UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION




Washington,
D.C. 20549




FORM
10-K





(Mark One)


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




For the fiscal year ended
December 31, 2009





o
            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. 001-32470




FRANKLIN
STREET PROPERTIES CORP.


(Exact
name of registrant as specified in its charter)





Maryland
            04-3578653(State
      or other jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      No.)401 Edgewater Place, Suite 200, Wakefield,
      Massachusetts
            01880-6210(Address
      of principal executive offices)
            (Zip
      Code)





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




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




Title
      of each class:
            Name
      of each exchange on which registered:Common
      Stock, $.0001 par value per share
            NYSE
      Amex







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




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




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







UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-K, Continued







Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes |X|  No |_|.




Indicate by
check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).Yes |_|  No
|_|.




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




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




Large accelerated filer |X|
            
            Accelerated
      filer |_|Non-accelerated
      filer   |_|
            (Do
      not check if a smaller reporting company)
            Smaller
      reporting company |_|








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




The aggregatemarket
value of the voting and non-voting common equity held by non-affiliates based on
the closing sale price as reported on NYSE Amex, as of the last business day of
the registrant’s most recently completed second fiscal quarter, June 30,
2009,was approximately
$796,786,802.




There were
79,680,705 shares of Common Stock outstanding as of February 22,
2010.




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 14, 2010 (the “Proxy
Statement”).  The information required in response to Items 10 – 14 of
Part III of this Form 10-K, other than that contained in Part I under the
caption, “Directors and Executive Officers of FSP Corp.,” is hereby incorporated
by reference to the Proxy Statement.







TABLE
OF CONTENTS








PART
      I
            
            1Item
      1.
            Business
            1Item
      1A.
            Risk
      Factors
            6Item
      1B.
            Unresolved
      Staff Comments
            13Item
      2.
            Properties
            14Item
      3.
            Legal
      Proceedings
            21Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            21Directors
      and Executive Officers of FSP Corp.
            21PART
      II
            
            25Item
      5.
            Market
      For Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            25Stock
      Performance Graph
            27Item
      6.
            Selected
      Financial Data.
            28Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            29Item
      7A.
            Quantitative
      and Qualitative Disclosures About Market Risk
            48Item
      8.
            Financial
      Statements and Supplementary Data
            49Item
      9.
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
            49Item
      9A.
            Controls
      and Procedures
            49Item
      9B.
            Other
      information
            50PART
      III
            
            51Item
      10.
            Directors,
      Executive Officers and Corporate Governance
            51Item
      11.
            Executive
      Compensation
            51Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            51Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            51Item
      14.
            Principal
      Accounting Fees and Services
            51PART
      IV
            
            52Item
      15.
            Exhibits,
      Financial Statement Schedules
            52SIGNATURES
            
            53













PART
I




Item
      1.
            Business




History




Our
company, Franklin Street Properties Corp., which we 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, or REIT, for federal income tax
purposes.  Our common stock is traded on the NYSE Amex under the
symbol “FSP”.  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., which we refer to as the
conversion.  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
May 15, 2008, we acquired a real estate investment trust by merger, which we
refer to as Park Ten Development.  In this merger we paid cash
consideration to the holders of preferred stock in Park Ten Development of
approximately $127,290 per share for a total purchase price of approximately
$35.4 million.  As a result of the merger, we acquired all of the
assets previously held by Park Ten Development.




On
September 23, 2009, we completed an underwritten public offering of 9.2
million shares of our common stock (including 1.2 million shares
issued as a result of the full exercise of an overallotment option by the
underwriter) at a price to the public of $13.00 per share.  The
proceeds from this public offering, net of underwriter discounts and offering
costs, totaled approximately $114.7 million (after payment of offering
costs of approximately $0.7 million).




Our
Business




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




o
            Real
      estate operations, including rental income from real estate leasing,
      interest income from secured loans made for interim acquisition or other
      purposes and fee income from asset/property
  management.





o
            Investment
      banking/investment services, which generate brokerage commissions, loan
      origination fees, development services 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 refer to
      these entities which are organized as corporations and operated in a
      manner intended to qualify as real estate investment trusts, as Sponsored
      REITs.  Previously these entities were called Sponsored Entities
      and were organized as partnerships.





From
time-to-time we may acquire real estate or invest in real estate by purchasing
shares of preferred stock offered in the syndications of our Sponsored REITs,
although we have no legal or any other enforceable obligation to acquire or to
offer to acquire any Sponsored REIT.  We may also pursue on a
selective basis the sale of our properties to take advantage of the value
creation and demand for our properties, or for geographic or property specific
reasons.  See Note 3 to our consolidated financial statements for
additional information regarding our business segments.




Real
Estate




We
own and operate a portfolio of real estate consisting of 32 properties as of
December 31, 2009, which includes 31 office buildings and one industrial use
property.  We derive rental revenue from income paid to us by tenants
of these properties.  From time-to-time we dispose of properties
generating gains or losses in an ongoing effort to improve and upgrade our
portfolio.  See Item 2 of this Annual Report on Form 10-K for more
information about our properties.  We also held preferred stock
investments in three Sponsored REITs as of December 31, 2009, as to which we
record our share of income or loss under the equity method of accounting, and
from which we received dividends.




1


We
typically make an acquisition loan to each Sponsored REIT for its purchase of
the underlying property, which is secured by a mortgage on the borrower’s real
estate.  These loans typically are repaid out of the proceeds of the
borrower’s equity offering.  We refer to these loans as Acquisition
Loans.  From time-to-time we may also make secured loans to Sponsored
REITs to fund construction costs, capital expenditures, leasing costs and other
purposes.  We anticipate that these loans will be repaid at their
maturity or earlier from long-term financings of the underlying properties, cash
flows from the underlying properties or some other capital event.  We
refer to these loans as Sponsored REIT Loans.




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




Investment
Banking/Investment Services




Through
our subsidiary FSP Investments LLC, 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 Securities
Act of 1933.  These single-purpose entities each typically acquire a
single real estate asset.  FSP Investments LLC raises capital required
to equitize these entities 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, though there is virtually no economic benefit or risk related to the
common stock subsequent to the completion of the syndication.  Since
1997, FSP Investments LLC has sponsored the syndication of 50 entities, 13 of
which were Sponsored Entities, and 37 of which were Sponsored
REITs.




FSP
Investments LLC derives revenue from syndication and other transaction fees
received in connection with the sale of preferred stock 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 LLC is a registered broker/dealer with the
Securities and Exchange Commission, or SEC, and is a member of the Financial
Industry Regulatory Authority, or FINRA.  We have made an election to
treat FSP Investments LLC as a “taxable REIT subsidiary” for federal income tax
purposes.




Investment
Objectives




Our
investment objectives are to create shareholder value by increasing revenue from
rental, dividend and interest income, net gains from sales of properties and
investment banking services and increase the cash available for distribution in
the form of dividends to our stockholders.  We expect that, through
FSP Investments LLC, 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 from such activities, as well as real estate
revenue from loan origination fees, interest income and fees from asset
management, property management and development.  We may also acquire
additional real properties by direct cash purchase or by acquisition of
Sponsored REITs, though we have no obligation to acquire or offer to acquire any
Sponsored REIT in the future.  In addition, we may invest in real
estate by purchasing shares of preferred stock offered in the syndications of
our Sponsored REITs.




From
time to time, as market conditions warrant, we may sell properties owned by
us.  We did not sell any properties in 2009 or
2008.  However, we did recognize a gain of approximately $424,000 on a
small piece of land as a result of a land taking by the Commonwealth of Virginia
in 2009.  In 2007 we sold five properties.  When we sell a
property, we either distribute some or all of the sale proceeds to our
stockholders as a distribution 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.  We own 32 properties that are
located in 14 different states.  Of the 32 properties, 31 are office
buildings and one is an industrial use property.  See Item 2 of this
Annual Report on Form 10-K for more information about our
properties.




2


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




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


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


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


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


·
            we
      believe that we have the ability to hold properties through down cycles
      because we generally do not have significant leverage on the Company,
      which could place the properties at risk of foreclosure.  As of
      February 22, 2010, none of our 32 properties was subject to mortgage
      debt.





Revolver




We
currently have an unsecured revolving line of credit, which we refer to as the
Revolver, with a group of banks that provides for borrowings at our election of
up to $250,000,000 and that matures on August 11, 2011.  Borrowings
under the Revolver bear interest at either the bank's prime rate (3.25% at
December 31, 2009) or a rate equal to LIBOR plus 100 basis points (1.23% at
December 31, 2009).  There were borrowings of $109,008,000 and
$67,468,000 at the LIBOR plus 100 basis point rate at a weighted average rate of
1.34% and 2.39% outstanding under the Revolver at December 31, 2009 and 2008,
respectively.  The weighted average interest rate on amounts
outstanding during 2009 and 2008 was approximately 1.23% and 3.61%,
respectively.  As of December 31, 2009, we were in compliance with all
bank covenants required under the Revolver.




We
have drawn on the Revolver, and intend to draw on the Revolver in the future for
a variety of corporate purposes, including the acquisition of properties that we
acquire directly for our portfolio and the funding of loans to Sponsored
REITs.  We also use the Revolver to fund the Acquisition Loans we
typically make to each Sponsored REIT, which are secured by a mortgage on the
borrower’s real estate.  These loans typically are repaid out of the
proceeds of the borrower’s equity offering.  From time-to-time we may
also draw down from the Revolver to make the Sponsored REITs Loans, described
further below to fund construction costs, capital expenditures, leasing costs
and other purposes.


Term
Loan




We
also have a $75 million unsecured term loan facility, which we refer to as the
Term Loan, with three banks.  Proceeds from the Term Loan were used to
reduce the outstanding principal balance on the Revolver.  The Term
Loan has an initial three-year term that matures on October 15,
2011.  In addition, we have the right to extend the initial maturity
date for up to two successive one-year periods, or until October 15, 2013 if
both extensions are exercised.  We fixed the interest rate for the
initial three-year term of the Term Loan at 5.84% per annum pursuant to an
interest rate swap agreement.  As of December 31, 2009, we were in
compliance with all bank covenants required under the Term Loan.




Hedging
Activities




On
October 15, 2008, we entered into an interest rate swap agreement that fixed the
interest rate on our Term Loan at 5.84% for three years, which matches the
initial three-year term of the Term Loan.  We may engage in hedging
transactions to protect us from interest rate fluctuations in the
future.  These transactions may include interest rate swaps, the
purchase or sale of interest rate collars, caps or floors and other hedging
instruments. These instruments may be used to hedge as much of the interest rate
risk as we determine is in the best interest of our stockholders, given the cost
of such hedges and the need to maintain our qualification as a
REIT.  We may elect to bear a level of interest rate risk that could
otherwise be hedged when we believe based on all relevant facts, that bearing
such risk is advisable.




3


Loans to Sponsored
REITs




Acquisition
Loans




We
typically make an acquisition loan to each Sponsored REIT for its purchase of
the underlying property, which is secured by a mortgage on the borrower’s real
estate.  These loans enable Sponsored REITs to acquire their
respective properties prior to the consummation of the offerings of their equity
interests.  We refer to these loans as Acquisition
Loans.  We anticipate that each Acquisition Loan will be repaid at
maturity or earlier from the proceeds of the Sponsored REIT’s equity
offering.  Each Acquisition Loan has a term of two years and bears
interest at the same rate paid by FSP Corp. for borrowings under the
Revolver.  We had one Acquisition Loan outstanding for the syndication
of FSP Centre Pointe V Corp., and one Acquisition Loan outstanding for the
syndication of FSP Grand Boulevard Corp. as of December 31, 2009 and 2008,
respectively.  The Acquisition Loan for FSP Grand Boulevard Corp. was
repaid on May 29, 2009.  Acquisition Loans are classified as assets
held for syndication.




Sponsored
REIT Loans




From
time-to-time we may also make secured loans to Sponsored REITs to fund
construction costs, capital expenditures, leasing costs and other
purposes.  We refer to these loans as Sponsored REIT
Loans.  Since December 2007, we have provided Sponsored REIT Loans in
the form of revolving lines of credit to five Sponsored REITs, or to
wholly-owned subsidiaries of those Sponsored REITs, and a construction loan to
one wholly-owned subsidiary of another Sponsored REIT.  We anticipate
that each Sponsored REIT Loan will be repaid at maturity or earlier from long
term financing of the property securing the loan, cash flows from that
underlying property or some other capital event.  Each Sponsored REIT
Loan is secured by a mortgage on the underlying property and has a term of
approximately two to three years.  Advances under each Sponsored REIT
Loan bear interest at a rate equal to the 30-day LIBOR rate plus an agreed upon
number of basis points and most advances also require a 50 basis point draw
fee.  We received a $210,000 loan commitment fee at the time of the
closing of the Sponsored REIT Loan that is structured as a construction
loan.





The
following is a summary of the Sponsored REIT Loans outstanding as of December
31, 2009:





(dollars
      in 000's)
              
              
              Maximum
              
              
              Amount
              
              
              
              
              
              
              
              Rate
      inMaturity
              
              Amount
              
              
              Drawn
      at
              
              
              Interest
              
              Draw
              
              
              Effect
      atSponsored REIT
              Date
              
              of Loan
              
              
              31-Dec-09
              
              
              Rate (1)
              
              Fee (2)
              
              
              31-Dec-09Revolving
      lines of creditFSP
      Highland Place I Corp.
              31-Dec-10
              
              $
              5,500
              
              
              $
              1,125
              
              
              
              L+2%
              
              
              n/a
              
              
              
              2.24%FSP
      Satellite Place Corp.
              31-Mar-12
              
              
              5,500
              
              
              
              1,902
              
              
              
              L+3%
              
              
              0.5%
              
              
              
              3.24%FSP
      1441 Main Street Corp.(a)
              31-Mar-12
              
              
              10,800
              
              
              
              5,000
              
              
              
              L+3%
              
              
              0.5%
              
              
              
              3.24%FSP
      505 Waterford Corp.
              30-Nov-11
              
              
              7,000
              
              
              
              -
              
              
              
              L+3%
              
              
              0.5%FSP
      Phoenix Tower Corp.  (b)
              30-Nov-11
              
              
              15,000
              
              
              
              3,600
              
              
              
              L+3%
              
              
              0.5%
              
              
              
              3.24%Construction
      loanFSP
      385 InterlockenDevelopment
      Corp. (c) (d)
              30-Apr-12
              
              
              42,000
              
              
              
              24,908
              
              
              
              L+3%
              
              
              n/a
              
              
              
              3.24%$
              85,800
              
              
              $
              36,535
  (1)
      The interest rate is 30-Day LIBOR rate plus the additional rate
      indicated(2)
      The draw fee is a percentage of each new advance, and is paid at the time
      of each new draw(a)
      The borrower is FSP 1441 Main Street LLC, a wholly-owned
      subsidiary(b)
      The borrower is FSP Phoenix Tower Limited Partnership, a wholly-owned
      subsidiary(c)
      The borrower is FSP 385 Interlocken LLC, a wholly-owned
      subsidiary(d)
      The borrower paid a commitment fee of $210,000 at loan
      origination





4


Equity
Securities





On
September 23, 2009, we completed an underwritten public offering of 9.2 million
shares of our common stock (including 1.2 million shares issued as a result of
the full exercise of an overallotment option by the underwriter) at a price to
the public of $13.00 per share.  The proceeds from this public
offering, net of underwriter discounts and offering costs, totaled approximately
$114.7 million. We used approximately $74.6 million of the net proceeds of the
offering to repay outstanding borrowings under our $250 million Revolver,
including an aggregate of approximately $51.6 million drawn down in June 2009
for the acquisition of properties in Eden Prairie, Minnesota and Chantilly,
Virginia.  We used the remainder of the net proceeds to fund a portion
of the purchase price of a property in Falls Church, Virginia in September
2009.





As
of December 31, 2009, we have an automatic shelf registration statement on Form
S-3 on file with the SEC relating to the offer and sale, from time to time, of
an indeterminate amount of our common stock.  From time to time, we
expect to issue additional shares of our common stock under our automatic shelf
registration statement or a different registration statement to fund the
acquisition of additional properties, to pay down any existing debt financing
and for other corporate purposes.





Competition




The
economy in the United States is continuing to experience significant
disruptions, including increased levels of unemployment, the failure and near
failure of a number of large financial institutions, reduced liquidity and
increased credit risk premiums for a number of market
participants.  Economic conditions may be affected by numerous
factors, including but not limited to, inflation and employment levels, energy
prices, recessionary concerns, changes in currency exchange rates, the
availability of debt and interest rate fluctuations.  The current
disruptions in the U.S. economy have affected our business, resulting in a
decline in occupancy in our real estate portfolio in 2009, and REITs generally
and may continue to affect real estate values, occupancy levels, property income
levels and the propensity and the ability of investors to invest in our
Sponsored REITs in the future.  At this time, we cannot predict the
extent or duration of any negative impact that the current disruptions in the
U.S. economy will have on our business, our competitors’ businesses, on REITs
generally or on financial institutions that provide capital to us or our
competitors.




With
respect to our real estate investments, we face competition in each of the
markets where the properties are located.  In order to establish,
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 fixed overhead costs, less cash or other resources that make them
willing or able to accept lower rents in order to maintain a certain occupancy
level.  In markets where there is not currently significant existing
property competition, our competitors may decide to enter the market and build
new buildings to compete with our existing projects or those in a development
stage.  Our competition is not only with other developers, but also
with property users who choose to own their building or a portion of the
building in the form of an office condominium, and with larger market forces
(including the current disruptions in the U.S. economy described above, changes
in interest rates and tax treatment) that increase competition among landlords
for quality tenants and individual decisions beyond our control.




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, exchange traded 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 LLC 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.  In addition, because we offer the Sponsored REITs only to
accredited investors, our pool of potential investment clients is smaller than
that available to some other financial institutions.  Our competition
is not only with alternative types of investments, but also with larger market
forces (including the current disruptions in the U.S. economy described above,
changes in interest rates and tax treatment) beyond our control that may affect
the propensity and the ability of investors to invest in Sponsored
REITs.




5


Employees




We
had 43 employees as of February 22, 2010.




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 SEC.  The reports and other information we file can be inspected
and copied at the SEC Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549.  Such reports and other information may also be obtained
from the web site that the SEC maintains at http://www.sec.gov.  Further
information about the operation of the Public Reference Room may be obtained by
calling the SEC at 1-800-SEC-0330.




We
make available, free of charge through our website http://www.franklinstreetproperties.com
our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
after we electronically file such material with the SEC.




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




We
will voluntarily provide paper copies of our filings and code of ethics upon
written request received at the address on the cover of this Annual Report on
Form 10-K, free of charge.




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.




Economic conditions in the United
States could have a material adverse impact on our earnings and financial
condition.





Because
economic conditions in the United States may affect real estate values,
occupancy levels, property income and the propensity and the ability of
investors to invest in Sponsored REITs, current and future economic conditions
in the United States could have a material adverse impact on our earnings and
financial condition.  The economy in the United States is continuing
to experience significant disruptions, including increased levels of
unemployment, the failure and near failure of a number of large financial
institutions, reduced liquidity and increased credit risk premiums for a number
of market participants.  These conditions may continue or worsen in
the future.  Economic conditions may be affected by numerous factors,
including but not limited to, inflation and employment levels, energy prices,
recessionary concerns, changes in currency exchange rates, the availability of
debt and interest rate fluctuations.  At this time we cannot predict
the extent or duration of any negative impact that the current disruptions in
the U.S. economy will have on our earnings and financial condition.




If
a Sponsored REIT defaults on an Acquisition Loan or a Sponsored REIT Loan, we
may be required to keep a balance outstanding on the Revolver or use our cash
balance to repay the Revolver which may reduce cash available for distribution
to our stockholders or for other corporate purposes.




We
typically draw on the Revolver to make an acquisition loan to a Sponsored
REIT.  The acquisition loan enables the Sponsored REIT to acquire real
property prior to the consummation of the offering of its equity interests and
is typically secured by a first mortgage against the real property
acquired.  We refer to these loans as Acquisition
Loans.  Once the offering has been completed, the Sponsored REIT
typically repays the Acquisition Loan out of the offering
proceeds.  From time-to-time, we may also draw on the Revolver to make
secured loans to Sponsored REITs for the purpose of funding construction costs,
capital expenditures, leasing costs and for other purposes.  We refer
to these loans as Sponsored REIT Loans.  We anticipate that each
Sponsored REIT Loan will be repaid at maturity or earlier from long term
financing of the property securing the loan, cash flows from that underlying
property or some other capital event.  If we are unable to fully
syndicate a Sponsored REIT or if a Sponsored REIT defaults on an Acquisition
Loan or a Sponsored REIT Loan for any other reason, the Sponsored REIT could be
unable to fully repay the Acquisition Loan or the Sponsored REIT Loan, as the
case may be, and we would have to satisfy our obligation under the Revolver
through other means.  If we are required to use cash for this purpose,
we would have less cash available for distribution to our stockholders or for
other corporate purposes.


6


Covenants
in our debt agreements could adversely affect our financial
condition.




Our
debt agreements contain customary restrictions, requirements and other
limitations on our ability to incur indebtedness, including loan to value
ratios, debt service coverage ratios, unencumbered liquidity requirements,
account balance requirements, net worth requirements, total debt to asset ratios
and secured debt to total asset ratios, which we must maintain.  Our
continued ability to borrow under the Revolver is subject to compliance with our
financial and other covenants.  Failure to comply with such covenants
could cause a default under the applicable debt agreements, and we may then be
required to repay such debt with capital from other sources.  Under
those circumstances, other sources of capital may not be available to us, or be
available only on unattractive terms.




We
may use debt financing to purchase properties directly for our real estate
portfolio, to make Acquisition Loans, Sponsored REIT Loans or for other
corporate purposes.  If we are unable to obtain debt financing from
these or other sources, or to refinance existing indebtedness upon maturity, our
financial condition and results of operations could be materially adversely
affected.  If we breach covenants in our debt agreements, the lenders
can declare a default.  A default under our debt agreements could
result in difficulty financing growth in both the investment banking/investment
services and real estate segments of our business and could also result in a
reduction in the cash available for distribution to our stockholders or for
other corporate purposes.  In addition, our debt agreements include
cross-default provisions so that a default under one constitutes a default under
the other.  Defaults under our debt agreements could materially and
adversely affect our financial condition and results of operations.




An
increase in interest rates would increase our interest costs on variable rate
debt and could adversely impact our ability to refinance existing debt or sell
assets.




As
of December 31, 2009, we had approximately $109.0 million of indebtedness that
bears interest at variable rates, and we may incur more of such indebtedness in
the future.  Approximately $75 million of this variable rate debt is
fixed through an interest rate swap contract at 5.84% per annum through
October 15, 2011.  If interest rates increase, then so will the
interest costs on our unhedged variable rate debt, which could adversely affect
our cash flow, our ability to pay principal and interest on our debt and our
ability to make distributions to our stockholders.  In addition,
rising interest rates could limit our ability to both incur new debt and to
refinance existing debt when it matures.  This risk is currently
heightened because the debt market is experiencing volatility, including
reduced liquidity and increased credit risk premiums.  These
conditions, which increase the cost and reduce the availability of debt, may
continue or worsen in the future.  From time to time, we may enter
into interest rate swap agreements and other interest rate hedging contracts,
including swaps, caps and floors.  While these agreements are
intended to lessen the impact of rising interest rates on us, they also
expose us to the risks that the other parties to the agreements will not
perform, we could incur significant costs associated with the
settlement of the agreements, the agreements will be unenforceable and
the underlying transactions will fail to qualify as
highly-effective cash flow hedges.  In addition, an increase in
interest rates could decrease the amount third parties are willing to pay for
our assets, thereby limiting our ability to change our portfolio promptly in
response to changes in economic or other conditions.




If
we are not able to collect sufficient rents from each of our owned real
properties, investments in Sponsored REITs or interest on Acquisition Loans or
Sponsored REIT Loans we fund, we may suffer significant operating losses or a
reduction in cash available for future dividends.




A
substantial portion of our revenue is generated by the rental income of our real
properties and investments in Sponsored REITs.  If our properties do
not provide us with a steady rental income or we do not collect interest income
from Acquisition Loans or Sponsored REIT Loans we fund, our revenues will
decrease, which may cause us to incur operating losses in the future and reduce
the cash available for distribution to our stockholders.




7




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




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




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.  This risk is currently heightened because the financial
markets are experiencing volatility, including the failure and near failure
of a number of financial institutions and reduced liquidity and increased credit
risk premiums in the debt markets.  These conditions may continue or
worsen in the future.  Moreover, our investment banking/investment
services business may be affected to the extent existing Sponsored REITs incur
losses or have operating results that fail to meet investors’
expectations.




We
are dependent on key personnel.




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





Our
level of dividends may fluctuate.




Because
our real estate occupancy levels and rental rates can fluctuate and our
investment banking/investment services business is transactional in nature,
there is no predictable recurring level of revenue from such
activities.  As a result of this, the amount of cash available for
distribution may fluctuate, which may result in our not being able to maintain
or grow dividend levels in the future.  On July 21, 2008, we announced
that we had reduced our regular quarterly dividend from $0.31 per share of
common stock to $0.19 per share of common stock in order to better align our
regular quarterly dividends with the results of our current real estate
operations only, without taking into account the results of our less predictable
transactional operations.




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.




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




As
of February 22, 2010, we owned 32 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 of the value of their
investments.  The value of our common stock may be adversely affected
if the real properties held by us decline in value since these real properties
represent the majority of the tangible assets held by us.  Moreover,
if we are forced to sell or lease the real property held by us below its initial
purchase price or its carrying costs or if we are forced to lease real property
at below market rates because of the condition of the property, our results of
operations would be adversely affected and such negative results of operations
may result in lower dividends being paid to holders of our common
stock.


8





New
acquisitions may fail to perform as expected.




We
may acquire new properties, whether by direct FSP Corp. purchase with cash or by
drawing on the Revolver, by acquisition of Sponsored REITs or other entities by
cash or through the issuance of shares of our stock or by investment in a
Sponsored REIT.  We acquired a property in Maryland in June 2007, a
preferred stock interest in a Sponsored REIT that owns a property in Illinois in
December 2007, a property in Texas by merger in May 2008, a property in Virginia
in December 2008 and a property in Missouri in December 2008.  We also
acquired a preferred stock interest in a Sponsored REIT that owns a property in
Missouri in May 2009, a property in Virginia in June 2009, a property in
Minnesota in June 2009 and another property in Virginia in September
2009.  Newly acquired properties, including preferred stock interests
therein, may fail to perform as expected, in which case, our results of
operations could be adversely affected.




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




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




·
            changes
      in general and local economic
conditions;


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


·
            changes
      in market rental rates;


·
            the
      impact of environmental protection
laws;


·
            changes
      in tax, real estate and zoning laws;
and


·
            the
      impact of obligations and restrictions contained in title-related
      documents.





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




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




When
leases expire, we may 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.  This risk is currently heightened because the economy
in the United States is continuing to experience significant disruptions,
including increased unemployment, the failure and near failure of a number of
financial institutions, reduced liquidity and increased credit risk premiums for
a number of market participants.  These conditions may continue or
worsen in the future.  Typical lease terms range from five to ten
years, so up to approximately 20% of our rental revenue from commercial
properties could be expected to expire each year.




We
face risks from geographic concentration.




The
properties in our portfolio as of December 31, 2009, by aggregate square
footage, are distributed geographically as follows: South – 38.2%, West – 17.8%,
Midwest – 18.3%, East – 25.6%.  However, within certain of those
regions, we hold a larger concentration of our properties in Dallas, Texas –
15.6%, Greater Denver, Colorado – 11.5%, Northern Virginia – 10.7% and Houston,
Texas – 9.4%.  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.


9





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




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




There
is limited potential for revenue to increase from an increase in leased space 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.  While we cannot predict when existing vacancy will
be leased or if existing tenants with expiring leases will renew their leases or
what the terms and conditions of the lease renewals will be, we expect to renew
or sign new leases at current market rates for locations in which the buildings
are located, which in some cases may be below the expiring rates.




