SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

    FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)

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

                  For the fiscal year ended December 31, 2003

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

                  For the transition period from              to

                           Commission File No. 0-32615

                        FRANKLIN STREET PROPERTIES CORP.
             (Exact name of registrant as specified in its charter)

                  Maryland                                    04-3578653
                  --------                                    ----------
       (State or other jurisdiction of                     (I.R.S. Employer
       incorporation or organization)                     Identification No.)

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

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

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

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

                    Common Stock, $.0001 par value per share

      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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

      Indicate by check mark whether the registrant is an accelerated filer as
defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
Yes |X|  No |_|.

      As of June 30, 2003, the aggregate fair market value of Common Stock held
by non-affiliates of the registrant, as determined in good faith by the Board of
Directors of the registrant, was $40,164,195.

      There were 49,630,338 shares of Common Stock outstanding as of March 10,
2004.

      Documents incorporated by reference: The Registrant intends to file a
definitive proxy statement pursuant to Regulation 14A, promulgated under the
Securities Exchange Act of 1934, as amended, to be used in connection with the
Registrant's Annual Meeting of Stockholders to be held on May 7, 2004. The
information required in response to Items 10 - 14 of Part III of this Form 10-K,
other than that contained in Item 4A, "Executive Officers of FSP Corp.," is
hereby incorporated by reference to such proxy statement.
<PAGE>

                                TABLE OF CONTENTS

PART I.........................................................................1
  Item 1.  Business............................................................1
  Item 1A. Risk Factors........................................................4
  Item 2.  Properties.........................................................10
  Item 3.  Legal Proceedings..................................................12
  Item 4.  Submission of Matters to a Vote of Security Holders................12
  Item 4A. Executive Officers of FSP Corp. ...................................12

PART II.......................................................................15
  Item 5.  Market For Registrant's Common Equity and Related
           Stockholder Matters................................................15
  Item 6.  Selected Financial and Other Data..................................16
  Item 7.  Management's Discussion And Analysis Of Financial Condition
           And Results Of Operations..........................................17
  Item 7A. Quantitative and Qualitative Disclosures About Market Risk.........28
  Item 8.  Financial Statements and Supplementary Data........................28
  Item 9.  Changes in and Disagreements With Accountants on Accounting
           and Financial Disclosure...........................................28
  Item 9A. Controls and Procedures............................................29

PART III......................................................................30
  Item 10. Directors and Executive Officers of the Registrant.................30
  Item 11. Executive Compensation.............................................30
  Item 12. Security Ownership of Certain Beneficial Owners and Management
           and Related Stockholder Matters....................................30
  Item 13. Certain Relationships and Related Transactions.....................30
  Item 14. Principal Accountant Fees and Services.............................30

PART IV.......................................................................30
  Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...30

SIGNATURES....................................................................32

EXHIBIT INDEX.................................................................33

Index to Consolidated Financial Statements...................................F-1
<PAGE>

PART I

Item 1. Business.

History

      Our company, Franklin Street Properties Corp., which we will refer to as
FSP Corp. or the Company, is a Maryland corporation that operates in a manner
intended to qualify as a real estate investment trust for federal income tax
purposes. FSP Corp. is the successor to Franklin Street Partners Limited
Partnership, or the FSP Partnership, which was originally formed as a
Massachusetts general partnership in January 1997 as the successor to a
Massachusetts general partnership that was formed in 1981. On January 1, 2002,
the FSP Partnership converted into FSP Corp. As a result of this conversion, the
FSP Partnership ceased to exist and we succeeded to the business of the FSP
Partnership. In the conversion, each unit of both general and limited
partnership interests in the FSP Partnership was converted into one share of our
common stock. As a result of the conversion, we hold, directly and indirectly,
100% of the interest in three former subsidiaries of the FSP Partnership: FSP
Investments LLC, FSP Property Management LLC, and FSP Holdings LLC. We operate
some of our business through these subsidiaries.

      On June 1, 2003, we acquired 13 real estate investment trusts, which we
refer to as Target REITs, by merger. In these mergers, we issued 25,000,091
shares of our common stock to holders of preferred stock in the Target REITs. As
a result of these mergers, we now hold all of the assets previously held by
these Target REITs.

Our Business

      We operate in two business segments and have two principal sources of
revenue:

      o     Real estate operations, including real estate leasing, interim
            acquisition financing and asset/property management, which generate
            rental income, loan origination fees and management fees,
            respectively.

      o     Investment banking/investment services, which generate brokerage
            commissions and other fees related to the organization of
            single-purpose entities that own real estate and the private
            placement of equity in those entities. We call these entities
            Sponsored Entities, and although we previously organized them as
            partnerships, in 2001 we began to organize them as corporations
            operated in a manner intended to qualify as real estate investment
            trusts, and refer to them as Sponsored REITs.

      See Note 3 to our consolidated financial statements.

      Real Estate

      We own a portfolio of real estate, consisting of 28 properties as of
December 31, 2003, which includes apartment complexes, office buildings and
industrial use properties. We derive rental revenue from income paid to us by
tenants of these properties. See Item 2 of this Annual Report.

      FSP Corp. typically makes a loan to each Sponsored REIT secured by a
mortgage on the borrower's real estate. Those loans produce revenue in the form
of interest and loan origination fees. These loans typically are repaid out of
the proceeds of the borrower's equity offering.

      We also provide asset management services, property management services
and/or property accounting services to certain of our Sponsored REITs through
our subsidiary FSP Property Management. FSP Corp. recognizes revenue for its
receipt of fee income from those Sponsored REITs that have not been acquired by
us. FSP Property Management does not receive any rental income.

      Investment Banking/Investment Services

      Through our subsidiary FSP Investments, which acts as a real estate
investment banking firm and broker/dealer, we organize Sponsored REITs, and sell
equity in them through private placements exempt from registration under the


                                       1
<PAGE>

Securities Act of 1933. These single-purpose entities each typically acquire a
single real estate asset. FSP Investments sells preferred stock in the Sponsored
REIT through best efforts offerings to "accredited investors" within the meaning
of Regulation D of the Securities Act. We retain 100% of the common stock
interest in the Sponsored REIT. Since 1997, FSP Investments has sponsored 34
Sponsored Entities, 14 of which were partnerships, and 20 of which were
Sponsored REITs.

      FSP Investments derives revenue from commissions received in connection
with the sale of equity interests in the Sponsored REITs and from fees paid by
the Sponsored REITs for its services in identifying, inspecting and negotiating
to purchase real properties on their behalf. FSP Investments is a registered
broker/dealer with the Securities and Exchange Commission and is a member of the
National Association of Securities Dealers, Inc. We have made an election to
treat FSP Investments as a "taxable REIT subsidiary" for federal income tax
purposes.

Investment Objectives

      Our investment objective is to increase the cash available for
distribution in the form of dividends to our stockholders by increasing revenue
from rental income, any net gains from sales of properties and investment
banking services. We expect that, through FSP Investments, we will continue to
organize and cause the offering of Sponsored REITs in the future and that we
will continue to derive investment banking/investment services income, including
loan origination fees and interest, from such activities. We may also acquire
additional real properties by cash purchase or by acquisition of Sponsored
REITs. In addition, we may invest in real estate by purchasing shares of
preferred stock offered in the syndications of Sponsored REITs.

      From time to time, as market conditions warrant, we may sell properties
owned by us. In 2003, we sold two properties, Wesleyan Oaks and Reata
Apartments. When we sell a property, we either distribute the sale proceeds to
our stockholders as a dividend or retain some or all of such proceeds for
investment in real properties or other corporate activities.

      We may acquire, and have acquired, real properties in any geographic area
of the United States and of any property type. Of the 28 properties we own, four
are apartment complexes, 22 are office buildings and two are industrial. See
Item 2 of this Annual Report.

      We rely on the following principles in selecting real properties for
acquisition by a Sponsored REIT or FSP Corp. and managing them after
acquisition:

      o     we seek to buy investment properties at a price which produces value
            for investors and avoid overpaying for real estate merely to outbid
            competitors;

      o     we seek to buy properties in excellent locations with substantial
            infrastructure in place around them and avoid investing in locations
            where the construction of such infrastructure is speculative;

      o     we seek to buy properties that are well-constructed and designed to
            appeal to a broad base of users and avoid properties where quality
            has been sacrificed to cost savings in construction or which appeal
            only to a narrow group of users;

      o     we aggressively manage, maintain and upgrade our properties and
            refuse to neglect or undercapitalize management, maintenance and
            capital improvement programs;

      o     we believe that we have the ability to hold properties through down
            cycles and avoid leveraging properties and placing them at risk of
            foreclosure; as of December 31, 2003, none of our 28 properties was
            subject to mortgage debt.


                                       2
<PAGE>

Line of Credit

      We currently have an unsecured revolving line of credit with a group of
banks that provides for borrowings of up to $125,000,000. We have drawn on this
line of credit, and intend to draw on this line of credit in the future, to
obtain funds for the purpose of making interim mortgage loans to Sponsored
REITs. We typically cause these loans to be secured by a first mortgage of the
real property owned by the Sponsored REIT. We make these loans to enable a
Sponsored REIT to acquire real property prior to the consummation of the
offering of its equity interests, and the loan is repaid out of the offering
proceeds. We have no restriction on the percentage of our assets that may be
invested in any single mortgage.

Competition

      With respect to our real estate investments, we face competition in each
of the markets where the properties are located. In order to maintain or
increase the rental revenues for a property, it must be competitive on location,
cost and amenities with other buildings of similar use. Some of our competitors
may have significantly more resources than we do and may be able to offer more
attractive rental rates or services. On the other hand, some of our competitors
may be smaller or have less cash or other resources that make them willing or
able to accept lower rents in order to maintain a certain occupancy level. In
markets where there is not currently significant competition, our competitors
may decide to enter the market and build new buildings to compete with our
existing projects. Our competition is not only with other landlords, but also
with the choice of home ownership or ownership of office condominiums, and
larger market forces (including changes in interest rates and tax treatment) and
individual decisions beyond our control may affect our ability to compete with
those forms of ownership.

      With respect to our investment banking and investment services business,
we face competition for investment dollars from every other kind of investment,
including stocks, bonds, mutual funds and other real-estate related investments,
including other REITs. Some of our competitors have significantly more resources
than we do and are able to advertise their investment products. Because the
offerings of the Sponsored REITs are made pursuant to an exemption from
registration under the Securities Act, FSP Investments may not advertise the
Sponsored REITs or otherwise engage in any general solicitation of investors to
purchase interests in the Sponsored REITs, which may affect our ability to
compete for investment dollars.

Employees

      We had 35 employees as of December 31, 2003.

Available Information

      We are subject to the informational requirements of the Securities
Exchange Act of 1934, and, in accordance therewith, we file reports and other
information with the Securities and Exchange Commission (SEC). The reports and
other information we file can be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. Copies of such material can be obtained by mail from the Public Reference
Section of the SEC at 450 West Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such reports and other information may also be obtained from
the web site that the SEC maintains at http://www.sec.gov. Further information
about these public reference facilities may be obtained by calling the SEC at
1-800-SEC-0330.

      Reports and other information concerning us may also be obtained
electronically through a variety of databases, including, among others, our
Electronic Data Gathering and Retrieval (EDGAR) program, Knight-Ridder
Information Inc., Federal Filing/Dow Jones and Lexis/Nexis.

      We do not make our reports available electronically, as we do not maintain
an Internet website. We will voluntarily provide paper copies of our filings
upon request.


                                       3
<PAGE>

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 Annual Report on Form 10-K and presented elsewhere by management from time
to time.

If we are not able to collect sufficient rents from each of our owned real
properties, we may suffer significant operating losses.

      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 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.

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 of 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.

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

      Growth in our investment banking/investment services business is dependent
on the ability of our acquisition executives to find properties for sale which
meet our investment critieria. 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.

We are dependent on key personnel.

      We depend on the efforts of George Carter, our Chief Executive Officer,
and our other executive officers. If they 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 us not being able to maintain or grow
dividend levels in the future.


                                       4
<PAGE>

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

      As of December 31, 2003, we owned 28 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.

New acquisitions may fail to perform as expected.

      We may acquire new properties, whether by cash purchase, by acquisition of
Sponsored REITs or by investment in a Sponsored REIT. 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 and operating real property.

      An investment in us is subject to the risks incident to the ownership and
operation of real estate-related assets. These risks include the fact that real
estate investments are generally illiquid, which may impact 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 and
multi-family residential space fluctuates with market conditions.

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.

We face risks from geographic concentration.

      The properties in our portfolio, by aggregate square footage, are
distributed geographically as follows: Southwest - 26%, Northeast - 31%, Midwest
- 19%, West - 16% and Southeast 8%. However, within certain of those segments,
we hold a larger concentration of our properties in Houston, Texas - 18% and
Washington, DC - 13%. 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.


                                       5
<PAGE>

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 located and
in every market in which our properties 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.

      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 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.


                                       6
<PAGE>

      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 its stockholders.

There are significant conditions to our obligation to redeem shares of our
common stock, and any such redemption will result in the stockholders tendering
shares receiving less than their fair market value.

      Under our redemption plan, we are only obligated to use our best efforts
to redeem shares of our common stock from stockholders wishing to have them
redeemed. There are significant conditions to our obligation to redeem shares of
our common stock including:

      o     we cannot be insolvent or be rendered insolvent by the redemption;

      o     the redemption cannot impair our capital or operations;

      o     the redemption cannot contravene any provision of federal or state
            securities laws;

      o     the redemption cannot result in our failing to qualify as a REIT;
            and

      o     our management must determine that the redemption is in our best
            interests.

      Any redemption effected by us under this plan would result in those
stockholders tendering shares of our common stock receiving 90% of the fair
market value of such shares, as determined by our board of directors in its sole
and absolute discretion, and not their full fair market value.

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 the properties
located in California all 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.


                                       7
<PAGE>

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

      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 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 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. In addition, timing
differences between the receipt of income and payment of expenses and the
inclusion and deduction of such amounts in arriving at taxable income could make
it necessary for us to borrow in order to make certain distributions to our
stockholders in satisfaction of the 90% distribution requirement applicable to
real estate investment trusts. The provisions of the Internal Revenue 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, you should note that if
one or more of the REITs we acquired in June 2003 did not qualify as a real
estate investment trust immediately prior to the consummation of the mergers, we
would be disqualified as a REIT as a result of the mergers.

As a result of our acquisition of 13 REITs, we may no longer qualify as a REIT.

      As a result of our acquisition of 13 REITs by merger in June 2003, we
might no longer qualify as a real estate investment trust under Section 856 of
the Internal Revenue Code of 1986, as amended. We could lose our ability to so
qualify for a variety of reasons relating to the nature of the assets acquired
from the acquired REITs, the identity of the shareholders of the acquired REITs
who became our shareholders, or the failure of one or more of the acquired REITs
to have previously qualified as a real estate investment trust.

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
equity shares of us, 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. Moreover, we will have the right to redeem any shares of common stock
that are acquired or transferred in violation of these provisions at the market
price, which is determined by our board of directors. In addition, 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 2004, 2005 and 2006, 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.


                                       8
<PAGE>

      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.

There is no public trading market for our securities.

      There is no public trading market for our common stock, and we cannot
assure you that any market will develop or that, if such a market develops,
there will be any liquidity in such a market for our common stock.


                                       9
<PAGE>

Item 2. Properties.

