UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION




Washington,
D.C. 20549




FORM
10-K





(Mark
One)


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




For
      the fiscal year ended December 31,
2007







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




For
      the transition period from __________ to
  __________




Commission
File No. 001-32470




FRANKLIN
STREET PROPERTIES CORP.


(Exact
name of registrant as specified in its charter)





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


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




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




Title
      of each class:
            Name
      of 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
o.




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 15(d) of the Act.  Yes o    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 o.




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




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




Large
accelerated filer  x                       Accelerated
filer  o




Non-accelerated
filer o                           Smaller
reporting company  o


(Do not
check if a smaller reporting company)




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




State the aggregatemarket 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, 2007 the aggregate market value was approximately
$986,490,021.




There
were 70,480,705 shares of Common Stock outstanding as of February 22,
2008.




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 16, 2008 (the “Proxy
Statement”). The information required in response to Items 10 – 14 of Part III
of this Form 10-K, other than that contained in Part I under the caption,
“Directors and Executive Officers of FSP Corp.,” is hereby incorporated by
reference to such proxy statement.





TABLE
OF CONTENTS





FRANKLIN
      STREET PROPERTIES CORP.
              1PART
      I
              
              1Item
      1.
              Business.
              1Item
      1A.
              Risk
      Factors.
              4Item
      1B.
              Unresolved
      Staff Comments.
              11Item
      2.
              Properties.
              12Item
      3.
              Legal
      Proceedings.
              15Item
      4.
              Submission
      of Matters to a Vote of Security Holders.
              15Directors
      and Executive Officers of FSP Corp.
              15PART
      II
              
              18Item
      5.
              Market
      For Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchasesof
      Equity Securities
              18Stock
      Performance Graph.
              20Item
      6.
              Selected
      Financial Data.
              21Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
              22Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk.
              39Item
      8.
              Financial
      Statements and Supplementary Data.
              39Item
      9.
              Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure.
              40Item
      9A.
              Controls
      and Procedures.
              40Item
      9B.
              Other
      information.
              41PART
      III
              
              42Item
      10.
              Directors,
      Executive Officers and Corporate Governance
              42Item
      11.
              Executive
      Compensation.
              42Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and
      RelatedStockholder
      Matters.
              42Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence.
              42Item
      14.
              Principal
      Accountant Fees and Services.
              42PART
      IV
              
              43Item
      15.
              Exhibits
      and Financial Statement Schedules.
              43SIGNATURES
              44





PART
      I




Item
      1.
            Business




History




Our
company, Franklin Street Properties Corp., which we refer to as FSP Corp. or the
Company, is a Maryland corporation that operates in a manner intended to qualify
as a real estate investment trust, or REIT, for federal income tax
purposes.  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 April
30, 2005, we acquired four real estate investment trusts by merger, which we
refer to as the 2005 Target REITs.  In these mergers we issued
10,894,994 shares of common stock to holders of preferred stock in the 2005
Target REITs. As a result of these mergers, we acquired all of the assets
previously held by the 2005 Target REITs.




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




On April
30, 2006, we acquired five real estate investment trusts by merger, which we
refer to as the 2006 Target REITs.  In these mergers we issued
10,971,697 shares of common stock to holders of preferred stock in the 2006
Target REITs. As a result of these mergers, we acquired all of the assets
previously held by the 2006 Target REITs.




Our
Business




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




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





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





From
time-to-time we may acquire real estate or invest in real estate by purchasing
shares of preferred stock offered in the syndications of our Sponsored
REITs.  We may also pursue on a selective basis the sale of our
properties to take advantage of the value creation and demand for our
properties, or for geographic or property specific reasons.




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




1


Real
Estate




We own
and operate a portfolio of real estate consisting of 26 properties as of
December 31, 2007, which includes 25 office buildings and one industrial use
property.  We derive rental revenue from income paid to us by tenants
of these properties.  From time-to-time we dispose of properties
generating gains or losses in an ongoing effort to improve and upgrade our
portfolio.  See Item 2 of this Annual Report on Form 10-K for more
information about our properties.   We also hold investments in
three Sponsored REITs as of December 31, 2007, from which we received
dividends.




FSP Corp.
typically makes a loan to each Sponsored REIT which is secured by a mortgage on
the borrower’s real estate.  The 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.  In December 2007, a Sponsored REIT obtained a revolving
line of credit facility from us, which has not been drawn on but is available
for the purpose of funding capital expenditures and other costs of
leasing.  We anticipate that any advances made under this facility
will be repaid at its maturity on November 30, 2010 or earlier from long-term
financing of the property, cash flows from the property or a capital
event.




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




Investment
Banking/Investment Services




Through
our subsidiary FSP Investments LLC, which acts as a real estate investment
banking firm and broker/dealer, we organize Sponsored REITs, and sell equity in
them through private placements exempt from registration under the Securities
Act of 1933.  These single-purpose entities each typically acquire a
single real estate asset.  FSP Investments raises capital required to
equitize these entities through best efforts offerings to “accredited investors”
within the meaning of Regulation D of the Securities Act.  We retain
100% of the common stock interest in the Sponsored REIT, though there is
virtually no economic benefit or risk related to the common stock subsequent to
the completion of the syndication.  Since 1997, FSP Investments has
sponsored the syndication of 47 entities, 13 of which were Sponsored
Entities, and 34 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 Financial Industry Regulatory Authority, or
FINRA.  We have made an election to treat FSP Investments as a
“taxable REIT subsidiary” for federal income tax purposes.




Investment
Objectives




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




2


From time
to time, as market conditions warrant, we may sell properties owned by
us.  In 2007 we sold five properties.  In 2006 we sold six
properties and reached an agreement to sell another property.  In 2005
we sold six properties and reached an agreement to sell another
property.  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 26 properties that are
located in 13 different states.  Of the 26 properties, 25 are office
buildings and one is an industrial property.  See Item 2 of this
Annual Report on Form 10-K for more information about our
properties.




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




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


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


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


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


·
            we
      believe that we have the ability to hold properties through down cycles
      because we generally do not have significant leverage on the Company,
      which could place them at risk of foreclosure.  As of February
      22, 2008, none of our 26 properties was subject to mortgage debt, although
      four Sponsored REITs organized by us have incurred 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 $250,000,000.  On October 19, 2007,
we amended the loan agreement that evidences and secures our revolving line of
credit to, among other things, increase the amount of borrowings available for
use from $150,000,000 to $250,000,000 and to extend the maturity date from
August 2008 to August 2011.  We have drawn on this line of credit, and
intend to draw on this line of credit in the future for a variety of corporate
purposes, including the funding of interim mortgage loans to Sponsored REITs and
the acquisition of properties that 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 also may make secured loans to Sponsored REITs for
the purpose of funding capital expenditures and other costs which would be
repaid from long-term financing of the property, cash flows from the property or
a capital event.




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 developers, but also
with property users who choose to own their building or a portion of the
building in the form of an office condominium, and 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.




3


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




Employees




We had 37
full-time and 1 part-time employees as of February 22, 2008.




Available
Information




We are
subject to the informational requirements of the Securities Exchange Act of
1934, and, in accordance therewith, we file reports and other information with
the Securities and Exchange Commission (SEC).  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,
Analysis, 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 received at the address on the cover of this Annual Report on Form 10-K,
free of charge.




Item
1A      Risk
Factors.




The
following important factors, among others, could cause actual results to differ
materially from those indicated by forward-looking statements made in this
Annual Report on Form 10-K and presented elsewhere by management from
time-to-time.




Debt
market conditions could have a material adverse impact on our earnings and
financial condition.




Because
interest rate levels and the availability of financing may affect real estate
values, occupancy levels, property income and the propensity and the ability of
investors to invest in Sponsored REITs, debt market conditions could have a
material adverse impact on our earnings and financial condition. The debt market
is currently experiencing unprecedented disruptions, including reduced liquidity
and increased credit risk premiums for certain market
participants.  These conditions, which increase the cost and reduce
the availability of debt, may continue or worsen in the future.  At
this time we cannot predict the extent or duration of any negative impact that
the current debt market conditions will have on our earnings and financial
condition.




4


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




A
substantial portion of our revenue is generated by the rental income of our real
properties. If our properties do not provide us with a steady rental income or
we do not collect interest income from loans we fund, our revenues will
decrease, which 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, and we would be unable to increase the
size of our portfolio of real estate, which would reduce the cash available for
distribution to our stockholders.




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 typically secured
by a first mortgage against the real property acquired by the Sponsored
REIT.  Once the offering has been completed, the Sponsored REIT
typically repays the loan out of the offering proceeds.  If we are
unable to fully syndicate a Sponsored REIT, the Sponsored REIT could be unable
to fully repay the loan, and we would have to satisfy our obligation under our
line of credit through other means.  If we are required to use cash
for this purpose, we would have less cash available for distribution to our
stockholders.




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




We
typically draw on our line of credit to make an interim mortgage loan to a
Sponsored REIT, so that the Sponsored REIT can acquire real property prior to
the consummation of the offering of such Sponsored REIT’s equity interests. Once
the offering has been completed, the Sponsored REIT typically 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 or to make loans to
Sponsored REITs or for other corporate purposes. 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.




An
increase in interest rates would increase our interest costs on any variable
rate advances under our line of credit and could adversely impact our ability to
refinance our line of credit or sell assets.




As of
December 31, 2007, we had approximately $84.8 million of indebtedness that
bears interest at a variable rate under our line of credit, and we may incur
more of such indebtedness in the future.  Accordingly, if interest
rates increase, so will the cost of any variable rate advances under our line of
credit, which could adversely affect our cash flow and decrease the amount of
cash available for distribution to our stockholders.  In addition,
rising interest rates could limit our ability to refinance our line of credit
when it matures in 2011.  Rising interest rates could also decrease
the amount third parties are willing to pay for our assets, thereby limiting our
ability to change our portfolio promptly in response to changes in economic or
other conditions.


5





In
response to this interest rate risk, in the future we may enter into interest
rate swap agreements and other interest rate hedging contracts, including
interest rate caps and floors.  While these agreements would be
intended to lessen the impact of rising interest rates on us, they could
also expose us to certain risks, including the risk that the other parties
to the agreements would not perform, the risk that the agreements would be
unenforceable and the risk that the underlying transactions would
fail to qualify as highly-effective cash flow hedges under SFAS
No. 133, “Accounting for Derivative Instruments and Hedging Activities, as
amended”.




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




We
face risks from tenant defaults or bankruptcies.




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




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




As of
February 22, 2008, we owned 26 properties.  Some or all of these
properties may decline in value. To the extent our real properties decline in
value, our stockholders could lose some or all of the value of their
investments. The value of our common stock may be adversely affected if the real
properties held by us decline in value since these real properties represent the
majority of the tangible assets held by us.  Moreover, if we are
forced to sell or lease the real property held by us below its initial purchase
price or its carrying costs or if we are forced to lease real property at below
market rates because of the condition of the property, our results of operations
would be adversely affected and such negative results of operations may result
in lower dividends being paid to holders of our common stock.




6


New
acquisitions may fail to perform as expected.




We may
acquire new properties, whether by direct FSP Corp. purchase with cash or our
line of credit, by acquisition of Sponsored REITs or other entities by cash or
through the issuance of shares of our stock or by investment in a Sponsored
REIT.  We acquired the four 2005 Target REITs and the properties they
owned on April 30, 2005, a property in Colorado in February 2005, another
property in Indiana in July 2005 and another property in Texas in February 2006.
We also acquired the five 2006 Target REITs and the properties they owned on
April 30, 2006, a property in Georgia in June 2006 and a property in Colorado in
December 2006.  We acquired a property in Maryland in June
2007.  Newly acquired properties may fail to perform as expected, in
which case, our results of operations could be adversely affected.




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




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




·
            changes
      in general and local economic
conditions;


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


·
            changes
      in market rental rates;


·
            the
      impact of environmental protection
laws;


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


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





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




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




When
leases expire, we 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.  Typical lease terms
range from five to ten years, so up to approximately 20% of our rental revenue
from commercial properties could be expected to expire each year.




We
face risks from geographic concentration.




The
properties in our portfolio as of December 31, 2007, by aggregate square
footage, are distributed geographically as follows: Southwest – 27%, Northeast –
17%, Midwest – 19%, West – 22% and Southeast – 15%. However, within certain of
those regions, we hold a larger concentration of our properties in Dallas, Texas
– 19%, Greater Denver, Colorado – 14%, Atlanta, Georgia – 8% and Houston, Texas
– 8%.  We are likely to face risks to the extent that any of these
areas in which we hold a larger concentration of our properties suffer
deteriorating economic conditions.





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




Competition
exists in every market in which our properties are currently located and in
every market in which properties we may acquire in the future will be located.
We compete with, among others, national, regional and numerous local real estate
operators and developers. Such competition may adversely affect the percentage
of leased space and the rental revenues of our properties, which could adversely
affect our cash flow from operations and our ability to make expected
distributions to our stockholders. Some of our competitors may have
more




7


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 revenue to increase from an increase in leased space in
our properties.




We
anticipate that future increases in revenue from our properties will be
primarily the result of scheduled rental rate increases or rental rate increases
as leases expire. 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:




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


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


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


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





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




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




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.




8


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




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





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




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





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




We carry,
or our tenants carry, comprehensive liability, fire and extended coverage with
respect to each of our properties, with policy specification and insured limits
customarily carried for similar properties. There are, however, certain types of
losses that may be either uninsurable or not economically insurable. Should an
uninsured material loss occur, we could lose both capital invested in the
property and anticipated profits.




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




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




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


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


·
            liabilities
      incurred in the ordinary course of
business.





Our
employee retention plan may prevent changes in control.





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




9


The
price of our common stock may vary.





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




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




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




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




Provisions
in our organizational documents may prevent changes in control.




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




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 2008, 2009 and
2010, 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.




10


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




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




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




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




Item
1B.           Unresolved
Staff Comments.




None.




11


Item
      2.
            Properties




Set forth
below is information regarding our properties as of December 31,
2007:
  Property
      Location
              Date
      of
                Purchase
                or
      Merged
                Entity
                Date
      of
                Purchase
              Approx.
                Square
      Feet
              Percent
                Leased
      as
                of
      12/31/07
              Approx.
                Number
                of
      Tenants
              1Major
      TenantsOffice1515
      Mockingbird Lane
              7/1/97
              109,550
              91%
              81
              Primary
      PhysicianCareCharlotte,
      NC 28209678-686
      Hillview Drive
              3/9/99
              36,288
              100%
              1
              Headway
      Technologies, Inc.Milpitas,
      CA 95035600
      Forest Point Circle
              7/8/99
              62,212
              87%
              2
              American
      Nat’l Red CrossCharlotte,
      NC  28273
              
              
              
              
              Cellco
      Partnership d/b/aVerizon
      Wireless18000
      W. Nine Mile Rd.
              9/30/99
              215,306
              91%
              7
              Int’l
      Business Machines Corp.Southfield,
      MI 480754820
      & 4920 Centennial Blvd.
              9/28/00
              110,730
              94%
              3
              Comcast
      of Colorado,Colorado
      Springs, CO 80919
              
              
              
              
              Dalsa
      Colorado Springs,Walter
      Kiddie Portable EquipAMI
      Semiconductor, Inc.14151
      Park Meadow Drive
              3/15/01
              134,850
              100%
              2
              CACI,
      Inc.-FederalChantilly,
      VA 201511370
      & 1390 Timberlake
              5/24/01
              232,766
              100%
              5
              RGA
      Reinsurance CompanyManor
      Parkway,
              
              
              
              
              AMDOCS,
      Inc.Chesterfield,
      MO 63017501
      & 505 South 336th
      Street
              9/14/01
              117,010
              12%
              2
              See
      Footnote2Federal
      Way, WA 9800350
      Northwest Point Rd.
              12/5/01
              176,848
              100%
              1
              Citicorp
      Credit ServicesElk
      Grove Village, IL 600051350
      Timberlake Manor
              3/4/02
              116,312
              97%
              7
              RGA
      Reinsurance CompanyParkway
              
              
              
              
              Metropolitan
      Life Ins. CompanyChesterfield,
      MO 63017
              
              
              
              
              Wachovia
      Securities, LLCAb
      Mauri Food dba Fleischmanns
 
 1 Major
tenants are tenants who occupy 10% or more of the space in an individual
property.
 2 No
Tenant occupies more than 10% of the space.
  12
  
 Property
      Location
              Date
      of
                Purchase
                or
      Merged
                Entity
                Date
      of
                Purchase
              Approx.
                Square
      Feet
              Percent
                Leased
      as
                of
      12/31/07
              Approx.
                Number
                of
      Tenants
              1Major Tenants16285
      Park Ten Place
              6/27/02
              155,715
              78%
              9
              Technip
      USA, Inc.Houston,
      TX 77084
              
              
              
              
              TMI,
      Inc. a/k/a Trendmaker Homes2730
      - 2760 Junction Avenue
              8/27/02
              145,951
              81%
              2
              Techwell,
      Inc.408-410
      East Plumeria
              
              
              
              
              County
      of Santa ClaraSan
      Jose, CA 9513415601
      Dallas Parkway
              09/30/02
              293,787
              100%
              10
              The
      Staubach CompanyAddison,
      TX 75001
              
              
              
              
              Behringer
      Harvard Holdings, LLCCredit
      Solutions of America, Inc.Noble
      Royalties, Inc.1500
      & 1600 Greenville Ave.
              3/3/03
              298,766
              100%
              5
              Tektronix
      Texas, LLCRichardson,
      TX 75080
              
              
              
              
              Argo
      Data Resource Corporation.6500
      & 6560 Greenwood Plaza
              2/24/05
              199,077
              100%
              1
              New
      Era of Networks Inc. (Sybase).Englewood,
      CO 801113815-3925
      River Crossing Pkwy
              7/6/05
              205,059
              96%
              18
              Crowe
      Chizek & Company, LLPIndianapolis,
      IN 46240
              
              
              
              
              Somerset
      Financial Services, LLCThe
      College Network, Inc.5055
      & 5057 Keller Springs Rd.
              2/24/06
              218,934
              97%
              21
              THC
      Liberty, Ltd.Addison,
      TX 750012740
      North Dallas Parkway
              12/15/00
              116,622
              81%
              5
              Quadrem
      US, Inc.Plano,
      TX 75093
              
              
              
              
              Bluegreen
      Vacations UnlimitedActivant,
      Masergy Comm.Massergy
      Communications, Inc.5505
      Blue Lagoon Drive
              11/6/03
              212,619
              100%
              1
              Burger
      King Corp.Miami,
      FL 331265620,
      5640 Cox Road
              7/16/03
              297,789
              100%
              1
              3Capital One Services,
  Inc.Glen
      Allen, VA 230601293
      Eldridge Parkway
              1/16/04
              248,399
              100%
              1
              CITGO
      PetroleumHouston,
      TX 77077
 
 3 Capital
One sublets all of the space to LandAmerica Financial
Group.  LandAmerica Financial Group entered into a direct lease with
us which commences at the expiration of the Capital One lease on October 31,
2016.
  13
  
 Property
      Location
              Date
      of
                Purchase
                or
      Merged
                Entity
                Date
      of
                Purchase
              Approx.
                Square
      Feet
              Percent
                Leased
      as
                of
      12/31/07
              Approx.
                Number
                of
      Tenants
              Major
      Tenants380
      Interlocken Crescent
              8/15/03
              240,184
              91%
              13
              Cooley
      Godward LLPBroomfield,
      CO 80021
              
              
              
              
              Montgomery
      Watson AmericasVMWare,
      Inc.3625
      Cumberland Boulevard
              6/22/06
              387,267
              89%
              30
              Corporate
      Holdings, LLCAtlanta,
      GA 30339
              
              
              
              
              Century
      Business Services390
      Interlocken Crescent
              12/21/06
              241,516
              100%
              15
              Vail
      Corp.Broomfield,
      CO 80021
              
              
              
              
              Leopard
      Communications, Inc.MSI  fka
      Management Specialists120
      E. Baltimore St.
              06/13/07
              325,978
              94%
              22
              Ober,
      Kaler Grimes & ShriverBaltimore,
      MD
              
              
              
              
              State
      Retirement of MarylandSunTrust
      BankSub
      Total Office
              
              4,899,535Industrial8730
      Bollman Place
              12/14/99
              98,745
              100%
              1
              Maines
      Paper andSavage
      (Jessup), MD 20794
              
              
              
              
              Foodservice,
      Inc.Sub
      Total Industrial
              
              98,745Grand
      Total
              
              4,998,280
 
 
 All of
the properties listed above are owned, directly or indirectly, by
us.  None of our properties are subject to any mortgage
loans.  We have no material undeveloped or unimproved properties, or
proposed programs for material renovation, improvement or development of any of
our properties.  We believe that our properties are adequately covered
by insurance as of December 31, 2007.
   14







Item
      3.
            Legal
      Proceedings.




