-place lease (i.e. the market cost to execute a similar
lease, including leasing commission, legal, vacancy, and other related costs).
The value assigned to buildings approximates their replacement cost; the value
assigned to land approximates its appraised value; and the value assigned to
leases approximates their fair value. Other assets and liabilities are recorded
at their historical costs, which approximates fair value. The following table
summarizes the estimated fair value of the assets acquired at the date of
acquisition:

                                                    Value of Assets Acquired
                                                    ------------------------
                                                         (in thousands)

      Real estate assets                                    $ 287,739
      Value of acquired real estate leases                     24,201
      Cash                                                     13,849
      Acquired unfavorable leases                              (1,738)
      Other assets                                                512
      Liabilities assumed                                      (4,002)
                                                            ---------
      Total                                                 $ 320,561
                                                            =========

Pro forma operating results for the Company, the 2006 Target REITs and One
Overton Place are shown in the following table. The results assume that the
mergers occurred and the shares of the Company's stock were issued on January 1,
2005 and that One Overton Place was acquired on January 1, 2005. The results are
not necessarily indicative of what the Company's actual results of operations
would have been for the period indicated, nor do they purport to represent the
results of operations of any future period.

<TABLE>
<CAPTION>
                                                For Three Months Ended     For Nine Months Ended
(unaudited)                                          September 30,             September 30,
(in thousands except per share amounts)            2006         2005         2006         2005
                                                 --------------------      --------------------

<S>                                              <C>          <C>          <C>          <C>
Revenue                                          $29,918      $31,756      $98,089      $83,460
                                                 --------------------      --------------------
Income from continuing operations                $11,326      $12,176      $38,442      $31,757
                                                 --------------------      --------------------
Net income                                       $17,830      $29,086      $75,006      $52,556
                                                 --------------------      --------------------
Weighted average shares outstanding               70,766       71,497       70,776       66,668
                                                 ====================      ====================

Income from continuing operations per share      $  0.16      $  0.17      $  0.54      $  0.48
                                                 ====================      ====================
Net income per share                             $  0.25      $  0.41      $  1.06      $  0.79
                                                 ====================      ====================
</TABLE>


                                       11
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

5.    Bank Note Payable

The Company has a revolving line of credit agreement (the "Loan Agreement") with
a group of banks providing for borrowings at the Company's election of up to
$150,000,000. Borrowings under the Loan Agreement bear interest at either the
bank's prime rate (8.25% at September 30, 2006) or a rate equal to LIBOR plus
125 basis points (6.57% at September 30, 2006). There was no balance outstanding
at September 30, 2006 or at December 31, 2005. The weighted average interest
rate on amounts outstanding during the nine months ended September 30, 2006 and
2005 was 6.50% and 5.27%, respectively; and for the year ended December 31, 2005
was approximately 5.35%.

The Loan Agreement includes restrictions on property liens and requires
compliance with various financial covenants. Financial covenants include the
maintenance of at least $1,500,000 in operating cash accounts, a minimum
unencumbered cash and liquid investments balance and tangible net worth, and
compliance with various debt and operating income ratios, as defined in the Loan
Agreement. The Company was in compliance with the Loan Agreement's financial
covenants as of September 30, 2006 and December 31, 2005. Borrowings under the
Loan Agreement mature on August 18, 2008.

6.    Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted
average number of Company shares outstanding during the period. Diluted net
income per share 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 September 30, 2006 and
2005.

7.    Discontinued Operations

During the year ended December 31, 2005, the Company disposed of three apartment
properties and three commercial properties, which are in the real estate
segment. The three apartment properties included two located in Houston, Texas,
and one located in Baton Rouge, Louisiana. The three commercial properties
included one located in Folsom, California; one in Columbia, Maryland and one
located in San Diego, California. During the nine months ended September 30,
2006, the Company disposed of one apartment property and three commercial
buildings, which are in the real estate segment. The apartment property is
located in Katy, Texas. The three commercial properties are located in Santa
Clara, California, Fairfax, Virginia and Peabody, Massachusetts.

The operating results for these real estate assets have been reflected as
discontinued operations in the consolidated statements of income for all periods
presented, and are summarized below:

<TABLE>
<CAPTION>
                                            For the Three Months Ended      For the Nine Months Ended
                                                  September 30,                   September 30,
(in thousands)                                ---------------------          ---------------------
                                                2006         2005              2006         2005
                                              --------     --------          --------     --------
<S>                                           <C>          <C>               <C>          <C>
Rental revenue                                $    153     $  5,738          $  4,420     $ 16,943
Rental operating expenses                           (9)      (1,396)           (1,202)      (3,924)
Real estate taxes and insurance                     (1)        (670)             (474)      (2,068)
Depreciation and amortization                       --       (1,084)             (649)      (3,419)
Interest and other income                           --            6                --            9
                                              --------     --------          --------     --------
Net income from discontinued operations       $    143     $  2,594          $  2,095     $  7,541
                                              ========     ========          ========     ========
</TABLE>

The gains from the properties sold are summarized below:

<TABLE>
<CAPTION>
(in thousands)                                                                                 Net
                                            City/         Property          Date of           Sales
Property Address                            State           Type             Sale           Proceeds        Gain
----------------                            -----           ----             ----           --------        ----

<C>                                    <C>                <C>            <C>                <C>           <C>
22400 Westheimer Parkway               Katy, TX           Apartment        May 24, 2006      $18,194       $2,365
4995 Patrick Henry Drive               Santa Clara, CA     Office          May 31, 2006        8,138        1,508
12902 Federal Systems Park Drive       Fairfax, VA         Office          May 31, 2006       61,412       24,229
One Technology Drive                   Peabody, MA       Industrial      August 9, 2006       15,995        6,367
                                                                                           -----------------------
                                                                                            $103,739      $34,469
                                                                                           =======================
</TABLE>

The gain recognition from the sale of the properties in Texas and Virginia was
deferred for tax purposes through the use of a Section 1031 exchange.


                                       12
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

8.    Cash Distributions

The Company declared and paid distributions as follows (in thousands, except per
share amounts):

                                         Distribution       Total
             Quarter Paid                  Per Share    Distributions
      ---------------------------      -------------------------------

      First quarter of 2006                  $0.31         $18,536
      Second quarter of 2006                 $0.31         $18,536
      Third quarter of 2006                  $0.31         $21,938

      First quarter of 2005                  $0.31         $15,385
      Second quarter of 2005 (a)             $0.41         $20,349
      Third quarter of 2005  (b)             $0.21         $12,711

      (a) Distribution paid in respect of four months of operations.
      (b) Distribution paid in respect of two months of operations.

9.    Business Segments

The Company operates in two business segments: real estate operations (including
real estate leasing, interim acquisition financing, development, asset/property
management and property dispositions) and investment banking/investment services
(including real estate acquisition and broker/dealer services). The Company has
identified these segments because this information is the basis upon which
management makes decisions regarding resource allocation and performance
assessment. The accounting policies of the reportable segments are the same as
those described in the "Significant Accounting Policies" in Note 2 to the
Company's consolidated financial statements included in its Annual Report on
Form 10-K for the year ended December 31, 2005. The Company's operations are
located in the United States of America.

The Company evaluates the performance of its reportable segments based on
Adjusted Funds From Operations ("AFFO") as management believes that AFFO
represents the most accurate measure of the reportable segment's activity and is
the basis for distributions paid to equity holders. The Company defines AFFO as:
net income as computed in accordance with generally accepted accounting
principles in the United States (or GAAP); excluding gains or losses on the sale
of real estate and non-cash income from Sponsored REITs; plus certain non-cash
items included in the computation of net income (depreciation and amortization
and straight-line rent adjustments); plus distributions received from Sponsored
REITs; plus the net proceeds from the sale of land; less recurring purchases of
property and equipment incurred to maintain the assets' value or for tenant
improvements ("Capital Expenditures") and payments for deferred leasing
commissions, plus proceeds from (payments to) funded reserves. Depreciation and
amortization, gain or loss on the sale of real estate, and straight-line rents
are an adjustment to AFFO, as these are non-cash items included in net income.
Capital Expenditures, payments of deferred leasing commissions and the proceeds
from (payments to) the funded reserve are an adjustment to AFFO, as they
represent cash items not reflected in net income.

The funded reserve represents funds that the Company has set aside from time to
time in anticipation of future capital needs. These reserves are typically used
for the payment of Capital Expenditures, deferred leasing commissions and
certain tenant allowances; however, there are no legal restrictions on their use
and they may be used for any Company purpose. AFFO should not be considered as
an alternative to net income (determined in accordance with GAAP), as an
indicator of the Company's financial performance, as an alternative to cash
flows from operating activities (determined in accordance with GAAP), nor as a
measure of the Company's liquidity, nor is it necessarily indicative of
sufficient cash flow to fund all of the Company's needs. Other real estate
companies may define AFFO in a different manner. It is at the Company's
discretion to retain a portion of AFFO for operational needs. We believe that in
order to facilitate a clear understanding of the results of the Company, AFFO
should be examined in connection with net income and cash flows from operating,
investing and financing activities in the consolidated financial statements.