      Set forth below is information regarding our properties as of December 31,
2003:

<TABLE>
<CAPTION>
                              Sponsored
                              Entity                                        Percent          Approx.
                              Date of        Number        Approx.          Leased as        Number
Property Location             Purchase       of Units      Square Feet      of 12/31/03      of Tenants     Major Tenants(1)
-----------------             --------       --------      -----------      -----------      ----------     ----------------

<S>                            <C>             <C>           <C>            <C>                 <C>        <C>
3919 Essex Lane                 6/30/93        135           118,798        over 90%            135        None - Apts.
Houston, TX  77027

7250 Perkins Road              10/16/98        264           223,812        over 95%            264        None - Apts.
Baton Rouge, LA 70808

4000 Essex Lane                 7/28/00        210           187,338        over 90%            210        None - Apts.
Houston, TX  77027

22400 Westheimer Parkway,       4/24/02        228           231,363        over 90%            228        None - Apts.
Katy, Texas  77450

                                             --------      -----------
Total Apartments                               837           761,311
                                             --------      -----------

Office

451 Andover Street              6/1/96                       91,958         over 95%            40         Pentucket
North Andover, MA 01845                                                                                    Medical

1515 Mockingbird Lane           7/1/97                       110,612           77%              70         Primary Physicians
Charlotte, NC 28209                                                                                        Care

4995 Patrick Henry Dr.          12/1/97                      40,280           100%               1         Agere
Santa Clara, CA 95054

33 & 37 Villa Road              3/1/98                       143,840           42%              40         New Horizons
Greenville, SC 29615                                                                                       Computer

678-686 Hillview Drive          3/9/99                       36,288           100%               1         Headway
Milpitas, CA 95035                                                                                         Technologies

5751-5771 Copley Drive          3/12/99                      101,726          100%               4         XO, Nextel,
San Diego, CA 92111                                                                                        Allegiance. Aon Service
                                                                                                           Corp.& REVA Medical

600 Forest Point Circle         7/8/99                       61,291           100%               2         American Red Cross
Charlotte, NC  28273                                                                                       Cellco d/b/a Verizon

81 Blue Ravine                  9/27/99                      47,058            0%                0
Folsom, CA 95630

18000 W. Nine Mile Rd.          9/30/99                      212,558        over 90%             7         IBM
Southfield, Michigan 48075

11211 Taylor Draper Lane       12/29/99                      68,605            60%               8         CACI Technologies,
Austin, Texas 78759                                                                                        State Farm, Tiburon
</TABLE>


                                       10
<PAGE>

<TABLE>
<CAPTION>
                              Sponsored
                              Entity                                        Percent          Approx.
                              Date of        Number        Approx.          Leased as        Number
Property Location             Purchase       of Units      Square Feet      of 12/31/03      of Tenants     Major Tenants(1)
-----------------             --------       --------      -----------      -----------      ----------     ----------------

<S>                            <C>             <C>           <C>            <C>                 <C>        <C>
7130-7150 Columbia             12/20/99                      188,819        over 95%             7         Columbia National, Avnet,
Gateway Drive,                                                                                             EVI and Nextira
Columbia, MD 21046

10 Lyberty Way                  5/23/00                      104,711          100%               1         Lucent
Westford, MA 01886                                                                                         Technologies

17030 Goldentop Road            9/22/00                      141,405          100%               1         Northrop
San Diego, CA 92127                                                                                        Grumman

4820 & 4920 Centennial Blvd.    9/28/00                      110,730          100%               3         Hewlett-Packard
Colorado Springs, CO 80919                                                                                 Starkey Laboratories

14151 Park Meadow Drive         3/15/01                      134,849          100%               1         CACI, Inc.-Federal
Chantilly, VA 20151

1370 & 1390 Timberlake          5/24/01                      232,722        over 95%             3         Reinsurance Group
Manor Parkway,                                                                                             of America and AMDOCs
Chesterfield, MO 63017

501 & 505 South 336th Street    9/14/01                      117,227          100%               1         Weyerhaeuser Company
Federal Way, WA 98003

12902 Federal Systems Park      9/17/01                      210,993          100%               1         IBM
Drive, Fairfax, VA 22033

50 Northwest Point Rd.          12/5/01                      176,848          100%               1         Motorola
Elk Grove Village, IL 60005

1350 Timberlake Manor           3/4/02                       116,361        over 95%             8         Computer Associates,
Parkway                                                                                                    Quest Software, RGA,
Chesterfield, MO 63017                                                                                     Wachovia

2251 Corporate Park Ridge Dr.   5/23/02                      158,016          100%               2         Scitor Corporation
Herndon, VA 20171                                                                                          Juniper Networks, Inc.

16285 Park Ten Place            6/27/02                      155,715          100%               5         Mustang Engineering
Houston, Texas 77084                                                                                       & TMI aka Trendmaker
                                                                                                           Homes

                                                           -----------
Total Office                                                2,762,612
                                                           -----------
</TABLE>


                                       11
<PAGE>

<TABLE>
<CAPTION>
                              Sponsored
                              Entity                                        Percent          Approx.
                              Date of        Number        Approx.          Leased as        Number
Property Location             Purchase       of Units      Square Feet      of 12/31/03      of Tenants     Major Tenants(1)
-----------------             --------       --------      -----------      -----------      ----------     ----------------

<S>                              <C>           <C>         <C>                <C>               <C>        <C>
Industrial

One Technology Dr.               1982                        188,000          100%               1         Alliant Foodservice
Peabody, MA 01960

8730 Bollman Place               1984                        98,745           100%               1         Maines Paper and
Savage (Jessup), MD 20794                                                                                  Foodservice, Inc.

                                                           -----------
Total Industrial                                             286,745
                                                           -----------

                                             --------      -----------
Grand Total                                    837          3,810,668
                                             ========      ===========
</TABLE>

----------
(1)   Major tenants are tenants who occupy 10% or more of the space in an
      individual property.

      All of the properties listed above are owned by us. None of our properties
is subject to any mortgage loans. We have no material undeveloped or unimproved
properties, and we have no proposed programs for the renovation, improvement or
development of any of our properties. We believe that our properties are
adequately covered by insurance as of December 31, 2003.

Item 3. 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 the our financial
position, cash flows or results of operations.

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

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

Item 4A. Executive Officers of FSP Corp.

      The following table sets forth the names, ages and positions of all our
directors and executive officers.

            Name                         Age                Position
            ----                         ---                --------

George J. Carter (5)                     55     President, Chief Executive
                                                Officer and Director
Barbara J. Corinha (1), (2), (4), (6)    48     Vice President, Chief Operating
                                                Officer, Treasurer, Secretary
                                                and Director
R. Scott MacPhee                         46     Executive Vice President
Richard R. Norris (5)                    60     Executive Vice President and
                                                Director
William W. Gribbell                      44     Executive Vice President
Janet Prier Notopoulos (1), (3)          56     Vice President and Director


                                       12
<PAGE>

----------
(1)   Member of the Audit Committee
(2)   Member of the Compensation Committee
(3)   Class I Director
(4)   Class II Director
(5)   Class III Director
(6)   Ms. Corinha is responsible for FSP Corp.'s accounting and financial
      reporting functions.

      George J. Carter, age 55, is President, Chief Executive Officer and a
Director of FSP Corp. and is responsible for all aspects of the business of FSP
Corp. and its affiliates, with special emphasis on the evaluation, acquisition
and structuring of real estate investments. Prior to the Conversion, he was
President of the General Partner and was responsible for all aspects of the
business of the FSP Partnership and its affiliates. From 1992 through 1996 he
was President of Boston Financial Securities, Inc. ("Boston Financial"). Prior
to joining Boston Financial, Mr. Carter was owner and developer of Gloucester
Dry Dock, a commercial shipyard in Gloucester, Massachusetts. From 1979 to 1988,
Mr. Carter served as Managing Director in charge of marketing of First Winthrop
Corporation, a national real estate and investment banking firm headquartered in
Boston, Massachusetts. Prior to that, he held a number of positions in the
brokerage industry including those with Merrill Lynch & Co. and Loeb Rhodes &
Co. Mr. Carter is a graduate of the University of Miami (B.S.). Mr. Carter is a
NASD General Securities Principal (Series 24) and holds a NASD Series 7 general
securities license.

      Barbara J. Corinha, age 48, is the Vice President, Chief Operating
Officer, Treasurer, Secretary and a Director of FSP Corp. In addition, Ms.
Corinha has as her primary responsibility, together with Mr. Carter, the
management of all operating business affairs of FSP Corp. and its affiliates.
Ms. Corinha is also responsible for FSP Corp.'s accounting and financial
reporting functions. Prior to the Conversion, Ms. Corinha was the Vice
President, Chief Operating Officer, Treasurer and Secretary of the General
Partner. From 1993 through 1996, she was Director of Operations for the private
placement division of Boston Financial. Prior to joining Boston Financial, Ms.
Corinha served as Director of Operations for Schuparra Securities Corp. and as
the Sales Administrator for Weston Financial Group. From 1979 through 1986, Ms.
Corinha worked at First Winthrop Corporation in administrative and management
capacities; including Office Manager, Securities Operations and Partnership
Administration. Ms. Corinha attended Northeastern University and the New York
Institute of Finance. Ms. Corinha is a NASD General Securities Principal (Series
24). She also holds other NASD supervisory licenses including Series 4 and
Series 53, and a NASD Series 7 general securities license.

      R. Scott MacPhee, age 46, is an Executive Vice President of FSP Corp. and
has as his primary responsibility the direct equity placement of the Sponsored
Entities. Prior to the Conversion, Mr. MacPhee was an Executive Vice President
of the General Partner. From 1993 through 1996 he was an executive officer of
Boston Financial. From 1985 to 1993 Mr. MacPhee worked at Winthrop Financial
Associates. Mr. MacPhee attended American International College. Mr. MacPhee
holds a NASD Series 7 general securities license.

      Richard R. Norris, age 60, is an Executive Vice President and a Director
of FSP Corp. and has as his primary responsibility the direct equity placement
of the Sponsored Entities. Prior to the Conversion, Mr. Norris was an Executive
Vice President of the General Partner. From 1993 through 1996 he was an
executive officer of Boston Financial. From 1983 to 1993 Mr. Norris worked at
Winthrop Financial Associates. Prior to that, he worked at Arthur Young &
Company (subsequently named Ernst & Young through a merger). Mr. Norris is a
graduate of Bowdoin College (B.A.) and Northeastern University (M.S.). Mr.
Norris holds a NASD Series 7 general securities license.

      William W. Gribbell, age 44, is an Executive Vice President of FSP Corp.
and has as his primary responsibility the direct equity placement of the
Sponsored Entities. Prior to the Conversion, Mr. Gribbell was an Executive Vice
President of the General Partner. From 1993 through 1996 he was an executive
officer of Boston Financial. From 1989 to 1993 Mr. Gribbell worked at Winthrop
Financial Associates. Mr. Gribbell is a graduate of Boston University (B.A.).
Mr. Gribbell holds a NASD Series 7 general securities license.

      Janet Prier Notopoulos, age 56, is a Vice President and a Director of FSP
Corp. and President of FSP Property Management and has as her primary
responsibility the oversight of the management of the real estate assets of FSP
Corp. and its affiliates. Prior to the Conversion, Ms. Notopoulos was a Vice


                                       13
<PAGE>

President of the General Partner. Prior to joining the FSP Partnership in 1997,
Ms. Notopoulos was a real estate and marketing consultant for various clients.
From 1975 to 1983, she was Vice President of North Coast Properties, Inc., a
Boston real estate investment company. Between 1969 and 1973, she was a real
estate paralegal at Goodwin, Procter & Hoar. Ms. Notopoulos is a graduate of
Wellesley College (B.A.) and the Harvard School of Business Administration
(M.B.A).

      Each of the above executive officers has been a full-time employee of FSP
Corp. or its predecessor for the past five fiscal years.

      There are no family relationships among any of the executive officers and
directors.


                                       14
<PAGE>

PART II

Item 5. Market For Registrant's Common Equity and Related Stockholder Matters.

      There is no established public trading market for our common stock. The
fair market value of our common stock as determined by our board of directors
was $16.45 per share as of December 31, 2003.

      As of March 10, 2004, there were 1,416 holders of record of our common
stock. This computation is based upon the number of record holders reflected in
our corporate records.

      We have declared a dividend of $0.31 per share of our common stock payable
to stockholders of record as of February 6, 2004. Set forth below are the
distributions per Unit made by the FSP Partnership or dividends per share of
common stock made FSP Corp., as the case may be, made in each quarter since the
quarter ended March 31, 2001.

                                      Distribution Amount Per Unit of
                                    FSP Partnership or Dividend Amount
                                               Per Share of
                Quarter Ended            Common Stock of FSP Corp.
                -------------            -------------------------

                   3/31/01                         $0.27
                   6/30/01                         $0.28
                   9/30/01                         $0.29
                   12/31/01                        $0.30
                   3/31/02                         $0.31
                   6/30/02                         $0.31
                   9/30/02                         $0.31
                   12/31/02                        $0.31
                   3/31/03                         $0.31
                   6/30/03                         $0.31
                   9/30/03                         $0.31
                   12/31/03                        $0.43*
                   3/31/04                         $0.31
           *Included a special dividend of $0.12 per share.

      While not guaranteed, we expect that cash dividends on our common stock
comparable to our most recent quarterly dividend will continue to be paid in the
future.


                                       15
<PAGE>

Item 6. Selected Financial and Other Data.

      The following selected financial information is derived from the
historical consolidated financial statements of the FSP Partnership and FSP
Corp. This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7 and with the FSP Partnership's and FSP Corp.'s consolidated financial
statements and related notes thereto included in Item 8.

                                           Year Ended December 31,
                                -----------------------------------------------
                                  2003      2002      2001      2000      1999
                                -------   -------   -------   -------   -------
(In thousands, except per
share or unit amounts)

Operating Data:
Total revenue                   $83,768   $53,950   $51,955   $32,793   $15,534
Income from:
  Continuing operations          39,823    26,741    24,621     8,171       406
  Discontinued operations           195       571       747       743       733
  Gain on sale of properties      6,362        --        --        --        --
                                -------   -------   -------   -------   -------
  Net income                     46,380    27,312    25,368     8,914     1,139

Basic and diluted income per
share and per limited and
general partnership unit
from:
  Continuing operations            1.02      1.09      1.00      0.43      0.03
  Discontinued operations            --      0.02      0.03      0.04      0.06
  Gain on sale of properties       0.16        --        --        --        --
                                -------   -------   -------   -------   -------
  Total                            1.18      1.11      1.03      0.47      0.09

Distributions declared per
unit/share outstanding (1)
from:
  Operations                       1.24      1.24      1.18      1.02      0.86
  Sale of properties               0.12        --        --        --        --
                                -------   -------   -------   -------   -------
  Total                            1.36      1.24      1.18      1.02      0.86

                                               As of December 31,
                                ------------------------------------------------
                                  2003      2002      2001      2000      1999
                                --------  --------  --------  --------  --------
Balance Sheet Data
(at period end):
Total assets                    $528,529  $201,936  $204,117  $219,923  $190,486
Total liabilities                 11,674     4,771     4,354    19,280    28,821
Minority interests in
consolidated entities                 --        --        --        63    78,090
Total shareholders'/partners'
  capital                        516,855   197,165   199,763   200,580    83,575

(1)   As a result of the conversion of the FSP Partnership into FSP Corp., each
      unit in the FSP Partnership was converted into one share of common stock
      in FSP Corp.

      The 2003 financial statements reflect the merger of 13 Sponsored REITs.
Prior to the merger, FSP Corp. held a non-controlling interest with virtually no
economic benefits or risks in the Target REITs.


                                       16
<PAGE>

Item 7. Management's Discussion And Analysis Of Financial Condition And Results
        Of Operations.

      The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report. Historical
results and percentage relationships set forth in the 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 annual report on Form 10-K may also contain forward-looking
statements based on current judgments and current knowledge of management, which
are subject to certain risks, trends and uncertainties that could cause actual
results to differ materially from those indicated in such forward-looking
statements. Accordingly, readers are cautioned not to place undue reliance on
forward-looking statements. Investors are cautioned that our forward-looking
statements involve risks and uncertainty, including without limitation 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 "Risk Factors" in
Item 1A. 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 will not update any of the
forward-looking statements after the date this annual report on Form 10-K is
filed to conform them to actual results or to changes in our expectations that
occur after such date, other than as required by law.

Overview

      FSP Corp. 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
and asset/property management services. 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 of real estate on behalf of Sponsored REITs and the syndication of
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
have no influence on the national market conditions. We look to acquire quality
properties in good locations in order to lessen the impact of 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
customer's risk/reward profile for providing a stream of income and as a
long-term hedge against inflation.

Trends and Uncertainties

      Real Estate Operations

      The most significant events in 2003 for the real estate portfolio were our
acquisition by merger of 13 new properties in June and the sale of two of our
Houston apartment properties, Weslayan and Reata, in February and August,
respectively. As a result of these dispositions and acquisitions, our Houston
residential component holdings now include newer buildings with a greater number
of units per project, which we expect will produce operating efficiencies. The
properties sold were built in 1985 and 1994 and contained 84 and 159 units; the
two new apartment properties acquired were built in 1999 and 2000 and contain
210 and 228 units. In general, the office properties which we acquired in the
mergers are also newer and larger than those we held prior to the mergers, and
have leases expiring later than did those properties in the portfolio prior to
the mergers. As a result of these acquisitions, our real estate portfolio is
more diverse not only in geography, but also by property size, lease size, and
lease expiration year.