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




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




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




Directors and Executive
Officers of FSP Corp.




The
following table sets forth the names, ages and positions of all our directors
and executive officers as of February 22, 2008.




Name
            Age
            PositionGeorge
      J. Carter (5)
            59
            President,
      Chief Executive Officer and DirectorBarbara
      J. Fournier (4)
            52
            Vice
      President, Chief Operating Officer, Treasurer, Secretary and
      DirectorBarry
      Silverstein (1) (2)
      (4)
            74
            DirectorDennis
      J. McGillicuddy (1) (2)
      (3)
            66
            DirectorGeorgia
      Murray (1) (2) (5)
      (7)
            57
            DirectorJohn
      N. Burke (1) (2) (4)
      (6)
            46
            DirectorJohn
      G. Demeritt
            47
            Chief
      Financial OfficerWilliam
      W. Gribbell
            48
            Executive
      Vice PresidentR.
      Scott MacPhee
            50
            Executive
      Vice PresidentJanet
      Prier Notopoulos (3)
            60
            Vice
      President and DirectorScott
      H. Carter
            36
            General
      Counsel and Assistant Secretary








(1)
Member of the Audit Committee


(2)
Member of the Compensation Committee


(3) Class
I Director


(4) Class
II Director


(5) Class
III Director


(6) Chair
of the Audit Committee


(7) Chair
of the Compensation Committee


15


George J.
Carter, age 59, is President, Chief Executive Officer and has been a Director of
FSP Corp. since 2002. Mr. Carter is responsible for all aspects of the business
of FSP Corp. and its affiliates, with special emphasis on the evaluation,
acquisition and structuring of real estate investments.  Prior to the
conversion, he was President of the general partner of the FSP Partnership (the
“General Partner”) and was responsible for all aspects of the business of the
FSP Partnership and its affiliates.  From 1992 through 1996 he was
President of Boston Financial Securities, Inc. (“Boston
Financial”).  Prior to joining Boston Financial, Mr. Carter was owner
and developer of Gloucester Dry Dock, a commercial shipyard in Gloucester,
Massachusetts.  From 1979 to 1988, Mr. Carter served as Managing
Director in charge of marketing of First Winthrop Corporation, a national real
estate and investment banking firm headquartered in Boston,
Massachusetts.  Prior to that, he held a number of positions in the
brokerage industry including those with Merrill Lynch & Co. and Loeb Rhodes
& Co.  Mr. Carter is a graduate of the University of Miami
(B.S.).  Mr. Carter is a FINRA General Securities Principal (Series
24) and holds a FINRA Series 7 general securities license.





Barbara
J. Fournier, age 52, is the Vice President, Chief Operating Officer, Treasurer,
Secretary and has been a Director of FSP Corp. since 2002.   Ms.
Fournier has as her primary responsibility, together with Mr. Carter, the
management of all operating business affairs of FSP Corp. and its
affiliates.  Ms. Fournier was the Principal Financial Officer until
March 2005.  Prior to the conversion, Ms. Fournier was the Vice
President, Chief Operating Officer, Treasurer and Secretary of the General
Partner.  From 1993 through 1996, she was Director of Operations for
the private placement division of Boston Financial.  Prior to joining
Boston Financial, Ms. Fournier served as Director of Operations for Schuparra
Securities Corp. and as the Sales Administrator for Weston Financial
Group.  From 1979 through 1986, Ms. Fournier worked at First Winthrop
Corporation in administrative and management capacities; including Office
Manager, Securities Operations and Partnership Administration.  Ms.
Fournier attended Northeastern University and the New York Institute of
Finance.  Ms. Fournier is a FINRA General Securities Principal (Series
24).  She also holds other FINRA supervisory licenses including Series
4 and Series 53, and a FINRA Series 7 general securities license.




Barry
Silverstein, age 74, has been a Director of the Company since May
2002.  Mr. Silverstein took his law degree from Yale University in
1957 and subsequently held positions as attorney/officer/director of various
privately-held manufacturing companies in Chicago, Illinois.  In 1964,
he moved to Florida to manage his own portfolio and to teach at the University
of Florida Law School.  In 1968, Mr. Silverstein became the principal
founder and shareholder in Coaxial Communications, a cable television
company.  In 1998 and 1999, Coaxial sold its cable
systems.   Since January 2001, Mr. Silverstein has been a private
investor.




Dennis J.
McGillicuddy, age 66, has been a Director of the Company since May
2002.  Mr. McGillicuddy graduated from the University of Florida with
a B.A. degree and from the University of Florida Law School with a J.D.
degree.  In 1968, Mr. McGillicuddy joined Barry Silverstein in
founding Coaxial Communications, a cable television company.  In 1998
and 1999, Coaxial sold its cable systems.  Mr. McGillicuddy has served
on the boards of various charitable organizations.  He is currently
president of the Board of Trustees of Florida Studio Theater, a professional
non-profit theater organization, and he serves as a Co-Chair, together with his
wife, of Embracing Our Differences, an annual month long art exhibit that
promotes the values of diversity and inclusion.  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 57, has been a Director of the Company since April 2005 and Chair of
the Compensation Committee since October 2006.  Ms. Murray is retired
from Lend Lease Real Estate Investments, Inc., where she served as a Principal
from November 1999 until May 2000. From 1987 through October 1999, Ms. Murray
served as Senior Vice President and Director of The Boston Financial Group,
Inc.  Boston Financial was an affiliate of the Boston Financial Group,
Inc.  She is a past Trustee of the Urban Land Institute and a past
President of the Multifamily Housing Institute.  She previously served
on the Board of Directors of the Capital Crossing Bank, Boston, Massachusetts
and currently serves on the Board of Directors of Capital Crossing Preferred
Corporation, Boston, Massachusetts.  She serves on the boards of
numerous non-profit entities.  Ms. Murray is a graduate of Newton
College.




16


John N.
Burke, age 46, has been a Director of the Company and Chair of the Audit
Committee since June 2004.  Prior to staring his own consulting firm
in 2003, he was an Assurance Partner in the Boston office of BDO Seidman, LLP,
an international accounting and consulting firm.  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 47, 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, a publicly traded real estate investment
trust (formerly known as the The La Quinta Companies, which was then acquired by
the Blackstone Group), where he was involved with a number of merger and
financing transactions.  Prior to that, from 1986 to 1995 he had
financial and accounting responsibilities at three other public companies, and
was previously associated with Laventhol & Horwath, an independent
accounting firm from 1983 to 1986.  Mr. Demeritt is a Certified Public
Accountant and holds a Bachelor of Science degree from Babson
College.




William
W. Gribbell, age 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. Gribbell was an Executive Vice
President of the General Partner.  From 1993 through 1996 he was an
executive officer of Boston Financial.  From 1989 to 1993 Mr. Gribbell
worked at Winthrop Financial Associates.  Mr. Gribbell is a graduate
of Boston University (B.A.).  Mr. Gribbell holds a FINRA Series 7
general securities license.




R. Scott
MacPhee, age 50, is an Executive Vice President of FSP Corp. and has as his
primary responsibility the direct equity placement of the Sponsored
REITs.  Prior to the conversion, Mr. MacPhee was an Executive Vice
President of the General Partner.  From 1993 through 1996 he was an
executive officer of Boston Financial.  From 1985 to 1993 Mr. MacPhee
worked at Winthrop Financial Associates.  Mr. MacPhee attended
American International College.  Mr. MacPhee holds a FINRA Series 7
general securities license.




Janet
Prier Notopoulos, age 60, is a Vice President and has been a Director of FSP
Corp. and President of FSP Property Management since 2002. Ms. Notopoulos has as
her primary responsibility the oversight of the management of the real estate
assets of FSP Corp. and its affiliates.  Prior to the conversion, Ms.
Notopoulos was a Vice President of the General Partner.  Prior to
joining the FSP Partnership in 1997, Ms. Notopoulos was a real estate and
marketing consultant for various clients.  From 1975 to 1983, she was
Vice President of North Coast Properties, Inc., a Boston real estate investment
company.  Between 1969 and 1973, she was a real estate paralegal at
Goodwin, Procter & Hoar.  Ms. Notopoulos is a graduate of
Wellesley College (B.A.) and the Harvard School of Business Administration
(M.B.A).




Scott H.
Carter, age 36, has been General Counsel and Assistant Secretary of FSP
Corp. since February 2008.  Mr. Carter joined FSP Corp. in October
2005 as Senior Vice President, In-house Counsel and was appointed to the
position of Assistant Secretary in May 2006.  Mr. Carter has as his
primary responsibility the management of all of the legal affairs of FSP Corp.
and its affiliates.  Prior to joining FSP Corp., Mr. Carter was
associated with the law firm of Nixon Peabody LLP, which he originally joined in
1999.  At Nixon Peabody LLP, Mr. Carter concentrated his practice on
the areas of real estate syndication, acquisitions and finance.  Mr.
Carter received a Bachelor of Business Administration (B.B.A.) degree in Finance
and Marketing and a Juris Doctor (J.D.) degree from the University of
Miami.  Mr. Carter is admitted to practice law in the Commonwealth of
Massachusetts.  Mr. Carter’s father, George J. Carter, serves as
President, Chief Executive Officer and a Director of FSP Corp.


17


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




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




PART
II




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




Our
common stock is listed on the American Stock Exchange under the symbol
“FSP”.  The following table sets forth the high and low sales prices
on the American Stock Exchange for the quarterly periods indicated.




Three
      Months
            
            RangeEnded
            
            High
            
            LowDecember
      31, 2007
            
            $18.63
            
            $14.06September
      30, 2007
            
            $18.25
            
            $14.50June
      30, 2007
            
            $19.75
            
            $16.06March
      31, 2007
            
            $21.15
            
            $18.35December
      31, 2006
            
            $21.05
            
            $19.55September
      30, 2006
            
            $20.29
            
            $18.36June
      30, 2006
            
            $21.98
            
            $19.68March
      31, 2006
            
            $21.85
            
            $19.95







As of
February20,
2008, there
were4,794holders
of record of our common stock.




On
January 18, 2008 we declared a dividend of $0.31 per share of our common stock
payable to stockholders of record as of January 31, 2008 that was paid on
February 20, 2008.  Set forth below are the distributions per share of
common stock made by FSP Corp. in each quarter since 2006.




Quarter
            
            Distribution
      Per Share ofEnded
            
            Common Stock of FSP
Corp.December
      31, 2007
            
            $0.31September
      30, 2007
            
            $0.31June
      30, 2007
            
            $0.31March
      31, 2007
            
            $0.31December
      31, 2006
            
            $0.31September
      30, 2006
            
            $0.31June
      30, 2006
            
            $0.31March
      31, 2006
            
            $0.31







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







18


The
following table provides information about purchases by Franklin Street
Properties Corp. during the quarter ended December 31, 2007 of equity securities
that are registered by the Company pursuant to Section 12 of the Exchange
Act:








ISSUER
PURCHASES OF EQUITY SECURITIES





Period
            (a)
              
              
              
              
              Total
      Number of
              Shares
      (or Units)
              Purchased
              (1)
      (2) (3)
            (b)
              
              
              
              
              Average
      Price
              Paid
      per Share
              (or
      Unit)
            (c)
              
              Total
      Number of
              Shares
      (or Units)
              Purchased
      as
              Part
      of Publicly
              Announced
      Plans
              or
      Programs
              (1)
      (2)
            (d)
              
              Maximum
      Number (or
              Approximate
      Dollar
              Value)
      of Shares (or
              Units)
      that May Yet Be
              Purchased
      Under the
              Plans
      or Programs
              (1)
      (2)10/01/07-10/31/07
            0
            N/A
            0
            $31,240,46511/01/07-11/30/07
            0
            N/A
            0
            $31,240,46512/01/07-12/31/07
            0
            N/A
            0
            $31,240,465Total:
            0
            N/A
            0
            $31,240,465





(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. On
September 10, 2007, FSP Corp. announced that the Board of Directors of FSP Corp.
had authorized certain modifications to this common stock repurchase plan. The
Board of Directors increased the repurchase authorization to up to $50 million
of the Company’s common stock (inclusive of all repurchases previously made
under the plan).  The repurchase authorization expires at the earlier
of (i) November 1, 2009 or (ii) a determination by the Board of Directors of FSP
Corp. to discontinue repurchases.


19


STOCK
PERFORMANCE GRAPH





The
following graph compares the cumulative total stockholder return on the
Company’s common stock between December 31, 2002 and December 31, 2007 with the
cumulative total return of (1) the NAREIT Equity Index, (2) the Standard &
Poor’s 500 Composite Stock Price Index (“S&P 500”) and (3) the Russell 2000
Total Return Index over the same period.  This graph assumes the
investment of $100.00 on December 31, 2002 and assumes that any
distributions are reinvested.











As
      of December 31,2002
            2003
            2004
            2005
            2006
            2007FSP
            $100
            $121
            $139
            $175
            $186
            $142NAREIT
      Equity
            100
            137
            180
            202
            273
            230S&P
      500
            100
            129
            143
            150
            173
            183Russell
      2000
            100
            147
            174
            182
            216
            212








Notes to
Graph:


Because
there was no market for the Company’s common stock prior to its listing on the
American Stock Exchange on June 2, 2005, the Board of Directors made a good
faith determination of the price per share of Common Stock as of December 31,
2002, December 31, 2003 and December 31, 2004 for purposes of the calculations
set forth above.  In order to make the Common Stock price more
comparable to publicly traded indices, the Board of Directors did not apply any
discount to reflect the lack of a trading market.








20





Item
6.          Selected Financial
Data.




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









Year
      Ended December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(In
      thousands, except per share amounts)Operating
      Data:Total
      revenue
            
            $
            126,993
            
            
            $
            107,245
            
            
            $
            72,470
            
            
            $
            65,094
            
            
            $
            51,020Income
      from:Continuing
      operations
            
            
            36,106
            
            
            
            41,540
            
            
            
            30,137
            
            
            
            32,057
            
            
            
            25,950Discontinued
      operations
            
            
            1,190
            
            
            
            7,951
            
            
            
            14,486
            
            
            
            15,706
            
            
            
            14,068Gain
      on sale of properties
            
            
            23,789
            
            
            
            61,438
            
            
            
            30,493
            
            
            
            -
            
            
            
            6,362Net
      income
            
            
            61,085
            
            
            
            110,929
            
            
            
            75,116
            
            
            
            47,763
            
            
            
            46,380Basic
      and diluted income per share:Continuing
      operations
            
            
            0.51
            
            
            
            0.62
            
            
            
            0.53
            
            
            
            0.65
            
            
            
            0.66Discontinued
      operations
            
            
            0.01
            
            
            
            0.12
            
            
            
            0.25
            
            
            
            0.31
            
            
            
            0.36Gain
      on sale of properties
            
            
            0.34
            
            
            
            0.91
            
            
            
            0.54
            
            
            
            -
            
            
            
            0.16Total
            
            
            0.86
            
            
            
            1.65
            
            
            
            1.32
            
            
            
            0.96
            
            
            
            1.18Distributions
      declared pershare outstanding (1):
            
            
            1.24
            
            
            
            1.24
            
            
            
            1.24
            
            
            
            1.24
            
            
            
            1.36





As
      of December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Balance
      Sheet Data:Total
      assets
            
            $
            1,003,466
            
            
            $
            955,317
            
            
            $
            677,173
            
            
            $
            573,111
            
            
            $
            528,529Total
      liabilities
            
            
            112,848
            
            
            
            33,355
            
            
            
            15,590
            
            
            
            70,023
            
            
            
            11,674Total
      shareholders' equity
            
            
            890,618
            
            
            
            921,962
            
            
            
            661,583
            
            
            
            503,088
            
            
            
            516,855







(1)
            In
      2003 a special dividend of $0.12 per share was paid relating to the sale
      of two residential properties.




The 2006, 2005 and 2003 financial
statements reflect acquisition by merger of 5, 4 and 13 Sponsored REITs,
respectively.  Prior to their acquisition, FSP Corp. held a
non-controlling common interest with virtually no economic benefits or risks in
these REITs, and a preferred interest in one of the 2006 Target
REITs.




21





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




Overview




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




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




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




Trends and
Uncertainties




Debt
Market Conditions




Because
interest rate levels and the availability of financing may affect real estate
values, occupancy levels, property income and the propensity and the ability of
investors to invest in Sponsored REITs, debt market conditions could affect our
business. The debt market is currently experiencing unprecedented disruptions,
including reduced liquidity and increased credit risk premiums for certain
market participants.  These conditions, which increase the cost and
reduce the availability of debt, may continue or worsen in the
future.  At this time we cannot predict the extent or duration of any
negative impact that the current debt market conditions will have on our
business.







22







Real
Estate Operations




Our real
estate portfolio was approximately 93% leased as of December 31, 2007, as
compared to 89% leased as of December 31, 2006 and 91% leased as of September
30, 2007.  Two major leases accounted for most of the increase from
the end of the third quarter to the end of the fourth quarter of
2007.  Approximately 90,000 square feet of space at our property in
Silicon Valley that we had renovated and repositioned during 2007 was
leased.  The other major lease was for approximately 49,000 square
feet at one of our greater Denver properties.  Our other repositioned
property in the greater Seattle/Tacoma area has been slower to lease and remains
substantially vacant; however, we believe that this property will continue to
lease up over time, if market conditions remain favorable.




The gains
from new leasing activity in 2007 were partially offset by the termination of
one lease to a subprime lender in the greater Atlanta market.  At this
time we cannot predict whether the current debt market conditions will have a
negative impact on the financial strength of our existing
tenants.  Accordingly, we have been closely monitoring those tenants
in the mortgage lending, development and related industries.  As of
December 31, 2007, approximately 1% of our total square footage was leased to
tenants in the mortgage lending industry and we have taken that credit risk into
account in reviewing our reserve for bad debts.




While we
cannot predict when existing vacancy will be leased or if existing tenants with
expiring leases will renew their leases or what the terms and conditions of the
lease renewals will be, we expect to renew or sign new leases at current market
rates for locations in which the buildings are located, which in some cases may
be below the expiring rental rates.  We ended 2007 with strong leasing
activity in most of our markets but we have not seen a similar level of activity
so far in the beginning of 2008.  It is possible that the current debt
market conditions and related uncertainty in the greater capital markets will
have a negative impact on leasing activity for at least a portion of
2008.




Investment
Banking/Investment Services




Unlike
our real estate operations business, which provides a rental revenue stream
which is ongoing and recurring in nature, our investment banking/investment
services business is transactional in nature.  Equity raised for
Sponsored REIT syndications for 2007 decreased 13.3% to $147.5 million compared
to $170.2 million in 2006.  Business in this area, while always
uncertain, was adversely affected in the third and fourth quarter of 2007 by the
recent turmoil in the financial, debt and real estate
markets.  Investors that have historically participated in our private
placement real estate offerings continue to express uncertainty about investing
in this environment.  Consequently, equity amounts raised by our
investment executives in the third and fourth quarter of 2007 dropped
significantly from approximately $109 million achieved in the first half of 2007
to approximately $38.2 million achieved in the second half of
2007.  At this point, it is unclear when a more visible market
environment will return for our investment banking business.