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:




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


·
            proposed
      legislation to address climate change will not increase utility and other
      costs of operating our properties which, if not offset by rising rental
      income and/or paid by tenants, would materially and adversely affect our
      financial condition and results of
  operations;


·
            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;


·
            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


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





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




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




10


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




We
face risks associated with our Tenants being designated “Prohibited Persons” by
the Office of Foreign Assets Control.





Pursuant
to Executive Order 13224 and other laws, the Office of Foreign Assets Control of
the United States Department of the Treasury, or OFAC, maintains a list of
persons designated as terrorists or who are otherwise blocked or banned, which
we refer to as Prohibited Persons.  OFAC regulations and other laws
prohibit conducting business or engaging in transactions with Prohibited Persons
(the “OFAC Requirements”).  Our current leases and certain other
agreements require the other party to comply with the OFAC
Requirements.  If a tenant or other party with whom we contract is
placed on the OFAC list we may be required by the OFAC Requirements to terminate
the lease or other agreement.  Any such termination could result in a
loss of revenue or a damage claim by the other party that the termination was
wrongful.





Actual
or threatened terrorist attacks may adversely affect our ability to generate
revenues and the value of our properties.





We
have significant investments in markets that may be the targets of actual or
threatened terrorism attacks in the future.  As a result, some tenants
in these markets may choose to relocate their businesses to other markets or to
lower-profile office buildings within these markets that may be perceived to be
less likely targets of future terrorist activity.  This could result
in an overall decrease in the demand for office space in these markets generally
or in our properties in particular, which could increase vacancies in our
properties or necessitate that we lease our properties on less favorable terms
or both.  In addition, future terrorist attacks in these markets could
directly or indirectly damage our properties, both physically and financially,
or cause losses that materially exceed our insurance coverage.  As a
result of the foregoing, our ability to generate revenues and the value of our
properties could decline materially.  See also “We may lose capital investment or
anticipated profits if an uninsured event occurs.”





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 that may be either uninsurable or not
economically insurable.  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:




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


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


·
            liabilities
      incurred in the ordinary course of
business.


11





Our
employee retention plan may prevent changes in control.





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




Further
issuances of equity securities may be dilutive to current
stockholders.





The interests of our existing
stockholders could be diluted if additional equity securities are issued to
finance future acquisitions, repay indebtedness or to fund other general
corporate purposes.  Our ability to execute our business strategy
depends on our access to an appropriate blend of debt financing, including
unsecured lines of credit and other forms of secured and unsecured debt, and
equity financing.





The
price of our common stock may vary.





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




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




The
provisions of the tax code governing the taxation of real estate investment
trusts are very technical and complex, and although we expect that we will be
organized and will operate in a manner that will enable us to meet such
requirements, no assurance can be given that we will always succeed in doing
so.  In addition, as a result of our acquisition of the target REITs
pursuant to the mergers, we might no longer qualify as a real estate investment
trust.  We could lose our ability to so qualify for a variety of
reasons relating to the nature of the assets acquired from the target REITs, the
identity of the stockholders of the target REITs who become our stockholders or
the failure of one or more of the target REITs to have previously qualified as a
real estate investment trust.  Moreover, you should note that if one
or more of the REITs that we acquired in May 2008, April 2006, April 2005 or
June 2003 did not qualify as a real estate investment trust immediately prior to
the consummation of its acquisition, we could be disqualified as a REIT as a
result of such acquisition.




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




Provisions
in our organizational documents may prevent changes in control.




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




12


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




Staggered
Board.  Our board of directors is divided into three
classes.  The terms of these classes will expire in 2010, 2011 and
2012, respectively.  Directors of each class are elected for a
three-year term upon the expiration of the initial term of each
class.  The staggered terms for directors may affect our stockholders’
ability to effect a change in control even if a change in control were in the
stockholders’ best interests.




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




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




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




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




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




Item
      1B.
              Unresolved Staff
      Comments.





None.




13




Item
      2.
            Properties




Set
forth below is information regarding our properties as of December 31,
2009:




Date
      of Purchase orMerged Entity
            
            Percent
            Approx.Date
      of
            Approx.
            Leased
      as
            NumberProperty Location
            Purchase
            Square Feet
            of 12/31/09
            of Tenants
            
            Major
      Tenants1Office1515
      Mockingbird Lane
            8/1/97
            109,550
            86%
            63
            
            Primary
      PhysicianCareCharlotte,
      NC 28209678-686
      Hillview Drive
            3/9/99
            36,288
            100%
            1
            
            Headway
      Technologies, Inc.Milpitas,
      CA 95035600
      Forest Point Circle
            7/8/99
            62,212
            100%
            2
            
            American
      National Red CrossCharlotte,
      NC  28273
            
            
            
            
            
            Cellco
      Partnership d/b/aVerizon
      Wireless18000
      W. Nine Mile Rd.
            9/30/99
            214,697
            56%
            4
            
            International
      Business Machines Corp.Southfield,
      MI 480754820
      & 4920 Centennial Blvd.
            9/28/00
            110,730
            78%
            3
            
            Comcast
      of ColoradoX, LLCColorado
      Springs, CO 80919
            
            
            
            
            
            Walter
      Kidde Portable Equipment, Inc.AMI
      Semiconductor, Inc14151
      Park Meadow Drive
            3/15/01
            136,683
            50%
            2
            
            American
      Systems CorporationChantilly,
      VA 201511370
      & 1390 Timberlake
            5/24/01
            232,766
            99%
            5
            
            RGA
      Reinsurance CompanyManor
      Parkway,
            
            
            
            
            
            AMDOCS,
      Inc.Chesterfield,
      MO 63017501
      & 505 South 336th
      Street
            9/14/01
            117,010
            26%
            5
            
            SunGard
      Availability Services, LPFederal
      Way, WA 9800350
      Northwest Point Rd.
            12/5/01
            176,848
            100%
            1
            
            Citicorp
      Credit Services, Inc.Elk
      Grove Village, IL 600051350
      Timberlake Manor
            3/4/02
            116,312
            100%
            7
            
            RGA
      Reinsurance CompanyParkway
            
            
            
            
            
            Metropolitan
      Life Insurance CompanyChesterfield,
      MO 63017
            
            
            
            
            
            AB
      Mauri Food Inc. d/b/a Fleischmanns Yeast





_____________________


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


14





Date
      of Purchase orMerged
      Entity
            
            Percent
            Approx.Date
      of
            Approx.
            Leased
      as
            NumberProperty Location
            Purchase
            Square Feet
            of 12/31/09
            of Tenants
            
            Major
      Tenants116285
      Park Ten Place
            6/27/02
            155,715
            62%
            7
            
            TMI,
      Inc. a/k/a Trendmaker HomesHouston,
      TX 77084
            
            
            
            
            
            PB
      Americas, Inc.BAE
      Systems Land & Armaments, LP2730-2760
      Junction Avenue
            8/27/02
            145,951
            100%
            3
            
            Techwell,
      Inc.408-410
      East Plumeria
            
            
            
            
            
            County
      of Santa ClaraSan
      Jose, CA 95134
            
            
            
            
            
            AltiGen
      Communications, Inc.15601
      Dallas Parkway
            9/30/02
            293,787
            61%
            7
            
            Behringer
      Harvard Holdings, LLCAddison,
      TX 75001
            
            
            
            
            
            Noble
      Royalties, Inc.1500
      & 1600 Greenville Ave.
            3/3/03
            298,766
            100%
            3
            
            Tektronix
      Texas, LLC.Richardson,
      TX 75080
            
            
            
            
            
            ARGO
      Data Resource Corp.6550
      & 6560 Greenwood Plaza
            2/24/05
            199,077
            100%
            1
            
            New
      Era of Networks, Inc.Englewood,
      CO 801113815-3925
      River Crossing Pkwy
            7/6/05
            205,059
            95%
            14
            
            Crowe,
      Chizek & Company, LLCIndianapolis,
      IN 46240
            
            
            
            
            
            Somerset
      CPAs, P.C.The
      College Network, Inc.5055
      & 5057 Keller Springs Rd.
            2/24/06
            218,934
            72%
            26
            
            See
      Footnote2Addison,
      TX 750012740
      North Dallas Parkway
            12/15/00
            116,622
            50%
            4
            
            Masergy
      Communications, Inc.Plano,
      TX 75093
            
            
            
            
            
            Activant
      Solutions, Inc.NelsonArchitectural
      Engineers, Inc.5505
      Blue Lagoon Drive
            11/6/03
            212,619
            100%
            1
            
            Burger
      King CorporationMiami,
      FL 331265600,
      5620 & 5640 Cox Road
            7/16/03
            303,745
            21%
            3
            
            See
      Footnote2Glen
      Allen, VA 230601293
      Eldridge Parkway
            1/16/04
            248,399
            100%
            1
            
            CITGO
      Petroleum CorporationHouston,
      TX 77077380
      Interlocken Crescent
            8/15/03
            240,184
            87%
            10
            
            Cooley
      Godward, LLPBroomfield,
      CO 80021
            
            
            
            
            
            Montgomery
      Watson Americas, Inc.VMWare,
      Inc.





_____________________


2 No
Tenant occupies more than 10% of the space.


.


15




Date
      of Purchase orMerged Entity
              
              Percent
              Approx.Date
      of
              Approx.
              Leased
      as
              NumberProperty Location
              Purchase
              Square Feet
              of 12/31/09
              of Tenants
              
              Major
      Tenants13625
      Cumberland Boulevard
              6/27/06
              387,267
              90%
              26
              
              Corporate
      Holdings, LLCAtlanta,
      GA  30339
              
              
              
              
              
              Century
      Business Services, Inc.Bennett
      Thrasher PC390
      Interlocken Crescent
              12/21/06
              241,516
              98%
              14
              
              Vail
      Holdings, Inc.Broomfield,
      CO 80021
              
              
              
              
              
              Leopard
      Communications, Inc.MSI,
      LLC120
      East Baltimore St.
              6/13/07
              325,410
              95%
              19
              
              Ober,
      Kaler, Grimes & ShriverBaltimore,
      MD 21202
              
              
              
              
              
              State
      Retirement and Pension Systems of MarylandSunTrust
      Bank16290
      Katy Freeway
              9/28/05
              156,746
              98%
              4
              
              Murphy
      Exploration and ProductionHouston,
      TX 77094
              
              
              
              
              
              Company2291
      Ball Drive
              12/11/08
              127,778
              100%
              1
              
              Monsanto
      CompanySt
      Louis, MO 6314645925
      Horseshoe Drive
              12/26/08
              135,888
              100%
              1
              
              Giesecke
      & Devrient America, Inc.Sterling,
      VA 201664807
      Stonecroft Blvd.
              6/26/09
              111,469
              100%
              1
              
              Northrup
      Grumman Systems Corp.Chantilly,
      VA  2015114800
      Charlson Road
              6/30/09
              153,028
              100%
              1
              
              C.H.
      Robinson Worldwide, Inc.Eden
      Praire, MN  553473140,
      3150 Fairview Park Drive
              9/30/09
              252,613
              100%
              1
              
              Noblis,
      Inc.Falls
      Church, VA  22042Sub
      Total Office
              
              5,843,669
              84%Industrial8730
      Bollman Place
              12/14/99
              98,745
              100%
              1
              
              Maines
      Paper and Foodservice, Inc.Savage
      (Jessup), MD 20794Sub
      Total Industrial
              
              98,745
              100%Grand
      Total
              
              5,942,414
              84%


_____________________


All
of the properties listed above are owned, directly or indirectly, by
us.  None of our properties are subject to any mortgage
loans.  We have no material undeveloped or unimproved properties, or
proposed programs for material renovation, improvement or development of any of
our properties.  We believe that our properties are adequately covered
by insurance as of December 31, 2009.


16





The
following table provides certain information about our owned commercial
properties as of December 31, 2009:




AveragePercentage
                
                Annualized
                
                AnnualizedYear
      Built
                
                Net
                
                
                
                Leased
      as of
                
                Rent
      as of
                
                Rent
      peror
                
                Rentable
                
                Leased
                
                December 31,
                
                December 31,
                
                LeasedProperty
      Name
                
                City
                
                State
                Type
                
                Renovated
                
                Square
      Feet
                
                Sq.
      Ft.
                
                2009
      (a)
                
                2009
      (b)
                
                Sq.
      Ft. (c)Park
      Seneca
                
                Charlotte
                
                NC
                Office
                
                1969
                
                109,550
                
                94,575
                
                86.33%
                
                1,422,561
                
                $        15.04Forest
      Park
                
                Charlotte
                
                NC
                Office
                
                1999
                
                62,212
                
                62,212
                
                100.00%
                
                855,162
                
                13.75Meadow
      Point
                
                Chantilly
                
                VA
                Office
                
                1999
                
                136,683
                
                68,725
                
                50.28%
                
                186,732
                
                2.72Innsbrook
                
                Glen
      Allen
                
                VA
                Office
                
                1999
                
                303,745
                
                63,118
                
                20.78%
                
                840,930
                
                13.32East
      Baltimore
                
                Baltimore
                
                MD
                Office
                
                1989
                
                325,410
                
                308,401
                
                94.77%
                
                8,190,610
                
                26.56Loudoun
      Tech Center
                
                Dulles
                
                VA
                Office
                
                1999
                
                135,888
                
                135,888
                
                100.00%
                
                1,685,767
                
                12.41Bollman
      Place
                
                Savage
                
                MD
                Industrial
                
                1984
                
                98,745
                
                98,745
                
                100.00%
                
                611,232
                
                6.19Stonecroft
                
                Chantilly
                
                VA
                Office
                
                2008
                
                111,469
                
                111,469
                
                100.00%
                
                4,095,160
                
                36.74Fairview
      Park
                
                Falls
      Church
                
                VA
                
                
                2001
                
                252,613
                
                252,613
                
                100.00%
                
                6,523,980
                
                25.83East
      total
                
                
                
                
                
                
                
                
                1,536,315
                
                1,195,746
                
                77.83%
                
                24,412,134
                
                20.42Southfield
      Centre
                
                Southfield
                
                MI
                Office
                
                1977
                
                214,697
                
                119,396
                
                55.61%
                
                1,441,108
                
                12.07Northwest
      Point
                
                Elk
      Grove Village
                
                IL
                Office
                
                1999
                
                176,848
                
                176,848
                
                100.00%
                
                3,205,146
                
                18.12River
      Crossing
                
                Indianapolis
                
                IN
                Office
                
                1998
                
                205,059
                
                194,246
                
                94.73%
                
                4,721,704
                
                24.31Timberlake
                
                Chesterfield
                
                MO
                Office
                
                1999
                
                232,766
                
                230,347
                
                98.96%
                
                4,690,866
                
                20.36Timberlake
      East
                
                Chesterfield
                
                MO
                Office
                
                2000
                
                116,312
                
                116,197
                
                99.90%
                
                2,559,445
                
                22.03Lakeside
      Crossing
                
                St.
      Louis
                
                MO
                Office
                
                2008
                
                127,778
                
                127,778
                
                100.00%
                
                2,883,950
                
                22.57Eden
      Bluff
                
                Eden
      Praire
                
                MN
                Office
                
                2006
                
                153,028
                
                153,028
                
                100.00%
                
                3,884,765
                
                25.39Midwest
      total
                
                
                
                
                
                
                
                
                1,226,488
                
                1,117,840
                
                91.14%
                
                23,386,983
                
                20.92








17


The
following table is continued from the previous page and provides certain
information about our owned commercial properties as of December 31,
2009:





AveragePercentage
                
                
                Annualized
                
                
                AnnualizedYear Built
                
                Net
                
                
                
                
                
                Leased
      as of
                
                
                Rent
      as of
                
                
                Rent
      peror
                
                Rentable
                
                
                Leased
                
                
                December 31,
                
                
                December 31,
                
                
                LeasedProperty
      Name
                City
                State
                Renovated
                
                Square Feet
                
                
                Sq.
      Ft.
                
                
                2009
      (a)
                
                
                2009
      (b)
                
                
                Sq.
      Ft. (c)Blue
      Lagoon Drive
                Miami
                FL
                2002
                
                212,619
                
                
                212,619
                
                
                100.00
                %
                
                
                4,597,571
                
                
                
                21.62One
      Overton Place
                Atlanta
                GA
                2002
                
                387,267
                
                
                349,728
                
                
                90.31
                %
                
                
                9,211,587
                
                
                
                26.34Willow
      Bend Office Center
                Plano
                TX
                1999
                
                116,622
                
                
                58,071
                
                
                49.79
                %
                
                
                1,003,904
                
                
                
                17.29Park
      Ten
                Houston
                TX
                1999
                
                155,715
                
                
                96,696
                
                
                62.10
                %
                
                
                2,546,644
                
                
                
                26.34Addison
      Circle
                Addison
                TX
                1999
                
                293,787
                
                
                180,006
                
                
                61.27
                %
                
                
                4,156,760
                
                
                
                23.09Collins
      Crossing
                Richardson
                TX
                1999
                
                298,766
                
                
                298,766
                
                
                100.00
                %
                
                
                7,711,008
                
                
                
                25.81Eldridge
      Green
                Houston
                TX
                1999
                
                248,399
                
                
                248,399
                
                
                100.00
                %
                
                
                6,655,927
                
                
                
                26.80Park
      Ten Phase II
                Houston
                TX
                2006
                
                156,746
                
                
                153,326
                
                
                97.82
                %
                
                
                3,989,925
                
                
                
                26.02Liberty
      Plaza
                Addison
                TX
                1985
                
                218,934
                
                
                156,559
                
                
                71.51
                %
                
                
                3,396,852
                
                
                
                21.70South
      Total
                
                
                
                
                2,088,855
                
                
                1,754,170
                
                
                83.98
                %
                
                
                43,270,178
                
                
                
                24.67Centennial Technology Center
                Colorado
      Springs
                CO
                1999
                
                110,730
                
                
                86,910
                
                
                78.49
                %
                
                
                1,316,959
                
                
                
                15.15380
      Interlocken
                Broomfield
                CO
                2000
                
                240,184
                
                
                208,844
                
                
                86.95
                %
                
                
                7,362,819
                
                
                
                35.26Greenwood
      Plaza
                Englewood
                CO
                2000
                
                199,077
                
                
                199,077
                
                
                100.00
                %
                
                
                8,097,285
                
                
                
                40.67390
      Interlocken
                Broomfield
                CO
                2002
                
                241,516
                
                
                237,837
                
                
                98.48
                %
                
                
                6,089,039
                
                
                
                25.60Hillview
      Center
                Milpitas
                CA
                1984
                
                36,288
                
                
                36,288
                
                
                100.00
                %
                
                
                527,681
                
                
                
                14.54Federal
      Way
                Federal
      Way
                WA
                1982
                
                117,010
                
                
                30,592
                
                
                26.14
                %
                
                
                355,957
                
                
                
                11.64Montague
      Business Center
                San
      Jose
                CA
                1982
                
                145,951
                
                
                145,951
                
                
                100.00
                %
                
                
                2,010,109
                
                
                
                13.77West
      Total
                
                
                
                
                1,090,756
                
                
                945,499
                
                
                86.68
                %
                
                
                25,759,849
                
                
                
                27.24Grand
      Total
                
                
                
                
                5,942,414
                
                
                5,013,255
                
                
                84.36
                %
                
                $
                16,829,143
                
                
                $
                23.30
  (a)
      Based on all leases in effect, including month-to-month tenants, divided
      by the Property's net rentable square footage.(b)
      Represents gross rental charges for the month of December 2009 (including
      month-to-month leases) multiplied by 12, which can result in unusual per
      square foot amounts calculated when there are free rent periods (usually
      with new leases).(c)
      Represents the annualized rent as of December 2009 divided by leased
      square feet.







18





The
following table provides a summary schedule of the lease expirations for the 20
tenants with the greatest amount of square feet leased in place for our owned
properties as of December 31, 2009, assuming that none of the tenants exercise
renewal options:




Remaining
                Aggregate
                %
      of Aggregate
                Annualized
                %
      ofTenant
                Number
      of
                Lease
      Term
                Leased
                Leased
                Rent
      (a)
                AggregateName
                Leases
                in
      Months
                Square
      Feet
                Square
      Feet
                (in
      000's)
                Annualized Rent1
                Noblis,
      Inc.  (e)
                1
                85
                252,613
                4.25%
                $               6,524
                5.59%2
                CITGO
      Petroleum Corporation (b)
                1
                146
                248,399
                4.18%
                6,656
                5.70%3
                Tektronix
      Texas, LLC
                1
                6
                241,372
                4.06%
                6,385
                5.47%4
                Burger
      King Corporation
                1
                105
                212,619
                3.58%
                4,598
                3.94%5
                New
      Era of Networks Inc
                1
                4
                199,077
                3.35%
                8,097
                6.93%6
                RGA
      Reinsurance Company
                1
                60
                185,501
                3.12%
                3,604
                3.09%7
                Citicorp
      Credit Services, Inc (c)
                1
                84
                176,848
                2.98%
                3,158
                2.70%8
                C.H.
      Robinson Worldwide, Inc. (d)
                1
                138
                153,028
                2.58%
                3,885
                3.33%9
                Geisecke
      & Devrient America, Inc.
                1
                62
                135,888
                2.29%
                1,686
                1.44%10
                Murphy
      Exploration & Production Company
                1
                88
                133,786
                2.25%
                3,514
                3.01%11
                Monsanto
      Company
                1
                61
                127,778
                2.15%
                2,884
                2.47%12
                Northrop
      Grumman Systems Corporation (d)
                1
                100
                111,469
                1.88%
                4,095
                3.51%13
                Maines
      Paper & Food Service, Inc.
                1
                47
                98,745
                1.66%
                611
                0.52%14
                Amdocs,
      Inc.
                1
                17
                91,928
                1.55%
                2,062
                1.77%15
                County
      of Santa Clara
                1
                96
                90,467
                1.52%
                1,268
                1.09%16
                Ober,
      Kaler, Grimes & Shriver
                1
                15
                89,885
                1.51%
                2,490
                2.13%17
                Vail
      Holdings, Inc.
                1
                111
                83,620
                1.41%
                2,082
                1.78%18
                International
      Business Machines Corp.
                1
                31
                83,209
                1.40%
                978
                0.84%19
                Corporate
      Holdings, LLC
                1
                51
                81,818
                1.38%
                2,151
                1.84%20
                Noble
      Royalties, Inc.
                1
                59
                78,344
                1.32%
                2,039
                1.75%2,876,394
                48.40%
                $           68,766
                58.88%
  (a)
                Annualized
      rent represents the monthly rent, including tenant reimbursements, for
      each lease in effect at December 31, 2009 mulitplied by
  12.Tenant
      reimbursements generally include payment of real estate taxes, operating
      expenses and common area maintenance and utility
  charges.(b)
                On
      January 20, 2010, the Company signed a new lease at a Houston, Texas
      property, for approximately 248,000 square feet of space with one
      ofits
      current tenants, CITGO Petroleum Corporation, effectively extending the
      lease expiration from February 29, 2012 to February 28,
    2022.(c)
                The
      lease with Citicorp Credit Services, Inc. is guaranteed by
      Citigroup.(d)
                Acquired
      in June 2009.(e)
                Acquired
      in September 2009.








19





The
following table provides a summary schedule of the lease expirations for leases
in place for our owned properties as of December 31, 2009, assuming that none of
the tenants exercise renewal options:





Rentable
                
                
                
                Annualized
                
                PercentageNumber of
                
                Square
                
                
                
                Rent
                
                of Total FinalYear
      of
                Leases
                
                Footage
                
                Annualized
                
                Per
      Square
                
                AnnualizedLease
                Expiring
                
                Subject to
                
                Rent Under
                
                Foot Under
                
                Rent
      UnderExpiration
                Within
      the
                
                Expiring
                
                Expiring
                
                Expiring
                
                ExpiringDecember
      31,
                Year
                
                Leases
                
                Leases
      (a)
                
                Leases
                
                Leases2010
                96
                (b)
                797,637
                
                22,824,562
                
                28.62
                
                19.54%2011
                34
                
                402,779
                
                9,352,006
                
                23.22
                
                8.00%2012
                39
                (c)
                433,197
                
                9,201,711
                
                21.24
                
                7.88%2013
                27
                
                354,393
                
                6,472,017
                
                18.26
                
                5.54%2014
                22
                
                585,420
                
                12,447,673
                
                21.26
                
                10.65%2015
                16
                
                467,676
                
                8,778,595
                
                18.77
                
                7.51%2016
                7
                
                487,849
                
                11,500,538
                
                23.57
                
                9.84%2017
                5
                
                523,658
                
                12,370,759
                
                23.62
                
                10.59%2018
                5
                
                394,913
                
                10,620,629
                
                26.89
                
                9.09%2019
                2
                
                88,719
                
                2,302,286
                
                25.95
                
                1.97%2020
      and thereafter
                4
                (c)
                477,014
                
                10,959,267
                
                22.97
                
                9.38%257
                
                5,013,255
                
                116,830,043
                
                23.30
                
                100.00%Vacancies
      as of 12/31/09
                
                929,159Total
      Portfolio Square Footage
                
                5,942,414
  (a)
                Annualized
      rent represents the monthly rent, including tenant reimbursements, for
      each lease in effect at December 31, 2009 mulitplied by
      12.  Tenant reimbursements generally include payment of real
      estate taxes, operating expenses and common area maintenance and utility
      charges.(b)
                30
      Leases are Month to Month(c)
                On
      January 20, 2010, the Company signed a new lease at a Houston, Texas
      property, for approximately 248,000 square feet of space with CITGO
      Petroleum Corporation, effectively extending the lease expiration from
      February 29, 2012 to February 28,
2022.








20





Item
      3.
            Legal
      Proceedings




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




Item
      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.




Directors and Executive
Officers of FSP Corp.




The
following table sets forth the names, ages and positions of all our directors
and executive officers as of February 22, 2010.




Name
            Age
            PositionGeorge
      J. Carter (5)
            61
            President,
      Chief Executive Officer and DirectorBarbara
      J. Fournier (4)
            54
            Executive
      Vice President, Chief Operating Officer, Treasurer, Secretary and
      DirectorBarry
      Silverstein (1) (2)
      (4)
            76
            DirectorDennis
      J. McGillicuddy (1) (2)
      (3)
            68
            DirectorGeorgia
      Murray (1) (2) (5)
      (7)
            59
            DirectorJohn
      N. Burke (1) (2) (4)
      (6)
            48
            DirectorJohn
      G. Demeritt
            49
            Executive
      Vice President and Chief Financial OfficerWilliam
      W. Gribbell
            50
            Executive
      Vice PresidentR.
      Scott MacPhee
            52
            Executive
      Vice PresidentJanet
      Prier Notopoulos (3)
            62
            Executive
      Vice President and DirectorScott
      H. Carter
            38
            Executive
      Vice President, General Counsel and Assistant
  Secretary





________________________________________


(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)
Chair of the Audit Committee


(7)
Chair of the Compensation Committee





21


George
J. Carter, age 61, is President, Chief Executive Officer and has been a Director
of FSP Corp. since 2002.  Mr. Carter 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 of the FSP Partnership (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 at First Winthrop
Corporation, a national real estate and investment banking firm headquartered in
Boston, Massachusetts.  Prior to that, he held a number of positions
in the brokerage industry including those with Merrill Lynch & Co. and Loeb
Rhodes & Co.  Mr. Carter is a graduate of the University of Miami
(B.S.).  Mr. Carter is a FINRA General Securities Principal (Series
24) and holds a FINRA Series 7 general securities license.





Barbara
J. Fournier, age 54, is Executive Vice President, Chief Operating Officer,
Treasurer, Secretary and has been a Director of FSP Corp. since
2002.  Ms. Fournier has as her primary responsibility, together with
Mr. Carter, the management of all operating business affairs of FSP Corp. and
its affiliates.  Ms. Fournier was the Principal Financial Officer
until March 2005.  Prior to the conversion, Ms. Fournier 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. Fournier served as Director of Operations for Schuparra
Securities Corp. and as the Sales Administrator for Weston Financial
Group.  From 1979 through 1986, Ms. Fournier worked at First Winthrop
Corporation in administrative and management capacities; including Office
Manager, Securities Operations and Partnership Administration.  Ms.
Fournier attended Northeastern University and the New York Institute of
Finance.  Ms. Fournier is a member of the NYSE Amex Listed Company
Council.  Ms. Fournier is a FINRA General Securities Principal (Series
24).  She also holds other FINRA supervisory licenses including Series
4 and Series 53, and a FINRA Series 7 general securities license.




