UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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Commission File No. 000-52559

FSP Phoenix Tower Corp.

(Exact name of registrant as specified in its
charter)

|Delaware                                                        | 20-3965390                                  
|--------------------------------------------------------------- | --------------------------------------------
|(State or other jurisdiction of  incorporation or organization) | (I.R.S. Employer
        Identification No.)
|                                                                |                                             
|401 Edgewater Place, Wakefield, Massachusetts                   | 01880                                       
|(Address of principal executive offices)                        | (Zip Code)                                  
|                                                                |                                             

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



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



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



Preferred Stock, $.01 par value per share



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



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



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





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







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



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



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





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





As of June 30, 2010, the
aggregate fair market value of Common Stock held by non-affiliates of the registrant was $0.



The number of shares of
Common Stock outstanding was 1 and the number of shares of Preferred Stock outstanding was 1,050, each as of February 28, 2011.



Documents incorporated by reference: None.





TABLE OF CONTENTS



|PART I     |                                                                                                              | 1 
|---------- | ------------------------------------------------------------------------------------------------------------ | --
|Item 1.    | Business.                                                                                                    | 1 
|Item 1A.   | Risk Factors.                                                                                                | 5 
|Item 1B.   | Unresolved Staff Comments.                                                                                   | 5 
|Item 2.    | Properties.                                                                                                  | 6 
|Item 3.    | Legal Proceedings.                                                                                           | 7 
|Item 4.    | Removed and Reserved                                                                                         | 7 
|           |                                                                                                              |   
|PART II    |                                                                                                              | 8 
|Item 5.    | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 8 
|Item 6.    | Selected Financial Data.                                                                                     | 8 
|Item 7.    | Management’s Discussion and Analysis of Financial Condition and Results of Operations.                       | 9 
|Item 7A.   | Quantitative and Qualitative Disclosures About Market Risk.                                                  | 14
|Item 8.    | Financial Statements and Supplementary Data.                                                                 | 14
|Item 9.    | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.                        | 14
|Item 9A.   | Controls and Procedures.                                                                                     | 15
|Item 9B.   | Other information.                                                                                           | 16
|           |                                                                                                              |   
|PART III   |                                                                                                              | 17
|Item 10.   | Directors, Executive Officers and Corporate Governance                                                       | 17
|Item 11.   | Executive Compensation.                                                                                      | 18
|Item 12.   | Security Ownership of Certain Beneficial Owners and Management                                               |   
|           | and Related Stockholder Matters.                                                                             | 19
|Item 13.   | Certain Relationships and Related Transactions, and Director Independence.                                   | 20
|Item 14.   | Principal Accounting Fees and Services.                                                                      | 21
|           |                                                                                                              |   
|PART IV    |                                                                                                              | 22
|Item 15.   | Exhibits, Financial Statement Schedules.                                                                     | 22
|           |                                                                                                              |   
|SIGNATURES | 23                                                                                                          









PART I



|Item 1. | Business
|------- | --------



History



Our company, FSP Phoenix
Tower Corp., which individually or together with its subsidiaries, we refer to as the Company, we or our, is a Delaware corporation
formed to purchase, own, operate, improve and reposition in the marketplace a thirty-four story multi-tenant office building containing
approximately 629,054 rentable square feet of space located on approximately 2.1 acres of land in Houston, Texas, which we refer
to as the Property. The Company operates in a manner intended to qualify as a real estate investment trust, or REIT, for federal
income tax purposes.



The Company was organized
in December 2005 by FSP Investments LLC (member, FINRA and SIPC), a wholly-owned subsidiary of Franklin Street Properties Corp.,
which we refer to as Franklin Street (NYSE Amex: FSP). FSP Investments LLC acted as a real estate investment firm and broker/dealer
with respect to (a) the organization of the Company, (b) the acquisition of the Property by the Company and (c) the sale of equity
interests in the Company.



The Company purchased the
Property from an unaffiliated third party for $74,500,000 on February 22, 2006. The purchase price, which was determined based
on arm’s-length negotiations, was financed entirely by a loan from Franklin Street collateralized by a first mortgage, which
we refer to as the First Mortgage Loan. The First Mortgage Loan was repaid in its entirety on August 22, 2006 from the proceeds
of the sale of equity interests in the Company. Total interest and loan fees incurred on the First Mortgage Loan were approximately
$6,840,000. The Company acquired the Property through a limited partnership, FSP Phoenix Tower Limited Partnership, of which the
Company is the sole limited partner and of which FSP Phoenix Tower LLC, a wholly-owned subsidiary of the Company, is the sole general
partner. The sole business of FSP Phoenix Tower Limited Partnership is to own and operate the Property; the sole business of each
of FSP Phoenix Tower LLC and the Company is to hold the equity interests of FSP Phoenix Tower Limited Partnership.



