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

                                    FORM 10-K

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

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

            For the fiscal year ended December 31, 2005

      |_|   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                         (I.R.S. Employer
     incorporation or organization)                        Identification No.)

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

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

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

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


      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 15(d) of the Act. Yes |_| No |X|.

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

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

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

      Large accelerated filer |X|   Accelerated filer |_|
      Non-accelerated filer |_|

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

      State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrant's most recently completed
second fiscal quarter. As of June 30, 2005 the aggregate market value was
$1,010,861,107.

      There were 59,794,608 shares of Common Stock outstanding as of February
21, 2006.

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 12, 2006. 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 such proxy statement.
<PAGE>

                                TABLE OF CONTENTS

FRANKLIN STREET PROPERTIES CORP................................................1
PART I.........................................................................1
  Item 1.  Business............................................................1
  Item 1A. Risk Factors........................................................4
  Item 1B. Unresolved Staff Comments..........................................10
  Item 2.  Properties.........................................................11
  Item 3.  Legal Proceedings..................................................13
  Item 4.  Submission of Matters to a Vote of Security Holders................14
  Item 4A. Directors and Executive Officers of FSP Corp.......................14

PART II.......................................................................17
  Item 5.  Market For Registrant's Common Equity, Related Stockholder
           Matters and Issuer Purchases of Equity Securities..................17
  Item 6.  Selected Financial Data............................................19
  Item 7.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations..............................................20
  Item 7A. Quantitative and Qualitative Disclosure About Market Risk..........36
  Item 8.  Financial Statements and Supplementary Data........................37
  Item 9.  Changes in and Disagreements With Accountants on Accounting and
           Financial Disclosure...............................................37
  Item 9A. Controls and Procedures............................................37
  Item 9B. Other information..................................................38

PART III......................................................................39
  Item 10. Directors and Executive Officers of the Registrant.................39
  Item 11. Executive Compensation.............................................39
  Item 12. Security Ownership of Certain Beneficial Owners and Management
           and Related Stockholder Matters....................................39
  Item 13. Certain Relationships and Related Transactions.....................39
  Item 14. Principal Accounting Fees and Services.............................39

PART IV.......................................................................40
  Item 15. Exhibits and Financial Statement Schedules.........................40

SIGNATURES ...................................................................41
<PAGE>

PART I

Item 1. Business

History

      Our company, Franklin Street Properties Corp., which we will refer to as
FSP Corp. or the Company, is a Maryland corporation that operates in a manner
intended to qualify as a real estate investment trust for federal income tax
purposes. FSP Corp. is the successor to Franklin Street Partners Limited
Partnership, or the FSP Partnership, which was originally formed as a
Massachusetts general partnership in January 1997 as the successor to a
Massachusetts general partnership that was formed in 1981. On January 1, 2002,
the FSP Partnership converted into FSP Corp., 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 June 1, 2003, we acquired 13 real estate investment trusts by merger.
In these mergers, we issued 25,000,091 shares of our common stock to holders of
preferred stock in these REITs. As a result of these mergers, we now hold all of
the assets previously held by these REITs.

      On April 30, 2005, we acquired four real estate investment trusts by
merger. In these mergers we issued 10,894,994 shares of common stock to holders
of preferred stock in these REITs. As a result of these mergers, we now hold all
of the assets previously held by these REITs.

        On June 2, 2005 we began trading our common stock on the American Stock
Exchange under the symbol "FSP".

Our Business

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

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

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

      See Note 3 to our consolidated financial statements for additional
information regarding our business segments.

      Real Estate

      We own a portfolio of real estate consisting of 27 properties which we
operate as of December 31, 2005, and includes 24 office buildings, two
industrial use properties and one apartment complex. In addition, we own one
office building that is held for sale as of December 31, 2005, and we expect to
complete the sale by December 2006. We derive rental revenue from income paid to
us by tenants of these properties. See Item 2 of this Annual Report on Form
10-K.


                                        1
<PAGE>

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

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

      Investment Banking/Investment Services

      Through our subsidiary FSP Investments, which acts as a real estate
investment banking firm and broker/dealer, we organize Sponsored REITs, and sell
equity in them through private placements exempt from registration under the
Securities Act of 1933. These single-purpose entities each typically acquire a
single real estate asset. FSP Investments raises all the capital required to
fully 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 subsequent to the completion of the
syndication. Since 1997, FSP Investments has sponsored 44 entities, 14 of which
were Sponsored Entities, and 30 of which were Sponsored REITs.

      FSP Investments 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 is a registered broker/dealer with the Securities and Exchange
Commission and is a member of the National Association of Securities Dealers,
Inc. We have made an election to treat FSP Investments as a "taxable REIT
subsidiary" for federal income tax purposes.

Investment Objectives

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

      From time to time, as market conditions warrant, we may sell properties
owned by us. In 2005 we sold six properties and reached an agreement to sell
another property. In 2004 no properties were sold. 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 28 properties that are
located in 14 different states. Of the 28 properties, 25 are office buildings
(one of which is held for sale), two are industrial properties and one is an
apartment complex. See Item 2 of this Annual Report on Form 10-K.

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

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


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<PAGE>

      o     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;

      o     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 to cost savings in construction or
            which appeal only to a narrow group of users;

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

      o     we believe that we have the ability to hold properties through down
            cycles and avoid leveraging properties and placing them at risk of
            foreclosure; as of February 21, 2006, none of our 28 properties was
            subject to mortgage debt.

Line of Credit

      We currently have an unsecured revolving line of credit with a group of
banks that provides for borrowings of up to $150,000,000. We have drawn on this
line of credit, and intend to draw on this line of credit in the future, to
obtain funds primarily for the purpose of making interim mortgage loans to
Sponsored REITs or for interim financing of properties we acquire directly for
our portfolio. We typically cause mortgage loans to Sponsored REITs to be
secured by a first mortgage against the real property owned by the Sponsored
REIT. We make these loans to enable a Sponsored REIT to acquire real property
prior to the consummation of the offering of its equity interests, and the loan
is repaid out of the offering proceeds. We have no restriction on the percentage
of our assets that may be invested in any single mortgage.

Competition

      With respect to our real estate investments, we face competition in each
of the markets where the properties are located. In order to 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 landlords
and developers, but also with the choice of home ownership or ownership of
office condominiums, and larger market forces (including changes in interest
rates and tax treatment) and individual decisions beyond our control may affect
our ability to compete with those forms of ownership.

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

Employees

      We had 39 employees as of December 31, 2005.


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<PAGE>

Available Information

      We are subject to the informational requirements of the Securities
Exchange Act of 1934, and, in accordance therewith, we file reports and other
information with the Securities and Exchange Commission (SEC). The reports and
other information we file can be inspected and copied at the 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
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 and Retrieval (EDGAR) program, 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 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.

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

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

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

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

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

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


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<PAGE>

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

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

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

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

We are dependent on key personnel.

      We depend on the efforts of George Carter, our Chief Executive Officer,
and our other executive officers. If they were to resign, our operations could
be adversely affected. We do not have employment agreements with Mr. Carter or
any other of our executive officers.

Our level of dividends may fluctuate.

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

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

      As of February 21, 2006, we owned 28 properties, of which one was held for
sale. Some or all of these properties may decline in value. To the extent our
real properties decline in value, our stockholders could lose some or all the
value of their investments. The value of our common stock may be adversely
affected if the real properties held by us decline in value since these real
properties represent the majority of the tangible assets held by us. Moreover,
if we are forced to sell or lease the real property held by us below its initial
purchase price or its carrying costs or if we are forced to lease real property
at below market rates because of the condition of the property, our results of
operations would be adversely affected and such negative results of operations
may result in lower dividends being paid to holders of our common stock.


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<PAGE>

New acquisitions may fail to perform as expected.

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

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

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

      o     changes in general and local economic conditions;

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

      o     changes in market rental rates;

      o     the impact of environmental protection laws; and

      o     changes in tax, real estate and zoning laws.

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

We face risks from tenant defaults or bankruptcies.

      If any of our tenants defaults on its lease, we may experience delays in
enforcing our rights as a landlord and may incur substantial costs in protecting
our investment. In addition, at any time, a tenant of one of our properties may
seek the protection of bankruptcy laws, which could result in the rejection and
termination of such tenant's lease and thereby cause a reduction in cash
available for distribution to our stockholders.

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

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

We face risks from geographic concentration.

      The properties in our portfolio as of December 31, 2005, by aggregate
square footage, are distributed geographically as follows: Southwest - 25%,
Northeast - 23%, Midwest - 23%, West - 18% and Southeast 11%. However, within
certain of those regions, we hold a larger concentration of our properties in
Dallas, Texas - 14%, Virginia - 12% and Houston, Texas - 9%. 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.


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<PAGE>

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

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

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

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

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

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

      In addition, we cannot assure you that:

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

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

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

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

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

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


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<PAGE>

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

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

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

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

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

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

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

      o     liabilities incurred in the ordinary course of business.

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

      The provisions of the tax code governing the taxation of real estate
investment trusts are very technical and complex, and although we expect that we
will be organized and will operate in a manner that will enable us to meet such
requirements, no assurance can be given that we will always succeed in doing so.
In addition, as a result of our acquisition of the target REITs pursuant to the
mergers, we might no longer qualify as a real estate investment trust. We could
lose our ability to so qualify for a variety of reasons relating to the nature
of the assets acquired from the target REITs, the identity of the shareholders
of the target REITs who become our shareholders or the failure of one or more of
the target REITs to have previously qualified as a real estate investment trust.
Moreover, you should note that if one or more of the REITs that we acquired in
April 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.


                                        8
<PAGE>

Provisions in our organizational documents may prevent changes in control.

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

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

      Staggered Board. Our board of directors is divided into three classes. The
terms of these classes will expire in 2006, 2007 and 2008, 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.


                                        9
<PAGE>

Our employee retention plan may prevent changes in control.

      On February 3, 2006, our Board of Directors approved a change in control
plan, which included a form of retention agreement and discretionary payment
plan. On February 23, 2006, our Board of Directors approved an amended form of
retention agreement, which amended form is described further in Item 9B. of this
Form 10-K. 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.

The price of our common stock may vary.

      Our common stock has only been listed for trading on the American Stock
Exchange since June 2, 2005. We can provide no assurances as to the development
of an ongoing meaningful trading market in our common stock. If a meaningful
trading market does develop, 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.

Item 1B. Unresolved Staff Comments.

None.


                                       10
<PAGE>

Item 2. Properties

      Set forth below is information regarding our properties as of December 31,
2005:

<TABLE>
<CAPTION>
                                    Date of
                                    Purchase or
                                    Merged
                                    Entity        Number               Percent      Approx.
                                    Date of       of      Approx.      Leased as    Number
Property Location                   Purchase      Units   Square Feet  of 12/31/05  of Tenants   Major Tenants(1)
-----------------                   --------      -----   -----------  -----------  ----------   ----------------

<S>                                  <C>          <C>      <C>          <C>          <C>         <C>
Apartment/Residential
---------------------
22400 Westheimer Parkway,            4/24/02      228      231,363       97%         228         None - Apts.
Katy, Texas  77450

                                                ---------------------
Total Apartments                                  228      231,363
                                                ---------------------

Office
------
451 Andover Street                    6/1/96               92,446        97%          38         Pentucket Medical
North Andover, MA 01845                                                                          Associates, Inc.


1515 Mockingbird Lane                 7/1/97               109,550       80%          66         Primary PhysicianCare
Charlotte, NC 28209

33 & 37 Villa Road                    3/1/98               144,029       51%          24         BSA Sales, Inc.
Greenville, SC 29615

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

600 Forest Point Circle               7/8/99               62,212        87%          2          American Nat'l Red Cross
Charlotte, NC  28273                                                                             Cellco Partnership
                                                                                                 d/b/a Verizon

18000 W. Nine Mile Rd.               9/30/99               215,306       90%          6          Int'l Business Machines Corp.
Southfield, Michigan 48075

11211 Taylor Draper Lane             12/29/99              68,533        82%          8          TriActive, Inc.
Austin, Texas 78759                                                                              CACI Technologies, Tiburon, Inc.
                                                                                                 State Farm Mutual Auto. Ins. Co.
                                                                                                 Rodriguez Transportation Group

10 Lyberty Way                       5/23/00               104,711       0%           0          Vacant
Westford, MA 01886

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

4820 & 4920 Centennial Blvd.         9/28/00               110,730       82%          3          Hewlett-Packard Company
Colorado Springs, CO 80919                                                                       Starkey Laboratories, Inc.
                                                                                                 Dalsa Colorado Springs, Inc.
</TABLE>


                                       11
<PAGE>

<TABLE>
<CAPTION>
                                    Date of
                                    Purchase or
                                    Merged
                                    Entity        Number               Percent      Approx.
                                    Date of       of      Approx.      Leased as    Number
Property Location                   Purchase      Units   Square Feet  of 12/31/05  of Tenants   Major Tenants(1)
-----------------                   --------      -----   -----------  -----------  ----------   ----------------

<S>                                  <C>          <C>      <C>          <C>          <C>         <C>
14151 Park Meadow Drive              3/15/01               134,850      100%          1          CACI, Inc.-Federal
Chantilly, VA 20151

1370 & 1390 Timberlake               5/24/01               232,722      100%          4          RGA Reinsurance Company
Manor Parkway,                                                                                   AMDOCS, Inc.
Chesterfield, MO 63017

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

12902 Federal Systems Park           9/17/01               210,613      100%          1          Int'l. Business Machines Corp.
Drive, Fairfax, VA 22033

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

1350 Timberlake Manor Parkway         3/4/02               116,312       73%          7          RGA Reinsurance Company
Chesterfield, MO 63017                                                                           Metropolitan Life Ins. Company
                                                                                                 Wachovia Securities, LLC
                                                                                                 Quest Software, Inc.

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

16285 Park Ten Place                 6/27/02               155,715      100%          5          Mustang Engineering, LP
Houston, Texas 77084                                                                             & TMI, Inc. a/k/a
                                                                                                 Trendmaker Homes

2730 - 2760 Junction Avenue          8/27/02               145,951      100%          1          Novellus Systems, Inc.
San Jose, CA 95134

15601 Dallas Parkway                 09/30/02              293,787       98%          13         The Staubach Company
Addison, TX 75001                                                                                Behringer Harvard Holdings, LLC
                                                                                                 Credit Solutions of America, Inc.
                                                                                                 Noble Royalties, Inc.

11680 Great Oaks Way                 1/30/03               161,366       93%          2          Combined Specialty Ins. Co.
Alpharetta, GA 30022                                                                             Hagemeyer North America, Inc.

1500 & 1600 Greenville Avenue         3/3/03               298,766      100%          2          Tektronix Texas, LLC
Richardson, TX 75080                                                                             Macromedia, Inc.

</TABLE>


                                       12
<PAGE>

<TABLE>
<CAPTION>
                                    Date of
                                    Purchase or
                                    Merged
                                    Entity        Number               Percent      Approx.
                                    Date of       of      Approx.      Leased as    Number
Property Location                   Purchase      Units   Square Feet  of 12/31/05  of Tenants   Major Tenants(1)
-----------------                   --------      -----   -----------  -----------  ----------   ----------------

<S>                                  <C>          <C>      <C>          <C>          <C>         <C>
6500 & 6560 Greenwood Plaza          2/24/05               199,077      100%          1          Sybase, Inc.
Englewood, CO 80111

3815-3925 River Crossing Pkwy         7/6/05               205,059      100%          24         Crowe Chizek & Company, LLP
Indianapolis, IN 46240                                                                           Somerset Financial
                                                                                                 Services, LLC
                                                                                                 The College Network, Inc.
                                                        -----------
Sub Total Office                                          3,691,519
                                                        -----------

Industrial
----------
One Technology Drive                 12/1/95               188,000      100%          1          U.S. Foodservice, Inc.
Peabody, MA 01960

8730 Bollman Place                   12/14/99              98,745       100%          1          Maines Paper and
Savage (Jessup), MD 20794                                                                        Foodservice, Inc.