Barry
Silverstein, age 76, has been a Director of the Company since May
2002.  Mr. Silverstein took his law degree from Yale University in
1957 and subsequently held positions as attorney/officer/director of various
privately-held manufacturing companies in Chicago, Illinois.  In 1964,
he moved to Florida to manage his own portfolio and to teach at the University
of Florida Law School.  In 1968, Mr. Silverstein became the principal
founder and shareholder in Coaxial Communications, a cable television
company.  In 1998 and 1999, Coaxial sold its cable
systems.  Since January 2001, Mr. Silverstein has been a private
investor.




Dennis
J. McGillicuddy, age 68, has been a Director of the Company since May
2002.  Mr. McGillicuddy graduated from the University of Florida with
a B.A. degree and from the University of Florida Law School with a J.D.
degree.  In 1968, Mr. McGillicuddy joined Barry Silverstein in
founding Coaxial Communications, a cable television company.  In 1998
and 1999, Coaxial sold its cable systems.  Mr. McGillicuddy has served
on the boards of various charitable organizations. He is currently president of
the Board of Trustees of Florida Studio Theater, a professional non-profit
theater organization, and he serves as a Co-Chair, together with his wife, of
Embracing Our Differences, an annual month-long art exhibit that promotes the
values of diversity and inclusion.  Mr. McGillicuddy is an officer and
board member of The Florida Winefest and Auction Inc., a Sarasota-based charity,
which funds programs of local charities that provide services to disadvantaged
children and their families. Mr. McGillicuddy also is a member of the Advisory
Board to the Center For Mindfulness In Medicine, Health Care & Society,
University of Massachusetts Medical School.


Georgia
Murray, age 59, has been a Director of the Company since April 2005 and Chair of
the Compensation Committee since October 2006.  Ms. Murray is retired
from Lend Lease Real Estate Investments, Inc., where she served as a Principal
from November 1999 until May 2000.  From 1987 through October 1999,
Ms. Murray served as Senior Vice President and Director of The Boston Financial
Group, Inc.  Boston Financial was an affiliate of the Boston Financial
Group, Inc.  She is a past Trustee of the Urban Land Institute and a
past President of the Multifamily Housing Institute.  Ms. Murray
previously served on the Board of Directors of Capital Crossing
Bank.  She also serves on the boards of numerous non-profit
entities.  Ms. Murray is a graduate of Newton College.




22


John
N. Burke, age 48, has been a Director of the Company and Chair of the Audit
Committee since June 2004.  Mr. Burke is a certified public accountant
with approximately 25 years of experience in the practice of public accounting
working with both private and publicly traded companies with extensive
experience serving clients in the real estate industry.  Such
experience includes the independent analysis and evaluation of financial
reporting, accounting systems, internal controls and audit committee
matters.  Mr. Burke has been involved as an advisor on several client
public offering, private equity and debt financings and merger and acquisition
transactions.  Mr. Burke’s consulting experience includes Securities
and Exchange Commission reporting, compliance with Sarbanes-Oxley, and business
planning matters.  Prior to starting his own accounting and consulting
firm in 2003, Mr. Burke was an Assurance Partner in the Boston office of BDO
Seidman, LLP, an international accounting and consulting firm.  Mr.
Burke is a member of the American Institute of Certified Public Accountants, the
Massachusetts Society of CPAs and holds FINRA Series 6 and 63 security licensure
in Massachusetts.  Mr. Burke earned an M.S. in Taxation and studied
undergraduate accounting and finance at Bentley College.


John
G. Demeritt, age 49, is Executive Vice President and Chief Financial Officer of
FSP Corp. and has been Chief Financial Officer since March 2005.  Mr.
Demeritt previously served as Senior Vice President, Finance and Principal
Accounting Officer since September 2004.  Prior to September 2004, Mr.
Demeritt was a Manager with Caturano & Company, an independent accounting
firm where he focused on Sarbanes Oxley compliance.  Previously, from
March 2002 to March 2004 he provided consulting services to public and private
companies where he focused on SEC filings, evaluation of business processes and
acquisition integration.  During 2001 and 2002 he was Vice President
of Financial Planning & Analysis at Cabot Industrial Trust, a publicly
traded real estate investment trust, which was acquired by CalWest in December
2001.  From October 1995 to December 2000 he was Controller and
Officer of The Meditrust Companies, a publicly traded real estate investment
trust (formerly known as the The La Quinta Companies, which was then acquired by
the Blackstone Group), where he was involved with a number of merger and
financing transactions.  Prior to that, from 1986 to 1995 he had
financial and accounting responsibilities at three other public companies, and
was previously associated with Laventhol & Horwath, an independent
accounting firm from 1983 to 1986.  Mr. Demeritt is a Certified Public
Accountant and holds a Bachelor of Science degree from Babson
College.




William
W. Gribbell, age 50, is an Executive Vice President of FSP Corp. and has as his
primary responsibility the direct equity placement of the Sponsored
REITs.  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 FINRA Series 7
general securities license.




R.
Scott MacPhee, age 52, is an Executive Vice President of FSP Corp. and has as
his primary responsibility the direct equity placement of the Sponsored
REITs.  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 FINRA Series 7
general securities license.




Janet
Prier Notopoulos, age 62, is an Executive Vice President of FSP Corp. and has
been a Director of FSP Corp. and President of FSP Property Management since
2002.  Ms. Notopoulos 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
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).




23


Scott
H. Carter, age 38, is Executive Vice President, General Counsel and Assistant
Secretary of FSP Corp.   Mr. Carter has been General Counsel
since February 2008.  Mr. Carter joined FSP Corp. in October 2005 as
Senior Vice President, In-house Counsel and was appointed to the position of
Assistant Secretary in May 2006.  Mr. Carter has as his primary
responsibility the management of all of the legal affairs of FSP Corp. and its
affiliates.  Prior to joining FSP Corp. in October 2005, Mr. Carter
was associated with the law firm of Nixon Peabody LLP, which he originally
joined in 1999.  At Nixon Peabody LLP, Mr. Carter concentrated his
practice on the areas of real estate syndication, acquisitions and
finance.  Mr. Carter received a Bachelor of Business Administration
(B.B.A.) degree in Finance and Marketing and a Juris Doctor (J.D.) degree from
the University of Miami.  Mr. Carter is admitted to practice law in
the Commonwealth of Massachusetts.  Mr. Carter’s father, George J.
Carter, serves as President, Chief Executive Officer and a Director of FSP
Corp.




With
the exception of Scott H. Carter, each of the above executive officers has been
a full-time employee of FSP Corp. for the past five fiscal years.




George
J. Carter, Barbara J. Fournier and Janet Notopoulos is each also a director of
each of the following public reporting companies, each of which is a Sponsored
REIT: FSP Galleria North Corp.; FSP Phoenix Tower Corp; FSP 50 South Tenth
Street Corp.; and FSP 303 East Wacker Drive Corp. Each of these directors holds
office in these companies from the time of his or her election until the next
annual meeting and until a successor is elected and qualified, or until such
director's earlier death, resignation or removal.




24


PART
II




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




Our
common stock is listed on the NYSE Amex under the symbol “FSP”.  The
following table sets forth the high and low sales prices on the NYSE Amex
(previously called the NYSE Alternext US, and the American Stock Exchange prior
to its acquisition by the NYSE Euronext on October 1, 2008) for the quarterly
periods indicated.




Three
      Months
            
            RangeEnded
            
            High
            
            LowDecember
      31, 2009
            
            $      15.36
            
            $      10.35September
      30, 2009
            
            $      15.20
            
            $      12.00June
      30, 2009
            
            $      14.84
            
            $      11.43March
      31, 2009
            
            $      14.88
            
            $        9.57December
      31, 2008
            
            $      15.00
            
            $        8.13September
      30, 2008
            
            $      14.80
            
            $      11.05June
      30, 2008
            
            $      16.19
            
            $      12.33March
      31, 2008
            
            $      15.78
            
            $      11.40




As
of February 10, 2010, there were 6,303 holders of our common stock,
including both holders of record and participants in securities position
listings.




On
January 15, 2010, we declared a dividend of $0.19 per share of our common stock
payable to stockholders of record as of January 29, 2010 that was paid on
February 19, 2010.  Set forth below are the distributions per share of
common stock made by FSP Corp. in each quarter since 2008.




Quarter
            Distribution
      Per Share ofEnded
            Common Stock of FSP
Corp.December
      31, 2009
            $0.19September
      30, 2009
            $0.19June
      30, 2009
            $0.19March
      31, 2009
            $0.19December
      31, 2008
            $0.19September
      30, 2008
            $0.19June
      30, 2008
            $0.31March
      31, 2008
            $0.31




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. See
Part I, Item 1A Risk Factors, “Our level of dividends may fluctuate.”, for
additional information.




25


The
following table provides information about purchases by Franklin Street
Properties Corp. during the quarter ended December 31, 2009 of equity securities
that are registered by the Company pursuant to Section 12 of the Exchange
Act:




ISSUER
PURCHASES OF EQUITY SECURITIES





Period
            (a)
              
              
              
              
              
              
              Total
      Number of Shares (or Units) Purchased (1) (2)
            (b)
              
              
              
              
              
              
              Average
      Price Paid per Share (or Unit)
            (c)
              
              
              
              Total
      Number of Shares (or Units) Purchased as Part of Publicly
      Announced Plans or Programs (1) (2)
            (d)
              
              Maximum
      Number (or Approximate Dollar Value) of Shares (or Units)
      that May Yet Be Purchased Under the Plans orPrograms (1)
      (2)10/01/09-10/31/09
            0
            N/A
            0
            $31,240,46511/01/09-11/30/09
            0
            N/A
            0
            $012/01/09-12/31/09
            0
            N/A
            0
            $0Total:
            0
            N/A
            0
            $0





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





(2)
On October 28, 2005, FSP Corp. announced that the Board of Directors of FSP
Corp. had authorized the repurchase of up to $35 million of the Company’s common
stock from time to time in the open market or in privately negotiated
transactions.  On September 10, 2007, FSP Corp. announced that the
Board of Directors of FSP Corp. had authorized certain modifications to this
common stock repurchase plan, including increasing the repurchase authorization
to up to $50 million of the Company’s common stock (inclusive of all repurchases
previously made under the plan).  This repurchase authorization
expired on November 1, 2009.






26


STOCK
PERFORMANCE GRAPH





The
following graph compares the cumulative total stockholder return on the
Company’s common stock between December 31, 2004 and December 31, 2009 with the
cumulative total return of (1) the NAREIT Equity Index, (2) the Standard &
Poor’s 500 Composite Stock Price Index (“S&P 500”) and (3) the Russell 2000
Total Return Index over the same period.  This graph assumes the
investment of $100.00 on December 31, 2004 and assumes that any
distributions are reinvested.








As
      of December 31,2004
            
            
            2005
            
            
            2006
            
            
            2007
            
            
            2008
            
            
            2009FSP
            
            $
            100
            
            
            $
            125
            
            
            $
            133
            
            
            $
            102
            
            
            $
            109
            
            
            $
            116NAREIT
      Equity
            
            
            100
            
            
            
            112
            
            
            
            151
            
            
            
            128
            
            
            
            80
            
            
            
            102S&P
      500
            
            
            100
            
            
            
            105
            
            
            
            121
            
            
            
            128
            
            
            
            81
            
            
            
            102Russell
      2000
            
            
            100
            
            
            
            105
            
            
            
            124
            
            
            
            122
            
            
            
            81
            
            
            
            103





Notes
to Graph:


Because
there was no market for the Company’s common stock prior to its listing on the
American Stock Exchange (now the NYSE Amex) on June 2, 2005, the Board of
Directors made a good faith determination of the price per share of Common Stock
as of December 31, 2004 for purposes of the calculations set forth
above.  In order to make the Common Stock price more comparable to
publicly traded indices, the Board of Directors did not apply any discount to
reflect the lack of a trading market.





The above
performance graph and related information shall not be deemed "soliciting
material" or to be "filed" with the Securities and Exchange Commission, nor
shall such information be incorporated by reference into any future filing under
the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended,
except to the extent that we specifically incorporate it by reference into such
filing.




27





Item
      6.
            Selected
      Financial Data




The
following selected financial information is derived from the historical
consolidated financial statements of 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 FSP Corp.’s consolidated financial
statements and related notes thereto included in Item 8.





Year
      Ended December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005(In
      thousands, except per share amounts)Operating
      Data:Total
      revenue
            
            $
            128,383
            
            
            $
            120,416
            
            
            $
            126,993
            
            
            $
            107,245
            
            
            $
            72,470Income
      from:Continuing
      operations
            
            
            27,448
            
            
            
            31,959
            
            
            
            36,106
            
            
            
            41,540
            
            
            
            30,137Discontinued
      operations
            
            
            -
            
            
            
            -
            
            
            
            1,190
            
            
            
            7,951
            
            
            
            14,486Gain
      on sale of land or properties
            
            
            424
            
            
            
            -
            
            
            
            23,789
            
            
            
            61,438
            
            
            
            30,493Net
      income
            
            
            27,872
            
            
            
            31,959
            
            
            
            61,085
            
            
            
            110,929
            
            
            
            75,116Basic
      and diluted income per share:Continuing
      operations
            
            
            0.38
            
            
            
            0.45
            
            
            
            0.51
            
            
            
            0.62
            
            
            
            0.53Discontinued
      operations
            
            
            -
            
            
            
            -
            
            
            
            0.01
            
            
            
            0.12
            
            
            
            0.25Gain
      on sale of land or properties
            
            
            -
            
            
            
            -
            
            
            
            0.34
            
            
            
            0.91
            
            
            
            0.54Total
            
            
            0.38
            
            
            
            0.45
            
            
            
            0.86
            
            
            
            1.65
            
            
            
            1.32Distributions
      declared pershare
      outstanding (1):
            
            
            0.76
            
            
            
            1.00
            
            
            
            1.24
            
            
            
            1.24
            
            
            
            1.24As
      of December 31,2009
            
            
            
            2008
            
            
            
            2007
            
            
            
            2006
            
            
            
            2005Balance
      Sheet Data:Total
      assets
            
            $
            1,155,766
            
            
            $
            1,025,433
            
            
            $
            1,003,466
            
            
            $
            955,317
            
            
            $
            677,173Total
      liabilities
            
            
            218,492
            
            
            
            176,436
            
            
            
            112,848
            
            
            
            33,355
            
            
            
            15,590Total
      shareholders' equity
            
            
            937,274
            
            
            
            848,997
            
            
            
            890,618
            
            
            
            921,962
            
            
            
            661,583




(1)  The
2005, 2006, 2007 and first half of 2008 quarterly distributions were each in the
amount of $0.31 per share of common stock, or $1.24 on an annual
basis.  Commencing with FSP Corp.’s distribution payable for the
quarter ended September 30, 2008, the amount of the distribution was decreased
from $0.31 per share of common stock to $0.19 per share of common stock
resulting in $1.00 in distributions being paid in 2008 and $0.76 in
distributions in 2009.




The
2008, 2006 and 2005 financial statements reflect acquisition by merger of one,
five and four Sponsored REITs, respectively.  Prior to their
acquisition, FSP Corp. held a non-controlling common stock interest with
virtually no economic benefits or risks in each of these REITs, a preferred
stock interest in Park Ten Development (which was acquired in 2008) and a
preferred stock interest in one of the Sponsored REITS acquired by merger in
2006.




28




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, economic conditions in the United States, disruptions in the debt
markets, 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
may not update any of the forward-looking statements after the date this Annual
Report on Form 10-K is filed to conform them to actual results or to changes in
our expectations that occur after such date, other than as required by
law.




Overview




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




The
main factor that affects our real estate operations is the broad economic market
conditions in the United States.  These market conditions affect the
occupancy levels and the rent levels on both a national and local
level.  We have no influence on the national market
conditions.  We look to acquire and/or develop 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.




As
of December 31, 2009, we have an automatic shelf registration statement on
Form S-3 on file with the SEC relating to the offer and sale, from time to
time, of an indeterminate amount of our common stock.  From time to
time, we expect to issue additional shares of our common stock under our
automatic shelf registration statement or a different registration statement to
fund the acquisition of additional properties, to pay down any existing debt
financing and for other corporate purposes.





Trends and
Uncertainties




Economic
Conditions




The
economy in the United States is continuing to experience significant
disruptions, including increased levels of unemployment, the failure and near
failure of a number of large financial institutions, reduced liquidity and
increased credit risk premiums for a number of market
participants.  Economic conditions may be affected by numerous factors
including but not limited to, inflation and employment levels, energy prices,
recessionary concerns, changes in currency exchange rates, the availability of
debt and interest rate fluctuations.  The current disruptions in the
U.S. economy have affected our business, resulting in a decline in occupancy in
our real estate portfolio in 2009, and may affect real estate values, occupancy
levels, property income and the propensity and the ability of investors to
invest in our Sponsored REITs in the future.  At this time, we cannot
predict the extent or duration of any negative impact that the current
disruptions in the U.S. economy will have on our business.




29


On
July 21, 2008, we announced that we had reduced our regular quarterly dividend
to $0.19 per share of common stock for the three months ended June 30, 2008,
which was paid on August 20, 2008.  In our July 21, 2008 announcement,
we noted that we had experienced a significant slowing of activity in, and lower
profit contribution from, two transactional components of our business,
investment banking/investment services and property dispositions, since the
onset of the current disruptions in the U.S. economy.  We also noted
that our ongoing/recurring real estate operations continued to show solid
performance and that our board of directors believed it was prudent to better
align our regular quarterly dividends with the results of our current real
estate operations only, without taking into account the results of our less
predictable transactional operations.  Since the third quarter of
2008, we have continued to experience a significant slowing of activity in, and
lower profit contribution from, two transactional components of our business,
investment banking/investment services and property
dispositions.  However, since the third quarter of 2008, we have
announced a dividend of $0.19 per share of common stock for each quarterly
period.




Real
Estate Operations





Our
real estate portfolio was approximately 84% leased as of December 31, 2009 and
approximately 93% leased as of December 31, 2008.  New leasing
activity remains slow in most of our markets and we do not expect to see an
increase in the pace of leasing until the broader economic markets stabilize and
there is new job growth. Approximately 13% of the square footage in our
portfolio is scheduled to expire during 2010 and approximately 7% is scheduled
to expire during 2011.  While we cannot predict when existing vacancy
will be leased or if existing tenants with expiring leases will renew their
leases or what the terms and conditions of the lease renewals will be, we expect
to renew or sign new leases at current market rates for locations in which the
buildings are located, which in many cases may be below the expiring
rates.





As
the economic downturn continues, we believe the potential for any of our tenants
to default on its lease or to seek the protection of bankruptcy laws has
increased.  If any of our tenants defaults on its lease, we may
experience delays in enforcing our rights as a landlord and may incur
substantial costs in protecting our investment. In addition, at any time, a
tenant 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.





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.  Equity raised for
Sponsored REIT syndications for 2009 decreased 29.6% to $40.4 million compared
to $57.4 million in 2008.





In
August 2007, one of our Sponsored REITs, FSP Grand Boulevard Corp., purchased an
office property located in Kansas City, Missouri.  Permanent equity
capitalization of the property was structured as a private placement preferred
stock offering totaling $65 million, and was fully subscribed in the second
quarter of 2009.  We purchased a total of 175.5 shares of preferred
stock in the Sponsored REIT at a net cost of approximately $15
million.  The balance of the offering was subscribed for primarily by
institutions and high net worth individuals, our traditional customer
base.  In May 2008, one of our Sponsored REITs, FSP 385 Interlocken
Development Corp., began development of an office property located in
Broomfield, Colorado.  Permanent equity capitalization of the property
was structured as a private placement offering of preferred stock totaling $38
million, $33.5 million of which had been closed in as of December 31,
2009.  This private placement offering is ongoing as of the beginning
of 2010.  In December 2009, one of our Sponsored REITs, FSP Lakeside
Crossing II Corp., purchased an office property located in Maryland Heights,
Missouri.  Permanent equity capitalization of the property was
structured as a private placement stock offering totaling $21 million, and was
fully subscribed in the fourth quarter of 2009.  Also in December
2009, one of our Sponsored REITs, FSP Centre Pointe V Corp., purchased an office
property located in West Chester, Ohio.  Permanent equity
capitalization of the property was structured as a private placement preferred
stock offering totaling $25 million, of which $18.8 had been raised as of
December 31, 2009.  This private placement offering is ongoing as of
the beginning of 2010.


30


The
slowdown in our investment banking business actually began in the third quarter
of 2007 and, at this point, it remains unclear when or if a higher volume of
equity investment will return.  Business in this area, while always
uncertain, continues to be adversely affected by the current turmoil in the
financial, debt and real estate markets.  Investors who have
historically participated in our private placement real estate offerings
continue to express concern and uncertainty about investing in this
environment.  Recently, however, some investors have expressed
cautious interest in investing some portion of their capital in specific
property situations as evidenced by the investments in FSP Lakeside Crossing II
Corp. and FSP Centre Pointe V Corp. described above.





In
addition to difficulties in raising equity from potential real estate investors
in this market, our property acquisition executives are now grappling with
greater uncertainty surrounding the valuation levels for prime commercial
investment real estate.  We believe that the current turmoil in the
debt markets, as well as perceptions about the future U.S. economy and interest
rates, are producing a larger than normal divergence in the perception of value
and future relative investment performance of commercial
properties.  While we generally believe that such an environment has
the potential to produce some exceptional property acquisition opportunities,
caution, perspective and disciplined underwriting standards can significantly
impact the timing of any future acquisitions.  Consequently, our
ability to provide a regular stream of real estate investment product necessary
to grow our overall investment banking/investment services business continues to
remain uncertain as 2010 begins.  We also continue to rely solely on
our in-house investment executives to access interested investors who have
capital they can afford to place in an illiquid position for an indefinite
period of time (i.e., invest in a Sponsored REIT).  We continue to
evaluate whether our in-house sales force is capable, either through our
existing client base or through new clients, of raising sufficient investment
capital in Sponsored REITs to achieve future performance
objectives.





Discontinued
Operations and Property Dispositions





During
the years ended December 31, 2009 and 2008, we sold no
properties.  However, we recognized a gain of approximately $424,000
on a small piece of land as a result of a land taking by the Commonwealth of
Virginia in 2009.  During the year ended December 31, 2007, we
disposed of five office properties.  The five office properties are
located in Greenville, South Carolina; Alpharetta, Georgia; San Diego,
California; Westford, Massachusetts and Austin, Texas.  Accordingly,
sold properties as of December 31, 2007 are classified as held for sale on our
financial statements.  The operating results for these real estate
assets have been reflected as discontinued operations in the financial
statements for the year ended December 31, 2007.





We
continue to evaluate our portfolio, and in the future may decide to dispose of
additional properties from time-to-time in the ordinary course of
business.  However, because of the current uncertainty surrounding the
valuation levels for real estate and the current uncertainty in the capital and
debt markets previously discussed, we do not expect the level of disposition
activity to be as significant as it was in 2007.





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. Significant estimates in the consolidated
financial statements include the allowance for doubtful accounts, purchase price
allocations, useful lives of fixed assets and the valuation of the
derivative.





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 estimates
are consistently applied and produce financial information that fairly presents
our results of operations.  Our most critical accounting policies
involve our investments in Sponsored REITs and our investments in real
property.  These policies affect our:


31





·
            allocation
      of purchase prices;


·
            allowance
      for doubtful accounts;


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


·
            useful
      lives of fixed assets;


·
            valuation
      of derivatives;


·
            classification
      of leases; and


·
            revenue
      recognition in the syndication of Sponsored
  REITs.





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, 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 in determining the purchase price allocations.





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.





Allowance for bad
debts





We
provide an allowance for doubtful accounts based on our 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.





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.


32





Depreciation
Expense





We
compute depreciation expense using the straight-line method over estimated
useful lives of up to 39 years for buildings and improvements, and up to 15
years for personal property.  Costs incurred in connection with
leasing (primarily tenant improvements and leasing commissions) are capitalized
and amortized over the lease period.  The allocated cost of land is
not depreciated.  The value of above or below-market leases is
amortized over the remaining non-cancelable periods of the respective leases as
an adjustment to rental income.  The value of in-place leases,
exclusive of the value of above-market and below-market in-place leases, is also
amortized over the remaining non-cancelable periods of the respective
leases.  If a lease is terminated prior to its stated expiration, all
unamortized amounts relating to that lease 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.





Derivative
Instruments





We
recognize derivatives on the balance sheet at fair value. Derivatives that do
not qualify, or are not designated as hedge relationships, must be adjusted to
fair value through income. Derivative instruments designated in a hedge
relationship to mitigate exposure to variability in expected future cash flows,
or other types of forecasted transactions, are considered cash flow hedges. Cash
flow hedges are accounted for by recording the fair value of the derivative
instrument on the balance sheet as either an asset or liability. To the extent
hedges are effective, a corresponding amount, adjusted for swap payments, is
recorded in accumulated other comprehensive income within stockholders’ equity.
Amounts are then reclassified from accumulated other comprehensive income to the
income statement in the period or periods the hedged forecasted transaction
affects earnings. Ineffectiveness, if any, is recorded in the income statement.
We periodically review the effectiveness of each hedging transaction, which
involves estimating future cash flows, at least quarterly.  Derivative
instruments designated in a hedge relationship to mitigate exposure to changes
in the fair value of an asset, liability, or firm commitment attributable to a
particular risk, such as interest rate risk, are considered fair value hedges.
We currently have no fair value hedges outstanding. Fair values of derivatives
are subject to significant variability based on changes in interest rates. The
results of such variability could be a significant increase or decrease in our
derivative assets, derivative liabilities, book equity, and/or
earnings.





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.  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 and acquisition fees upon an investor closing
and the subsequent payment of the Sponsored REIT’s loan and fees payable to
us.  Other transaction fees are recognized upon the final closing of
the syndication of the Sponsored REIT.





Ownership
of Stock in a Sponsored REIT





Common
stock investments in Sponsored REITs are consolidated while the entity is
controlled by the Company.  Following the commencement of syndication
the Company exercises influence over, but does not control these entities and
investments are accounted for using the equity method.  Once under the
equity method of accounting, our cost basis is adjusted by our share of the
Sponsored REITs' earnings, if any, prior to completion of the
syndication.  Equity in losses or dividends received from Sponsored
REITs generally are recognized as income once the investment balance is reduced
to zero, unless there is an asset held for syndication from the Sponsored REIT
entity.  Equity in losses or distributions received in excess of
investment is recorded as an adjustment to the carrying value of the asset held
for syndication.


33


We
recognize our share of the operations during the period we consolidate and when
the equity method is appropriate, as opposed to classifying the Sponsored REITs
as discontinued operations, because we earn an ongoing asset and/or property
management fee from Sponsored REITs.  These ongoing fees, in addition
to the influence that we exercise over the Sponsored REIT, constitute a
continuing involvement between the Company and the Sponsored REIT and preclude
treatment as discontinued operations.





We
currently hold preferred stock interest in three Sponsored REITs.  As
a result of our common stock interest and our preferred stock interest in these
three Sponsored REITs, we exercise influence over, but do not control these
entities.  These preferred share investments are accounted for using
the equity method.  Under the equity method of accounting our cost
basis is adjusted by our share of the Sponsored REITs' operations and
distributions received.  We also agreed to vote our preferred shares
(i) with respect to any merger in the same manner that a majority of the other
stockholders of the Sponsored REIT vote for or against the merger and (ii) with
respect to any other matter presented to a vote by the stockholders of these
Sponsored REITs in the same proportion as shares voted by other stockholders of
that Sponsored REIT.





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.  Competition, economic conditions and other factors may cause
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
June 2009, the Financial Accounting Standards Board, or FASB, issued a
pronouncement establishing the FASB Accounting Standards Codification as the
source of authoritative accounting principles recognized by the FASB to be
applied in the preparation of financial statements in conformity with
GAAP.  The standard explicitly recognizes rules and interpretive
releases of the SEC under federal securities laws as authoritative GAAP for SEC
registrants.  This standard is effective for financial statements
issued for fiscal years and interim periods ending after September 15,
2009.  The Company has adopted this standard in accordance with
GAAP.