The Company commenced operations
in February 2006.



Franklin Street holds the
sole share of the Company’s common stock, $.01 par value per share, which we refer to as the Common Stock. Between March
2006 and September 2006, FSP Investments LLC completed the sale on a best efforts basis of 1,050 shares of the Company’s
preferred stock, $.01 par value per share, which we refer to as the Preferred Stock. We sold the Preferred Stock for an aggregate
consideration of approximately $104,316,000 in a private placement offering to 789 “accredited investors” within the
meaning of Regulation D under the Securities Act of 1933. Between March 31, 2006 and September 22, 2006, the Company held 10 investor
closings, at each of which shares of Preferred Stock were sold and funds were received. On September 22, 2006, Franklin Street
purchased 48 shares of Preferred Stock (approximately 4.6% of the 1,050 shares sold) for $4,116,000, representing $4,800,000 at
the offering price net of commissions of $384,000 and fees of $300,000 that were excluded. Prior to purchasing any shares of Preferred
Stock, Franklin Street agreed to vote any shares held by it on any matter presented to the holders of Preferred Stock in a manner
that approximates as closely as possible the votes cast in favor of and opposed to such matter by the holders of the Preferred
Stock other than Franklin Street and its affiliates. For purposes of determining how Franklin Street votes its shares of Preferred
Stock, abstentions and non-votes by stockholders other than Franklin Street are not considered. Funds from each individual closing
were used to repay the First Mortgage Loan and associated fees as well as other expenses payable to Franklin Street’s wholly-owned
subsidiary, FSP Investments LLC. The use of proceeds received from the offerings of Preferred Stock and affiliates receiving payments
are set forth in the table below:



1







|Use of proceeds:                                                      |  |                                  |                 
|--------------------------------------------------------------------- |  | -------------------------------- | ----------------
|Type                                                                  |  | Affiliate paid                   | Amount          
|Operating/Capital Reserve (1)                                         |  |                                  | $     15,012,500
|Organizational, Offering and Other Expenditures for the Company(2)(6) |  | FSP Investments LLC              | 525,000         
|Selling Commissions(3)                                                |  | FSP Investments LLC              | 8,016,000       
|Acquisition-Related Costs:                                            |  |                                  |                 
|Purchase Price of the Property(4)                                     |  | Franklin Street Properties Corp. | 74,500,000      
|Loan Fee Paid to Franklin Street (5)                                  |  | Franklin Street Properties Corp. | 5,761,000       
|Acquisition Fee(6)                                                    |  | FSP Investments LLC              | 501,000         
|Total Uses of Gross Offering Proceeds                                 |  |                                  | $  104,316,000  



(1)	The
Operating/Capital Reserve proceeds were retained by the Company for operating and capital uses.

(2)	Organizational,
Offering and Other Expenditures were paid for various expenses, including legal, accounting, appraisal, engineering and organizational
expenses allocable to the offering, incurred in connection with the organization and syndication of the Company.

(3)	Selling
Commissions were paid to FSP Investments LLC, as Selling Agent.

(4)	The
Purchase Price of the Property was financed by the First Mortgage Loan, which was repaid from proceeds of the offering.

(5)	The
Loan Fee Paid to Franklin Street was a fee (or points) payable to Franklin Street to obtain the First Mortgage Loan to purchase
the Property in the amount of $5,761,500 . The First Mortgage Loan was in an original principal amount equal to the purchase price
of the Property, and had a term of two years, which was prepayable at any time without premium or penalty and carried an interest
rate equal to the rate payable by Franklin Street on borrowings under its line of credit with its bank.

(6)	The
Acquisition Fee was paid for various services in connection with identifying and acquiring the Property.



Transactions between the
Company and Franklin Street and/or its affiliates were entered into without the benefit of arm’s-length bargaining and involved
conflicts of interest. Although Franklin Street sponsors the syndication of other REITs similar to the Company and has in the past
acquired some of those REITs, Franklin Street is under no obligation to acquire or to offer to acquire the Company or the outstanding
shares of Preferred Stock, and any acquisition transaction would need to be approved by the Company’s stockholders and the
boards of directors of Franklin Street and the Company. Please see “Item 13. Certain Relationships and Related Transactions,
and Director Independence”.