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

Grand Total (Assets with
Ongoing Operations)                               228     4,209,627
                                                  ===     =========

4995 Patrick Henry Dr.               12/1/97               40,280        0%                      Vacant
Santa Clara, CA 95054

                                                        -----------
Total Assets Held for Sale                                 40,280
                                                        -----------

                                                  ---     ---------
Grand Total                                       228     4,249,907
                                                  ===     =========
</TABLE>

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

All of the properties listed above are owned by us. None of our properties are
subject to any mortgage loans. We have no material undeveloped or unimproved
properties, and we have no proposed programs for significant renovation,
improvement or development of any of our properties. We believe that our
properties are adequately covered by insurance as of December 31, 2005.

Item 3. Legal Proceedings.

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


                                       13
<PAGE>

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

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

Item 4A. 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 21, 2006.

<TABLE>
<CAPTION>
              Name                     Age                         Position
              ----                     ---                         --------

<S>                                    <C>     <C>
George J. Carter (5)                   57      President, Chief Executive Officer and Director
Barbara J. Fournier (2) (4)            50      Vice President, Chief Operating Officer,
                                               Treasurer, Secretary and Director
Barry Silverstein (1) (2) (4)          72      Director
Dennis J. McGillicuddy (1) (2) (3)     64      Director
Georgia Murray (1) (2) (5)             55      Director
John N. Burke (1) (2) (4)              44      Director
John G. Demeritt                       45      Chief Financial Officer (Principal Financial
                                               Officer)
William W. Gribbell                    46      Executive Vice President
R. Scott MacPhee                       48      Executive Vice President
Janet Prier Notopoulos (3)             58      Vice President and Director
</TABLE>

----------
(1)   Member of the Audit Committee
(2)   Member of the Compensation Committee
(3)   Class I Director
(4)   Class II Director
(5)   Class III Director


                                       14
<PAGE>

      George J. Carter, age 57, is President, Chief Executive Officer and a
Director of FSP Corp. and is responsible for all aspects of the business of FSP
Corp. and its affiliates, with special emphasis on the evaluation, acquisition
and structuring of real estate investments. Prior to the conversion, he was
President of the General Partner and was responsible for all aspects of the
business of the FSP Partnership and its affiliates. From 1992 through 1996 he
was President of Boston Financial Securities, Inc. ("Boston Financial"). Prior
to joining Boston Financial, Mr. Carter was owner and developer of Gloucester
Dry Dock, a commercial shipyard in Gloucester, Massachusetts. From 1979 to 1988,
Mr. Carter served as Managing Director in charge of marketing of First Winthrop
Corporation, a national real estate and investment banking firm headquartered in
Boston, Massachusetts. Prior to that, he held a number of positions in the
brokerage industry including those with Merrill Lynch & Co. and Loeb Rhodes &
Co. Mr. Carter is a graduate of the University of Miami (B.S.). Mr. Carter is a
NASD General Securities Principal (Series 24) and holds a NASD Series 7 general
securities license.

      Barbara J. Fournier, age 50, is the Vice President, Chief Operating
Officer, Treasurer, Secretary and a Director of FSP Corp. In addition, 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 NASD General Securities Principal (Series 24). She also holds
other NASD supervisory licenses including Series 4 and Series 53, and a NASD
Series 7 general securities license.

      Barry Silverstein, age 72, has been a Director of the Company and a member
of the Compensation Committee since May 2002. Mr. Silverstein joined the Audit
Committee in July 2004. 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. After selling those
interests 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 Communication, a cable television
company. Initially operating in small, rural communities in the southeast,
Coaxial expanded its operations to Columbus, Ohio, the suburbs of Cincinnati,
Ohio, and St. Paul, Minnesota, as well as smaller systems in West Virginia,
Kentucky and Illinois. In 1998 and 1999, Coaxial sold its cable systems. Since
January 2001, Mr. Silverstein has served as a private investor.

      Dennis J. McGillicuddy, age 64, has been a Director of the Company and the
Chairman of the Compensation Committee since May 2002. Mr. McGillicuddy joined
the Audit Committee in July 2004. Mr. McGillicuddy graduated from the University
of Florida with a B.A. degree and in 1966 he graduated from the University of
Florida Law School with a J.D. degree. In 1968, Mr. McGillicuddy joined Barry
Silverstein in founding Coaxial Communication, a cable television company.
Initially operating in small, rural communities in the southeast, Coaxial
expanded its operations to Columbus, Ohio, the suburbs of Cincinnati, Ohio, and
St. Paul, Minnesota, as well as smaller systems in West Virginia, Kentucky and
Illinois. In 1998 and 1999, Coaxial sold its cable systems. Since January 2001,
Mr. McGillicuddy has served as a manager of BDS Management LLC, a management
services company. 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. Also,
Mr. McGillicuddy is an officer and board member of The Florida Winefest and
Auction Inc., a Sarasota-based charity, which provides funding for programs of
local charities that deal with disadvantaged children and their families.

      Georgia Murray, age 55, has been a Director of the Company since April
2005. 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. She is a member of the Urban Land Institute and a
past President of the Multifamily Housing Institute. She currently serves on the
Board of Directors of the Capital Crossing Bank, Boston, Massachusetts. She also
serves on the boards of numerous non-profit entities. Ms. Murray is a graduate
of Newton College.


                                       15
<PAGE>

      John N. Burke, age 44 has been a Director of the Company and Chairman of
the Audit Committee since June 2004. Prior to staring his own accounting, tax
and consulting firm in January 2003, he was an Assurance Partner in the Boston
office of BDO Seidman, LLP, an international accounting and consulting firm.
From 1987 to 2003, Mr. Burke served several private and publicly traded real
estate clients at BDO Seidman, LLP and assisted companies with initial public
offerings, private equity and debt financings and merger and acquisition
transactions. Mr. Burke's consulting experience includes SEC reporting matters,
compliance with Sarbanes-Oxley, tax and business planning and evaluation of
internal controls and management information systems. Mr. Burke is a Certified
Public Accountant and a member of the American Institute of Certified Public
Accountants. Mr. Burke holds a Master's of Science in Taxation and studied
undergraduate accounting and finance at Bentley College.

      John G. Demeritt, age 45, has been the Chief Financial Officer since March
2005 and previously was Senior Vice President, Finance and Principal Accounting
Officer of FSP Corp. Prior to joining the Company in September 2004, Mr.
Demeritt was a Manager with Vitale Caturano & Company, Ltd., 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
(now known as the The La Quinta Companies, which was recently acquired by the
Blackstone Group), a publicly traded real estate investment trust, 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 46, 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 NASD Series 7 general securities license.

      R. Scott MacPhee, age 48, 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 NASD Series 7 general securities license.

      Janet Prier Notopoulos, age 58, is a Vice President and a Director of FSP
Corp. and President of FSP Property Management and has as her primary
responsibility the oversight of the management of the real estate assets of FSP
Corp. and its affiliates. Prior to the conversion, Ms. Notopoulos was a Vice
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).

      With the exception of John G. Demeritt, each of the above executive
officers has been a full-time employee of FSP Corp. or its predecessor for the
past five fiscal years.

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


                                       16
<PAGE>

PART II

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

      Commencing on June 2, 2005 the common stock of the Company began trading
on the American Stock Exchange under the symbol FSP. The following table sets
forth the high and low sales prices of the common stock on the American Stock
Exchange for the applicable quarterly periods. Prior to June 2, 2005 there was
no established public trading market for our common stock.

                                            Range
               Three Months       --------------------------
                  Ended              High             Low
                  -----              ----             ---

              June 30, 2005        $ 22.00         $ 18.00
            September 30, 2005     $ 20.51         $ 16.00
            December 31, 2005      $ 21.39         $ 15.84

As of February 17, 2006, there were 2,652 holders of record of our common stock.

On January 18, 2006 we declared a dividend of $0.31 per share of our common
stock payable to stockholders of record as of January 31, 2006 that was paid on
February 21, 2006. Set forth below are the distributions per share of common
stock made by FSP Corp. in each quarter since 2003.

                 Quarter            Distribution Per Share of
                  Ended             Common Stock of FSP Corp.
                  -----             -------------------------
              March 31, 2003                  $0.31
              June 30, 2003                   $0.31
            September 30, 2003                $0.31
            December 31, 2003                 $0.43*
              March 31, 2004                  $0.31
              June 30, 2004                   $0.31
            September 30, 2004                $0.31
            December 31, 2004                 $0.31
              March 31, 2005                  $0.31
              June 30, 2005                   $0.41
            September 30, 2005                $0.21
            December 31, 2005                 $0.31

            *Included a special dividend of $0.12 per share.

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

The following table provides information about purchases by Franklin Street
Properties Corp. during the quarter ended December 31, 2005 of equity securities
that are registered by the Company pursuant to Section 12 of the Exchange Act:


                                       17
<PAGE>

                      ISSUER PURCHASES OF EQUITY SECURITIES

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

                                                         Total Number of
                                                            Shares (or       Maximum Number (or
                                                              Units)         Approximate Dollar
                                                           Purchased as     Value) of Shares (or
                      Total Number of                        Part of         Units) that May Yet
                         Shares (or                         Publicly         Be Purchased Under
Period                     Units)      Average Price      Announced Plans       the Plans or
                        Purchased     Paid per Share     or Programs (1)          Programs
                         (1) (2)         (or Unit)              (2)                (1) (2)
--------------------------------------------------------------------------------------------------
<S>                       <C>                <C>              <C>                <C>
10/01/05-10/31/05            0                N/A                0               $35,000,000
--------------------------------------------------------------------------------------------------
11/01/05-11/30/05         432,800            $18.14           432,800            $27,148,381
--------------------------------------------------------------------------------------------------
12/01/05-12/31/05         298,200            $20.59           731,000            $21,008,101
--------------------------------------------------------------------------------------------------
Total:                    731,000            $19.14           731,000            $21,008,101
--------------------------------------------------------------------------------------------------
</TABLE>

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

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


                                       18
<PAGE>

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 the FSP
Corp.'s consolidated financial statements and related notes thereto included in
Item 8.

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                    -----------------------------------------------------
                                                      2005       2004       2003       2002      2001 (1)
                                                    --------   --------   --------   --------   ---------
<S>                                                 <C>        <C>        <C>        <C>        <C>
(In thousands, except per share or unit amounts)

Operating Data:
Total revenue                                       $ 96,393   $ 87,436   $ 68,464   $ 42,326   $  41,123
Income from:
Continuing operations                                 40,120     42,334     34,062     20,643      19,199
Discontinued operations                                4,503      5,429      5,956      6,669       6,169
Gain on sale of properties                            30,493         --      6,362         --          --
                                                    --------   --------   --------   --------   ---------
Net income                                            75,116     47,763     46,380     27,312      25,368

Basic and diluted income per share:
Continuing operations                                   0.70       0.85       0.87       0.84        0.78
Discontinued operations                                 0.08       0.11       0.15       0.27        0.25
Gain on sale of properties                              0.54         --       0.16         --          --
                                                    --------   --------   --------   --------   ---------
Total                                                   1.32       0.96       1.18       1.11        1.03

Distributions declared per
unit/share outstanding (1) (2):                         1.24       1.24       1.36       1.24        1.18

<CAPTION>
                                                                      As of December 31,
                                                    -----------------------------------------------------
                                                      2005       2004       2003       2002      2001 (1)
                                                    --------   --------   --------   --------   ---------
<S>                                                 <C>        <C>        <C>        <C>        <C>
Balance Sheet Data:
Total assets                                        $677,173   $573,111   $528,529   $201,936   $ 204,117
Total liabilities                                     15,590     70,023     11,674      4,771       4,354
Total shareholders'/partners capital                 661,583    503,088    516,855    197,165     199,763
</TABLE>

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

(2)   In 2003 a special dividend of $0.12 per share was paid relating to the
      sale of two residential properties.

      The 2005 and 2003 financial statements reflect acquisition by merger of 4
and 13 Sponsored REITs, respectively. Prior to their acquisition, FSP Corp. held
a non-controlling interest with virtually no economic benefits or risks in these
REITs.


                                       19
<PAGE>

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

      The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report. Historical
results and percentage relationships set forth in the consolidated financial
statements, including trends which might appear, should not be taken as
necessarily indicative of future operations. The following discussion and other
parts of this Annual Report on Form 10-K may also contain forward-looking
statements based on current judgments and current knowledge of management, which
are subject to certain risks, trends and uncertainties that could cause actual
results to differ materially from those indicated in such forward-looking
statements. Accordingly, readers are cautioned not to place undue reliance on
forward-looking statements. Investors are cautioned that our forward-looking
statements involve risks and uncertainty, including without limitation changes
in economic conditions in the markets in which we own properties, changes in the
demand by investors for investment in Sponsored REITs, risks of a lessening of
demand for the types of real estate owned by us, changes in government
regulations, and expenditures that cannot be anticipated such as utility rate
and usage increases, unanticipated repairs, additional staffing, insurance
increases and real estate tax valuation reassessments. See "Risk Factors" in
Item 1A. Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We will not update any of the
forward-looking statements after the date this Annual Report on Form 10-K is
filed to conform them to actual results or to changes in our expectations that
occur after such date, other than as required by law.

Overview

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

      The main factor that affects our real estate operations is the broad
economic market conditions in the United States. These market conditions affect
the occupancy levels and the rent levels on both a national and local level. We
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.

Trends and Uncertainties

      Real Estate Operations

      Our property operations during the fourth quarter of 2005 produced profit
results that were generally in line with management's expectations. We believed
2005 would be another difficult year for real estate rental operations
especially in the office sector, which is our primary property type. In fact,
2005 showed some modest improvement in occupancy, but little rental rate
movement in most real estate markets around the country. In most office markets,
occupancy rates increased 1%-1.5% and sublease inventory continued to decrease.
The general economy did continue to improve in 2005, and management believes
that 2006 may continue the positive trend and show legitimate broad-based
improvement in real estate operating fundamentals, particularly in the
long-suffering office property sector, our predominant property type.
Nevertheless, assuming a normal cyclical continuation of the current U.S.
economic expansion, it is likely to take at least two more years for office
occupancies and rents to reach levels that were prevalent in 1999, 2000, and
2001.


                                       20
<PAGE>

      The portfolio was approximately 92% leased at December 31, 2005. About 17%
of the square footage in our non-residential real estate portfolio has leases
that are scheduled to expire in 2006. We cannot predict if these tenants will
renew their leases or what the terms and conditions of the lease renewals will
be, although we expect to renew or sign new leases at current market rates for
the locations in which the buildings are located, which in most cases will be
below the expiring rental rates.

      The apartment property was 97% leased at December 31, 2005.

      Discontinued Operations

      During the year ended December 31, 2005, the Company disposed of three
apartment properties and three commercial properties. The three apartment
properties are Essex House and Gael Apartments, which are located in Houston,
Texas; and Mansions in the Park, which is located in Baton Rouge, Louisiana. The
three commercial properties are Blue Ravine, which is located in Folsom,
California; Gateway Crossing, which is located in Columbia, Maryland; and
Telecom Business Center, which is located in San Diego, California. An agreement
was also reached to sell an office property in Santa Clara, California, which is
expected to be sold by December 2006 at a gain. Accordingly, as of December 31,
2005 the Santa Clara property is held for sale and is classified as such on our
financial statements. During the year ended December 31, 2003, the Company
disposed of two apartment properties, Weslayan Oaks and Reata, both located in
Houston, Texas. The operating results for these real estate assets have been
reflected as discontinued operations in the financial statements for the years
ended December 31, 2005, 2004 and 2003.

      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.

      Investment Banking/Investment Services

      Unlike our real estate operations business, which provides a rental
revenue stream which is ongoing and recurring in nature, our investment
banking/investment services business is transactional in nature. Both the number
of Sponsored REIT syndications completed and the amount of equity raised in 2005
were below our expectations. Future business in this area is unpredictable.

      Our property acquisition executives continue to be concerned about high
valuation levels for prime commercial investment real estate. It appears that a
combination of factors, including low interest rates, a growing general economy
and substantially increased capital allocation to real estate assets is
increasing prices on many properties we would have an interest in acquiring.
This upward pressure on prices is causing capitalization rates to fall and
prices per square foot to rise. Specifically, our acquisition executives were
not able to identify enough property during 2005 at a price acceptable under our
investment criteria to grow our overall investment banking/investment services
business. Lower revenues from this business reduced net income and Adjusted
Funds From Operations (AFFO). As 2006 begins, valuation levels for many top
quality investment properties remain at historically high levels, with
significant competition from a variety of capital sources to acquire them. We
continue to rely solely on our in-house investment executives to access
interested investors who have capital they can afford to place in an illiquid
position for an indefinite period of time (i.e., invest in a Sponsored REIT). We
also continue to evaluate whether our in-house sales force is capable, either
through our existing client base or through new clients, of raising sufficient
investment capital in Sponsored REITs to achieve future performance objectives.