In
September 2006, the FASB issued a pronouncement that defines fair value,
establishes a framework for measuring fair value in GAAP and provides for
expanded disclosure about fair value measurements that will be applied
prospectively, to all other accounting pronouncements that require or permit
fair value measurements. The pronouncement excludes certain leasing transactions
accounted for in accounting for leases and was effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years.  The adoption did not have
a material impact on the Company’s financial position, operations or cash
flow.  The FASB then issued a pronouncement to defer the effective
date for all non-financial assets and non-financial liabilities except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis to fiscal years beginning after November 15,
2008.  The adoption of this standard did not have a material impact on
the Company’s financial position, results of operations or cash
flows.




In
December 2007, the FASB issued a pronouncement, which establishes principles and
requirements for how the acquirer shall recognize and measure in its financial
statements the identifiable assets acquired, liabilities assumed, any
noncontrolling interest in the acquiree and goodwill acquired in a business
combination.  The pronouncement was effective for business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
adoption of this standard did not have a material impact on the Company’s
financial position, results of operations or cash flows.




34




In
May 2009, the FASB issued a pronouncement which sets forth the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. This pronouncement
requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date. This disclosure should alert all
users of financials statements that an entity has not evaluated subsequent
events after that date in the set of financial statements being
presented.  The Company is adhering to the requirements of this
pronouncement, which was effective for financial periods ending after June 15,
2009.




On
June 12, 2009, the FASB issued a pronouncement that changes how a company
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. The
determination of whether a company is required to consolidate an entity is based
on, among other things, an entity`s purpose and design and a company`s ability
to direct the activities of the entity that most significantly impact the
entity`s economic performance.  The pronouncement is effective for
fiscal years and interim periods within those fiscal years beginning on or after
November 15, 2009.  The Company is currently evaluating the impact of
this pronouncement on the Company’s consolidated financial
statements.




Results
of Operations




Overview




During
2007 we acquired one property, made an $82.8 million investment in a Sponsored
REIT and sold five properties.  During 2008, we acquired one property
by merger and two additional properties by direct acquisition.  During
2009, we acquired three properties, made a $15 million investment in a Sponsored
REIT and completed an underwritten public offering of 9.2 million shares of
our common stock (including 1.2 million shares issued as a result of the
full exercise of an overallotment option by the underwriter) at a price to the
public of $13.00 per share. As a result of this activity, as of December 31,
2009, we owned 32 properties and had investments in three non-consolidated
REITs.


Mergers and
Acquisitions:





On
June 13, 2007, we acquired a commercial property in Maryland.  On May
15, 2008, we completed the acquisition by merger of Park Ten Development, on
December 11, 2008 we acquired a commercial property in Missouri and on December
23, 2008 we acquired a commercial property in Virginia.  On June 26,
2009, we acquired a commercial property in Virginia, on June 30, 2009 we
acquired a commercial property in Minnesota and on September 30, 2009 we
acquired another commercial property in Virginia. The results of operations for
each of the acquired properties are included in our operating results as of
their respective merger or purchase dates.  Increases in rental
revenues and expenses for the year ended December 31, 2009 compared to the year
ended December 31, 2008, or the year ended December 31, 2008 compared to the
year ended December 31, 2007 are primarily a result of the timing of these
acquisitions and subsequent contribution of these acquired
properties.





Sales
of Real Estate:





On
January 31, 2007, we sold a commercial property, located in Greenville, South
Carolina, on June 21, 2007, we sold an office property in Alpharetta, Georgia,
on June 27, 2007 we sold an office property in San Diego, California, on July
16, 2007 we sold an office property in Westford, Massachusetts, and on December
20, 2007 we sold an office property in Austin, Texas.  We had no sales
of real estate in 2008 or 2009.  However, we recognized a gain of
approximately $424,000 on a small piece of land as a result of a land taking by
the Commonwealth of Virginia in 2009.  The operating results of the
properties sold in 2007 are classified as discontinued operations in our
financial statements for all periods presented.


35




Investment
Banking:





Revenue
for the investment banking/investment services segment is primarily based on the
gross proceeds from the sale of securities in the syndications of the Sponsored
REITs.  During 2007, we completed one syndication of a Sponsored REIT
and began the process of syndicating another Sponsored REIT (which we completed
in May 29, 2009), for which total gross proceeds aggregated $147.5 million in
2007.  During 2008, we started syndication of another Sponsored
REIT.  Total gross proceeds from both syndications aggregated $57.4
million in 2008 and one remains currently in process.  During 2009, we
completed the syndication of two Sponsored REITs and began the process of
syndicating another Sponsored REIT, for which total gross proceeds aggregated
$40.4 million in 2009.  We believe the decrease of $17.0 million in
2009 compared to 2008 and the decrease of $90.1 million in 2008 compared to 2007
were attributable to the recent turmoil in the financial, debt and real estate
markets, which is discussed above in “Trends and Uncertainties – Economic
Conditions”.  Revenues and expenses for investment banking/investment
services are directly related to the gross proceeds of these
syndications.





Our
acquisition executives continue to work on other property investment
opportunities for our own portfolio and for syndication.  However,
business growth in the syndication area remains uncertain at the beginning of
2010.





The
following table shows financial results for the years ended December 31, 2009
and 2008.





(in
      thousands)Revenues:
                
                2009
                
                
                2008
                
                
                ChangeRental
                
                $
                122,074
                
                
                $
                111,198
                
                
                $
                10,876Related
      party revenue:Syndication
      fees
                
                
                2,428
                
                
                
                3,766
                
                
                
                (1,338
                )Transaction
      fees
                
                
                2,080
                
                
                
                3,641
                
                
                
                (1,561
                )Management
      fees and interest income from loans
                
                
                1,740
                
                
                
                1,739
                
                
                
                1Other
                
                
                61
                
                
                
                72
                
                
                
                (11
                )Total
      revenues
                
                
                128,383
                
                
                
                120,416
                
                
                
                7,967Expenses:Real
      estate operating expenses
                
                
                30,822
                
                
                
                28,999
                
                
                
                1,823Real
      estate taxes and insurance
                
                
                19,228
                
                
                
                17,740
                
                
                
                1,488Depreciation
      and amortization
                
                
                36,293
                
                
                
                30,360
                
                
                
                5,933Selling,
      general and administrative
                
                
                8,891
                
                
                
                8,268
                
                
                
                623Commissions
                
                
                1,801
                
                
                
                2,151
                
                
                
                (350
                )Interest
                
                
                6,570
                
                
                
                4,921
                
                
                
                1,649Total
      expenses
                
                
                103,605
                
                
                
                92,439
                
                
                
                11,166Income
      before interest income, equity in earnings (losses) of non-consolidated
      REITs and taxes on income
                
                
                24,778
                
                
                
                27,977
                
                
                
                (3,199
                )Interest
      income
                
                
                97
                
                
                
                745
                
                
                
                (648
                )Equity
      in earnings (losses) of non-consolidated REITs
                
                
                1,994
                
                
                
                2,747
                
                
                
                (753
                )Income
      before taxes on income
                
                
                26,869
                
                
                
                31,469
                
                
                
                (4,600
                )Taxes
      on income
                
                
                (579
                )
                
                
                (490
                )
                
                
                (89
                )Income
      from continuing operations
                
                
                27,448
                
                
                
                31,959
                
                
                
                (4,511
                )Discontinued
      operations:Income
      from discontinued operations
                
                
                -
                
                
                
                -
                
                
                
                -Gain
      on sale of properties, less applicable income tax
                
                
                424
                
                
                
                -
                
                
                
                424Total
      discontinued operations
                
                
                424
                
                
                
                -
                
                
                
                424Net
      income
                
                $
                27,872
                
                
                $
                31,959
                
                
                $
                (4,087
                )


36




Comparison
of the year ended December 31, 2009 to the year ended December 31,
2008




Revenues




Total
revenues increased by $8.0 million to $128.4 million for the year ended December
31, 2009, as compared to $120.4 million for the year ended December 31,
2008.  The increase was primarily a result of:




o
            An
      increase to rental revenue of approximately $10.9 million arising
      primarily from the acquisition of a property in Texas in May 2008, the
      acquisition of two properties located in Virginia and Missouri in December
      2008, the acquisition of two properties located in Virginia and Minnesota
      in June 2009, the acquisition of another property in Virginia in September
      2009 and early termination fees of $0.8 million received during the year
      ended December 31, 2009.





This
increase was partially offset by:




o
            A
      $2.9 million decrease in syndication fees and transaction fees, which was
      principally a result of the decrease in gross syndication proceeds for the
      year ended December 31, 2009 compared to the same period in
      2008.





Expenses





Total
expenses increased by approximately $11.2 million to $103.6 million for the year
ended December 31, 2009 compared to $92.4 million for the year ended December
31, 2008.  The increase was primarily a result of:





o
            An
      increase in real estate operating expenses and real estate taxes and
      insurance of approximately $3.3 million, and depreciation and amortization
      of $5.9 million, which were primarily from the acquisition of a property
      in Texas in May 2008, the acquisition of two properties located in
      Virginia and Missouri in December 2008, the acquisition of two properties
      located in Virginia and Minnesota that were acquired in June 2009 and the
      acquisition of another property in Virginia in September
    2009.





o
            An
      increase in interest expense of approximately $1.6 million primarily as a
      result of the addition of the Term Loan, which was borrowed in October
      2008; and was partially offset by lower average interest rates during the
      year ended December 31, 2009 compared to the year ended December 31,
      2008.





o
            An
      increase in general and administrative expenses of $0.6 million, which was
      primarily the result acquisition costs of $643,000 that were recorded in
      during the year ended December 31, 2009 related to the acquisition of two
      properties in June 2009 and the acquisition of a property in September
      2009.  We had 43 and 41 employees as of December 31, 2009 and
      2008, respectively, at our headquarters in
  Wakefield.





These
increases were partially offset by:





o
            A
      decrease in commission expense of $350,000, which was principally a result
      of the decrease in gross syndication proceeds in the year ended December
      31, 2009 compared to the same period in
2008.





Interest
income





Interest
income decreased $0.6 million to $0.1 million during the year ended December 31,
2009, which was primarily a result of lower average interest rates on invested
funds and lower average balances of cash and cash equivalents in 2009 compared
to the same period in 2008.


37





Equity in earnings of
non-consolidated REITs





Equity
in earnings from non-consolidated REITs decreased approximately $0.8 million to
$2.0 million, which was principally a result of our preferred stock investment
in East Wacker during the year ended December 31, 2009 compared to the same
period of 2008.





Taxes on
income





Taxes
on income decreased approximately $0.1 million to a tax benefit of $0.6 million
during the year ended December 31, 2009 compared to the same period of
2008.  The decrease was primarily due to a lower taxable income from
the investment banking and investment services business in the 2009 period
compared to 2008.





Income from continuing
operations





The
resulting income from continuing operations for the year ended December 31, 2009
compared to the year ended December 31, 2008 decreased $4.5 million to $27.4
million for the reasons described above.





Gain on
sale





During
2009, we recognized a gain of approximately $424,000 on a small piece of land as
a result of a land taking by the Commonwealth of Virginia.  During
2008, we did not sell any properties.




Net
income




Net
income for the year ended December 31, 2009 decreased $4.1 million to $27.9
million compared to $32.0 million for the year ended December 31, 2008, for the
reasons described above.




38


The
following table shows financial results for the years ended December 31, 2008
and 2007.




(in
      thousands)Revenues:
                  
                  2008
                  
                  
                  2007
                  
                  
                  ChangeRental
                  
                  $
                  111,198
                  
                  
                  $
                  100,961
                  
                  
                  $
                  10,237Related
      party revenue:Syndication
      fees
                  
                  
                  3,766
                  
                  
                  
                  8,986
                  
                  
                  
                  (5,220
                  )Transaction
      fees
                  
                  
                  3,641
                  
                  
                  
                  9,898
                  
                  
                  
                  (6,257
                  )Management
      fees and interest income from loans
                  
                  
                  1,739
                  
                  
                  
                  7,030
                  
                  
                  
                  (5,291
                  )Other
                  
                  
                  72
                  
                  
                  
                  118
                  
                  
                  
                  (46
                  )Total
      revenues
                  
                  
                  120,416
                  
                  
                  
                  126,993
                  
                  
                  
                  (6,577
                  )Expenses:Real
      estate operating expenses
                  
                  
                  28,999
                  
                  
                  
                  26,171
                  
                  
                  
                  2,828Real
      estate taxes and insurance
                  
                  
                  17,740
                  
                  
                  
                  16,535
                  
                  
                  
                  1,205Depreciation
      and amortization
                  
                  
                  30,360
                  
                  
                  
                  29,334
                  
                  
                  
                  1,026Selling,
      general and administrative
                  
                  
                  8,268
                  
                  
                  
                  7,466
                  
                  
                  
                  802Commissions
                  
                  
                  2,151
                  
                  
                  
                  4,737
                  
                  
                  
                  (2,586
                  )Interest
                  
                  
                  4,921
                  
                  
                  
                  7,684
                  
                  
                  
                  (2,763
                  )Total
      expenses
                  
                  
                  92,439
                  
                  
                  
                  91,927
                  
                  
                  
                  512Income
      before interest income, equity in earnings (losses) of non-consolidated
      REITs and taxes on income
                  
                  
                  27,977
                  
                  
                  
                  35,066
                  
                  
                  
                  (7,089
                  )Interest
      income
                  
                  
                  745
                  
                  
                  
                  2,377
                  
                  
                  
                  (1,632
                  )Equity
      in earnings (losses) of non-consolidated REITs
                  
                  
                  2,747
                  
                  
                  
                  (464
                  )
                  
                  
                  3,211Income
      before taxes on income
                  
                  
                  31,469
                  
                  
                  
                  36,979
                  
                  
                  
                  (5,510
                  )Taxes
      on income
                  
                  
                  (490
                  )
                  
                  
                  873
                  
                  
                  
                  (1,363
                  )Income
      from continuing operations
                  
                  
                  31,959
                  
                  
                  
                  36,106
                  
                  
                  
                  (4,147
                  )Discontinued
      operations:Income
      from discontinued operations
                  
                  
                  -
                  
                  
                  
                  1,190
                  
                  
                  
                  (1,190
                  )Gain
      on sale of properties, less applicable income tax
                  
                  
                  -
                  
                  
                  
                  23,789
                  
                  
                  
                  (23,789
                  )Total
      discontinued operations
                  
                  
                  -
                  
                  
                  
                  24,979
                  
                  
                  
                  (24,979
                  )Net
      income
                  
                  $
                  31,959
                  
                  
                  $
                  61,085
                  
                  
                  $
                  (29,126
                  )







Comparison
of the year ended December 31, 2008 to the year ended December 31,
2007




Revenues




Total
revenues decreased by $6.6 million to $120.4 million for the year ended December
31, 2008, as compared to $127.0 million for the year ended December 31,
2007.  The decrease was primarily a result of:




o
            A
      $11.5 million decrease in syndication and transaction fees, which was
      principally a result of the decrease in gross syndication proceeds for the
      year ended December 31, 2008 compared to the same period in
      2007.


o
            A
      $5.3 million decrease in interest income from loans, which was principally
      a result of lower interest income earned from lower average loan balances
      during the year ended December 31, 2008 as compared to the same period in
      2007.  This interest income is derived from mortgage loans on
      the properties in syndication.  The impact of this decrease was
      slightly greater as a result of lower interest rates charged during 2008
      compared to 2007.


39





These
decreases were partially offset by:





o
            An
      increase to rental revenue of approximately $10.2 million from real estate
      arising primarily from the acquisitions of the following properties: a
      property in Maryland in June 2007, a property in Texas in May 2008, a
      property in Missouri in December 2008 and a property in Virginia in
      December 2008.





Expenses





Total
expenses were $92.4 million for the year ended December 31, 2008, or an increase
of $0.5 million compared to the year ended December 31, 2007.  The
increase was primarily a result of:





o
            The
      increase in real estate operating expenses, real estate taxes and
      insurance costs of $4.0 million, and depreciation of $1.0 million, which
      were primarily a result of the acquisitions discussed
    above.


o
            An
      increase in selling, general and administrative expenses of approximately
      $0.8 million for the year ended December 31, 2008, which was primarily a
      result of the cost of new employees hired in 2008, and increases in
      discretionary bonuses and professional fees.  We had 41 and 38
      employees as of December 31, 2008 and 2007 at our headquarters in
      Wakefield.





These
increases were partially offset by:





o
            A
      decrease in interest expense of $2.8 million resulting primarily from a
      lower average loan balance outstanding during the year ended December 31,
      2008 compared to the year ended December 31, 2007, and to a lesser extent
      lower interest rates in 2008 compared to
2007.


o
            A
      decrease in commission expenses of $2.6 million, which was principally a
      result of the decrease in gross syndication proceeds for the year ended
      December 31, 2008 compared to the year ended December 31,
      2007.





Interest
income





Interest
income decreased $1.6 million to $0.7 million for the year ended December 31,
2008 compared to the year ended December 31, 2007, which was primarily a result
of a lower interest rates and a lower average balance of cash between 2008 and
2007.





Equity in earnings (losses)
of non-consolidated REITs





Equity
in earnings (losses) of non-consolidated REITs increased approximately $3.2
million to $2.7 million for the year ended December 31, 2008 compared to losses
of $0.5 million for the year ended December 31, 2007, which was principally a
result of income attributed to us from our investment in East
Wacker.




Taxes on
income





Taxes
on income decreased $1.4 million for the year ended December 31, 2008 compared
to the year ended December 31, 2007.  The decrease was primarily due
to lower taxable income from the investment banking and investment services
business in the 2008 period compared to 2007, which was principally a result of
the decrease in gross syndication proceeds from 2008 compared to
2007.





Income from continuing
operations





The
resulting income from continuing operations for the year ended December 31, 2008
compared to the year ended December 31, 2007 decreased $4.1 million to $32.0
million for the reasons discussed above.





40


Discontinued operations and
gain on sale of assets





During
2008, we did not sell any properties.  During 2007, we sold five
properties which are reported as discontinued operations on our financial
statements for the year ended December 31, 2007.  Income from
discontinued operations was $1.2 million for the year ended December 31,
2007.





During
the year ended December 31, 2007, we reported $23.8 million as gain on sale of
assets, which is summarized in the table below:


(in
      thousands)
              
              
              
              
              NetCity/
              Property
              Date
      of
              
              SalesProperty
      Address
              State
              Type
              Sale
              
              Proceeds
              
              
              Gain33
      & 37 Villa Road
              Greenville,
      SC
              Office
              January
      31, 2007
              
              $
              5,830
              
              
              $
              -11680
      Great Oaks Way
              Alpharetta,
      GA
              Office
              June
      21, 2007
              
              
              32,535
              
              
              
              6,60117030
      Goldentop Road
              San
      Diego, CA
              Office
              June
      27, 2007
              
              
              36,199
              
              
              
              14,74110
      Lyberty Way
              Westford,
      MA
              Office
              July
      16, 2007
              
              
              10,861
              
              
              
              1,94211211
      Taylor Draper Lane
              Austin,
      TX
              Office
              December
      20, 2007
              
              
              10,429
              
              
              
              257Settlement
      of escrows onprior
      property sales
              
              
              
              
              
              248
              
              
              
              248Net
      Sales Proceeds and Gainon
      sales of real estate
              
              
              
              
              $
              96,102
              
              
              $
              23,789




Net
Income




The
resulting net income for the year ended December 31, 2008 was $32.0 million
compared to net income of $61.1 million for the year ended December 31,
2007.




41


Liquidity
and Capital Resources





Cash
and cash equivalents were $27.4 million and $29.2 million at December 31, 2009
and 2008, respectively.  This decrease of $1.8 million is attributable
to $69.4 million provided by operating activities less $172.1 million used by
investing activities plus $100.9 million provided by 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 existing debt
financing will be sufficient to meet working capital requirements and
anticipated capital expenditures for at least the next 12
months.  Although there is no guarantee that we will be able to obtain
the funds necessary for our future growth, we anticipate generating funds from
continuing real estate operations and from fees and commissions from the sale of
shares in newly formed Sponsored REITs.  We believe that we have
adequate funds to cover unusual expenses and capital improvements, in addition
to normal operating expenses.  Our ability to maintain or increase our
level of dividends to stockholders, however, depends in significant part upon
the level of rental income from our real properties and the level of interest on
the part of investors in purchasing shares of Sponsored REITs.





Operating
Activities





The
cash provided by our operating activities of $69.4 million is primarily
attributable to net income of $27.9 million, excluding the recognized gain on
the land taking of $0.4 million, plus the add-back of $36.1 million of non-cash
activities, $5.6 million of distributions from non-consolidated REITs, an
increase in accounts payable and accrued liabilities of approximately $2.5
million and an increase in prepaid and other assets of $0.9
million.  These increases were partially offset by increases in tenant
rent receivables of $0.5 million and payment of leasing commissions of $2.7
million.




Investing
Activities





Our
cash used for investing activities for the year ended December 31, 2009 of
$172.1 million is primarily attributable to additions to real estate investments
and office equipment of approximately $132.3 million and secured loans made to
Sponsored REITs of approximately $35.4 million and an investment in preferred
shares of a Sponsored REIT of $13.2 million, which were partially offset by a
decrease in assets held for syndication of $8.1 million and proceeds from the
sale of land of $0.7 million.




Financing
Activities





Our
cash provided by financing activities for the year ended December 31, 2009 of
$100.9 million is primarily attributable to net proceeds from an equity offering
of $114.7 million, net borrowings under our Revolver of $41.5 million and was
partially offset by distributions paid to shareholders of $55.3
million.





Revolver





The
Revolver is with a group of banks for borrowings at our election of up to $250
million and matures on August 11, 2011.  Borrowings under the Revolver
bear interest at either the bank's prime rate (3.25% at December 31, 2009) or a
rate equal to LIBOR plus 100 basis points (1.23% at December 31,
2009).  There were borrowings of $109,008,000 and $67,468,000 at the
LIBOR plus 100 basis point rate at a weighted average rate of 1.23 and 2.39%
outstanding under the Revolver at December 31, 2009 and 2008,
respectively.  The weighted average interest rate on amounts
outstanding during 2009 and 2008 was approximately 1.34% and 3.61%,
respectively.  As of December 31, 2009, we were in compliance with all
bank covenants under the Revolver.





We
have drawn on the Revolver, and intend to draw on the Revolver in the future for
a variety of corporate purposes, including the acquisition of properties that we
acquire directly for our portfolio and the funding of loans to Sponsored
REITs.  We typically draw down on the Revolver to make an acquisition
loan to each Sponsored REIT which is secured by a mortgage on the borrower’s
real estate.  These loans typically are repaid out of the proceeds of
the borrower’s equity offering.  We refer to these loans as
Acquisition Loans.  From time-to-time we may also make secured loans
to Sponsored REITs to fund construction costs, capital expenditures, leasing
costs and other purposes.  We anticipate that these loans will be
repaid at their maturity or earlier from long-term financings of the underlying
properties, cash flows from the underlying properties or some other capital
event.  We refer to these loans as Sponsored REIT Loans.


42




Term
Loan





On
October 15, 2008, we closed on a $75,000,000 unsecured term loan facility with
three banks.  Proceeds from the Term Loan were used to reduce the
outstanding principal balance on the Revolver.  The Term Loan has an
initial three-year term that matures on October 15, 2011.  In
addition, we have the right to extend the initial maturity date for up to two
successive one-year periods, or until October 15, 2013 if both extensions are
exercised.  We fixed the interest rate for the initial three-year term
of the Term Loan at 5.84% per annum pursuant to an interest rate swap
agreement.  As of December 31, 2009, we were in compliance with all
bank covenants under the Term Loan.





Equity
Securities





On
September 23, 2009, we completed an underwritten public offering of 9.2 million
shares of our common stock (including 1.2 million shares issued as a result of
the full exercise of an overallotment option by the underwriter) at a price to
the public of $13.00 per share.  The proceeds from this public
offering, net of underwriter discounts and offering costs, totaled approximately
$114.7 million.  We used approximately $74.6 million of the net
proceeds of the offering to repay outstanding borrowings under
our Revolver, including an aggregate of approximately $51.6 million drawn
down in June 2009 for the acquisition of properties in Eden Prairie, Minnesota
and Chantilly, Virginia.  We used the remainder of the net proceeds to
fund a portion of the purchase price of a property in Falls Church, Virginia in
September 2009.





As
of December 31, 2009, we have an automatic shelf registration statement on
Form S-3 on file with the SEC relating to the offer and sale, from time to
time, of an indeterminate amount of our common stock.  From time to
time, we expect to issue additional shares of our common stock under our
automatic shelf registration statement or a different registration statement to
fund the acquisition of additional properties, to pay down any existing debt
financing and for other corporate purposes.





Contingencies





From
time to time, we may provide financing to Sponsored REITs in the form of a
construction loan and/or a revolving line of credit secured by a
mortgage.  As of December 31, 2009, we were committed to fund up to
$85.8 million to six Sponsored REITs under such arrangements for the purpose of
funding construction costs, capital expenditures, leasing costs or for other
purposes, of which $36.5 million has been drawn and is
outstanding.  We anticipate that advances made under these facilities
will be repaid at their maturity date or earlier from long-term financings of
the underlying properties, cash flows from the underlying properties or another
other capital event.





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





Assets Held for
Syndication





As
of December 31, 2009, we had one asset held for syndication for a property in
West Chester, Ohio.  As of December 31, 2008 and 2007, we had one
asset held for syndication for a property in Kansas City, Missouri, which was
completed on May 29, 2009.





Assets Held for
Sale





As
of December 31, 2009, 2008 and 2007, there were no assets held for
sale.





Related Party
Transactions





On
May 15, 2008, we acquired Park Ten Development by merger for a total purchase
price of approximately $35.4 million.  The acquisition was effected by
merging a wholly owned acquisition subsidiary of the Company with and into Park
Ten Development.  The holders of preferred stock in Park Ten
Development received cash consideration of approximately $127,290 per
share.


43


In
November 2009, we commenced the syndication of FSP Centre Pointe V Corp., which
is still in process as of December 31, 2009.  In September 2009, we
commenced the syndication of FSP Lakeside Crossing II Corp., which was completed
December 15, 2009.  In May 2008, we commenced the syndication of FSP
385 Interlocken Development Corp., which is still in process as of December 31,
2009.  During 2007, we commenced the syndication of FSP Grand
Boulevard Corp., which was completed May 29, 2009.  As part of this
syndication, we purchased the final 175.5 shares of its preferred stock for
approximately $15 million on May 29, 2009, representing an approximately 27%
interest.





We
have drawn on the Revolver, and intend to draw on the Revolver in the future for
a variety of corporate purposes, including the acquisition of properties that we
acquire directly for our portfolio and for loans to Sponsored REITs,
including the Acquisition Loans and the Sponsored REIT Loans described
below.  Additional Information about our Acquisition Loans and our
Sponsored REIT Loans outstanding as of December 31, 2009, including a summary
table of the Sponsored REIT Loans, is incorporated herein by reference to Note
4, “Related Party Transactions – Management fees and interest income from
loans”, in the Notes to Consolidated Financial
Statements.


Loans to Sponsored
REITs




Acquisition
Loans




We
typically make an acquisition loan to each Sponsored REIT which is secured by a
mortgage on the borrower’s real estate.  These loans enable Sponsored
REITs to acquire their respective properties prior to the consummation of the
offerings of their equity interests.  We refer to these loans as
Acquisition Loans.  We anticipate that each Acquisition Loan will be
repaid at maturity or earlier from the proceeds of the Sponsored REIT’s equity
offering.  Each Acquisition Loan has a term of two years and bears
interest at the same rate paid by FSP Corp. for borrowings under the
Revolver.  We had one Acquisition Loan outstanding for the syndication
of FSP Centre Pointe V Corp., and one Acquisition Loan outstanding for the
syndication of FSP Grand Boulevard Corp. as of December 31, 2009 and 2008,
respectively.  The Acquisition Loan for FSP Grand Boulevard Corp. was
repaid on May 29, 2009.  Acquisition Loans are classified as assets
held for syndication.