                                       13
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

9.    Business Segments (continued)

The calculation of AFFO by business segment is shown in the following table:

<TABLE>
<CAPTION>
                                                              Investment
                                               Real Estate     Banking/
(in thousands)                                 Operations      Services        Total
                                               -----------     ----------     --------
<S>                                             <C>            <C>            <C>
Three Months Ended March 31, 2006
Net Income                                      $ 13,054       $     85       $ 13,139
Equity in income of non-consolidated REITs          (275)            --           (275)
Distributions from non-consolidated REITs            118             --            118
Depreciation and amortization                      7,100             33          7,133
Straight line rent                                   200             --            200
Capital Expenditures                                (232)           (36)          (268)
Payment of deferred leasing costs                   (156)            --           (156)
Proceeds from funded reserves                        388             36            424
                                                --------       --------       --------
Adjusted Funds From Operations                  $ 20,197       $    118       $ 20,315
                                                ========       ========       ========

Three Months Ended June 30, 2006
Net Income                                      $ 39,993       $    484       $ 40,477
Gain on sale of assets, net                      (28,108)            --        (28,108)
Equity in income of non-consolidated REITs          (156)            --           (156)
Distributions from non-consolidated REITs            491             --            491
Depreciation and amortization                      7,481             32          7,513
Straight line rent                                  (139)            --           (139)
Capital Expenditures                              (1,492)           (24)        (1,516)
Payment of deferred leasing costs                 (2,617)            --         (2,617)
Proceeds from funded reserves                      4,109             24          4,133
                                                --------       --------       --------
Adjusted Funds From Operations                  $ 19,562       $    516       $ 20,078
                                                ========       ========       ========

Three Months Ended September 30, 2006
Net Income                                      $ 18,025       $   (195)      $ 17,830
Gain on sale of assets, net                       (6,361)            --         (6,361)
Equity in income of non-consolidated REITs          (481)            --           (481)
Distributions from non-consolidated REITs            115             --            115
Depreciation and amortization                      8,732             28          8,760
Straight line rent                                  (590)            --           (590)
Capital Expenditures                              (3,877)           (50)        (3,927)
Payment of deferred leasing costs                 (1,649)            --         (1,649)
Proceeds from funded reserves                      5,526             50          5,576
                                                --------       --------       --------

Adjusted Funds From Operations                  $ 19,440       $   (167)      $ 19,273
                                                ========       ========       ========

Nine Months Ended September 30, 2006
Net Income                                      $ 71,072       $    374       $ 71,446
Gain on sale of assets, net                      (34,469)            --        (34,469)
Equity in income of non-consolidated REITs          (912)            --           (912)
Distributions from non-consolidated REITs            724             --            724
Depreciation and amortization                     23,313             93         23,406
Straight line rent                                  (529)            --           (529)
Capital Expenditures                              (5,601)          (110)        (5,711)
Payment of deferred leasing costs                 (4,422)            --         (4,422)
Proceeds from funded reserves                     10,023            110         10,133
                                                --------       --------       --------

Adjusted Funds From Operations                  $ 59,199       $    467       $ 59,666
                                                ========       ========       ========
</TABLE>


                                       14
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

9.    Business Segments (continued)

The calculation of AFFO by business segment is shown in the following table:

<TABLE>
<CAPTION>
                                                              Investment
                                               Real Estate     Banking/
(in thousands)                                 Operations      Services        Total
                                               -----------     ----------     --------
<S>                                             <C>            <C>            <C>
Three Months Ended March 31, 2005
Net Income                                      $ 10,346       $     77       $ 10,423
Equity in income of non-consolidated REITs          (665)            --           (665)
Distributions from non-consolidated REITs            599             --            599
Depreciation and amortization                      3,598             34          3,632
Straight line rent                                  (307)            --           (307)
Capital Expenditures                                (327)            --           (327)
Payment of deferred leasing costs                    (95)            --            (95)
Proceeds from funded reserves                        422             --            422
                                                --------       --------       --------

Adjusted Funds From Operations                  $ 13,571       $    111       $ 13,682
                                                ========       ========       ========

Three Months Ended June 30, 2005
Net Income                                      $  9,362       $     92       $  9,454
Estimated loss on sale of asset                    1,055             --          1,055
Equity in income of non-consolidated REITs          (303)            --           (303)
Distributions from non-consolidated REITs            381             --            381
Depreciation and amortization                      5,448             37          5,485
Straight line rent                                  (417)            --           (417)
Capital Expenditures                              (1,601)            --         (1,601)
Payment of deferred leasing costs                   (216)            --           (216)
Proceeds from funded reserves                      1,817             --          1,817
                                                --------       --------       --------

Adjusted Funds From Operations                  $ 15,526       $    129       $ 15,655
                                                ========       ========       ========

Three Months Ended September 30, 2005
Net Income                                      $ 26,545       $    270       $ 26,815
Estimated loss on sale of asset                  (14,316)            --        (14,316)
Equity in income of non-consolidated REITs          (328)            --           (328)
Distributions from non-consolidated REITs            107             --            107
Depreciation and amortization                      6,834             30          6,864
Straight line rent                                  (443)            --           (443)
Capital Expenditures                                (312)           (48)          (360)
Payment of deferred leasing costs                   (199)            --           (199)
Proceeds from funded reserves                        511             48            559
                                                --------       --------       --------

Adjusted Funds From Operations                  $ 18,399       $    300       $ 18,699
                                                ========       ========       ========

Nine Months Ended September 30, 2005
Net Income                                      $ 46,253       $    439       $ 46,692
Estimated loss on sale of asset                  (13,261)            --        (13,261)
Equity in income of non-consolidated REITs        (1,296)            --         (1,296)
Distributions from non-consolidated REITs          1,087             --          1,087
Depreciation and amortization                     15,880            101         15,981
Straight line rent                                (1,167)            --         (1,167)
Capital Expenditures                              (2,240)           (48)        (2,288)
Payment of deferred leasing costs                   (510)            --           (510)
Proceeds from funded reserves                      2,750             48          2,798
                                                --------       --------       --------

Adjusted Funds From Operations                  $ 47,496       $    540       $ 48,036
                                                ========       ========       ========
</TABLE>


                                       15
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

9.    Business Segments (continued)

The following table is a summary of other financial information by business
segment:

<TABLE>
<CAPTION>
                                                              Investment
                                               Real Estate     Banking/
(in thousands)                                 Operations      Services        Total
                                               -----------     ----------     --------
<S>                                             <C>            <C>            <C>

Three Months Ended September 30, 2006:
     Revenue                                    $ 28,845       $  1,073       $ 29,918
     Interest income                                 722             13            735
     Interest expense                                119             --            119
     Income from discontinued operations             143             --            143
     Capital expenditures                          3,877             50          3,927

Nine Months Ended September 30, 2006:
     Revenue                                    $ 79,464       $  7,023       $ 86,487
     Interest income                               2,045             35          2,080
     Interest expense                              1,259             --          1,259
     Income from discontinued operations           2,095             --          2,095
     Capital expenditures                          5,601            110          5,711

Identifiable Assets as of September 30, 2006    $921,545       $  5,291       $926,836


Three Months Ended September 30, 2005:
     Revenue                                    $ 21,332       $  3,109       $ 24,441
     Interest income                                 442              9            451
     Interest expense                              1,082             --          1,082
     Income from discontinued operations           2,594             --          2,594
     Capital expenditures                            312             48            360

Nine Months Ended September 30, 2005:
     Revenue                                    $ 54,094       $  7,746       $ 61,840
     Interest income                               1,024             24          1,048
     Interest expense                              2,825             --          2,825
     Income from discontinued operations           7,541             --          7,541
     Capital expenditures                          2,240             48          2,288

Identifiable Assets as of September 30, 2005    $714,260       $  4,979       $719,239
</TABLE>

10.   Income Taxes

The Company has elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"). 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
income that must be distributed annually.


                                       16
<PAGE>

                        Franklin Street Properties Corp.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

10.   Income Taxes (continued)

One such restriction is that the Company generally cannot own more than 10% of
the voting power or value of the securities of any one issuer unless the issuer
is itself a REIT or a "taxable REIT subsidiary" ("TRS"). In the case of TRSs,
the Company's ownership of securities in all TRSs generally cannot exceed 20% of
the value of all of the Company's assets and, when considered together with
other non-real estate assets, cannot exceed 25% of the value of all of the
Company's assets. Effective January 1, 2001, FSP Investments LLC, a wholly-owned
subsidiary of the Company, elected to be treated as a TRS. As a result, FSP
Investments LLC operates as a taxable corporation under the Code and has
accounted for income taxes in accordance with the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 109, Accounting for Income Taxes.
Taxes are provided for when FSP Investments LLC has net profits for both
financial statement and income tax purposes.

Income taxes are recorded based on the future tax effects of the difference
between the tax and financial reporting bases of the Company's assets and
liabilities. In estimating future tax consequences, potential future events are
considered except for potential changes in income tax law or in rates.

The income tax expense reflected in the consolidated statements of income
relates only to the TRS. The expense differs from the amounts computed by
applying the Federal statutory rate of 34% to income before income taxes as
follows:

                                                             For the
                                                        Nine Months Ended
                                                          September 30,
      (in thousands)                                     2006        2005
                                                         ----        ----

      Federal income tax expense at statutory rate      $  230      $  252
      Increase in taxes resulting from:
      State income taxes, net of federal impact             43          46
                                                        ------      ------
                                                        $  273      $  298
                                                        ======      ======

No deferred income taxes were provided as there were no material temporary
differences between the financial reporting basis and the tax basis of the
taxable REIT subsidiary.

11.   Subsequent Events

The Company declared a cash distribution of $0.31 per share on October 13, 2006
to stockholders of record on October 31, 2006 payable on November 20, 2006.