                                       17
<PAGE>

      The portfolio was 90% leased at the end of the fourth quarter. During
2003, vacancies increased in our Greenville, South Carolina property due to the
bankruptcies of both Home Gold and Conseco, and in our Austin, Texas property,
where Columbia Universal Life was acquired by Allstate Insurance and did not
renew its lease at its expiration. Both the Greenville, South Carolina and the
Austin, Texas office markets continue to be weak in 2004. In addition to the
Greenville and Austin vacancies, there was the equivalent of one full building
vacant throughout 2003. During the first six months, all of Bollman Place in
Savage, Maryland was vacant until it was relet in July. The single tenant lease
at Blue Ravine in Folsom, California expired June 30, 2003, and the building
remains vacant. In spite of tough market conditions in other office markets,
occupancy was maintained or improved at the other multi-tenant office buildings,
and each apartment building remained over 90% leased.

      It is difficult for management to predict what will happen to occupancy or
rents in 2004, because the need for space and the price tenants are willing to
pay are tied to the larger trends in the economy, such as job growth, interest
rates, and corporate earnings, which in turn are tied to even larger
macroeconomic and political factors, such as the risk of war and terrorism. In
addition to the difficulty of predicting macroeconomic factors, it is difficult
to predict which markets, projects, or tenants will suffer or benefit from
changes in the larger economy. Because our properties are in different
geographical sub-markets and our tenants are in diverse industries, these
macroeconomic trends may have a different effect on different properties.

      We have begun to see an increase in showings and leasing activity in many
of our office markets during the first two months of 2004. If the trend
continues and there are no further shocks to the economy, we expect there may be
some decrease in vacancy rates in 2004. However, we expect that there will be a
continued decline in rental rates in 2004 as landlords compete on rent to fill
vacancies. Competition for tenants may increase our costs of brokerage
commissions and tenant improvements, as well as our need to invest in services
and amenities to retain tenants, and we expect that trend will continue in 2004.

      Less than 10% of the office leases in our real estate portfolio expire in
2004. One full building lease has already been renewed, and we have begun
negotiations with several of the other tenants who have expressed interest in
renewing their leases. We cannot predict if these tenants will stay or what the
terms and conditions of any lease renewals will be. In addition to scheduled
lease expirations, vacancies may occur in 2004 as a result of tenant
bankruptcies or defaults, or because we and our tenants find it mutually
advantageous to negotiate early terminations for all or part of the leased
space. A partial lease termination was signed in February 2004 for the release
of approximately 31,000 square feet, which was not scheduled to expire in 2004,
in exchange for a cash payment of $1,228,000.

      The market for Class A apartments in the Houston area (where we currently
own three apartment complexes) in 2004 is expected to be difficult because of
new units that have come on the market. As long as new units continue to be
built and interest rates remain low, we expect the competition from other
apartment complexes and home buying to keep rents and occupancy down.

      While many of our properties have received or are expected to receive real
estate tax abatements, this did not result in a significant decrease in our
operating expenses in 2003, nor do we expect to see any decrease in operating
expenses in 2004. We have seen energy prices increase, especially in deregulated
markets, and although insurance rates appear to be stabilizing in the broader
market, our policies renew in April, and we do not know at this time how our
portfolio will be priced or what limits will be available.

      The Texas Department of Transportation took land for the expansion of
Interstate 10 from the Park Ten office property in Houston. The proceeds of the
taking are shown as land sales in 2003, because the money was received in 2003.
However, we are protesting the settlement amount on a contingency basis.

      Discontinued Operations

      We sold two apartment properties in Houston in 2003. We continue to
evaluate our portfolio, and from time to time may decide to dispose of
additional properties in the ordinary course of business.


                                       18
<PAGE>

      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 2003
were below our expectations. Future business in this area is unpredictable.

      Our property acquisition executives are concerned about high valuation
levels for prime commercial investment real estate in 2004. It appears that a
combination of factors, including low interest rates, a recovering general
economy and increased capital allocation to real estate assets are increasing
prices on many properties we would have an interest in acquiring. This price
push is causing capitalization rates to fall and prices per square foot to rise.
Specifically, our acquisition executives fear that we will not be able to
purchase enough property during 2004 at a price acceptable under our investment
criteria to grow our overall investment banking/investment services business. If
so, lower revenues from this business could reduce the cash available for
distribution to stockholders as dividends. However, the same capital market
forces that are causing higher real estate prices and difficulties in achieving
property acquisition goals are also presenting some appealing opportunities for
the dispositions of certain of our assets. Although our general intention is to
hold our properties for long-term appreciation, if opportunities present
themselves that are sufficiently attractive, we may take advantage of the
current market environment in 2004 and sell certain selected real estate assets.
The sale of these assets could generate cash gains available for distribution to
shareholders as dividends.

      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).
While we continue to expand our in-house sales force, uncertainties always exist
as to whether we are capable, either through our existing client base or through
new clients, of raising the amount of capital invested in Sponsored REITs to
achieve future performance objectives.

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 below.

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

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

o     assessment of the carrying values and impairments of long lived assets;

o     classification of leases; and

o     revenue recognition in the syndication of Sponsored REITs.


                                       19
<PAGE>

      Allocation of Purchase Price

      We have historically allocated the purchase prices of properties to land,
buildings and improvements. Each component of purchase price generally has a
different useful life. For properties acquired subsequent to June 1, 2001, the
effective date of Statement of Financial Accounting Standards ("SFAS") No. 141
"Business Combinations," we allocate the value of real estate acquired among
land, buildings, improvements and identified intangible assets and liabilities,
which may consist of the value of above market and below market leases, the
value of in-place leases, and the value of tenant relationships. Purchase price
allocations and the determination of the useful lives are based on management's
estimates. Under some circumstances we may rely upon studies commissioned from
independent real estate appraisal firms.

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

      Depreciation Expense

      We compute depreciation expense using the straight-line method over
estimated useful lives of up to 40 years for buildings and improvements, and up
to 15 years for personal property. The allocated cost of land is not
depreciated. The capitalized above-market lease values (included in Acquired
real estate leases in our Consolidated Balance Sheets) are amortized as a
reduction to rental income over the remaining non-cancelable terms of the
respective leases. We do not have any capitalized below-market leases. The value
of in-place leases, exclusive of the value of above-market and below-market
in-place leases, is amortized over the remaining non-cancelable periods of the
respective leases. If a lease is terminated prior to its stated expiration, all
unamortized amounts relating to that lease are written off. Inappropriate
allocation of acquisition costs, or incorrect estimates of useful lives, could
result in depreciation and amortization expenses which do not appropriately
reflect the allocation of our capital expenditures over future periods, as is
required by generally accepted accounting principles.

      Impairment

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


                                       20
<PAGE>

      Lease Classification

      Some of our real estate properties are leased on a triple net basis,
pursuant to non-cancelable, fixed term, operating leases. Each time we enter a
new lease or materially modify an existing lease we evaluate whether it is
appropriately classified as a capital lease or as an operating lease. The
classification of a lease as capital or operating affects the carrying value of
a property, as well as our recognition of rental payments as revenue. These
evaluations require us to make estimates of, among other things, the remaining
useful life and market value of a property, discount rates and future cash
flows. Incorrect assumptions or estimates may result in misclassification of our
leases.

      Revenue recognition

      We earn syndication and transaction fees in connection with the
syndication of Sponsored REITs. This revenue is recognized pursuant to the
provisions of SFAS No. 66 "Accounting for Sales of Real Estate," and Statement
of Position 92-1 "Accounting for Real Estate Syndication Income." Revenue is
recognized provided the criteria for sale accounting in SFAS No. 66 are met.
Accordingly, we recognize syndication fees related to commissions when shares of
the Sponsored REIT are sold and the investor's funds have been transferred from
escrow into our account. We recognize transaction fees related to loan
commitment fees upon an investor closing and the subsequent payment of the
Sponsored REIT's loan to the Company. Other transaction fees are recognized upon
the final syndication of the Sponsored REIT.

      Ownership of Stock in a Sponsored REIT

      We typically retain a common stock ownership in a Sponsored REIT following
syndication, and earn an ongoing asset and/or property management fee.
Accordingly, transaction fee revenue and our share of the operations of these
Sponsored REITs are not classified as discontinued operations due to its
continuing involvement.

      These policies involve significant judgments made based upon our
experience, including judgments about current valuations, ultimate realizable
value, estimated useful lives, salvage or residual value, the ability of our
tenants to perform their obligations to us, current and future economic
conditions and competitive factors in the markets in which our properties are
located. Recent declines in our occupancy percentages at some of our properties
reflect current economic conditions and competition. Competition, economic
conditions and other factors may cause additional occupancy declines in the
future. In the future we may need to revise our carrying value assessments to
incorporate information which is not now known and such revisions could increase
or decrease our depreciation expense related to properties we own, result in the
classification of our leases as other than operating leases or decrease the
carrying values of our assets.

Recent Accounting Standards

      In April 2002, the FASB issued SFAS No. 145 "Rescission of FAS Nos. 4, 44,
and 64, Amendment of FAS 13, and Technical Corrections." This Statement rescinds
FASB No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an
amendment of that Statement, FASB No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements." This Statement amends FASB No. 13,
"Accounting for Leases." This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings or
describe their applicability under changed conditions. This statement was
effective for our fiscal year ended December 31, 2003 and the adoption had no
impact on our financial position, results of operations and cash flows.

      In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." This statement was effective
January 1, 2003. SFAS No. 146 replaces current accounting literature and
requires the recognition of costs associated with exit or disposal activities
when they are incurred rather than at the date of a commitment to an exit or
disposal plan. FAS No. 146 supersedes Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity," which in some cases required certain costs to be
recognized before a liability was actually incurred. The adoption of this
standard did not have a material impact on financial position, results of
operations or cash flow.


                                       21
<PAGE>

      In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities. In December 2003, the FASB revised
FIN 46 with certain modifications and clarifications. The objective of this
interpretation is to provide guidance on how to identify a variable interest
entity ("VIE") and determine when the assets, liabilities, non-controlling
interests, and results of operations of a VIE need to be included in a company's
consolidated financial statements. A VIE exists when either the total equity
investment at risk is not sufficient to permit the entity to finance its
activities by itself, or the equity investors lack one of three characteristics
associated with owning a controlling financial interest. Application of this
guidance was effective for interests in certain VIEs commonly referred to as
special-purpose entities (SPEs) as of December 31, 2003. The provisions of this
interpretation became effective upon issuance. The adoption of this standard did
not have a material impact on the Company's financial position, operations or
cash flow.

Results of Operations

      The following table shows the variance in dollars for our operations for
years ended December 31, 2003 and 2002 and the years ended December 31, 2002 and
2001.

                                                     Variance in Dollars
(in thousands)                                 For the Year Ended December 31,
                                              2003 and 2002       2002 and 2001
                                              ---------------------------------
Revenue
   Rental revenue
   Rental income                                  $ 24,979             $   732
   Transaction fees                                  1,247               2,462
   Sponsored REIT income                             2,065                 527
   Other                                               209                (374)
                                             ---------------------------------
      Total real estate revenue                     28,500               3,347
                                             ---------------------------------
   Investment banking/investment
     services revenue
   Syndication fees                                    911                 720
   Transaction fees                                    407              (2,072)
   Other                                                --                  --
                                             ---------------------------------
      Total investment
        banking/investment
        services revenue                             1,318              (1,352)
                                             ---------------------------------

      Total Revenue                                 29,818               1,995
                                             ---------------------------------

Expenses
   Real estate expenses
   Rental operating expenses                         4,992                (651)
   Real estate taxes and insurance                   3,625                 197
   Depreciation and amortization                     4,938                  85
   Selling, general and administrative                 (45)               (253)
   Sponsored REIT expenses                           1,752                 263
   Interest                                            142                  76
                                             ---------------------------------
      Total real estate expenses                    15,404                (283)
                                             ---------------------------------

   Investment banking/investment
     services expenses
   Selling, general and administrative                 662                 118
   Commissions                                         467                 299
   Depreciation and amortization                      (113)                 98
   Shares/units issued as compensation                (604)             (1,140)
                                             ---------------------------------
      Total investment                                 412                (625)
        banking/investment
        services expenses
                                             ---------------------------------

      Total expenses                                15,816                (908)
                                             ---------------------------------


                                       22
<PAGE>

                                                     Variance in Dollars
(in thousands)                                 For the Year Ended December 31,
                                              2003 and 2002       2002 and 2001
                                              ---------------------------------
Income before minority interests                    14,002               2,903
Income applicable to minority interests                 --                 (40)
Income before interest and taxes                    14,002               2,943
Interest income                                         81                (124)
Income before taxes                                 14,083               2,819
Taxes on income                                      1,001                 699
                                             ---------------------------------
Income from continuing operations                   13,082               2,120

Income from discontinued operations                   (376)               (176)
Income before gain on sale of properties            12,706               1,944
Gain on sale of properties                           6,362                  --
                                             ---------------------------------
Net income                                        $ 19,068             $ 1,944
                                             =================================

Comparison of the year ended December 31, 2003 to the year ended
December 31, 2002

      On June 1, 2003, we completed the acquisition by merger of 13 Sponsored
REITs, which more than doubled the size of our real estate operations. Increases
in rental revenues and expenses are primarily a result of this merger. We also
sold two properties in 2003. The results of operations for these two properties
are shown as discontinued operations. We owned 15 properties for a full year
and, as a result of the mergers, 13 properties for seven months in 2003. The
results of operations for 2002 have been adjusted to reflect the sale of two
properties in 2003.

      Our investment banking/investment services segment syndicated five
Sponsored REITs with total gross proceeds of $231.8 million in 2003; an increase
of $21.7 million compared to six Sponsored REITs syndicated in 2002 with total
gross proceeds of $210.1 million. Revenues and expenses for investment
banking/investment services are directly related to the gross proceeds of these
syndications.

      Revenue

      Total revenues increased $29.8 million, or 55%, to $83.8 million for the
year ended December 31, 2003, as compared to $54.0 million for the year ended
December 31, 2002.

      Income from real estate operations was $67.7 million for the year ended
December 31, 2003; an increase of $28.5 million, or 73%, compared to the year
ended December 31, 2002. The increase is attributable to:

      o     An increase in rental revenue of $25.0 million relating to the 13
            REITs acquired in 2003.

      o     An increase in transaction (loan commitment) fees of $1.2 million
            relating to the increase in gross syndication proceeds.

      o     An increase of $2.1 million in Sponsored REIT income relating to the
            revenues of the Sponsored REITs prior to syndication. The average
            property syndicated in 2003 was approximately $46 million compared
            to $35 million in 2002. As a result, the Company's proportionate
            share of income and expenses increased in 2003. See Off-Balance
            Sheet Arrangements, below, for additional discussion of the
            calculation of FSP Corp.'s share of income and expenses in Sponsored
            REITs.

      The increase was offset by a decrease due to vacancies at four properties
aggregating $1.2 million, partially offset by rent increases in the remaining
properties of $0.5 million.

      Investment banking/investment services revenue was $16.0 million for the
year ended December 31, 2003; an increase of $1.3 million, or 8.9%, compared to
the year ended December 31, 2002. This increase is attributable to the increase
in gross syndication proceeds as discussed above.


                                       23
<PAGE>

      Expenses

      Total expenses were $42.6 million for the year ended December 31, 2003; an
increase of $15.8 million, or 59%, compared to the year ended December 31, 2002.

      Expenses for real estate operations were $30.6 million for the year ended
December 31, 2003, an increase of $15.4 million, or 101%, compared to the year
ended December 31, 2002. The increase is attributable to:

      o     An increase in expenses for real estate operations of $13.6 million
            attributable to the 13 REITs acquired in 2003.

      o     An increase in Sponsored REIT expenses of $1.8 million attributable
            to increased syndication activity.