Sponsored
REIT Loans




From
time-to-time we may also make secured loans to Sponsored REITs to fund
construction costs, capital expenditures, leasing costs and other
purposes.  We refer to these loans as Sponsored REIT
Loans.  Since December 2007, we have provided Sponsored REIT Loans in
the form of revolving lines of credit to five Sponsored REITs, or to
wholly-owned subsidiaries of those Sponsored REITs, and a construction loan to
one wholly-owned subsidiary of another Sponsored REIT.  We anticipate
that each Sponsored REIT Loan will be repaid at maturity or earlier from long
term financing of the property securing the loan, cash flows from that
underlying property or some other capital event.  Each Sponsored REIT
Loan is secured by a mortgage on the underlying property and has a term of
approximately two to three years.  Advances under each Sponsored REIT
Loan bear interest at a rate equal to the 30-day LIBOR rate plus an agreed upon
number of basis points and most advances also require a 50 basis point draw
fee.  We received a $210,000 loan commitment fee at the time of the
closing of the Sponsored REIT Loan that is structured as a construction
loan.  As of December 31, 2009, we were committed to fund Sponsored
REIT Loans up to $85.8 million to six Sponsored REITs, of which $36.5 million
was drawn and outstanding.




Additional
Information about our Acquisition Loans and our Sponsored REIT Loans outstanding
as of December 31, 2009, including a summary table of our Sponsored REIT Loans,
is incorporated herein by reference to Note 4, “Related Party Transactions –
Management fees and interest income from loans”, in the Notes to Consolidated
Financial Statements.





Other
Considerations





We
generally pay the ordinary annual operating expenses of our properties from the
rental revenue generated by the properties.  For the years ended
December 31, 2009 and 2008, the rental income exceeded the expenses for each
individual property, with the exception of our property located at Federal Way,
Washington and our property located at Southfield, Michigan.




44


Our
property located in Federal Way, Washington had a single tenant lease, which
expired September 14, 2006.  During 2007 and 2008, we signed leases
with three tenants and in 2009 with an additional two for an aggregate total of
approximately 26% of the space, which generated rental income of $334,000 and
$335,000 for the years ended December 31, 2009 and 2008, respectively, and had
operating expenses of $556,000 and $592,000 for the years ended December 31,
2009 and 2008, respectively.




Our
property located in Southfield, Michigan with approximately 215,000 square feet
of rentable space, had rental revenue that covered ordinary annual operating
expenses for the year ended December 31, 2009.  However, the property
had a lease with a tenant for approximately 138,000 square feet of space that
expired on July 31, 2009.  The tenant re-leased approximately 83,000
square feet and vacated approximately 55,000 square feet.  On
September 15, 2009, a lease with a different tenant at the property expired and
approximately 17,000 square feet of space was vacated.  As a result,
for the three months ended September 30, 2009, the leases in place generated
rental income of $526,000 and operating expenses of $630,000 and for the three
months ended December 31, 2009, the leases in place generated rental income of
$347,000 and operating expenses of $450,000.




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
2022.  Approximate future minimum rental income from non-cancelable
operating leases as of December 31, 2009 is:




(in
      thousands)
            Year endedDecember 31,2010
            $
            86,9422011
            
            75,6412012
            
            65,2862013
            
            59,2482014
            
            54,501Thereafter
      (2015-2022)
            
            115,243$
            456,861





Contractual
Obligations




The
following table sets forth our contractual obligations as of December 31,
2009.





Payment
      due by periodContractual
                (in
      thousands)Obligations
                Total
                2010
                2011
                2012
                2013
                2014
                2015Revolver
                $     109,008
                $               -
                $   109,008
                $             -
                $             -
                $             -
                $             -Term
      Loan
                75,000
                150
                74,850
                -
                -
                -
                -Operating
      Leases
                196
                196
                -
                -
                -
                -
                -Total
                $     184,204
                $            346
                $   183,858
                $             -
                $             -
                $             -
                $             -





The
operating leases in the table above consist of our lease of corporate office
space, which was amended in 2007, expires on July 31, 2010 and has one
three-year renewal option.  The lease includes a base annual rent and
additional rent for our share of taxes and operating costs.




In
addition to the amounts in the table above, from time to time, we may provide
Acquisition Loans and Sponsored REIT Loans to our Sponsored REITs.  As
of December 31, 2009, we had one Acquisition Loan outstanding, which is
classified as an asset held for syndication and were committed to fund Sponsored
REIT Loans up to $85.8 million to six Sponsored REITs, of which $36.5 million
was drawn and outstanding.  Additional Information about our
Acquisition Loans and our Sponsored REIT Loans outstanding as of December 31,
2009, including a summary table or our Sponsored REIT Loans, is incorporated
herein by reference to Note 4, “Related Party Transactions – Management fees and
interest income from loans”, in the Notes to Consolidated Financial
Statements.




45




Off-Balance Sheet
Arrangements




Investments
in Sponsored REITs





As
part of our business model we organize single-purpose entities that own real
estate, purchases of which are financed through the private placement of equity
in those entities, typically through syndication.  We call these
entities Sponsored REITs, and they are operated in a manner intended to qualify
as real estate investment trusts.  We earn fees related to the sale of
preferred stock in the Sponsored REITs in these syndications.  The
Sponsored REITs issue both common stock and preferred stock.  The
common stock is owned by FSP Corp. Generally the preferred stock is owned by
unaffiliated investors, however, we acquired an interest in preferred shares of
five Sponsored REITs.  In addition, directors and officers of FSP
Corp., have from time to time invested in Sponsored REITs and may do so again in
the future.  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.  Subsequent to the completion of
the offering of preferred shares, except for the preferred stock we own, we do
not share in any of the Sponsored REIT’s earnings, or any related dividend, and
the common stock ownership interests have virtually no economic benefit or
risk.  Prior to the completion of the offering of preferred shares, we
share in a Sponsored REIT’s earnings (and related dividends) to the extent of
our ownership interest in the Sponsored REIT.





As
a common stockholder, upon completion of the syndication, we have no rights to
the Sponsored REIT’s earnings or any related cash
distributions.  However, upon liquidation of a Sponsored REIT, we are
entitled to our percentage interest as a common stockholder in any proceeds
remaining after the preferred stockholders have recovered their
investment.  Our common stock percentage interest in each Sponsored
REIT is less than 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.





Common
stock investments in Sponsored REITs are consolidated while the entity is
controlled by us.  Following the commencement of syndication we
exercise influence over, but do not control these entities and investments are
accounted for using the equity method.  Under the equity method of
accounting, the cost basis is increased by its share of the Sponsored REITs'
earnings, if any, prior to completion of the syndication.  Equity in
losses of Sponsored REITs is not recognized to the extent that the investment
balance would become negative and distributions received are recognized as
income once the investment balance is reduced to zero, unless there are assets
held for syndication from the Sponsored REIT entity.  Equity in losses
or distributions received in excess of investment is recorded as an adjustment
to the carrying value of the asset held for syndication.




We
have acquired a preferred stock interest in five Sponsored REITs, including one
we acquired on May 15, 2008 by cash merger and another we acquired on April 30,
2006 by merger.  As a result of our common stock interest and our
preferred stock interest in the remaining three Sponsored REITs, we exercise
influence over, but do not control these entities.  These preferred
share investments are accounted for using the equity method.  Under
the equity method of accounting our cost basis is adjusted by our share of the
Sponsored REITs' operations and distributions received.  We also
agreed to vote our preferred shares in any matter presented to a vote by the
stockholders of these Sponsored REITs in the same proportion as shares voted by
other stockholders of the Sponsored REITs.




At
December 31, 2009, we held a common stock interest in 14 Sponsored REITs, 12 of
which were fully syndicated and in which we no longer share economic benefit or
risk.  The two that were not fully syndicated at December 31, 2009
include one that commenced in May 2008, and another that commenced in November
2009.  The value of the entities that were not fully syndicated was
approximately $4.8 million and was shown on the consolidated balance sheets as
assets held for syndication.  At December 31, 2008, we held a common
stock interest in 12 Sponsored REITs, 10 of which were fully syndicated and from
which we no longer share economic benefit or risk.  The two that were
not fully syndicated at December 31, 2008 include one that commenced in
September 2007, and another that commenced in May 2008.  The value of
the entities that were not fully syndicated was approximately $13.3 million and
was shown on the consolidated balance sheets as assets held for
syndication.


46


The
table below shows our income and expenses from Sponsored
REITs.  Management fees of $2,000 and $20,000 for the years ended
December 31, 2009 and 2007, respectively, and interest expense related to the
Company’s mortgage on properties is eliminated in
consolidation.  There was no income or expenses from Sponsored REITs
that were consolidated during the year ended December 31, 2008.





Year
      Ended December 31,(in
      thousands)
              
              2009
              
              
              2007Operating
      Data:Rental
      revenues
              
              $
              74
              
              
              $
              3,510Operating
      and maintenance expenses
              
              
              50
              
              
              
              1,834Depreciation
      and amortization
              
              
              6
              
              
              
              855Interest
      expense: permanent mortgage loan
              
              
              -
              
              
              
              179Interest
      expense: acquisition loan
              
              
              6
              
              
              
              1,448Interest
      income
              
              
              -
              
              
              
              51$
              12
              
              
              $
              (755
              )





During
the year ended December 31, 2009, we recorded equity in income from three
Sponsored REITs following commencement of the syndication of $153,000 and during
the year ended December 31, 2009, we recorded equity in losses from two
Sponsored REITs following the commencement of syndication of $211,000 and during
the year ended December 31, 2007 we recorded equity in losses from two Sponsored
REITs following the commencement of syndication of $627,000.




From
time to time, we may provide Acquisition Loans and Sponsored REIT Loans to our
Sponsored REITs.  As of December 31, 2009, we had one Acquisition Loan
outstanding, which is classified as an asset held for syndication and were
committed to fund Sponsored REIT Loans up to $85.8 million to six Sponsored
REITs, of which $36.5 million was drawn and outstanding.  Additional
Information about our Acquisition Loans and our Sponsored REIT Loans outstanding
as of December 31, 2009, including a summary table of our Sponsored REIT Loans,
is incorporated herein by reference to Note 4, “Related Party Transactions –
Management fees and interest income from loans”, in the Notes to Consolidated
Financial Statements.




47


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




Market
Rate Risk





We
are exposed to changes in interest rates primarily from our floating rate
borrowing arrangements.  We use interest rate derivative instruments
to manage exposure to interest rate changes.  As of December 31, 2009
and 2008, if market rates on borrowings under our Revolver increased by 10% at
maturity, or approximately 12 and 24 basis points, respectively, over the
current variable rate, the increase in interest expense would decrease future
earnings and cash flows by $0.1 million and $0.2 million annually. The interest
rate on our Revolver as of December 31, 2009 was LIBOR plus 100 basis
points.  We do not believe that the interest rate risk represented by
borrowings under our Revolver is material as of December 31, 2009.





Our
Term Loan of $75 million bears interest at a variable rate of LIBOR plus 200
basis points, with a 2% floor on LIBOR, which was fixed at 5.84% per annum for
its initial three year term with an interest rate swap agreement, and therefore,
the fair value of this instrument is affected by changes in market interest
rates.  We believe that we have mitigated interest rate risk with
respect to the Term Loan through the interest rate swap agreement for the
initial three year term of the loan.  This interest rate swap
agreement was our only derivative instrument as of December 31, 2009 and
2008.





The
Term Loan has an initial three year term that matures on October 15,
2011.  In addition, we have the right to extend the initial maturity
date for up to two successive one-year periods, or until October 15, 2013 if
both extensions are exercised.  Upon maturity, our future income, cash
flows and fair values relevant to financial instruments will be dependent upon
the balance then outstanding and prevalent market interest rates.





The
table below lists our derivative instrument, which is hedging variable cash
flows related to interest on our Term Loan as of December 31, 2009 (in
thousands):





(in
      000’s)
            Asset
              Hedged
            
            Benchmark
              Rate
            
            Notional
              Value
            
            
            Strike
              Rate
            
            
            Effective
              Date
            
            
            Expiration
              Date
            
            
            Fair
              ValueInterest
      Rate Swap
            Term
      Loan
            
            LIBOR
            
            $
            75,000
            
            
            
            5.840
      %
            
            
            
            10/2008
            
            
            
            10/2011
            
            
            $
            (2,076
            )





Our Term Loan hedging transaction used a
derivative instrument that involves certain additional risks such as
counterparty credit risk, the enforceability of hedging contracts and the risk
that unanticipated and significant changes in interest rates will cause a
significant loss of basis in the contract.  The counterparty to our
derivative arrangement is RBS Citizens, N.A., which has a senior unsecured debt
credit rating of A2 by Moody’s.  As a result, we do not anticipate
that the counterparty will fail to meet its obligations.  However,
there can be no assurance that we will be able to adequately protect against the
foregoing risks or that we will ultimately realize an economic benefit that
exceeds the related amounts incurred in connection with engaging in such hedging
strategies.




The
Revolver matures in August 2011 and has a variable rate of
interest.  Upon maturity, our future income, cash flows and fair
values relevant to financial instruments will be dependent upon the balance then
outstanding and prevalent market interest rates.




We
borrow from time-to-time under the Revolver.  These borrowings bear
interest at the bank’s base rate (3.25% at December 31, 2009) or a 30 day LIBOR
plus 100 basis points (1.23% at December 31, 2009), as elected by us when
requesting funds.  Generally the borrowings are for 30 day LIBOR plus
100 Basis points.  There were borrowings totaling $109,008,000 and
$67,468,000 in the aggregate at the 30 day LIBOR plus 100 basis point rate,
representing a weighted average rate of 1.23% and 2.39% outstanding under the
Revolver at December 31, 2009 and 2008, respectively.  We have drawn
on the Revolver, and intend to draw on the Revolver in the future for a variety
of corporate purposes, including the funding of Acquisition Loans and Sponsored
REIT Loans.  As of December 31, 2009, we had one Acquisition Loan
outstanding , which is classified as an asset held for syndication and were
committed to fund Sponsored REIT Loans up to $85.8 million to six Sponsored
REITs, of which $36.5 million was drawn and outstanding.  Additional
Information about our Acquisition Loans and our Sponsored REIT Loans outstanding
as of December 31, 2009, including a summary table of our Sponsored REIT Loans,
is incorporated herein by reference to Note 4, “Related Party Transactions –
Management fees and interest income from loans”, in the Notes to Consolidated
Financial Statements.




48


The
following table presents as of December 31, 2009 our contractual variable rate
borrowings under our Revolver, which matures on August 11, 2011, and under our
Term Loan, which matures on October 15, 2011.  Under the Term Loan we
have the right to extend the initial maturity date for up to two successive
one-year periods, or until October 15, 2013 if both extensions are
exercised:




Payment
      due by period(in
      thousands)Total
            2010
            2011
            2012
            2013
            2014
            2015Revolver
            $     109,008
            $               -
            $   109,008
            $             -
            $             -
            $             -
            $             -Term
      Loan
            75,000
            150
            74,850
            -
            -
            -
            -Total
            $     184,008
            $            150
            $   183,858
            $             -
            $             -
            $             -
            $             -





Item
      8.
            Financial Statements
      and Supplementary Data





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




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


Not
applicable.




Item
      9A.
              Controls and
      Procedures


Disclosure
Controls and Procedures




Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2009. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, means controls and other procedures of a company that are
designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the company’s management,
including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required
disclosure.  Management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.  Based on the evaluation of our disclosure controls and
procedures as of December 31, 2009, our chief executive officer and chief
financial officer concluded that, as of such date, our disclosure controls and
procedures were effective at the reasonable assurance level.




Management’s
Annual Report on Internal Control Over Financial Reporting




The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting.  Internal control
over financial reporting is defined in Rules 13a-15(f) or 15d-15(f) promulgated
under the Securities Exchange Act of 1934 as a process designed by, or under the
supervision of, the Company’s principal executive and principal financial
officer and effected by the Company’s board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:




49




·
            Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;





·
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the Company
      are being made only in accordance with authorizations of management and
      directors of the Company; and





·
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the Company’s assets that
      could have a material effect on the financial
  statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2009.  In making
this assessment, the Company’s management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework.





Based
on our assessment, management concluded that, as of December 31, 2009, the
Company’s internal control over financial reporting is effective based on those
criteria.





Ernst
& Young LLP, the independent registered public accounting firm that audited
our financial statements included elsewhere in this annual report on Form 10-K,
has issued an attestation report on our internal control over financial
reporting as of December 31, 2009.  Please see page F-3.





Changes
in Internal Control Over Financial Reporting




No
change in our internal control over financial reporting occurred during the
quarter ended December 31, 2009 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.




Item
      9B.
            Other
      Information




None.




50




PART
III




Certain
information required by Part III of this Form 10-K will be contained in our
definitive proxy statement pursuant to Regulation 14A (the “Proxy Statement”)
which we plan to file not later than 120 days after the end of the fiscal year
covered by this Annual Report on Form 10-K, and is incorporated herein by
reference.




Item
      10.
            Directors, Executive
      Officers and Corporate
Governance




The
response to this item is contained under the caption “Directors and Executive
Officers of FSP Corp.” in Part I hereof and in the Proxy Statement under the
captions “CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS,” “PROPOSAL 1:
ELECTION OF DIRECTORS” and “SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE” and is incorporated herein by reference.




Our
board of directors has adopted a code of business conduct and ethics that
applies to all of our executive officers, directors and
employees.  The code was approved by the audit committee of our board
of directors and by the full board of directors.  We have posted a
current copy of our code under “Corporate Governance” in the “Investor
Relations” section of our website at http://www.franklinstreetproperties.com.To the extent permitted by
applicable rules of the NYSE Amex, we intend to satisfy the disclosure
requirements under Item 5.05 of Form 8-K regarding an amendment to, or
waiver from, a provision of the code of business conduct and ethics with respect
to our principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions, by
posting such information on our website.




Item
      11.
            Executive
      Compensation




The
response to this item is contained in the Proxy Statement under the captions
“EXECUTIVE COMPENSATION” and “COMPENSATION OF DIRECTORS” and is incorporated
herein by reference.




The
“Compensation Committee Report” contained in the Proxy Statement under the
caption “EXECUTIVE COMPENSATION” shall not be deemed “soliciting material” or
“filed” with the SEC or otherwise subject to the liabilities of Section 18 of
the Securities Exchange Act of 1934, nor shall it be deemed incorporated by
reference in any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent we specifically request that such information be treated as
soliciting material or specifically incorporate such information by reference
into a document filed under the Securities Act or the Exchange Act.




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 captions
“BENEFICIAL OWNERSHIP OF VOTING STOCK” and “SECURITIES AUTHORIZED FOR ISSUANCE
UNDER EQUITY COMPENSATION PLANS” and is incorporated herein by
reference.




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




The
response to this item is contained in the Proxy Statement under the captions
“PROPOSAL 1: ELECTION OF DIRECTORS” and “TRANSACTIONS WITH RELATED PERSONS” and
is incorporated herein by reference.




Item
      15.
            Principal Accounting
      Fees and Services




The
response to this item is contained in the Proxy Statement under the caption
“PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM” and is incorporated herein by reference.




51


PART
IV




Item
      15.
            Exhibits, Financial
      Statement Schedules.




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




1.
            Financial
      Statements:




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




2.
            Financial
      Statement Schedules:




The
Financial Statement Schedules listed on the accompanying Index to Consolidated
Financial Statements are 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.









52


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 February 23, 2010 by the undersigned, thereunto duly authorized.




FRANKLIN
      STREET PROPERTIES CORP.By:
            /s/ George J. CarterGeorge
      J. CarterPresident
      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 and in the
capacities and on the dates indicated.




Signature
            Title
            
            Date/s/ George J.
      Carter
              George
      J. Carter
            President,
      Chief Executive Officer and Director (Principal Executive
      Officer)
            
            February
      23, 2010/s/
      Barbara J.
      Fournier
              Barbara
      J. Fournier
            Executive
      Vice President, Chief Operating Officer, Treasurer, Secretary and
      Director
            
            February
      23, 2010/s/ John G.
      Demeritt
              John
      G. Demeritt
            Executive
      Vice President and Chief Financial Officer (Principal Financial Officer
      and Principal Accounting Officer)
            
            February
      23, 2010/s/ Janet P.
      Notopoulos
              Janet
      P. Notopoulos
            Director,
      Executive Vice President
            
            February
      23, 2010/s/ Barry
      Silverstein
              Barry
      Silverstein
            Director
            
            February
      23, 2010/s/ Dennis J.
      McGillicuddy
              Dennis
      J. McGillicuddy
            Director
            
            February
      23, 2010/s/ John
      Burke
              John
      Burke
            Director
            
            February
      23, 2010/s/ Georgia
      Murray
              Georgia
      Murray
            Director
            
            February
      23, 2010







53


EXHIBIT
INDEX




Exhibit No.
            Description2.2
      (1)**
            Agreement
      and Plan of Merger by and among FSP Corp., Park Ten Phase II Acquisition
      Corp. and FSP Park Ten Development Corp. dated as of March 19,
      2008.3.1
      (2)
            Articles
      of Incorporation.3.2
      (3)
            Amended
      and Restated By-laws.10.1+
      (4)
            2002
      Stock Incentive Plan of FSP Corp.10.2
      (5)
            Third
      Amended and Restated Loan Agreement dated as of October 19, 2007 by and
      among the Company, certain wholly-owned subsidiaries of the Company, RBS
      Citizens, National Association, Bank of America, N.A., Wachovia Bank,
      National Association and Chevy Chase Bank, F.S.B.10.3
      (6)
            First
      Amendment to Third Amended and Restated Loan Agreement dated as of October
      15, 2008 by and among the Company, certain wholly-owned subsidiaries of
      the Company, RBS Citizens, National Association, Bank of America, N.A.,
      Wachovia Bank, National Association and Chevy Chase Bank,
      F.S.B.10.4
      (6)
            Term
      Loan Agreement dated as of October 15, 2008 by and among the Company,
      certain of its wholly-owned subsidiaries, RBS Citizens, National
      Association and Wachovia Bank, National Association.10.5
      (6)
            ISDA
      Master Agreement dated as of October 15, 2008, by and between the Company
      and RBS Citizens, National Association, together with the schedule
      relating thereto.10.6+
      (7)
            Form
      of Retention Agreement.10.7+
      (8)
            Change
      in Control Discretionary Plan.10.8
      (9)
            Underwriting
      Agreement dated September 17, 2009 by and between the Company and Robert
      W. Baird & Co. Incorporated.14.1
      (10)
            Code
      of Business Conduct and Ethics.21.1*
            Subsidiaries
      of the Registrant.23.1*
            Consent
      of Ernst & Young 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 Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.


54





EXHIBIT
INDEX, continued





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 Chief Financial Officer 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 March 21,
      2008 (File  No. 001-32470).(2)
            Incorporated
      by reference to FSP Corp.’s Form 8-A, filed April 5, 2005 (File No.
      001-32470).(3)
            Incorporated
      by reference to FSP Corp.’s Current Report on Form 8-K, filed on May 15,
      2006 (File No. 001-32470).(4)
            Incorporated
      by reference to FSP Corp.’s Annual Report on Form 10-K, filed on March 29,
      2002 (File No. 0-32615).(5)
            Incorporated
      by reference to FSP Corp.’s Current Report on Form 8-K, filed on October
      22, 2007 (File No. 001-32470).(6)
            Incorporated
      by reference to FSP Corp.’s Current Report on Form 8-K, filed on October
      15, 2008 (File No. 001-32470).(7)
            Incorporated
      by reference to FSP Corp.’s Annual Report on Form 10-K, filed on February
      24, 2006 (File No. 001-32470).(8)
            Incorporated
      by reference to FSP Corp.’s Current Report on Form 8-K, filed on February
      8, 2006 (File No. 001-32470).(9)
            Incorporated
      by reference to FSP Corp.’s Current Report on Form 8-K, filed on September
      23, 2009 (File No. 001-32470).(10)
            Incorporated
      by reference to FSP Corp.’s Current Report on Form 8-K, filed on August 3,
      2004 (File No. 0-32615).+
            Management
      contract or compensatory plan or arrangement filed as an Exhibit to this
      Form 10-K pursuant to Item 15(b) of Form 10-K.*
            Filed
      herewith.**
            FSP
      Corp. agrees to furnish supplementally a copy of any omitted schedules to
      this agreement to the Securities and Exchange Commission upon its
      request.





55


Franklin
Street Properties Corp.


Index
to Consolidated Financial Statements











Reports
      of Independent Registered Public Accounting Firm
              F-2Consolidated
      Financial Statements:Consolidated
      Balance Sheets as of December 31, 2009
      and 2008
              F-4Consolidated
      Statements of Income for each of the three years in the period
      ended December 31, 2009
              F-6Consolidated
      Statements of Stockholders’ Equity for each of the three years in the
      period
      ended December 31, 2009
              F-7Consolidated
      Statements of Cash Flows for each of the three years in the period
      ended December 31, 2009
              F-8Notes
      to the Consolidated Financial Statements
              F-10Financial
      Statement Schedules – Schedule II and III
              F-31





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




F-1


Report
of Independent Registered Public Accounting Firm





To
the Board of Directors and


Stockholders
of Franklin Street Properties Corp.:





We
have audited the accompanying consolidated balance sheets of Franklin Street
Properties Corp. as of December 31, 2009 and 2008, and the related consolidated
statements of income, stockholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2009. Our audits also included the
financial statement schedules listed in the Index at Item 15(a)(2). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.





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





In
our opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Franklin Street
Properties Corp. at December 31, 2009 and 2008, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2009, in conformity with U.S. generally accepted accounting
principles.  Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.





We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Franklin Street Properties Corp.’s
internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated February 23, 2010 expressed an unqualified opinion thereon.





/s/ Ernst & Young
LLP








Boston,
Massachusetts


February
23, 2010











F-2





Report
of Independent Registered Public Accounting Firm





To
the Board of Directors and


Stockholders
of Franklin Street Properties Corp.:





We
have audited Franklin Street Properties Corp.’s internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Franklin Street Properties
Corp.’s management is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in Item 9A of Franklin Street
Properties Corp.’s Annual Report on Form 10-K under the heading Management’s
Annual Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the company’s internal control over financial
reporting based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.





A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





In
our opinion, Franklin Street Properties Corp. maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2009, based on the COSO criteria.





We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the 2009 consolidated financial
statements of Franklin Street Properties Corp. and our report dated February 23,
2010 expressed an unqualified opinion thereon.





/s/ Ernst & Young
LLP








Boston,
Massachusetts


February
23, 2010










F-3





Franklin
Street Properties Corp.


Consolidated
Balance Sheets





December
      31,(in
      thousands)
            
            2009
            
            
            2008Assets:Real
      estate assets:Land
            
            $
            126,447
            
            
            $
            107,153Buildings
      and improvements
            
            
            894,012
            
            
            
            810,732Fixtures
      and equipment
            
            
            328
            
            
            
            2991,020,787
            
            
            
            918,184Less
      accumulated depreciation
            
            
            98,954
            
            
            
            74,126Real
      estate assets, net
            
            
            921,833
            
            
            
            844,058Acquired
      real estate leases, less accumulated amortization of $34,592
              and
      $29,200, respectively
            
            
            44,757
            
            
            
            28,518Investment
      in non-consolidated REITs
            
            
            92,910
            
            
            
            83,046Asset
      held for syndication, net
            
            
            4,827
            
            
            
            13,254Cash
      and cash equivalents
            
            
            27,404
            
            
            
            29,244Restricted
      cash
            
            
            334
            
            
            
            336Tenant
      rent receivables, less allowance for doubtful accountsof
      $620 and $509, respectively
            
            
            1,782
            
            
            
            1,329Straight-line
      rent receivable, less allowance for doubtful accounts
              of
      $100 and $261, respectively
            
            
            10,754
            
            
            
            8,816Prepaid
      expenses
            
            
            2,594
            
            
            
            2,206Related
      party mortgage loan receivable
            
            
            36,535
            
            
            
            1,125Other
      assets
            
            
            844
            
            
            
            2,406Office
      computers and furniture, net of accumulated
              depreciation
      of $1,233 and $1,108, respectively
            
            
            384
            
            
            
            281Deferred
      leasing commissions, net of accumulated amortization
              of
      $4,995, and $3,416, respectively
            
            
            10,808
            
            
            
            10,814Total
      assets
            
            $
            1,155,766
            
            
            $
            1,025,433








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




F-4


Franklin
Street Properties Corp.