                                       17
<PAGE>

Item 2. 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 and in our
Annual Report on Form 10-K for the year ended December 31, 2005. Historical
results and percentage relationships set forth in the consolidated 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 Quarterly Report on Form 10-Q 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 changes
in economic conditions in the markets in which we own properties, changes in the
demand by investors for investment in Sponsored REITs, risks of a lessening of
demand for the types 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. See the factors set forth
below under the caption, Item 1A. "Risk Factors". 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 Quarterly Report on Form 10-Q 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

FSP Corp., or the Company, operates in two business segments: real estate
operations and investment banking/investment services. The real estate
operations segment involves real estate rental operations, leasing, interim
acquisition financing, development services asset/property management services
and property dispositions. The investment banking/investment services segment
involves the provision of real estate investment and broker/dealer services that
include the organization of Sponsored REITs, the acquisition and development of
real estate on behalf of Sponsored REITs and the raising of capital to fully
equitize the Sponsored REITs through sale of preferred stock in private
placements.

The main factor that affects our real estate operations is the broad economic
market conditions in the United States. These market conditions affect the
occupancy levels and the rent levels on both a national and local level. We
believe we have no influence on these market conditions. We look to acquire
and/or develop quality properties in superior locations in order to lessen the
impact of general downturns in the market and to take advantage of upturns when
they occur.

Our investment banking/investment services customers are primarily institutions
and high net-worth individuals. To the extent that the broad capital markets
affect these investors our business is also affected. These investors have many
investment choices. We must continually search for real estate at a price and at
a competitive risk/reward rate of return that meets our customers' risk/reward
profile for providing a stream of income and as a long-term hedge against
inflation.

Critical Accounting Policies

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 assumptions prove to 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 in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations in our
Annual Report on Form 10-K for the year ended December 31, 2005.

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 and estimates. We believe that our judgments and
assessments are consistently applied and produce financial information that
fairly presents our results of operations.

No changes to our critical accounting policies have occurred since our Annual
Report on Form 10-K for the year ended December 31, 2005.


                                       18
<PAGE>

Trends and Uncertainties

Real Estate Operations

Our property operations during the first nine months of 2006 produced profit
results that were generally in line with management's expectations. Most of our
properties are suburban office buildings, and, in most markets, it is
management's opinion that we are continuing to find improving conditions for
both occupancy and rental rates. However, there are still tenant leases,
originally five to ten years in length, which were signed at what we believe to
be the height of the most recent office market cycle (approximately from
1997-2001). Consequently, we continue to face some rent roll downs as old leases
expire and new ones are signed. We also believe that national occupancy levels
continue to improve, but rent levels in most office markets are still only
modestly increasing from a very low level. We believe that significant
broad-based rental increases, above the 1997-2001 peak, are probably one to
three years away, assuming continued overall U.S. economic growth and
traditional cyclical real estate dynamics. We are aggressively managing our
lease turnover to maximize our rental operations' contribution as the office
markets continue to climb back up their cyclical curve. Concern always remains
about the possibility of a new, significant downturn in the broader economy that
would reverse the positive trends our markets are starting to see. Lofty
worldwide energy prices, inflation, interest rates and other geopolitical events
are likely to be influencing factors.

We evaluate our portfolio and from time-to-time sell properties for geographic
or property specific reasons, and consider gains and losses on sales of
properties an important component of our business. During the nine months ended
September 30, 2006 we sold four properties and achieved gains on those sales of
$34.5 million. During the comparable nine months ended September 30, 2005 we
sold three properties and achieved net gains on those sales of $13.3 million.
Historically we have used the sales proceeds from property sales to acquire
other properties for our portfolio, and to a lesser extent for distributions to
our stockholders, share repurchases or other uses. We continue to evaluate and
upgrade the portfolio and may decide to dispose of other properties as part of
that process.

The portfolio was approximately 89% leased at September 30, 2006, which is 2%
lower than the leased percentage at June 30, 2006, and was the result of 117,227
square feet of vacancy following a lease expiration at a single tenant property
in the State of Washington. At the start of 2006, we forecasted that
approximately 17% of the square footage in our real estate portfolio would
expire during fiscal year 2006. As a result of expected lease expirations, new
leases, property sales, acquisitions and mergers, we are now forecasting that
approximately 4.8% of the square footage in our real estate portfolio will
expire during the balance of fiscal year 2006. We cannot predict if these
tenants will renew their leases or what the terms and conditions of any lease
renewals will be, although we expect to renew or sign new leases at current
market rates for the locations where the buildings are located, which in most
cases will be below the expiring rental rates. Based upon all available
information at this time, we are forecasting that leases for approximately 11.9%
of the square footage in our real estate portfolio will expire during fiscal
year 2007.

Investment Banking/Investment Services

Unlike our real estate operations business, which provides a rental revenue
stream which is ongoing and recurring in nature, our investment
banking/investment services business is transactional in nature. Both the number
of Sponsored REIT syndications completed and the amount of equity raised in 2005
were below our expectations. During the first nine months of 2006 our investment
banking group completed sales of preferred stock in a private placement, which
we call syndication proceeds, of $100.2 million. In October, we commenced a new
private placement with the potential to raise $70 million for another Sponsored
REIT. However, the timing and completion of private placements and future
business in this area are unpredictable.

Our property acquisition executives continue to be concerned about high
valuation levels for prime commercial investment real estate. It appears that a
combination of factors, including moderate interest rates, a growing general
economy and substantially increased capital allocation to real estate assets is
increasing prices on many properties we would have an interest in acquiring.
This upward pressure on prices has caused capitalization rates to fall and
prices per square foot to rise. Specifically, our acquisition executives are
having difficulty identifying enough property at a price acceptable under our
investment criteria to grow our overall investment banking/investment services
business. Lower revenue from this business has the effect of reducing net income
and Adjusted Funds From Operations (AFFO). As the first nine months of 2006
ended, valuation levels for many top quality investment properties remained at
historically high levels, with significant competition from a variety of capital
sources to acquire them. We continue to rely solely on our in-house investment
executives to access interested investors who have capital they can afford to
place in an illiquid position for an indefinite period of time (i.e., invest in
a Sponsored REIT). We also continue to evaluate whether our in-house sales force
is capable, either through our existing client base or through new clients, of
raising sufficient investment capital in Sponsored REITs to achieve future
performance objectives.


                                       19
<PAGE>

Results of Operations

We consider contribution from each of our two business segments, real estate
operations and investment banking/investment services, in evaluating
performance. Contribution includes revenue from each segment, less related
expenses such as rental property operating expenses, depreciation and
amortization, commissions and interest income and expense. Selling, general and
administrative expenses arise primarily from corporate related expenses and
costs associated with our headquarters in Wakefield, Massachusetts where both
business segments are managed. Over the last few years there has been a shift in
expense and cost allocation between the segments from being primarily related to
investment banking activity to a greater focus on real estate operations. This
shift has occurred as a result of:

o     The increase in the number of owned properties in our real estate
      portfolio, and related direct acquisition and disposition of real estate
      assets;

o     The trend to a lower level of syndication proceeds from the investment
      banking segment; and

o     An increased level of management time related to our real estate
      operations.

As a result of this internal shift, we compare the total selling, general and
administrative expenses from period-to-period as we believe it to be more
meaningful than comparison of allocated expenses to each segment.


                                       20
<PAGE>

The following table shows financial results from each segment for the three
months ended September 30, 2006 and 2005:

<TABLE>
<CAPTION>
(in thousands)
                                                             Three months ended September 30,
                                                        -----------------------------------------
Real Estate Operations                                      2006           2005          Change
                                                            ----           ----          ------
<S>                                                       <C>            <C>            <C>
Revenues:
     Rental income                                        $ 27,703       $ 18,582       $  9,121
     Transaction fees                                          928          2,597         (1,669)
     Management fees and interest income from loans            210            149             61
     Other income                                                4              4             --
                                                       -----------------------------------------
                                                            28,845         21,332          7,513
                                                       -----------------------------------------
Expenses:
     Real estate operating expenses                          6,523          4,335          2,188
     Real estate taxes and insurance                         4,030          2,512          1,518
     Depreciation and amortization                           6,754          3,681          3,073
     Interest                                                  119          1,082           (963)
                                                       -----------------------------------------
                                                            17,426         11,610          5,816
                                                       -----------------------------------------
Other items:
     Interest income                                           722            442            280
     Equity in earnings in non-consolidated REIT's             481            328            153
                                                      ------------------------------------------
                                                             1,203            770            433
                                                       -----------------------------------------

Contribution from real estate                               12,622         10,492          2,130
                                                       -----------------------------------------

Investment Banking/Investment Services:
     Syndication fees                                          861          2,856         (1,995)
     Transaction fees                                          212            253            (41)
                                                       -----------------------------------------
                                                             1,073          3,109         (2,036)
                                                       -----------------------------------------
Expenses:
     Commissions                                               458          1,457           (999)
     Depreciation and amortization                              28             30             (2)
                                                       -----------------------------------------
                                                               486          1,487         (1,001)
                                                       -----------------------------------------
Other items:
     Interest income                                            13              9              4
     Taxes on income                                           131           (184)           315
                                                       -----------------------------------------
                                                               144           (175)           319
                                                       -----------------------------------------

Contribution from investment banking                           731          1,447           (716)
                                                       -----------------------------------------

Selling, general and administrative expenses                 2,027          2,034             (7)
                                                       -----------------------------------------

Income from continuing operations (Combined)                11,326          9,905          1,421
Discontinued operations, less applicable income tax:
Income (Loss) from discontinued operations                     143          2,594         (2,451)
Gains (estimated loss) on sales of assets, net               6,361         14,316         (7,955)
                                                       -----------------------------------------
     Net income                                           $ 17,830       $ 26,815       $ (8,985)
                                                       =========================================
</TABLE>


                                       21
<PAGE>

General

      The real estate segment includes operating results of properties held in
our real estate portfolio, commitment fee income earned on real estate loans and
development fees earned for services provided. During 2005 we increased the real
estate portfolio by four properties from a merger and two properties by
acquisitions completed during the year. We also sold six properties in the
second half of 2005 and reached an agreement to sell another property, which
closed in the second quarter of 2006. As a result, as of December 31, 2005 we
operated 27 properties and had one property held for sale. During the first nine
months of 2006 we acquired the five 2006 Target REITs by merger, acquired two
additional properties and sold four properties, including the property held for
sale at December 31, 2005. As a result, as of September 30, 2006 we operated 31
properties.