      Expenses for investment banking/investment services were $12.0 million for
the year ended December 31, 2003, a net increase of $0.4 million, or 3.6%,
compared to the year ended December 31, 2002. The increase is attributable to:

      o     An increase in commission expense of $0.5 million which is directly
            related to the increase in syndication proceeds.

      o     An increase in general and administrative expenses of $0.7 million
            which is primarily increased compensation as a result of higher
            personnel during the year and merit salary increases.

      The decrease was offset by:

      o     Expenses related to shares issued as compensation of $0.6 million in
            2002; no shares were issued as compensation in 2003

      Taxes on income were $1.7 million for the year ended December 31, 2003, a
net increase of $1.0 million or 140% compared to the year ended December 31,
2002. The tax rate for 2003 on the taxable REIT subsidiary was approximately 41%
compared to the tax rate for 2002 of approximately 22%. The 2002 rate included
certain benefits that will not occur in the future. We expect a tax rate of
approximately 41% for our taxable REIT subsidiary in the future.

Comparison of the year ended December 31, 2002 to the year ended
December 31, 2001

      We syndicated six Sponsored REITs with total gross proceeds of $210.1
million in 2002; an increase of $7.0 million compared to six Sponsored REITs
syndicated in 2001 with total gross proceeds of $203.1 million. In 2002, we
restructured the fees charged to the Sponsored REITs in order to better match
revenue with associated costs and risks. Loan commitment fees were increased
approximately 2%, which was off set by a corresponding decrease in acquisition
and organization fees. We owned seventeen properties in both years. The results
of operations for 2002 and 2001 have been adjusted to reflect the sale of two
properties in 2003.

      Revenue

      Total revenues increased $2.0 million, or 3.8%, to $54.0 million for the
year ended December 31, 2002, as compared to $52.0 million for the year ended
December 31, 2001.

      Income from real estate operations was $39.2 million for the year ended
December 31, 2002, an increase of $3.3 million, or 9.3%, compared to the year
ended December 31, 2001. The increase is attributable to:

      o     An increase in straight-line rent revenue of $0.9 million, relating
            to new or renewed leases during the year;

      o     An increase in reimbursable expenses of $0.5 million;


                                       24
<PAGE>

      o     An increase of $0.5 million in Sponsored REIT income relating to the
            revenues of the Sponsored REITs prior to syndication;

      o     An increase in transaction (loan commitment) fees of $2.5 million as
            a result of the volume and fee increases noted above.

      The increase was offset by:

      o     A decrease in income from leases of $0.7 million as a result of a
            rental allowance of $0.9 million given to a tenant as part of a
            lease extension, partially offset by a net increase of $0.2 million
            in rents (less vacancies) in the remaining properties;

      o     A decrease in other lease income of $0.1 million;

      o     A decrease of $0.4 million in interest and other income primarily
            due to lower interest rates in 2002.

      Investment banking/investment services revenue (Syndication fees and
Transaction fees) was $16.1 million for the year ended December 31, 2002; a
decrease of $1.3 million, or 8.4%, compared to the year ended December 31, 2001.
This decrease is attributable to:

      o     An increase in syndication fees of $0.7 million as a result of an
            increase of $7 million of gross proceeds from offerings of the
            Sponsored REITs; and

      o     A decrease of transaction fees of $2.1 million primarily due to the
            fee restructure described above.

      Expenses

      Total expenses were $26.8 million for the year ended December 31, 2002, a
decrease of $0.9 million, or 3.2%, compared to the year ended December 31, 2001.

      Expenses for real estate operations were $15.5 million for the year ended
December 31, 2002, a net decrease of $0.3 million, or 1.8%, compared to the year
ended December 31, 2001. The decrease is attributable to:

      o     A decrease in rental operating expenses of $0.6 million primarily
            attributable to costs associated with leasing activity in 2001 that
            did not repeat in 2002; and

      o     A decrease in general and administrative expenses of $0.2 million,
            primarily attributable to reduced professional fees allocated to
            real estate operations.

      The decrease was offset by:

      o     An increase in real estate taxes and insurance of $0.3 million, as a
            result of tax rate increases on the existing properties and
            increases in the price and difficulty of obtaining insurance; and

      o     An increase in Sponsored REIT expenses of $0.3 million primarily as
            a result of increased syndications in 2002 compared with 2001.

      There were no significant changes to depreciation and amortization expense
or interest expense related to real estate operations.

      Expenses for investment banking/investment services were $12.2 million for
the year ended December 31, 2002, a net decrease of $0.6 million, or 5.1%,
compared to the year ended December 31, 2001. The decrease is attributable to a
decrease in expenses relating to shares/units issued as compensation of $1.1
million.


                                       25
<PAGE>

      The decrease was offset by:

      o     An increase in selling and administrative expenses of $0.1 million,
            primarily attributable to the increase in syndication proceeds in
            2002;

      o     An increase in commission expense $0.3 million, attributable to the
            increase in syndication proceeds in 2002; and

      o     An increase in depreciation and amortization expense of $0.1
            million.

      There was no income applicable to minority interests in 2002.

      There was no tax on income in 2001. The tax rate for 2002 on the taxable
REIT subsidiary was approximately 22%.

Liquidity and Capital Resources

      Cash and cash equivalents were $58.8 million and $22.3 million at December
31, 2003 and December 31, 2002, respectively. This increase of $36.4 million is
attributable to $39.4 million provided by operating activities, plus $39.7
million provided by investing activities offset by $42.6 million used for
financing activities. Management believes that existing cash, cash anticipated
to be generated internally by operations, cash anticipated to be generated by
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 for at least the next 12 months.

      Operating Activities

      The cash provided by our operating activities of $39.4 million is
primarily attributable to net income of $46.4 million plus the add-back of $3.3
million of non-cash activity. This was offset by a net decrease in operating
assets of $10.4 million, primarily related to approximately $11 million of
accounts payable and accrued expenses assumed by us when we acquired the 13
REITs.

      Investing Activities

      Our cash provided by investing activities of $39.7 million is attributable
to $23.5 million of cash acquired when we acquired the 13 REITs, plus $21.9
million in proceeds received from the sale of real estate assets. We used $2.4
million to acquire or improve real estate assets and office computers and
another $4.1 million as the balance of assets held for syndication.

      Financing Activities

      Our cash used by financing activities of $42.6 million is attributable to
$46.7 million of distributions to shareholders offset by borrowing of $4.1
million used to acquire assets held for syndication.

      Line of Credit

      We have a revolving line of credit agreement with a group of banks
providing for borrowings of up to $125.0 million. Borrowings under the line of
credit bear interest at either the bank's base rate or a variable LIBOR rate, as
defined. Borrowings by us outstanding under the line of credit at December 31,
2003 were $4.1 million. We are in compliance with all bank covenants required by
this line of credit. The maturity date of the line of credit is August 18, 2005.


                                       26
<PAGE>

      Rental Income Commitments

      Our commercial real estate operations include the leasing of office
buildings and industrial properties subject to leases with terms greater than
one year. The leases thereon expire at various dates through 2012. Approximate
future minimum rental income on non-cancelable operating leases as of December
31, 2003 are:

                                          Amount
                      Date            (in thousands)
                      ----            --------------
                      2004                $51,075
                      2005                $41,701
                      2006                $35,624
                      2007                $29,579
                      2008                $27,626
                    2009-2012             $44,374

Contractual Obligations

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                              Payment due by period
                                                                 (in thousands)
                                   -------------------------------------------------------------------------------
                                                                                                          After
     Contractual Obligations          Total         2004      2005        2006       2007       2008       2008
------------------------------------------------------------------------------------------------------------------
<S>                                   <C>          <C>         <C>         <C>        <C>       <C>          <C>
Line of Credit                        $4,117       $4,117        $0          $0         $0        $0         $0
------------------------------------------------------------------------------------------------------------------
Operating Leases                      $1,376         $289      $295        $302       $308      $182         $0
                                      ------       ------      ----        ----       ----      ----        ---
------------------------------------------------------------------------------------------------------------------
Total                                 $5,493       $4,406      $295        $302       $308      $182         $0
------------------------------------------------------------------------------------------------------------------
</TABLE>

      The operating leases in the table above consist of our lease of corporate
office space, which was amended in 2003. The lease includes a base annual rent
and additional rent for our share of taxes and operating costs.

Off-Balance Sheet Arrangements

      Our interest in a Sponsored REIT declines during the syndication process
as we sell shares of preferred stock in the Sponsored REIT to investors. We
record our share of the Sponsored REIT's income and expenses while we have an
ownership stake in the Sponsored REIT as Sponsored REIT income and Sponsored
REIT expenses. Our share of net income in the Sponsored REITs was $832,000,
$519,000, and $255,000, for the years ended December 31, 2003, 2002 and 2001,
respectively. Subsequent to the completion of the offering of the preferred
shares in Sponsored REITs during these three years, we did not share in any of
the Sponsored REITs' earnings.

      We typically retain a minimal common stock ownership interest in Sponsored
REITs that we have organized and syndicated. During 2003, 2002 and 2001, we
retained common stock ownership interests in eight, sixteen, and ten Sponsored
REITs, respectively. Our cost of investment in these Sponsored REITs
approximates our share of the underlying equity in the net assets of the REITs.
This value is typically minimal after the Sponsored REIT is completely
syndicated. However, we had completed the syndication of only seven of the eight
Sponsored REITs in which we retained ownership interests as of December 31,
2003. The value of our holdings in the one Sponsored REIT that was not
completely syndicated is approximately $4.1 million and is shown on the balance
sheet as Assets held for syndication.

      Each Sponsored REIT was organized to acquire real estate property using
the proceeds raised through a private offering of its preferred stock. The
Sponsored REITs have not obtained and do not contemplate obtaining any long-term
financing. The Sponsored REITs issued both common stock and preferred stock. The
common stock is ultimately owned solely by FSP Corp. and, except for two
non-management directors of FSP Corp., the preferred stock is owned by
unaffiliated investors. Following consummation of the offerings, the preferred
stockholders in each of the Sponsored REITs are entitled to 100% of the
Sponsored REIT's cash distributions. As a common stockholder, we have no rights
to the Sponsored REIT's earnings and any related cash distributions subsequent


                                       27
<PAGE>

to the completion of the offering of the preferred shares. However, upon
liquidation of a Sponsored REIT, we will be entitled to its percentage interest
in any proceeds remaining after the preferred stockholders have recovered their
investment. Our percentage interest in each Sponsored REIT is less than 0.1%.
The affirmative vote of the holders of a majority of the Sponsored REIT's
preferred stockholders is required for any actions involving merger, sale of
property, amendment to charter or issuance of additional capital stock. In
addition, all of the Sponsored REITs allow the holders of more than 50% of the
outstanding preferred shares to remove (without cause) and replace one or more
members of that Sponsored REIT's board of directors.

      Summarized financial information for the Sponsored REITs is as follows:

      (unaudited)                                       December 31,
      (in thousands)                           2003         2002         2001
                                            -----------------------------------

      Balance Sheet Data:
      Real estate, net                      $ 257,700    $ 385,907    $ 222,232
      Other assets                             53,646       39,465       19,048
      Total liabilities                       (18,129)      (6,554)      (6,755)
                                            ---------    ---------    ---------
      Shareholders' equity                  $ 293,217    $ 418,818    $ 234,525
                                            =========    =========    =========

                                                        December 31,
                                               2003         2002         2001
                                            -----------------------------------
      Operating Data:
      Rental revenues                       $  45,819    $  46,836    $  19,816
      Other revenues                              370          543          354
      Operating and maintenance
          Expenses                            (16,594)     (14,191)      (5,973)
      Depreciation and amortization           (11,155)      (7,220)      (3,191)
      Interest expense                        (13,965)     (13,395)      (9,916)
                                            ---------    ---------    ---------
      Net income                            $   4,475    $  12,573    $   1,090
                                            =========    =========    =========

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

      We were not a party to derivative financial instruments at or during the
year ended December 31, 2003.

      We borrow from time to time on our line of credit. These borrowings bear
interest at a variable rate. As of December 31, 2003, $4,117,000 was outstanding
under the line of credit. We have used the funds drawn on our line of credit
only for the purpose of making interim mortgage loans to Sponsored REITs. These
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.

Item 8. Financial Statements and Supplementary Data.

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

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

      On April 14, 2003, our prior independent accountants,
PricewaterhouseCoopers LLP, informed us that they were declining to stand for
reelection as our independent accountants and on May 8, 2003 we engaged Ernst &
Young LLP as our independent accountants. Information required by this item has
been previously reported by FSP Corp. on Current Reports on Form 8-K dated April
14, 2003 and May 8, 2003.


                                       28
<PAGE>

Item 9A. Controls and Procedures

      Our management, with the participation of FSP Corp.'s President and Chief
Executive Officer and FSP Corp.'s Vice President and Chief Operating Officer
(equivalent of Chief Financial Officer), evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(d)
under the Exchange Act) as of December 31, 2003. Based on this evaluation, FSP
Corp.'s President and Chief Executive Officer and FSP Corp.'s Vice President and
Chief Operating Officer (equivalent of Chief Financial Officer) concluded that,
as of December 31, 2003, 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 Vice President and Chief Operating Officer
(equivalent of Chief Financial Officer) by others within these entities,
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 December 31, 2003 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.


                                       29
<PAGE>

PART III

      Certain information required by Part III of this Form 10-K is omitted
because we will file a definitive proxy statement pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this Form 10-K,
and certain information to be included therein is incorporated herein by
reference.

Item 10. Directors and Executive Officers of the Registrant.

      The response to this item is contained in part under the caption "Item 4A.
Executive Officers of the Registrant" in Part I hereof, and the remainder is
contained in the Proxy Statement under the caption "Election of Directors" and
is incorporated herein by reference.

Item 11. Executive Compensation.

      The response to this item is contained in the Proxy Statement under the
caption "Executive Compensation" and is incorporated herein by reference.

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

      The response to this item is contained in the Proxy Statement under the
caption "Beneficial Ownership of Voting Stock" and under the caption "Securities
Authorized for Issuance Under Equity Compensation Plans" and is incorporated
herein by reference.

Item 13. Certain Relationships and Related Transactions.

      The response to this item is contained in the Proxy Statement under the
caption "Certain Relationships and Related Transactions" and is incorporated
herein by reference.

Item 14. Principal Accountant Fees and Services.

      The response to this item is contained in the Proxy Statement under the
caption "Auditor Fees and Other Matters" and is incorporated herein by
reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

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

      1.    Financial Statements:

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

      2.    Financial Statement Schedules:

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

      3.    Exhibits:

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


                                       30
<PAGE>

      (b)   Reports on Form 8-K.

      1.    On October 8, 2003, FSP Corp. furnished a Current Report on Form 8-K
            to disclose certain information regarding A.G. Edwards, Inc.'s
            delivery to FSP Corp. of an estimate of the value of FSP Corp.

      2.    On October 20, 2003, FSP Corp. furnished a Current Report on Form
            8-K to disclose A.G. Edwards, Inc.'s written report regarding the
            value of FSP Corp.


                                       31
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf as of March 12, 2004 by the undersigned, thereunto duly authorized.

                                    FRANKLIN STREET PROPERTIES CORP.

                                    By: /s/ George J. Carter
                                        -------------------------------
                                        George J. Carter
                                        President and Chief Executive Officer

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

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

/s/ George J. Carter          President, Chief Executive
--------------------------    Officer and Director
George J. Carter              (Principal Executive Officer)      March 12, 2004

/s/ Barbara J. Corinha        Vice President, Chief
--------------------------    Operating Officer, Treasurer,
Barbara J. Corinha            Secretary and Director
                              (Principal Financial Officer)      March 9, 2004

/s/ Lloyd S. Dow              Vice President and Controller
--------------------------    (Principal Accounting Officer)     March 12, 2004
Lloyd S. Dow

/s/ Richard R. Norris         Director                           March 11, 2004
--------------------------
Richard R. Norris

/s/ Janet P. Notopoulos       Director                           March 12, 2004
--------------------------
Janet P. Notopoulos

/s/ Barry Silverstein         Director                           March 12, 2004
--------------------------
Barry Silverstein

/s/ Dennis J. McGillicuddy    Director                           March 8, 2004
--------------------------
Dennis J. McGillicuddy


                                       32
<PAGE>

                                  EXHIBIT INDEX

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

   2.1 (1)      Agreement and Plan of Merger by and among FSP Corp. and 13
                Target REITs (as defined therein), dated as of January 14, 2003.