Consolidated
Balance Sheets








December
      31,(in
      thousands, except share and par value amounts)
            
            2009
            
            
            2008Liabilities
      and Stockholders’ Equity:Liabilities:Bank
      note payable
            
            $
            109,008
            
            
            $
            67,468Term
      loan payable
            
            
            75,000
            
            
            
            75,000Accounts
      payable and accrued expenses
            
            
            23,787
            
            
            
            22,297Accrued
      compensation
            
            
            1,416
            
            
            
            1,654Tenant
      security deposits
            
            
            1,808
            
            
            
            1,874Other
      liabilities: derivative termination value
            
            
            2,076
            
            
            
            3,099Acquired
      unfavorable real estate leases, less accumulated amortization of $2,492,
      and $1,779, respectively
            
            
            5,397
            
            
            
            5,044Total
      liabilities
            
            
            218,492
            
            
            
            176,436Commitments
      and contingenciesStockholders’
      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, 79,680,705 and
      70,480,705 shares issued and outstanding, respectively
            
            
            8
            
            
            
            7Additional
      paid-in capital
            
            
            1,003,713
            
            
            
            889,019Accumulated
      other comprehensive loss
            
            
            (2,076
            )
            
            
            (3,099
            )Earnings
      (distributions) in excess of accumulated
      earnings/distributions
            
            
            (64,371
            )
            
            
            (36,930
            )Total
      stockholders’ equity
            
            
            937,274
            
            
            
            848,997Total
      liabilities and stockholders’ equity
            
            $
            1,155,766
            
            
            $
            1,025,433







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




F-5


Franklin
Street Properties Corp.


Consolidated
Statements of Income








For
      the Year EndedDecember
      31,(in
      thousands, except per share amounts)
            
            2009
            
            
            2008
            
            
            2007Revenues:Rental
            
            $
            122,074
            
            
            $
            111,198
            
            
            $
            100,961Related
      party revenue:Syndication
      fees
            
            
            2,428
            
            
            
            3,766
            
            
            
            8,986Transaction
      fees
            
            
            2,080
            
            
            
            3,641
            
            
            
            9,898Management
      fees and interest income from loans
            
            
            1,740
            
            
            
            1,739
            
            
            
            7,030Other
            
            
            61
            
            
            
            72
            
            
            
            118Total
      revenues
            
            
            128,383
            
            
            
            120,416
            
            
            
            126,993Expenses:Real
      estate operating expenses
            
            
            30,822
            
            
            
            28,999
            
            
            
            26,171Real
      estate taxes and insurance
            
            
            19,228
            
            
            
            17,740
            
            
            
            16,535Depreciation
      and amortization
            
            
            36,293
            
            
            
            30,360
            
            
            
            29,334Selling,
      general and administrative
            
            
            8,891
            
            
            
            8,268
            
            
            
            7,466Commissions
            
            
            1,801
            
            
            
            2,151
            
            
            
            4,737Interest
            
            
            6,570
            
            
            
            4,921
            
            
            
            7,684Total
      expenses
            
            
            103,605
            
            
            
            92,439
            
            
            
            91,927Income
      before interest income, equity in earnings (losses) of non-consolidated
      REITs and taxes on income
            
            
            24,778
            
            
            
            27,977
            
            
            
            35,066Interest
      income
            
            
            97
            
            
            
            745
            
            
            
            2,377Equity
      in earnings (losses) of non-consolidated REITs
            
            
            1,994
            
            
            
            2,747
            
            
            
            (464
            )Income
      before taxes on income
            
            
            26,869
            
            
            
            31,469
            
            
            
            36,979Taxes
      on income
            
            
            (579
            )
            
            
            (490
            )
            
            
            873Income
      from continuing operations
            
            
            27,448
            
            
            
            31,959
            
            
            
            36,106Discontinued
      operations:Income
      from discontinued operations
            
            
            -
            
            
            
            -
            
            
            
            1,190Gain
      on sale of of land in 2009 and properties in 2007, less applicable income
      tax
            
            
            424
            
            
            
            -
            
            
            
            23,789Total
      discontinued operations
            
            
            424
            
            
            
            -
            
            
            
            24,979Net
      income
            
            $
            27,872
            
            
            $
            31,959
            
            
            $
            61,085Weighted
      average number of shares outstanding, basic and diluted
            
            
            73,001
            
            
            
            70,481
            
            
            
            70,651Earnings
      per share, basic and diluted, attributable to:Continuing
      operations
            
            $
            0.38
            
            
            $
            0.45
            
            
            $
            0.51Discontinued
      operations
            
            
            -
            
            
            
            -
            
            
            
            0.35Net
      income per share, basic and diluted
            
            $
            0.38
            
            
            $
            0.45
            
            
            $
            0.86







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




F-6


Franklin
Street Properties Corp.


Consolidated
Statements of Stockholders’ Equity





Earnings/(distributions)Accumulated
              
              
              in
      excess ofAdditional
              
              
              other
              
              
              accumulated
              
              
              TotalCommon
      Stock
              
              
              Paid-In
              
              
              comprehensive
              
              
              earnings/
              
              
              Stockholders'(in
      thousands)
              
              Shares
              
              
              Amount
              
              
              Capital
              
              
              loss
              
              
              distributions
              
              
              EquityBalance,
      December 31, 2006
              
              70,766
              
              
              $
              7
              
              
              $
              893,786
              
              
              $
              -
              
              
              $
              28,169
              
              
              $
              921,962Repurchased
      shares
              
              (285
              )
              
              
              -
              
              
              
              (4,767
              )
              
              
              -
              
              
              
              -
              
              
              
              (4,767
              )Net
      income
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              61,085
              
              
              
              61,085Distributions
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (87,662
              )
              
              
              (87,662
              )Balance,
      December 31, 2007
              
              70,481
              
              
              
              7
              
              
              
              889,019
              
              
              
              -
              
              
              
              1,592
              
              
              
              890,618Comprehensive
      income
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,099
              )
              
              
              31,959
              
              
              
              28,860Distributions
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (70,481
              )
              
              
              (70,481
              )Balance,
      December 31, 2008
              
              70,481
              
              
              
              7
              
              
              
              889,019
              
              
              
              (3,099
              )
              
              
              (36,930
              )
              
              
              848,997Comprehensive
      income
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,023
              
              
              
              27,872
              
              
              
              28,895Shares
      issued for:Equity
      Offering
              
              9,200
              
              
              
              1
              
              
              
              114,694
              
              
              
              -
              
              
              
              -
              
              
              
              114,695Distributions
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (55,313
              )
              
              
              (55,313
              )Balance,
      December 31, 2009
              
              79,681
              
              
              $
              8
              
              
              $
              1,003,713
              
              
              $
              (2,076
              )
              
              $
              (64,371
              )
              
              $
              937,274








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




F-7





Franklin
Street Properties Corp.


Consolidated
Statements of Cash Flows





For
      the Year Ended December 31,(in
      thousands)
            
            2009
            
            
            2008
            
            
            2007Cash
      flows from operating activities:Net
      income
            
            $
            27,872
            
            
            $
            31,959
            
            
            $
            61,085Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization expense
            
            
            36,561
            
            
            
            30,444
            
            
            
            30,563Amortization
      of above market lease
            
            
            3,359
            
            
            
            4,283
            
            
            
            4,948Gain
      on sale of real estate assets
            
            
            (424
            )
            
            
            -
            
            
            
            (23,789
            )Equity
      in earnings (losses) of non-consolidated REITs
            
            
            (2,012
            )
            
            
            (2,747
            )
            
            
            472Distributions
      from non-consolidated REITs
            
            
            5,628
            
            
            
            5,348
            
            
            
            1,806Increase
      (decrease) in bad debt reserve
            
            
            111
            
            
            
            79
            
            
            
            (3
            )Changes
      in operating assets and liabilities:Restricted
      cash
            
            
            2
            
            
            
            -
            
            
            
            425Tenant
      rent receivables
            
            
            (564
            )
            
            
            64
            
            
            
            971Straight-line
      rents
            
            
            (1,879
            )
            
            
            (1,406
            )
            
            
            (3,359
            )Prepaid
      expenses and other assets
            
            
            907
            
            
            
            (901
            )
            
            
            374Accounts
      payable, accrued expenses and other items
            
            
            2,760
            
            
            
            448
            
            
            
            1,884Accrued
      compensation
            
            
            (238
            )
            
            
            90
            
            
            
            (1,079
            )Tenant
      security deposits
            
            
            (66
            )
            
            
            -
            
            
            
            130Payment
      of deferred leasing commissions
            
            
            (2,659
            )
            
            
            (3,353
            )
            
            
            (4,314
            )Net
      cash provided by operating activities
            
            
            69,358
            
            
            
            64,308
            
            
            
            70,114Cash
      flows from investing activities:Purchase
      of real estate assets and office computers andfurniture,
      capitalized merger costs
            
            
            (104,544
            )
            
            
            (73,888
            )
            
            
            (77,894
            )Acquired
      real estate leases
            
            
            (27,779
            )
            
            
            (4,508
            )
            
            
            (3,726
            )Investment
      in non-consolidated REITs
            
            
            (13,218
            )
            
            
            (10
            )
            
            
            (82,831
            )Investment
      in related party mortgage loan receivable
            
            
            (35,410
            )
            
            
            (1,125
            )
            
            
            -Redemption
      of (investment in) certificate of deposit
            
            
            -
            
            
            
            -
            
            
            
            5,143Changes
      in deposits on real estate assets
            
            
            -
            
            
            
            (1,300
            )
            
            
            -Investment
      in assets held for syndication
            
            
            8,159
            
            
            
            12,236
            
            
            
            (22,093
            )Proceeds
      received on sales of real estate assets
            
            
            672
            
            
            
            -
            
            
            
            96,102Net
      cash used in investing activities
            
            
            (172,120
            )
            
            
            (68,595
            )
            
            
            (85,299
            )Cash
      flows from financing activities:Distributions
      to stockholders
            
            
            (55,313
            )
            
            
            (70,481
            )
            
            
            (87,662
            )Purchase
      of treasury shares
            
            
            -
            
            
            
            -
            
            
            
            (4,767
            )Proceeds
      from equity offering
            
            
            119,600
            
            
            
            -
            
            
            
            -Offering
      costs
            
            
            (4,905
            )
            
            
            -
            
            
            
            -Borrowings
      under bank note payable
            
            
            -
            
            
            
            -
            
            
            
            84,750Repayments
      of bank note payable
            
            
            41,540
            
            
            
            (17,282
            )
            
            
            -Borrowings
      under term loan payable
            
            
            -
            
            
            
            75,000
            
            
            
            -Deferred
      financing costs
            
            
            -
            
            
            
            (694
            )
            
            
            (121
            )Net
      cash provided by (used in) financing activities
            
            
            100,922
            
            
            
            (13,457
            )
            
            
            (7,800
            )Net
      decrease in cash and cash equivalents
            
            
            (1,840
            )
            
            
            (17,744
            )
            
            
            (22,985
            )Cash and cash
      equivalents, beginning of year
            
            
            29,244
            
            
            
            46,988
            
            
            
            69,973Cash and cash
      equivalents, end of year
            
            $
            27,404
            
            
            $
            29,244
            
            
            $
            46,988








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




F-8





Franklin
Street Properties Corp.


Consolidated
Statements of Cash Flows





For
      the Year Ended December 31,(in
      thousands)
            
            2009
            
            
            2008
            
            
            2007Supplemental
      disclosure of cash flow information:Cash
      paid for:Interest
            
            $
            6,354
            
            
            $
            4,754
            
            
            $
            6,667Taxes
      on income
            
            $
            255
            
            
            $
            257
            
            
            $
            730Non-cash
      investing and financing activities:Accrued
      costs for purchase of real estate assets
            
            $
            1,936
            
            
            $
            3,206
            
            
            $
            1,613Deposits
      on real estate assets converted to investments in assetsheld for syndication
            
            $
            -
            
            
            $
            -
            
            
            $
            5,010Investment
      in non-consolidated REITs converted to real estateassets and acquired real estate leases in conjunction with
      merger
            
            $
            -
            
            
            $
            846
            
            
            $
            -







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




F-9


Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





1.      Organization





Franklin
Street Properties Corp. (“FSP Corp.” or the “Company”), holds, directly and
indirectly, 100% of the interest in FSP Investments LLC, FSP Property Management
LLC, and FSP Holdings LLC.  The Company also has a non-controlling
common stock interest in 14 corporations organized to operate as real estate
investment trusts ("REITs").





On
May 15, 2008, the Company acquired one of its Sponsored REITs, FSP Park Ten
Development Corp. (“Park Ten Development”) by merging a wholly-owned subsidiary
of the Company with and into Park Ten Development for a total purchase price of
approximately $35.4 million.  The holders of preferred stock in Park
Ten Development received cash consideration of approximately $127,290 per
share.  The merger was accounted for as a purchase and the acquired
assets and liabilities were recorded at their fair value.





On
September 23, 2009, the Company completed an underwritten public offering of 9.2
million shares of our common stock (including 1.2 million shares
issued as a result of the full exercise of an overallotment option by the
underwriter) at a price to the public of $13.00 per share.  The
proceeds from this public offering, net of underwriter discounts and offering
costs, totaled approximately $114.7 million (after payment of offering costs of
approximately $0.7 million).





The
Company operates in two business segments: real estate operations and investment
banking/investment services. FSP Investments LLC provides real estate investment
and broker/dealer services. FSP Investments LLC's services include: (i) the
organization of REIT entities (the "Sponsored REITs"), which are syndicated
through private placements; (ii) sourcing of the acquisition of real estate on
behalf of the Sponsored REITs; and (iii) the sale of preferred stock in
Sponsored REITs.  FSP Investments LLC is a registered broker/dealer
with the Securities and Exchange Commission and is a member of the Financial
Industry Regulatory Authority, or FINRA.  FSP Property Management LLC
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.





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.  Significant estimates in the consolidated financial
statements include the allowance for doubtful accounts, purchase price
allocations, useful lives of fixed assets and the valuation of the
derivative.





Investments
in Sponsored REITs





Common
stock investments in Sponsored REITs are consolidated while the entity is
controlled by the Company.  Following the commencement of syndication
the Company exercises influence over, but does not control these entities and
investments are accounted for using the equity method.  Under the
equity method of accounting, the Company's cost basis is adjusted by its share
of the Sponsored REITs' earnings, if any, prior to completion of the
syndication. Equity in losses of Sponsored REITs is not recognized to the extent
that the investment balance would become negative.  Distributions
received are recognized as income once the investment balance is reduced to
zero, unless there is a loan receivable from the Sponsored REIT
entity.  Equity in losses or distributions received in excess of
common stock investment is recorded as an adjustment up to the carrying value of
the assets held for syndication.




Subsequent
to the completion of the syndication of preferred shares, the Company does not
share in any of the Sponsored REITs’ earnings, or any related distributions, as
a result of its common stock ownership.


F-10





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





2.      Significant
Accounting Policies (continued)





On
September 22, 2006, the Company purchased 48 preferred shares (approximately
4.6%) of a Sponsored REIT, FSP Phoenix Tower Corp. (“Phoenix Tower”), for
$4,116,000.   The Company agreed to vote its shares in any matter
presented to a vote by the stockholders of Phoenix Tower in the same proportion
as shares voted by other stockholders of Phoenix Tower.  The
investment in Phoenix Tower is accounted for under the equity
method.




On
December 27, 2007, the Company purchased 965.75 preferred shares (approximately
43.7%) of a Sponsored REIT, FSP 303 East Wacker Drive Corp. (“East Wacker”), for
$82,813,000.  The Company agreed to vote its shares in any matter
presented to a vote by the stockholders of East Wacker in the same proportion as
shares voted by other stockholders of East Wacker.  The investment in
East Wacker is accounted for under the equity method.




Prior
to May 15, 2008, the Company held a preferred stock investment in FSP Park Ten
Development Corp. (“Park Ten Development”), which was acquired by merger on May
15, 2008, and accordingly was eliminated when recording the
merger.  On September 29, 2005, the Company acquired 8.5 preferred
shares (approximately 3.05%) of Park Ten Development in exchange for the
contribution of 2.9 acres of developable land. The Company agreed to vote its
shares in any matter presented to a vote by the stockholders of Park Ten
Development in the same proportion as shares voted by other stockholders of Park
Ten Development.  The investment in Park Ten Development is accounted
for under the equity method.




On
May 29, 2009, the Company purchased 175.5 preferred shares (approximately 27.0%)
of a Sponsored REIT, FSP Grand Boulevard Corp. (“Grand Boulevard”), for
$15,049,000.  The Company agreed to vote its shares in any matter
presented to a vote by the stockholders of Grand Boulevard in the same
proportion as shares voted by other stockholders of Grand
Boulevard.  The investment in Grand Boulevard is accounted for under
the equity method.




Real
Estate and Depreciation





Real
estate assets are stated at the lower of cost, less accumulated
depreciation.





Costs
related to property acquisition and improvements are
capitalized.  Typical capital items include new roofs, site
improvements, various exterior building improvements and major interior
renovations.  Costs incurred in connection with leasing (primarily
tenant improvements and leasing commissions) are capitalized and amortized over
the lease period.





Routine
replacements and ordinary maintenance and repairs that do not extend the life of
the asset are expensed as incurred.  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
            YearsCommercial
      Buildings
            39Building
      improvements
            15-39Fixtures
      and equipment
            3-7





The
Company reviews its properties to determine if their carrying amounts will be
recovered from future operating cash flows if certain indicators of impairment
are identified at those properties.  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.




Acquired
Real Estate Leases and Amortization





The
Company recorded a value relating to the leases acquired as a result of the
acquisition by merger of one Sponsored REIT in 2008.  The Company also
recorded a value as a result of three direct acquisitions in 2009, two direct
acquisitions in 2008 and one direct acquisition in 2007.  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


F-11


Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





2.      Significant
Accounting Policies (continued)





relating
to leases with rents above the market rate.Amortization is computed
using the straight-line method over the life of the leases, which range from 27
months to 147 months. Amortization expense was approximately $12,885,000,
$11,201,000 and $12,520,000 for the years ended December 31, 2009, 2008 and
2007, respectively.





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 offset against the rental revenue in the consolidated statements of
income. The estimated annual amortization expense for the five years succeeding
December 31, 2009 are as follows:





(in
      thousands)2010
            
            $
            11,3352011
            
            
            6,6412012
            
            
            5,4932013
            
            
            4,9862014
            
            
            4,8212015
      and thereafter
            
            
            11,481





Acquired
Unfavorable Real Estate Leases and Amortization





The
Company recorded a value relating to the leases acquired as a result of the
acquisition by merger of one Sponsored REIT in 2008.  The Company also
recorded a value as a result of three direct acquisitions in 2009, two direct
acquisitions in 2008 and one direct acquisition in 2007.  Acquired
unfavorable real estate leases represent the value relating to leases with rents
below the market rate.Amortization is computed
using the straight-line method over the life of the leases, which range from 27
months to 147 months. Amortization expense was approximately $992,000, $887,000
and $856,000 for the years ended December 31, 2009, 2008 and 2007,
respectively.





Amortization
related to leases with rents below the market rate is included with rental
revenue in the consolidated statements of income.  The estimated
annual amortization for the five years succeeding December 31, 2009 are as
follows:









(in
      thousands)2010
            
            $
            9972011
            
            
            8622012
            
            
            8172013
            
            
            7262014
            
            
            6222015
      and thereafter
            
            
            1,373





Discontinued
Operations





The
Company accounts for properties as held for sale, 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 in its consolidated balance
sheets at the lower of its carrying amount or fair value less the cost to
sell.  The Company presents property related to discontinued
operations on its consolidated balance sheets as “Assets held for sale”, on a
comparative basis.  The Company reports the results of operations of
its properties classified as discontinued operations in its consolidated
statements of income if no significant continuing involvement exists after the
sale or disposition.





Cash
and Cash Equivalents





The
Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents.


F-12





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





2.      Significant
Accounting Policies (continued)





Restricted
Cash





Restricted
cash consists of tenant security deposits, which are required by law in some
states or by contractual agreement and escrows arising from property
sales.  Tenant security deposits are refunded when tenants vacate,
provided that the tenant has not damaged the property.  Cash held in
escrow is paid when the related issue is resolved.





Tenant
Rent Receivables




Tenant
rent receivables are expected to be collected within one year. 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.  The Company charged off $20,000 in receivables and increased
its allowance by $131,000 during 2009; and increased its allowance by $79,000
during 2008 based on such analysis.




Concentration
of Credit Risks




Financial
instruments that potentially subject us to concentrations of credit risk consist
primarily of cash investments, derivatives and accounts
receivable.  The Company maintains its cash balances 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 $250,000 provided by the
Federal Deposit Insurance Corporation.  The derivative we have is from
an interest rate swap agreement that is discussed in Note 6.  The
Company performs ongoing credit evaluations of our tenants and require certain
tenants to provide security deposits or letters of credit.  Though
these security deposits and letters of credit are insufficient to meet the total
value of a tenant’s lease obligation, they are a measure of good faith and a
source of funds to offset the economic costs associated with lost rent and the
costs associated with re-tenanting the space.  The Company has no
single tenant which accounts for more than 10% of its annualized
rent.




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.





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 the lease
agreements.  Straight-line rent receivable, which is the cumulative
revenue recognized in excess of amounts billed by the Company, is $10,754,000
and $8,816,000 at December 31, 2009 and 2008, 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. The Company charged off $99,000 in receivables and decreased its
allowance by $62,000 during 2009 and the reserve balance was not changed during
2008 based on such analysis.





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 $2,665,000,
$1,725,000 and $1,371,000 for the years ended December 31, 2009, 2008 and
2007, respectively.




F-13


Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





2.      Significant
Accounting Policies (continued)




The
estimated annual amortization for the five years following December 31, 2009 is
as follows:





(in
      thousands)2010
            
            $
            2,1252011
            
            
            2,0112012
            
            
            1,7302013
            
            
            1,4452014
            
            
            1,2562015
      and thereafter
            
            
            2,241




Common
Share Repurchases





The
Company recognizes the gross cost of the common shares it repurchases as a
reduction in stockholder’s equity using the treasury stock
method.  Maryland law does not recognize a separate treasury stock
account but provides that shares repurchased are classified as authorized but
unissued shares.  Accordingly, the Company reduces common stock for
the par value and the excess of the purchase price over the par value is a
reduction to additional paid-in capital.





Revenue
Recognition





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
      Ended(in
      thousands)
              
              December
      31,2009
              
              
              2008
              
              
              2007Income
      from leases
              
              $
              96,132
              
              
              $
              88,199
              
              
              $
              79,916Reimbursable
      expenses
              
              
              27,422
              
              
              
              25,876
              
              
              
              22,563Straight-line
      rent adjustment
              
              
              1,879
              
              
              
              1,406
              
              
              
              3,305Amortization
      of favorable leases
              
              
              (3,359
              )
              
              
              (4,283
              )
              
              
              (4,823
              )$
              122,074
              
              
              $
              111,198
              
              
              $
              100,961





Rental Revenue— 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 includes 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 significant percentage rent arrangements with its commercial
property tenants. Reimbursable costs are included in rental income in the period
earned.





Syndication Fees—
Syndication fees ranging from 4% to 8% of the gross offering proceeds from the
sale of securities in Sponsored REITs 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 2% 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, development fees and
acquisition fees are recognized upon an investor closing and the subsequent
payment of the Sponsored REIT’s loan to the Company.  Development fees
are recognized upon an investor closing and once the service has been
provided.  Fees related to organizational, offering and other
expenditures 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 and charges relating to the syndication have been paid or
accrued.





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


F-14


Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





2.      Significant
Accounting Policies (continued)





Income
Taxes





Taxes
on income for the years ended December 31, 2009, 2008 and 2007 represent taxes
incurred by FSP Investments, which is a taxable REIT subsidiary.  In
2006, the State of Texas enacted a new franchise tax applicable to FSP Corp.,
which started in 2007 and is classified as an income tax for reporting
purposes.





Net
Income Per Share




Basic
net income per share is computed by dividing net income by the weighted average
number of shares outstanding during the period. Diluted net income per share
reflects the potential dilution that could occur if securities or other
contracts to issue shares were exercised or converted into
shares.  There were no potential dilutive shares outstanding at
December 31, 2009, 2008, and 2007. The denominator used for calculating
basic and diluted net income per share was 73,001,000, 70,481,000, and
70,651,000, for the years ended December 31, 2009, 2008, and 2007,
respectively.





Derivative
Instruments




The
Company recognizes derivatives on the balance sheet at fair value. Derivatives
that do not qualify, or are not designated as hedge relationships, must be
adjusted to fair value through income. Derivative instruments designated in a
hedge relationship to mitigate exposure to variability in expected future cash
flows, or other types of forecasted transactions, are considered cash flow
hedges. Cash flow hedges are accounted for by recording the fair value of the
derivative instrument on the balance sheet as either an asset or liability. To
the extent hedges are effective, a corresponding amount, adjusted for swap
payments, is recorded in accumulated other comprehensive income within
stockholders’ equity. Amounts are then reclassified from accumulated other
comprehensive income to the income statement in the period or periods the hedged
forecasted transaction affects earnings. Ineffectiveness, if any, is recorded in
the income statement. The Company periodically reviews the effectiveness of each
hedging transaction, which involves estimating future cash flows, at least
quarterly.  Derivative instruments designated in a hedge relationship
to mitigate exposure to changes in the fair value of an asset, liability, or
firm commitment attributable to a particular risk, such as interest rate risk,
are considered fair value hedges.  The Company currently has no fair
value hedges outstanding. Fair values of derivatives are subject to significant
variability based on changes in interest rates. The results of such variability
could be a significant increase or decrease in our derivative assets, derivative
liabilities, book equity, and/or earnings.




Fair
Value Measurements




Fair
value is defined as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. There is also an established fair
value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair
value.  Financial assets and liabilities recorded on the consolidated
balance sheets at fair value are categorized based on the inputs to the
valuation techniques as follows:





Level
1 inputs are quoted prices (unadjusted) in active markets for identical assets
or liabilities that the Company has the ability to access. Level 2 inputs are
inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. Level 2 inputs may include
quoted prices for similar assets and liabilities in active markets, as well as
inputs that are observable for the asset or liability (other than quoted
prices), such as interest rates, foreign exchange rates, and yield curves that
are observable at commonly quoted intervals. Level 3 inputs are unobservable
inputs for the asset or liability, which is typically based on an entity’s own
assumptions, as there is little, if any, related market activity or information.
In instances where the determination of the fair value measurement is based on
inputs from different levels of the fair value hierarchy, the level in the fair
value hierarchy within which the entire fair value measurement falls is based on
the lowest level input that is significant to the fair value measurement in its
entirety. The Company’s assessment of the significance of a particular input to
the fair value measurement in its entirety requires judgment, and considers
factors specific to the asset or liability. These inputs were considered and
applied to the Company’s outstanding derivative, and Level 2 inputs were used to
value the interest rate swap.




F-15




Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





2.      Significant
Accounting Policies (continued)





Subsequent
Events
  In
preparing these consolidated financial statements the Company evaluated events
that occurred through the date of issuance of these financial statements for
potential recognition or disclosure.





Accounting
Standards Codification




In
June 2009, the Financial Accounting Standards Board (“FASB”) issued a
pronouncement establishing the FASB Accounting Standards Codification as the
source of authoritative accounting principles recognized by the FASB to be
applied in the preparation of financial statements in conformity with GAAP. The
standard explicitly recognizes rules and interpretive releases of the SEC under
federal securities laws as authoritative GAAP for SEC registrants. This standard
is effective for financial statements issued for fiscal years and interim
periods ending after September 15, 2009. The Company has adopted this standard
in accordance with GAAP.