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.


                                       21
<PAGE>

      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:

      o     allocation of purchase prices between various asset categories and
            the related impact on our recognition of rental income and
            depreciation and amortization expense;
      o     assessment of the carrying values and impairments of long lived
            assets;
      o     classification of leases; and
      o     revenue recognition in the syndication of Sponsored REITs.

      Allocation of Purchase Price

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

      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. The allocated cost of land is not
depreciated. The capitalized above-market lease values (included in acquired
real estate leases in our consolidated balance sheets) are amortized as a
reduction to rental income over the remaining non-cancelable terms of the
respective leases. The value of above or below-market leases is amortized over
the remaining non-cancelable periods of the respective leases. 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.


                                       22
<PAGE>

      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.

      Lease Classification

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

      Revenue Recognition

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

      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.


                                       23
<PAGE>

      We have acquired a preferred stock interest in two Sponsored REITs. As a
result of our common stock interest and our preferred stock interest in these
two 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 are
recognized as income. We also agreed to vote our 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.

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

Recent Accounting Standards

      In December 2003, the FASB issued FASB Interpretation No. 46(R), which
replaces FASB Interpretation No. 46, Consolidation of Variable Interest
Entities, clarifies the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support. The objectives of the interpretations
are to provide guidance on how to identify a variable interest entity ("VIE")
and determine when the assets, liabilities, non-controlling interests, and
results of operations of a VIE need to be included in a company's consolidated
financial statements. A VIE exists when either the total equity investment at
risk is not sufficient to permit the entity to finance its activities by itself,
or the equity investors lack one of three characteristics associated with owning
a controlling financial interest. Application of this guidance was effective on
March 14, 2004. The adoption of this standard had no impact on the Company's
financial position, operations or cash flow.

      In December 2004, the FASB issued SFAS No. 153 "Exchanges of Nonmonetary
Assets an amendment of APB Opinion No. 29". This statement was effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. This Statement addresses the measurement of exchanges of nonmonetary
assets. It eliminates the exception from fair value measurement for nonmonetary
exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29,
Accounting for Nonmonetary Transactions, and replaces it with an exception for
exchanges that do not have commercial substance. This Statement specifies that a
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. The
adoption of this standard had no impact on our financial position, results of
operations or cash flows.

Results of Operations

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

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


                                       24
<PAGE>

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

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

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


                                       25
<PAGE>

      The following table shows each segment for the years ended December 31,
2005 and 2004.

<TABLE>
<CAPTION>
(in thousands)

Real Estate Operations                                             2005          2004          Change
                                                                 --------      --------       --------
<S>                                                              <C>           <C>            <C>
Revenues:
  Rental income                                                  $ 75,896      $ 59,180       $ 16,716
  Transaction fees                                                  8,062        11,976         (3,914)
  Management fees and interest income from loans                    1,807           581          1,226
        Other                                                          10             3              7
                                                                 -------------------------------------
                                                                   85,775        71,740         14,035
                                                                 -------------------------------------
Expenses:
  Real estate operating expenses                                   17,350        12,094          5,256
  Real estate taxes and insurance                                  10,105         7,626          2,479
  Depreciation and amortization                                    15,795        10,820          4,975
  Interest                                                          2,997         1,527          1,470
                                                                 -------------------------------------
                                                                   46,247        32,067         14,180
                                                                 -------------------------------------
Other items:
  Interest income                                                   1,552           817            735
  Equity in earnings of non-consolidated REIT's                     1,397           620            777
                                                                 -------------------------------------
                                                                    2,949         1,437          1,512
                                                                 -------------------------------------

Contribution from real estate                                      42,477        41,110          1,367
                                                                 -------------------------------------

Investment Banking/Investment Services
Revenues:
  Syndication fees                                                  9,268        13,579         (4,311)
  Transaction fees                                                  1,350         2,117           (767)
        Other                                                          --            --             --
                                                                 -------------------------------------
                                                                   10,618        15,696         (5,078)
                                                                 -------------------------------------
Expenses:
  Commissions                                                       5,005         6,959         (1,954)
  Depreciation and amortization                                       132           147            (15)
                                                                 -------------------------------------
                                                                    5,137         7,106         (1,969)
                                                                 -------------------------------------
Other items:
  Interest income                                                      36            46            (10)
  Taxes on income                                                    (422)       (1,725)         1,303
                                                                 -------------------------------------
                                                                     (386)       (1,679)         1,293
                                                                 -------------------------------------

Contribution from investment banking                                5,095         6,911         (1,816)
                                                                 -------------------------------------

Selling, general and administrative expenses                        7,452         5,687          1,765
                                                                 -------------------------------------

  Income from continuing operations                                40,120        42,334         (2,214)
  Discontinued operations, less applicable income tax:
    Income from discontinued operations                             4,503         5,429           (926)
    Gain on sale of properties                                     30,493            --         30,493
                                                                 -------------------------------------
 Net income                                                      $ 75,116      $ 47,763       $ 27,353
                                                                 =====================================
</TABLE>


                                       26
<PAGE>

Comparison of the year ended December 31, 2005 to the year ended
December 31, 2004

      The real estate segment includes operating results of properties held in
our real estate portfolio, commitment fee income earned on real estate loans and
development fees earned for services provided. During 2004 we operated 28
properties for the full year and there were no acquisitions, mergers or property
sales. During 2005 we increased the real estate portfolio by four properties
from a merger and two properties by acquisitions completed during the year. We
also sold six properties in the second half of 2005 and reached an agreement to
sell another property, which is expected to close in 2006. As of December 31,
2005 we operated 27 properties and had one property held for sale.

Acquisitions, Mergers and Dispositions:

      In February 2005 we acquired one commercial property in Colorado, on April
30, 2005 we completed the acquisition by merger of four Sponsored REITs, and in
July 2005 we acquired one commercial property in Indiana. The results of
operations for each of the acquired or merged properties are included in our
operating results as of their respective purchase date or the merger date of
April 30, 2005. Increases in rental revenues and expenses for the year ended
December 31, 2005 as compared to 2004 are primarily a result of these
acquisitions and the merger. The operating results of the six properties sold
and the property held for sale were classified as discontinued operations in our
financial statements for all periods presented.

Sales of Real Estate:

      The sales included the following. On July 13, 2005 we sold one vacant
office property in California, and on September 16 and September 19, 2005, we
sold a residential apartment building in Louisiana and sold by transfer of our
interest in our wholly-owned subsidiary that held the property, an office
property in Maryland. On September 29, 2005, we recorded a non-monetary exchange
gain of $339,000 from contribution of 2.9 acres of developable land in exchange
for 8.5 preferred shares (approximately 3.05%) of a Sponsored REIT, FSP Park Ten
Development Corp. On October 4 and October 5, 2005 we sold two residential
apartment buildings in Houston, Texas, and on December 8, 2005 we sold a
commercial property in San Diego, California. As of December 31, 2005, we
classified a property in Santa Clara, California as held-for-sale and expect
that property to be sold at a gain in December 2006.

Investment Banking:

      Our investment banking/investment services segment completed the
syndication of three Sponsored REITs with total gross proceeds of $138.8 million
compared to eight Sponsored REITs with total gross proceeds of $208.2 million in
2004. This decrease followed the trend noted in 2004 and was attributable to
continued difficulty in finding properties that met our investment criteria in
2005, as compared to 2004, and is discussed above in "Trends and Uncertainties -
Investment Banking/Investment Services." Revenues and expenses for investment
banking/investment services are directly related to the gross proceeds of these
syndications.

      Overview

      Total revenues increased $9.0 million, or 10.2%, to $96.4 million for the
year ended December 31, 2005, as compared to $87.4 million for the year ended
December 31, 2004. Total expenses were $58.8 million for the year ended December
31, 2005, an increase of $14.0 million, or 31.2%, compared to the year ended
December 31, 2004. Each segment is discussed below.

      Real Estate Operations

      Contribution from the real estate segment was $42.5 million for the year
ended December 31, 2005; an increase of $1.4 million, or 3.3%, compared to the
year ended December 31, 2004. The increase is primarily attributable to:

      o     An increase in real estate operating income of $9.0 million to $48.4
            million for the year ended December 31, 2005 compared to $39.4
            million for the comparable 2004 period. The increase primarily
            relates to the four properties, which we acquired by merger on April
            30, 2005, and two properties acquired in Colorado and Indiana that
            were described earlier. We define real estate operating income as
            rental revenues less real estate operating expenses, real estate
            taxes and insurance;


                                       27
<PAGE>

      o     An increase in management fees and interest income of $1.2 million
            to $1.8 million for the year ended December 31, 2005 compared to
            $0.6 million for the year ended December 31, 2004. The increase is
            primarily attributable to interest income from Sponsored REITs,
            which had higher interest rates charged and larger loan balances
            outstanding for a longer period of time during the comparable
            periods, and, to a lesser extent increases to management fees earned
            from Sponsored REITs;

      o     An increase from equity in income from non-consolidated REITs of
            $0.8 million as a result of Sponsored REITs in syndication with
            greater net operating income during the year ended December 31, 2005
            compared to the year ended December 31, 2004; and

      o     An increase in interest income of $0.7 million during the year ended
            December 31, 2005, which was primarily a result of larger cash
            balances and higher interest rates on cash and cash equivalents
            during the year ended December 31, 2005 compared to the year ended
            December 31, 2004;

      These increases were partially offset by:

      o     A decrease in transaction fee revenues of $3.9 million to $8.1
            million for the year ended December 31, 2005 as compared to $12.0
            million for the year ended December 31, 2004. The decrease was
            principally caused by the year-over-year decrease in gross
            syndication proceeds;

      o     An increase in depreciation and amortization of $5.0 million to
            $15.8 million for year ended December 31, 2005 compared to $10.8
            million for the year ended December 31, 2004, which relates to the
            four properties owned by the Sponsored REITs, that we acquired on
            April 30 2005, and two properties acquired in Colorado and Indiana;
            and

      o     An increase in interest expense of $1.5 million resulting from
            higher interest rates and larger loan balances outstanding for
            assets acquired during the year ended December 31, 2005 compared to
            the year ended December 31, 2004.

      Investment Banking/Investment Services

      Contribution of the investment banking/investment services segment was
$5.1 million for the year ended December 31, 2005; a decrease of $1.8 million,
or 26.3%, compared to the year ended December 31, 2004. The decrease was
primarily attributable to:

            o     A decrease in syndication fee revenues of $5.1 million, which
                  was primarily attributable to the continued difficulty in
                  finding properties that met our investment criteria in 2005,
                  as compared to 2004, discussed above in "Trends and
                  Uncertainties - Investment Banking/Investment Services".

      This decrease was partially offset by:

            o     A decrease in commission expense of $2.0 million, which
                  relates to the decrease in gross syndication proceeds;

            o     A decrease in tax expense of $1.3 million to $0.4 million for
                  the year ended December 31, 2005 as compared to $1.7 million
                  for the year ended December 31, 2004 primarily due to a lower
                  taxable income from the investment banking and services
                  business in 2005 compared to 2004. During 2005 we had an
                  effective tax rate of 40.3% compared to 38.7% for 2004. The
                  effective rate in 2004 was lower as a result of an adjustment
                  to the statutory rate to better reflect the benefit of lower
                  tax rates at lower levels of taxable income. We expect an
                  effective tax rate of approximately 40.3% for our taxable REIT
                  subsidiary in the future; and


                                       28
<PAGE>

            o     A decrease in interest income of $10,000 to $36,000 for the
                  year ended December 31, 2005 compared to 2004, primarily as a
                  result of lower cash balances and lower gross syndication
                  proceeds in 2005 compared to 2004.

      Selling, general and administrative expenses

      Selling, general and administrative expenses increased $1.8 million to
$7.5 million for the year ended December 31, 2005 compared to $5.7 million for
the year ended December 31, 2004, which increase was primarily a result of
compensation and other costs relating to monitoring and managing a larger
portfolio of REITs and expenses related to having a publicly traded stock, which
commenced on June 2, 2005. These increases were partially offset by decreases to
professional fees related to an investor related project completed in 2004. We
had approximately 39 and 37 employees, respectively as of December 31, 2005 and
2004 at our headquarters in Wakefield, Massachusetts.

      Income from continuing operations

      Contribution from both segments, net of selling, general and
administrative expenses for 2005 decreased $2.2 million to $40.1 million
compared to $42.3 million for the reasons discussed above.

      Discontinued operations and gain on sale of properties

      During June 2005 an agreement was reached to sell a property called Blue
Ravine, which is located in Folsom, California. The sale was completed on July
13, 2005 and resulted in a loss of approximately $1.1 million. The property had
been vacant since mid-2003. The offer to purchase the property was compared to
estimated future costs to convert the property from a single tenant to a
multi-tenant facility and lease the building. The Company concluded that
accepting the offer was the more prudent decision because the management time
and oversight of such a conversion outweighed the potential future benefit.

      On September 29, 2005, we recorded a non-monetary exchange gain of $0.3
million from contribution of 2.9 acres of developable land we contributed in
exchange for 8.5 preferred shares (approximately 3.05%) of a Sponsored REIT, FSP
Park Ten Development Corp. ("Park Ten Development"). The appraised value of the
land and market value of the stock acquired were used to estimate the sale
price, and the gain was recorded net of the Company's interest in Park Ten
Development. Also during September 2005 the Company sold a residential property
called Mansions in the Park, which is located in Baton Rouge, Louisiana, and
sold by transfer of our interest in a wholly-owned subsidiary that held an
office property called Gateway Crossing, which is located in Columbia, Maryland
at gains, which aggregated approximately $14.1 million.

      During October 2005 we sold two residential properties called Essex House
and Gael Apartments, which are located adjacent to each other in Houston, Texas;
and in December 2005 we sold an office property called Telecom Business Center
in San Diego, California. All of these properties were sold at gains, which
aggregated approximately $17.2 million.

      During December 2005 we classified one commercial property, which is
located in Santa Clara, California as held for sale. We have an agreement to
sell the property at a gain, which is expected to close by December 2006.

      Accordingly, as of December 31, 2005, each of the six properties sold and
the property classified as held for sale are classified as discontinued
operations on our financial statements. Income from discontinued operations of
the seven properties was approximately $4.5 million and $5.4 million for the
years ended December 31, 2005 and 2004, respectively. For the year ended
December 31, 2005 we reported $30.5 million as net gains on sale of properties.
During 2004 there were no assets sold.

Net Income

      The resulting net income for the year ending December 31, 2005 was $75.1
million compared to net income of $47.8 million for the year ended December 31,
2004.


                                       29
<PAGE>

The following table shows each segment for the years ended December 31, 2004 and
2003.