In
January 2007, one of our Sponsored REITs purchased an office property located in
Chicago, Illinois for investment syndication.  Permanent equity
capitalization of the property was structured as a private placement preferred
stock offering totaling $221 million.  This offering was the largest
single-investment syndication in our history, and was fully subscribed in the
fourth quarter of 2007.  We purchased a total of 965.75 shares of
preferred stock of this Sponsored REIT at a net cost of $82.8
million.  The balance of the offering was subscribed primarily by
institutions and high net worth individuals, our traditional customer
base.  During September 2007, another Sponsored REIT commenced
syndication on an office property located in Kansas City,
Missouri.  Permanent equity capitalization of the property was
structured as a private placement preferred stock offering totaling $65 million,
which is ongoing as of the beginning of 2008.




Notwithstanding
our current syndication in Kansas City, Missouri, our property acquisition
executives are now grappling with greater uncertainty surrounding the valuation
levels for prime commercial investment real estate.  We believe that
the current turmoil in the debt markets, as well as perceptions about the future
U.S. economy and interest rates, are producing a larger than normal divergence
in the perception of value and future relative investment performance of
commercial properties.  While we generally believe that such an
environment has the potential to produce some exceptional property acquisition
opportunities, caution, perspective and disciplined underwriting standards can
significantly impact the timing of any future
acquisitions.  Consequently, our ability to provide a regular stream
of real estate investment product necessary to grow our overall investment
banking/investment services business is uncertain as 2008 begins.  We
also continue to rely solely on our in-house investment executives to access
interested investors who have capital they can afford to place in an illiquid
position







23





for an
indefinite period of time (i.e., invest in a Sponsored REIT).  We
continue to evaluate whether our in-house sales force is capable, either through
our existing client base or through new clients, of raising sufficient
investment capital in Sponsored REITs to achieve future performance
objectives.




Discontinued
Operations and Property Dispositions




During
the year ended December 31, 2007, the Company disposed of five office
properties.  The five office properties are located in Greenville,
South Carolina; Alpharetta, Georgia; San Diego, California; Westford,
Massachusetts and Austin, Texas.  During the year ended December 31,
2006, the Company disposed of one apartment property and five commercial
properties.  The apartment property is located in Katy,
Texas.  The five commercial properties are located in Santa Clara,
California; Fairfax and Herndon, Virginia and North Andover and Peabody,
Massachusetts.  During the year ended December 31, 2005, the Company
disposed of three apartment properties and three commercial
properties.  The three apartment properties included two that are
located in Houston, Texas; and one in Baton Rouge, Louisiana.  The
three commercial properties are located in Folsom, California; Columbia,
Maryland and San Diego, California.  Accordingly, sold properties as
of December 31, 2007 and 2006 are classified as held for sale on our financial
statements.  The operating results for these real estate assets have
been reflected as discontinued operations in the financial statements for the
years ended December 31, 2007, 2006 and 2005.




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




Critical Accounting
Policies




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




Critical
accounting policies are those that have the most impact on the reporting of our
financial condition and results of operations and those requiring significant
judgments and estimates.  We believe that our judgments and 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:





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


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


·
            classification
      of leases; and


·
            revenue
      recognition in the syndication of Sponsored
  REITs.




Allocation
of Purchase Price




We have
historically allocated the purchase prices of properties to land, buildings and
improvements.  Each component of purchase price generally has a
different useful life. For properties acquired subsequent to June 1, 2001, 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.







24





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.  Costs incurred in connection with
leasing (primarily tenant improvements and leasing commissions) are capitalized
and amortized over the lease period.  The allocated cost of land is
not depreciated.  The value of above or below-market leases is
amortized over the remaining non-cancelable periods of the respective leases as
an adjustment to rental income.  The value of in-place leases,
exclusive of the value of above-market and below-market in-place leases, is also
amortized over the remaining non-cancelable periods of the respective
leases.  If a lease is terminated prior to its stated expiration, all
unamortized amounts relating to that lease are written
off.  Inappropriate allocation of acquisition costs, or incorrect
estimates of useful lives, could result in depreciation and amortization
expenses which do not appropriately reflect the allocation of our capital
expenditures over future periods, as is required by generally accepted
accounting principles.




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.







25





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 or dividends received from Sponsored REITs generally are
recognized as income once the investment balance is reduced to zero, unless
there is an asset held for syndication from the Sponsored REIT
entity.  Equity in losses or distributions received in excess of
investment is recorded as an adjustment to the carrying value of the asset held
for syndication.




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




We have
acquired a preferred stock interest in three Sponsored REITs.  As a
result of our common stock interest and our preferred stock interest in these
three Sponsored REITs, we exercise influence over, but do not control these
entities.  These preferred share investments are accounted for using
the equity method.  Under the equity method of accounting our cost
basis is adjusted by our share of the Sponsored REITs' operations and
distributions received.  We also agreed to vote our preferred shares
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.  Competition, economic conditions and other factors may cause
occupancy declines in the future.  In the future we may need to revise
our carrying value assessments to incorporate information which is not now known
and such revisions could increase or decrease our depreciation expense related
to properties we own, result in the classification of our leases as other than
operating leases or decrease the carrying values of our assets.




Recent Accounting
Standards




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, which defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (“GAAP”), and expands
disclosures about fair value measurements.  SFAS No. 157 applies under
other accounting pronouncements that require or permit fair value measurements,
the FASB having previously concluded in those accounting pronouncements that
fair value is the relevant measurement attribute.  SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years.  The
adoption of this standard is not expected to have material impact on the
Company’s financial position, operations or cash flow.







26





Results
of Operations




Overview:





During
2005 we acquired the four 2005 Target REITs by merger, acquired two additional
properties and sold six properties.  During 2006 we acquired the five
2006 Target REITs by merger, acquired three additional properties, made an $4.1
million investment in a Sponsored REIT, sold six properties and reached an
agreement to sell another property, which closed on January 31,
2007.  During 2007 we acquired one property, made an $82.8 million
investment in a Sponsored REIT and sold five properties.  As a result
of this activity, as of December 31, 2007, we owned 26 properties and increased
our investments in non-consolidated REITs.





Mergers
and Acquisitions:





On
February 24, 2005 we acquired one commercial property in Colorado, on April 30,
2005 we completed the acquisition by merger of the four 2005 Target REITs, and
on July 6, 2005 we acquired one commercial property in Indiana.  On
February 24, 2006 we acquired one commercial property in Texas, on April 30,
2006 we completed the acquisition by merger of the five 2006 Target REITs, on
June 27, 2006 we acquired a commercial property in Georgia and on December 21,
2006 we acquired a commercial property in Colorado.   On June 13,
2007 we acquired a commercial property in Maryland.  The results of
operations for each of the acquired or merged properties are included in our
operating results as of their respective purchase or merger
dates.  Increases in rental revenues and expenses for the year ended
December 31, 2007 compared to the year ended December 31, 2006, or, the year
ended December 31, 2006 compared to the year ended December 31, 2005 are
primarily a result of the timing of these acquisitions and subsequent
contribution of these acquired properties.





Sales of
Real Estate:





The sales
of real estate in 2005 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.





The sales
of real estate in 2006 included the following.  On May 24, 2006 we
sold an apartment building in Katy, Texas, and on May 31, 2006 we sold two
commercial properties, one in Santa Clara, California and another in Fairfax,
Virginia.  On August 9, 2006 we sold a commercial property in Peabody,
Massachusetts, on November 16, 2006 we sold a commercial property in Herndon,
Virginia and on December 21, 2006 we sold a commercial property in North
Andover, Massachusetts.  As of December 31, 2006, we classified a
property in Greenville, South Carolina as held-for-sale, which was sold on
January 31, 2007.





Additional
sales of real estate in 2007 included the following.  On June 21, 2007
we sold an office property in Alpharetta, Georgia, and on June 27, 2007 we sold
an office property in San Diego, California, on July 16, 2007 we sold an office
property in Westford, Massachusetts, and on December 20, 2007 we sold an office
property in Austin, Texas.




The
operating results of the seventeen properties sold in 2005, 2006 and 2007 are
classified as discontinued operations in our financial statements for all
periods presented.





Investment
Banking:





Revenue
for the investment banking/investment services segment is primarily based on the
gross proceeds from the sale of securities in the syndications of the Sponsored
REITs.  We completed the syndication of three Sponsored REITs with
total gross proceeds of $138.8 million in 2005 and two Sponsored REITs with
total gross proceeds of $170.2 million in 2006.  The $31.4 million
increase in 2006 compared to 2005 reversed a trend of declines, which had been
attributable to difficulty in finding properties that met our investment
criteria.  During





27





2007 we
completed one syndication of a Sponsored REIT and are in the process of
syndicating another Sponsored REIT, for which total gross proceeds from both
syndications aggregated $147.5 million in 2007.  We believe the
decrease of $22.7 million in 2007 compared to 2006 was attributable to the
recent turmoil in the financial, debt and real estate markets, which is
discussed above in “Trends and Uncertainties”.  Revenues and expenses
for investment banking/investment services are directly related to the gross
proceeds of these syndications.





Our
acquisition executives continue to work on other property investment
opportunities.  However, our investment banking business was
negatively impacted by the turmoil in the financial, debt and real estate
markets that began in the third quarter of 2007.  Business growth in
this area is uncertain at the beginning of 2008.





The
following table shows financial results for the years ended December 31, 2007
and 2006.







(in
      thousands)Revenue:
            
            2007
            
            
            2006
            
            
            ChangeRental
            
            $
            100,961
            
            
            $
            83,147
            
            
            $
            17,814Related
      party revenue:Syndication
      fees
            
            
            8,986
            
            
            
            10,693
            
            
            
            (1,707
            )Transaction
      fees
            
            
            9,898
            
            
            
            11,262
            
            
            
            (1,364
            )Management
      fees and interest income from loans
            
            
            7,030
            
            
            
            2,083
            
            
            
            4,947Other
            
            
            118
            
            
            
            60
            
            
            
            58Total
      revenue
            
            
            126,993
            
            
            
            107,245
            
            
            
            19,748Expenses:Real
      estate operating expenses
            
            
            26,171
            
            
            
            19,045
            
            
            
            7,126Real
      estate taxes and insurance
            
            
            16,761
            
            
            
            12,282
            
            
            
            4,479Depreciation
      and amortization
            
            
            29,334
            
            
            
            20,893
            
            
            
            8,441Selling,
      general and administrative
            
            
            7,466
            
            
            
            8,518
            
            
            
            (1,052
            )Commissions
            
            
            4,737
            
            
            
            5,522
            
            
            
            (785
            )Interest
            
            
            7,684
            
            
            
            2,449
            
            
            
            5,235Total
      expenses
            
            
            92,153
            
            
            
            68,709
            
            
            
            23,444Income
      before interest income, equity in earnings (deficits)
              of
      non-consolidated REITs and taxes on income
            
            
            34,840
            
            
            
            38,536
            
            
            
            (3,696
            )Interest
      income
            
            
            2,377
            
            
            
            2,998
            
            
            
            (621
            )Equity
      in earnings (deficit) of non-consolidated REITs
            
            
            (464
            )
            
            
            845
            
            
            
            (1,309
            )Income
      before taxes on income
            
            
            36,753
            
            
            
            42,379
            
            
            
            (5,626
            )Taxes
      on income
            
            
            647
            
            
            
            839
            
            
            
            (192
            )Income
      from continuing operations
            
            
            36,106
            
            
            
            41,540
            
            
            
            (5,434
            )Income
      from discontinued operations
            
            
            1,190
            
            
            
            7,951
            
            
            
            (6,761
            )Income
      before gain on sale of properties
            
            
            37,296
            
            
            
            49,491
            
            
            
            (12,195
            )Gain
      on sale of properties
            
            
            23,789
            
            
            
            61,438
            
            
            
            (37,649
            )Net
      income
            
            $
            61,085
            
            
            $
            110,929
            
            
            $
            (49,844
            )















28





Comparison
of the year ended December 31, 2007 to the year ended December 31,
2006




Revenues




Total
revenues increased by $19.8 million to $127.0 million for the year ended
December 31, 2007, as compared to $107.2 million for the year ended December 31,
2006.  The increase was primarily a result of:




o
            An
      increase to rental revenue of approximately $17.8 million from real estate
      arising from the acquisitions of the following properties: a property in
      Texas during February 2006, the five 2006 Target REITs by merger on April
      30, 2006, a property in Georgia in June 2006, a property in Colorado in
      December 2006 and a property in Maryland in June 2007.  The
      increase was net of a $7.2 million decrease in lease termination payments
      received.  During the year ended December 31, 2007 we received
      lease termination fee income of $253,000 compared to approximately $7.5
      million received from three tenants during the year ended December 31,
      2006.


o
            An
      increase in management fees and interest income from loans of
      approximately $4.9 million, which was principally a result of interest
      income from larger average loan balances during the year ended December
      31, 2007 as compared to the same period in 2006 for the mortgage loans on
      the properties in syndication.  The impact of this increase was
      slightly greater as a result of higher interest rates charged during 2007
      compared to 2006.





These
increases were partially offset by:





o
            A
      $3.0 million decrease in syndication and transaction (loan commitment)
      fees, which was principally a result of the decrease in gross syndication
      proceeds for the year ended December 31, 2007 compared to the same period
      in 2006.





Expenses





Total
expenses were $92.2 million for the year ended December 31, 2007, or an increase
of $23.4 million compared to the year ended December 31, 2006.  The
increase was primarily a result of:





o
            The
      increase in real estate operating expenses, real estate taxes and
      insurance costs of $11.6 million, and depreciation of $8.4 million, which
      were primarily a result of the acquisitions and mergers discussed
      above.


o
            An
      increase in interest expense of $5.2 million resulting primarily from a
      higher average loan balance outstanding during the year ended December 31,
      2007 compared to the year ended December 31, 2006, and slightly higher
      interest rates in 2007 compared to
2006.





These
increases were partially offset by:





o
            A
      decrease in selling, general and administrative expenses of approximately
      $1.0 million for the year ended December 31, 2007, which was primarily a
      result of a decrease in discretionary bonuses.  We had 38
      employees as of December 31, 2007 and 2006 at our headquarters in
      Wakefield.


o
            A
      decrease in commission expense of $0.8 million, which was principally a
      result of the decrease in gross syndication proceeds for the year ended
      December 31, 2007 compared to the year ended December 31,
      2006.





Interest
income





Interest
income decreased $0.6 million to $2.4 million for the year ended December 31,
2007 compared to the year ended December 31, 2006, which was primarily a result
of a lower average balance of cash, which was partially offset by slightly
higher interest rates earned on balances of cash, cash equivalents and other
investments between 2007 and 2006.








29





Equity in earnings (deficit)
of non-consolidated REITs





Equity in
earnings (deficit) of non-consolidated REITs decreased approximately $1.3
million to a deficit of $0.5 million for the year ended December 31, 2007
compared to the year ended December 31, 2006, which was principally a result of
losses attributed to us from the syndications in process during 2007, as
compared to income during the year ended December 31, 2006 from syndications and
non-consolidated investments.





Taxes on
income





Taxes on
income decreased $0.2 million for the year ended December 31, 2007 compared to
the year ended December 31, 2006.  The decrease was primarily due to
lower taxable income from the investment banking and investment services
business in the 2007 period compared to 2006, which was principally a result of
the decrease in gross syndication proceeds from 2007 compared to
2006.  During both periods in 2007 and 2006 we had an effective tax
rate of 40.3%.  We expect an effective tax rate of approximately 40.3%
for our taxable REIT subsidiary in the future.





Income from continuing
operations





The
resulting income from continuing operations for the year ended December 31, 2007
compared to the year ended December 31, 2006 decreased $5.4 million to $36.1
million for the reasons discussed above.





Discontinued operations and
gain on sale of assets





During
2006, we sold six properties and classified one property in Greenville, South
Carolina as held for sale, which was sold on January 31, 2007.  During
2007, we completed the sale of the property in Greenville, South Carolina and
sold four additional properties.  Accordingly, the eleven properties
sold are reported as discontinued operations on our financial statements for the
relevant periods presented.  Income from discontinued operations was
$1.2 million and $7.9 million for the years ended December 31, 2007 and 2006,
respectively.





During
the year ended December 31, 2007 we reported $23.8 million as gain on sale of
assets and for the year ended December 31, 2006 we reported $61.4 million as net
gains on the sale of assets, which are summarized in the tables
below:





(dollars
      in thousands)
            
            
            
            
            NetCity/
            Property
            Date
      of
            
            SalesProperty
      Address
            State
            Type
            Sale
            
            Proceeds
            
            
            Gain200733
      & 37 Villa Road
            Greenville,
      SC
            Office
            January
      31, 2007
            
            $
            5,830
            
            
            $
            -11680
      Great Oaks Way
            Alpharetta,
      GA
            Office
            June
      21, 2007
            
            
            32,535
            
            
            
            6,60117030
      Goldentop Road
            San
      Diego, CA
            Office
            June
      27, 2007
            
            
            36,199
            
            
            
            14,74110
      Lyberty Way
            Westford,
      MA
            Office
            July
      16, 2007
            
            
            10,861
            
            
            
            1,94211211
      Taylor Draper Lane
            Austin,
      TX
            Office
            December
      20, 2007
            
            
            10,429
            
            
            
            257Settlement
      of escrows onprior
      property sales
            
            
            
            
            
            248
            
            
            
            248Net
      Sales Proceeds and Gainon
      sales of real estate
            
            
            
            
            $
            96,102
            
            
            $
            23,789













30










(dollars
      in thousands)
            
            
            
            
            NetCity/
            Property
            Date
      of
            
            SalesProperty
      Address
            State
            Type
            Sale
            
            Proceeds
            
            
            Gain200622400
      Westheimer Parkway
            Katy,
      TX
            Apartment
            May
      24, 2006
            
            $
            18,204
            
            
            $
            2,3734995
      Patrick Henry Drive
            Santa
      Clara, CA
            Office
            May
      31, 2006
            
            
            8,188
            
            
            
            1,55712902
      Federal Systems Park Drive
            Fairfax,
      VA
            Office
            May
      31, 2006
            
            
            61,412
            
            
            
            24,240One
      Technology Drive
            Peabody,
      MA
            Industrial
            August
      9, 2006
            
            
            15,995
            
            
            
            6,3662251
      Corporate Park Drive
            Herndon,
      VA
            Office
            November
      16, 2006
            
            
            58,022
            
            
            
            27,941451
      Andover Street&
      203 Turnpike Street
            North
      Andover, MA
            Office
            December
      21, 2006
            
            
            11,362
            
            
            
            3,810Net
      Sales Proceeds and Gainon
      sales of real estate
            
            
            
            
            $
            173,183
            
            
            
            66,287Provision
      for loss onproperty
      held for sale:33
      & 37 Villa Road
            Greenville,
      SC
            Office
            January
      31, 2007
            
            
            
            
            
            
            (4,849
            )$
            61,438







Net
Income




The
resulting net income for the year ended December 31, 2007 was $61.1 million
compared to net income of $110.9 million for the year ended December 31,
2006.







31





The
following table shows financial results for the years ended December 31, 2006
and 2005.