In
September 2006, the FASB issued a pronouncement that defines fair value,
establishes a framework for measuring fair value in GAAP and provides for
expanded disclosure about fair value measurements that will be applied
prospectively, to all other accounting pronouncements that require or permit
fair value measurements. The pronouncement excludes certain leasing transactions
accounted for in accounting for leases and was effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years.  The adoption did not have
a material impact on the Company’s financial position, operations or cash
flow.  The FASB then issued a pronouncement to defer the effective
date for all non-financial assets and non-financial liabilities except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis to fiscal years beginning after November 15,
2008.  The adoption of this standard did not have a material impact on
the Company’s financial position, results of operations or cash
flows.




In
December 2007, the FASB issued a pronouncement, which establishes principles and
requirements for how the acquirer shall recognize and measure in its financial
statements the identifiable assets acquired, liabilities assumed, any
noncontrolling interest in the acquiree and goodwill acquired in a business
combination.  The pronouncement is effective for business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.  The
adoption of this standard did not have a material impact on the Company’s
financial position, results of operations or cash flows.




In
May 2009, the FASB issued a pronouncement which sets forth the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. This pronouncement
requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date.  This disclosure should
alert all users of financials statements that an entity has not evaluated
subsequent events after that date in the set of financial statements being
presented. The Company is adhering to the requirements of this pronouncement,
which was effective for financial periods ending after June 15,
2009.




On
June 12, 2009, the FASB issued a pronouncement that changes how a company
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. The
determination of whether a company is required to consolidate an entity is based
on, among other things, an entity`s purpose and design and a company`s ability
to direct the activities of the entity that most significantly impact the
entity`s economic performance.  The pronouncement is effective for
fiscal years and interim periods within those fiscal years beginning on or after
November 15, 2009.  The Company is currently evaluating the impact of
this pronouncement on the Company’s consolidated financial
statements.




F-16




Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





3.      Business
Segments





The
Company operates in two business segments: real estate operations (including
real estate leasing, interest income on interim acquisition and other financing
and asset/property management) including discontinued operations and investment
banking/investment services (including real estate acquisition, development
services 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 entirely in the
United States of America.





The
Company evaluates the performance of its reportable segments based on Funds From
Operations (“FFO”) as management believes that FFO represents the most accurate
measure of the reportable segment’s activity and is the basis for distributions
paid to equity holders.  The Company defines FFO as net income
(computed in accordance with GAAP), excluding gains (or losses) from sales
of property and acquisition costs of newly acquired properties that are not
capitalized, plus depreciation and amortization, and after adjustments to
exclude non-cash income (or losses) from non-consolidated or Sponsored REITs,
plus distributions received from non-consolidated or Sponsored
REITs.




FFO
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 this term in a
different manner.  The Company believes that in order to facilitate a
clear understanding of the results of the Company, FFO should be examined in
connection with net income and cash flows from operating, investing and
financing activities in the consolidated financial statements.  The
calculation of FFO by business segment is shown in the following
table:





InvestmentReal
            
            
            Banking/Estate
            
            
            Investment(in
      thousands):
            
            Operations
            
            
            Services
            
            
            TotalYear
      ended December 31, 2009:Net
      income
            
            $
            28,519
            
            
            $
            (647
            )
            
            $
            27,872Gain
      on sale of land
            
            
            (424
            )
            
            
            -
            
            
            
            (424
            )Equity
      in earnings of non-consolidated REITs
            
            
            (2,012
            )
            
            
            -
            
            
            
            (2,012
            )Distribution
      from non-consolidated REITs
            
            
            5,628
            
            
            
            -
            
            
            
            5,628Acquisition
      costs
            
            
            643
            
            
            
            -
            
            
            
            643Depreciation
      and amortization
            
            
            39,529
            
            
            
            123
            
            
            
            39,652Funds
      From Operations
            
            $
            71,883
            
            
            $
            (524
            )
            
            $
            71,359Year
      ended December 31, 2008:Net
      income
            
            $
            30,008
            
            
            $
            1,951
            
            
            $
            31,959Equity
      in earnings of non-consolidated REITs
            
            
            (2,747
            )
            
            
            -
            
            
            
            (2,747
            )Distribution
      from non-consolidated REITs
            
            
            5,348
            
            
            
            -
            
            
            
            5,348Depreciation
      and amortization
            
            
            34,505
            
            
            
            138
            
            
            
            34,643Funds
      From Operations
            
            $
            67,114
            
            
            $
            2,089
            
            
            $
            69,203Year
      ended December 31, 2007:Net
      income
            
            $
            51,646
            
            
            $
            9,439
            
            
            $
            61,085Gain
      on sale of properties
            
            
            (23,789
            )
            
            
            -
            
            
            
            (23,789
            )Equity
      in earnings of non-consolidated REITs
            
            
            472
            
            
            
            -
            
            
            
            472Distribution
      from non-consolidated REITs
            
            
            1,806
            
            
            
            -
            
            
            
            1,806Depreciation
      and amortization
            
            
            35,340
            
            
            
            135
            
            
            
            35,475Funds
      From Operations
            
            $
            65,475
            
            
            $
            9,574
            
            
            $
            75,049





F-17


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, 2009, 2008 and
2007 are summarized as follows:





Quarter
      paid
            
            Distribution
              Per Share/Unit
            
            
            Total
      CashDistributions(in
      thousands)Second
      quarter of 2009
            
            $
            0.19
            
            
            $
            13,391Third
      quarter of 2009
            
            
            0.19
            
            
            
            13,391Fourth
      quarter of 2009
            
            
            0.19
            
            
            
            15,140First
      quarter of 2010 (A)
            
            
            0.19
            
            
            
            15,139$
            0.76
            
            
            $
            57,061Second
      quarter of 2008
            
            $
            0.31
            
            
            $
            21,849Third
      quarter of 2008
            
            
            0.19
            
            
            
            13,391Fourth
      quarter of 2008
            
            
            0.19
            
            
            
            13,391First
      quarter of 2009 (A)
            
            
            0.19
            
            
            
            13,391$
            0.88
            
            
            $
            62,022Second
      quarter of 2007
            
            $
            0.31
            
            
            $
            21,937Third
      quarter of 2007
            
            
            0.31
            
            
            
            21,938Fourth
      quarter of 2007
            
            
            0.31
            
            
            
            21,849First
      quarter of 2008 (A)
            
            
            0.31
            
            
            
            21,849$
            1.24
            
            
            $
            87,573




(A)          Represents
distributions declared and paid in the first quarter related to the fourth
quarter of the prior year.





Cash
distributions 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 FFO is generated.




F-18


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:





Real
              Estate
      Operations
            
            
            Investment
      Banking/
              Investment
      Services
            
            
            Total(in
      thousands)December
      31, 2009:Revenue
            
            $
            123,875
            
            
            $
            4,508
            
            
            $
            128,383Interest
      income
            
            
            93
            
            
            
            4
            
            
            
            97Interest
      expense
            
            
            6,570
            
            
            
            -
            
            
            
            6,570Income
      from discontinued operations, net
            
            
            -
            
            
            
            -
            
            
            
            -Capital
      expenditures
            
            
            8,641
            
            
            
            228
            
            
            
            8,869Investment
      in non-consolidated REITs
            
            
            92,910
            
            
            
            -
            
            
            
            92,910Identifiable
      assets
            
            
            1,150,806
            
            
            
            4,960
            
            
            
            1,155,766December
      31, 2008:Revenue
            
            $
            113,009
            
            
            $
            7,407
            
            
            $
            120,416Interest
      income
            
            
            709
            
            
            
            36
            
            
            
            745Interest
      expense
            
            
            4,921
            
            
            
            -
            
            
            
            4,921Income
      from discontinued operations, net
            
            
            -
            
            
            
            -
            
            
            
            -Capital
      expenditures
            
            
            7,013
            
            
            
            102
            
            
            
            7,115Investment
      in non-consolidated REITs
            
            
            83,046
            
            
            
            -
            
            
            
            83,046Identifiable
      assets
            
            
            1,020,456
            
            
            
            4,977
            
            
            
            1,025,433December
      31, 2007:Revenue
            
            $
            108,070
            
            
            $
            18,923
            
            
            $
            126,993Interest
      income
            
            
            2,317
            
            
            
            60
            
            
            
            2,377Interest
      expense
            
            
            7,684
            
            
            
            -
            
            
            
            7,684Income
      from discontinued operations, net
            
            
            1,190
            
            
            
            -
            
            
            
            1,190Capital
      expenditures
            
            
            11,031
            
            
            
            69
            
            
            
            11,100Investment
      in non-consolidated REITs
            
            
            85,663
            
            
            
            -
            
            
            
            85,663Identifiable
      assets
            
            
            997,145
            
            
            
            6,321
            
            
            
            1,003,466





4.      Related
Party Transactions





Investment
in Sponsored REITs





At
December 31, 2009, the Company held an interest in 14 Sponsored REITs, of which
twelve were fully syndicated and two were underway.  At December 31,
2008, the Company held an interest in 12 Sponsored REITs, of which ten were
fully syndicated and two were underway.  At December 31, 2007, the
Company held an interest in 12 Sponsored REITs, of which eleven were fully
syndicated and one was underway that commenced in September 2007.  The
syndication of Grand Boulevard was completed in May 2009 and the Company
purchased a preferred stock investment in it.  The syndication of East
Wacker was completed in December 2007 and the Company purchased a preferred
stock investment in it.





The
table below shows the Company’s income and expenses from Sponsored
REITs.  Management fees of $2,000 and $20,000 for the years ended
December 31, 2009 and 2007, respectively, and interest expense related to the
Company’s mortgages on properties owned by these entities are eliminated in
consolidation.  There was no income or expenses from Sponsored REITs
that were consolidated during the year ended December 31, 2008.





F-19


Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





4.      Related
Party Transactions (continued)





Year
      Ended December 31,(in
      thousands)
            
            2009
            
            
            2007Operating
      Data:Rental
      revenues
            
            $
            74
            
            
            $
            3,510Operating
      and maintenance expenses
            
            
            50
            
            
            
            1,834Depreciation
      and amortization
            
            
            6
            
            
            
            855Interest
      expense: permanent mortgage loan
            
            
            -
            
            
            
            179Interest
      expense: acquisition loan
            
            
            6
            
            
            
            1,448Interest
      income
            
            
            -
            
            
            
            51$
            12
            
            
            $
            (755
            )





Equity in earnings of
investment in
non-consolidated REITs:




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




Year
      Ended December 31,(in
      thousands)
            
            2009
            
            
            2008
            
            
            2007Equity
      in earnings (losses) of Sponsored REITs
            
            $
            153
            
            
            $
            211
            
            
            $
            (627
            )Equity
      in earnings of Park Ten Development
            
            
            -
            
            
            
            9
            
            
            
            6Equity
      in earnings of Phoenix Tower
            
            
            30
            
            
            
            28
            
            
            
            201Equity
      in earnings (losses) of East Wacker
            
            
            1,673
            
            
            
            2,499
            
            
            
            (44
            )Equity
      in earnings of Grand Boulevard
            
            
            138
            
            
            
            -
            
            
            
            -$
            1,994
            
            
            $
            2,747
            
            
            $
            (464
            )




Equity
in earnings (losses) of investments in Sponsored REITs is derived from the
Company’s share of income following the commencement of syndication of Sponsored
REITs.  Following the commencement of syndication the Company
exercises influence over, but does not control these entities, and investments
are accounted for using the equity method.




Equity
in earnings of Park Ten Development was derived from the Company’s preferred
stock investment in the entity.  In September 2005, the Company
acquired 8.5 preferred shares or 3.05% of the authorized preferred shares of
Park Ten Development via a non-monetary exchange of land valued at
$850,000.  The Company acquired Park Ten Development by merger on May
15, 2008, which merger was accounted for as a purchase, and the acquired assets
and liabilities were recorded at their fair value.




Equity
in earnings of Phoenix Tower is derived from the Company’s preferred stock
investment in the entity.  In September 2006, the Company purchased 48
preferred shares or 4.6% of the outstanding preferred shares of Phoenix Tower
for $4,116,000 (which represented $4,800,000 at the offering price net of
commissions of $384,000 and fees of $300,000 that were excluded).




Equity
in earnings (losses) of East Wacker is derived from the Company’s preferred
stock investment in the entity.  In December 2007, the Company
purchased 965.75 preferred shares or 43.7% of the outstanding preferred shares
of East Wacker for $82,813,000 (which represented $96,575,000 at the offering
price net of commissions of $7,726,000, loan fees of $5,553,000 and acquisition
fees of $483,000 that were excluded).




Equity
in earnings of Grand Boulevard is derived from the Company’s preferred stock
investment in the entity.  In May 2009, the Company purchased 175.5
preferred shares or 27.0% of the outstanding preferred shares of Grand Boulevard
for $15,049,000 (which represented $17,550,000 at the offering price net of
commissions of $1,404,000, loan fees of $1,009,000 and acquisition fees of
$88,000 that were excluded).




F-20


Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





4.      Related
Party Transactions (continued)




The
following table includes distributions received from non-consolidated
REITs:




Year
      Ended December 31,(in
      thousands)
              
              2009
              
              
              2008
              
              
              2007Distributions
      from Sponsored REITs
              
              $
              442
              
              
              $
              1,031
              
              
              $
              1,441Distributions
      from Park Ten Development
              
              
              -
              
              
              
              16
              
              
              
              1Distributions
      from Phoenix Tower
              
              
              125
              
              
              
              171
              
              
              
              364Distributions
      from East Wacker
              
              
              4,661
              
              
              
              4,130
              
              
              
              -Distributions
      from Grand Boulevard
              
              
              400
              
              
              
              -
              
              
              
              -$
              5,628
              
              
              $
              5,348
              
              
              $
              1,806




Non-consolidated
REITs




The
Company has in the past acquired by merger entities similar to the Sponsored
REITs, including on on May 15, 2008, Park Ten Development.  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.





The
operating data below for 2009 includes operations of the 14 Sponsored REITs the
Company held an interest in as of December 31, 2009.  The operating
data below for 2008 includes operations of the 12 Sponsored REITs the Company
held an interest in as of December 31, 2008, and Park Ten Development from
January through May 14, 2008.  The Company acquired Park Ten
Development by merger on May 15, 2008.  The operating data below for
2007 includes operations of the 12 Sponsored REITs the Company held an interest
in as of December 31, 2007.





Summarized
financial information for the Sponsored REITs is as follows:





December 31,
            
            
            December 31,(in
      thousands)
            
            2009
            
            
            2008Balance Sheet Data
      (unaudited):Real
      estate, net
            
            $
            724,517
            
            
            $
            683,218Other
      assets
            
            
            104,199
            
            
            
            114,015Total
      liabilities
            
            
            (216,102
            )
            
            
            (189,435
            )Shareholders'
      equity
            
            $
            612,614
            
            
            $
            607,798For
      the Year EndedDecember
      31,(in
      thousands)
            
            
            2009
            
            
            
            2008
            
            
            
            2007Operating Data
      (unaudited):Rental
      revenues
            
            $
            95,918
            
            
            $
            100,915
            
            
            $
            94,406Other
      revenues
            
            
            386
            
            
            
            1,834
            
            
            
            3,410Operating
      and maintenance  expenses
            
            
            (50,080
            )
            
            
            (51,463
            )
            
            
            (45,072
            )Depreciation
      and amortization
            
            
            (24,359
            )
            
            
            (24,122
            )
            
            
            (23,843
            )Interest
      expense
            
            
            (9,412
            )
            
            
            (10,194
            )
            
            
            (23,038
            )Net
      income
            
            $
            12,453
            
            
            $
            16,970
            
            
            $
            5,863








F-21


Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





4.      Related
Party Transactions (continued)





Syndication
fees and Transaction fees:





The
Company provided syndication and real estate acquisition advisory services for
Sponsored REITs.  Syndication, development and transaction fees from
non-consolidated entities amounted to approximately $4,508,000, $7,407,000, and
$18,884,000 for the years ended December 31, 2009, 2008 and 2007,
respectively.




Management
fees and interest income from loans:





Asset
management fees range from 1% to 5% of collected rents and the applicable
contracts are cancelable with 30 days’ notice.  Asset management fee
income from non-consolidated entities amounted to approximately $902,000,
$928,000, and $867,000 for the years ended December 31, 2009, 2008 and 2007,
respectively.




The
Company typically makes an acquisition loan (“Acquisition Loans”) to each
Sponsored REIT which is secured by a mortgage on the borrower’s real
estate.  These loans enable Sponsored REITs to acquire their
respective properties prior to the consummation of the offerings of their equity
interests.  The Company anticipates that each Acquisition Loan will be
repaid at maturity or earlier from the proceeds of the Sponsored REIT’s equity
offering.  Each Acquisition Loan has a term of two years and bears
interest at the same rate paid by FSP Corp. for borrowings under the
Revolver.  The Company had one Acquisition Loan outstanding for the
syndication of FSP Centre Pointe V Corp., and one Acquisition Loan outstanding
for the syndication of FSP Grand Boulevard Corp. as of December 31, 2009 and
2008, respectively.  The Acquisition Loan for FSP Grand Boulevard
Corp. was repaid on May 29, 2009.  Acquisition Loans are classified as
assets held for syndication.




From
time-to-time the Company may also make secured loans (“Sponsored REIT
Loans”) to Sponsored REITs to fund construction costs, capital expenditures,
leasing costs and other purposes.  Since December 2007, the Company
has provided Sponsored REIT Loans in the form of revolving lines of credit to
five Sponsored REITs, or to wholly-owned subsidiaries of those Sponsored REITs,
and a construction loan to one wholly-owned subsidiary of another Sponsored
REIT.  The Company anticipates that each Sponsored REIT Loan will be
repaid at maturity or earlier from long term financings of the underlying
properties, cash flows from the underlying properties or some other capital
event.  Each Sponsored REIT Loan is secured by a mortgage on the
underlying property and has a term of approximately two to three
years.  Advances under each Sponsored REIT Loan bear interest at a
rate equal to the 30-day LIBOR rate plus an agreed upon amount of basis points
and most advances also require a 50 basis point draw fee. The Company received a
$210,000 loan commitment fee at the time of the closing of the Sponsored REIT
Loan that is structured as a construction loan.





The
following is a summary of the Sponsored REIT Loans outstanding as of December
31, 2009:




(dollars
      in 000's)
              
              
              Maximum
              
              
              Amount
              
              
              
              
              
              
              Rate
      inMaturity
              
              Amount
              
              
              Drawn
      at
              
              
              Interest
              
              Draw
              
              Effect
      atSponsored
      REIT
              Date
              
              of
      Loan
              
              
              31-Dec-09
              
              
              Rate
      (1)
              
              Fee
      (2)
              
              31-Dec-09Revolving
      lines of creditFSP
      Highland Place I Corp.
              31-Dec-10
              
              $
              5,500
              
              
              $
              1,125
              
              
              L+2%
              
              n/a
              
              2.24%FSP
      Satellite Place Corp.
              31-Mar-12
              
              
              5,500
              
              
              
              1,902
              
              
              L+3%
              
              0.5%
              
              3.24%FSP
      1441 Main Street Corp.(a)
              31-Mar-12
              
              
              10,800
              
              
              
              5,000
              
              
              L+3%
              
              0.5%
              
              3.24%FSP
      505 Waterford Corp.
              30-Nov-11
              
              
              7,000
              
              
              
              -
              
              
              L+3%
              
              0.5%FSP
      Phoenix Tower Corp.  (b)
              30-Nov-11
              
              
              15,000
              
              
              
              3,600
              
              
              L+3%
              
              0.5%
              
              3.24%Construction
      loanFSP
      385 InterlockenDevelopment
      Corp. (c) (d)
              30-Apr-12
              
              
              42,000
              
              
              
              24,908
              
              
              L+3%
              
              n/a
              
              3.24%$
              85,800
              
              
              $
              36,535
  (1)
      The interest rate is 30-Day LIBOR rate plus the additional rate
      indicated(2)
      The draw fee is a percentage of each new advance, and is paid at the time
      of each new draw(a)
      The borrower is FSP 1441 Main Street LLC, a wholly-owned
      subsidiary(b)
      The borrower is FSP Phoenix Tower Limited Partnership, a wholly-owned
      subsidiary(c)
      The borrower is FSP 385 Interlocken LLC, a wholly-owned
      subsidiary(d)
      The borrower paid a commitment fee of $210,000 at loan
      origination







F-22




Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





4.      Related
Party Transactions (continued)





The
Company recognized interest income and fees from the Sponsored REIT Loans of
approximately $838,000, $811,000, and $6,163,000 for the years ended
December 31, 2009, 2008 and 2007, respectively, relating to these
loans.




5.      Bank
note payable and term note payable





As
of December 31, 2009 the Company has a bank note payable, which is an unsecured
revolving line of credit (the “Revolver”) for advances up to $250 million that
matures on August 11, 2011, and a term note payable, which is an unsecured term
loan (the “Term Loan”) of $75 million that matures in October 2011 with two
one-year extensions available at the Company’s election.  The Revolver
and the Term Loan are with a group of banks.





The
Revolver and Term Loan include restrictions on property liens and require
compliance with various financial covenants. Financial covenants include the
maintenance of at least $1,500,000 in operating cash accounts, a minimum
unencumbered cash and liquid investments balance and tangible net worth;
limitations on permitted secured debt and compliance with various debt and
operating income ratios, as defined in the loan agreement. The Company was in
compliance with the Revolver and Term Loan financial covenants as of December
31, 2009 and 2008, respectively.





Revolver




The
Company’s Revolver is an unsecured revolving line of credit with a group of
banks that provides for borrowings at our election of up to
$250,000,000.  The Revolver matures on August 11,
2011.  Borrowings under the Revolver bear interest at either the
bank's prime rate (3.25% at December 31, 2009) or a rate equal to LIBOR plus 100
basis points (1.23% at December 31, 2009).  There were borrowings of
$109,008,000 and $67,468,000 at the LIBOR plus 100 basis point rate at a
weighted average rate of 1.23% and 2.39% outstanding under the Revolver at
December 31, 2009 and 2008, respectively.  The weighted average
interest rate on amounts outstanding during 2009 and 2008 was approximately
1.34% and 3.61%, respectively.




The
Company has drawn on the Revolver and intends to draw on the Revolver in the
future for a variety of corporate purposes, including the funding of interim
mortgage loans to Sponsored REITs and the acquisition of properties that it
acquires directly for its portfolio.  The Company typically causes
mortgage loans to Sponsored REITs to be secured by a first mortgage against the
real property owned by the Sponsored REIT.  The Company makes 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.  The Company also may make secured loans to
Sponsored REITs for the purpose of funding capital expenditures, costs of
leasing or for other purposes which would be repaid from long-term financing of
the property, cash flows from the property or a capital event.




Term
Loan




The
Company also has a $75 million unsecured Term Loan with three
banks.  Proceeds from the Term Loan were used to reduce the
outstanding principal balance on the Revolver.  The Term Loan has an
initial three-year term that matures on October 15, 2011.  In
addition, the Company has the right to extend the Term Loan’s initial maturity
date for up to two successive one-year periods, or until October 15, 2013 if
both extensions are exercised.  The Term Loan has an interest rate
option equal to LIBOR (subject to a 2% floor) plus 200 basis points and a
requirement that the Company fix the interest rate for the initial three-year
term of the Term Loan pursuant to an interest rate swap agreement which the
Company did at an interest rate of 5.84% per annum pursuant to an interest rate
swap agreement.





The
principal repayments in subsequent years succeeding December 31, 2009 are as
follows:





(in
      thousands)
            
            Year ended
      December 31,2010
            
            $
            1502011
            
            
            183,858$
            184,008





F-23


Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





6.      Financial
Instruments: Derivatives and Hedging





On
October 15, 2008, the Company fixed the interest rate for the initial three-year
term of the Term Loan at 5.84% per annum pursuant to an interest rate swap
agreement. The variable rate that was fixed under the interest rate swap
agreement is described in Note 5.





The
interest swap agreement qualifies as a cash flow hedge and has been recognized
on the consolidated balance sheet at fair value.  If a derivative
qualifies as a hedge, depending on the nature of the hedge, changes in the fair
value of the derivative will either be offset against the change in fair value
of the hedged asset, liability, or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings.  The ineffective portion of a derivative’s change in fair
value will be immediately recognized in earnings, which may increase or decrease
reported net income and stockholders’ equity prospectively, depending on future
levels of interest rates and other variables affecting the fair values of
derivative instruments and hedged items, but will have no effect on cash
flows.





The
following table summarizes the notional and fair value of our derivative
financial instrument at December 31, 2009.  The notional value is an
indication of the extent of our involvement in these instruments at that time,
but does not represent exposure to credit, interest rate or market risks (in
thousands).





Notional
              Value
            
            
            Strike
              Rate
            
            
            Effective
              Date
            
            
            Expiration
              Date
            
            
            Fair
              ValueInterest
      Rate Swap
            
            $
            75,000
            
            
            5.840%
            
            
            10/2008
            
            
            10/2011
            
            
            $
            (2,076
            )





On
December 31, 2009, the derivative instrument was reported as an obligation at
its fair value of approximately $2.1 million.  This is included in
other liabilities: derivative termination value on the consolidated balance
sheet at December 31, 2009.  Offsetting adjustments are represented as
deferred gains or losses in accumulated other comprehensive income of $1.0
million.




Over
time, the unrealized gains and losses held in accumulated other comprehensive
income will be reclassified into earnings as a reduction to interest expense in
the same periods in which the hedged interest payments affect
earnings.  We estimate that approximately $1.1 million of the current
balance held in accumulated other comprehensive income will be reclassified into
earnings within the next 12 months.




We
are hedging exposure to variability in future cash flows for forecasted
transactions in addition to anticipated future interest payments on existing
debt.




7.      Stockholders’
Equity





Equity-Based
Compensation





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 value of the
Company's common stock, as determined by the Company's Board of Directors, on
the date of the grant.





The
Company has not issued any shares under the Plan since 2005, and there are
currently 1,944,428 shares available for grant under the Plan.




Repurchase
of Common Shares





On
October 28, 2005, the Board of Directors of the Company authorized the
repurchase of up to $35 million, over a two year period, of the Company’s common
stock from time to time on the open market or in privately negotiated
transactions.  The Company subsequently repurchased
approximately 732,000 shares of common stock during the fourth quarter of
2005 at an aggregate cost of $13,992,000 at an average cost of $19.14 per
share.


F-24





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





7.      Stockholders’
Equity (continued)





On
September 10, 2007, FSP Corp. announced that the Board of Directors of FSP Corp.
had authorized certain modifications to the Company’s October 28, 2005 common
stock repurchase plan, including authorization to repurchase of up to $50
million of the Company’s common stock (inclusive of all repurchases made
pursuant to the October 28, 2005 plan) from time to time in the open market or
in privately negotiated transactions.  The repurchase authorization
expires at the earlier of (i) November 1, 2009 or (ii) a determination by the
Board of Directors of FSP Corp. to discontinue repurchases. The Company
subsequently repurchased approximately 286,000 shares of common stock
during the third quarter of 2007 at an aggregate cost of $4,767,000 at an
average cost of $16.69 per share.  The excess of the purchase price
over the par value of the shares repurchased is applied to reduce additional
paid-in capital.  There were no repurchases during 2008 or 2009 and
the common stock repurchase plan expired on November 1, 2009.





A
summary of the repurchase of common shares by the Company is shown in the
following table:





(Dollars
      in thousands)Shares
            
            
            CostBalance
      December 31, 2006
            
            
            731,898
            
            
            $
            14,008Repurchase
      of shares
            
            
            285,600
            
            
            
            4,767Balance
      December 31, 2007 and 2008
            
            
            1,017,498
            
            
            $
            18,775




Accumulated
Other Comprehensive Income or Loss





The
table below sets forth activity in the accumulated other comprehensive loss
component of stockholders’ equity and reconciles net income to total
comprehensive income for the years ended December 31, 2009 and
2008.  There were no other comprehensive income or loss components for
the year ended December 31, 2007.