   3.1 (2)      Articles of Organization.

   3.2 (3)      By-laws.

   10.1+ (4)    FSP Corp.'s 2002 Stock Incentive Plan.

   10.2 (5)     Amended and Restated Loan Agreement dated as of August 18, 2003
                by and among Citizens Bank of Massachusetts, Fleet National
                Bank, FSP Corp. and certain affiliates of FSP Corp.

   21.1*        Subsidiaries of the Registrant.

   23.1*        Consent of Ernst & Young LLP.

   23.2*        Consent of PricewaterhouseCoopers LLP

   31.1*        Certification of FSP Corp.'s President and Chief Executive
                Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.

   31.2*        Certification of FSP Corp.'s Vice President, Chief Operating
                Officer (equivalent of Chief Financial Officer), Treasurer and
                Secretary pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.

   32.1*        Certification of FSP Corp.'s President and Chief Executive
                Officer 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 FSP Corp.'s Vice President, Chief Operating
                Officer (equivalent of Chief Financial Officer), Treasurer and
                Secretary pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

----------
(1)   Incorporated by reference to FSP Corp.'s Current Report on Form 8-K, filed
      on January 15, 2003.

(2)   Incorporated by reference to Appendix B of FSP Partnership's Definitive
      Proxy Statement on Schedule 14A, filed on December 18, 2001.

(3)   Incorporated by reference to Appendix C of FSP Partnership's Definitive
      Proxy Statement on Schedule 14A, filed on December 18, 2001.

(4)   Incorporated by reference to FSP Corp.'s Annual Report on Form 10-K, filed
      on March 29, 2002.

(5)   Incorporated by reference to FSP Corp.'s Quarterly Report on Form 10-Q,
      filed on November 14, 2003.

+     Management contract or compensatory plan or arrangement filed as an
      Exhibit to this Form 10-K pursuant to Items 15(a) and 15(c) of Form 10-K.

*     Filed herewith


                                       33

<PAGE>

                        Franklin Street Properties Corp.
                   Index to Consolidated Financial Statements



Reports of independent certified public accountants                          F-2

Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 2003 and 2002                 F-4

Consolidated Statements of Income for the years ended December 31,
2003, 2002, and 2001                                                         F-6

Consolidated Statements of Cash Flows for the years ended December 31,
2003, 2002 and 2001                                                          F-7

Notes to consolidated financial statements                                   F-8

Financial Statement Schedule - Schedule III                                 F-27

         All other schedules for which a provision is made in the applicable
accounting resolutions of the Securities Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.


                                       F-1
<PAGE>

                         Report of Independent Auditors


To the Board of Directors and
Stockholders of Franklin Street Properties Corp.:


We have audited the accompanying consolidated balance sheet of Franklin Street
Properties Corp. as of December 31, 2003 and the related consolidated statements
of income and cash flows for the year then ended. Our audit also included the
financial statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit. The financial statements of Franklin Street
Properties Corp. as of December 31, 2002, and for the two years then ended, were
audited by other auditors whose report dated March 5, 2003 except for Note 11,
as to which the date is March 15, 2004, expressed an unqualified opinion on
those statements.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Franklin Street Properties Corp. at December 31, 2003, and the consolidated
results of their operations and their cash flows for the year ended December 31,
2003, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.


                                            /s/ ERNST & YOUNG LLP

Boston, Massachusetts
February 6, 2004


                                      F-2
<PAGE>

                        Report of Independent Accountants

To the Board of Directors and
Stockholders of Franklin Street Properties Corp.:

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and cash flows present fairly, in all material
respects, the financial position of Franklin Street Properties Corp. (the
"Company") at December 31, 2002 and the results of its operations and its cash
flows for the years ended December 31, 2002 and 2001 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.


PricewaterhouseCoopers LLP
Boston, Massachusetts

March 5, 2003, except for Note 11, as to which the date is March 15, 2004


                                      F-3
<PAGE>

                        Franklin Street Properties Corp.
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                   ------------------------
(in thousands, except share and par value amounts)                                   2003           2002
===========================================================================================================

<S>                                                                                <C>            <C>
Assets:
Real estate assets:
         Land                                                                      $ 71,236       $ 39,560
         Buildings and improvements                                                 403,243        154,785
         Fixtures and equipment                                                         889            930
-----------------------------------------------------------------------------------------------------------

                                                                                    475,368        195,275

         Less accumulated depreciation                                               25,836         21,999
-----------------------------------------------------------------------------------------------------------

Real estate assets, net                                                             449,532        173,276

Acquired real estate leases, less accumulated amortization of $1,539
   and $0, respectively                                                               7,964             --

Assets held for syndication                                                           4,117             --
Cash and cash equivalents                                                            58,793         22,316
Restricted cash                                                                         982            483
Tenant rent receivables, less allowance for doubtful accounts
   of $155 and $202, respectively                                                       881            327
Straight-line rent receivable, less allowance for doubtful accounts
   of $360 and $360, respectively                                                     4,087          3,057
Prepaid expenses                                                                        806            743
Deposits on real estate assets                                                           --            841
Office computers and furniture, net of accumulated
   depreciation of $473 and $389, respectively                                          398            234
Deferred leasing commissions, net of accumulated amortization
   of $586, and $289, respectively                                                      969            659
-----------------------------------------------------------------------------------------------------------

         Total assets                                                              $528,529       $201,936
===========================================================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-4
<PAGE>

                        Franklin Street Properties Corp.
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                     ----------------------
(in thousands, except share and par value amounts)                                      2003         2002
===========================================================================================================

<S>                                                                                  <C>          <C>
Liabilities and Stockholders' Equity:

Liabilities:
   Bank note payable                                                                 $  4,117     $     --
   Accounts payable and accrued expenses                                                5,030        3,001
   Accrued compensation                                                                 1,545        1,287
   Tenant security deposits                                                               982          483
-----------------------------------------------------------------------------------------------------------

         Total liabilities                                                             11,674        4,771
-----------------------------------------------------------------------------------------------------------

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,
     49,630,338 and 24,630,247 shares issued and outstanding, respectively                  5            2
   Additional paid-in capital                                                         512,797      192,743
   Retained earnings                                                                    3,647        4,420
   Accumulated undistributed net realized gain on sale of properties                      406           --
-----------------------------------------------------------------------------------------------------------

       Total Stockholders' Equity                                                     516,855      197,165
-----------------------------------------------------------------------------------------------------------

       Total Liabilities and Stockholders' Equity                                    $528,529     $201,936
===========================================================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-5
<PAGE>

                        Franklin Street Properties Corp.
                        Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                                            For the Year Ended
                                                                                December 31,
                                                                     ----------------------------------
(in thousands, except per share/unit amounts)                          2003        2002         2001
=======================================================================================================
                                                                                              (Limited
                                                                      (REIT)      (REIT)     Partnership)
<S>                                                                  <C>          <C>          <C>
Revenue:
     Rental                                                          $49,789      $24,810      $24,078
     Syndication fees                                                 14,631       13,720       13,000
     Transaction fees                                                 14,745       13,091       12,701
     Sponsored REIT income                                             3,452        1,387          860
     Other                                                             1,151          942        1,316
------------------------------------------------------------------------------------------------------

         Total revenue                                                83,768       53,950       51,955
------------------------------------------------------------------------------------------------------

Expenses:
     Real estate operating expenses                                   10,425        5,433        6,084
     Real estate taxes and insurance                                   6,264        2,639        2,442
     Depreciation and amortization                                     9,265        4,440        4,257
     Sponsored REIT expenses                                           2,620          868          605
     Selling, general and administrative                               5,711        5,094        5,229
     Commissions                                                       7,291        6,824        6,525
     Shares/units issued as compensation                                  --          604        1,744
     Interest                                                          1,036          894          818
------------------------------------------------------------------------------------------------------

         Total expenses                                               42,612       26,796       27,704
------------------------------------------------------------------------------------------------------

     Income before minority interests                                 41,156       27,154       24,251
     Income applicable to minority interests                              --           --           40
------------------------------------------------------------------------------------------------------

     Income before interest and taxes                                 41,156       27,154       24,211
     Interest income                                                     367          286          410
------------------------------------------------------------------------------------------------------

     Income before taxes                                              41,523       27,440       24,621
     Taxes on income                                                   1,700          699           --
------------------------------------------------------------------------------------------------------

     Income from continuing operations                                39,823       26,741       24,621
     Income from discontinued operations                                 195          571          747
------------------------------------------------------------------------------------------------------

     Income before gain on sale of properties                         40,018       27,312       25,368
     Gain on sale of properties, less applicable income tax            6,362           --           --
------------------------------------------------------------------------------------------------------

     Net income                                                      $46,380      $27,312      $25,368
======================================================================================================

Weighted average number of shares/units outstanding,
basic and diluted                                                     39,214       24,606       24,512
======================================================================================================

Amounts per share and per limited and general partnership unit,
basic and diluted, attributable to:
     Continuing operations                                           $  1.02      $  1.09      $  1.00
     Discontinued operations                                              --         0.02         0.03
     Gain on sale of properties, less applicable income tax             0.16           --           --
------------------------------------------------------------------------------------------------------

Net income per share and per limited and general
partnership unit, basic and diluted                                  $  1.18      $  1.11      $  1.03
======================================================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-6
<PAGE>

                        Franklin Street Properties Corp.
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                For the Year Ended December 31,
                                                                           ---------------------------------------
                                                                              2003           2002           2001
==================================================================================================================
                                                                                        (in thousands)

<S>                                                                        <C>             <C>            <C>
Cash flows from operating activities:
     Net income                                                            $  46,380       $ 27,312       $ 25,368
     Adjustments to reconcile net income to net cash provided by
         operating activities:
              Depreciation and amortization                                    9,668          4,947          4,797
              Shares/units issued as compensation                                 --            604          1,744
              Gain on sale of properties                                      (6,362)            --             --
              Minority interests                                                  --             --             40
         Changes in operating assets and liabilities:
              Restricted cash                                                     (1)            12              4
              Tenant rent receivables, net                                      (302)          (264)          (196)
              Straight-line rents, net                                        (1,030)        (1,686)            --
              Prepaid expenses and other assets, net                             305           (239)           162
              Accounts payable and accrued expenses                           (9,053)          (858)           537
              Accrued compensation                                               258          1,287          1,041
              Tenant security deposits                                             1            (12)            (4)
         Payment of deferred leasing commissions                                (487)          (615)           (87)
------------------------------------------------------------------------------------------------------------------

                    Net cash provided by operating activities                 39,377         30,488         33,406
------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
     Cash acquired through issuance of common stock in the merger
         transaction                                                          23,524             --             --
     Purchase of real estate assets and office computer and furniture         (2,388)        (1,174)          (733)
     Changes in deposits on real estate assets                                   841           (841)            --
     Distributions from (investment in) assets held for syndication           (4,117)            --         16,734
     Proceeds from (purchase of) marketable securities                            --             --          5,322
     Proceeds received on sales of real estate assets                         21,870             --            442
------------------------------------------------------------------------------------------------------------------

                    Net cash provided by (used for) investing
                         activities                                           39,730         (2,015)        21,765
------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
     Distributions to stockholders/partners                                  (46,747)       (30,514)       (27,929)
     Distributions to minority interests in consolidated entities                 --             --           (103)
     Borrowings under bank note payable                                        4,117             --             --
     Repayments of bank note payable                                              --             --        (16,500)
------------------------------------------------------------------------------------------------------------------

                    Net cash provided by (used for) financing
                         activities                                          (42,630)       (30,514)       (44,532)
------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                          36,477         (2,041)        10,639

Cash and cash equivalents, beginning of year                                  22,316         24,357         13,718
------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of year                                     $  58,793       $ 22,316       $ 24,357
==================================================================================================================

Supplemental disclosure of cash flow information:
     Cash paid for:
         Interest                                                          $   1,036       $    894       $    818
         Taxes on income                                                   $   1,963       $    390       $     --
      Non-cash investing and financing activities:
         assets acquired through issuance of common stock in the
         merger transaction, net                                           $ 297,468       $     --       $     --
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-7
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

1.    Organization

Franklin Street Properties Corp. ("FSP Corp." or the "Company", known as
Franklin Street Partners Limited Partnership, or the "Partnership", prior to
January 1, 2002) was formed as a Massachusetts limited partnership on February
4, 1997. Prior to July 1, 2001 the Partnership owned a 99% interest in FSP
Investments LLC ("FSP Investments"), a 99% interest in FSP Property Management
LLC ("FSP Property Management") and 100% of FSP Holdings LLC ("FSP Holdings").
Effective July 1, 2001, FSP Holdings purchased the remaining 1% interest of FSP
Investments and FSP Property Management for approximately $32,000. The Company
also has a non-controlling common stock interest in eight corporations organized
to operate as real estate investment trusts ("REITs").

In December 2001, the limited partners of the Partnership approved the
conversion of the Partnership from a partnership into a corporation (the
"Conversion"). The Conversion was effective January 1, 2002, and was
accomplished as tax-free reorganization by merging the Partnership with and into
a wholly owned subsidiary, Franklin Street Properties Corp., with the subsidiary
as the surviving entity. In 2002, the Company elected to be taxed as a real
estate investment trust ("REIT"). As part of the Conversion, all of the
Partnership's outstanding units were converted on a one-for-one basis into
24,586,249 shares of common stock of the Company. The Conversion was accounted
for as a reorganization of affiliated entities, with assets and liabilities
recorded at their historical costs.

On May 30, 2003, the shareholders of the Company approved the Company's
acquisition by merger of 13 REITs (the "Target REITs"). The mergers were
effective June 1, 2003 and, as a result, the Company issued approximately
25,000,091 shares in a tax free exchange for all the outstanding preferred
shares of the Target REITs. The mergers are being accounted for as a purchase
and the acquired assets and liabilities are 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) 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.

2.    Significant Accounting Policies

Basis of Presentation

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

Business Segments

The Company follows Statement of Financial Accounting Standards ("SFAS") No. 131
"Disclosures about Segments of an Enterprise and Related Information," which
established standards for the way that public business enterprises report
information about operating segments in their financial statements.

Minority Interests in Consolidated Entities

Minority interests included in the Company's consolidated statements of income
represent the minority interest holders' share of the income of the consolidated
entities. Cash distributions paid to minority interest holders were
approximately $103,000 for the year ended December 31, 2001.

Estimates and Assumptions

The Company prepares its financial statements and related notes in conformity
with accounting principles generally accepted in the United States of America
("GAAP"). These principles require management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.


                                      F-8
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

2.    Significant Accounting Policies (continued)

Reclassifications

Certain balances in the 2002 and 2001 financial statements have been
reclassified to conform to the 2003 presentation.

Investments in Sponsored REITs

Common stock investments in Sponsored REITs are accounted for using the equity
method as the Company exercises significant influence over, but does not
control, these entities. Under the equity method of accounting, the Company's
cost is subsequently adjusted by its share of the Sponsored REITs' earnings.
Equity in the losses of Sponsored REITs is not recognized to the extent that the
investment balance would become negative. Dividends are recognized as income
after the investment balance is reduced to zero.

Subsequent to the completion of the offering of preferred shares, the Company
did not share in any of the Sponsored REITs' earnings nor any related dividend.

On January 30, 2004 the Company purchased 49.25 preferred shares (approximately
8.2%) of a Sponsored REIT, FSP Blue Lagoon Corp., for $4,531,000. The Company
agreed to vote its shares in any matter presented to a vote by the stockholders
of FSP Blue Lagoon Corp. in the same proportion as shares voted by investors
other than the Company.

Real Estate and Depreciation

Real estate assets are stated at the lower of cost, less accumulated
depreciation, or fair value, as appropriate, which in the opinion of management
are not in excess of an individual property's estimated undiscounted cash flow.