<TABLE>
<CAPTION>
(in thousands)

Real Estate Operations                                       2004         2003       Change
                                                             ----         ----       ------
<S>                                                      <C>          <C>          <C>
Revenues:
  Rental income                                          $ 59,180     $ 38,105     $ 21,075
  Transaction fees                                         11,976       13,328       (1,352)
  Management fees and interest income from loans              581          961         (380)
        Other                                                   3           20          (17)
                                                         ----------------------------------
                                                           71,740       52,414       19,326
                                                         ----------------------------------
Expenses:
  Real estate operating expenses                           12,094        8,135        3,959
  Real estate taxes and insurance                           7,626        4,712        2,914
  Depreciation and amortization                            10,820        6,877        3,943
  Interest                                                  1,527        1,036          491
                                                         ----------------------------------
                                                           32,067       20,760       11,307
                                                         ----------------------------------
Other items:
  Interest income                                             817          288          529
  Equity in earnings of non-consolidated REIT's               620          753         (133)
                                                         ----------------------------------
                                                            1,437        1,041          396
                                                         ----------------------------------

Contribution from real estate                              41,110       32,695        8,415
                                                         ----------------------------------

Investment Banking/Investment Services
Revenues:
  Syndication fees                                         13,579       14,631       (1,052)
  Transaction fees                                          2,117        1,417          700
        Other                                                  --            2           (2)
                                                         ----------------------------------
                                                           15,696       16,050         (354)
                                                         ----------------------------------
Expenses:
  Commissions                                               6,959        7,291         (332)
  Depreciation and amortization                               147           56           91
                                                         ----------------------------------
                                                            7,106        7,347         (241)
                                                         ----------------------------------
Other items:
  Interest income                                              46           75          (29)
  Taxes on income                                          (1,725)      (1,700)         (25)
                                                         ----------------------------------
                                                           (1,679)      (1,625)         (54)
                                                         ----------------------------------

Contribution from investment banking                        6,911        7,078         (167)
                                                         ----------------------------------

Selling, general and administrative expenses                5,687        5,711          (24)
                                                         ----------------------------------

  Income from continuing operations                        42,334       34,062        8,272
  Discontinued operations, less applicable income tax:
    Income from discontinued operations                     5,429        5,956         (527)
    Gain on sale of properties                                 --        6,362       (6,362)
                                                         ----------------------------------
 Net income                                              $ 47,763     $ 46,380     $  1,383
                                                         ==================================
</TABLE>


                                       30
<PAGE>

Comparison of the year ended December 31, 2004 to the year ended
December 31, 2003

      The real estate segment included 28 owned properties for the full year of
2004. At the beginning of 2003 we owned 15 properties. On June 1, 2003, we
completed the acquisition by merger of 13 Sponsored REITs, which added 13
properties to our portfolio. Increases in rental revenues and expenses are
primarily a result of those mergers. During 2005 we sold six properties and
reached an agreement to sell another property, which is expected to close in
2006. During 2003 we sold two properties. Accordingly, as of December 31, 2004
and 2003, respectively, each of the properties sold in 2005 and 2003 and the
property held for sale in 2005 have been reclassified as discontinued operations
in our financial statements.

      Our investment banking/investment services segment syndicated eight
Sponsored REITs with total gross proceeds of $208.2 million in 2004 compared to
five Sponsored REITs syndicated in 2003 with total gross proceeds of $231.8
million, a decrease of $23.6 million or 10.2%. This decrease was attributable to
the increased difficulty in finding properties that met our investment criteria
in 2004, as compared to 2003. Revenues and expenses for investment
banking/investment services are directly related to the gross proceeds of these
syndications.

      Total revenues increased $18.9 million, or 27.7%, to $87.4 million for the
year ended December 31, 2004, as compared to $68.5 million for the year ended
December 31, 2003. Total expenses were $44.9 million for the year ended December
31, 2004; an increase of $11.0 million, or 32.7%, compared to the year ended
December 31, 2003. Each segment is discussed below.

      Real Estate Operations

      Contribution from the real estate segment was $41.1 million for the year
ended December 31, 2004, an increase of $8.4 million, or 25.7%, compared to the
year ended December 31, 2003. The increase is primarily attributable to:

      o     An increase in real estate operating income of $14.2 million to
            $39.5 million for the year ended December 31, 2004 compared to $25.3
            million for the comparable 2003 period. We define real estate
            operating income as rental revenues less real estate operating
            expenses, real estate taxes and insurance. The increase primarily
            relates to the merger of 13 Sponsored REITs completed on June 1,
            2003, which added 13 properties to the real estate portfolio. The
            benefit of owning the merged properties for the full year was
            partially offset by a slight decrease in occupancy in the portfolio
            prior to the merger; and

      o     An increase to interest income of $0.5 million during the year ended
            December 31, 2004, which was primarily a result of larger cash
            balances, somewhat offset by lower general interest rates, on cash
            and cash equivalents during the year ended December 31, 2004
            compared to the year ended December 31, 2003;

These increases were partially offset by:

      o     A decrease in transaction fee revenues of $1.3 million to $12.0
            million for the year ended December 31, 2004 as compared to $13.3
            million for the year ended December 31, 2003. The decrease was
            principally caused by the year over year decrease in gross
            syndication proceeds;

      o     A decrease in management fees and interest income from loans of $0.4
            million to $0.6 million for the year ended December 31, 2004 from
            $1.0 million for the year ended December 31, 2003. The decrease was
            primarily a result of the merger of 13 Sponsored REITs completed on
            June 1, 2003, that reduced management fee income compared to 2003;

      o     An increase in depreciation and amortization of $3.9 million to
            $10.8 million for year ended December 31, 2004 compared to $6.9
            million for the year ended December 31, 2003, which primarily
            relates to the merger of 13 Sponsored REITs completed on June 1,
            2003, that added 13 properties to the real estate portfolio;

      o     An increase in interest expense of $0.5 million resulting from
            higher loan balances outstanding for longer periods of time for
            syndications compared to the year ended December 31, 2003; and


                                       31
<PAGE>

      o     A decrease in equity from non-consolidated REITs, which was
            principally caused by the impact of EITF 98-13, where equity in
            losses or dividends received in excess of investment in
            non-consolidated REITs of $0.2 million were deferred from revenue
            recognition and recorded as a reduction in the carrying value of
            assets held for syndication from a Sponsored REIT.

      Investment Banking/Investment Services

      Contribution of the investment banking and services segment was $6.9
million for the year ended December 31, 2004, a decrease of $0.2 million, or
2.4%, compared to the year ended December 31, 2003. The decrease was primarily
attributable to:

      o     A decrease in syndication fee revenues of $1.0 million, which was
            primarily attributable to the increased difficulty in finding
            properties that met our investment criteria in 2004, as compared to
            2003. This decrease was partially offset by an increase in
            transaction fee revenue of $0.7 million. The increase primarily
            related to transaction fee revenue recognized from a 2003
            syndication, which closed in early 2004;

      o     A decrease in commission expense of $0.3 million, which relates to
            the decrease in gross syndication proceeds compared to 2003;

      o     An increase in depreciation expense of $0.1 million related to
            capital expenditures in our Wakefield headquarters;

      o     A decrease in interest income of $29,000 to $46,000 for the year
            ended December 31, 2004 compared to 2003, primarily as a result of
            decreases in general interest rates and lower gross syndication
            proceeds in 2004 compared to 2003; and

      o     An increase in taxes on income of $25,000 to $1.7 million for the
            year ended December 31, 2004 at an effective tax rate of 38.7%,
            compared to 2003, during which our effective tax rate was 41.2%. The
            effective rate in 2004 was lower as a result of an adjustment to the
            statutory rate to better reflect the benefit of lower tax rates at
            lower levels of taxable income. We expect an effective tax rate of
            approximately 40.3% for our taxable REIT subsidiary in the future.

      Selling, general and administrative expenses

      Selling, general and administrative expenses did not change significantly
for the year ended December 31, 2004 compared to the year ended December 31,
2003. Increases arising from professional fees related to Sarbanes-Oxley
compliance and additional costs to monitor and manage a larger portfolio of
REITs were offset by decreases related primarily to a reduction in bonus
compensation. We had approximately 37 employees as of December 31, 2004 at our
headquarters in Wakefield compared to 35 employees as of December 31, 2003.

      Income from continuing operations

      Contribution from both segments, net of selling, general and
administrative expenses for the year ended December 31, 2004 increased $8.3
million to $42.3 million compared to $34.0 million for the reasons discussed
above.

      Discontinued operations and gain on sale of properties

      As described in the comparison of the year ended December 31, 2005 to the
year ended December 31, 2004, six properties were sold in 2005 and one property
was held for sale as of December 31, 2005. During 2004 there were no assets
sold; for the year ended December 31, 2003, two properties were sold resulting
in a gain of $6.4 million. Accordingly, the operations of properties sold or
held for sale are classified as discontinued operations on our financial
statements for all periods presented. Income from discontinued operations was
approximately $5.4 million and $5.9 million for the years ended December 31,
2004 and 2003, respectively.


                                       32
<PAGE>

      Net Income

      The resulting net income for the year ending December 31, 2004 was $47.8
million compared to net income of $46.4 million for the year ended December 31,
2003.

Liquidity and Capital Resources

      Cash and cash equivalents were $69.7 million and $52.8 million at December
31, 2005 and December 31, 2004, respectively. This increase of $16.9 million is
attributable to $65.2 million provided by operating activities, and $92.5
million used for investing activities, less $140.8 million used for financing
activities. Presentation of our consolidated statements of cash flows combines
cash flows from continuing operations with those of discontinued operations.
Where significant, cash flows from discontinued operations are discussed below.
Management believes that existing cash, cash anticipated to be generated
internally by operations, cash anticipated to be generated by the sale of
preferred stock in future Sponsored REITs and our line of credit will be
sufficient to meet working capital requirements and anticipated capital
expenditures for at least the next 12 months.

      Operating Activities

      The cash provided by our operating activities of $65.2 million, which
includes $6.5 million from the discontinued operations from the sale of real
estate assets, is primarily attributable to net income of $75.1 million, less
the gain on sale of real estate assets of $30.5 million and payments of deferred
leasing commissions of $1.6 million made during 2005; plus the add-back of $22.2
million of non-cash depreciation and amortization.

      Investing Activities

      Our cash provided by investing activities of $92.5 million is attributable
to the proceeds from sale of properties of $112 million; plus the sale of assets
held for syndication of $59.5 million; plus cash acquired through our merger
transaction that was completed on April 30, 2005 of $10.6 million; less uses of
$88.5 million for acquisitions and additions to real estate investments and
office equipment, which includes $0.6 million in additions made to properties
sold during 2005; plus costs paid related to the merger of $0.4 million; less
changes in deposits on real estate assets of $0.7 million.

      Financing Activities

      Our cash used by financing activities of $140.8 million is primarily
attributable to $67.2 million of distributions to shareholders; $14.0 million
for the purchase of treasury shares; and $59.6 million for net repayments on our
line of credit and deferred financing costs from our amended and restated line
of credit. Net repayments made during 2005 were from investment banking proceeds
on assets held for syndication and proceeds from sales of properties, which were
partially offset by borrowings for interim financing of property acquisitions.

      Line of Credit

      We have a revolving line of credit agreement with a group of banks
providing for borrowings of up to $150 million. During August 2005 the line of
credit was amended and restated, and the maturity date was extended to August
18, 2008. Borrowings under the line of credit bear interest at either the bank's
prime rate (7.25% at December 31, 2005) or a rate equal to LIBOR plus 125 basis
points (5.64% at December 31, 2005). There were no borrowings outstanding under
the line of credit at December 31, 2005. We are in compliance with all bank
covenants required by the line of credit.


                                       33
<PAGE>

      Contingencies

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

      Assets Held for Syndication

      As of December 31, 2005 there were no assets held for syndication. On
August 23, 2005 we completed the syndication of FSP Galleria North Corp., on
September 28, 2005 we completed the syndication of FSP Park Ten Development
Corp, and on December 22, 2005 we completed the syndication of FSP Energy Tower
I Corp.

      As of December 31, 2004 we had two assets held for syndication. One was
FSP 505 Waterford Corp., which was completed in January 2005, and the other was
FSP Galleria North Corp.

      Assets Held for Sale

      During 2005 an agreement was reached to sell a commercial property in
Santa Clara, California that is expected to be sold by December 2006 and is
anticipated to be sold at a gain. Accordingly, as of December 31, 2005 the
property is classified as held for sale on the balance sheet and its cost basis.

      Related Party Transactions

      During 2005, we completed the syndication of FSP 505 Waterford Corp., FSP
Galleria North Corp., FSP Park Ten Development Corp., and FSP Energy Tower I
Corp. As part of the syndication of FSP Park Ten Development Corp., we
contributed land from the Company in exchange for 8.5 shares of Preferred Stock,
representing approximately a 3% interest in the entity. We did not enter into
any other significant transactions with related parties during 2005. For a
discussion of transactions between us and related parties during 2005, see
Footnote No. 5 "Related Party Transactions" to the Consolidated Financial
Statements included in this Annual Report on Form 10-K for the year ended
December 31, 2005.

      Other Considerations

      We generally pay the ordinary annual operating expenses of our properties
from the rental revenue generated by the properties. For the years ended
December 31, 2005 and 2004 the rental income exceeded the expenses for each
individual property, with the exception of a property called Blue Ravine for
both 2005 and 2004; and Lyberty Way for 2005. Blue Ravine was sold on July 13,
2005, which had been vacant since June 2003 and had operating expenses of
approximately $103,000 and $156,000 for the years ended December 31, 2005 and
2004. The single tenant lease at the Lyberty Way, a property located in
Westford, Massachusetts, expired in early 2005. Operating expenses at Lyberty
Way exceeded revenue by approximately $209,000 for the year ended December 31,
2005. We have not re-let this property and expect that it will not produce
revenue to cover its expenses in the first quarter of 2006.

      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 2015. Approximate future
minimum rental income from non-cancelable operating leases as of December 31,
2005 is:
                                            Amount
                          Date          (in thousands)
                          ----          --------------

                          2006            $  64,239
                          2007               52,220
                          2008               48,189
                          2009               41,498
                          2010               21,508
                        2011-2015            27,149


                                       34
<PAGE>

Contractual Obligations

The following table sets forth our contractual obligations as of December 31,
2005.

--------------------------------------------------------------------------------
  Contractual                          Payment due by period
  Obligations                              (in thousands)
                    ------------------------------------------------------------
                    Total    2006    2007   2008     2009     2010    After 2010
--------------------------------------------------------------------------------
Line of Credit      $ --    $ --    $ --    $ --    $  --    $  --    $  --
--------------------------------------------------------------------------------
Operating Leases     792     302     308     182       --       --       --
--------------------------------------------------------------------------------
Total               $792    $302    $308    $182    $  --    $  --    $  --
--------------------------------------------------------------------------------

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

Off-Balance Sheet Arrangements

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 solely by FSP Corp.
Generally the preferred stock is owned by unaffiliated investors, however, on
two occasions we acquired an interest in preferred shares of two Sponsored
REITs. In addition, two non-management directors 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 of the
preferred stock we own, the Company does not share in any of a 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, the Company shares in a Sponsored REIT's earnings (and
related dividends) to the extent of its 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 in any proceeds remaining after the preferred stockholders have
recovered their investment. Our percentage interest in each Sponsored REIT is
less than 0.1%. The affirmative vote of the holders of a majority of the
Sponsored REIT's preferred stockholders is required for any actions involving
merger, sale of property, amendment to charter or issuance of additional capital
stock. In addition, all of the Sponsored REITs allow the holders of more than
50% of the outstanding preferred shares to remove (without cause) and replace
one or more members of that Sponsored REIT's board of directors.

      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 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.


                                       35
<PAGE>

      We have acquired a preferred stock interest in two Sponsored REITs. As a
result of our common stock interest and our preferred stock interest in these
two 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 are
recognized as income. We also agreed to vote our 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. These investments are
included in our financial statements.

      At December 31, 2005, we held a common stock interest in 13 Sponsored
REITs, all of which were fully syndicated and from which we no longer share
economic benefit or risk. At December 31, 2004, we held a common stock interest
in 15 Sponsored REITs, of which 13 were fully syndicated and we no longer shared
economic benefit or risk. The value of the two entities which were not fully
syndicated was approximately $59.2 million and was shown on the consolidated
balance sheets as assets held for syndication. At December 31, 2003 we held a
common stock interest in eight Sponsored REITs, of which seven were fully
syndicated. The value of the entity which was not fully syndicated was
approximately $4.1 million and was shown on the consolidated balance sheets as
assets held for syndication.

      The table below shows the Company's income and expenses from Sponsored
REITs. Management fees of $1,000, $102,000 and $5,000 for the years ended
December 31, 2005, 2004 and 2003, respectively; and interest expense related to
the Company's mortgage on properties is eliminated in consolidation.

                                                 Year Ended December 31,
(in thousands)                               2005         2004        2003
                                             ----         ----        ----

Operating Data:
Rental revenues                             $ 146        $3,772       $552
Operating and maintenance
    expenses                                   63         1,439        177
Depreciation and amortization                  36           584        133
Interest expense                               64           922        163
Interest income                                 1            25         --
                                           -------------------------------
                                            $ (16)       $  852       $ 79
                                           ===============================

      During the years ended December 31, 2005, 2004 and 2003, the Company
recorded equity in earnings of Sponsored REITs following the commencement of
syndication of $1,149,000, $390,000 and $753,000, respectively.