(in
      thousands)Revenue:
            
            2006
            
            
            2005
            
            
            ChangeRental
            
            $
            83,147
            
            
            $
            51,983
            
            
            $
            31,164Related
      party revenue:Syndication
      fees
            
            
            10,693
            
            
            
            9,268
            
            
            
            1,425Transaction
      fees
            
            
            11,262
            
            
            
            9,412
            
            
            
            1,850Management
      fees and interest income from loans
            
            
            2,083
            
            
            
            1,807
            
            
            
            276Other
            
            
            60
            
            
            
            -
            
            
            
            60Total
      revenue
            
            
            107,245
            
            
            
            72,470
            
            
            
            34,775Expenses:Real
      estate operating expenses
            
            
            19,045
            
            
            
            11,062
            
            
            
            7,983Real
      estate taxes and insurance
            
            
            12,282
            
            
            
            7,624
            
            
            
            4,658Depreciation
      and amortization
            
            
            20,893
            
            
            
            10,755
            
            
            
            10,138Selling,
      general and administrative
            
            
            8,518
            
            
            
            7,448
            
            
            
            1,070Commissions
            
            
            5,522
            
            
            
            5,005
            
            
            
            517Interest
            
            
            2,449
            
            
            
            2,997
            
            
            
            (548
            )Total
      expenses
            
            
            68,709
            
            
            
            44,891
            
            
            
            23,818Income
      before interest income, equity in earnings (deficit)
              of non-consolidated REITs and taxes on income
            
            
            38,536
            
            
            
            27,579
            
            
            
            10,957Interest
      income
            
            
            2,998
            
            
            
            1,583
            
            
            
            1,415Equity
      in earnings (deficit) of non-consolidated REITs
            
            
            845
            
            
            
            1,397
            
            
            
            (552
            )Income
      before taxes on income
            
            
            42,379
            
            
            
            30,559
            
            
            
            11,820Taxes
      on income
            
            
            839
            
            
            
            422
            
            
            
            417Income
      from continuing operations
            
            
            41,540
            
            
            
            30,137
            
            
            
            11,403Income
      from discontinued operations
            
            
            7,951
            
            
            
            14,486
            
            
            
            (6,535
            )Income
      before gain on sale of properties
            
            
            49,491
            
            
            
            44,623
            
            
            
            4,868Gain
      on sale of properties
            
            
            61,438
            
            
            
            30,493
            
            
            
            30,945Net
      income
            
            $
            110,929
            
            
            $
            75,116
            
            
            $
            35,813





Comparison
of the year ended December 31, 2006 to the year ended December 31,
2005




Revenues




Total
revenues increased by $34.7 million to $107.2 million for the year ended
December 31, 2006, as compared to $72.5 million for the year ended December 31,
2005.  The increase was primarily a result of:




o
            An
      increase to rental revenue of approximately $31.1 million from real estate
      arising from the following:  the acquisition of the four 2005
      Target REITs by merger on April 30, 2005, acquisitions by direct purchase
      of a property in Colorado during February 2005, Indiana during July 2005,
      Texas during February 2006, the acquisition of the five 2006 Target REITs
      by merger on April 30, 2006, the acquisition of a property in Georgia in
      late June 2006 and the acquisition of a property in Colorado in late
      December 2006.  In addition, during 2006 we received $7.5
      million in termination fees from tenants arising from early termination of
      leases as compared to $963,000 received in 2005.  Collectively,
      the property acquisitions and termination fee income resulted in the
      increase in real estate revenues for the year ended December 31, 2006
      compared to the year ended December 31,
  2005.





32







o
            A
      $3.3 million increase in syndication and transaction (loan commitment)
      fees, which was principally a result of the increase in gross syndication
      proceeds for the year ended December 31, 2006 compared to the same period
      in 2005.


o
            An
      increase in loan interest income of $0.3 million principally as a result
      of increased loan interest income from interim mortgages made to Sponsored
      REITs and increases to overall interest rates during the year ended
      December 31, 2006 compared to the same period in
  2005.





Expenses





Total
expenses were $68.7 million for the year ended December 31, 2006, an increase of
$23.8 million compared to the year ended December 31, 2005.  The
increase was primarily a result of:





o
            The
      increase in real estate operating expenses, real estate taxes and
      insurance of $12.6 million, and depreciation of $10.1 million, which were
      primarily a result of the acquisitions and mergers in properties discussed
      above.


o
            An
      increase in selling, general and administrative expenses
      of  $1.1 million to $8.5 million for the year ended December 31,
      2006, which was primarily a result of compensation and other costs
      relating to merger, acquisition and disposition activity and monitoring
      and managing a larger portfolio of REITs.  We had 38 and 39
      employees, respectively as of December 31, 2006 and 2005 at our
      headquarters in Wakefield,
Massachusetts.


o
            An
      increase in commission expense of $0.5 million, which relates to the
      increase in gross syndication
proceeds.





These
increases were partially offset by:





o
            A
      decrease in interest expense of $0.5 million resulting from a lower
      average loan balance outstanding for syndications in process during the
      year ended December 31, 2006 compared to the year ended December 31,
      2005.  A contributing factor was the use of our cash as a source
      of funds to finance a portion of the syndication of FSP Phoenix Tower
      Corp., which was completed on September 22, 2006, and the syndication of
      FSP 50 South Tenth Street Corp., which was substantially completed on
      December 28, 2006.  The decrease was partially offset by higher
      interest rates and loan fees in the 2006 period than the 2005
      period.





Interest
income





Interest
income increased $1.4 million during the year ended December 31, 2006, primarily
as a result of higher interest rates earned on higher average balances of cash,
cash equivalents and other investments compared to the year ended December 31,
2005.





Equity in earnings (deficit)
of non-consolidated REITs





Equity in
earnings (deficit) of non-consolidated REITs decreased $0.5 million, which was
principally a result of the timing of investor closings on the syndications in
process during the year ended December 31, 2006 compared to the syndications in
process during the same period in 2005.





Taxes on
income





Tax
expense increased $0.4 million to $0.8 million for the year ended December 31,
2006 as compared to $0.4 million for the year ended December 31, 2005, primarily
due to a greater taxable income from the investment banking and services
business in 2006 compared to 2005.  During 2006 and 2005 we had an
effective tax rate of 40.3%.  We expect an effective tax rate of
approximately 40.3% for our taxable REIT subsidiary in the future.




Income from continuing
operations
 
 The
resulting income from continuing operations for the year ended December 31, 2006
increased $11.4 million to $41.5 million for the reasons discussed above
compared to the year ended December 31, 2005.   33


Discontinued operations and
gain on sale of assets





During
2005, we sold six properties and during 2006, we sold six properties and
classified one property in Greenville, South Carolina as held for sale, which
was sold on January 31, 2007.  During 2007, we completed the sale of
the property in Greenville, South Carolina and sold four additional
properties.  Accordingly, the seventeen properties sold are reported
as discontinued operations on our financial statements for the relevant periods
presented.  Income from discontinued operations was $7.9 million and
$14.5 million for the year ended December 31, 2006 and 2005,
respectively.





During
the year ended December 31, 2006 we reported $61.4 million as net gain on sale
of assets, which were summarized previously in the comparison of the year ended
December 31, 2007 to December 31, 2006.  For the year ended December
31, 2005 we reported $30.5 million as net gains on the sale of assets, which are
summarized below:





(in
      thousands)
            
            
            
            
            NetCity/
            Property
            Date
      of
            
            Sales
            
            
            Gain/Property
      Address
            State
            Type
            Sale
            
            Proceeds
            
            
            (Loss)200581
      Blue Ravine
            Folsom,
      CA
            Office
            July
      13, 2005
            
            
            4,764
            
            
            
            (1,124
            )7250
      Perkins Road
            Baton
      Rouge, LA
            Apartment
            September
      19, 2005
            
            
            22,280
            
            
            
            7,2657130-7150
      Columbia Gateway Dr
            Columbia,
      MD
            Office
            September
      20, 2005
            
            
            25,949
            
            
            
            6,807Park
      Ten Development (1)
            Houston,
      TX
            Land
            September
      29, 2005
            
            
            850
            
            
            
            3393919
      Essex Lane
            Houston,
      TX
            Apartment
            October
      5, 2005
            
            
            13,752
            
            
            
            5,1124000
      Essex Lane
            Houston,
      TX
            Apartment
            October
      5, 2005
            
            
            22,715
            
            
            
            5,1515751-5771
      Copley Drive
            San
      Diego, CA
            Office
            December
      8, 2005
            
            
            22,570
            
            
            
            6,943$
            112,880
            
            
            $
            30,493





(1)  On
September 29, 2005, the Company recorded a non-monetary exchange gain of $0.3
million from contribution of 2.9 acres of developable land contributed in
exchange for 8.5 preferred shares (approximately 3.05%) of the Sponsored REIT,
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.




Net
Income




The
resulting net income for the year ending December 31, 2006 was $110.9 million
compared to net income of $75.1 million for the year ended December 31,
2005.







34





Liquidity
and Capital Resources




Cash and
cash equivalents were $47.0 million and $70.0 million at December 31, 2007 and
December 31, 2006, respectively. This decrease of $23.0 million is attributable
to $70.1 million provided by operating activities less $85.3 million used by
investing activities and $7.8 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 $70.1 million, which includes $1.2
million of discontinued operations from sales of real estate assets, is
primarily attributable to net income of $61.1 million excluding non-cash
activity, consisting primarily of the gain on sale of real estate assets of
$23.8 million, depreciation and amortization of $35.5 million; plus equity in
the loss from non-consolidated REITs of $0.5 million; plus dividends received
from non-consolidated REITs of $1.8 million; less payment of deferred leasing
commissions of approximately $4.3 million and net uses arising from changes in
current assets and current liabilities of $0.7 million.




Investing
Activities




Our cash
used by investing activities of $85.3 million is attributable to the proceeds
from sale of properties of $96.1 million; plus redemption of an investment in a
certificate of deposit of $5.1 million; less uses of $81.6 million for
acquisitions and additions to real estate investments and office equipment,
which includes $0.1 million in additions made to properties sold during 2007;
less an investment in non-consolidated REITs of $82.8 million; and less an
investment in an asset held for syndication of $22.1 million.




Financing
Activities




Our cash
used by financing activities of $7.8 million is attributable to approximately
$87.7 million of distributions to shareholders and the purchase of our Company’s
shares of $4.8 million less proceeds from borrowings under our bank note payable
of $84.7 million.




Line
of Credit




We have a
revolving line of credit agreement with a group of banks providing for
borrowings of up to $250 million.  On October 19, 2007, we amended the
loan agreement that evidences and secures our revolving line of credit to, among
other things, increase the amount of borrowings available to use from
$150,000,000 to $250,000,000 and to extend the maturity date from August 2008 to
August 2011.  Borrowings under the line of credit bear interest at
either the bank's prime rate (7.25% at December 31, 2007) or a rate equal to 30
day LIBOR plus 100 basis points (5.6% at December 31, 2007). There were
borrowings of $84,750,000 at the 30 day LIBOR plus 100 basis point rate at a
weighted average rate of 6.2% outstanding under the line of credit at December
31, 2007.  We are in compliance with all bank covenants required by
the line of credit.




We have
drawn on this line of credit, and intend to draw on this line of credit in the
future for a variety of corporate purposes, including the funding of interim
mortgage loans to Sponsored REITs and the acquisition of properties that 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 also may make
secured loans to Sponsored REITs for the purpose of funding capital expenditures
and other costs which would be repaid from long-term financing of the property,
cash flows from the property or a capital event.
  Contingencies




From time
to time, we may provide financing to Sponsored REITs in the form of a revolving
line of credit secured by a mortgage.  As of December 31, 2007, we
were committed to fund up to $5.5 million to one Sponsored REIT under such an
arrangement for the purpose of funding capital expenditures and leasing costs,
however no amounts have been drawn.





We may be
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.





35





Assets
Held for Syndication




As of
December 31, 2007 we had one asset held for syndication for a property in Kansas
City, Missouri.   On December 27, 2007 we completed the
syndication of FSP 303 East Wacker Drive Corp.  As of December 31,
2006 and 2005, respectively, there were no assets held for
syndication.





Assets
Held for Sale




As of
December 31, 2007 there were no assets held for sale.  During 2006 an
agreement was reached to sell a commercial property in Greenville, South
Carolina at a loss.  The property was sold on January 31,
2007.  Accordingly, this property was recorded at its approximate net
sales price with other properties sold in 2007 and 2006 are classified as held
for sale on the balance sheet as of December 31, 2006.





Related
Party Transactions





During
2007, we commenced the syndication of FSP Grand Boulevard Corp. and completed
the syndications of FSP 50 South Tenth Street Corp. and FSP 303 East Wacker
Drive Corp.  As part of the syndication of FSP 303 East Wacker Drive
Corp., we purchased the final 965.75 shares of its preferred stock for
approximately $82.8 million on December 27, 2007, representing approximately a
43.7% interest.





In
December 2007, we entered into a secured promissory note for a revolving line of
credit, which we refer to as the Revolver, for up to $5.5 million with a
Sponsored REIT, FSP Highland Place I Corp., which is available but has not been
drawn on.  Advances under the Revolver bear interest at a rate equal
to the 30 day LIBOR rate plus 200 basis points.  The Revolver was made
for the purpose of funding capital expenditures and other costs of
leasing.  We anticipate that any advances made under the Revolver will
be repaid at its maturity on November 30, 2010 or earlier from long-term
financing of the property, cash flows from the property or a capital
event.




For a
discussion of transactions between us and related parties during 2006, see
Footnote No. 4 “Related Party Transactions” to the Consolidated Financial
Statements included in this Annual Report on Form 10-K for the year ended
December 31, 2007.





Other
Considerations





We
generally pay the ordinary annual operating expenses of our properties from the
rental revenue generated by the properties.  For the years ending
December 31, 2007 and 2006, the rental income exceeded the expenses for each
individual property, with the exception of a property located in Westford,
Massachusetts, which we sold on July 16, 2007, a property located in Federal
Way, Washington, a property located in San Jose, California and a property
located in Santa Clara, California that was sold on May 31, 2006.  The
Westford, Massachusetts property had operating expenses of approximately
$190,000 the six and one-half month period ending through July 16, 2007 on which
date the property was sold and $238,000 for the year ended December 31,
2006.  The property located in Santa Clara, California had operating
expenses of $73,000 for the five month period ending through May 31, 2006 on
which date the property was sold.




·
            The
      single tenant lease at the property located in Federal Way, Washington,
      expired September 14, 2006.  During 2007 we signed leases with
      two tenants for approximately 12% of the space, which generated rental
      income of $128,000 during the year ended December 31, 2007.  We
      expect that the property will not produce revenue to cover its expenses in
      the first quarter of 2008.  The property had operating expenses
      of $614,000 for the year ended December 31,
  2007.




·
            The
      single tenant lease at the property located in San Jose, California,
      expired December 31, 2006.  There is one tenant in the building
      occupying approximately 19% of the rentable square feet of the
      property.  In December 2007 we signed a lease that will commence
      in 2008 with another tenant for approximately 62% of the rentable square
      feet of the property.  We had rental income of $422,000 during
      the year ended December 31, 2007 from the tenant in place and the property
      had operating expenses of $478,000 for the year ended December 31,
      2007.  We are completing tenant improvements and a repositioning
      of the property and, as a result, we believe that the property will
      produce revenue to cover its expenses starting in the first quarter of
      2008.







36





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
2019.  Approximate future minimum rental income from non-cancelable
operating leases as of December 31, 2007 is:





(in
      thousands)
            
            Year
      ended December 31,2008
            
            $
            81,3192009
            
            
            76,0092010
            
            
            61,8562011
            
            
            49,4082012
            
            
            39,305Thereafter
      (2013-2019)
            
            
            108,906$
            416,803





Contractual
Obligations




The
following table sets forth our contractual obligations as of December 31,
2007.





Payment
      due by periodContractual
            
            (in
      thousands)Obligations
            
            Total
            
            
            2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            2012Line
      of Credit
            
            $
            84,750
            
            
            $
            84,750
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Operating
      Leases
            
            
            854
            
            
            
            322
            
            
            
            336
            
            
            
            196
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            $
            85,604
            
            
            $
            85,072
            
            
            $
            336
            
            
            $
            196
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -





The
operating leases in the table above consist of our lease of corporate office
space, which was amended in 2007, expires on July 31, 2010 and has one 3-year
renewal option.  The lease includes a base annual rent and additional
rent for our share of taxes and operating costs.




From
time to time, we may provide financing to Sponsored REITs in the form of a
revolving line of credit secured by a mortgage.  As of December 31,
2007, we were committed to fund up to $5.5 million to one Sponsored REIT under
such an arrangement for the purpose of funding capital expenditures and leasing
costs, however no amounts have been drawn.




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, we
acquired an interest in preferred shares of four Sponsored REITs.  In
addition, directors and officers of FSP Corp., have from time to time invested
in Sponsored REITs and may do so again in the future.  Following
consummation of the offerings, the preferred stockholders in each of the
Sponsored REITs are entitled to 100% of the Sponsored REIT’s cash
distributions.  Subsequent to the completion of the offering of
preferred shares, except for the preferred stock we own, we do not share in any
of the Sponsored REIT’s earnings, or any related dividend, and the common stock
ownership interests have virtually no economic benefit or risk.  Prior
to the completion of the offering of preferred shares, we share in a Sponsored
REIT’s earnings (and related dividends) to the extent of our ownership interest
in the Sponsored REIT.





37







As a
common stockholder, upon completion of the syndication, we have no rights to the
Sponsored REIT’s earnings or any related cash distributions.  However,
upon liquidation of a Sponsored REIT, we are entitled to our percentage interest
as a common stockholder in any proceeds remaining after the preferred
stockholders have recovered their investment.  Our 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 us.  Following the commencement of syndication we
exercise influence over, but do not control these entities and investments are
accounted for using the equity method.  Under the equity method of
accounting, the cost basis is increased by its share of the Sponsored REITs'
earnings, if any, prior to completion of the syndication. Equity in losses of
Sponsored REITs is not recognized to the extent that the investment balance
would become negative and distributions received are recognized as income once
the investment balance is reduced to zero, unless there are assets held for
syndication from the Sponsored REIT entity.  Equity in losses or
distributions received in excess of investment is recorded as an adjustment to
the carrying value of the asset held for syndication.




We have
acquired a preferred stock interest in four Sponsored REITs, including one
that the Company acquired by merger on April 30, 2006, which was accounted
for as a purchase, and the acquired assets and liabilities were recorded at
their fair value.  As a result of our common stock interest and our
preferred stock interest in the remaining three Sponsored REITs, we exercise
influence over, but do not control these entities.  These preferred
share investments are accounted for using the equity method.  Under
the equity method of accounting our cost basis is adjusted by our share of the
Sponsored REITs' operations and distributions received.  We also
agreed to vote our preferred shares in any matter presented to a vote by
the stockholders of these Sponsored REITs in the same proportion as shares voted
by other stockholders of the Sponsored REITs.




At
December 31, 2007, we held a common stock interest in 12 Sponsored REITs, 11 of
which were fully syndicated and from which we no longer share economic benefit
or risk.  One syndication commenced in September 2007 and was not
completed by December 31, 2007.  The value of the entity that was not
fully syndicated was approximately $26.3 million and was shown on the
consolidated balance sheets as an asset held for syndication. At December 31,
2006, we held a common stock interest in ten Sponsored REITs, nine of which were
fully syndicated, and one was substantially syndicated, from which we no longer
share economic benefit or risk.  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.





The table
below shows our income and expenses from Sponsored REITs.  Management
fees of $20,000, $2,000, and $1,000 for the years ended December 31, 2007, 2006
and 2005, respectively, and interest expense related to the Company’s mortgage
on properties is eliminated in consolidation.