Acquisitions, Mergers and Dispositions:

      In February 2005 we acquired one commercial property in Colorado, on April
30, 2005 we completed the acquisition by merger of the four 2005 Target REITs,
and in July 2005 we acquired one commercial property in Indiana. On February 24,
2006 we acquired one commercial property in Texas, on April 30, 2006 we
completed the acquisition by merger of the five 2006 Target REITs and on June
27, 2006 we acquired a commercial property in Georgia. The results of operations
for each of the acquired or merged properties are included in our operating
results as of their respective purchase or merger dates. Increases in rental
revenues and expenses for the three and nine months ended September 30, 2006 as
compared to the same periods in 2005 are primarily a result of the timing of
these acquisitions and subsequent contribution of these acquired properties. The
operating results of the ten properties sold were classified as discontinued
operations in our financial statements for all periods presented.

Investment Banking:

      The investment banking/investment services segment is primarily based on
the gross proceeds from the sale of securities of the Sponsored REITs. During
the three and nine months ended September 30, 2006 our investment
banking/investment services segment had total gross proceeds of $15.9 and $100.2
million, respectively, which was derived from the syndication of FSP Phoenix
Tower Corp. For the three and nine months ended September 30, 2005 there were
total gross proceeds of $44.0 million and $105.3 million, respectively, which
included completion of the syndications for FSP 505 Waterford Corp., FSP
Galleria North Corp. and FSP Park Ten Development Corp. As a result, total gross
proceeds for the three and nine month periods ended September 30, 2006 decreased
$28.1 million and $5.1 million, respectively, compared to the same periods in
2005. The syndication of FSP Phoenix Tower Corp. commenced in February 2006, and
closed on September 22, 2006.

Comparison of the three months ended September 30, 2006 to the three months
ended September 30, 2005

      Overview

      Total revenues increased $5.5 million or 22.4%, to $29.9 million for the
three months ended September 30, 2006, as compared to $24.4 million for the
three months ended September 30, 2005. Total expenses increased $4.8 million or
31.8%, to $19.9 million for the three months ended September 30, 2006. The
increases were primarily attributable to properties acquired in the last twelve
months and were partially offset by decreases in investment banking activity in
the three months ended September 30, 2006 compared to the three months ended
September 30, 2005.

      Each segment is discussed below.

      Real Estate Operations

      Contribution from the real estate segment increased $2.1 million or 20.3%,
to $12.6 million for the three months ended September 30, 2006 compared to $10.5
million for the three months ended September 30, 2005. The increase is primarily
attributable to:

o     An increase in real estate operating income of $5.4 million to $17.1
      million for the three months ended September 30, 2006 compared to $11.7
      million for same period in 2005. We define real estate operating income as
      rental revenues less real estate operating expenses, real estate taxes and
      insurance. The increase was primarily a result of:

      -     Real estate operating income from our acquisition of the four 2005
            Target REITs by merger on April 30, 2005, acquisitions by direct
            purchase of properties in Colorado during February 2005, Indiana
            during July 2005, Texas during February 2006, our acquisition of the
            five 2006 Target REITs by merger on April 30, 2006, and the
            acquisition of a property in Georgia in late June 2006. Real estate
            operating income from acquisitions is included in current operating
            income. Collectively, these acquisitions resulted in an increase in
            real estate operating income for the third quarter of 2006 compared
            to the third quarter of 2005; and


                                       22
<PAGE>

      -     Lease termination payments of $1.7 million from tenants at
            properties in Colorado, Indiana and Texas in the third quarter of
            2006, as compared to $0.7 million from a tenant at a property in
            Texas during the three months ended September 30, 2005.

o     A decrease in interest expense of $1.0 million resulting from a lower
      average loan balance outstanding for syndications in process during the
      three months ended September 30, 2006 compared to the three months ended
      September 30, 2005. A contributing factor was the use of our cash as a
      source of funds to finance a portion of the syndication of FSP Phoenix
      Tower, which was completed on September 22, 2006. The decrease was
      partially offset by higher interest rates and loan fees in the 2006 period
      than the 2005 period.

o     An increase to interest income of $0.3 million during the three months
      ended September 30, 2006, which was primarily a result of higher interest
      rates earned on higher average balances of cash, cash equivalents and
      other investments compared to the three months ended September 30, 2005.

These increases were partially offset by:

o     A $1.7 million decrease in transaction (loan commitment) fees, which was
      principally caused by the decrease in gross syndication proceeds in the
      third quarter of 2006 compared to the same period in 2005.

o     An increase in depreciation expense of $3.1 million to $6.8 million for
      the three months ended September 30, 2006 as compared to $3.7 million for
      the same period in 2005. The increase was primarily a result of property
      acquisitions over the last twelve months.

      Investment Banking/Investment Services

      Contribution from the investment banking and services segment was $0.7
million for the three months ended September 30, 2006, a decrease of $0.7
million, compared to the three months ended September 30, 2005, which was
primarily attributable to:

o     A decrease in syndication and transaction fee revenues of $2.0 million,
      which was primarily attributable to a lower level of gross syndication
      proceeds during the three months ended September 30, 2006 compared to the
      three months ended September 30, 2005.

The decrease was partially offset by:

o     A decrease in commission expense of $1.0 million, which relates to the
      decrease in gross syndication proceeds.

o     A decrease to income tax expense of $0.3 million as a result of lower
      pre-tax income from investment banking for the three months ended
      September 30, 2006 compared to the three months ended September 30, 2005.

      Selling, general and administrative expenses

      Selling, general and administrative expenses did not change significantly
between the three months ended September 30, 2006 and 2005. We had 40 employees
as of September 30, 2006 at our headquarters in Wakefield compared to 35
employees as of September 30, 2005.

      Income from continuing operations

      Contribution from both segments, net of selling, general and
administrative expenses for the third quarter of 2006 increased $1.4 million to
$11.3 million compared the third quarter of 2005 for the reasons discussed
above.

      Discontinued Operations

      During 2005 we sold six properties and classified one property in Santa
Clara, California as held for sale. The Santa Clara property was sold in the
second quarter of 2006 at a gain. Of the six properties sold during 2005, one
was sold at a loss that was recorded in the second quarter of 2005. Two
properties were sold during the second quarter of 2005 resulting in a gain of
$14.3 million. The remaining three properties were sold in the fourth quarter of
2005 at gains. During 2006 we sold four properties, including one during the
three months ended September 30, 2006, that resulted in a gain of $6.4 million.


                                       23
<PAGE>

      Accordingly, each of the six properties sold in 2005 and the four
properties sold in 2006 are reported as discontinued operations on our financial
statements for the relevant periods presented. Income from discontinued
operations of $0.1 million for the three months ended September 30, 2006
resulted from the industrial property in Peabody, Massachusetts, which was sold
on August 9, 2006. Income from discontinued operations of $2.6 million for the
three months ended September 30, 2005 resulted from the ten properties sold in
2006 and 2005.

      During the first and third quarter of 2005 we acquired two office
properties, one in Englewood, Colorado and another in Indianapolis, Indiana,
through borrowings under the Loan Agreement. During February 2006 we acquired an
office property in Addison, Texas with cash. Proceeds from the sale of
properties during 2005 were used to repay the borrowings and provided a source
of cash used to acquire the property in 2006. Proceeds from the sale of the
three properties sold during the second quarter of 2006 were used to acquire an
office property in Atlanta, Georgia on June 27, 2006.

      We will continue to evaluate our portfolio, and from time-to-time may
decide to dispose of other properties.

Net Income

      Net income for the three months ended September 30, 2006 decreased $9.0
million to $17.8 million compared to $26.8 million for the reasons discussed
above.


                                       24
<PAGE>

The following table shows financial results from each segment for the nine
months ended September 30, 2006 and 2005:

<TABLE>
<CAPTION>
(in thousands)
                                                             Nine months ended September 30,
                                                       -----------------------------------------
Real Estate Operations                                      2006            2005         Change
                                                            ----            ----         ------
Revenues:
<S>                                                       <C>            <C>            <C>
     Rental income                                        $ 72,547       $ 46,373       $ 26,174
     Transaction fees                                        5,812          6,119           (307)
     Management fees and interest income from loans          1,079          1,602           (523)
     Other income                                               26             --             26
                                                       -----------------------------------------
                                                            79,464         54,094         25,370
                                                       -----------------------------------------
Expenses:
     Real estate operating expenses                         16,306          9,928          6,378
     Real estate taxes and insurance                         9,974          6,386          3,588
     Depreciation and amortization                          17,423          9,505          7,918
     Interest                                                1,259          2,825         (1,566)
                                                       -----------------------------------------
                                                            44,962         28,644         16,318
                                                       -----------------------------------------
Other items:
     Interest income                                         2,045          1,024          1,021
     Equity in earnings in non-consolidated REIT's             717          1,295           (578)
                                                      ------------------------------------------
                                                             2,762          2,319            443
                                                       -----------------------------------------

Contribution from real estate                               37,264         27,769          9,495
                                                       -----------------------------------------