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

Routine replacements and ordinary maintenance and repairs that do not extend the
life of the asset are expensed as incurred. Typical expense items include
interior painting, landscaping, minor carpet replacements and residential
appliances. Funding for repairs and maintenance items typically is provided by
cash flows from operating activities. Depreciation is computed using the
straight-line method over the assets' estimated useful lives as follows:

             Category                                     Years
             --------                                     -----
         Buildings:
              Residential                                   27
              Commercial                                    39
         Building Improvements                           15-39
         Furniture and equipment                           5-7

The Company periodically reviews its properties to determine if their carrying
amounts will be recovered from future operating cash flows. The evaluation of
anticipated cash flows is highly subjective and is based in part on assumptions
regarding future occupancy, rental rates and capital requirements that could
differ materially from actual results in future periods. Since cash flows are
considered on an undiscounted basis in the analysis that the Company conducts to
determine whether an asset has been impaired, the Company's strategy of holding
properties over the long term directly decreases the likelihood of recording an
impairment loss. If the Company's strategy changes or market conditions
otherwise dictate an earlier sale date, an impairment loss may be recognized. If
the Company determines that impairment has occurred, the affected assets must be
reduced to their fair value. No such impairment losses have been recognized to
date.


                                      F-9
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

2.    Significant Accounting Policies (continued)

Acquired Real Estate Leases and Amortization

The Company accounts for leases acquired as a result of the acquisition of real
estate assets under the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 141. "Business Combinations". Accordingly, the Company
recorded a value relating to the leases acquired as a result of the acquisition
by merger of 13 Sponsored REITs in 2003. Acquired real estate leases represent
costs 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) and the value relating to leases with rents above or below the
market rate.

Amortization related to costs associated with acquiring an in-place lease is
included in Depreciation and amortization on the Consolidated Statements of
Income. Amortization related to leases with rents above the market rate is
included as a reduction of Rental revenue on the Consolidated Statements of
Income.

Discontinued Operations

The Company accounts for properties as held for sale under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets", which typically occurs upon
the execution of a purchase and sale agreement and belief by management that the
sale or disposition is probable of occurrence within one year. Upon determining
that a property is held for sale, the Company discontinues depreciating the
property and reflects the property at the lower of its carrying amount or fair
value less the cost to sell in its consolidated balance sheets. The Company
reports the results of operations of its properties classified as discontinued
operations in its statements of income if no significant continuing involvement
exists after the sale or disposition.

The Company typically retains a common stock ownership in a Sponsored REIT
following syndication, and earns an ongoing asset and property management fee;
accordingly, transaction fee revenue and the results of operations are not
classified as discontinued operations.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. Also included
in cash equivalents at December 31, 2003 is $6 million of cash held as
certificates of deposit with maturity dates exceeding three months. There are no
prepayment penalties if the Company withdraws these funds prior to maturity.

Restricted Cash

Restricted cash consists of tenant security deposits. Tenant security deposits
are refunded when tenants vacate provided that the tenant has not damaged the
property.

Concentration of Credit Risks

Cash, cash equivalents, and short-term investments are financial instruments
that potentially subject the Company to a concentration of credit risk. The
Company maintains its cash balances and short-term investments principally in
two banks which the Company believes to be creditworthy. The Company
periodically assesses the financial condition of the banks and believes that the
risk of loss is minimal. Cash balances held with various financial institutions
frequently exceed the insurance limit of $100,000 provided by the Federal
Deposit Insurance Corporation.

Financial Instruments

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


                                      F-10
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

2.    Significant Accounting Policies (continued)

Straight-line Rent Receivable

Certain leases provide for fixed rent increases over the life of the lease.
Rental revenue is recognized on a straight-line basis over the related lease
term; however, billings by the Company are based on required minimum rentals in
accordance with the lease agreements. Straight-line rent receivable, which is
the cumulative revenue recognized in excess of amounts billed by the Company, is
$4,087,000, and $3,057,000 at December 31, 2003 and 2002, respectively. The
Company provides an allowance for doubtful accounts based on its estimate of a
tenant's ability to make future rent payments. The computation of this allowance
is based in part on the tenants' payment history and current credit status.

Deferred Leasing Commissions

Deferred leasing commissions represent direct and incremental external leasing
costs incurred in the leasing of commercial space. These costs are capitalized
and are amortized on a straight-line basis over the terms of the related lease
agreements. Amortization expense was approximately $258,000, $193,000 and
$222,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

Revenue Recognition

Rental Revenue - Rental revenue includes income from leases, certain
reimbursable expenses, straight-line rent adjustments and other income
associated with renting the property. A summary of rental revenue is shown in
the following table:

                                                           Year Ending
      (in thousands)                                      December 31,
                                              ----------------------------------
                                                 2003         2002         2001
      ==========================================================================
      Income from leases                       $  41,416   $  19,553   $  20,145
      Straight-line rent adjustment                1,030       1,686         797
      Reimbursable expenses                        6,964       3,393       2,875
      Other                                          379         178         261
      --------------------------------------------------------------------------

           Total                              $   49,789  $   24,810   $ 24,078
      ==========================================================================

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

Rental Revenue, Residential Apartments -- The Company's residential property
leases are generally for terms of one year or less. Rental income from tenants
of residential apartment properties is recognized in the period earned. Rent
concessions, including free rent and leasing commissions incurred in connection
with residential property leases, are expensed as incurred.

Syndication Fees -- Syndication fees ranging from 6% to 8% of the gross offering
proceeds from the sale of securities in Sponsored Entities are generally
recognized upon an investor closing; at that time the Company has provided all
required services, the fee is fixed and collected, and no further contingencies
exist. Commission expense ranging from 3% to 4% of the gross offering proceeds
is recorded in the period the related syndication fee is earned. There is
typically more than one investor closing in the syndication of a Sponsored REIT.

Transaction Fees -- Transaction fees relating to loan commitment fees are
recognized upon an investor closing and the subsequent payment of the Sponsored
REIT's loan to the Company. Other transaction fees such as acquisition and
organization fees are recognized upon the final investor closing of the
Sponsored REIT. The final investor closing is the last admittance of investors
into a Sponsored REIT; at that time, required funds have been received from the
investors, charges relating to the syndication have been paid or accrued,
continuing investment and continuing involvement criteria have been met, and
legal and economic rights have been transferred. Third party transaction-related
costs are deferred and later expensed to match revenue recognition. Internal
costs are expensed as incurred.


                                      F-11
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

2.    Significant Accounting Policies (continued)

The Company follows the requirements for profit recognition as set forth by
Statement of Financial Accounting Standards No. 66 "Accounting for Sales of Real
Estate" and Statement of Position 92-1 "Accounting for Real Estate Syndication
Income".

Sponsored REIT Income and Expenses

Sponsored REIT income and Sponsored REIT expenses represent the Company's share
of revenues and expenses from a Sponsored REIT prior to the final syndication of
preferred shares.

Other

Other income, including property and asset management fees, are recognized when
the related services are performed and the earnings process is complete.

Income Taxes

Taxes on income for the years ended December 31, 2003 and 2002 represent taxes
incurred by a FSP Investments which has elected to be a taxable REIT subsidiary.
No provision has been made for Federal or state income taxes in the consolidated
financial statements in 2001 of the Company.

Net Income Per Share/Unit

Basic net income per share/unit is computed by dividing net income by the
weighted average number of shares/units outstanding during period. Diluted net
income per share/unit reflects the potential dilution that could occur if
securities or other contracts to issue shares/units were exercised or converted
into shares or units. There were no potential dilutive shares/units outstanding
at December 31, 2003, 2002, and 2001. The denominator used for calculating basic
and diluted net income per share/unit is as follows:

                                                   Year Ended December 31,
      ==========================================================================
                                               2003          2002         2001
      ==========================================================================
      Weighted average number of
      shares/units outstanding
          Common shares                       39,214        24,606           --
          Limited partners                        --            --       23,563
          General partner                         --            --          949
      --------------------------------------------------------------------------
                                              39,214        24,606       24,512
      ==========================================================================

Recent Accounting Standards

In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with
Exit or Disposal Activities". This statement was effective January 1, 2003. SFAS
No. 146 replaces current accounting literature and requires the recognition of
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. SFAS No. 146
supersedes Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity,"
which in some cases required certain costs to be recognized before a liability
was actually incurred. The adoption of this standard did not have a material
impact on the Company's financial position, operations or cash flow.

On November 25, 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45")
"Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB
Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34". FIN
45 clarifies the requirements of SFAS No. 5 "Accounting for Contingencies",
relating to a guarantor's accounting for, and disclosure of, the issuance of
certain types of guarantees. The disclosure requirements of FIN 45 are effective
for the Company as of December 31, 2002, and require disclosure of the nature of
the guarantee, the maximum potential amount of future payments that the
guarantor could be required to make under the guarantee, and the current amount
of the liability, if any, for the guarantor's obligations under the guarantee.
The recognition requirements of FIN 45 are to be applied prospectively to
guarantees issued or modified after December 31, 2002. The adoption of this
standard did not have a material impact on the Company's financial position,
operations or cash flows.


                                      F-12
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

2.    Significant Accounting Policies (continued)

Recent Accounting Standards (continued)

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities. In December 2003, the FASB reissued
FIN 46 with certain modifications and clarifications. The objective of this
interpretation is to provide guidance on how to identify a variable interest
entity ("VIE") and determine when the assets, liabilities, non-controlling
interests, and results of operations of a VIE need to be included in a company's
consolidated financial statements. A VIE exists when either the total equity
investment at risk is not sufficient to permit the entity to finance its
activities by itself, or the equity investors lack one of three characteristics
associated with owning a controlling financial interest. Application of this
guidance was effective for interests in certain VIEs commonly referred to as
special-purpose entities (SPEs) as of December 31, 2003. The provisions of this
interpretation became effective upon issuance. The adoption of this standard did
not have a material impact on the Company's financial position, operations or
cash flow.

3.    Business Segments

The Company operates in two business segments: real estate operations (including
real estate leasing, interim acquisition financing and asset/property
management) 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". The Company's operations are located
in the United States of America.

The Company evaluates the performance of its reportable segments based on Cash
Available for Distribution ("CAD") as management believes that CAD represents
the most accurate measure of the reportable segment's activity and is the basis
for distributions paid to equity holders. The Company defines CAD as: net income
as computed in accordance with accounting principles generally accepted in the
United States of America ("GAAP"); plus certain non-cash items included in the
computation of net income (depreciation and amortization, gain or loss on the
sale of real estate, certain non-cash compensation expenses and straight-line
rent adjustments); plus investment services proceeds received from controlled
partnerships; plus the net proceeds from the sale of land; less purchases of
property and equipment ("Capital Expenditures") and payments for deferred
leasing commissions, plus proceeds from (payments to) cash reserves established
at the acquisition date of the property. Depreciation and amortization, gain or
loss on the sale of real estate, non-cash compensation and straight-line rents
are an adjustment to CAD, 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 CAD, as they
represent cash items not reflected in net income.

The funded reserve represents funds that the Company has set aside 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. CAD should not be considered as an alternative
to net income (determined in accordance with GAAP), as an indicator of the
Company's financial performance, nor 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
CAD in a different manner. It is at the Company's discretion to retain a portion
of CAD for operational needs. We believe that in order to facilitate a clear
understanding of the results of the Company, CAD should be examined in
connection with net income and cash flows from operating, investing and
financing activities in the consolidated financial statements.


                                      F-13
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

3.    Business Segments (continued)

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

                                                           Investment
                                                  Real      Banking/
                                                 Estate    Investment
(in thousands):                                Operations   Services    Total
================================================================================
Year ended December 31, 2003:
   Net Income                                   $ 43,949    $ 2,431    $ 46,380
   Gain on sale of properties                     (6,362)        --      (6,362)
   Depreciation and amortization                   9,612         56       9,668
   Straight-line rent                             (1,030)        --      (1,030)
   Capital expenditures                           (1,125)      (248)     (1,373)
   Merger costs                                   (1,015)        --      (1,015)
   Payment of deferred leasing commissions          (487)        --        (487)
   Proceeds from funded reserves                   1,877         --       1,877
   Proceeds from sale of land                         55         --          55
-------------------------------------------------------------------------------

Cash Available for Distribution                 $ 45,474    $ 2,239    $ 47,713
===============================================================================

Year ended December 31, 2002:
   Net Income                                   $ 24,787    $ 2,525    $ 27,312
   Depreciation and amortization                   4,778        169       4,947
   Straight-line rent                             (1,686)        --      (1,686)
   Non-cash compensation expenses                     --        604         604
   Capital expenditures                           (1,163)       (11)     (1,174)
   Payment of deferred leasing commissions          (615)        --        (615)
   Proceeds from funded reserves                   3,200         --       3,200
   Proceeds from sale of land                         --         --          --
-------------------------------------------------------------------------------

Cash Available for Distribution                 $ 29,301    $ 3,287    $ 32,588
===============================================================================

Year ended December 31, 2001:
   Net Income                                   $ 21,381    $ 3,987    $ 25,368
   Depreciation and amortization                   4,726         71       4,797
   Straight-line rent                               (797)        --        (797)
   Non-cash compensation expenses                     --      1,744       1,744
   Capital expenditures                             (566)      (167)       (733)
   Payment of deferred leasing commissions           (87)        --         (87)
   Proceeds from funded reserves                     581         --         581
   Proceeds from sale of land                        442         --         442
-------------------------------------------------------------------------------

Cash Available for Distribution                 $ 25,680    $ 5,635    $ 31,315
===============================================================================


                                      F-14
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

3.    Business Segments (continued)

The Company's cash distributions for the years ended December 31, 2003, 2002 and
2001 are summarized as follows:

                                               Distribution       Total Cash
      Quarter paid                            Per Share/Unit     Distributions
      ========================================================================
                                                                (in thousands)
      Second quarter of 2003                     $  .31           $   7,635
      Third quarter of 2003                         .31              10,135
      Fourth quarter of 2003 (A)                    .43              21,341
      First quarter of 2004 (B)                     .31              15,385
      ------------------------------------------------------------------------
                                                 $ 1.36           $  54,496
      ========================================================================

      Second quarter of 2002                     $  .31           $   7,622
      Third quarter of 2002                         .31               7,635
      Fourth quarter of 2002                        .31               7,635
      First quarter of 2003 (C)                     .31               7,635
      ------------------------------------------------------------------------
                                                 $ 1.24           $ 30,527
      ========================================================================

      Second quarter of 2001                     $  .28           $   6,842
      Third quarter of 2001                         .29               7,087
      Fourth quarter of 2001                        .30               7,376
      First quarter of 2002                         .31               7,622
      ------------------------------------------------------------------------
                                                 $ 1.18           $  28,927
      ========================================================================

(A)   Includes a special dividend of $.12 per share in the aggregate amount of
      $5,956,000.
(B)   Represents dividends declared and paid by the Company in the first quarter
      of 2004.
(C)   Represents dividends declared and paid by the Company in the first quarter
      of 2003.

Cash dividends per share are declared and paid based on the total outstanding
shares as of the record date and are typically paid in the quarter following the
quarter that CAD is generated.

Cash distributions per partnership unit were based on the total outstanding
units at the end of each calendar quarter. Cash available for distribution, as
determined at the sole discretion of the general partner, was required to be
distributed to unit holders within 90 days following the end of each calendar
quarter. The cash distribution of approximately $7,622,000 for the CAD generated
in the fourth quarter of 2001 was declared and paid in the first quarter of
2002.


                                      F-15
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

3.    Business Segments (continued)

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

                                                             Investment
                                                    Real      Banking/
                                                   Estate    Investment
                                                 Operations   Services    Total
================================================================================
                                                          (in thousands)
December 31, 2003:
     Revenue                                      $ 67,720    $16,048   $ 83,768
     Interest income                                   291         76        367
     Interest expense                                1,036         --      1,036
     Income from discontinued operations, net          195         --        195
     Capital expenditures                            1,125        248      1,373
     Identifiable assets                           524,788      3,741    528,529

December 31, 2002:
     Revenue                                      $ 39,220    $14,730   $ 53,950
     Interest income                                   211         75        286
     Interest expense                                  894         --        894
     Income from discontinued operations, net          571         --        571
     Capital expenditures                            1,163         11      1,174
     Identifiable assets                           194,996      6,940    201,936

December 31, 2001:
     Revenue                                      $ 35,873    $16,082   $ 51,955
     Interest income                                   299        111      1,726
     Interest expense                                  818         --        818
     Income from discontinued operations, net          747         --        747
     Capital expenditures                              566        167        733
     Identifiable assets                           199,140      4,977    204,117

4.   Merger Transactions

On June 1, 2003, the Company issued approximately 25 million shares of common
stock, $0.0001 par value per share in exchange for all of the outstanding
preferred stock of 13 Sponsored REITs it acquired by merger. The results of
operations for each of the Sponsored REITs have been included in the Company's
consolidated financial statements since that date. The merger transactions were
structured as exchanges of shares and no cash was involved.