Accumulated
      other comprehensive loss(in
      thousands)
            
            2009
            
            
            2008Beginning
      balance
            
            $
            (3,099
            )
            
            $
            -Unrealized
      income (loss) on derivative
            
            
            1,023
            
            
            
            (3,099
            )Ending
      balance
            
            $
            (2,076
            )
            
            $
            (3,099
            )Total
      comprehensive income(in
      thousands)
            
            
            2009
            
            
            
            2008Net
      income
            
            $
            27,872
            
            
            $
            31,959Unrealized
      loss on derivative
            
            
            1,023
            
            
            
            (3,099
            )Total
      comprehensive income
            
            $
            28,895
            
            
            $
            28,860




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 distributions 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.


F-25





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





8.      Federal
Income Tax Reporting(continued)





One
such restriction is that the Company generally cannot own more than 10% of the
voting power or value of the securities of any one issuer unless the issuer is
itself a REIT or a taxable REIT subsidiary (“TRS”).  In the case of
TRSs, the Company’s ownership of securities in all TRSs generally cannot exceed
20% prior to 2009 and 25% beginning in 2009 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, 2002, a subsidiary of the Company, FSP Investments, became a
TRS.  As a result, FSP Investments, which is part of the Company’s
investment banking/investment services segment, operates as a taxable
corporation under the Code.





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





The
Company adopted an accounting pronouncement related to uncertainty in income
taxes effective January 1, 2007, which did not result in recording a liability,
nor was any accrued interest and penalties recognized with the
adoption.  Accrued interest and penalties will be recorded as income
tax expense, if the Company records a liability in the future.  The
Company’s effective tax rate was not affected by the adoption.  The
Company and one or more of its subsidiaries files income tax returns in the U.S
federal jurisdiction and various state jurisdictions.  The statute of
limitations for the Company’s income tax returns is generally three years and as
such, the Company’s returns that remain subject to examination would be
primarily from 2006 and thereafter.




Net
operating losses





Section
382 of the Code restricts a corporation's ability to use net operating losses
(“NOLs") to offset future taxable income following certain "ownership changes."
Such ownership changes occurred with past mergers and accordingly a portion of
the NOLs incurred by the Sponsored REITs available for use by the Company in any
particular future taxable year will be limited. To the extent that the Company
does not utilize the full amount of the annual NOLs limit, the unused amount may
be carried forward to offset taxable income in future years. NOLs expire 20
years after the year in which they arise, and the last of the Company’s NOLs
will expire in 2027. A valuation allowance is provided for the full amount of
the NOLs as the realization of any tax benefits from such NOLs is not
assured.  In 2006, the Company used $3,722,000 of NOLs in connection
with its 2005 tax return.  The gross amount of NOLs available to the
Company were $13,041,000, $13,041,000, and $12,376,000 as of December 31, 2009,
2008 and 2007, respectively.





Tax Rates





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





For
      the years ended December 31,(Dollars
      in thousands)
            
            2009
            
            
            2008
            
            
            2007Federal
      income tax at statutory rate
            
            $
            (821
            )
            
            
            34.0
            %
            
            $
            (736
            )
            
            
            34.0
            %
            
            $
            546
            
            
            
            34.0
            %Increase
      (decrease) in taxes resulting from:State
      income taxes, net of federal impact
            
            
            (159
            )
            
            
            6.3
            %
            
            
            (136
            )
            
            
            6.3
            %
            
            
            101
            
            
            
            6.3
            %Valuation
      allowance on state tax credit
            
            
            159
            
            
            
            n/a
            
            
            
            136
            
            
            
            n/aRevised
      Texas franchise tax
            
            
            242
            
            
            
            n/a
            
            
            
            246
            
            
            
            n/a
            
            
            
            226
            
            
            
            n/aTaxes
      on income
            
            $
            (579
            )
            
            
            40.3
            %
            
            $
            (490
            )
            
            
            40.3
            %
            
            $
            873
            
            
            
            40.3
            %




Taxes
on income are a current tax expense.  No deferred income taxes were
provided as there were no material temporary differences between the financial
reporting basis and the tax basis of the TRS.  FSP Investments has
approximately an $821,000 and $736,000 federal tax benefit arising from losses
in 2009 and 2008, respectively.  The 2009 loss should be fully
utilized by carrying the loss back to the tax years 2004 and
2005.  The 2008 loss was utilized by carrying that loss back to tax
years 2006 and 2007.  A valuation allowance of approximately $159,000
and $136,000 was recorded to reduce the tax benefit from the 2009 and 2008 loss
from FSP Investments due to recent tax legislation in Massachusetts that will
most likely hinder the ability to use the loss carry-forwards.
  F-26





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





8.      Federal
Income Tax Reporting(continued)


In
May 2006, the State of Texas enacted a new business tax (the “Revised Texas
Franchise Tax”) that replaced its existing franchise tax which the Company
became subject to.  The Revised Texas Franchise Tax is a tax at a rate
of approximately 0.7% of revenues at Texas properties commencing with 2007
revenues.  Some of the Company’s leases allow reimbursement by tenants
for these amounts because the Revised Texas Franchise Tax replaces a portion of
the property tax for school districts.  Because the tax base on the
Revised Texas Franchise Tax is derived from an income based measure it is
considered an income tax.  The Company recorded a provision in income
taxes on its income statement of $242,000, $246,000 and $226,000 for the years
ended December 31, 2009, 2008 and 2007, respectively.
 
 At
December 31, 2009 and 2008, 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 $54,629,000 and $87,877,000, respectively.


Reconciliation
Between GAAP Net Income and Taxable Income





The
following reconciles book net income to taxable income for the years ended
December 31, 2009, 2008 and 2007.





For
      the year ended December 31,(in
      thousands)
            
            2009
            
            
            2008
            
            
            2007Net
      income per books
            
            $
            27,872
            
            
            $
            31,959
            
            
            $
            61,085Adjustments
      to book income:Book
      depreciation and amortization
            
            
            39,652
            
            
            
            34,643
            
            
            
            35,474Tax
      depreciation and amortization
            
            
            (25,057
            )
            
            
            (21,426
            )
            
            
            (21,236
            )Tax
      basis less book basis of properties sold, net
            
            
            -
            
            
            
            -
            
            
            
            5,622Straight
      line rent adjustment, net
            
            
            (1,879
            )
            
            
            (1,406
            )
            
            
            (3,126
            )Deferred
      rent, net
            
            
            34
            
            
            
            88
            
            
            
            (26
            )Non-taxable
      distributions
            
            
            (2,435
            )
            
            
            (1,075
            )
            
            
            (107
            )Other,
      net
            
            
            5,445
            
            
            
            4,526
            
            
            
            1,453Taxable
      income
            
            
            43,632
            
            
            
            47,309
            
            
            
            79,139Less:
      Capital gains recognized
            
            
            (55
            )
            
            
            (1,031
            )
            
            
            (30,835
            )Taxable
      income subject to distribution requirement
            
            $
            43,577
            
            
            $
            46,278
            
            
            $
            48,304





Tax
Components





The
following summarizes the tax components of the Company’s common distributions
paid per share for the years ended December 31, 2009, 2008 and
2007:





2009
              
              2008
              
              2007Per
      Share
              
              %
              
              Per
      Share
              
              %
              
              Per
      Share
              
              %Ordinary
      income
              $       0.61
              
              80.56%
              
              $       0.67
              
              66.98%
              
              $       0.81
              
              65.24%Qualified
      dividends
              -
              
              -
              
              -
              
              -
              
              -
              
              -Capital
      gain (1)
              0.00
              
              0.10%
              
              0.01
              
              1.46%
              
              0.43
              
              34.76%Return
      of capital
              0.15
              
              19.34%
              
              0.32
              
              31.56%
              
              -
              
              -Total
              $       0.76
              
              100%
              
              $       1.00
              
              100%
              
              $       1.24
              
              100%








(1)
            For
      2009, the 0.10% is taxed at 15%.  For 2008, the 1.46% is taxed
      at 15%.  For 2007, the 34.76% consists of 26.58% and 8.18% taxed
      at 15% and 25%, respectively.


F-27


Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements




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 2020.  The
following is a schedule of approximate future minimum rental income on
non-cancelable operating leases as of December 31, 2009:




(in
      thousands)
            Year
      endedDecember 31,2010
            $
            86,9422011
            
            75,6412012
            
            65,2862013
            
            59,2482014
            
            54,501Thereafter
      (2015-2022)
            
            115,243$
            456,861




The
Company leases its corporate office space under an operating lease that was
amended in 2007 and has a three-year renewal option.  The lease
includes a base annual rent and additional rent for the Company's share of taxes
and operating costs and expires in 2010.  Future minimum lease
payments are as follows:




(in
      thousands)
            Year
      endedDecember 31,2010
            $
            196$
            196




Rent
expense was approximately $353,000, $339,000 and $284,000 for the years ended
December 31, 2009, 2008 and 2007, respectively, and is included in selling,
general and administration expenses in the consolidated statements of
income.





The
Company has entered into the Sponsored REIT Loans described in Note 4, which
provide for up to $85.8 million in borrowings of which $36.5 million have been
drawn and is outstanding.  The Company anticipates that any advances
made will be repaid at their maturity or earlier from long term financing of the
underlying properties, cash flows of the underlying properties or some other
capital events.




10.      Retirement
Plan





In
2006, the Company established a 401(k) plan to cover eligible employees, which
permits deferral of up to $16,500 per year (indexed for inflation) into the
401(k) plan, subject to certain limitations imposed by the Internal Revenue
Code.  An employee’s elective deferrals are immediately vested upon
contribution to the 401(k) plan.  The Company matches employee
contributions to the 401(k) plan dollar for dollar up to 3% of each employee’s
annual compensation up to $200,000.  In addition, we may elect to make
an annual discretionary profit-sharing contribution.  The Company’s
total contribution under the 401(k) plan amounted to $115,000, $115,000 and
$138,000 for the years ended December 31, 2009, 2008 and 2007,
respectively.





11.      Discontinued
Operations





During
2006, the Company reached an agreement to sell a commercial property, located in
Greenville, South Carolina, which sold on January 31, 2007.  In May
2007, the Company reached an agreement to sell a property located in Westford,
Massachusetts, which sold on July 16, 2007.  During June 2007, the
Company sold a property located in Alpharetta, Georgia at a gain and a property
located in San Diego, California.  During December 2007, the Company
sold a property located in Austin, Texas.


F-28





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





11.      Discontinued
Operations (continued)





Accordingly,
all of the properties sold were classified as discontinued operations on our
financial statements for the year ended December 31, 2007.  Income
from discontinued operations of the sold properties was approximately $1.2
million for the year ended December 31, 2007.  For the year ended
December 31, 2007, the Company reported a $23.8 million gain on sale of
properties.  There was no property sales during the year ended
December 31, 2008.  The Company recognized a gain on a small piece of
land as a result of a land taking of approximately $424,000 during the year
ended December 31, 2009.





During
the year ended December 31, 2007, gains on sales of properties are summarized
below:





(in
      thousands)
            
            
            
            
            NetCity/
            Property
            Date
      of
            
            SalesProperty
      Address
            State
            Type
            Sale
            
            Proceeds
            
            
            Gain33
      & 37 Villa Road
            Greenville,
      SC
            Office
            January
      31, 2007
            
            $
            5,830
            
            
            $
            -11680
      Great Oaks Way
            Alpharetta,
      GA
            Office
            June
      21, 2007
            
            
            32,535
            
            
            
            6,60117030
      Goldentop Road
            San
      Diego, CA
            Office
            June
      27, 2007
            
            
            36,199
            
            
            
            14,74110
      Lyberty Way
            Westford,
      MA
            Office
            July
      16, 2007
            
            
            10,861
            
            
            
            1,94211211
      Taylor Draper Lane
            Austin,
      TX
            Office
            December
      20, 2007
            
            
            10,429
            
            
            
            257Settlement
      of escrows onprior
      property sales
            
            
            
            
            
            248
            
            
            
            248Net
      Sales Proceeds and Gainon
      sales of real estate
            
            
            
            
            $
            96,102
            
            
            $
            23,789




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





For
      the Year Ended(in
      thousands)
            December 31,2007Rental
      revenue
            $
            4,284Rental
      operating expenses
            
            (1,248
            )Real
      estate taxes and insurance
            
            (662
            )Depreciation
      and amortization
            
            (1,192
            )Interest
      income
            
            8Net
      income from discontinued operations
            $
            1,190





12.      Subsequent
Events





On
January 15, 2010, the Board of Directors of the Company declared a cash
distribution of $0.19 per share of common stock payable on February 19, 2010 to
stockholders of record on January 29, 2010.





The
Company has evaluated all subsequent events through February 23, 2010, the date
of issuance of these consolidated financial statements, for potential
recognition or disclosure.





F-29


Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





13.      Selected
Unaudited Quarterly Information





Selected
unaudited quarterly information is shown in the following
table:





2009First
              
              
              Second
              
              
              Third
              
              
              FourthQuarter
              
              
              Quarter
              
              
              Quarter
              
              
              Quarter(in
      thousands, except per share data)Revenue
              
              $
              30,419
              
              
              $
              30,132
              
              
              $
              32,092
              
              
              $
              35,740Income
      from continuing operations
              
              $
              7,808
              
              
              $
              4,865
              
              
              $
              6,941
              
              
              $
              7,834Gain
      on sale of properties
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              424Net
      income
              
              $
              7,808
              
              
              $
              4,865
              
              
              $
              6,941
              
              
              $
              8,258Basic
      and diluted net income per share
              
              $
              0.11
              
              
              $
              0.07
              
              
              $
              0.10
              
              
              $
              0.10Weighted
      average number of shares outstanding
              
              
              70,481
              
              
              
              70,481
              
              
              
              71,281
              
              
              
              79,681





2008First
              
              
              Second
              
              
              Third
              
              
              FourthQuarter
              
              
              Quarter
              
              
              Quarter
              
              
              Quarter(in
      thousands, except per share data)Revenue
              
              $
              27,610
              
              
              $
              34,537
              
              
              $
              28,924
              
              
              $
              29,345Income
      from continuing operations
              
              $
              7,386
              
              
              $
              10,535
              
              
              $
              7,419
              
              
              $
              6,619Net
      income
              
              $
              7,386
              
              
              $
              10,535
              
              
              $
              7,419
              
              
              $
              6,619Basic
      and diluted net income per share
              
              $
              0.10
              
              
              $
              0.15
              
              
              $
              0.11
              
              
              $
              0.09Weighted
      average number of shares outstanding
              
              
              70,481
              
              
              
              70,481
              
              
              
              70,481
              
              
              
              70,481





F-30


Schedule
II








Franklin
Street Properties Corp.


Valuation
and qualifying accounts:








(in
      thousands)
            
            
            
            
            Additions(Decreases)Balance
      at
            
            
            charged
      to
            
            
            
            
            
            
            
            
            Balancebeginning
            
            
            costs
      and
            
            
            
            
            
            
            
            
            at
      endClassification
            
            of
      year
            
            
            expenses
            
            
            Deductions
            
            
            Other
            
            
            of
      yearAllowance
      for doubtful accounts2007
            
            $
            433
            
            
            $
            -
            
            
            $
            (3
            )
            
            $
            -
            
            
            $
            4302008
            
            
            430
            
            
            
            79
            
            
            
            -
            
            
            
            -
            
            
            
            5092009
            
            
            509
            
            
            
            131
            
            
            
            (20
            )
            
            
            -
            
            
            
            620Straight-line
      rent allowancefor
      doubtful accounts2007
            
            $
            163
            
            
            $
            98
            
            
            $
            -
            
            
            $
            -
            
            
            $
            2612008
            
            
            261
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2612009
            
            
            261
            
            
            
            (62
            )
            
            
            (99
            )
            
            
            -
            
            
            
            100








F-31


SCHEDULE
III






FRANKLIN
STREET PROPERTIES CORP.
 REAL
ESTATE AND ACCUMULATED DEPRECIATION
 December
31, 2009
 
 Initial
      Cost
              
              
              Historical
      CostDescription
              
              Encumbrances
                (1)
              
              
              Land
              
              
              Buildings
                Improvements
                and
      Equipment
              
              
              Costs
      Capitalized (Disposals) Subsequent to Acquisition
              
              
              Land
              
              
              Buildings
                Improvements
                and
                Equipment
              
              
              Total
      (2)
              
              
              Accumulated
                Depreciation
              
              
              Total
      Costs, Net of
                Accumulated
                Depreciation
              
              
              Depreciable
                Life
                Years
              
              
              Year
                Built
              
              
              Date
      of
                Acquisition
                (3)(in
      thousands)Commercial
      Properties:Park
      Seneca, Charlotte, NC
              
              —
              
              
              $
              1,815
              
              
              $
              7,917
              
              
              $
              493
              
              
              $
              1,812
              
              
              $
              8,413
              
              
              $
              10,225
              
              
              $
              2,540
              
              
              $
              7,685
              
              
              5-39
              
              
              1969
              
              
              1997Hillview
      Center, Milpitas, CA
              
              —
              
              
              
              2,203
              
              
              
              2,813
              
              
              
              7
              
              
              
              2,203
              
              
              
              2,820
              
              
              
              5,023
              
              
              
              778
              
              
              
              4,245
              
              
              5-39
              
              
              1984
              
              
              1999Southfield
      Centre, Southfield, MI
              
              —
              
              
              
              4,344
              
              
              
              11,455
              
              
              
              2,446
              
              
              
              4,344
              
              
              
              13,901
              
              
              
              18,245
              
              
              
              3,377
              
              
              
              14,868
              
              
              5-39
              
              
              1977
              
              
              1999Bollman
      Place, Savage, MD
              
              —
              
              
              
              1,585
              
              
              
              4,121
              
              
              
              420
              
              
              
              1,585
              
              
              
              4,541
              
              
              
              6,126
              
              
              
              1,099
              
              
              
              5,027
              
              
              5-39
              
              
              1984
              
              
              1999Forest
      Park, Charlotte, NC
              
              —
              
              
              
              1,559
              
              
              
              5,672
              
              
              
              170
              
              
              
              1,559
              
              
              
              5,842
              
              
              
              7,401
              
              
              
              991
              
              
              
              6,410
              
              
              5-39
              
              
              1999
              
              
              1999Centennial
      Center, Colorado Springs, CO
              
              —
              
              
              
              1,549
              
              
              
              11,877
              
              
              
              1,080
              
              
              
              1,549
              
              
              
              12,957
              
              
              
              14,506
              
              
              
              2,594
              
              
              
              11,912
              
              
              5-39
              
              
              1999
              
              
              2000Meadow
      Point, Chantilly, VA
              
              —
              
              
              
              2,634
              
              
              
              18,911
              
              
              
              742
              
              
              
              2,634
              
              
              
              19,653
              
              
              
              22,287
              
              
              
              3,192
              
              
              
              19,095
              
              
              5-39
              
              
              1999
              
              
              2001Timberlake,
      Chesterfield, MO
              
              —
              
              
              
              2,984
              
              
              
              38,661
              
              
              
              2,308
              
              
              
              2,984
              
              
              
              40,969
              
              
              
              43,953
              
              
              
              7,589
              
              
              
              36,364
              
              
              5-39
              
              
              1999
              
              
              2001Northwest
      Point, Elk Grove Village, IL
              
              —
              
              
              
              2,914
              
              
              
              26,295
              
              
              
              7,218
              
              
              
              2,914
              
              
              
              33,513
              
              
              
              36,427
              
              
              
              6,328
              
              
              
              30,099
              
              
              5-39
              
              
              1999
              
              
              2001Timberlake
      East, Chesterfield, MO
              
              —
              
              
              
              2,626
              
              
              
              17,608
              
              
              
              2,002
              
              
              
              2,626
              
              
              
              19,610
              
              
              
              22,236
              
              
              
              3,661
              
              
              
              18,575
              
              
              5-39
              
              
              2000
              
              
              2002Park
      Ten, Houston, TX
              
              —
              
              
              
              1,061
              
              
              
              21,303
              
              
              
              609
              
              
              
              569
              
              
              
              22,404
              
              
              
              22,973
              
              
              
              4,022
              
              
              
              18,951
              
              
              5-39
              
              
              1999
              
              
              2002Federal
      Way, Federal Way, WA
              
              —
              
              
              
              2,518
              
              
              
              13,212
              
              
              
              1,512
              
              
              
              2,518
              
              
              
              14,724
              
              
              
              17,242
              
              
              
              2,496
              
              
              
              14,746
              
              
              5-39
              
              
              1982
              
              
              2001Addison,
      Addison, TX
              
              —
              
              
              
              4,325
              
              
              
              48,040
              
              
              
              2,493
              
              
              
              4,325
              
              
              
              50,533
              
              
              
              54,858
              
              
              
              6,617
              
              
              
              48,241
              
              
              5-39
              
              
              1999
              
              
              2002Collins,
      Richardson, TX
              
              —
              
              
              
              4,000
              
              
              
              42,598
              
              
              
              1,693
              
              
              
              4,000
              
              
              
              44,291
              
              
              
              48,291
              
              
              
              5,451
              
              
              
              42,840
              
              
              5-39
              
              
              1999
              
              
              2003Montague,
      San Jose, CA
              
              —
              
              
              
              10,250
              
              
              
              5,254
              
              
              
              2,592
              
              
              
              10,250
              
              
              
              7,846
              
              
              
              18,096
              
              
              
              908
              
              
              
              17,188
              
              
              5-39
              
              
              1982
              
              
              2002Greenwood,
      Englewood, CO
              
              —
              
              
              
              3,100
              
              
              
              30,201
              
              
              
              0
              
              
              
              3,100
              
              
              
              30,201
              
              
              
              33,301
              
              
              
              3,742
              
              
              
              29,559
              
              
              5-39
              
              
              2000
              
              
              2005River
      Crossing, Indianapolis, IN
              
              —
              
              
              
              3,000
              
              
              
              36,926
              
              
              
              1,310
              
              
              
              3,000
              
              
              
              38,236
              
              
              
              41,236
              
              
              
              4,556
              
              
              
              36,680
              
              
              5-39
              
              
              1998
              
              
              2005Willow
      Bend, Plano, TX
              
              —
              
              
              
              3,800
              
              
              
              14,842
              
              
              
              1,044
              
              
              
              3,800
              
              
              
              15,886
              
              
              
              19,686
              
              
              
              1,589
              
              
              
              18,097
              
              
              5-39
              
              
              1999
              
              
              2000Innsbrook,
      Glenn Allen, VA
              
              —
              
              
              
              5,000
              
              
              
              40,216
              
              
              
              1,216
              
              
              
              5,000
              
              
              
              41,432
              
              
              
              46,432
              
              
              
              4,180
              
              
              
              42,252
              
              
              5-39
              
              
              1999
              
              
              2003380
      Interlocken, Bloomfield, CO
              
              —
              
              
              
              8,275
              
              
              
              34,462
              
              
              
              4,602
              
              
              
              8,275
              
              
              
              39,064
              
              
              
              47,339
              
              
              
              4,073
              
              
              
              43,266
              
              
              5-39
              
              
              2000
              
              
              2003Blue
      Lagoon, Miami, FL
              
              —
              
              
              
              6,306
              
              
              
              46,124
              
              
              
              8
              
              
              
              6,306
              
              
              
              46,132
              
              
              
              52,438
              
              
              
              4,337
              
              
              
              48,101
              
              
              5-39
              
              
              2002
              
              
              2003Eldridge
      Green, Houston, TX
              
              —
              
              
              
              3,900
              
              
              
              43,791
              
              
              
              61
              
              
              
              3,900
              
              
              
              43,852
              
              
              
              47,752
              
              
              
              4,128
              
              
              
              43,624
              
              
              5-39
              
              
              1999
              
              
              2004Liberty
      Plaza, Addison, TX
              
              —
              
              
              
              4,374
              
              
              
              21,146
              
              
              
              3,100
              
              
              
              4,374
              
              
              
              24,246
              
              
              
              28,620
              
              
              
              3,247
              
              
              
              25,373
              
              
              5-39
              
              
              1985
              
              
              2006One
      Overton, Atlanta, GA
              
              —
              
              
              
              3,900
              
              
              
              77,229
              
              
              
              1,933
              
              
              
              3,900
              
              
              
              79,162
              
              
              
              83,062
              
              
              
              7,470
              
              
              
              75,592
              
              
              5-39
              
              
              2002
              
              
              2006FSP
      390 Interlocken, Broomfield, CO
              
              —
              
              
              
              7,013
              
              
              
              37,751
              
              
              
              1,960
              
              
              
              7,013
              
              
              
              39,711
              
              
              
              46,724
              
              
              
              3,476
              
              
              
              43,248
              
              
              5-39
              
              
              2002
              
              
              2006East
      Baltimore, Baltimore, MD
              
              —
              
              
              
              4,600
              
              
              
              55,267
              
              
              
              405
              
              
              
              4,600
              
              
              
              55,672
              
              
              
              60,272
              
              
              
              3,683
              
              
              
              56,589
              
              
              5-39
              
              
              1989
              
              
              2007Park
      Ten II, Houston, TX
              
              —
              
              
              
              1,300
              
              
              
              31,712
              
              
              
              74
              
              
              
              1,300
              
              
              
              31,786
              
              
              
              33,086
              
              
              
              1,366
              
              
              
              31,720
              
              
              5-39
              
              
              2006
              
              
              2006Lakeside
      Crossing, Maryland Heights, MO
              
              —
              
              
              
              1,900
              
              
              
              16,192
              
              
              
              2
              
              
              
              1,900
              
              
              
              16,194
              
              
              
              18,094
              
              
              
              450
              
              
              
              17,644
              
              
              5-39
              
              
              2008
              
              
              2008Dulles
      Virginia, Sterling, VA
              
              —
              
              
              
              4,813
              
              
              
              13,285
              
              
              
              0
              
              
              
              4,813
              
              
              
              13,285
              
              
              
              18,098
              
              
              
              342
              
              
              
              17,756
              
              
              5-39
              
              
              1999
              
              
              2008Stonecroft,
      Chantilly, VA
              
              —
              
              
              
              2,102
              
              
              
              18,003
              
              
              
              0
              
              
              
              2,102
              
              
              
              18,003
              
              
              
              20,105
              
              
              
              231
              
              
              
              19,874
              
              
              5-39
              
              
              2008
              
              
              2009Eden
      Bluff, Eden Prairie, MN
              
              —
              
              
              
              5,422
              
              
              
              9,294
              
              
              
              0
              
              
              
              5,422
              
              
              
              9,294
              
              
              
              14,716
              
              
              
              119
              
              
              
              14,597
              
              
              5-39
              
              
              2006
              
              
              2009Fairview,
      Falls Church, VA
              
              —
              
              
              
              12,018
              
              
              
              50,167
              
              
              
              (248
              )
              
              
              11,770
              
              
              
              50,167
              
              
              
              61,937
              
              
              
              322
              
              
              
              61,615
              
              
              5-39
              
              
              2001
              
              
              2009Balance
      – Real Estate
              
              —
              
              
              $
              127,190
              
              
              $
              852,345
              
              
              $
              41,252
              
              
              $
              126,447
              
              
              $
              894,340
              
              
              $
              1,020,787
              
              
              $
              98,954
              
              
              $
              921,833
 
 (1)
              There
      are no encumbrances on the above
properties.
 (2)
              The
      aggregate cost for Federal Income Tax purposes is
  $865,890
 (3)
              Original
      date of acquisition by Sponsored
Entity.


F-32




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


December
      31,(in
      thousands)
            2009
            
            
            2008
            
            
            2007Real
      estate investments, at cost:Balance,
      beginning of year
            $
            918,184
            
            
            $
            842,379
            
            
            $
            854,440Acquisitions
            
            97,006
            
            
            
            69,202
            
            
            
            59,867Improvements
            
            5,845
            
            
            
            6,603
            
            
            
            11,030Dispositions
            
            (248
            )
            
            
            -
            
            
            
            (82,958
            )Balance,
      end of year
            $
            1,020,787
            
            
            $
            918,184
            
            
            $
            842,379Accumulated
      depreciation:Balance,
      beginning of year
            $
            74,126
            
            
            $
            52,060
            
            
            $
            45,120Depreciation
            
            24,828
            
            
            
            22,066
            
            
            
            21,450Dispositions
            
            -
            
            
            
            -
            
            
            
            (14,510
            )Balance,
      end of year
            $
            98,954
            
            
            $
            74,126
            
            
            $
            52,060





F-33