Investment Banking/Investment Services:
     Syndication fees                                        6,287          6,977           (690)
     Transaction fees                                          736            769            (33)
                                                       -----------------------------------------
                                                             7,023          7,746           (723)
                                                       -----------------------------------------
Expenses:
     Commissions                                             3,290          3,648           (358)
     Depreciation and amortization                              92            101             (9)
                                                       -----------------------------------------
                                                             3,382          3,749           (367)
                                                       -----------------------------------------
Other items:
     Interest income                                            35             24             11
     Taxes on income                                          (273)          (298)            25
                                                       -----------------------------------------
                                                              (238)          (274)            36
                                                       -----------------------------------------

Contribution from investment banking                         3,403          3,723           (320)
                                                       -----------------------------------------

Selling, general and administrative expenses                 5,785          5,601            184
                                                       -----------------------------------------

Income from continuing operations (Combined)                34,882         25,891          8,991
Discontinued operations, less applicable income tax:
Income (Loss) from discontinued operations                   2,095          7,541         (5,446)
Gains (estimated loss) on sales of assets, net              34,469         13,260         21,209
                                                       -----------------------------------------
     Net income                                           $ 71,446       $ 46,692       $ 24,754
                                                       =========================================
</TABLE>


                                       25
<PAGE>

Comparison of the nine months ended September 30, 2006 to the nine months ended
September 30, 2005:

      Overview

      Total revenues increased $24.6 million, or 39.9%, to $86.4 million for the
nine months ended September 30, 2006, as compared to $61.8 million for the nine
months ended September 30, 2005. Total expenses increased $16.1 million or 42.5%
to $54.1 million for the nine months ended September 30, 2006 compared to the
nine months ended September 30, 2005. The increases were primarily attributable
to properties acquired in the last twelve months, which were slightly offset by
reduced investment banking activity in the nine months ended September 30, 2006
compared to the nine months ended September 30, 2005.

Each segment is discussed in greater detail below.

      Real Estate Operations

      Contribution from the real estate segment increased $9.5 million or 34.2%
to $37.3 million for the nine months ended September 30, 2006 compared to the
nine months ended September 30, 2005. The increase is primarily attributable to:

o     An increase in real estate operating income of $16.2 million to $46.3
      million for the nine months ended September 30, 2006 compared to $30.1
      million for same period in 2005. We define real estate operating income as
      rental revenues less real estate operating expenses, real estate taxes and
      insurance. The increase was primarily a result of:

      -     Real estate operating income from our acquisition of the four 2005
            Target REITs by merger on April 30, 2005, acquisitions by direct
            purchase of properties in Colorado during February 2005, Indiana
            during July 2005, Texas during February 2006, our acquisition of the
            five 2006 Target REITs by merger on April 30, 2006, and the
            acquisition of a property in Georgia in late June 2006. Real estate
            operating income from acquisitions is included in current operating
            income. Collectively, these acquisitions resulted in an increase in
            real estate operating income for the nine months ended September 30,
            2006 compared to same period in 2005; and

      -     Lease termination payments of $6.6 million, including $4.7 million
            from a tenant in Illinois, $1.4 million from a tenant in Colorado,
            $0.3 million from a tenant in Indiana and $0.2 million from a tenant
            in Texas during the nine months ended September 30, 2006 as compared
            to $0.7 million from a tenant at a property in Texas during the nine
            months ended September 30, 2005.

o     A decrease in interest expense of $1.6 million resulting from a lower
      average loan balance outstanding for syndications in process during the
      nine months ended September 30, 2006 compared to the nine months ended
      September 30, 2005. A contributing factor was the use of our cash as a
      source of funds to finance a portion of the syndication of FSP Phoenix
      Tower Corp., which was completed on September 22, 2006. The decrease was
      partially offset by higher interest rates and loan fees in the 2006 period
      than the 2005 period.

o     An increase to interest income of $1.0 million during the nine months
      ended September 30, 2006, which was primarily a result of higher interest
      rates earned on higher average balances of cash, cash equivalents and
      other investments compared to the nine months ended September 30, 2005.

These increases were partially offset by:

o     A $0.3 million decrease in transaction (loan commitment) fees, which was
      principally caused by the decrease in gross syndication proceeds in the
      nine months ended September 30, 2006 compared to the same period in 2005.

o     A decrease in management fees and loan interest income of $0.5 million
      principally as a result of decreased loan interest income from interim
      mortgages made to Sponsored REITs. The decrease related to lower balances
      of loans outstanding during the nine months ended September 30, 2006
      compared to the same period in 2005. The impact of this decrease was
      partially mitigated by an increase in overall interest rates in the nine
      months ended September 30, 2006 compared to the prior period.

o     An increase in depreciation expense of $7.9 million to $17.4 million for
      the nine months ended September 30, 2006 as compared to $9.5 million for
      the same period in 2005. The increase was primarily a result of property
      acquisitions over the last twelve months.

o     A decrease in equity in income from non-consolidated REITs of $0.6
      million, which was principally a result of the timing of investor closings
      on the syndication in process during the nine months ended September 30,
      2006 compared to the syndications in process during the same period in
      2005.


      Investment Banking/Investment Services

      Contribution from the investment banking and services segment decreased
$0.3 million to $3.4 million for the nine months ended September 30, 2006
compared to the nine months ended September 30, 2005. The decrease was primarily
attributable to:


                                       26
<PAGE>

o     A decrease in syndication fee revenues of $0.7 million, which was
      primarily attributable to a lower level of gross syndication proceeds
      during the nine months ended September 30, 2006 compared to the nine
      months ended September 30, 2005.

The decrease was partially offset by:

o     A decrease in commission expense of $0.4 million, which relates to the
      decrease in gross syndication proceeds.

      Selling, general and administrative expenses

      Selling, general and administrative expenses increased $0.2 million to
$5.8 million for the nine months ended September 30, 2006 compared to $5.6
million for the nine months ended September 30, 2005, which were primarily from
costs of monitoring and managing a larger portfolio of REITs and expenses
incurred related to the listing of our stock on the American Stock Exchange,
which commenced on June 2, 2005. We had 40 employees as of September 30, 2006 at
our headquarters in Wakefield compared to 35 employees as of September 30, 2005.

      Income from continuing operations

      Contribution from both segments, net of selling, general and
administrative expenses for the nine months ended September 30, 2006 increased
$9.0 million to $34.9 million compared to $25.9 million for the nine months
ended September 30, 2005 for the reasons discussed above.

      Discontinued Operations

      During 2005 we sold six properties and classified one property in Santa
Clara, California as held for sale. The Santa Clara property was sold in the
second quarter of 2006 at a gain. Of the six properties sold during 2005, three
were sold during the nine months ended September 30, 2005 at a net gain of $13.3
million. The remaining three properties were sold in the fourth quarter of 2005
at gains. During the nine months ended September 30, 2006 we sold four
properties resulting in a gain of $34.5 million.

      Accordingly, each of the six properties sold in 2005 and the four
properties sold in 2006 are reported as discontinued operations on our financial
statements for the relevant periods presented. Income from discontinued
operations of $2.1 million for the nine months ended September 30, 2006 resulted
from the sale of the four properties in 2006. Income from discontinued
operations of $7.5 million for the nine months ended September 30, 2005 resulted
from the ten properties sold in 2006 and 2005.

      During the first and third quarter of 2005 we acquired two office
properties, one in Englewood, Colorado and another in Indianapolis, Indiana,
through borrowings under the Loan Agreement. During February 2006 we acquired an
office property in Addison, Texas with cash. Proceeds from the sale of
properties during 2005 were used to repay the borrowings and provided a source
of cash used to acquire the property in 2006. Proceeds from the sale of the
three properties sold during the second quarter of 2006 were used to acquire an
office property in Atlanta, Georgia on June 27, 2006.

      We will continue to evaluate our portfolio, and from time-to-time may
decide to dispose of other properties.

Net Income

      Net income for the nine months ended September 30, 2006 increased $24.8
million to $71.4 million compared to $46.7 million for the reasons discussed
above.


                                       27
<PAGE>

Liquidity and Capital Resources

      Cash and cash equivalents were $61.0 million at September 30, 2006 and
$69.7 million at December 31, 2005. This decrease of $8.7 million is
attributable to $57.7 million provided by operating activities, less $7.3
million used for investing activities, less $59.1 million used for financing
activities. Management believes that existing cash, cash anticipated to be
generated internally by operations, cash anticipated to be generated by fees and
commissions from the sale of preferred stock in future Sponsored REITs and our
line of credit will be sufficient to meet working capital requirements and
anticipated capital expenditures and improvements for at least the next 12
months. Although there is no guarantee that we will be able to obtain the funds
necessary for our future growth, we anticipate generating funds from continuing
real estate operations and from fees and commissions from the sale of shares in
newly formed Sponsored REITs. We believe that we have adequate funds to cover
unusual expenses and capital improvements, in addition to normal operating
expenses. Our ability to maintain or increase our level of distributions to
stockholders, however, depends in significant part upon the level of interest on
the part of investors in purchasing shares of Sponsored REITs and the level of
rental income from our real properties.

      Operating Activities

      The cash provided by our operating activities of $57.7 million for the
nine months ended September 30, 2006 is primarily attributable to net income of
$71.4 million excluding non-cash activity, consisting primarily of gains on
sales of assets of $34.5 million, depreciation and amortization of $23.4
million; less payment of deferred leasing commissions of $4.4 million; plus
changes in operating assets and liabilities of $1.8 million arising from the
timing of cash collection and payments.