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

      We were not a party to any derivative financial instruments at or during
the year ended December 31, 2005.

      We borrow from time-to-time on our line of credit. These borrowings bear
interest at the bank's base rate (7.25% at December 31, 2005) or at LIBOR plus
125 basis points (5.64 at December 31, 2005), as elected by us when requesting
funds as defined. As of December 31, 2005 there were no amounts outstanding
under the line of credit. We have used funds drawn on our line of credit for the
purpose of making interim mortgage loans to Sponsored REITs and for interim
financing of acquisitions. Generally interim mortgage loans bear interest at the
same variable rate payable by us under our line of credit. We therefore believe
that we have mitigated our interest rate risk with respect to our borrowings for
interim mortgage loans. Historically we have satisfied obligations arising from
interim financing of acquisitions through cash or sale of properties in our
portfolio, so we believe that we can mitigate interest rate risk with respect to
borrowings for interim financing of acquisitions as well.


                                       36
<PAGE>

Item 8. Financial Statements and Supplementary Data.

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

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

      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, 2005. The term "disclosure controls and
procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
means controls and other procedures of a company that are designed to ensure
that information required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company's management, including its
principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure. Management recognizes that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on the evaluation of our disclosure
controls and procedures as of December 31, 2005, 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 Rule 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:

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

o     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

o     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.


                                       37
<PAGE>

      The Company's management assessed the effectiveness of the Company's
internal control over financial reporting as of December 31, 2005. 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,
2005, the Company's internal control over financial reporting is effective based
on those criteria.

      Management's assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2005 has been audited by Ernst & Young
LLP, an independent registered public accounting firm, as stated in their report
which is included elsewhere herein.

Changes in Internal Control Over Financial Reporting

      No change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
quarter ended December 31, 2005 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

      On February 23, 2006, the Board of Directors of FSP Corp. approved an
amended form of employee retention agreement, which we will refer to as the
Amended Retention Agreement, to reflect changes in the treatment of persons who
are both an Investment Executive and an Executive Vice President of FSP Corp.
The original form of retention agreement was previously filed as an exhibit to
our Current Report on Form 8-K filed with the Securities and Exchange Commission
on February 8, 2006.

      Provided that an Investment Executive/Executive Vice President (as defined
in the Amended Retention Agreement) is an employee of our subsidiary, FSP
Investments, on the closing date of a transaction constituting a Change in
Control (as defined in the Amended Retention Agreement), FSP Investments will
pay any such Investment Executive/Executive Vice President a lump sum in an
amount equal to the average of the lump sum payments made by FSP Investments to
its Chief Financial Officer and Chief Operating Officer, in each case, pursuant
to the retention agreement between such employee and FSP Investments.

      The foregoing description of the Amended Retention Agreement does not
purport to be complete and is qualified in its entirety by reference to the full
text of the Amended Retention Agreement, which is filed with this Form 10-K as
Exhibit 10.5 and incorporated herein by reference.


                                       38
<PAGE>

PART III

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

Item 10. Directors and Executive Officers of the Registrant.

      The response to this item is contained in part under the caption "Item 4A.
Directors and Executive Officers of the Registrant" in Part I hereof and the
remainder is contained in the Proxy Statement under the captions "Election of
Directors" and "Section 16(a) Beneficial 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
www.franklinstreetproperties.com. To the extent permitted by applicable rules of
the American Stock Exchange, 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," "Compensation of Directors" and "Compensation
Committee Interlocks and Insider Participation" and is incorporated herein by
reference.

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

      The response to this item is contained in the Proxy Statement under the
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.

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

Item 14. Principal Accounting Fees and Services.

      The response to this item is contained in the Proxy Statement under the
captions "Independent Auditor Fees and Other Matters" and "Pre-Approval Policy
and Procedure" and is incorporated herein by reference.


                                       39
<PAGE>

PART IV

Item 15. Exhibits and Financial Statement Schedules.

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

      1.    Financial Statements:

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

      2.    Financial Statement Schedule:

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

      3.    Exhibits:

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


                                       40
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf as of February 24, 2006 by the undersigned, thereunto duly
authorized.

                               FRANKLIN STREET PROPERTIES CORP.

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

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

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

/s/ George J. Carter         President, Chief Executive        February 24, 2006
--------------------------   Officer and Director (Principal
George J. Carter             Executive Officer)

/s/ Barbara J. Fournier      Vice President, Chief Operating   February 24, 2006
--------------------------   Officer, Treasurer, Secretary
Barbara J. Fournier          and Director

/s/ John G. Demeritt         Chief Financial Officer           February 24, 2006
--------------------------   (Principal Financial Officer
John G. Demeritt             and Principal Accounting
                             Officer)

/s/ Janet P. Notopoulos      Director, Vice President          February 24, 2006
--------------------------
Janet P. Notopoulos

/s/ Barry Silverstein        Director                          February 24, 2006
--------------------------
Barry Silverstein

/s/ Dennis J. McGillicuddy   Director                          February 24, 2006
--------------------------
Dennis J. McGillicuddy

/s/ John Burke               Director                          February 24, 2006
--------------------------
John Burke

/s/ Georgia Murray           Director                          February 24, 2006
--------------------------
Georgia Murray


                                       41
<PAGE>

                                  EXHIBIT INDEX

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

  3.1 (1)          Articles of Incorporation.

  3.2 (2)          Amended and Restated By-laws.

  10.1+ (3)        2002 Stock Incentive Plan of FSP Corp.

  10.2 (4)         Second Amended and Restated Loan Agreement dated as of
                   August 16, 2005 by and among Citizens Bank of Massachusetts,
                   Bank of America, N.A., Chevy Chase Bank, F.S.B., FSP Corp.
                   and certain affiliates of FSP Corp.

  10.3*+           Summary of executive compensation of named executive
                   officers.

  10.4+ (5)        Summary of compensation paid to non-employee directors.

  10.5*+           Form of Retention Agreement

  10.6+ (6)        Change in Control Discretionary Plan

  14.1 (7)         Code of 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.

  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 Form 8-A, filed April 5,
         2005 (File No. 001-32470).
   (2)   Incorporated by reference to FSP Corp.'s Current Report on Form 8-K,
         filed on October 28, 2005 (File No. 001-32470).
   (3)   Incorporated by reference to FSP Corp.'s Annual Report on Form 10-K,
         filed on March 29, 2002 (File No. 0-32615).
   (4)   Incorporated by reference to FSP Corp.'s Current Report on Form 8-K,
         filed on August 18, 2005 (File No. 001-32470).
   (5)   Incorporated by reference to FSP Corp.'s Annual Report on Form 10-K,
         filed on March 15, 2005 (File No. 0-32615).
   (6)   Incorporated by reference to FSP Corp.'s Current Report on Form 8-K,
         filed on February 8, 2006 (File No. 001-32470).
   (7)   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 Items 15(b) of Form 10-K.
   *     Filed herewith


                                       42
<PAGE>


                        Franklin Street Properties Corp.
                   Index to Consolidated Financial Statements


Reports of Independent Registered Public Accounting Firm                     F-2

Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 2005 and 2004                 F-4

Consolidated Statements of Income for each of the three years in the
period ended December 31, 2005                                               F-6

Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended December 31, 2005                            F-7

Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 2005                            F-8

Notes to the consolidated financial statements                               F-9

Financial Statement Schedule - Schedule III                                 F-28


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


                                      F-1
<PAGE>

             Report of Independent 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, 2005 and 2004, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 2005. Our audits also included the
financial statement schedule listed in the Index at Item 15(a)(2). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our 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, 2005 and 2004, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2005, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Franklin Street
Properties Corp.'s internal control over financial reporting as of December 31,
2005, based upon criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 21, 2006 expressed an unqualified opinion thereon.

                                           /s/ Ernst & Young LLP


Boston, Massachusetts
February 21, 2006


                                      F-2
<PAGE>

             Report of Independent Registered Public Accounting Firm

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

We have audited management's assessment, included in the accompanying
Management's Annual Report on Internal Control Over Financial Reporting, that
Franklin Street Properties Corp. maintained effective internal control over
financial reporting as of December 31, 2005 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. Our responsibility is to express an
opinion on management's assessment and an opinion on the effectiveness of 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, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, 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, management's assessment that Franklin Street Properties Corp.
maintained effective internal control over financial reporting as of December
31, 2005 is fairly stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Franklin Street Properties Corp. maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2005, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the 2005 consolidated financial
statements of Franklin Street Properties Corp. and our report dated February 21,
2006 expressed an unqualified opinion thereon.

                                           /s/ Ernst & Young LLP


Boston, Massachusetts
February 21, 2006


                                      F-3
<PAGE>

                        Franklin Street Properties Corp.
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                                ----------------------
(in thousands, except share and par value amounts)                                2005          2004
======================================================================================================

<S>                                                                             <C>           <C>
Assets:
Real estate assets:
   Land                                                                         $ 76,535      $ 50,355
   Buildings and improvements                                                    510,596       323,446
   Fixtures and equipment                                                            602           599
------------------------------------------------------------------------------------------------------
                                                                                 587,733       374,400
   Less accumulated depreciation                                                  35,136        23,227
------------------------------------------------------------------------------------------------------
Real estate assets, net                                                          552,597       351,173

Acquired real estate leases, less accumulated amortization of $10,947
   and $3,000, respectively                                                       30,952         6,464
Investment in non-consolidated REITs                                               5,006         4,270
Assets held for syndication, net                                                      --        59,246
Assets held for sale                                                               6,631        89,783
Cash and cash equivalents                                                         69,715        52,752
Restricted cash                                                                      461         1,033
Tenant rent receivables, less allowance for doubtful accounts
   of $350 and $350, respectively                                                  1,447           769
Straight-line rent receivable, less allowance for doubtful accounts
   of $163 and $460, respectively                                                  5,765         4,122
Prepaid expenses                                                                     805           901
Other assets                                                                       1,199         1,097
Office computers and furniture, net of accumulated
   depreciation of $729 and $597, respectively                                       311           374
Deferred leasing commissions, net of accumulated amortization
   of $890, and $689, respectively                                                 2,284         1,127
------------------------------------------------------------------------------------------------------

   Total assets                                                                 $677,173      $573,111
======================================================================================================
</TABLE>

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


                                      F-4
<PAGE>

                        Franklin Street Properties Corp.
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                -------------------------
(in thousands, except share and par value amounts)                                 2005             2004
==========================================================================================================

<S>                                                                             <C>             <C>
Liabilities and Stockholders' Equity:
Liabilities:
  Bank note payable                                                             $      --       $  59,439
  Accounts payable and accrued expenses                                            11,583           8,846
  Accrued compensation                                                              1,891             705
  Tenant security deposits                                                          1,293           1,033
Acquired unfavorable real estate leases, less accumulated amortization
  of $134                                                                             823              --
----------------------------------------------------------------------------------------------------------

Total liabilities                                                                  15,590          70,023
----------------------------------------------------------------------------------------------------------

Commitments and contingencies

Stockholders' Equity:
  Preferred stock, $.0001 par value, 20,000,000 shares
    authorized, none issued or outstanding                                             --              --
  Common stock, $.0001 par value, 180,000,000 shares authorized,
    59,794,608 and 49,630,338 shares issued and outstanding, respectively               6               5
  Additional paid-in capital                                                      677,397         512,813
  Treasury stock, 731,898 and 575 shares at cost, respectively                    (14,008)            (10)
  Earnings (distributions) in excess of accumulated earnings/distributions         (1,812)         (9,720)
----------------------------------------------------------------------------------------------------------

     Total stockholders' equity                                                   661,583         503,088
----------------------------------------------------------------------------------------------------------

     Total liabilities and stockholders' equity                                 $ 677,173       $ 573,111
==========================================================================================================
</TABLE>

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


                                      F-5
<PAGE>

                        Franklin Street Properties Corp.
                        Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                                         For the Year Ended
                                                                            December 31,
(in thousands, except per share amounts)                          2005          2004             2003
======================================================================================================

<S>                                                             <C>            <C>            <C>
Revenue:
   Rental                                                       $75,896        $59,180        $38,105
   Related party revenue:
     Syndication fees                                             9,268         13,579         14,631
     Transaction fees                                             9,412         14,093         14,745
     Management fees and interest income from loans               1,807            581            961
   Other                                                             10              3             22
------------------------------------------------------------------------------------------------------

       Total revenue                                             96,393         87,436         68,464
------------------------------------------------------------------------------------------------------
Expenses:
  Real estate operating expenses                                 17,350         12,094          8,135
  Real estate taxes and insurance                                10,105          7,626          4,712
  Depreciation and amortization                                  15,927         10,967          6,933
  Selling, general and administrative                             7,452          5,687          5,711
  Commissions                                                     5,005          6,959          7,291
  Interest                                                        2,997          1,527          1,036
------------------------------------------------------------------------------------------------------

        Total expenses                                           58,836         44,860         33,818
------------------------------------------------------------------------------------------------------

  Income before interest income, equity in earnings in
    non-consolidated REITs and taxes on income                   37,557         42,576         34,646
  Interest income                                                 1,588            863            363
  Equity in earnings in non-consolidated REITs                    1,397            620            753
------------------------------------------------------------------------------------------------------

  Income before taxes on income                                  40,542         44,059         35,762
  Taxes on income                                                   422          1,725          1,700
------------------------------------------------------------------------------------------------------

  Income from continuing operations                              40,120         42,334         34,062
  Income from discontinued operations                             4,503          5,429          5,956
------------------------------------------------------------------------------------------------------

  Income before gain on sale of properties                       44,623         47,763         40,018
  Gain on sale of properties, less applicable income tax         30,493             --          6,362
------------------------------------------------------------------------------------------------------

  Net income                                                    $75,116        $47,763        $46,380
======================================================================================================

Weighted average number of shares outstanding,
  basic and diluted                                              56,847         49,628         39,214
======================================================================================================

Earnings per share, basic and diluted, attributable to:
  Continuing operations                                         $  0.70        $  0.85        $  0.87
  Discontinued operations                                          0.08           0.11           0.15
  Gain on sale of properties, less applicable income tax           0.54             --           0.16
------------------------------------------------------------------------------------------------------

Net income per share, basic and diluted                         $  1.32        $  0.96        $  1.18
======================================================================================================
</TABLE>

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


                                      F-6
<PAGE>

                        Franklin Street Properties Corp.
                 Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                                                        Earnings/      Accumulated
                                                                                   (distributions)   Undistributed
                                                                                   in excess of       Net Realized
                                      Common Stock        Additional                  accumulated       Gain on          Total
                                  -------------------      Paid-In      Treasury       earnings/        Sale of      Stockholders'
                                  Shares       Amount      Capital       Stock       distributions     Properties        Equity
(in thousands)
====================================================================================================================================

<S>                                <C>          <C>       <C>           <C>            <C>              <C>           <C>
Balance, December 31, 2002         24,630       $  2      $192,743      $     --       $  4,420         $    --       $ 197,165
   Shares issued                   25,000          3       320,054            --             --              --         320,057
   Net income                          --         --            --            --         40,018           6,362          46,380
   Distributions                       --         --            --            --        (40,791)         (5,956)        (46,747)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003         49,630          5       512,797            --          3,647             406         516,855
   Treasury shares purchased           --         --            --          (155)            --              --            (155)
   Treasury shares issued                                       16           145                                            161
   Net income                          --         --            --            --         47,763              --          47,763
   Distributions                       --         --            --            --        (61,130)           (406)        (61,536)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004         49,630          5       512,813           (10)        (9,720)             --         503,088
   Shares issued for:
     Merger                        10,895          1       164,563                           --              --         164,564
     Compensation                       2         --            21            10                                             31
   Treasury shares purchased         (732)                               (14,008)                                       (14,008)
   Net income                          --         --            --            --         75,116              --          75,116
   Distributions                       --         --            --            --        (67,208)             --         (67,208)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2005         59,795       $  6      $677,397      $(14,008)      $ (1,812)        $    --       $ 661,583
====================================================================================================================================
</TABLE>

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


                                      F-7
<PAGE>

                        Franklin Street Properties Corp.
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
(in thousands)                                                                     For the Year Ended December 31,
                                                                                2005           2004            2003
======================================================================================================================