The aggregate purchase price was approximately $321 million. On the acquisition
date, for each Sponsored REIT, the increase between the appraised value of the
property and the historical cost 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:


                                      F-16
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

4.    Merger Transactions (continued)

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

      Real estate assets                                $298,425
      Value of acquired real estate leases                 9,503
      Cash                                                23,524
      Other assets                                         1,120
      Liabilities assumed                                (11,580)
                                                        --------
      Total                                             $320,992
                                                        ========

The following table shows the allocation of the aggregate increase of
$19,500,000 between the value of the real estate assets and leases acquired
(including expenses of the merger of $1,015,000) and the historical costs of the
13 Sponsored REITs.

      (in thousands)                                                   Life
                     Category                            Amount      In Years
      -------------------------------------------------------------------------

      Land                                             $   944           N/A
      Buildings and improvements                        15,747         27-39
                                                       -------
          Real estate investments                       16,691
          Lease origination costs                        2,809          4-10
                                                       -------
         Total                                         $19,500
                                                       =======

Pro forma operating results for the Company and the 13 Sponsored REITs the
Company acquired during 2003 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, 2002 and 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.

                                                            For Year Ended
      (unaudited)                                             December 31,
      (in thousands except per share amount)              2003            2002
                                                       ------------------------

      Revenue                                          $ 98,972        $ 82,675
      Expenses                                          (52,574)        (48,781)
      Interest income                                       484             556
      Taxes on income                                    (1,700)           (699)
                                                       --------        --------
      Net income from continuing operations              45,182          33,751
      Income from discontinued operations                   195             571
      Gain on sale of property                            6,362              --
                                                       ========        ========
      Net income                                       $ 51,739        $ 34,322
                                                       ========        ========
      Weighted average shares outstanding                49,630          49,606
                                                       ========        ========
      Net income per share                             $   1.04        $   0.69
                                                       ========        ========


                                      F-17
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

5.    Related Party Transactions

Investment in Sponsored REITs

The Company typically retains a minimal common stock ownership interest in
Sponsored REITs that it has syndicated. Subsequent to the completion of the
offering of preferred shares of such Sponsored REITs, these ownership interests
have virtually no economic benefit or risk. At December 31, 2003, 2002, and
2001, the Company had ownership interests in eight, sixteen, and ten Sponsored
REITs, respectively. However, the Company had completely syndicated only seven
of the eight Sponsored REITs for which it retained ownership interests as of
December 31, 2003. The Company's cost in the one Sponsored REIT that was not
completely syndicated at December 31, 2003 is $4,117,000 and is shown as Assets
held for syndication on the Company's Consolidated Balance Sheet.

The Company has in the past acquired by merger entities similar to the Sponsored
REITs. The Company's business model for growth includes the potential
acquisition by merger in the future of Sponsored REITs. However, 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 shareholders of the Sponsored REIT, and likely
would require the approval of the shareholders of the Company.

Summarized financial information for the Sponsored REITs is as follows:

                                                          December 31,
      (unaudited)                                    2003                2002
                                                  -----------------------------
                                                         (in thousands)
      Balance Sheet Data:
      -------------------
      Real estate, net                            $ 257,700           $ 385,907
      Other assets                                   53,646              39,465
      Total liabilities                             (18,129)             (6,554)
                                                  ---------           ---------

      Shareholders equity                         $ 293,217           $ 418,818
                                                  =========           =========

                                                   For the Year Ended
                                                      December 31,
                                           ------------------------------------
      (unaudited)                             2003         2002          2001
                                           ------------------------------------
                                                     (in thousands)
      Operating Data:
      ---------------
      Rental revenues                      $ 45,819      $ 46,836      $ 19,816
      Other revenues                            370           543           354
      Operating and maintenance
        expenses                            (16,594)      (14,191)       (5,973)
      Depreciation and amortization         (11,155)       (7,220)       (3,191)
      Interest expense                      (13,965)      (13,395)       (9,916)
                                           --------      --------      --------
      Net income (loss)                    $  4,475      $ 12,573      $  1,090
                                           ========      ========      ========

The operating data for 2003 includes the operations of eight Sponsored REITs in
which the Company held an interest at December 31, 2003 and 13 Target REITs from
January through May 31, 2003. The 13 Target REITs were merged into the Company
on June 1, 2003.

The Company's proportionate share of net income prior to completion of the
syndication from these Sponsored REITs is shown in the following table:

                                                  For the Year Ended
      (in thousands)                                  December 31,
                                           2003           2002          2001
                                         -----------------------------------

      Revenue                            $ 3,452        $ 1,387        $ 860
      Expenses                            (2,620)          (868)        (605)
                                         -------        -------        -----
         Net income                      $   832        $   519        $ 255
                                         =======        =======        =====


                                      F-18
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

5.    Related Party Transactions (continued)

Interest

The Company is typically entitled to interest on funds advanced to syndicated
REITs. The Company recognized interest income of $636,000, $429,000, and
$552,000 for the years ended December 31, 2003, 2002 and 2001, respectively,
relating to these loans.

Sponsored Entity Fees

The Company has provided syndication and real estate acquisition advisory
services for the Sponsored REITs. Syndication and transaction fees from
non-consolidated related entities amounted to approximately $29,376,000,
$26,811,000, and $25,701,000 for the years ended December 31, 2003, 2002 and
2001, respectively.

Management Fees

Management fees range from 1% to 5% of collected rents and the applicable
contracts are cancelable with 30 days' notice. Total management fee income from
non-consolidated entities amounted to approximately $493,000, $503,000, and
$412,000 for the years ended December 31, 2003, 2002 and 2001, respectively, and
is included in "Other" in the Consolidated Statements of Income.

6.    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
$125,000,000. Borrowings under the Loan Agreement bear interest at either the
bank's base rate or a variable LIBOR rate, as defined. The balance outstanding
was $4,117,000, $0, and $0 as of December 31, 2003, 2002, and 2001 respectively.

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
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 December 31, 2003 and 2002. The Loan
Agreement matures on August 18, 2005.

7.    Shareholders' and Partners' Capital

General

The Company converted from a partnership to a corporation on January 1, 2002.
The changes in partners' capital prior to the conversion were as follows:

<TABLE>
<CAPTION>
                                                                                              Total Partners
                                               Limited Partners         General Partner           Capital
                                            ----------------------    -----------------    ----------------------
(in thousands, except share/unit amounts)     Units        Amount      Units     Amount      Units        Amount
=================================================================================================================

<S>                                         <C>          <C>          <C>       <C>        <C>          <C>
Balance, December 31, 2000                  23,486,096   $ 204,067    948,499   $(3,487)   24,434,595   $ 200,580
         Net income                                 --      24,386         --       982            --      25,368
         Distributions                              --     (26,849)        --    (1,080)           --     (27,929)
         Units issued as compensation          151,654       1,744         --        --       151,654       1,744
-----------------------------------------------------------------------------------------------------------------

Balance, December 31, 2001                  23,637,750   $ 203,348    948,499   $(3,585)   24,586,249   $ 199,763
=================================================================================================================
</TABLE>


                                      F-19
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

7.    Shareholders' and Partners' Capital (continued)

Changes in stockholders' equity as a result of and following the conversion to a
corporation were as follows:

<TABLE>
<CAPTION>
                                                                                     Accumulated
                                                                                    Undistributed
                                                          Additional                 Net Realized        Total
                                       Common Stock        Paid-in       Retained   Gain on Sale of   Stockholders'
                                    Shares      Amount     Capital       Earnings     Properties         Equity
====================================================================================================================

<S>                               <C>            <C>      <C>            <C>           <C>             <C>
Balance, December 31, 2001                --     $ --     $      --      $     --      $    --         $      --
         Exchange Partnership
            units for shares      24,586,249        2       199,761            --           --           199,763
         Net Income                       --       --            --        27,312           --            27,312
         Dividends                        --       --        (7,622)      (22,892)          --           (30,514)
         Shares issued as
            compensation              43,998       --           604            --           --               604
--------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2002        24,630,247        2       192,743         4,420           --           197,165
         Shares issued            25,000,091        3       320,054            --           --           320,057
         Net Income                       --       --            --        40,018        6,362            46,380
         Dividends                        --       --            --       (40,791)      (5,956)          (46,747)
--------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2003        49,630,338     $  5     $ 512,797      $  3,647      $   406         $ 516,855
====================================================================================================================
</TABLE>

In connection with the conversion to a corporation, 23,637,750 limited
partnership units and 948,499 general partnership units were converted into
common stock of the Company on a one-for-one basis.

In accordance with the terms of the Partnership's partnership agreement (the
"Partnership Agreement"), the general partner was authorized to make quarterly
distributions of cash. Cash distributions of approximately $7.6 million
consisting of 2001 earnings, which were declared and paid as a common stock
dividend in 2002, have been recorded as a reduction of the Company's additional
paid in capital.

Partnership

Prior to the conversion of the Partnership into a corporation the Partnership's
general partner had the exclusive right to manage the business of the
Partnership and make certain amendments to the Partnership Agreement, without
the consent or approval of the limited partners. The Partnership's limited
partners did not take part in management and did not have any voting rights
regarding the Partnership's operations. A majority in interest of the limited
partners, with the consent of the general partner, could amend the Partnership
Agreement, subject to certain limitations as defined in the Partnership
Agreement. Except as provided for under certain Federal tax provisions described
in the Partnership Agreement, net income or net losses from operations were
allocated to all partners based on their percentage interest in the Partnership.
Net profits or losses arising from a sale or other disposition of all or any
portion of the Partnership's property or upon liquidation of the Partnership
were allocated as follows:

Net Profit -- The Partnership's net profits were allocated first to the extent
of any partner's negative capital account balance, and thereafter in proportion
with their percentage interest in the Partnership.

Net Losses -- The Partnership's net losses were allocated first to the extent of
any partner's positive capital account balance, and thereafter in proportion
with their percentage interest in the Partnership.

The Partnership's cash distributions were distributed to the limited partners
and the general partner based on each partner's percentage interest in the
Partnership.


                                      F-20
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

7.    Shareholders' and Partners' Capital (continued)

General Partner

On December 30, 1999, FSP General Partner LLC (the "General Partner") was
organized solely to hold the Partnership's general partner units, which were
previously held by eight individuals. The General Partner's financial activities
consisted of receiving cash distributions from the Partnership and paying such
amounts to its members. The members of the General Partner functioned as
officers and/or directors of the Partnership. The Partnership paid no fees or
other compensation to the General Partner.

Equity-Based Compensation
There was no equity-based compensation for the year ended December 31, 2003. In
July 2002, July 2001 and January 2001 the Company issued 43,998 shares, 149,131
units, and 2,522 units with a fair value of approximately $604,000, $1,715,000
and $29,000, respectively, to certain officers and employees of the Company.
These units/shares were fully vested on the date of issuance. Equity-based
compensation charges of $0, $604,000 and $1,744,000 are reported in the
accompanying Consolidated Statements of Income for the years ended December 31,
2003, 2002, and 2001, respectively.

The following table summarizes the allocation of net income and the payment of
distributions to partners.

                                                     Year Ended
                                                 December 31, 2001
                                          ------------------------------
                                          Allocation of
                                            Net Income     Distributions
                                          -------------    -------------
      Limited Partners                       $ 24,936        $ 26,849
      General Partners                            982           1,080
                                             --------        --------
                                             $ 24,936        $ 27,929
                                             ========        ========

8.    Federal Income Tax Reporting

General

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 shareholders, thereby effectively
subjecting the distributed net income of the Company to taxation at the
shareholder 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 shareholders it can
have and the concentration of their ownership, and the amount of the Company's
taxable income that must be distributed annually.

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, a subsidiary of the Company, FSP Investments,
elected to be treated as a TRS. As a result, FSP Investments 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 when FSP
Investments 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.

Tax Components

The income tax expense reflected in the consolidated statement of income relates
only to the TRS. The expense differs from the amounts computed by applying the
Federal statutory rate of 35% to income before taxes as follows:


                                      F-21
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

8.    Federal Income Tax Reporting (continued)

<TABLE>
<CAPTION>
                                                          For the            For the
                                                        Year Ended          Year Ended
           (in thousands)                              December 31,        December 31,
                                                           2003                2002
                                                   --------------------------------------
<S>                                                <C>         <C>      <C>         <C>
Federal income tax expense at statutory rate       $  1,446    35.0%    $ 1,128     35.0%
Increase (decrease) in taxes resulting from:
   State income taxes, net of federal impact            254     6.2%        197      6.1%
   Other                                                 --      --%       (626)   (19.4%)
                                                   --------   ------    -------   -------
   Taxes on income                                 $  1,700    41.2%    $   699     21.7%
                                                   ========   ======    =======   =======
</TABLE>

"Other" consists primarily of the tax benefit on cash bonuses accrued in 2001
but paid in 2002. Due to the conversion from a partnership into a corporation
the bonus is treated as a permanent tax difference.

Taxes on income are a current tax expense. No deferred income taxes were
provided as there were no temporary differences between the financial reporting
basis and the tax basis of the TRS.

At December 31, 2003 and 2002, the Company's net tax basis of its real estate
assets is less than the amount set forth in the Company's Consolidated Balance
Sheets by $14,270,000 and $39,181,000 respectively.

Reconciliation Between GAAP Net Income and Taxable Income subject to dividend
requirements.

The following reconciles book net income to taxable income subject to dividend
requirements for the years ended December 31, 2003 and 2002. The Partnership was
not subject to a minimum dividend requirement.

<TABLE>
<CAPTION>
                                                              For the Year Ended
(in thousands)                                        December 31, 2003   December 31, 2002
                                                      -----------------   -----------------
<S>                                                       <C>                  <C>
Net Income per books                                      $ 46,380             $ 27,312
Adjustments to book income
Book depreciation and amortization                           9,531                4,699
Tax gain on sale of asset                                   (8,709)                  --
Deferred rent, net                                              22                 (368)
Tax depreciation and amortization                          (10,266)              (3,824)
Tax basis less book basis of properties sold, net            2,347                   --
Straight line rent adjustment, net                          (1,030)              (1,151)
Non-taxable distributions                                       --               (2,113)
Other, net                                                    (237)                (507)
                                                          --------             --------
Taxable income subject to dividend requirement            $ 38,038             $ 24,048
                                                          ========             ========
</TABLE>

Dividends Paid Deduction

The following reconciles cash dividends paid during the year to the dividends
paid deduction allowed on the Company's tax return:

<TABLE>
<CAPTION>
                                                              Year Ended                   Year Ended
                                                           December 31, 2003            December 31, 2002
                                                                 Per Weighted-                  Per Weighted-
(in thousands)                                           Total   Average Share        Total     Average Share
                                                        -------------------------------------------------------
<S>                                                     <C>         <C>             <C>             <C>
Cash dividends paid                                     $46,747     $1.19           $ 30,514        $1.24
   Plus: Dividends designated from following year            --        --                 --           --
   Less: Portion designated capital gain distribution     8,709      0.22                 --           --
   Less: Return of Capital                                   --        --             (6,466)       (0.26)
                                                        -------------------------------------------------------
Dividends paid deduction                                $38,038     $0.97           $ 24,048        $0.98
                                                        =======================================================
</TABLE>


                                      F-22
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

8.    Federal Income Tax Reporting (continued)

Partnership Taxes

Prior to the Conversion on January 1, 2002, no provision or benefit was made for
federal or state income taxes in the consolidated financial statements of the
Partnership. Partners were required to report on their individual tax returns
their allocable share of income, gains, losses, deductions and credits of the
Partnership.