      Investing Activities

      Our cash used for investing activities of $7.3 million for the nine months
ended September 30, 2006 is primarily attributable to the purchase of properties
in Atlanta, Georgia for $85.2 million and Addison, Texas for $26.4 million;
additions to real estate investments and office equipment of approximately $5.7
million; a preferred share investment of $4.1 million in FSP Phoenix Tower
Corp.; a real estate deposit of $2.5 million; and merger costs incurred of
approximately $0.8 million These uses were partially offset by cash added as a
result of our acquisition of the five 2006 Target REITs on April 30, 2006 of
$13.8 million, and proceeds from the sale of properties of $103.7 million.

      Financing Activities

      Our cash used for financing activities of $59.1 million for the nine
months ended September 30, 2006 is primarily attributable to distributions to
stockholders of $59.0 million and offering costs associated with the use of a
shelf filing of $0.1 million.

      Line of Credit

      We have a revolving line of credit agreement (the "Loan Agreement") with a
group of banks providing for borrowings at the Company's election of up to
$150,000,000. Borrowings under the Loan Agreement bear interest at either the
bank's prime rate (8.25% at September 30, 2006) or a rate equal to LIBOR plus
125 basis points (6.57% at September 30, 2006). There was no balance outstanding
at September 30, 2006 or at December 31, 2005. As of September 30, 2006, we were
in compliance with all bank covenants required by the Loan Agreement.

      Contingencies

      We are subject to various legal proceedings and claims that arise in the
ordinary course of its 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.

      Assets Held for Syndication

      As of September 30, 2006 and as of December 31, 2005 there were no assets
held for syndication.


                                       28
<PAGE>

      Related Party Transactions

      During the nine months ended September 30, 2006, we completed the
syndication of FSP Phoenix Tower Corp (or "Phoenix Tower"). In September 2006
the Company purchased 48 preferred shares or 4.57% of the outstanding preferred
shares of Phoenix Tower for $4,116,000. On April 30, 2006, the Company acquired
the five 2006 Target REITs by merging them with and into five of the Company's
wholly-owned subsidiaries. The merger was effective April 30, 2006 and, as a
result, the Company issued 10,971,697 shares in a tax-free exchange for all
outstanding preferred shares of the 2006 Target REITs. Previously, the Company
held a preferred stock investment in Blue Lagoon, which was one of the 2006
Target REITs acquired by merger on April 30, 2006, and accordingly was
eliminated when recording the merger. We did not enter into any other
significant transactions with related parties during the nine months ended
September 30, 2006. For a discussion of transactions between us and related
parties during 2005, see Footnote No. 5 "Related Party Transactions" to the
Consolidated Financial Statements of the Company's Annual Report on Form 10-K
for the year ended December 31, 2005.

      Other Considerations

      We generally pay the ordinary annual operating expenses of our properties
from the rental revenue generated by the properties. For the three and nine
months ended September 30, 2006 and 2005, the rental income exceeded the
expenses for each individual property, with the exception of a property located
in Westford, Massachusetts, a property located in Santa Clara, California that
was sold on May 31, 2006 and a property located in Folsom, California that was
sold on July 13, 2005. The property located in Westford, Massachusetts had a
single tenant lease, which expired on October 31, 2004. We have not re-let this
property and expect that it will not produce revenue to cover its expenses in
the fourth quarter of 2006. The Westford, Massachusetts property had operating
expenses of approximately $35,000 and $58,000 for the three months ended
September 30, 2006 and 2005 and $170,000 for the nine months ended September 30,
2006. During the nine months ended September 30, 2005, the Company received a
restoration and settlement payment from a tenant at the property located in
Westford, Massachusetts of $84,000, and for the nine months ended September 30,
2005, the property had operating expenses, net of the restoration and settlement
payment of approximately $131,000. The property located in Santa Clara,
California had been vacant since October 2005 and had operating expenses of
$70,000 for the five month period ending through May 31, 2006 on which date the
property was sold. The property located in Folsom, California, which was sold on
July 13, 2005, had been vacant since June 2003 and had operating expenses of
approximately $12,000 and $100,000 for the period of July 1, 2005 through July
13, 2005 and the year-to date period ended July 13, 2005, respectively.


                                       29
<PAGE>

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We were not a party to any derivative financial instruments at or during the
nine months ended September 30, 2006.

      We borrow from time-to-time on our line of credit. These borrowings bear
interest at the bank's base rate (8.25% at September 30, 2006) or at LIBOR plus
125 basis points (6.57% at September 30, 2006), as elected by us when requesting
funds. As of September 30, 2006, no amount was outstanding under the line of
credit. We have used funds drawn on our line of credit for the purpose of making
interim mortgage loans to Sponsored REITs and for interim financing of
acquisitions. Generally interim mortgage loans bear interest at the same
variable rate payable by us under our line of credit. We therefore believe that
we have mitigated our interest rate risk with respect to our borrowings for
interim mortgage loans. Historically we have satisfied obligations arising from
interim financing of acquisitions through cash or sale of properties in our
portfolio, so we believe that we can mitigate interest rate risk with respect to
borrowings for interim financing of acquisitions as well.


                                       30
<PAGE>

Item 4. Controls and Procedures.

Our management, with the participation of FSP Corp.'s President and Chief
Executive Officer and FSP Corp.'s Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of
September 30, 2006. Based on this evaluation, FSP Corp.'s President and Chief
Executive Officer and FSP Corp.'s Chief Financial Officer concluded that, as of
September 30, 2006, our disclosure controls and procedures were (1) designed to
ensure that material information relating to us, including our consolidated
subsidiaries, is made known to FSP Corp.'s President and Chief Executive Officer
and FSP Corp.'s Chief Financial Officer by others within these entities as
appropriate to allow timely decisions regarding required disclosure,
particularly during the period in which this report was being prepared and (2)
effective, in that they provide reasonable assurance that information required
to be disclosed by us in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms.

No change to our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter
ended September 30, 2006 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.


                                       31
<PAGE>

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings

      From time to time, we are subject to 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,
cash flows or results of operations.

Item 1A. Risk Factors

      The following important factors, among others, could cause actual results
to differ materially from those indicated by forward-looking statements made in
this Quarterly Report on Form 10-Q and presented elsewhere by management from
time to time. The following risk factors contain no material changes from the
risk factors previously disclosed in our Annual Report on Form 10-K for the year
ended December 31, 2005.

If we are not able to collect sufficient rents from each of our owned real
properties, we may suffer significant operating losses or a reduction in cash
available for future dividends.

      A substantial portion of our revenues are generated by the rental income
of our real properties. If our properties do not provide us with a steady rental
income, our revenues will decrease and may cause us to incur operating losses in
the future.

We may not be able to find properties that meet our criteria for purchase.

      Growth in our investment banking/investment services business and our
portfolio of real estate is dependent on the ability of our acquisition
executives to find properties for sale and/or development which meet our
investment criteria. To the extent they fail to find such properties, we will be
unable to syndicate offerings of Sponsored REITs to investors, and this segment
of our business could have lower revenue, which would reduce the cash available
for distribution to our stockholders, and we would be unable to increase the
size of our portfolio of real estate.

If we are unable to fully syndicate a Sponsored REIT, we may be required to keep
a balance outstanding on our line of credit or use our cash balance to repay our
line of credit, which may reduce cash available for distribution to our
stockholders.

      We typically draw on our line of credit to make an interim mortgage loan
to a Sponsored REIT, so that it can acquire real property prior to the
consummation of the offering of its equity interests; this interim loan is
secured by a first mortgage against the real property acquired by the Sponsored
REIT. Once the offering has been completed, the Sponsored REIT repays the loan
out of the offering proceeds. If we are unable to fully syndicate a Sponsored
REIT, the Sponsored REIT could be unable to fully repay the loan, and we would
have to satisfy our obligation under our line of credit through other means. If
we are required to use cash for this purpose, we would have less cash available
for distribution to our stockholders.

A default under our line of credit could have a material adverse effect on the
cash available for distribution to our stockholders and would limit our growth.

      We typically draw on our line of credit to make an interim mortgage loan
to a Sponsored REIT, so that the Sponsored REIT can acquire real property prior
to the consummation of the offering of such Sponsored REIT's equity interests.
Once the offering has been completed, the Sponsored REIT repays the loan out of
the offering proceeds. We also may use the line of credit to purchase properties
directly for our real estate portfolio. A default under our line of credit could
result in difficulty financing growth in both the investment banking/investment
services and real estate segments of our business. It could also result in a
reduction in the cash available for distribution to our stockholders because
revenue for our investment banking/investment services segment is directly
related to the amount of equity raised by Sponsored REITs which we syndicate. In
addition, a significant part of our growth strategy is to acquire additional
real properties by cash purchase or by acquisition of Sponsored REITs, and the
inability to utilize the line of credit would make it substantially more
difficult to pursue acquisitions by either method. To the extent we have a
balance outstanding on the line of credit on the date of its default, we would
have to satisfy our obligation through other means. If we are required to use
cash for this purpose, we would have less cash available for distribution to our
stockholders.


                                       32
<PAGE>

We face risks in continuing to attract investors for Sponsored REITs.

      Our investment banking/investment services business continues to depend
upon its ability to attract purchasers of equity interests in Sponsored REITs.
Our success in this area will depend on the propensity and ability of investors
who have previously invested in Sponsored REITs to continue to invest in future
Sponsored REITs and on our ability to expand the investor pool for the Sponsored
REITs by identifying new potential investors. Moreover, our investment
banking/investment services business may be affected to the extent existing
Sponsored REITs incur losses or have operating results that fail to meet
investors' expectations.

We are dependent on key personnel.