<S>                                                                          <C>             <C>            <C>
Cash flows from operating activities:
  Net income                                                                 $  75,116       $ 47,763       $  46,380
  Adjustments to reconcile net income to net cash provided by operating
  activities:
    Depreciation and amortization expense                                       17,937         13,006           9,531
    Amortization of above market lease                                           4,310            235             137
    Gain on sale of real estate assets                                         (30,493)            --          (6,362)
    Equity in earnings of non-consolidated REITs                                (1,418)        (1,472)           (832)
    Distributions from non-consolidated REITs                                    1,217          1,582             832
    Increase to bad debt reserve                                                    --            195              --
    Shares issued as compensation                                                   31            161              --
  Changes in operating assets and liabilities:
    Restricted cash                                                                572            (51)             (1)
    Tenant rent receivables, net                                                  (678)           (83)           (302)
    Straight-line rents, net                                                    (1,692)          (860)         (1,030)
    Prepaid expenses and other assets, net                                         586         (1,192)            305
    Accounts payable, accrued expenses & other items                              (200)         3,816          (9,053)
    Accrued compensation                                                         1,186           (840)            258
    Tenant security deposits                                                       260             51               1
  Payment of deferred leasing commissions                                       (1,560)          (582)           (487)
----------------------------------------------------------------------------------------------------------------------
      Net cash provided by operating activities                                 65,174         61,729          39,377
----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Cash from issuance of common stock in the merger transaction                  10,621             --          23,524
  Purchase of real estate assets and office computers and
    furniture, capitalized merger costs                                        (75,988)        (1,641)         (2,388)
  Acquired real estate leases                                                  (12,513)            --              --
  Investment in non-consolidated REITs                                             (18)        (4,270)             --
  Merger costs paid                                                               (402)            --              --
  Changes in deposits on real estate assets                                       (710)            --             841
  Investment in assets held for syndication                                     59,532        (55,490)         (4,117)
  Proceeds received on sales of real estate assets                             112,030             --          21,870
----------------------------------------------------------------------------------------------------------------------
      Net cash provided by (used for) investing activities                      92,552        (61,401)         39,730
----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
  Distributions to stockholders                                                (67,208)       (61,536)        (46,747)
  Purchase of treasury shares                                                  (14,008)          (155)             --
  Borrowings under bank note payable                                                --         59,439           4,117
  Repayments of bank note payable                                              (59,439)        (4,117)             --
  Deferred financing costs                                                        (108)            --              --
----------------------------------------------------------------------------------------------------------------------
      Net cash used for financing activities                                  (140,763)        (6,369)        (42,630)
----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                            16,963         (6,041)         36,477
Cash and cash equivalents, beginning of year                                    52,752         58,793          22,316
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                       $  69,715       $ 52,752       $  58,793
======================================================================================================================
Supplemental disclosure of cash flow information:
  Cash paid for:
    Interest                                                                 $   2,981       $  1,503       $   1,036
    Taxes on income                                                          $     566       $  1,665       $   1,963
  Non-cash investing and financing activities: assets acquired through
    issuance of common stock in the merger transaction, net                  $ 153,943       $     --       $ 297,468
</TABLE>


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


                                      F-8
<PAGE>

                        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 13 corporations organized to operate as real estate
investment trusts ("REITs").

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

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

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

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.

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
distribution, as a result of its common stock ownership.

On January 30, 2004, the Company purchased 49.25 preferred shares (approximately
8.2%) of a Sponsored REIT, FSP Blue Lagoon Drive Corp. ("Blue Lagoon"), for
$4,248,000. The Company agreed to vote its shares in any matter presented to a
vote by the stockholders of Blue Lagoon in the same proportion as shares voted
by other stockholders of the Company. The investment in Blue Lagoon is accounted
for under the equity method.


                                      F-9
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

2.    Significant Accounting Policies (continued)

On September 29, 2005, the Company acquired 8.5 preferred shares (approximately
3.05%) of a Sponsored REIT, FSP Park Ten Development Corp. ("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 the Company. The Company accounts for its investment in
Park Ten Development under the equity method.

Real Estate and Depreciation

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

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

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

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

The Company periodically reviews its properties to determine if their carrying
amounts will be recovered from future operating cash flows. The evaluation of
anticipated cash flows is highly subjective and is based in part on assumptions
regarding future occupancy, rental rates and capital requirements that could
differ materially from actual results in future periods. Since cash flows are
considered on an undiscounted basis in the analysis that the Company conducts to
determine whether an asset has been impaired, the Company's strategy of holding
properties over the long term directly decreases the likelihood of recording an
impairment loss. If the Company's strategy changes or market conditions
otherwise dictate an earlier sale date, an impairment loss may be recognized. If
the Company determines that impairment has occurred, the affected assets must be
reduced to their fair value.

Acquired Real Estate Leases and Amortization

The Company accounts for leases acquired via direct purchase, or as a result of
a merger, of real estate assets under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 141. "Business Combinations". Accordingly, the
Company recorded a value relating to the leases acquired as a result of the
acquisition by merger of four and thirteen Sponsored REITs in 2005 and 2003,
respectively and two direct acquisitions in 2005. Acquired real estate leases
represent costs associated with acquiring an in-place lease (i.e., the market
cost to execute a similar lease, including leasing commission, legal, vacancy
and other related costs) and the value relating to leases with rents above the
market rate. Amortization is computed using the straight-line method over the
life of the leases, which range from 20 months to 91 months.

Amortization related to costs associated with acquiring an in-place lease is
included in depreciation and amortization on the consolidated statements of
income. Amortization related to leases with rents above the market rate is
included with rental revenue in the consolidated statements of income. The
estimated annual amortization expense for the five years succeeding December 31,
2005 are as follows:


                                      F-10
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

2.    Significant Accounting Policies (continued)

                   (in thousands)
                   --------------
                   2006                                        $ 9,774
                   2007                                          6,165
                   2008                                          5,888
                   2009                                          5,353
                   2010 and thereafter                           3,772

Acquired Unfavorable Real Estate Leases and Amortization

The Company accounts for leases acquired via direct purchase, or as a result of
a merger, of real estate assets under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 141. "Business Combinations". Accordingly, the
Company recorded a value relating to the leases acquired as a result of the
direct acquisition and acquisition by merger in 2005. 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 12 months to 90 months.

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 expense for the five years succeeding December 31, 2005 are as
follows:

                   (in thousands)
                   --------------
                   2006                                         $  225
                   2007                                            202
                   2008                                            155
                   2009                                            110
                   2010 and thereafter                             131

Discontinued Operations

The Company accounts for properties as held for sale under the provisions of
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
which typically occurs upon the execution of a purchase and sale agreement and
belief by management that the sale or disposition is probable of occurrence
within one year. Upon determining that a property is held for sale, the Company
discontinues depreciating the property and reflects the property 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 statements of income if
no significant continuing involvement exists after the sale or disposition.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. The Company
had highly liquid debt instruments of United States Government Agencies with a
carrying value of $50.7 million and $6 million at December 31, 2005 and 2004,
respectively. The aggregate fair value of these instruments was $50.8 million
and $6.0 million at December 31, 2005 and 2004, respectively. Gross unrecognized
holding gains on these instruments were $0.1 million as of December 31, 2005;
and the aggregate carrying value of these instruments approximated fair value at
December 31, 2004. Also included in cash equivalents are $5.1 million and $11
million at December 31, 2005 and 2004, respectively of cash held as certificates
of deposit with original maturity dates exceeding three months. There are no
prepayment penalties if the Company withdraws these funds prior to maturity.

Restricted Cash

Restricted cash consists of tenant security deposits, which are required by law
in some states. Tenant security deposits are refunded when tenants vacate
provided that the tenant has not damaged the property.

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.


                                      F-11
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

2.    Significant Accounting Policies (continued)

Concentration of Credit Risks

Cash and cash equivalents are financial instruments that potentially subject the
Company to a concentration of credit risk. 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 $100,000
provided by the Federal Deposit Insurance Corporation.

Financial Instruments

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

Straight-line Rent Receivable

Certain leases provide for fixed rent increases over the life of the lease.
Rental revenue is recognized on a straight-line basis over the related lease
term; however, billings by the Company are based on required minimum rentals in
accordance with the lease agreements. Straight-line rent receivable, which is
the cumulative revenue recognized in excess of amounts billed by the Company, is
$5,765,000 and $4,947,000 at December 31, 2005 and 2004, 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.
During 2005 the Company reduced its allowance by $297,000 to $163,000 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 $430,000, $287,000 and
$258,000 for the years ended December 31, 2005, 2004 and 2003, respectively. The
estimated annual amortization for the five years following December 31, 2005 is
as follows:

                   (in thousands)
                   --------------
                   2006                                         $  535
                   2007                                            465
                   2008                                            361
                   2009                                            304
                   2010 and thereafter                             619


                                      F-12
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

2.    Significant Accounting Policies (continued)

Revenue Recognition

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

                                                       Year Ending
(in thousands)                                         December 31,
                                         --------------------------------------
                                           2005           2004           2003
                                         ======================================
Income from leases                       $ 65,082       $ 50,277       $ 31,262
Reimbursable expenses                      13,388          7,991          5,836
Straight-line rent adjustment               1,736          1,147            775
Amortization of favorable leases           (4,310)          (235)          (137)
Other                                          --             --            369
                                         --------------------------------------
                                         $ 75,896       $ 59,180       $ 38,105
                                         ======================================

Rental Revenue, Commercial Properties -- The Company has retained substantially
all of the risks and benefits of ownership of the Company's commercial
properties and accounts for its leases as operating leases. Rental income from
leases, which 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
percentage rent arrangements with its commercial property tenants. Reimbursable
costs are included in rental income in the period earned.

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

Syndication and Transaction Fees

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

Syndication Fees -- Syndication fees ranging from 6% 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 3% to 4% of the gross offering proceeds is
recorded in the period the related syndication fee is earned. There is typically
more than one investor closing in the syndication of a Sponsored REIT.

Transaction Fees -- Transaction fees relating to loan commitment fees 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.

Income Taxes

Taxes on income for the years ended December 31, 2005, 2004 and 2003 represent
taxes incurred by FSP Investments, which is a taxable REIT subsidiary.


                                      F-13
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

2.   Significant Accounting Policies (continued)

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, 2005, 2004, and 2003. The
denominator used for calculating basic and diluted net income per share was
56,847,000, 49,628,000, and 39,214,000 for the years ending December 31, 2005,
2004, and 2003, respectively.

Recent Accounting Standards

In December 2003, the FASB issued FASB Interpretation No. 46(R), which replaces
FASB Interpretation No. 46, Consolidation of Variable Interest Entities,
clarifies the application of Accounting Research Bulletin No. 51, Consolidated
Financial Statements, to certain entities in which equity investors do not have
the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support. The objectives of the interpretation
is to provide guidance on how to identify a variable interest entity ("VIE") and
determine when the assets, liabilities, non-controlling interests, and results
of operations of a VIE need to be included in a company's consolidated financial
statements. A VIE exists when either the total equity investment at risk is not
sufficient to permit the entity to finance its activities by itself, or the
equity investors lack one of three characteristics associated with owning a
controlling financial interest. The adoption of this standard had no impact on
the Company's financial position, operations or cash flow.

In December 2004, the FASB issued SFAS No. 153 "Exchanges of Nonmonetary Assets
an amendment of APB Opinion No. 29". This statement was effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. This Statement addresses the measurement of exchanges of nonmonetary
assets. It eliminates the exception from fair value measurement for nonmonetary
exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29,
Accounting for Nonmonetary Transactions, and replaces it with an exception for
exchanges that do not have commercial substance. This Statement specifies that a
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. The
adoption of this standard had no impact on our financial position, results of
operations or cash flows.

Reclassifications

Certain balances in the 2004 and 2003 financial statements have been
reclassified to conform to 2005 presentation. The reclassifications primarily
were related to disposition of six properties sold in 2005 and one asset held
for sale as of December 31, 2005, which are presented as discontinued operations
for all periods presented. These reclassifications changed rental revenues,
operating and maintenance expenses, depreciation and amortization, other income
and the related assets, which are segregated on financial statements. There was
no change to net income for any period presented as a result of these
reclassifications.


                                      F-14
<PAGE>

                        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, interim acquisition financing, development services and
asset/property management) and investment banking/investment services (including
real estate acquisition and broker/dealer services). The Company has identified
these segments because this information is the basis upon which management makes
decisions regarding resource allocation and performance assessment. The
accounting policies of the reportable segments are the same as those described
in the "Significant Accounting Policies". The Company's operations are located
in the United States of America.

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

The funded reserve represents funds that the Company has set aside in
anticipation of future capital needs. These reserves are typically used for the
payment of capital expenditures, deferred leasing commissions and certain tenant
allowances; however, there are no legal restrictions on their use and they may
be used for any Company purpose. AFFO should not be considered as an alternative
to net income (determined in accordance with GAAP), as an indicator of the
Company's financial performance, 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
AFFO in a different manner. It is at the Company's discretion to retain a
portion of AFFO for operational needs. We believe that in order to facilitate a
clear understanding of the results of the Company, AFFO should be examined in
connection with net income and cash flows from operating, investing and
financing activities in the consolidated financial statements.


                                      F-15
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

3.    Business Segments, (continued):

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

<TABLE>
<CAPTION>
                                                                  Investment
                                                      Real         Banking/
                                                     Estate       Investment
(in thousands):                                    Operations      Services        Total
==========================================================================================
<S>                                                 <C>            <C>           <C>
Year ended December 31, 2005:
  Net income                                        $ 74,502       $   614       $ 75,116
  Gain on sale of properties                         (30,493)           --        (30,493)
  Equity in earnings of non-consolidated REITs        (1,418)           --         (1,418)
  Distribution from non-consolidated REITs             1,217            --          1,217
  Depreciation and amortization                       22,108           132         22,240
  Straight-line rent                                  (1,692)           --         (1,692)
  Capital expenditures                                (2,691)          (69)        (2,760)
  Payment of deferred leasing commissions             (1,560)           --         (1,560)
  Proceeds from funded reserves                        4,251            69          4,320
------------------------------------------------------------------------------------------

Adjusted Funds From Operations                      $ 64,224       $   746       $ 64,970
==========================================================================================

Year ended December 31, 2004:
  Net income                                        $ 45,030       $ 2,733       $ 47,763
  Equity in earnings of non-consolidated REITs        (1,472)           --         (1,472)
  Distribution from non-consolidated REITs             1,582            --          1,582
  Depreciation and amortization                       13,095           147         13,242
  Straight-line rent                                    (860)           --           (860)
  Capital expenditures                                (1,541)         (100)        (1,641)
  Payment of deferred leasing commissions               (582)           --           (582)
  Proceeds from funded reserves                        2,122            --          2,122
------------------------------------------------------------------------------------------

Adjusted Funds From Operations                      $ 57,374       $ 2,780       $ 60,154
==========================================================================================

Year ended December 31, 2003:
  Net income                                        $ 43,949       $ 2,431       $ 46,380
  Equity in earnings of non-consolidated REITs          (965)           --           (965)
  Distribution from non-consolidated REITs               832            --            832
  Gain on sale of properties                          (6,362)           --         (6,362)
  Depreciation and amortization                        9,745            56          9,801
  Straight-line rent                                  (1,030)           --         (1,030)
  Capital expenditures                                (1,125)         (248)        (1,373)
  Payment of deferred leasing commissions               (487)           --           (487)
  Proceeds from funded reserves                        1,877            --          1,877
  Proceeds from sale of land                              55            --             55
------------------------------------------------------------------------------------------

Adjusted Funds From Operations                      $ 46,489       $ 2,239       $ 48,728
==========================================================================================
</TABLE>


                                      F-16
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

3.   Business Segments (continued)

The Company's cash distributions for the years ended December 31, 2005, 2004 and
2003 are summarized as follows:

                                               Distribution       Total Cash
   Quarter paid                               Per Share/Unit    Distributions
   ==========================================================================
                                                               (in thousands)
   Second quarter of 2005                         $  0.41         $  20,349
   Third quarter of 2005                             0.21            12,711
   Fourth quarter of 2005                            0.31            18,763
   First quarter of 2006 (A)                         0.31            18,536
   ------------------------------------------------------------------------
                                                  $  1.24         $  70,359
   ========================================================================

   Second quarter of 2004                         $  0.31         $  15,385
   Third quarter of 2004                             0.31            15,385
   Fourth quarter of 2004                            0.31            15,385
   First quarter of 2005 (A)                         0.31            15,385
   ------------------------------------------------------------------------
                                                  $  1.24         $  61,540
   ========================================================================

   Second quarter of 2003                         $  0.31         $   7,635
   Third quarter of 2003                             0.31            10,135
   Fourth quarter of 2003 (B)                        0.43            21,342
   First quarter of 2004 (A)                         0.31            15,381
   ------------------------------------------------------------------------
                                                  $  1.36         $  54,493
   ========================================================================

(A)   Represents distributions declared and paid in the first quarter related to
      the fourth quarter of the prior year.
(B)   Includes a special distribution of $.12 per share in the aggregate amount
      of $5,956,000.