The difference between Partners' capital for financial reporting purposes and
for income tax purposes is approximately as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                 2001
                                                                                               --------
<S>                                                                                            <C>
Partnership capital - financial reporting purposes                                             $199,763
Partnership's cumulative tax reporting differences, primarily relating to non-deductible
    expenses, depreciation and other temporary differences and the effects of mergers           (17,217)
                                                                                               --------

Partners' capital-- income tax purposes                                                        $182,546
                                                                                               ========
</TABLE>

9.    Commitments

The Company's commercial real estate operations include the leasing of office
buildings and industrial properties subject to leases with terms greater than
one year. The leases expire at various dates through 2012. The following is a
schedule of approximate future minimum rental income on non-cancelable operating
leases as of December 31, 2003:

Rentals Under Operating Leases

                                                  Year ended
      (in thousands)                              December 31,
      ========================================================

      2004                                         $ 51,075
      2005                                           41,701
      2006                                           35,624
      2007                                           29,579
      2008                                           27,626
      Thereafter                                     44,374
      --------------------------------------------------------

                                                   $229,979
      ========================================================

Office Lease

The Company leases its corporate office space under an operating lease that was
amended in 2003. The lease includes a base annual rent and additional rent for
the Company's share of taxes and operating costs.

Future minimum lease payments are as follows:

      (in thousands)                               Year ended
                                                  December 31,
      --------------------------------------------------------
      2004                                           $  289
      2005                                              295
      2006                                              302
      2007                                              308
      2008                                              182
      --------------------------------------------------------

                                                     $1,376
      ========================================================


                                      F-23
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

9.    Commitments (continued)

Rent expense was approximately $219,000, $206,000 and $196,000 for the years
ended December 31, 2003, 2002 and 2001, respectively, and is included in
selling, general and administration expenses in the Consolidated Statement of
Income.

Retirement Plan

In 1999, the Company began a retirement savings plan for eligible employees.
Under the plan, the Company annually matches participant contributions up to the
maximum allowed by tax regulations. The Company's total contribution under the
plan amounted to approximately $132,000, $105,000 and $76,000 for the years
ended December 31, 2003, 2002 and 2001, respectively.

10.   Equity-Based Incentive Compensation Plan

On May 20, 2002, the stockholders of the Company approved the 2002 Stock
Incentive Plan (the "Plan"). The Plan is an equity-based incentive compensation
plan, and provides for the grants of up to a maximum of 2,000,000 shares of the
Company's common stock ("Awards"). All of the Company's employees, officers,
directors, consultants and advisors are eligible to be granted awards. Awards
under the Plan are made at the discretion of the Company's Board of Directors,
and have no vesting requirements.

Upon granting an Award, the Company will recognize compensation cost equal to
the fair market value of the Company's common stock, as determined by the
Company's Board of Directors, on the date of the grant.

An aggregate of 43,998 shares of FSP Common Stock were issued to an Executive
Vice President of FSP Corp. in July 2002 under the 2002 Stock Incentive Plan.

A summary of shares available and granted under the plan and the related
compensation costs is shown in the following table:

                                                      Shares
                                                     Available      Compensation
                                                     for Grant          Cost
                                                     ---------      ------------
      Balance, December 31, 2001                            --        $     --
      Shares approved for grant                      2,000,000              --
      Shares granted                                   (43,998)        604,000
                                                    ----------        --------
      Balance, December 31, 2002                     1,956,002        $604,000
                                                    ==========        ========

There were no shares granted for the year ended December 31, 2003.

11.   Discontinued Operations

Effective January 1, 2002, the Company adopted the provisions of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," which
superceded SFAS No. 121. SFAS No. 144 requires that long-lived assets that are
to be disposed of by sale be measured at the lesser of book value or fair value
less cost to sell. SFAS No. 144 retains the requirements of SFAS No. 121
regarding impairment loss recognition and measurement. In addition, it requires
that one accounting model be used for long-lived assets to be disposed of by
sale and broadens the presentation of discontinued operations to include more
disposal transactions.

During the year ended December 31, 2003, the Company disposed of two apartment
properties, Weslayan Oaks and Reata, both located in Houston, Texas. The
operating results for these two real estate assets have been reflected as
discontinued operations in the Consolidated Statements of Income on a
comparative basis for the years ended December 31, 2003, 2002 and 2001.

The operating results for the real estate assets sold during 2003 are summarized
below.


                                      F-24
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

11.   Discontinued Operations (continued)

                                                      For the Years Ended
                                                           December 31,
                                                -------------------------------
                                                  2003        2002        2001
                                                -------     -------     -------
      Rental revenue                            $ 1,215     $ 2,603     $ 2,687
      Rental operating expenses                    (507)     (1,034)       (942)
      Real estate taxes and insurance              (247)       (491)       (458)
      Depreciation and amortization                (266)       (507)       (540)
                                                -------     -------     -------
      Net Income                                $   195     $   571     $   747
                                                =======     =======     =======

12.   Subsequent Events

On February 6, 2004, the Company declared a dividend of $.31 per share of common
stock payable to stockholders of record as of February 6, 2004.

13.   Selected unaudited quarterly information

Selected unaudited quarterly information is shown in the following table

<TABLE>
<CAPTION>
                                                                    2003
                                                 ----------------------------------------
                                                  First     Second      Third     Fourth
                                                 Quarter    Quarter    Quarter    Quarter
                                                 -------    -------    -------    -------
                                                   (in thousands, except per share data)

<S>                                              <C>        <C>        <C>        <C>
Revenue                                          $12,548    $14,661    $31,703    $24,876
                                                 =======    =======    =======    =======

Income from continuing operations                $ 5,772    $ 6,733    $15,711    $11,608
Income from discontinued operations                   95         50         55         (6)
Gain on sale of properties                         1,421         --      4,914         27
                                                 -------    -------    -------    -------
Net income                                       $ 7,288    $ 6,783    $20,680    $11,629
                                                 =======    =======    =======    =======

Basic and diluted net income per share           $  0.30    $  0.21    $  0.42    $  0.23
                                                 =======    =======    =======    =======

Weighted average number of shares outstanding     24,630     32,964     49,630     49,630
                                                 =======    =======    =======    =======

<CAPTION>
                                                                   2002
                                                 ----------------------------------------
                                                  First     Second      Third     Fourth
                                                 Quarter    Quarter    Quarter    Quarter
                                                 -------    -------    -------    -------
                                                   (in thousands, except per share data)

<S>                                              <C>        <C>        <C>        <C>
Revenue                                          $ 9,260    $14,225    $14,733    $15,732
                                                 =======    =======    =======    =======

Income from continuing operations                  3,961      7,277      6,981      8,522
Income from discontinued operations                  136        192        147         96
Gain on sale of properties                            --         --         --         --
                                                 -------    -------    -------    -------
Net income                                       $ 4,097    $ 7,469    $ 7,128    $ 8,618
                                                 =======    =======    =======    =======

Basic and diluted net income per share           $  0.17    $  0.30    $  0.29    $  0.35
                                                 =======    =======    =======    =======

Weighted average number of shares outstanding     24,586     24,586     24,623     24,630
                                                 =======    =======    =======    =======
</TABLE>


                                      F-25
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

13.   Selected unaudited quarterly information (continued)

Due to an oversight, transaction fee income of $1,330,000 related to commitment
fees charged to a Sponsored REIT was understated in the first quarter of 2003
and overstated in the second quarter of 2003. The following table shows the
effects on the related quarters. There was no effect on the six months ended
June 30, 2003.

<TABLE>
<CAPTION>
                                                     First Quarter ended March 31, 2003
                                                 -----------------------------------------
                                                 As reported    Adjustments     As amended
                                                 -----------    -----------     ----------
                                                  (in thousands, except per share data)

<S>                                                <C>            <C>             <C>
Revenue                                            $11,218        $  1,330        $12,548
                                                   =======        ========        =======

Income from continuing operations                    4,442           1,330          5,772
Income from discontinued operations                     95              --             95
Gain on sale of properties                           1,421              --          1,421
                                                   -------        --------        -------
Net income                                         $ 5,958        $  1,330        $ 7,288
                                                   =======        ========        =======

Basic and diluted net income per share             $  0.24        $   0.06        $  0.30
                                                   =======        ========        =======

Weighted average number of shares outstanding       24,630              --         24,630
                                                   =======        ========        =======

<CAPTION>
                                                     Second Quarter ended June 30, 2003
                                                 -----------------------------------------
                                                 As reported    Adjustments     As amended
                                                 -----------    -----------     ----------
                                                  (in thousands, except per share data)

<S>                                                <C>            <C>             <C>
Revenue                                            $15,971        $ (1,330)       $14,641
                                                   =======        ========        =======

Income from continuing operations                    8,063          (1,330)         6,733
Income from discontinued operations                     50              --             50
Gain on sale of properties                              --              --             --
                                                   -------        --------        -------
Net income                                         $ 8,113        $ (1,330)       $ 6,783
                                                   =======        ========        =======
Basic and diluted net income per share             $  0.25        $   0.04        $  0.21
                                                   =======        ========        =======

Weighted average number of shares outstanding       32,964              --         32,964
                                                   =======        ========        =======
</TABLE>


                                      F-26
<PAGE>

                                                                    SCHEDULE III

                        FRANKLIN STREET PROPERTIES CORP.
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                December 31, 2003

<TABLE>
<CAPTION>
                                                                       Initial Cost
                                                           -------------------------------------
                                                                                        Costs
                                                                                     Capitalized
                                                                        Buildings    (Disposals)
                                                                      Improvements    Subsequent
                                               Encumbrances                and            to
Description                                         (1)        Land     Equipment    Acquisition
                                               ------------    ----     ---------    -----------
                                                                    (in thousands)
<S>                                                <C>       <C>        <C>            <C>
Residential Apartments:
   Essex House, Houston, TX                        --        $ 2,920    $  9,367       $  648
   Silverside Plantation, Baton Rouge, LA          --          2,000      17,082          119
   Gael Apartments, Houston, TX                    --          2,796      16,127            -
   Merrywood Apartments, Katy, TX                  --          2,170      15,334            -

Commercial Properties:
   One Technology Drive, Peabody, MA               --          1,658      10,246         (450)
   NAOP, No. Andover, MA                           --          1,311       8,136          907
   Park Seneca, Charlotte, NC                      --          1,815       7,917          108
   4995 Patrick Henry, Santa Clara, CA             --          3,274       4,130           58
   Piedmont Center, Greenville, SC                 --          1,449       9,839        1,027
   Hillview Center, Milpitas, CA                   --          2,203       2,813            7
   Telecom Business Center, San Diego, CA          --          5,035      11,363          432
   Southfield Centre, Southfield, MI               --          4,344      11,455          956
   Blue Ravine, Folsom, CA                         --            846       5,450           38
   Bollman Place, Savage, MD                       --          1,585       4,121          109
   Austin N.W., Austin, TX                         --            708      10,494          471
   Gateway Crossing 95, Columbia, MD               --          4,453      15,931            4
   Fores t Park, Charlotte, NC                     --          1,559       5,672
   10 Lyberty Way, Westford, MA                    --          1,315       8,862          301
   Centennial Center, Colorado Springs, CO         --          1,549      11,877           23
   Goldentop Technology Center, San Diego, CA      --          5,356      17,049            -
   Meadow Point, Chantilly, VA                     --          2,634      18,911            -
   Timberlake, Chesterfield, MO                    --          2,984      38,661            -
   Fair Lakes, Fairfax, VA                         --          4,383      33,976           24
   Northwest Point, Elk Grove Village, IL          --          2,914      26,295            -
   Federal Way, Federal Way, WA                    --          2,518      13,212            -
   Timberlake East, Chesterfield, MO               --          2,626      17,608           66
   Plaza Ridge, Hemdon, VA                         --          4,210      25,640            -
   Park Ten, Houston, TX                           --          1,061      21,303          (27)
                                                 ----        -------    --------       ------
                                                   --        $71,676    $398,871       $4,821
                                                 ====        =======    ========       ======

<CAPTION>
                                                                     Historical Costs
                                              -------------------------------------------------------------


                                                        Buildings                            Total Costs,
                                                      Improvements                              Net of      Depreciable    Date of
                                                           and                 Accumulated    Accumulated      Life      Acquisition
Description                                     Land    Equipment   Total (2)  Depreciation  Depreciation      Years         (3)
                                                ----    ---------   ---------  ------------  ------------      -----     -----------
                                                                                (in thousands)
<S>                                           <C>       <C>        <C>           <C>            <C>             <C>         <C>
Residential Apartments:
   Essex House, Houston, TX                   $ 2,920   $ 10,015   $ 12,935      $ 3,648        $  9,287        5-27        1993
   Silverside Plantation, Baton Rouge, LA       2,021     17,180     19,201        3,209          15,992        5-27        1998
   Gael Apartments, Houston, TX                 2,796     16,127     18,923          319          18,604        5-27        2000
   Merrywood Apartments, Katy, TX               2,170     15,334     17,504          302          17,202        5-27        2002

Commercial Properties:
   One Technology Drive, Peabody, MA            1,658      9,796     11,454        1,866           9,588        5-39        1995
   NAOP, No. Andover, MA                        1,311      9,043     10,354        2,199           8,155        5-39        1996
   Park Seneca, Charlotte, NC                   1,815      8,025      9,840        1,142           8,698        5-39        1997
   4995 Patrick Henry, Santa Clara, CA          3,274      4,188      7,462          636           6,826        5-39        1997
   Piedmont Center, Greenville, SC              1,449     10,866     12,315        1,648          10,667        5-39        1998
   Hillview Center, Milpitas, CA                2,203      2,820      5,023          336           4,687        5-39        1999
   Telecom Business Center, San Diego, CA       5,035     11,795     16,830        1,440          15,390        5-39        1999
   Southfield Centre, Southfield, MI            4,344     12,411     16,755        1,290          15,465        5-39        1999
   Blue Ravine, Folsom, CA                        846      5,488      6,334          565           5,769        5-39        1999
   Bollman Place, Savage, MD                    1,585      4,230      5,815          414           5,401        5-39        1999
   Austin N.W., Austin, TX                        708     10,965     11,673        1,085          10,588        5-39        1999
   Gateway Crossing 95, Columbia, MD            4,019     16,369     20,388        1,704          18,684        5-39        1999
   Fores t Park, Charlotte, NC                  1,559      5,672      7,231           62           7,169        5-39        1999
   10 Lyberty Way, Westford, MA                 1,315      9,163     10,478          821           9,657        5-39        2000
   Centennial Center, Colorado Springs, CO      1,549     11,900     13,449          154          13,295        5-39        2000
   Goldentop Technology Center, San Diego, CA   5,356     17,049     22,405          232          22,173        5-39        2000
   Meadow Point, Chantilly, VA                  2,634     18,911     21,545          260          21,285        5-39        2001
   Timberlake, Chesterfield, MO                 2,984     38,661     41,645          555          41,090        5-39        2001
   Fair Lakes, Fairfax, VA                      4,383     34,000     38,383          486          37,897        5-39        2001
   Northwest Point, Elk Grove Village, IL       2,914     26,295     29,209          370          28,839        5-39        2001
   Federal Way, Federal Way, WA                 2,518     13,212     15,730          184          15,546        5-39        2001
   Timberlake East, Chesterfield, MO            2,626     17,674     20,300          246          20,054        5-39        2002
   Plaza Ridge, Hemdon, VA                      4,210     25,640     29,850          368          29,482        5-39        2002
   Park Ten, Houston, TX                        1,034     21,303     22,337          295          22,042        5-39        2002
                                              -------   --------   --------      -------        --------
                                              $71,236   $404,132   $475,368      $25,836        $449,532
                                              =======   ========   ========      =======        ========
</TABLE>

(1)   There are no encumbrances on the above properties.
(2)   The aggregate cost for Federal Income Tax purposes is $474,029.
(3)   Original date of acquisition by Sponsored Entity.


                                      F-27
<PAGE>

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

                                                       December 31,
                                           ------------------------------------
(in thousands)                                2003         2002        2001
===============================================================================

Real estate investments, at cost:
   Balance, beginning of period            $ 195,275    $ 194,112   $ 193,988
      Acquisitions                           298,425           --          --
      Improvements                             1,125        1,163         546
      Dispositions                           (19,457)          --        (422)
-------------------------------------------------------------------------------

   Balance, end of period                  $ 475,368    $ 195,275   $ 194,112
===============================================================================

Accumulated depreciation:
   Balance, beginning of period            $  21,999    $  17,419   $  12,917
      Depreciation                             7,786        4,580       4,502
      Dispositions                            (3,949)          --          --
-------------------------------------------------------------------------------

   Balance, end of period                  $  25,836    $  21,999   $  17,419
===============================================================================


                                      F-28