      We depend on the efforts of George Carter, our President and Chief
Executive Officer, and a Director; Barbara J. Fournier, our Chief Operating
Officer, Treasurer, Secretary, a Vice President and a Director; John G.
Demeritt, our Chief Financial Officer; Janet Notopoulos, a Vice President and
Director; R. Scott MacPhee, an Executive Vice President; and William W.
Gribbell, an Executive Vice President. If any of our executive officers were to
resign, our operations could be adversely affected. We do not have employment
agreements with Mr. Carter or any other of our executive officers.

Our level of dividends may fluctuate.

      Because our investment banking/investment services business is
transactional in nature and real estate occupancy levels and rental rates can
fluctuate, there is no predictable recurring level of revenue from such
activities. As a result of this, the amount of cash available for distribution
may fluctuate, which may result in our not being able to maintain or grow
distribution levels in the future.

The real properties held by us may significantly decrease in value.

      As of September 30, 2006, we owned 31 properties. Some or all of these
properties may decline in value. To the extent our real properties decline in
value, our stockholders could lose some or all the value of their investments.
The value of our common stock may be adversely affected if the real properties
held by us decline in value since these real properties represent the majority
of the tangible assets held by us. Moreover, if we are forced to sell or lease
the real property held by us below its initial purchase price or its carrying
costs or if we are forced to lease real property at below market rates because
of the condition of the property, our results of operations would be adversely
affected and such negative results of operations may result in lower dividends
being paid to holders of our common stock.

New acquisitions may fail to perform as expected.

      We may acquire new properties, whether by direct FSP Corp. purchase with
cash or our line of credit, by acquisition of Sponsored REITs or other entities
by cash or through the issuance of shares of our stock or by investment in a
Sponsored REIT. We acquired the four 2005 Target REITs and the properties they
own on April 30, 2005, a property in Colorado in February 2005, another property
in Indiana in July 2005 and another property in Texas, in February 2006. We also
acquired the five 2006 Target REITs and the properties they own on April 30,
2006 and an office property in Georgia in June 2006. Newly acquired properties
may fail to perform as expected, in which case, our results of operations could
be adversely affected.

We face risks in owning, developing and operating real property.

      An investment in us is subject to the risks incident to the ownership,
development and operation of real estate-related assets. These risks include the
fact that real estate investments are generally illiquid, which may affect our
ability to vary our portfolio in response to changes in economic and other
conditions, as well as the risks normally associated with:

o     changes in general and local economic conditions;

o     the supply or demand for particular types of properties in particular
      markets;

o     changes in market rental rates;

o     the impact of environmental protection laws; and

o     changes in tax, real estate and zoning laws.

      Certain significant costs, such as real estate taxes, utilities, insurance
and maintenance costs, generally are not reduced even when a property's rental
income is reduced. In addition, environmental and tax laws, interest rate
levels, the availability of financing and other factors may affect real estate
values and property income. Furthermore, the supply of commercial space
fluctuates with market conditions.


                                       33
<PAGE>

We face risks from tenant defaults or bankruptcies.

      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 of one of our properties 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.

We may encounter significant delays in reletting vacant space, resulting in
losses of income.

      When leases expire, we will incur expenses and may not be able to re-lease
the space on the same terms. Certain leases provide tenants the right to
terminate early if they pay a fee. If we are unable to re-lease space promptly,
if the terms are significantly less favorable than anticipated or if the costs
are higher, we may have to reduce distributions to our stockholders. For
example, our standard lease term is five years, so approximately 20% of our
rental revenue from commercial properties could be expected to expire each year.

We face risks from geographic concentration.

      The properties in our portfolio as of September 30, 2006, by aggregate
square footage, are distributed geographically as follows: Southwest - 26%,
Northeast - 17%, Midwest - 18%, West - 19% and Southeast 20%. However, within
certain of those regions, we hold a larger concentration of our properties in
Dallas, Texas - 18%, Atlanta, Georgia - 10% and Houston, Texas - 8%. We are
likely to face risks to the extent that any of these areas in which we hold a
larger concentration of our properties suffer deteriorating economic conditions.


We compete with national, regional and local real estate operators and
developers, which could adversely affect our cash flow.

      Competition exists in every market in which our properties are currently
located and in every market in which properties we may acquire in the future
will be located. We compete with, among others, national, regional and numerous
local real estate operators and developers. Such competition may adversely
affect the percentage of leased space and the rental revenues of our properties,
which could adversely affect our cash flow from operations and our ability to
make expected distributions to our stockholders. Some of our competitors may
have more resources than we do or other competitive advantages. Competition may
be accelerated by any increase in availability of funds for investment in real
estate. For example, decreases in interest rates tend to increase the
availability of funds and therefore can increase competition. To the extent that
our properties continue to operate profitably, this will likely stimulate new
development of competing properties. The extent to which we are affected by
competition will depend in significant part on local market conditions.

There is limited potential for an increase in leased space gains in our
properties.

      We anticipate that future increases in revenue from our properties will be
primarily the result of scheduled rental rate increases or rental rate increases
as leases expire. Properties with higher rates of vacancy are generally located
in soft economic markets so that it may be difficult to realize increases in
revenue when vacant space is re-leased.

We are subject to possible liability relating to environmental matters, and we
cannot assure you that we have identified all possible liabilities.

      Under various federal, state and local laws, ordinances and regulations,
an owner or operator of real property may become liable for the costs of removal
or remediation of certain hazardous substances released on or in its property.
Such laws may impose liability without regard to whether the owner or operator
knew of, or caused, the release of such hazardous substances. The presence of
hazardous substances on a property may adversely affect the owner's ability to
sell such property or to borrow using such property as collateral, and it may
cause the owner of the property to incur substantial remediation costs. In
addition to claims for cleanup costs, the presence of hazardous substances on a
property could result in the owner incurring substantial liabilities as a result
of a claim by a private party for personal injury or a claim by an adjacent
property owner for property damage.


                                       34
<PAGE>

      In addition, we cannot assure you that:

o     future laws, ordinances or regulations will not impose any material
      environmental liability;

o     the current environmental conditions of our properties will not be
      affected by the condition of properties in the vicinity of such properties
      (such as the presence of leaking underground storage tanks) or by third
      parties unrelated to us;

o     tenants will not violate their leases by introducing hazardous or toxic
      substances into our properties that could expose us to liability under
      federal or state environmental laws; or

o     environmental conditions, such as the growth of bacteria and toxic mold in
      heating and ventilation systems or on walls, will not occur at our
      properties and pose a threat to human health.

We are subject to compliance with the Americans With Disabilities Act and fire
and safety regulations, any of which could require us to make significant
capital expenditures.

      All of our properties are required to comply with the Americans With
Disabilities Act (ADA), and the regulations, rules and orders that may be issued
thereunder. The ADA has separate compliance requirements for "public
accommodations" and "commercial facilities," but generally requires that
buildings be made accessible to persons with disabilities. Compliance with ADA
requirements might require, among other things, removal of access barriers and
noncompliance could result in the imposition of fines by the U.S. government or
an award of damages to private litigants.

      In addition, we are required to operate our properties in compliance with
fire and safety regulations, building codes and other land use regulations, as
they may be adopted by governmental agencies and bodies and become applicable to
our properties. Compliance with such requirements may require us to make
substantial capital expenditures, which expenditures would reduce cash otherwise
available for distribution to our stockholders.

We may lose capital investment or anticipated profits if an uninsured event
occurs.

      We carry, or our tenants carry, comprehensive liability, fire and extended
coverage with respect to each of our properties, with policy specification and
insured limits customarily carried for similar properties. There are, however,
certain types of losses, such as from wars, pollution or earthquakes, that may
be either uninsurable or not economically insurable (although most properties
located in California have earthquake insurance). Should an uninsured material
loss occur, we could lose both capital invested in the property and anticipated
profits.

Contingent or unknown liabilities acquired in mergers or similar transactions
could require us to make substantial payments.

      The properties which we acquired in mergers were acquired subject to
liabilities and without any recourse with respect to liabilities, whether known
or unknown. As a result, if liabilities were asserted against us based upon any
of these properties, we might have to pay substantial sums to settle them, which
could adversely affect our results of operations and financial condition and our
cash flow and ability to make distributions to our stockholders. Unknown
liabilities with respect to properties acquired might include:

o     liabilities for clean-up or remediation of environmental conditions;

o     claims of tenants, vendors or other persons dealing with the former owners
      of the properties; and

o     liabilities incurred in the ordinary course of business.

We would incur adverse tax consequences if we failed to qualify as a REIT.

      The provisions of the tax code governing the taxation of real estate
investment trusts are very technical and complex, and although we expect that we
will be organized and will operate in a manner that will enable us to meet such
requirements, no assurance can be given that we will always succeed in doing so.
In addition, as a result of our acquisition of the target REITs pursuant to the
mergers, we might no longer qualify as a real estate investment trust. We could
lose our ability to so qualify for a variety of reasons relating to the nature
of the assets acquired from the target REITs, the identity of the stockholders
of the target REITs who become our stockholders or the failure of one or more of
the target REITs to have previously qualified as a real estate investment trust.
Moreover, you should note that if one or more of the REITs that we acquired in
April 2006, April 2005 or June 2003 did not qualify as a real estate investment
trust immediately prior to the consummation of its acquisition, we could be
disqualified as a REIT as a result of such acquisition.


                                       35
<PAGE>

      If in any taxable year we do not qualify as a real estate investment
trust, we would be taxed as a corporation and distributions to our stockholders
would not be deductible by us in computing our taxable income. In addition, if
we were to fail to qualify as a real estate investment trust, we could be
disqualified from treatment as a real estate investment trust in the year in
which such failure occurred and for the next four taxable years and,
consequently, we would be taxed as a regular corporation during such years.
Failure to qualify for even one taxable year could result in a significant
reduction of our cash available for distribution to our stockholders or could
require us to incur indebtedness or liquidate investments in order to generate
sufficient funds to pay the resulting federal income tax liabilities.