Year
      Ended December 31,(in
      thousands)
            
            2007
            
            
            2006
            
            
            2005Operating
      Data:Rental
      revenues
            
            $
            3,510
            
            
            $
            1,416
            
            
            $
            146Operating
      and maintenance expenses
            
            
            1,834
            
            
            
            636
            
            
            
            63Depreciation
      and amortization
            
            
            855
            
            
            
            326
            
            
            
            36Interest
      expense: permanent mortgage loan
            
            
            179
            
            
            
            -
            
            
            
            -Interest
      expense: acquisition loan
            
            
            1,448
            
            
            
            597
            
            
            
            64Interest
      income
            
            
            51
            
            
            
            22
            
            
            
            1$
            (755
            )
            
            $
            (121
            )
            
            $
            (16
            )




During the year
ended December 31, 2007, we recorded equity in losses from two Sponsored REITs
following the commencement of syndication of $627,000 and during the years ended
December 31, 2006 and 2005 we recorded equity in earnings of Sponsored REITs
following the commencement of syndication of $664,000 and $1,149,000,
respectively.





38







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, 2007.




Market
risk is the exposure to loss resulting from adverse changes in market prices,
interest rates, foreign currency exchange rates, commodity prices and equity
prices. The primary market risk to which we are exposed is interest rate risk,
which is sensitive to many factors, including governmental monetary and tax
policies, domestic and international economic and political considerations and
other factors that are beyond our control. Our line of credit matures in August
2011 and has a variable rate of interest.  Upon maturity, our future
income, cash flows and fair values relevant to financial instruments will be
dependent upon the balance then outstanding and prevalent market interest
rates.




We borrow
from time-to-time on our line of credit.  These borrowings bear
interest at the bank’s base rate (7.25% at December 31, 2007) or at 30 day LIBOR
plus 100 basis points (5.6% at December 31, 2007), as elected by us when
requesting funds as defined.  Generally the borrowings are for 30 day
LIBOR plus 100 Basis points.  As of December 31, 2007, we had two
borrowings totaling $84,750,000 in the aggregate at the 30 day LIBOR plus 100
basis point rate, representing a weighted average rate of 6.2%, outstanding
under the line of credit.  At December 31, 2006 there were no amounts
outstanding under our line of credit.  We have drawn on this line of
credit, and intend to draw on this line of credit in the future for a variety of
corporate purposes, including the funding of interim mortgage loans to Sponsored
REITs and the acquisition of properties that we acquire directly for our
portfolio.  Generally interim mortgage loans bear interest at the same
variable rate payable by us under our line of credit.  We also may
draw on this line of credit to fund advances we may make under a $5.5 million
revolving credit facility (which we refer to as the Revolver) that we provided
to a Sponsored REIT, FSP Highland Place I Corp. in December 2007, which has not
yet been drawn on.  Advances under the Revolver bear interest at a
rate equal to the 30-day LIBOR rate plus 200 basis points.  We
therefore believe that we have mitigated our interest rate risk with respect to
our borrowings for both interim mortgage and Revolver
loans.  Historically we have satisfied obligations arising from
interim or other financing of acquisitions through cash or sale of properties in
our portfolio.  We believe that we can mitigate interest rate risk
with respect to borrowings for interim or other financing of acquisitions as
well.




The
following table presents as of December 31, 2007 our contractual variable rate
borrowings under the line of credit, which matures August 11, 2011:





Payment
      due by period(in
      thousands)Total
            
            
            2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            After
      2012Line
      of credit
            
            $
            84,750
            
            
            $
            84,750
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Total
            
            $
            84,750
            
            
            $
            84,750
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -





If market
rates of our line of credit borrowings at maturity increased by 10%, or
approximately 62 basis points, over the current variable rate, the increase in
interest expense would decrease future earnings and cash flows by $0.5 million
annually.  We do not believe that the interest rate risk represented
by our variable rate borrowings is material as of December 31,
2007.





Item
8.     Financial Statements and
Supplementary Data.




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







39





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, 2007. 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, 2007, 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:




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





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





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





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




The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2007.  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.





40








Based on
our assessment, management concluded that, as of December 31, 2007, the
Company’s internal control over financial reporting is effective based on those
criteria.





Ernst
& Young LLP, the independent registered public accounting firm that audited
our financial statements included elsewhere in this annual report on Form 10-K,
has issued an attestation report on our internal control over financial
reporting as of December 31, 2007.  Please see page F-3.





Changes
in Internal Control Over Financial Reporting




No change
in our internal control over financial reporting occurred during the quarter
ended December 31, 2007 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.




Item
9B.      Other
Information




None.







41





PART
      III




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




Item
10.    Directors, Executive
Officers and Corporate Governance.




The
response to this item is contained under the caption “Directors and Executive
Officers of FSP Corp.” in Part I hereof and in the Proxy Statement under the
captions “Election of Directors” and “Section 16(a) Beneficial Ownership
Reporting Compliance” and is incorporated herein by reference.




Our board
of directors has adopted a code of business conduct and ethics that applies to
all of our executive officers, directors and employees. The code was approved by
the audit committee of our board of directors and by the full board of
directors. We have posted a current copy of our code under “Corporate
Governance” in the “Investor Relations” section of our website at 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.




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




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





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




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




The
response to this item is contained in the Proxy Statement under the captions
“Election of Directors” and “Transactions with Related Persons” and is
incorporated herein by reference.




Item
14.    Principal Accountant Fees
and Services.




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







42










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.












43





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 22, 2008 by the undersigned, thereunto duly authorized.




FRANKLIN
      STREET PROPERTIES CORP.By:
              /s/ George J.
      CarterGeorge
      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
              George
      J. Carter
            President,
      Chief Executive Officer and Director (Principal Executive
      Officer)
            February
      22, 2008/s/ Barbara J.
      Fournier
              Barbara
      J. Fournier
            Vice
      President, Chief Operating Officer, Treasurer, Secretary and
      Director
            February
      22, 2008/s/ John G.
      Demeritt
              John
      G. Demeritt
            Chief
      Financial Officer
              (Principal
      Financial Officer and Principal Accounting Officer)
            February
      22, 2008/s/ Janet P.
      Notopoulos
              Janet
      P. Notopoulos
            Director,
      Vice President
            February
      22, 2008/s/ Barry
      Silverstein
              Barry
      Silverstein
            Director
            February
      22, 2008/s/ Dennis J.
      McGillicuddy
              Dennis
      J. McGillicuddy
            Director
            February
      22, 2008/s/ John
      Burke
              John
      Burke
            Director
            February
      22, 2008/s/ Georgia
      Murray
              Georgia
      Murray
            Director
            February
      22, 2008










44





EXHIBIT
INDEX




Exhibit
      No.
            Description2.1
      (1)**
            Agreement
      and Plan of Merger by and among FSP Corp., Blue Lagoon Acquisition Corp.,
      Innsbrook Acquisition Corp., Willow Bend Acquisition Corp., 380
      Interlocken Acquisition Corp., Eldridge Green Acquisition Corp., FSP Blue
      Lagoon Drive Corp., FSP Innsbrook Corp., FSP Willow Bend Office Center
      Corp., FSP 380 Interlocken Corp. and FSP Eldridge Green Corp., dated as of
      March 15, 2006.2.2
      (2)**
            Agreement
      of Sale and Purchase, dated May 19, 2006, by and between One Overton Park
      LLC and FSP One Overton Park LLC.3.1
      (3)
            Articles
      of Incorporation.3.2
      (4)
            Amended
      and Restated By-laws.10.1+
      (5)
            2002
      Stock Incentive Plan of FSP Corp.10.2
      (6)
            Third Amended
      and Restated Loan Agreement dated as of October 19, 2007 by and among the
      Company, certain wholly-owned subsidiaries of the Company,
RBS
              Citizens,
      National Association, Bank of America, N.A., Wachovia Bank,
              National
      Association and Chevy Chase Bank, F.S.B.10.3+
      (7)
            Form
      of Retention Agreement.10.4
      (8)
            Change
      in Control Discretionary Plan.14.1
      (9)
            Code
      of Business Conduct and Ethics.21.1*
            Subsidiaries
      of the Registrant.23.1*
            Consent
      of Ernst & Young LLP.31.1*
            Certification
      of FSP Corp.’s President and Chief Executive Officer pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002.31.2*
            Certification
      of FSP Corp.’s Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1*
            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
      2002.99.1*
            Table
      regarding investors in Sponsored
REITs.








(1)
            Incorporated
      by reference to FSP Corp.’s Current Report on Form 8-K, filed on March 16,
      2006 (File No. 001-32470).(2)
            Incorporated
      by reference to FSP Corp.’s Current Report on Form 8-K, filed on June 28,
      2006 (File  No. 001-32470).(3)
            Incorporated
      by reference to FSP Corp.’s Form 8-A, filed April 5, 2005 (File No.
      001-32470).(4)
            Incorporated
      by reference to FSP Corp.’s Current Report on Form 8-K, filed on May 15,
      2006 (File No. 001-32470).(5)
            Incorporated
      by reference to FSP Corp.’s Annual Report on Form 10-K, filed on March 29,
      2002 (File No. 0-32615).










45





EXHIBIT
INDEX, continued







(6)
            Incorporated
      by reference to FSP Corp.’s Current Report on Form 8-K, filed on October
      22, 2007 (File No. 001-32470).(7)
            Incorporated
      by reference to FSP Corp.’s Annual Report on Form 10-K, filed on February
      24, 2006 (File No. 0-32615).(8)
            Incorporated
      by reference to FSP Corp.’s Current Report on Form 8-K, filed on February
      8, 2006 (File No. 001-32470).(9)
            Incorporated
      by reference to FSP Corp.’s Current Report on Form 8-K, filed on 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.**
            FSP
      Corp. agrees to furnish supplementally a copy of any omitted schedules to
      this agreement to the Securities and Exchange Commission upon its
      request.



















46




Franklin Street
Properties Corp.


Index to
Consolidated Financial Statements








Reports
      of Independent Registered Public Accounting Firm
            F-2Consolidated
      Financial Statements:Consolidated
      Balance Sheets as of December 31,
            F-42007
      and 2006Consolidated
      Statements of Income for each of the three years in theperiod
      ended December 31, 2007
            F-6Consolidated
      Statements of Stockholders’ Equity for each of the three years in
      theperiod
      ended December 31, 2007
            F-7Consolidated
      Statements of Cash Flows for each of the three years in
theperiod
      ended December 31, 2007
            F-8Notes
      to the consolidated financial statements
            F-10Financial
      Statement Schedule – Schedule III
            F-30









F-1





Report
of Independent Registered Public Accounting Firm





To the
Board of Directors and


Stockholders
of Franklin Street Properties Corp.:





We have
audited the accompanying consolidated balance sheets of Franklin Street
Properties Corp. as of December 31, 2007 and 2006, and the related
consolidated statements of income, stockholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2007. 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, 2007 and 2006, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2007, 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), Franklin Street Properties Corp.’s internal
control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our report dated
February 21, 2008 expressed an unqualified opinion thereon.





/s/ Ernst & Young LLP








Boston,
Massachusetts


February
21, 2008







F-2








Report
of Independent Registered Public Accounting Firm





To the
Board of Directors and


Stockholders
of Franklin Street Properties Corp.:





We have
audited Franklin Street Properties Corp.’s internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Franklin Street Properties
Corp.’s management is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in Item 9A of Franklin Street
Properties Corp.’s Annual Report on Form 10-K under the heading Management’s
Annual Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the company’s internal control over financial
reporting based on our audit.





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





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





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





In our
opinion, Franklin Street Properties Corp. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2007,
based on the COSO criteria.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the 2007 consolidated financial statements of
Franklin Street Properties Corp. and our report dated February 21, 2008
expressed an unqualified opinion thereon.





/s/ Ernst & Young LLP








Boston,
Massachusetts


February
21, 2008







F-3








Franklin
Street Properties Corp.


Consolidated
Balance Sheets





December
      31,(in
      thousands, except share and par value amounts)
            
            2007
            
            
            2006Assets:Real
      estate assets:Land
            
            $
            99,140
            
            
            $
            94,540Buildings
      and improvements
            
            
            743,027
            
            
            
            676,969Fixtures
      and equipment
            
            
            212
            
            
            
            22842,379
            
            
            
            771,531Less
      accumulated depreciation
            
            
            52,060
            
            
            
            31,645Real
      estate assets, net
            
            
            790,319
            
            
            
            739,886Acquired
      real estate leases, less accumulated amortization of $23,401
              and
      $20,345, respectively
            
            
            33,695
            
            
            
            40,577Investment
      in non-consolidated REITs
            
            
            85,663
            
            
            
            5,064Asset
      held for syndication, net
            
            
            26,310
            
            
            
            -Assets
      held for sale
            
            
            -
            
            
            
            72,621Cash
      and cash equivalents
            
            
            46,988
            
            
            
            69,973Certificate
      of deposit
            
            
            -
            
            
            
            5,143Restricted
      cash
            
            
            336
            
            
            
            761Tenant
      rent receivables, less allowance for doubtful accountsof
      $430 and $433, respectively
            
            
            1,472
            
            
            
            2,440Straight-line
      rent receivable, less allowance for doubtful accounts
              of
      $261 and $163, respectively
            
            
            7,387
            
            
            
            4,295Prepaid
      expenses
            
            
            1,395
            
            
            
            972Deposits
      on real estate assets
            
            
            -
            
            
            
            5,010Other
      assets
            
            
            406
            
            
            
            1,118Office
      computers and furniture, net of accumulated
              depreciation
      of $968 and $851, respectively
            
            
            309
            
            
            
            375Deferred
      leasing commissions, net of accumulated amortization
              of
      $1,975, and $1,085, respectively
            
            
            9,186
            
            
            
            7,082Total
      assets
            
            $
            1,003,466
            
            
            $
            955,317The
      accompanying notes are an integral part of these consolidated financial
      statements.






F-4





Franklin
Street Properties Corp.


Consolidated
Balance Sheets








December
      31,(in
      thousands, except share and par value amounts)
            
            2007
            
            
            2006Liabilities
      and Stockholders’ Equity:Liabilities:Bank
      note payable
            
            $
            84,750
            
            
            $
            -Accounts
      payable and accrued expenses
            
            
            20,255
            
            
            
            25,275Accrued
      compensation
            
            
            1,564
            
            
            
            2,643Tenant
      security deposits
            
            
            1,874
            
            
            
            1,744Acquired
      unfavorable real estate leases, less accumulated amortization
              of $1,226, and $534, respectively
            
            
            4,405
            
            
            
            3,693Total
      liabilities
            
            
            112,848
            
            
            
            33,355Commitments
      and contingenciesStockholders’
      Equity:Preferred
      stock, $.0001 par value, 20,000,000 shares
              authorized, none issued or outstanding
            
            
            -
            
            
            
            -Common
      stock, $.0001 par value, 180,000,000 shares authorized,
              70,480,705 and 70,766,305 shares issued and outstanding,
      respectively
            
            
            7
            
            
            
            7Additional
      paid-in capital
            
            
            889,019
            
            
            
            893,786Earnings
      (distributions) in excess of accumulated
      earnings/distributions
            
            
            1,592
            
            
            
            28,169Total
      stockholders’ equity
            
            
            890,618
            
            
            
            921,962Total
      liabilities and stockholders’ equity
            
            $
            1,003,466
            
            
            $
            955,317The
      accompanying notes are an integral part of these consolidated financial
      statements.







F-5





Franklin
Street Properties Corp.


Consolidated
Statements of Income





For
      the Year EndedDecember
      31,(in
      thousands, except per share amounts)
            
            2007
            
            
            2006
            
            
            2005Revenue:Rental
            
            $
            100,961
            
            
            $
            83,147
            
            
            $
            51,983Related
      party revenue:Syndication
      fees
            
            
            8,986
            
            
            
            10,693
            
            
            
            9,268Transaction
      fees
            
            
            9,898
            
            
            
            11,262
            
            
            
            9,412Management
      fees and interest income from loans
            
            
            7,030
            
            
            
            2,083
            
            
            
            1,807Other
            
            
            118
            
            
            
            60
            
            
            
            -Total
      revenue
            
            
            126,993
            
            
            
            107,245
            
            
            
            72,470Expenses:Real
      estate operating expenses
            
            
            26,171
            
            
            
            19,045
            
            
            
            11,062Real
      estate taxes and insurance
            
            
            16,761
            
            
            
            12,282
            
            
            
            7,624Depreciation
      and amortization
            
            
            29,334
            
            
            
            20,893
            
            
            
            10,755Selling,
      general and administrative
            
            
            7,466
            
            
            
            8,518
            
            
            
            7,448Commissions
            
            
            4,737
            
            
            
            5,522
            
            
            
            5,005Interest
            
            
            7,684
            
            
            
            2,449
            
            
            
            2,997Total
      expenses
            
            
            92,153
            
            
            
            68,709
            
            
            
            44,891Income
      before interest income, equity in earnings (deficit)
              of non-consolidated REITs and taxes on income
            
            
            34,840
            
            
            
            38,536
            
            
            
            27,579Interest
      income
            
            
            2,377
            
            
            
            2,998
            
            
            
            1,583Equity
      in earnings (deficit) of non-consolidated REITs
            
            
            (464
            )
            
            
            845
            
            
            
            1,397Income
      before taxes on income
            
            
            36,753
            
            
            
            42,379
            
            
            
            30,559Taxes
      on income
            
            
            647
            
            
            
            839
            
            
            
            422Income
      from continuing operations
            
            
            36,106
            
            
            
            41,540
            
            
            
            30,137Income
      from discontinued operations
            
            
            1,190
            
            
            
            7,951
            
            
            
            14,486Income
      before gain on sale of properties
            
            
            37,296
            
            
            
            49,491
            
            
            
            44,623Gain
      on sale of properties and provision for loss on propertyheld
      for sale of $4,849 in 2006, less applicable income tax
            
            
            23,789
            
            
            
            61,438
            
            
            
            30,493Net
      income
            
            $
            61,085
            
            
            $
            110,929
            
            
            $
            75,116Weighted
      average number of shares outstanding, basic and diluted
            
            
            70,651
            
            
            
            67,159
            
            
            
            56,847Earnings
      per share, basic and diluted, attributable to:Continuing
      operations
            
            $
            0.51
            
            
            $
            0.62
            
            
            $
            0.53Discontinued
      operations
            
            
            0.01
            
            
            
            0.12
            
            
            
            0.25Gain
      on sale of properties and provision for loss on propertyheld
      for sale of $4,849 in 2006, less applicable income tax
            
            
            0.34
            
            
            
            0.91
            
            
            
            0.54Net
      income per share, basic and diluted
            
            $
            0.86
            
            
            $
            1.65
            
            
            $
            1.32The
      accompanying notes are an integral part of these consolidated financial
      statements.





F-6





Franklin
Street Properties Corp.


Consolidated
Statements of Stockholders’ Equity





Earnings/(distributions)in
      excess ofAdditional
            
            
            accumulated
            
            
            TotalCommon
      Stock
            
            
            Paid-In
            
            
            earnings/
            
            
            Stockholders'(in
      thousands)
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            distributions
            
            
            EquityBalance,
      December 31, 2004
            
            
            49,630
            
            
            $
            5
            
            
            $
            512,803
            
            
            $
            (9,720
            )
            
            $
            503,088Shares
      issued for:Merger
            
            
            10,895
            
            
            
            1
            
            
            
            164,563
            
            
            
            -
            
            
            
            164,564Compensation
            
            
            2
            
            
            
            -
            
            
            
            31
            
            
            
            -
            
            
            
            31Repurchased
      shares
            
            
            (732
            )
            
            
            -
            
            
            
            (14,008
            )
            
            
            -
            
            
            
            (14,008
            )Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            75,116
            
            
            
            75,116Distributions
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (67,208
            )
            
            
            (67,208
            )Balance,
      December 31, 2005
            
            
            59,795
            
            
            
            6
            
            
            
            663,389
            
            
            
            (1,812
            )
            
            
            661,583Shares
      issued for:Merger
            
            
            10,971
            
            
            
            1
            
            
            
            230,397
            
            
            
            -
            
            
            
            230,398Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            110,929
            
            
            
            110,929Distributions
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (80,948
            )
            
            
            (80,948
            )Balance,
      December 31, 2006
            
            
            70,766
            
            
            
            7
            
            
            
            893,786
            
            
            
            28,169
            
            
            
            921,962Repurchased
      shares
            
            
            (285
            )
            
            
            -
            
            
            
            (4,767
            )
            
            
            -
            
            
            
            (4,767
            )Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            61,085
            
            
            
            61,085Distributions
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (87,662
            )
            
            
            (87,662
            )Balance,
      December 31, 2007
            
            
            70,481
            
            
            $
            7
            
            
            $
            889,019
            
            
            $
            1,592
            
            
            $
            890,618The
      accompanying notes are an integral part of these consolidated financial
      statements.