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 AFFO is generated.


                                      F-17
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

3.   Business Segments (continued)

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

                                                           Investment
                                                Real        Banking/
                                               Estate      Investment
                                             Operations     Services      Total
================================================================================
                                                        (in thousands)
December 31, 2005:
  Revenue                                     $ 85,775      $10,618     $ 96,393
  Interest income                                1,552           36        1,588
  Interest expense                               2,997           --        2,997
  Income from discontinued operations, net       4,503           --        4,503
  Capital expenditures                           2,691           69        2,760
  Identifiable assets                          671,413        5,760      677,173

December 31, 2004:
  Revenue                                     $ 71,740      $15,696     $ 87,436
  Interest income                                  817           46          863
  Interest expense                               1,527           --        1,527
  Income from discontinued operations, net       5,429           --        5,429
  Capital expenditures                           1,541          100        1,641
  Identifiable assets                          567,609        5,502      573,111

December 31, 2003:
  Revenue                                     $ 52,414      $16,050     $ 68,464
  Interest income                                  288           75          363
  Interest expense                               1,036           --        1,036
  Income from discontinued operations, net       5,956           --        5,956
  Capital expenditures                           1,125          248        1,373
  Identifiable assets                          524,788        3,741      528,529

4.    Merger Transactions

On April 30, 2005, the Company issued 10,894,994 shares of common stock, $0.0001
par value per share, in exchange for all the outstanding preferred stock of the
Target REITs. The results of operations for each of Target REIT have been
included in the Company's consolidated financial statements since May 1, 2005.

The aggregate purchase price was approximately $164,564,000. On the acquisition
date, for each of the four Target REITs, the appraised value of the property was
allocated to real estate investments and leases, including lease origination
costs. Lease origination costs represent the value associated with acquiring an
in-place lease (i.e. the market cost to execute a similar lease, including
leasing commission, legal, vacancy, and other related costs). The value assigned
to buildings approximates their replacement cost; the value assigned to land
approximates its appraised value; and the value assigned to leases approximates
their fair value. Other assets and liabilities are recorded at their historical
costs, which approximates fair value. The following table summarizes the
estimated fair value of the assets acquired at the date of acquisition:


                                      F-18
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

4.    Merger (continued)

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

        Real estate assets                              $ 137,687
        Value of acquired real estate leases               19,331
        Cash                                               10,621
        Other assets                                          229
        Acquired unfavorable leases                          (366)
        Liabilities assumed                                (2,938)
                                                       ----------
        Total                                           $ 164,564
                                                       ==========

Unaudited pro forma operating results for the Company and the Target REITs are
shown in the following table. The results assume the mergers occurred and the
shares of the Company's stock were issued on January 1, 2004 and are not
necessarily indicative of what the Company's actual results of operations would
have been for the period indicated, nor do they purport to represent the results
of operations of any future period.

                                                                unaudited
                                                       -------------------------
(in thousands except per share amounts)                   2005            2004
                                                       ---------       ---------

Revenues                                                $102,948        $107,910
                                                       ---------       ---------
Income from continuing operations                       $ 42,766        $ 50,552
                                                       ---------       ---------
Net income                                              $ 77,762        $ 55,981
                                                       =========       =========
Weighted average shares outstanding                       60,459          60,523
                                                       =========       =========

Income from continuing operations per share             $   0.71        $   0.84
                                                       =========       =========
Net income per share                                    $   1.29        $   0.92
                                                       =========       =========

5.    Related Party Transactions

Investment in Sponsored REITs

At December 31, 2005, we held an interest in 13 Sponsored REITs, all of which
were fully syndicated. FSP Park Ten Development Corp. (Park Ten Development) was
syndicated in September 2005 and the Company exchanged land for a preferred
stock investment in it. At December 31, 2004, the Company held an interest in 15
Sponsored REITs. Twelve were fully syndicated and the Company no longer derived
economic benefits or risks from them. Blue Lagoon was syndicated in January 2004
and the Company purchased a preferred stock investment in it. The remaining two
entities were not fully syndicated and have a value of approximately $59.2
million on the accompanying consolidated balance sheets as assets held for
syndication. At December 31, 2003, the Company held an interest in eight
Sponsored REITs, of which seven were fully syndicated. The value of Blue Lagoon,
which was not fully syndicated as of December 31, 2003, was approximately $4.1
million on the accompanying consolidated balance sheets as assets held for
syndication.

The table below shows the Company's income and expenses from Sponsored REITs.
Management fees of $1,000, $102,000, and $5,000 for the years ended December 31,
2005, 2004 and 2003, respectively, and interest expense related to the Company's
mortgages on properties owned by these entities are eliminated in consolidation.


                                      F-19
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

5.   Related Party Transactions (continued)

                                                 Year Ended December 31,
     (in thousands)                        2005           2004         2003
                                           ----           ----         ----
     Operating Data:
     Rental revenues                      $ 146          $3,772        $ 552
     Operating and maintenance
        expenses                             63           1,439          177
     Depreciation and amortization           36             584          133
     Interest expense                        64             922          163
     Interest income                          1              25           --
                                          ----------------------------------
                                          $ (16)         $  852        $  79
                                          ==================================

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)                                         2005       2004     2003
                                                       ----       ----     ----

Equity in earnings of Sponsored REITs                 $1,149      $390     $753
Equity in earnings of Blue Lagoon                        248       230
Equity in earnings of Park Ten Development                --        --       --
                                                     --------------------------
                                                      $1,397      $620     $753
                                                     ==========================

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

Equity in earnings of Blue Lagoon is derived from the Company's preferred stock
investment in the entity. In January 2004 the Company purchased 49.25 preferred
shares or 8.22% of Blue Lagoon for $4,248,000 (which represented $4,925,000 at
the offering price net of commissions of $394,000 and loan fees of $283,000 that
were excluded).

Equity in earnings of Park Ten Development is 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 Park Ten Development via a non-monetary
exchange of land valued at $850,000. The Sponsored REIT was syndicated and is in
the process of constructing a commercial property on the land. As of December
31, 2005, there was no equity in income from the project, as construction had
just started.

During the year ended December 31, 2005, the Company received distributions of
$856,000 and $361,000 from Sponsored REITs and Blue Lagoon, respectively. During
the year ended December 31, 2004, the Company received distributions of
$1,582,000 and $235,000 from Sponsored REITs and Blue Lagoon, respectively.
During the years ended December 31, 2003 and 2002, the Company received
distributions from investments in Sponsored REITs of $882,000 and $519,000,
respectively.

Non-consolidated REITs

The Company has in the past acquired by merger entities similar to the Sponsored
REITs, including four Sponsored REITs (Target REITs), which were acquired by
merger on April 30, 2005. 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.


                                      F-20
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

5.    Related Party Transactions, (continued)

The operating data below for 2005 includes operations of the 13 Sponsored REITs
the Company held an interest in as of December 31, 2005 and four Target REITs
from January through April 30, 2005. The four Target REITs were merged into the
Company on April 30, 2005. The operating data for 2004 includes the operations
of the 15 Sponsored REITs in which the Company held an interest at December 31,
2004. The operating data for 2003 includes the operations of eight Sponsored
REITs in which the Company held an interest at December 31, 2003 and 13 Target
REITs, which were merged into the Company on June 1, 2003, from January through
May 31, 2003.

Summarized financial information for the Sponsored REITs is as follows:

                                                             December 31,
                                                      2005               2004
                                                   ----------------------------
(in thousands)
Balance Sheet Data (unaudited):
-------------------------------
Real estate, net                                   $ 403,161          $ 457,140
Other assets                                          82,163             91,678
Total liabilities                                    (46,831)           (83,484)
                                                   ----------------------------
Shareholders equity                                $ 438,493          $ 465,334
                                                   ============================

                                                    For the Year Ended
                                                       December 31,
                                         ---------------------------------------
                                           2005           2004           2003
                                         ---------------------------------------
(in thousands)
Operating Data (unaudited):
---------------------------
Rental revenues                          $ 60,339       $ 58,474       $ 45,819
Other revenues                              1,211            655            370
Operating and maintenance  expenses       (24,742)       (20,335)       (16,594)
Depreciation and amortization             (12,531)       (10,597)       (11,155)
Interest expense                           (7,691)       (13,316)       (13,965)
                                         --------------------------------------
Net income (loss)                        $ 16,586       $ 14,881       $  4,475
                                         ======================================

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 $18,680,000, $27,672,000 and
$29,376,000, for the years ended December 31, 2005, 2004 and 2003, 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 $672,000, $539,000, and
$325,000 for the years ended December 31, 2005, 2004 and 2003, respectively. The
Company is typically entitled to interest on funds advanced to Sponsored REITs.
The Company recognized interest income of approximately $1,135,000, $42,000, and
$636,000 for the years ended December 31, 2005, 2004 and 2003, respectively,
relating to these loans.

6.    Bank Note Payable

The Company has a revolving line of credit agreement (the "Loan Agreement") with
a group of banks providing for borrowings at the Company's election of up to
$150,000,000. Borrowings under the Loan Agreement bear interest at either the
bank's base rate (7.25% at December 31, 2005) or at a LIBOR plus 125 basis
points (5.64% at December 31, 2005), as defined. There was no balance
outstanding at December 31, 2005, and $59,439,000 was outstanding at the bank's
base rate at December 31, 2004. The weighted average interest rate on amounts
outstanding during the years ended December 31, 2005 and 2004 was approximately
5.35% and 3.62%, respectively.


                                      F-21
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

6.    Bank Note Payable, (continued)

The Loan Agreement includes restrictions on property liens and requires
compliance with various financial covenants. Financial covenants include the
maintenance of at least $1,500,000 in operating cash accounts, a minimum
unencumbered cash and liquid investments balance and tangible net worth; and
compliance with various debt and operating income ratios, as defined in the Loan
Agreement. The Company was in compliance with the Loan Agreement's financial
covenants as of December 31, 2005 and 2004. Borrowings under the Loan Agreement
mature on August 18, 2008.

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.

In March 2005 and 2004 the Company issued 1,750 and 9,824 shares to certain
officers and employees under the Plan with an estimated value of $31,000 and
$161,000, respectively. There was no equity-based compensation for the year
ended December 31, 2003. Shares issued were fully vested on the date of
issuance. Equity-based compensation charges of $31,000 and $161,000 are included
in selling, general & administrative expenses in the accompanying consolidated
statements of income for the years ended December 31, 2005 and 2004.

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

                                                Shares Available    Compensation
                                                    for Grant           Cost
                                                ----------------    ------------
Shares approved for grant                           2,000,000         $     --
Shares granted 2002                                   (43,998)         604,000
                                                   ----------         --------
Balance, December 31, 2002 and 2003                 1,956,002          604,000
Shares granted 2004                                    (9,824)         161,000
                                                   ----------         --------
Balance, December 31, 2004                          1,946,178          765,000
Shares granted 2005                                    (1,750)          31,000
                                                   ----------         --------
Balance, December 31, 2005                          1,944,428         $796,000
                                                   ==========         ========

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 731,000 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.

Treasury Shares

On March 1, 2005, the Company issued 575 shares from Treasury to employees in
connection with the Plan. On April 30, 2005, the Company redeemed 898 fractional
shares in connection with the Merger for $16,000. During 2005, the Company also
repurchased 731,000 shares for $13,992,000. As a result, as of December 31, 2005
there were 731,898 Treasury Shares. During January 2004 the Company redeemed
9,824 shares through a redemption plan for $147,000. These shares were
subsequently issued to employees in connection with the Plan. In August 2004 the
Company redeemed an aggregate of 575 fractional shares for $10,000.


                                      F-22
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

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.

One such restriction is that the Company generally cannot own more than 10% of
the voting power or value of the securities of any one issuer unless the issuer
is itself a REIT or a taxable REIT subsidiary ("TRS"). In the case of TRSs, the
Company's ownership of securities in all TRSs generally cannot exceed 20% of the
value of all of the Company's assets and, when considered together with other
non-real estate assets, cannot exceed 25% of the value of all of the Company's
assets. Effective January 1, 2002, a subsidiary of the Company, FSP Investments,
became a TRS. As a result, FSP Investments operates as a taxable corporation
under the Code and has accounted for income taxes in accordance with the
provisions of SFAS No. 109, Accounting for Income Taxes. Taxes are provided when
FSP Investments has net profits for both financial statement and income tax
purposes.

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

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 an ownership change occurred with the June 2003 merger 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 2023. 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 2005, the Company used $2,595,000 of NOLs in
connection with amending a prior year tax return. The gross amount of NOLs
available to the Company were $8,813,000, $7,918,000 and $5,839,000 as of
December 31, 2005, 2004 and 2003, respectively.

Tax Rates

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

<TABLE>
<CAPTION>
                                                            For the years ended December 31,
                                                 ----------------------------------------------------
(Dollars in thousands)                               2005                2004               2003
                                                     ----                ----               ----

<S>                                              <C>    <C>       <C>        <C>       <C>      <C>
Federal income tax expense at statutory rate     $356   34.0%     $ 1,516    34.0%     $1,446   35.0%
Increase (decrease) in taxes resulting from:
   State income taxes, net of federal impact       66    6.3%         280     6.3%        254    6.2%
   Other                                           --     --          (71)   (1.6)%        --     --
                                                 ----   ----      -------    ----      ------   ----
   Taxes on income                               $422   40.3%     $ 1,725    38.7%     $1,700   41.2%
                                                 ====   ====      =======    ====      ======   ====
</TABLE>

For the year ended December 31, 2004, "Other" consists of an adjustment to the
statutory rate to better reflect the benefit of lower tax rates at lower levels
of taxable income.

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.


                                      F-23
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

8.    Federal Income Tax Reporting, (continued)

At December 31, 2005 and 2004, the Company's net tax basis of its real estate
assets is less than the amount set forth in the Company's consolidated balance
sheets by $14,035,000 and $17,365,000, respectively.

Reconciliation Between GAAP Net Income and Taxable Income.

The following reconciles book net income to taxable income for the years ended
December 31, 2005, 2004 and 2003.

<TABLE>
<CAPTION>
                                                            For the year ended December 31,
                                                        --------------------------------------
(in thousands)                                            2005           2004           2003
                                                          ----           ----           ----

<S>                                                     <C>            <C>            <C>
Net income per books                                    $ 75,116       $ 47,763       $ 46,380
Adjustments to book income:
Book depreciation and amortization                        22,239         13,592          9,398
Tax depreciation and amortization                        (14,447)       (11,449)        (7,879)
Like-kind exchange gain deferral                         (14,351)            --             --
Tax basis less book basis of properties sold, net          4,747             --          2,347
Straight line rent adjustment, net                        (1,814)          (860)        (1,030)
Deferred rent, net                                          (132)            55             22
Non-taxable distributions                                    (85)            --             --
Other, net                                                  (815)          (611)          (104)
                                                        --------       --------       --------
Taxable income                                            70,458         48,490         49,134
Less: Capital gains recognized                           (22,068)            --         (8,709)
                                                        --------       --------       --------
Taxable income subject to distribution requirement      $ 48,390       $ 48,490       $ 40,425
                                                        ========       ========       ========
</TABLE>

Tax Components

The following summarizes the tax components of the Company's common
distributions paid per share for the years ended December 31, 2005, 2004 and
2003:

<TABLE>
<CAPTION>
                       ----------------------------------------------------------------------
                              2005                     2004                     2003
                       --------------------     --------------------     --------------------
                       Per Share        %       Per Share        %       Per Share       %
                       ---------     ------     ---------     ------     ---------     ------
<S>                      <C>          <C>         <C>          <C>         <C>          <C>
Ordinary income          $ 0.83       67.16%      $ 1.01       81.48%      $ 1.03       75.61%
Qualified dividends          --          --         0.03        2.79%        0.08        5.76%
Capital gain (1)           0.41       32.84%          --          --         0.25       18.63%
Return of capital            --          --         0.20       15.73%          --          --
                         ------      ------       ------      ------       ------      ------
Total                    $ 1.24         100%      $ 1.24         100%      $ 1.36         100%
                         ======      ======       ======      ======       ======      ======
</TABLE>

(1)   The 32.84% capital gain for 2005 consists of 10.86% and 21.98% taxed at
      15% and 25%, respectively for 2005. The 18.63% capital gain for 2003
      consists of 9.03%, 5.43% and 4.17% of capital gains taxed at 15%, 20% and
      25%, respectively for 2003.