Provisions in our organizational documents may prevent changes in control.

      Our Articles of Incorporation and Bylaws contain provisions, described
below, which may have the effect of discouraging a third party from making an
acquisition proposal for us and may thereby inhibit a change of control under
circumstances that could otherwise give the holders of our common stock the
opportunity to realize a premium over the then-prevailing market prices.

      Ownership Limits. In order for us to maintain our qualification as a real
estate investment trust, the holders of our common stock may be limited to
owning, either directly or under applicable attribution rules of the Internal
Revenue Code, no more than 9.8% of the lesser of the value or the number of our
equity shares, and no holder of common stock may acquire or transfer shares that
would result in our shares of common stock being beneficially owned by fewer
than 100 persons. Such ownership limit may have the effect of preventing an
acquisition of control of us without the approval of our board of directors. Our
Articles of Incorporation give our board of directors the right to refuse to
give effect to the acquisition or transfer of shares by a stockholder in
violation of these provisions.

      Staggered Board. Our board of directors is divided into three classes. The
terms of these classes will expire in 2007, 2008 and 2009, respectively.
Directors of each class are elected for a three-year term upon the expiration of
the initial term of each class. The staggered terms for directors may affect our
stockholders' ability to effect a change in control even if a change in control
were in the stockholders' best interests.

      Preferred Stock. Our Articles of Incorporation authorize our board of
directors to issue up to 20,000,000 shares of preferred stock, par value $.0001
per share, and to establish the preferences and rights of any such shares
issued. The issuance of preferred stock could have the effect of delaying or
preventing a change in control even if a change in control were in our
stockholders' best interest.

      Increase of Authorized Stock. Our board of directors, without any vote or
consent of the stockholders, may increase the number of authorized shares of any
class or series of stock or the aggregate number of authorized shares we have
authority to issue. The ability to increase the number of authorized shares and
issue such shares could have the effect of delaying or preventing a change in
control even if a change in control were in our stockholders' best interest.

      Amendment of Bylaws. Our board of directors has the sole power to amend
our Bylaws. This power could have the effect of delaying or preventing a change
in control even if a change in control were in our stockholders' best interests.

      Stockholder Meetings. Our Bylaws require advance notice for stockholder
proposals to be considered at annual meetings of stockholders and for
stockholder nominations for election of directors at special meetings of
stockholders. Our Bylaws also provide that stockholders entitled to cast more
than 50% of all the votes entitled to be cast at a meeting must join in a
request by stockholders to call a special meeting of stockholders. These
provisions could have the effect of delaying or preventing a change in control
even if a change in control were in the best interests of our stockholders.

      Supermajority Votes Required. Our Articles of Incorporation require the
affirmative vote of the holders of no less than 80% of the shares of capital
stock outstanding and entitled to vote in order (i) to amend the provisions of
our Articles of Incorporation relating to the classification of directors,
removal of directors, limitation of liability of officers and directors or
indemnification of officers and directors or (ii) to amend our Articles of
Incorporation to impose cumulative voting in the election of directors. These
provisions could have the effect of delaying or preventing a change in control
even if a change in control were in our stockholders' best interest.

Our employee retention plan may prevent changes in control.

      During February 2006, our Board of Directors approved a change in control
plan, which included a form of retention agreement and discretionary payment
plan. Payments under the discretionary plan are capped at 1% of the market
capitalization of FSP Corp. as reduced by the amount paid under the retention
plan. The costs associated with these two components of the plan may have the
effect of discouraging a third party from making an acquisition proposal for us
and may thereby inhibit a change in control under circumstances that could
otherwise give the holders of our common stock the opportunity to realize a
greater premium over the then-prevailing market prices.


                                       36
<PAGE>

The price of our common stock may vary.

      The market prices for our common stock may fluctuate with changes in
market and economic conditions, including the market perception of REITs in
general, and changes in the financial condition of our securities. Such
fluctuations may depress the market price of our common stock independent of the
financial performance of FSP Corp. The market conditions for REIT stocks
generally could affect the market price of our common stock.


                                       37
<PAGE>

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

      The following table provides information about purchases by Franklin
Street Properties Corp. during the quarter ended September 30, 2006 of equity
securities that are registered by the Company pursuant to Section 12 of the
Exchange Act:

                      ISSUER PURCHASES OF EQUITY SECURITIES

<TABLE>
<CAPTION>
------------------------- --------------------- --------------------- --------------------- ---------------------------
                                  (a)                   (b)                   (c)                      (d)

                                                                        Total Number of         Maximum Number (or
                                                                       Shares (or Units)        Approximate Dollar
                                                                       Purchased as Part       Value) of Shares (or
                                                                          of Publicly         Units) that May Yet Be
                            Total Number of        Average Price        Announced Plans        Purchased Under the
                           Shares (or Units)       Paid per Share         or Programs           Plans or Programs
Period                     Purchased (1) (2)         (or Unit)              (1) (2)                  (1) (2)
------------------------- --------------------- --------------------- --------------------- ---------------------------
<C>                                <C>                  <C>                    <C>                 <C>
07/01/06-07/31/06                  0                    N/A                    0                   $21,008,101

------------------------- --------------------- --------------------- --------------------- ---------------------------

08/01/06-08/31/06                  0                    N/A                    0                   $21,008,101
------------------------- --------------------- --------------------- --------------------- ---------------------------

09/01/06-09/30/06                  0                    N/A                    0                   $21,008,101
------------------------- --------------------- --------------------- --------------------- ---------------------------
Total:                             0                    N/A                    0                   $21,008,101

------------------------- --------------------- --------------------- --------------------- ---------------------------

      (1) Our Articles of Incorporation provide that we will use our best efforts to redeem shares of our common stock
from stockholders who request such redemption. Any FSP Corp. stockholder wishing to have shares redeemed must make such
a request no later than July 1 of any year for a redemption that would be effective the following January 1. This
obligation is subject to significant conditions. However, as our common stock is currently listed for trading on the
American Stock Exchange, we are no longer obligated to, and do not intend to, effect any such redemption.

      (2) On October 28, 2005 FSP Corp. announced that the Board of Directors of FSP Corp. had authorized the repurchase
of up to $35 million of the Company's common stock from time to time in the open market or in privately negotiated
transactions. The stock repurchase program expires at the earlier of (i) November 1, 2007 or (ii) a determination by the
Board of Directors of FSP Corp. to discontinue repurchases.
</TABLE>

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

      (a)   Set forth as Exhibit 99.2 hereto are Selected Combining Condensed
            Consolidated Pro Forma Financial Data of the Company that give
            effect to the acquisition of One Overton Park and the acquisition of
            the 2006 Target REITs.


                                                           38
<PAGE>

                     PART II - OTHER INFORMATION (Continued)

Item 6. Exhibits

      2.1   Agreement and Plan of Merger by and among the Company, Blue Lagoon
            Acquisition Corp., Innsbrook Acquisition Corp., Willow Bend
            Acquisition Corp., 380 Interlocken Acquisition Corp., Eldridge Green
            Acquisition Corp., FSP Blue Lagoon Drive Corp., FSP Innsbrook Corp.,
            FSP Willow Bend Office Center Corp., FSP 380 Interlocken Corp. and
            FSP Eldridge Green Corp., dated as of March 15, 2006 (1)

      2.2   Agreement of Sale and Purchase, dated May 19, 2006, by and between
            One Overton Park LLC and FSP One Overton Park LLC (2)

      3.1   Articles of Incorporation (3)

      3.2   Amended and Restated By-Laws (4)

      31.1  Certification of the President and Chief Executive Officer of the
            Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of
            2002.

      31.2  Certification of the Chief Financial Officer of the Registrant
            pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

      32.1  Certification of the President and Chief Executive Officer of the
            Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant
            to Section 906 of the Sarbanes-Oxley Act of 2002.

      32.2  Certification of the Chief Financial Officer of the Registrant
            pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
            906 of the Sarbanes-Oxley Act of 2002.

      99.1  Table regarding investors in Sponsored REITs.

      99.2  Selected Combining Condensed Consolidated Pro Forma Financial Data

------------------------------------------------------
      (1)   Filed as Exhibit 2.1 to the Company's Current Report on Form 8-K
            dated March 15, 2006 (File No. 001-32470) as filed on March 16, 2006
            and incorporated herein by reference.

      (2)   Filed as Exhibit 2.1 to the Company's Current Report on Form 8-K
            dated June 27, 2006 (File No. 001-32470) as filed on June 28, 2006
            and incorporated herein by reference.

      (3)   Filed as Exhibit 3.1 to the Company's Registration Statement on Form
            8-A (File No. 001-32470) as filed on April 5, 2005 and incorporated
            herein by reference.

      (4)   Filed as Exhibit 3.1 to the Company's Current Report on Form 8-K
            dated May 12, 2006 (File No. 001-32470) as filed on May 15, 2006 and
            incorporated herein by reference.


                                       40
<PAGE>

                                   SIGNATURES

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

                                Franklin Street Properties Corp.


<TABLE>
<CAPTION>
           Date                           Signature                              Title
           ----                           ---------                              -----

<C>                            <C>                                <C>
Date:  October 31, 2006        /s/ George J. Carter               Chief Executive Officer and Director
                               -----------------------            (Principal Executive Officer)
                               George J. Carter

Date:  October 31, 2006        /s/ John G. Demeritt               Chief Financial Officer
                               -----------------------            (Principal Financial Officer)
                               John G. Demeritt
</TABLE>


                                       41