F-7





Franklin
Street Properties Corp.


Consolidated
Statements of Cash Flows





For
      the Year Ended December 31,(in
      thousands)
            
            2007
            
            
            2006
            
            
            2005Cash
      flows from operating activities:Net
      income
            
            $
            61,085
            
            
            $
            110,929
            
            
            $
            75,116Adjustments
      to reconcile net income to net cash provided by
              operating
      activities:Depreciation
      and amortization expense
            
            
            30,563
            
            
            
            24,951
            
            
            
            17,937Amortization
      of above market lease
            
            
            4,948
            
            
            
            7,138
            
            
            
            4,310Gain
      on sale of real estate assets
            
            
            (23,789
            )
            
            
            (61,438
            )
            
            
            (30,493
            )Equity
      in earnings (deficit) of non-consolidated REITs
            
            
            472
            
            
            
            (1,043
            )
            
            
            (1,418
            )Distributions
      from non-consolidated REITs
            
            
            1,806
            
            
            
            783
            
            
            
            1,217Increase
      in bad debt reserve
            
            
            (3
            )
            
            
            83
            
            
            
            -Shares
      issued as compensation
            
            
            -
            
            
            
            -
            
            
            
            31Changes
      in operating assets and liabilities:Restricted
      cash
            
            
            425
            
            
            
            (300
            )
            
            
            572Tenant
      rent receivables, net
            
            
            971
            
            
            
            (1,076
            )
            
            
            (678
            )Straight-line
      rents, net
            
            
            (3,359
            )
            
            
            (1,334
            )
            
            
            (1,692
            )Prepaid
      expenses and other assets, net
            
            
            374
            
            
            
            (327
            )
            
            
            586Accounts
      payable, accrued expenses & other items
            
            
            1,884
            
            
            
            1,174
            
            
            
            (200
            )Accrued
      compensation
            
            
            (1,079
            )
            
            
            752
            
            
            
            1,186Tenant
      security deposits
            
            
            130
            
            
            
            451
            
            
            
            260Payment
      of deferred leasing commissions
            
            
            (4,314
            )
            
            
            (5,880
            )
            
            
            (1,560
            )Net
      cash provided by operating activities
            
            
            70,114
            
            
            
            74,863
            
            
            
            65,174Cash
      flows from investing activities:Cash
      from issuance of common stock in the merger transaction
            
            
            -
            
            
            
            13,849
            
            
            
            10,621Purchase
      of real estate assets and office computers and
              furniture,
      capitalized merger costs
            
            
            (77,894
            )
            
            
            (159,351
            )
            
            
            (75,988
            )Acquired
      real estate leases
            
            
            (3,726
            )
            
            
            (6,801
            )
            
            
            (12,513
            )Investment
      in non-consolidated REITs
            
            
            (82,831
            )
            
            
            (4,137
            )
            
            
            (18
            )Redemption
      of (investment in) certificate of deposit
            
            
            5,143
            
            
            
            (5,143
            )Merger
      costs paid
            
            
            -
            
            
            
            (838
            )
            
            
            (402
            )Changes
      in deposits on real estate assets
            
            
            -
            
            
            
            (4,300
            )
            
            
            (710
            )Investment
      in assets held for syndication
            
            
            (22,093
            )
            
            
            -
            
            
            
            59,532Proceeds
      received on sales of real estate assets
            
            
            96,102
            
            
            
            173,183
            
            
            
            112,030Net
      cash provided by (used in) investing activities
            
            
            (85,299
            )
            
            
            6,462
            
            
            
            92,552Cash
      flows from financing activities:Distributions
      to stockholders
            
            
            (87,662
            )
            
            
            (80,948
            )
            
            
            (67,208
            )Purchase
      of treasury shares
            
            
            (4,767
            )
            
            
            -
            
            
            
            (14,008
            )Offering
      Costs
            
            
            -
            
            
            
            (119
            )
            
            
            -Borrowings
      under bank note payable
            
            
            84,750
            
            
            
            -
            
            
            
            -Repayments
      of bank note payable
            
            
            -
            
            
            
            -
            
            
            
            (59,439
            )Deferred
      financing costs
            
            
            (121
            )
            
            
            -
            
            
            
            (108
            )Net
      cash used in financing activities
            
            
            (7,800
            )
            
            
            (81,067
            )
            
            
            (140,763
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            (22,985
            )
            
            
            258
            
            
            
            16,963Cash and cash
      equivalents, beginning of year
            
            
            69,973
            
            
            
            69,715
            
            
            
            52,752Cash and cash
      equivalents, end of year
            
            $
            46,988
            
            
            $
            69,973
            
            
            $
            69,715The
      accompanying notes are an integral part of these consolidated financial
      statements.








F-8








Franklin
Street Properties Corp.


Consolidated
Statements of Cash Flows





For
      the Year Ended December 31,(in
      thousands)
            
            2007
            
            
            2006
            
            
            2005Supplemental
      disclosure of cash flow information:Cash
      paid for:Interest
            
            $
            6,667
            
            
            $
            2,772
            
            
            $
            2,981Taxes
      on income
            
            $
            730
            
            
            $
            780
            
            
            $
            566Non-cash
      investing and financing activities:Accrued
      costs for purchase of real estate assets
            
            $
            1,613
            
            
            $
            8,516
            
            
            $
            -Deposits
      on real estate assets converted to investments in assetsheld
      for syndication
            
            $
            5,010
            
            
            $
            -
            
            
            $
            -Assets
      acquired through  issuance of common stockin
      the merger transaction, net
            
            $
            -
            
            
            $
            230,517
            
            
            $
            153,943Investment
      in non-consolidated REITs converted to real estateassets
      and acquired real estate leases in conjunction with merger
            
            $
            -
            
            
            $
            4,018
            
            
            $
            -








F-9





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





1.      Organization





Franklin
Street Properties Corp. (“FSP Corp.” or the “Company”), holds, directly and
indirectly, 100% of the interest in FSP Investments LLC, FSP Property Management
LLC, and FSP Holdings LLC. The Company also has a non-controlling common stock
interest in 10 corporations organized to operate as real estate investment
trusts ("REITs").





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




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





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





2.      Significant
Accounting Policies





Basis
of Presentation





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





Estimates
and Assumptions





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





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.








F-10





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





2.      Significant
Accounting Policies (continued)





On
December 27, 2007, the Company purchased 965.75 preferred shares (approximately
43.7%) of a Sponsored REIT, FSP 303 East Wacker Drive Corp. (“East Wacker”), for
$82,813,000.  On September 22, 2006, the Company purchased 48
preferred shares (approximately 4.6%) of a Sponsored REIT, FSP Phoenix Tower
Corp. (“Phoenix Tower”), for $4,116,000.   The Company agreed to
vote its shares in any matter presented to a vote by the stockholders of East
Wacker and Phoenix Tower in the same proportion as shares voted by other
stockholders of each Company.  The investments in East Wacker and
Phoenix Tower are accounted for under the equity method.




Prior to
April 2006, the Company held a preferred stock investment in FSP Blue Lagoon
Drive Corp. (“Blue Lagoon”), which was one of the 2006 Target REITs acquired by
merger on April 30, 2006, and accordingly was eliminated when recording the
merger.  The Company initially purchased 49.25 preferred shares
(approximately 8.2%) of Blue Lagoon on January 30, 2004, and 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 was accounted for under the
equity method.




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.





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





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





Category
            YearsCommercial
      Buildings
            39Building
      improvements
            15-39Furniture
      and equipment
            5-7





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







F-11





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





2.      Significant
Accounting Policies (continued)





Acquired
Real Estate Leases and Amortization





The
Company accounts for leases acquired via direct purchase of real estate assets,
or as a result of a merger, 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 five and four
Sponsored REITs in 2006 and 2005, respectively and one direct acquisition in
2007, three direct acquisitions in 2006 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 17
months to 127 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 offset against the rental revenue in the consolidated statements of
income. The estimated annual amortization expense for the five years succeeding
December 31, 2007 are as follows:





(in
      thousands)2008
            
            $
            10,8982009
            
            
            8,6692010
            
            
            5,8302011
            
            
            2,8582012
            
            
            1,6832013
      and thereafter
            
            
            3,757





Acquired
Unfavorable Real Estate Leases and Amortization





The
Company accounts for leases acquired via direct purchase of real estate assets,
or as a result of a merger, under the provisions of 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 five and four
Sponsored REITs in 2006 and 2005, respectively and one direct acquisition in
2007, three direct acquisitions in 2006 and two direct acquisitions 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 14
months to 147 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 for the five years succeeding December 31, 2007 are as
follows:




(in
      thousands)2008
            
            $
            8092009
            
            
            7332010
            
            
            6342011
            
            
            4982012
            
            
            4692013
      and thereafter
            
            
            1,262




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.





F-12








Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





2.      Significant
Accounting Policies (continued)





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 and/or
Government Sponsored Enterprises (GSEs) with a carrying value of $2.0 million at
December 31, 2006.   The aggregate fair value of these
instruments was $2.0 million at December 31, 2006.  Gross unrecognized
holding gains on these instruments were $13,000 as of December 31,
2006.





Certificate
of Deposit




Investment
in certificate of deposit consists of investments the Company has the ability
and intent to hold until their maturity.  As of December 31, 2006 the
Company held a certificate of deposit with an original maturity of six months at
a carrying value of $5.1 million with an annual interest rate of 5% that matured
on April 11, 2007.  The Company believes the aggregate fair value is
approximately the same as its carrying value.




Restricted
Cash





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





Tenant
Rent Receivables




Tenant
rent receivables, which include receivables from assets held-for-sale, 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.




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 the lease
agreements.  Straight-line rent receivable, which is the cumulative
revenue recognized in excess of amounts billed by the Company, is $7,387,000 and
$4,295,000 at December 31, 2007 and 2006, 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 2007 the Company increased its allowance by $98,000 to
$261,000 based on such analysis.  The reserve balance was not changed
in 2006.








F-13





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





2.      Significant
Accounting Policies (continued)




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
$1,371,000, $674,000 and $430,000 for the years ended December 31, 2007,
2006 and 2005, respectively. The estimated annual amortization for the five
years following December 31, 2007 is as follows:





(in
      thousands)2008
            
            $
            1,5862009
            
            
            1,4962010
            
            
            1,3532011
            
            
            1,2152012
            
            
            1,0362013
      and thereafter
            
            
            2,500





Common
Share Repurchases





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





Revenue
Recognition





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







Year
      Ended(in
      thousands)
            
            December
      31,2007
            
            
            2006
            
            
            2005Income
      from leases
            
            $
            79,916
            
            
            $
            73,304
            
            
            $
            44,983Reimbursable
      expenses
            
            
            22,563
            
            
            
            15,451
            
            
            
            9,688Straight-line
      rent adjustment
            
            
            3,305
            
            
            
            1,084
            
            
            
            1,220Amortization
      of favorable leases
            
            
            (4,823
            )
            
            
            (6,692
            )
            
            
            (3,908
            )Other
            
            
            -
            
            
            
            -
            
            
            
            -$
            100,961
            
            
            $
            83,147
            
            
            $
            51,983





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





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 4% to 8% of the gross offering proceeds from the
sale of securities in Sponsored REITs are generally recognized upon an investor
closing; at that time the Company has provided all required services, the fee is
fixed and collected, and no further contingencies exist.  Commission
expense ranging from 2% to 4% of the gross offering proceeds is recorded in the
period the related syndication fee is earned.  There is typically more
than one investor closing in the syndication of a Sponsored REIT.





F-14





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





2.      Significant
Accounting Policies (continued)





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, 2007, 2006 and 2005 represent taxes
incurred by FSP Investments, which is a taxable REIT subsidiary.




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, 2007, 2006, and 2005. The denominator used for calculating
basic and diluted net income per share was 70,651,000, 67,159,000, and
56,847,000 for the years ended December 31, 2007, 2006, and 2005,
respectively.





Recent
Accounting Standards





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, which defines fair value, establishes a framework for measuring fair
value in GAAP, and expands disclosures about fair value
measurements.  SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute.  SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years.  The adoption of this
standard is not expected to have a material impact on the Company’s financial
position, operations or cash flow.




Reclassifications





Certain
balances in the 2006 and 2005 financial statements have been reclassified to
conform to 2007 presentation.  The reclassifications primarily
were related to disposition of five properties sold as of December 31, 2007,
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.  The 2006 financial statements were also reclassified
to reflect repurchases of common shares as a reduction of common stock for the
par value and the excess of the purchase price over the par value as a reduction
additional paid-in capital to conform to 2007 presentation.  There was
no change to net income for any period presented as a result of these
reclassifications.





3.      Business
Segments





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





F-15








Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





3.      Business
Segments (continued)





The
Company evaluates the performance of its reportable segments based on Funds From
Operations (“FFO”) as management believes that FFO represents the most accurate
measure of the reportable segment’s activity and is the basis for distributions
paid to equity holders.  The Company defines FFO as net income
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from sales of property, plus depreciation and
amortization, and after adjustments to exclude non-cash income (or losses) from
non-consolidated or Sponsored REITs, plus distributions received from
non-consolidated or Sponsored REITs.




FFO
should not be considered as an alternative to net income (determined in
accordance with GAAP), as an indicator of the Company’s financial performance,
nor as an alternative to cash flows from operating activities (determined in
accordance with GAAP), nor as a measure of the Company’s liquidity, nor is it
necessarily indicative of sufficient cash flow to fund all of the Company’s
needs.  Other real estate companies may define this term in a
different manner.  We believe that in order to facilitate a clear
understanding of the results of the Company, FFO should be examined in
connection with net income and cash flows from operating, investing and
financing activities in the consolidated financial statements.  The
calculation of FFO by business segment is shown in the following
table:





InvestmentReal
            
            
            Banking/Estate
            
            
            Investment(in
      thousands):
            
            Operations
            
            
            Services
            
            
            TotalYear
      ended December 31, 2007:Net
      income
            
            $
            51,646
            
            
            $
            9,439
            
            
            $
            61,085Gain
      on sale of properties
            
            
            (23,789
            )
            
            
            -
            
            
            
            (23,789
            )Equity
      in earnings of non-consolidated REITs
            
            
            472
            
            
            
            -
            
            
            
            472Distribution
      from non-consolidated REITs
            
            
            1,806
            
            
            
            -
            
            
            
            1,806Depreciation
      and amortization
            
            
            35,340
            
            
            
            135
            
            
            
            35,475Funds
      From Operations
            
            $
            65,475
            
            
            $
            9,574
            
            
            $
            75,049Year
      ended December 31, 2006:Net
      income
            
            $
            99,848
            
            
            $
            11,081
            
            
            $
            110,929Gain
      on sale of properties
            
            
            (61,438
            )
            
            
            -
            
            
            
            (61,438
            )Equity
      in earnings of non-consolidated REITs
            
            
            (1,043
            )
            
            
            -
            
            
            
            (1,043
            )Distribution
      from non-consolidated REITs
            
            
            783
            
            
            
            -
            
            
            
            783Depreciation
      and amortization
            
            
            31,926
            
            
            
            121
            
            
            
            32,047Funds
      From Operations
            
            $
            70,076
            
            
            $
            11,202
            
            
            $
            81,278Year
      ended December 31, 2005:Net
      income
            
            $
            66,440
            
            
            $
            8,676
            
            
            $
            75,116Gain
      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
            
            
            
            -
            
            
            
            1,217Depreciation
      and amortization
            
            
            22,108
            
            
            
            132
            
            
            
            22,240Funds
      From Operations
            
            $
            57,854
            
            
            $
            8,808
            
            
            $
            66,662








F-16





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, 2007, 2006 and
2005 are summarized as follows:





Quarter
      paid
            
            Distribution
              Per
      Share/Unit
            
            
            Total
      Cash Distributions(in
      thousands)Second
      quarter of 2007
            
            $
            0.31
            
            
            $
            21,937Third
      quarter of 2007
            
            
            0.31
            
            
            
            21,938Fourth
      quarter of 2007
            
            
            0.31
            
            
            
            21,849First
      quarter of 2008 (A)
            
            
            0.31
            
            
            
            21,849$
            1.24
            
            
            $
            87,573Second
      quarter of 2006
            
            $
            0.31
            
            
            $
            18,536Third
      quarter of 2006
            
            
            0.31
            
            
            
            21,938Fourth
      quarter of 2006
            
            
            0.31
            
            
            
            21,938First
      quarter of 2007 (A)
            
            
            0.31
            
            
            
            21,938$
            1.24
            
            
            $
            84,350Second
      quarter of 2005
            
            $
            0.41
            
            
            $
            20,349Third
      quarter of 2005
            
            
            0.21
            
            
            
            12,711Fourth
      quarter of 2005
            
            
            0.31
            
            
            
            18,763First
      quarter of 2006 (A)
            
            
            0.31
            
            
            
            18,536$
            1.24
            
            
            $
            70,359




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





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







F-17





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





3.      Business
Segments (continued)





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





Real
              Estate
              Operations
            
            
            Investment
      Banking/
              Investment
      Services
            
            
            Total(in
      thousands)December
      31, 2007:Revenue
            
            $
            108,070
            
            
            $
            18,923
            
            
            $
            126,993Interest
      income
            
            
            2,317
            
            
            
            60
            
            
            
            2,377Interest
      expense
            
            
            7,684
            
            
            
            -
            
            
            
            7,684Income
      from discontinued operations, net
            
            
            1,190
            
            
            
            -
            
            
            
            1,190Capital
      expenditures
            
            
            11,031
            
            
            
            69
            
            
            
            11,100Identifiable
      assets
            
            
            997,145
            
            
            
            6,321
            
            
            
            1,003,466December
      31, 2006:Revenue
            
            $
            85,261
            
            
            $
            21,984
            
            
            $
            107,245Interest
      income
            
            
            2,949
            
            
            
            49
            
            
            
            2,998Interest
      expense
            
            
            2,449
            
            
            
            -
            
            
            
            2,449Income
      from discontinued operations, net
            
            
            7,951
            
            
            
            -
            
            
            
            7,951Capital
      expenditures
            
            
            15,604
            
            
            
            185
            
            
            
            15,789Identifiable
      assets
            
            
            948,261
            
            
            
            7,056
            
            
            
            955,317December
      31, 2005:Revenue
            
            $
            53,790
            
            
            $
            18,680
            
            
            $
            72,470Interest
      income
            
            
            1,547
            
            
            
            36
            
            
            
            1,583Interest
      expense
            
            
            2,997
            
            
            
            -
            
            
            
            2,997Income
      from discontinued operations, net
            
            
            14,486
            
            
            
            -
            
            
            
            14,486Capital
      expenditures
            
            
            2,691
            
            
            
            69
            
            
            
            2,760Identifiable
      assets
            
            
            671,413
            
            
            
            5,760
            
            
            
            677,173





4.      Related
Party Transactions





Investment
in Sponsored REITs





At
December 31, 2007, we held an interest in 12 Sponsored REITs, of which eleven
were fully syndicated and one was underway that commenced in September
2007.  The syndication of East Wacker was completed in December 2007
and the Company purchased a preferred stock investment in it.  At
December 31, 2006, we held an interest in 10 Sponsored REITs, of which nine were
fully syndicated and one was substantially syndicated.  The
syndication of Phoenix Tower was completed in September 2006 and the Company
purchased a preferred stock investment in it.  At December 31, 2005,
we held an interest in 13 Sponsored REITs, all of which were fully
syndicated.  The syndication of Park Ten Development was completed in
September 2005 and the Company exchanged land for a preferred stock investment
in it.