                                      F-24
<PAGE>

                        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 2015. The following is a
schedule of approximate future minimum rental income on non-cancelable operating
leases as of December 31, 2005:

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

         2006                             $ 64,239
         2007                               52,220
         2008                               48,189
         2009                               41,498
         2010                               21,508
         Thereafter (2011-2015)             27,149
                                        ----------
                                         $ 254,803
                                        ==========

The Company leases its corporate office space under an operating lease that was
amended in 2003 and has no renewal options. The lease includes a base annual
rent and additional rent for the Company's share of taxes and operating costs.
Future minimum lease payments are as follows:

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

         2006                                $ 302
         2007                                  308
         2008                                  182
         Thereafter                             --
                                           -------
                                             $ 792
                                           =======

Rent expense was approximately $273,000, $306,000 and $219,000 for the years
ended December 31, 2005, 2004 and 2003, respectively, and is included in
selling, general and administration expenses in the Consolidated Statements of
Income.

10.   Retirement Plan

In 1999, the Company began a retirement savings plan for eligible employees.
Under the plan, the Company annually matches participant contributions up to the
maximum allowed by tax regulations. The Company's total contribution under the
plan amounted to approximately $158,000, $160,000 and $132,000 for the years
ended December 31, 2005, 2004 and 2003, respectively.

11.   Discontinued Operations

During the year ended December 31, 2005, the Company disposed of three apartment
properties and three commercial properties, which are in the real estate
segment. The three apartments are Essex House and Gael Apartments, which are
located in Houston, Texas; and Mansions in the Park, located in Baton Rouge,
Louisiana. The three commercial buildings are Blue Ravine, which is located in
Folsom, California; Gateway Crossing, which is located in Columbia, Maryland;
and Telecom Business Center, which is located in San Diego, California. An
agreement was also reached to sell an office property in Santa Clara,
California, which is expected to be sold by December 2006 at a gain.
Accordingly, as of December 31, 2005 this property is held for sale and is
classified as such on the accompanying balance sheet. During the year ended
December 31, 2003, the Company disposed of two apartment properties, Weslayan
Oaks and Reata, both located in Houston, Texas. The operating results for these
real estate assets have been reflected as discontinued operations in the
consolidated statements of income on a comparative basis for the years ended
December 31, 2005, 2004 and 2003. There were no sales of properties in 2004.


                                      F-25
<PAGE>

                        Franklin Street Properties Corp.
                 Notes to the Consolidated Financial Statements

11.   Discontinued Operations, (continued)

The gains and losses of the properties sold are summarized below.

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

<S>                                 <C>                  <C>            <C>                    <C>          <C>
81 Blue Ravine                      Folsom, CA             Office          July 13, 2005          4,764      (1,124)
7250 Perkins Road                   Baton Rouge, LA      Apartment      September 19, 2005       22,280       7,265
7130-7150 Columbia Gateway Dr       Columbia, MD           Office       September 20, 2005       25,949       6,807
Park Ten Development (1)            Houston, TX             Land        September 29, 2005          850         339
3919 Essex Lane                     Houston, TX          Apartment        October 5, 2005        13,752       5,112
4000 Essex Lane                     Houston, TX          Apartment        October 5, 2005        22,715       5,151
5751-5771 Copley Drive              San Diego, CA          Office        December 8, 2005        22,570       6,943
                                                                                             ----------------------
                                                                                               $112,880     $30,493
                                                                                             ======================
</TABLE>

(1)   On September 29, 2005, we recorded a non-monetary exchange gain of $0.3
      million from contribution of 2.9 acres of developable land we contributed
      in exchange for 8.5 preferred shares (approximately 3.05%) of a Sponsored
      REIT, FSP Park Ten Development Corp. ("Park Ten Development"). The
      appraised value of the land and market value of the stock acquired were
      used to estimate the sale price, and the gain was recorded net of the
      Company's interest in Park Ten Development.

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

                                                     For the Years Ended
(in thousands)                                          December 31,
                                              ---------------------------------
                                                2005        2004         2003
                                              -------     --------     --------
Rental revenue                                $ 9,962     $ 12,616     $ 13,451
Rental operating expenses                      (2,138)      (2,714)      (2,903)
Real estate taxes and insurance                (1,325)      (1,853)      (1,864)
Depreciation and amortization                  (2,002)      (2,625)      (2,732)
Interest income                                     6            5            4
                                              -------     --------     --------
Net income from discontinued operations       $ 4,503     $  5,429     $  5,956
                                              =======     ========     ========

12.   Subsequent Events

On January 18, 2006, the Board of Directors of the Company declared a cash
distribution of $0.31 per share of common stock payable on February 21, 2006 to
stockholders of record on January 31, 2006.

On February 3, 2006, the Board of Directors approved a change in control plan,
which included a form of retention agreement and discretionary payment plan in
the event there was a defined change in control of FSP Corp. 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. As part of the retention
plan, the Company will enter into retention agreements with employees from time
to time that will provide for payments to such employees upon the closing date
of a transaction constituting a change in control.

On February 21, 2006 the Company borrowed approximately $65 million under its
Loan Agreement. The Company used the borrowed funds to make an interim mortgage
loan for a property located in Texas.


                                      F-26
<PAGE>

                        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

<TABLE>
<CAPTION>
                                                                           2005
                                                   ---------------------------------------------------
                                                     First        Second          Third        Fourth
                                                    Quarter       Quarter        Quarter       Quarter
                                                   --------      --------       --------      --------
                                                          (in thousands, except per share data)

<S>                                                <C>           <C>            <C>           <C>
Revenue                                            $ 20,030      $ 22,272       $ 27,125      $ 26,966
                                                   ========      ========       ========      ========

Income from continuing operations                  $  8,962      $  9,149       $ 11,204      $ 10,805
Income from discontinued operations                   1,461         1,359          1,296           387
Gain (loss) on sale of properties                        --        (1,055)        14,316        17,232
                                                   --------      --------       --------      --------
Net income                                         $ 10,423      $  9,453       $ 26,816      $ 28,424
                                                   ========      ========       ========      ========

Basic and diluted net income per share             $   0.21          0.17           0.44          0.47
                                                   ========      ========       ========      ========

Weighted average number of shares outstanding        49,630        56,815         60,526        60,259
                                                   ========      ========       ========      ========

<CAPTION>
                                                                           2004
                                                   ---------------------------------------------------
                                                     First        Second          Third        Fourth
                                                    Quarter       Quarter        Quarter       Quarter
                                                   --------      --------       --------      --------
                                                          (in thousands, except per share data)

<S>                                                <C>           <C>            <C>           <C>
Revenue                                            $ 22,529      $ 25,104       $ 14,032      $ 25,771
                                                   ========      ========       ========      ========

Income from continuing operations                  $ 11,920      $ 12,347       $  5,677      $ 12,390
Income from discontinued operations                   1,299         1,329          1,268         1,533
Gain on sale of properties                               --            --             --            --
                                                   --------      --------       --------      --------
Net income                                         $ 13,219      $ 13,676       $  6,945      $ 13,923
                                                   ========      ========       ========      ========

Basic and diluted net income per share             $   0.27      $   0.28       $   0.14      $   0.28
                                                   ========      ========       ========      ========

Weighted average number of shares outstanding        49,624        49,630         49,630        49,630
                                                   ========      ========       ========      ========
</TABLE>


                                      F-27
<PAGE>

                                  SCHEDULE III

                        FRANKLIN STREET PROPERTIES CORP.
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                December 31, 2005

<TABLE>
<CAPTION>
                                                              Initial Cost                       Historical Costs
                                                                                      Costs
                                                                                   Capitalized
                                                                      Buildings    (Disposals)           Buildings
                                                                     Improvements  Subsequent           Improvements
                                               Encumbrances              and           to                   and        Total
Description                                         (1)       Land    Equipment    Acquisition   Land    Equipment      (2)
                                               ------------   ----    ---------    -----------   ----    ---------    --------
                                                                                                    (in thousands)
<S>                                            <C>           <C>        <C>           <C>       <C>        <C>        <C>
Residential Apartments:
   Merrywood Apartments, Katy, TX                   --       $ 2,170    $ 15,334           0    $ 2,170    $ 15,334   $ 17,504

Commercial Properties:
   One Technology Drive, Peabody, MA                --         1,658      10,246        (450)     1,658       9,796     11,454
   NAOP, No. Andover, MA                            --         1,311       8,136         948      1,311       9,084     10,395
   Park Seneca, Charlotte, NC                       --         1,815       7,917         368      1,815       8,285     10,100
   Piedmont Center, Greenville, SC                  --         1,449       9,839       1,663      1,449      11,502     12,951
   Hillview Center, Milpitas, CA                    --         2,203       2,813           7      2,203       2,820      5,023
   Southfield Centre, Southfield, MI                --         4,344      11,455       1,233      4,344      12,688     17,032
   Bollman Place, Savage, MD                        --         1,585       4,121         281      1,585       4,402      5,987
   Austin N.W., Austin, TX                          --           708      10,494         886        708      11,380     12,088
   10 Lyberty Way, Westford, MA                     --         1,315       8,862         404      1,315       9,266     10,581
   Forest Park, Charlotte, NC                       --         1,559       5,672           0      1,559       5,672      7,231
   Centennial Center, Colorado Springs, CO          --         1,549      11,877         375      1,549      12,252     13,801
   Meadow Point, Chantilly, VA                      --         2,634      18,911           0      2,634      18,911     21,545
   Timberlake, Chesterfield, MO                     --         2,984      38,661          52      2,984      38,713     41,697
   Fair Lakes, Fairfax, VA                          --         4,383      33,976           1      4,383      33,977     38,360
   Northwest Point, Elk Grove Village, IL           --         2,914      26,295           9      2,914      26,304     29,218
   Timberlake East, Chesterfield, MO                --         2,626      17,608          86      2,626      17,674     20,320
   Plaza Ridge, Herndon, VA                         --         4,210      25,640           0      4,210      25,640     29,850
   Park Ten, Houston, TX                            --         1,061      21,303        (507)       569      21,288     21,857
   Goldentop Technology Center, San Diego, CA       --         5,356      17,049          20      5,356      17,069     22,425
   Federal Way, Federal Way, WA                     --         2,518      13,212           0      2,518      13,212     15,730
   Addison, Addison, TX                             --         4,325      48,040         741      4,325      48,781     53,106
   Collins, Richardson, TX                          --         4,000      42,598           0      4,000      42,598     46,598
   Montague, San Jose, CA                           --        10,250       5,254           0     10,250       5,254     15,504
   Royal Ridge, Alpharetta, GA                      --         2,000      22,068          51      2,000      22,119     24,119
   Greenwood, Englewood, CO                         --         3,100      30,201           0      3,100      30,201     33,301
   River Crossing, Indianapolis, IN                 --         3,000      36,926          30      3,000      36,956     39,956
                                                ------       -------    --------      ------    -------    --------   --------
         Balance - Real Estate                      --        77,027     504,508       6,198     76,535     511,198    587,733
   Assets held for sale                             --         3,274       4,130          57      3,274       4,187      7,461
                                                ------       -------    --------      ------    -------    --------   --------
         Balance - End of Year                      --       $80,301    $508,638      $6,255    $79,809    $515,385   $595,194
                                                ======       =======    ========      ======    =======    ========   ========

<CAPTION>


                                                                Total
                                                              Costs, Net
                                                                  of       Depreciable   Date of
                                                Accumulated  Accumulated       Life     Acquisition
Description                                    Depreciation  Depreciation     Years         (3)
                                               ------------  ------------  -----------  -----------

<S>                                              <C>          <C>              <C>         <C>
Residential Apartments:
   Merrywood Apartments, Katy, TX                $ 1,441      $ 16,063         5-27        2002

Commercial Properties:
   One Technology Drive, Peabody, MA               2,429         9,025         5-39        1995
   NAOP, No. Andover, MA                           2,762         7,633         5-39        1996
   Park Seneca, Charlotte, NC                      1,563         8,537         5-39        1997
   Piedmont Center, Greenville, SC                 2,274        10,677         5-39        1998
   Hillview Center, Milpitas, CA                     488         4,535         5-39        1999
   Southfield Centre, Southfield, MI               1,929        15,103         5-39        1999
   Bollman Place, Savage, MD                         637         5,350         5-39        1999
   Austin N.W., Austin, TX                         1,731        10,357         5-39        1999
   10 Lyberty Way, Westford, MA                    1,312         9,269         5-39        2000
   Forest Park, Charlotte, NC                        375         6,856         5-39        1999
   Centennial Center, Colorado Springs, CO           886        12,915         5-39        2000
   Meadow Point, Chantilly, VA                     1,253        20,292         5-39        2001
   Timberlake, Chesterfield, MO                    2,563        39,134         5-39        2001
   Fair Lakes, Fairfax, VA                         2,251        36,109         5-39        2001
   Northwest Point, Elk Grove Village, IL          1,742        27,476         5-39        2001
   Timberlake East, Chesterfield, MO               1,173        19,147         5-39        2002
   Plaza Ridge, Herndon, VA                        1,699        28,151         5-39        2002
   Park Ten, Houston, TX                           1,410        20,447         5-39        2002
   Goldentop Technology Center, San Diego, CA      1,130        21,295         5-39        2000
   Federal Way, Federal Way, WA                      876        14,854         5-39        2001
   Addison, Addison, TX                              897        52,209         5-39        2002
   Collins, Richardson, TX                           728        45,870         5-39        2003
   Montague, San Jose, CA                             90        15,414         5-39        2002
   Royal Ridge, Alpharetta, GA                       377        23,742         5-39        2003
   Greenwood, Englewood, CO                          645        32,656         5-39        2005
   River Crossing, Indianapolis, IN                  475        39,481         5-39        2005
                                                 -------      --------
         Balance - Real Estate                    35,136       552,597
   Assets held for sale                              830         6,631         5-39        1997
                                                 -------      --------
         Balance - End of Year                   $35,966      $559,228
                                                 =======      ========
</TABLE>

(1)   There are no encumbrances on the above properties.
(2)   The aggregate cost for Federal Income Tax purposes is $600,255.
(3)   Original date of acquisition by Sponsored Entity.


                                      F-28
<PAGE>

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

                                                        December 31,
                                           -------------------------------------
(in thousands)                              2005           2004          2003
================================================================================
Real estate investments, at cost:
  Balance, beginning of year               476,982        475,368       195,275
    Acquisition by merger                  138,535             --       298,425
    Acquisitions                            73,227             --            --
    Improvements                             2,692          1,614         1,125
    Assets held for sale                    (7,461)      (102,582)     (102,075)
    Dispositions                           (96,242)            --       (19,457)
                                          -------------------------------------
  Balance - Real Estate                    587,733        374,400       373,293
    Assets held for sale                     7,461        102,582       102,075
                                          -------------------------------------
Balance, end of year                       595,194        476,982       475,368
                                          =====================================
Accumulated depreciation:
  Balance, beginning of year                37,227         25,836        21,999
    Depreciation                            13,822         11,391         7,786
    Assets held for sale                      (830)       (14,000)      (11,521)
    Dispositions                           (15,083)            --        (3,949)
                                          -------------------------------------
  Balance - Accumulated Depreciation        35,136         23,227        14,315
    Assets held for sale                       830         14,000        11,521
                                          -------------------------------------
Balance, end of year                        35,966         37,227        25,836
                                          =====================================


                                      F-29