The table
below shows the Company’s income and expenses from Sponsored
REITs.  Management fees of $20,000, $2,000, and $1,000 for the years
ended December 31, 2007, 2006 and 2005, respectively, and interest expense
related to the Company’s mortgages on properties owned by these entities are
eliminated in consolidation.








F-18





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





4.      Related
Party Transactions (continued)





Year
      Ended December 31,(in
      thousands)
            
            2007
            
            
            2006
            
            
            2005Operating
      Data:Rental
      revenues
            
            $
            3,510
            
            
            $
            1,416
            
            
            $
            146Operating
      and maintenanceexpenses
            
            
            1,834
            
            
            
            636
            
            
            
            63Depreciation
      and amortization
            
            
            855
            
            
            
            326
            
            
            
            36Interest
      expense: permanent mortgage loan
            
            
            179
            
            
            
            -
            
            
            
            -Interest
      expense: acquisition loan
            
            
            1,448
            
            
            
            597
            
            
            
            64Interest
      income
            
            
            51
            
            
            
            22
            
            
            
            1$
            (755
            )
            
            $
            (121
            )
            
            $
            (16
            )





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)
            
            2007
            
            
            2006
            
            
            2005Equity
      in earnings of Sponsored REITs
            
            $
            (627
            )
            
            $
            664
            
            
            $
            1,149Equity
      in earnings of Blue Lagoon
            
            
            -
            
            
            
            75
            
            
            
            248Equity
      in earnings of Park Ten Development
            
            
            6
            
            
            
            25
            
            
            
            -Equity
      in earnings of Phoenix Tower
            
            
            201
            
            
            
            81
            
            
            
            -Equity
      in earnings of East Wacker
            
            
            (44
            )
            
            
            -
            
            
            
            -$
            (464
            )
            
            $
            845
            
            
            $
            1,397




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).  Blue Lagoon was one of the 2006 Target REITs that the
Company acquired by merger on April 30, 2006 at which time the preferred stock
investment was canceled and the merger was accounted for as a purchase, and the
acquired assets and liabilities were recorded at their fair value.




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
construction was substantially completed in December 2006.  During
2007 the leasing of the commercial property commenced.




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




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







F-19





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





4.      Related
Party Transactions (continued)




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




Year
      Ended December 31,(in
      thousands)
            
            2007
            
            
            2006
            
            
            2005Distributions
      from Sponsored REITs
            
            $
            1,441
            
            
            $
            561
            
            
            $
            856Distributions
      from Blue Lagoon
            
            
            -
            
            
            
            187
            
            
            
            361Distributions
      from Park Ten Development
            
            
            1
            
            
            
            27
            
            
            
            -Distributions
      from Phoenix Tower
            
            
            364
            
            
            
            8
            
            
            
            -$
            1,806
            
            
            $
            783
            
            
            $
            1,217





Non-consolidated
REITs




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





The
operating data below for 2007 includes operations of the 12 Sponsored REITs the
Company held an interest in as of December 31, 2007.  The operating
data below for 2006 includes operations of the 10 Sponsored REITs the Company
held an interest in as of December 31, 2006 and five 2006 Target REITs from
January through April 30, 2006.  The five 2006 Target REITs were
merged into the Company on April 30, 2006.  The operating data for
2005 includes operations of the 13 Sponsored REITs the company held an interest
in as of December 31, 2005 and four 2005 Target REITs from January through April
30, 2005.  The four 2005 Target REITs were merged into the Company on
April 30, 2005.





Summarized
financial information for the Sponsored REITs is as follows:





December
      31,(in
      thousands)
            
            2007
            
            
            2006Balance Sheet Data
      (unaudited):Real
      estate, net
            
            $
            690,323
            
            
            $
            612,835Other
      assets
            
            
            89,384
            
            
            
            87,383Total
      liabilities
            
            
            (201,617
            )
            
            
            (132,565
            )Shareholders
      equity
            
            $
            578,090
            
            
            $
            567,653For
      the Year EndedDecember
      31,(in
      thousands)
            
            2007
            
            
            2006
            
            
            2005Operating Data
      (unaudited):Rental
      revenues
            
            $
            94,406
            
            
            $
            57,279
            
            
            $
            60,339Other
      revenues
            
            
            3,410
            
            
            
            3,487
            
            
            
            1,211Operating
      and maintenance  expenses
            
            
            (45,072
            )
            
            
            (28,736
            )
            
            
            (24,742
            )Depreciation
      and amortization
            
            
            (23,843
            )
            
            
            (12,875
            )
            
            
            (12,531
            )Interest
      expense
            
            
            (23,038
            )
            
            
            (14,159
            )
            
            
            (7,691
            )Net
      income
            
            $
            5,863
            
            
            $
            4,996
            
            
            $
            16,586





F-20








Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





4.      Related
Party Transactions (continued)





Syndication
fees and Transaction fees:





The
Company provided syndication and real estate acquisition advisory services for
Sponsored REITs.  Syndication, development and transaction fees from
non-consolidated entities amounted to approximately $18,884,000, $21,955,000,
and $18,680,000 for the years ended December 31, 2007, 2006 and 2005,
respectively.




Management
fees and interest income from loans:





Asset
management fees range from 1% to 5% of collected rents and the applicable
contracts are cancelable with 30 days’ notice.  Asset management fee
income from non-consolidated entities amounted to approximately $867,000,
$627,000, and $672,000 for the years ended December 31, 2007, 2006 and 2005,
respectively.  The Company is typically entitled to interest on funds
advanced to Sponsored REITs.  The Company recognized interest income
of approximately $6,163,000, $1,456,000, and $1,135,000 for the years ended
December 31, 2007, 2006 and 2005, respectively, relating to these
loans.




In
December 2007, we entered into a secured promissory note for a revolving line of
credit (Revolver) for up to $5.5 million with a Sponsored REIT, FSP Highland
Place I Corp., which is available but has not been drawn on.  Advances
under the Revolver bear interest at a rate equal to the 30 day LIBOR rate plus
200 basis points.  The Revolver was made for the purpose of funding
capital expenditures and other costs of leasing.  We anticipate that
any advances made under the Revolver will be repaid at its maturity on November
30, 2010 or earlier from long term financing of the property, cash flows of the
property or some other capital event.




5.      Bank
Note Payable





The
Company has a revolving line of credit agreement (the "Loan Agreement") with a
group of banks providing for borrowings at the Company’s election of up to
$250,000,000. During October 2007 the line of credit was amended and restated,
and the maturity date was extended to August 11, 2011.  Borrowings
under the line of credit bear interest at either the bank's prime rate (7.25% at
December 31, 2007) or a rate equal to LIBOR plus 100 basis points (5.6% at
December 31, 2007). There were borrowings of $84,750,000 at the LIBOR plus 100
basis point rate at a weighted average rate of 6.2% outstanding under the line
of credit at December 31, 2007.  There was no balance outstanding at
December 31, 2006 or 2005.  The weighted average interest rate on
amounts outstanding during the years ended December 31, 2007 and 2006 was
approximately 6.51% and 6.39%, respectively.





The Loan
Agreement includes restrictions on property liens and requires compliance with
various financial covenants. Financial covenants include the maintenance of at
least $1,500,000 in operating cash accounts, a minimum unencumbered cash and
liquid investments balance and tangible net worth; limitations on permitted
secured debt and compliance with various debt and operating income ratios, as
defined in the Loan Agreement. The Company was in compliance with the Loan
Agreement's financial covenants as of December 31, 2007 and 2006. Borrowings
under the Loan Agreement mature on August 11, 2011.




6.      Stockholders’
Equity





Equity-Based
Compensation





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





The
Company did not issue any shares under the Plan in 2006.  In March
2005 the Company issued 1,750 shares to certain officers and employees under the
Plan with an estimated value of $31,000.  Shares issued were fully
vested on the date of issuance. The Equity-based compensation charge of $31,000
is included in selling, general & administrative expenses in the
accompanying consolidated statements of income for the year ended December 31,
2005.





F-21








Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





6.      Stockholders’
Equity (continued)





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




Shares
      Available
              for
      Grant
            
            
            Compensation CostShares
      approved for grant
            
            
            2,000,000
            
            
            $
            -Shares
      granted 2002
            
            
            (43,998
            )
            
            
            604,000Balance,
      December 31, 2002 and 2003
            
            
            1,956,002
            
            
            
            604,000Shares
      granted 2004
            
            
            (9,824
            )
            
            
            161,000Balance,
      December 31, 2004
            
            
            1,946,178
            
            
            
            765,000Shares
      granted 2005
            
            
            (1,750
            )
            
            
            31,000Balance,
      December 31, 2005, 2006 & 2007
            
            
            1,944,428
            
            
            $
            796,000





Repurchase
of Common Shares





On
October 28, 2005, the Board of Directors of the Company authorized the
repurchase of up to $35 million over a two year period, of the Company’s common
stock from time to time on the open market or in privately negotiated
transactions.  The Company subsequently repurchased 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.  There were no
repurchases during 2006.





On
September 10, 2007, FSP Corp. announced that the Board of Directors of FSP Corp.
had authorized certain modifications to the Company’s October 28, 2005 common
stock repurchase plan, including authorization to repurchase of up to $50
million of the Company’s common stock (inclusive of all repurchases made
pursuant to the October 28, 2005 plan) from time to time in the open market or
in privately negotiated transactions.  The repurchase authorization
expires at the earlier of (i) November 1, 2009 or (ii) a determination by the
Board of Directors of FSP Corp. to discontinue repurchases. The Company
subsequently repurchased 285,600 shares of common stock during the third quarter
of 2007 at an aggregate cost of $4,767,000 at an average cost of $16.69 per
share.  The excess of the purchase price over the par value of the
shares repurchased is applied to reduce additional paid-in capital.





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





(Dollars
      in thousands)SharesRepurchased
            
            
            CostBalance
      December 31, 2004
            
            
            575
            
            
            $
            10Issuances
      in 2005
            
            
            (575
            )
            
            
            (10
            )Redemption
      of fractionalshares
      from the Merger
            
            
            898
            
            
            
            16Repurchase
      of shares
            
            
            731,000
            
            
            
            13,992Balance
      December 31, 2005 and 2006
            
            
            731,898
            
            
            
            14,008Repurchase
      of shares
            
            
            285,600
            
            
            
            4,767Balance
      December 31, 2007
            
            
            1,017,498
            
            
            $
            18,775








F-22





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





7.      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, which is
part of the Company’s investment banking/investment services segment, 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.





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





The
Company’s adoption of the provisions of FIN 48 effective January 1, 2007 did not
result in recording a liability, nor was any accrued interest and penalties
recognized with the adoption of FIN 48.  Accrued interest and
penalties will be recorded as income tax expense, if the Company records a
liability in the future.  The Company’s effective tax rate was not
affected by the adoption of FIN 48.  The Company and one or more of
its subsidiaries files income tax returns in the U.S federal jurisdiction and
various state jurisdictions.  The statute of limitations for the
Company’s income tax returns is generally three years and as such, the Company’s
returns that remain subject to examination would be primarily from 2004 and
thereafter.




Net
operating losses





Section
382 of the Code restricts a corporation's ability to use net operating losses
(“NOLs") to offset future taxable income following certain "ownership changes."
Such ownership changes occurred with past mergers and accordingly a portion of
the NOLs incurred by the Sponsored REITs available for use by the Company in any
particular future taxable year will be limited. To the extent that the Company
does not utilize the full amount of the annual NOLs limit, the unused amount may
be carried forward to offset taxable income in future years. NOLs expire 20
years after the year in which they arise, and the last of the Company’s NOLs
will expire in 2024. 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.  In 2006 the Company used
$3,722,000 of NOLs in connection with its 2005 tax return.  The gross
amount of NOLs available to the Company were $12,376,000, $10,953,000, and
$8,813,000 as of December 31, 2007, 2006 and 2005, respectively.





Tax Rates





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




For
      the years ended December 31,(Dollars
      in thousands)
            
            2007
            
            
            2006
            
            
            2005Federal
      income tax expense at statutory rate
            
            $
            546
            
            
            
            34.0
            %
            
            $
            709
            
            
            
            34.0
            %
            
            $
            356
            
            
            
            34.0
            %Increase
      (decrease) in taxes resulting from:State
      income taxes, net of federal impact
            
            
            101
            
            
            
            6.3
            %
            
            
            130
            
            
            
            6.3
            %
            
            
            66
            
            
            
            6.3
            %Taxes
      on income
            
            $
            647
            
            
            
            40.3
            %
            
            $
            839
            
            
            
            40.3
            %
            
            $
            422
            
            
            
            40.3
            %








F-23





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





7.      Federal
Income Tax Reporting(continued)





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.





At
December 31, 2007 and 2006, 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 $79,923,000 and $94,754,000, respectively.





Reconciliation
Between GAAP Net Income and Taxable Income.





The
following reconciles book net income to taxable income for the years ended
December 31, 2007, 2006 and 2005.





For
      the year ended December 31,(in
      thousands)
            
            2007
            
            
            2006
            
            
            2005Net
      income per books
            
            $
            61,085
            
            
            $
            110,929
            
            
            $
            75,116Adjustments
      to book income:Book
      depreciation and amortization
            
            
            35,474
            
            
            
            32,047
            
            
            
            22,239Tax
      depreciation and amortization
            
            
            (21,236
            )
            
            
            (18,697
            )
            
            
            (14,447
            )Like-kind
      exchange gain deferral
            
            
            -
            
            
            
            (45,840
            )
            
            
            (14,351
            )Tax
      basis less book basis of properties sold, net
            
            
            5,622
            
            
            
            7,773
            
            
            
            4,747Loss
      on property held for sale
            
            
            -
            
            
            
            4,849
            
            
            
            -Straight
      line rent adjustment, net
            
            
            (3,126
            )
            
            
            (1,305
            )
            
            
            (1,814
            )Deferred
      rent, net
            
            
            (26
            )
            
            
            85
            
            
            
            (132
            )Non-taxable
      distributions
            
            
            (107
            )
            
            
            (84
            )
            
            
            (85
            )Other,
      net
            
            
            1,453
            
            
            
            (562
            )
            
            
            (815
            )Taxable
      income
            
            
            79,139
            
            
            
            89,195
            
            
            
            70,458Less:
      Capital gains recognized
            
            
            (30,835
            )
            
            
            (28,738
            )
            
            
            (22,068
            )Taxable
      income subject to distribution requirement
            
            $
            48,304
            
            
            $
            60,457
            
            
            $
            48,390





Tax
Components





The
following summarizes the tax components of the Company’s common distributions
paid per share for the years ended December 31, 2007, 2006 and
2005:





2007
            
            
            2006
            
            
            2005Per Share
            
            
            %
            
            
            Per Share
            
            
            %
            
            
            Per Share
            
            
            %Ordinary
      income
            
            $
            0.81
            
            
            
            65.24
            %
            
            $
            0.80
            
            
            
            63.73
            %
            
            $
            0.83
            
            
            
            67.16
            %Qualified
      dividends
            
            
            -
            
            
            
            -
            
            
            
            0.01
            
            
            
            1.08
            %
            
            
            -
            
            
            
            -Capital
      gain (1)
            
            
            0.43
            
            
            
            34.76
            %
            
            
            0.43
            
            
            
            35.19
            %
            
            
            0.41
            
            
            
            32.84
            %Return
      of capital
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            $
            1.24
            
            
            
            100
            %
            
            $
            1.24
            
            
            
            100
            %
            
            $
            1.24
            
            
            
            100
            %





(1)
            For
      2007, the 34.76% consists of 26.58% and 8.18% taxed at 15% and 25%
      respectively.  For 2006, the 35.19% consists of 26.50% and 8.69%
      taxed at 15% and 25% respectively.  For 2005, the 32.84% capital
      gain consists of 10.86% and 21.98% taxed at 15% and 25%,
      respectively.





F-24





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





8.      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 2019. The following is a
schedule of approximate future minimum rental income on non-cancelable operating
leases as of December 31, 2007:







(in
      thousands)
            
            Year
      ended December 31,2008
            
            $
            81,3192009
            
            
            76,0092010
            
            
            61,8562011
            
            
            49,4082012
            
            
            39,305Thereafter
      (2013-2019)
            
            
            108,906$
            416,803





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





(in
      thousands)
            
            Year
      ended December 31,2008
            
            $
            3222009
            
            
            3362010
            
            
            196Thereafter
            
            
            -$
            854





Rent
expense was approximately $284,000, $301,000 and $273,000 for the years ended
December 31, 2007, 2006 and 2005, respectively, and is included in selling,
general and administration expenses in the Consolidated Statements of
Income.





In
December 2007, the Company entered into a secured promissory note for a
revolving line of credit (Revolver) for up to $5.5 million with a Sponsored
REIT, FSP Highland Place I Corp., which is available but has not been drawn
on.  Advances under the Revolver bear interest at a rate equal to the
30 day LIBOR rate plus 200 basis points.  The loan was made for the
purpose of funding capital expenditures and other costs of
leasing.  We anticipate that any advances made under the Revolver will
be repaid at its maturity on November 30, 2010 or earlier from long term
financing of the property, cash flows of the property or some other capital
event.




9.      Retirement
Plan





In 2006,
the Company established a 401(k) plan to cover eligible employees, which permits
deferral of up to $15,000 per year (indexed for inflation) into the 401(k) plan,
subject to certain limitations imposed by the Internal Revenue
Code.  An employee’s elective deferrals are immediately vested upon
contribution to the 401(k) plan.  The Company matches employee
contributions to the 401(k) plan dollar for dollar up to 3% of each employee’s
annual compensation up to $200,000.  In addition, we may elect to make
an annual discretionary profit-sharing contribution.  The Company’s
total contribution under the 401(k) plan amounted to $138,000 and $133,000 for
the years ended December 31, 2007 and 2006, respectively.





In 1999,
the Company began a retirement savings plan for eligible employees, which was
replaced by the 401(k) plan in 2006. Under the plan, the Company annually
matched participant contributions up to the maximum allowed by tax regulations.
The Company's total contribution under the plan amounted to approximately
$158,000 for the year ended December 31, 2005.








F-25





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





10.           Discontinued
Operations





During
2006 the Company sold six properties, each of which was sold at a
gain.  The Company also reached an agreement to sell another
commercial property, located in Greenville, South Carolina, which sold on
January 31, 2007 at a loss.  In evaluating the Greenville, South
Carolina property, the Company compared estimated future costs to upgrade and
reposition the multi-tenant property and to lease up the
building.  The Company concluded that accepting the offer was the more
prudent decision because the management time and oversight of such a project
outweighed the potential future benefit.





In May
2007, the Company reached an agreement to sell a property located in Westford,
Massachusetts, which sold on July 16, 2007 at a gain.  During June
2007, the Company sold a property located in Alpharetta, Georgia at a gain and a
property located in San Diego, California at a gain.  During December
2007, the Company sold a property located in Austin, Texas at a
gain.  Accordingly, all of the properties sold during 2007 are
classified as assets held for sale as of December 31, 2006.





Accordingly,
all of the properties sold are classified as discontinued operations on our
financial statements.  Income from discontinued operations of these
properties was approximately $1.2 million, $7.9 million and $14,486 million for
the years ended December 31, 2007, 2006 and 2005, respectively.  For
the year ended December 31, 2007 the Company reported $23.8 million as gain
on sale of properties.  For the year ended December 31, 2006 the
Company reported $61.4 million as gain on sale of properties including a
provision for loss on the property held for sale.  For the year ended
December 31, 2005 the Company reported $30.5 million as net gains on sale
of properties.





During
the year ended December 31, 2007 gains on sales of properties and a provision
for loss from assets held for sale were recognized and are summarized
below:





(in thousands)
            
            
            
            
            NetCity/
            Property
            Date
      of
            
            SalesProperty
      Address
            State
            Type
            Sale
            
            Proceeds
            
            
            Gain200733
      & 37 Villa Road
            Greenville,
      SC
            Office
            January
      5, 2007
            
            $
            5,830
            
            
            $
            -11680
      Great Oaks Way
            Alpharetta,
      GA
            Office
            June
      21, 2007
            
            
            32,535
            
            
            
            6,60117030
      Goldentop Road
            San
      Diego, CA
            Office
            June
      27, 2007
            
            
            36,199
            
            
            
            14,74110
      Lyberty Way
            Westford,
      MA
            Office
            July
      16, 2007
            
            
            10,861
            
            
            
            1,94211211
      Taylor Draper Lane
            Austin,
      TX
            Office
            December
      20, 2007
            
            
            10,429
            
            
            
            257Settlement
      of escrows onprior
      property sales
            
            
            
            
            
            248
            
            
            
            248Net
      Sales Proceeds and Gainon
      sales of real estate
            
            
            
            
            $
            96,102
            
            
            $
            23,789











F-26





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





10.           Discontinued
Operations (continued)





During
the year ended December 31, 2006 gains on sales of properties and a provision
for loss from assets held for sale were recognized and are summarized
below:





(in
      thousands)
            
            
            
            
            NetCity/
            Property
            Date
      of
            
            SalesProperty
      Address
            State
            Type
            Sale
            
            Proceeds
            
            
            Gain/(Loss)200622400
      Westheimer Parkway
            Katy,
      TX
            Apartment
            May
      24, 2006
            
            $
            18,204
            
            
            $
            2,3734995
      Patrick Henry Drive
            Santa
      Clara, CA
            Office
            May
      31, 2006
            
            
            8,188
            
            
            
            1,55712902
      Federal Systems Park Drive
            Fairfax,
      VA
            Office
            May
      31, 2006
            
            
            61,412
            
            
            
            24,240One
      Technology Drive
            Peabody,
      MA
            Industrial
            August
      9, 2006
            
            
            15,995
            
            
            
            6,3662251
      Corporate Park Drive
            Herndon,
      VA
            Office
            November
      16, 2006
            
            
            58,022
            
            
            
            27,941451
      Andover Street&
      203 Turnpike Street
            North
      Andover, MA
            Office
            December
      21, 2006
            
            
            11,362
            
            
            
            3,810Net
      Sales Proceeds and Gainon
      sales of real estate
            
            
            
            
            $
            173,183
            
            
            
            66,287Provision
      for loss onproperty
      held for sale:33
      & 37 Villa Road
            Greenville,
      SC
            Office
            January
      31, 2007
            
            
            
            
            
            
            (4,849
            )$
            61,438








During
the year ended December 31, 2005 gains and losses on sales of the properties
sold are summarized below:





(in
      thousands)
            
            
            
            
            NetCity/
            Property
            Date
      of
            
            Sales
            
            
            Gain/Property
      Address
            State
            Type
            Sale
            
            Proceeds
            
            
            (Loss)200581
      Blue Ravine
            Folsom,
      CA
            Office
            July
      13, 2005
            
            
            4,764
            
            
            
            (1,124
            )7250
      Perkins Road
            Baton
      Rouge, LA
            Apartment
            September
      19, 2005
            
            
            22,280
            
            
            
            7,2657130-7150
      Columbia Gateway Dr
            Columbia,
      MD
            Office
            September
      20, 2005
            
            
            25,949
            
            
            
            6,807Park
      Ten Development (1)
            Houston,
      TX
            Land
            September
      29, 2005
            
            
            850
            
            
            
            3393919
      Essex Lane
            Houston,
      TX
            Apartment
            October
      5, 2005
            
            
            13,752
            
            
            
            5,1124000
      Essex Lane
            Houston,
      TX
            Apartment
            October
      5, 2005
            
            
            22,715
            
            
            
            5,1515751-5771
      Copley Drive
            San
      Diego, CA
            Office
            December
      8, 2005
            
            
            22,570
            
            
            
            6,943$
            112,880
            
            
            $
            30,493





(1)
              On September
      29, 2005, the Company recorded a non-monetary exchange gain of $0.3
      million from contribution of 2.9 acres of developable land contributed in
      exchange for 8.5 preferred shares (approximately 3.05%) of the Sponsored
      REIT, 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.








F-27





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





10.           Discontinued
Operations (continued)





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





For
      the Years Ended(in
      thousands)
            
            December
      31,2007
            
            
            2006
            
            
            2005Rental
      revenue
            
            $
            4,284
            
            
            $
            19,501
            
            
            $
            33,885Rental
      operating expenses
            
            
            (1,248
            )
            
            
            (5,556
            )
            
            
            (8,426
            )Real
      estate taxes and insurance
            
            
            (662
            )
            
            
            (1,980
            )
            
            
            (3,810
            )Depreciation
      and amortization
            
            
            (1,192
            )
            
            
            (4,015
            )
            
            
            (7,174
            )Interest
      income
            
            
            8
            
            
            
            1
            
            
            
            11Net
      income from discontinued operations
            
            $
            1,190
            
            
            $
            7,951
            
            
            $
            14,486





11.           Subsequent
Events





On
January 18, 2008, the Board of Directors of the Company declared a cash
distribution of $0.31 per share of common stock payable on February 20, 2008 to
stockholders of record on January 31, 2008.








F-28





Franklin
Street Properties Corp.


Notes
to the Consolidated Financial Statements





12.           Selected
Unaudited Quarterly Information





Selected
unaudited quarterly information is shown in the following table:





2007First
            
            
            Second
            
            
            Third
            
            
            FourthQuarter
            
            
            Quarter
            
            
            Quarter
            
            
            Quarter(in
      thousands, except per share data)Revenue
            
            $
            32,996
            
            
            $
            31,976
            
            
            $
            29,934
            
            
            $
            32,087Income
      from continuing operations
            
            $
            9,063
            
            
            $
            10,224
            
            
            $
            7,615
            
            
            $
            9,204Income
      from discontinued operations
            
            
            669
            
            
            
            662
            
            
            
            (71
            )
            
            
            (70
            )Gain
      on sale of properties
            
            
            -
            
            
            
            21,590
            
            
            
            1,942
            
            
            
            257Net
      income
            
            $
            9,732
            
            
            $
            32,476
            
            
            $
            9,486
            
            
            $
            9,391Basic
      and diluted net income per share
            
            $
            0.14
            
            
            $
            0.46
            
            
            $
            0.13
            
            
            $
            0.13Weighted
      average number of shares outstanding
            
            
            70,766
            
            
            
            70,766
            
            
            
            70,596
            
            
            
            70,4812006First
            
            
            Second
            
            
            Third
            
            
            FourthQuarter
            
            
            Quarter
            
            
            Quarter
            
            
            Quarter(in
      thousands, except per share data)Revenue
            
            $
            23,638
            
            
            $
            25,324
            
            
            $
            25,756
            
            
            $
            32,527Income
      from continuing operations
            
            $
            10,680
            
            
            $
            9,956
            
            
            $
            9,534
            
            
            $
            11,370Income
      from discontinued operations
            
            
            2,459
            
            
            
            2,413
            
            
            
            1,936
            
            
            
            1,143Gain
      on sale of properties
            
            
            -
            
            
            
            28,108
            
            
            
            6,361
            
            
            
            26,969Net
      income
            
            $
            13,139
            
            
            $
            40,477
            
            
            $
            17,831
            
            
            $
            39,482Basic
      and diluted net income per share
            
            $
            0.22
            
            
            $
            0.60
            
            
            $
            0.25
            
            
            $
            0.56Weighted
      average number of shares outstanding
            
            
            59,795
            
            
            
            67,149
            
            
            
            70,766
            
            
            
            70,766

















F-29




SCHEDULE
III
 
 FRANKLIN
STREET PROPERTIES CORP.
 REAL
ESTATE AND ACCUMULATED DEPRECIATION
 December
31, 2007
 
 Initial
      Cost
              
              
              Historical
      CostsDescription
              
              Encumbrances
                  (1)
              
              
              Land
              
              
              Buildings
                  Improvements
                  and
                  Equipment
              
              
              Costs
                  Capitalized
                  (Disposals)
                  Subsequent
      to
                  Acquisition
              
              
              Land
              
              
              Buildings
                  Improvements
                  and
                  Equipment
              
              
              Total
      (2)
              
              
              Accumulated
                  Depreciation
              
              
              Total
      Costs,
                  Net
      of
                  Accumulated
                  Depreciation
              
              
              Depreciable
                  Life
                  Years
              
              Year
                  Built
              
              Date
      of
                  Acquisition
                  (3)(in
      thousands)Commercial
      Properties:Park
      Seneca, Charlotte, NC
              
              $
              —
              
              
              $
              1,815
              
              
              $
              7,917
              
              
              $
              408
              
              
              $
              1,812
              
              
              $
              8,328
              
              
              $
              10,140
              
              
              $
              2,037
              
              
              $
              8,103
              
              
              
              5-39
              
              1969
              
              1997Hillview Center,
      Milpitas, CA
              
              
              —
              
              
              
              2,203
              
              
              
              2,813
              
              
              
              7
              
              
              
              2,203
              
              
              
              2,820
              
              
              
              5,023
              
              
              
              632
              
              
              
              4,391
              
              
              
              5-39
              
              1984
              
              1999Southfield
      Centre, Southfield, MI
              
              
              —
              
              
              
              4,344
              
              
              
              11,455
              
              
              
              2,442
              
              
              
              4,344
              
              
              
              13,897
              
              
              
              18,241
              
              
              
              2,665
              
              
              
              15,576
              
              
              
              5-39
              
              1977
              
              1999Bollman
      Place, Savage, MD
              
              
              —
              
              
              
              1,585
              
              
              
              4,121
              
              
              
              420
              
              
              
              1,585
              
              
              
              4,541
              
              
              
              6,126
              
              
              
              867
              
              
              
              5,259
              
              
              
              5-39
              
              1984
              
              1999Forest
      Park, Charlotte, NC
              
              
              —
              
              
              
              1,559
              
              
              
              5,672
              
              
              
              25
              
              
              
              1,559
              
              
              
              5,697
              
              
              
              7,256
              
              
              
              668
              
              
              
              6,588
              
              
              
              5-39
              
              1999
              
              1999Centennial
      Center, Colorado Springs, CO
              
              
              —
              
              
              
              1,549
              
              
              
              11,877
              
              
              
              1,172
              
              
              
              1,549
              
              
              
              13,049
              
              
              
              14,598
              
              
              
              1,721
              
              
              
              12,877
              
              
              
              5-39
              
              1999
              
              2000Meadow
      Point, Chantilly, VA
              
              
              —
              
              
              
              2,634
              
              
              
              18,911
              
              
              
              0
              
              
              
              2,634
              
              
              
              18,911
              
              
              
              21,545
              
              
              
              2,223
              
              
              
              19,322
              
              
              
              5-39
              
              1999
              
              2001Timberlake,
      Chesterfield, MO
              
              
              —
              
              
              
              2,984
              
              
              
              38,661
              
              
              
              1,668
              
              
              
              2,984
              
              
              
              40,329
              
              
              
              43,313
              
              
              
              4,893
              
              
              
              38,420
              
              
              
              5-39
              
              1999
              
              2001Northwest
      Point, Elk Grove Village, IL
              
              
              —
              
              
              
              2,914
              
              
              
              26,295
              
              
              
              7,154
              
              
              
              2,914
              
              
              
              33,449
              
              
              
              36,363
              
              
              
              3,721
              
              
              
              32,642
              
              
              
              5-39
              
              1999
              
              2001Timberlake
      East, Chesterfield, MO
              
              
              —
              
              
              
              2,626
              
              
              
              17,608
              
              
              
              1,658
              
              
              
              2,626
              
              
              
              19,266
              
              
              
              21,892
              
              
              
              2,304
              
              
              
              19,588
              
              
              
              5-39
              
              2000
              
              2002Park
      Ten, Houston, TX
              
              
              —
              
              
              
              1,061
              
              
              
              21,303
              
              
              
              (120
              )
              
              
              569
              
              
              
              21,675
              
              
              
              22,244
              
              
              
              2,538
              
              
              
              19,706
              
              
              
              5-39
              
              1999
              
              2002Federal
      Way, Federal Way, WA
              
              
              —
              
              
              
              2,518
              
              
              
              13,212
              
              
              
              1,251
              
              
              
              2,518
              
              
              
              14,463
              
              
              
              16,981
              
              
              
              1,593
              
              
              
              15,388
              
              
              
              5-39
              
              1982
              
              2001Addison,
      Addison, TX
              
              
              —
              
              
              
              4,325
              
              
              
              48,040
              
              
              
              1,238
              
              
              
              4,325
              
              
              
              49,278
              
              
              
              53,603
              
              
              
              3,769
              
              
              
              49,834
              
              
              
              5-39
              
              1999
              
              2002Collins,
      Richardson, TX
              
              
              —
              
              
              
              4,000
              
              
              
              42,598
              
              
              
              1,122
              
              
              
              4,000
              
              
              
              43,720
              
              
              
              47,720
              
              
              
              3,037
              
              
              
              44,683
              
              
              
              5-39
              
              1999
              
              2003Montague,
      San Jose, CA
              
              
              —
              
              
              
              10,250
              
              
              
              5,254
              
              
              
              1,953
              
              
              
              10,250
              
              
              
              7,207
              
              
              
              17,457
              
              
              
              388
              
              
              
              17,069
              
              
              
              5-39
              
              1982
              
              2002Greenwood,
      Englewood, CO
              
              
              —
              
              
              
              3,100
              
              
              
              30,201
              
              
              
              0
              
              
              
              3,100
              
              
              
              30,201
              
              
              
              33,301
              
              
              
              2,194
              
              
              
              31,107
              
              
              
              5-39
              
              2000
              
              2005River
      Crossing, Indianapolis, IN
              
              
              —
              
              
              
              3,000
              
              
              
              36,926
              
              
              
              900
              
              
              
              3,000
              
              
              
              37,826
              
              
              
              40,826
              
              
              
              2,500
              
              
              
              38,326
              
              
              
              5-39
              
              1998
              
              2005Willow Bend,
      Plano, TX
              
              
              —
              
              
              
              3,800
              
              
              
              14,842
              
              
              
              375
              
              
              
              3,800
              
              
              
              15,217
              
              
              
              19,017
              
              
              
              672
              
              
              
              18,345
              
              
              
              5-39
              
              1999
              
              2000Innsbrook,
      Glenn Allen, VA
              
              
              —
              
              
              
              5,000
              
              
              
              40,216
              
              
              
              1,197
              
              
              
              5,000
              
              
              
              41,413
              
              
              
              46,413
              
              
              
              1,878
              
              
              
              44,535
              
              
              
              5-39
              
              1999
              
              2003380
      Interlocken, Bloomfield, CO
              
              
              —
              
              
              
              8,275
              
              
              
              34,462
              
              
              
              1,344
              
              
              
              8,275
              
              
              
              35,806
              
              
              
              44,081
              
              
              
              1,582
              
              
              
              42,499
              
              
              
              5-39
              
              2000
              
              2003Blue
      Lagoon, Miami, FL
              
              
              —
              
              
              
              6,306
              
              
              
              46,124
              
              
              
              0
              
              
              
              6,306
              
              
              
              46,124
              
              
              
              52,430
              
              
              
              1,971
              
              
              
              50,459
              
              
              
              5-39
              
              2002
              
              2003Eldridge
      Green, Houston, TX
              
              
              —
              
              
              
              3,900
              
              
              
              43,791
              
              
              
              61
              
              
              
              3,900
              
              
              
              43,852
              
              
              
              47,752
              
              
              
              1,875
              
              
              
              45,877
              
              
              
              5-39
              
              1999
              
              2004Liberty Plaza,
      Addison, TX
              
              
              —
              
              
              
              4,374
              
              
              
              21,146
              
              
              
              2,121
              
              
              
              4,374
              
              
              
              23,267
              
              
              
              27,641
              
              
              
              1,347
              
              
              
              26,294
              
              
              
              5-39
              
              1985
              
              2006One
      Overton, Atlanta, GA
              
              
              —
              
              
              
              3,900
              
              
              
              77,229
              
              
              
              1,055
              
              
              
              3,900
              
              
              
              78,284
              
              
              
              82,184
              
              
              
              3,090
              
              
              
              79,094
              
              
              
              5-39
              
              2002
              
              2006FSP
      390 Interlocken, Bloomfield, CO
              
              
              —
              
              
              
              7,013
              
              
              
              37,751
              
              
              
              1,601
              
              
              
              7,013
              
              
              
              39,352
              
              
              
              46,365
              
              
              
              1,068
              
              
              
              45,297
              
              
              
              5-39
              
              2002
              
              2006East
      Baltimore, Baltimore, MD
              
              
              —
              
              
              
              4,600
              
              
              
              55,267
              
              
              
              0
              
              
              
              4,600
              
              
              
              55,267
              
              
              
              59,867
              
              
              
              827
              
              
              
              59,040
              
              
              
              5-39
              
              1989
              
              2007Balance – Real Estate
              
              $
              —
              
              
              $
              99,635
              
              
              $
              713,692
              
              
              $
              29,052
              
              
              $
              99,140
              
              
              $
              743,239
              
              
              $
              842,379
              
              
              $
              52,060
              
              
              $
              790,319
 
 (1)
              There
      are no encumbrances on the above
properties.
 (2)
              The
      aggregate cost for federal income tax purposes is
  $803,547
 (3)
              Original
      date of acquisition by the Company or merged
  entity.


F-30








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





December
      31,(in
      thousands)
            
            2007
            
            
            2006
            
            
            2005Real
      estate investments, at cost:Balance,
      beginning of year
            
            $
            854,440
            
            
            $
            595,194
            
            
            $
            476,982Acquisition
      by merger
            
            
            -
            
            
            
            206,715
            
            
            
            138,535Acquisitions
            
            
            59,867
            
            
            
            151,802
            
            
            
            73,227Improvements
            
            
            11,030
            
            
            
            15,814
            
            
            
            2,692Assets
      held for sale
            
            
            -
            
            
            
            (82,909
            )
            
            
            (197,373
            )Dispositions
            
            
            (82,958
            )
            
            
            (115,085
            )
            
            
            (96,242
            )Balance
      - Real Estate
            
            
            842,379
            
            
            
            771,531
            
            
            
            397,821Assets
      held for sale
            
            
            -
            
            
            
            82,909
            
            
            
            197,373Balance,
      end of year
            
            $
            842,379
            
            
            $
            854,440
            
            
            $
            595,194Accumulated
      depreciation:Balance,
      beginning of year
            
            $
            45,120
            
            
            $
            35,966
            
            
            $
            37,227Depreciation
            
            
            21,450
            
            
            
            17,365
            
            
            
            13,822Assets
      held for sale
            
            
            -
            
            
            
            (8,873
            )
            
            
            (18,235
            )Dispositions
            
            
            (14,510
            )
            
            
            (12,813
            )
            
            
            (15,083
            )Balance
      - Accumulated Depreciation
            
            
            52,060
            
            
            
            31,645
            
            
            
            17,731Assets
      held for sale
            
            
            -
            
            
            
            13,475
            
            
            
            18,235Balance,
      end of year
            
            $
            52,060
            
            
            $
            45,120
            
            
            $
            35,966














F-31