Our Business



Our sole business is to
own, operate, improve and reposition in the marketplace the Property and we do not intend to invest in or purchase any additional
properties. We derive rental revenue from income paid to us by the tenants of the Property. Asset and property management services
are provided by third parties.



The Property was completed
in 1984 and is a 34-story multi-tenant office building containing approximately 629,054 rentable square feet of space located on
approximately 2.1 acres of land in Houston, Texas. The Property includes approximately 1,649 parking spaces located inside a glass-enclosed
fully-integrated attached eight-level parking garage and approximately 17 on-site surface parking spaces. The Property also has
the right to use approximately 190 additional uncovered off-site parking spaces at an adjacent property pursuant to a lease that
expires on February 28, 2019.



The Property underwent
a remeasurement of space in 1997. This remeasurement concluded that the rentable space in the Property should be increased from
approximately 618,578 square feet to approximately 629,054 square feet. This Annual Report on Form 10-K makes reference to the
more recently determined 629,054 square foot number in all of its general descriptions of the Property. Because lease payments
are calculated on a per square foot basis, the Company believes that the potential exists in the future to gain greater amounts
of rental income from leasing this extra space. However, the Company also believes that any such potential gains will not come
immediately as existing tenants and their respective leases are mostly based upon the previous 618,578 square foot measurement.
Accordingly, all tenant and lease descriptions set forth in this Annual Report on Form 10-K reflect the terms and conditions of
the respective lease documents, which generally are based on the 618,578 square foot measurement instead of the 629,054 square
foot number.

2







Since its completion in
1984, the Property has competed within the office market in Houston, Texas.  Management believes that the Property is still
competitive with other office buildings, but given its age, determined at the time of acquisition that it needed improvements in
several important areas in order to maintain or enhance its prominent position in the marketplace.  Management believes that
such a repositioning could increase the value of the Property and lead to higher future rent and occupancy levels.  The improvements
included, among others, remediation of the glass façade and upgrades to the garage, ground floor lobby, ninth floor sky
lobby and terrace, streetscape and landscape.  The improvements were substantially completed in June 2009 at a cost of approximately
$11.7 million and have received favorable responses from our existing tenants, potential future tenants and the local leasing community.



Conditions, including new
leasing activity, at the Property have caused management to make additional improvements at additional cost in order to further
enhance the Property. Through December 31, 2010, the Company had incurred additional costs of approximately $2 million to make
additional improvements to the Property, including an elevator modernization project (described further below), common corridor
upgrades, multi-tenant corridor conversions and the establishment of a fitness center.  If future conditions warrant, management
may elect to make additional improvements at additional cost in order to further enhance the Property.



On September 15, 2010,
we entered into a $2.8 million dollar contract with Thyssen Krupp Elevator Corporation to modernize 21 elevators serving the Property.
Over the years, the increasing costs to maintain and operate the system’s mechanical relay controls, as well as the declining
level of performance of the vertical transportation, have warranted the modernization project. The work commenced during the fourth
quarter of 2010 and is anticipated to be complete by the end of 2011. Management believes that the elevator
modernization project could reduce operating costs, improve the overall performance of elevator service, and provide another positive
attribute to entice prospective tenants.



The Property is occupied
by a diverse group of tenants, including financial institutions, energy firms, law firms and other professional service organizations.
As of December 31, 2010, the Property was approximately 68% leased and management is aggressively working to lease all vacant space.
Management believes that any tenant that leases 10% or more of the Property’s rentable space is material. As of December
31, 2010, Permian Mud Service, Inc., an energy-related firm d/b/a Champion Technologies, leased approximately 78,166 square feet
(13%) of the Property’s rentable space through February 2018. Other prominent additional tenants include Phillips & Akers,
a Texas professional corporation (law firm), which leases approximately 26,939 square feet (4%) through November 2011 and Allen
Boone Humphries Robinson LLP, (law firm), which leases approximately 51,153 square feet (8%) through July 2018. Permian Mud Service,
Inc., Phillips & Akers, and Allen Boone Humphries Robinson LLP account for approximately 156,258 square feet (26%) of the rentable
area of the Property. Other well-known tenants include Sprint Communications, Lincoln National Life Insurance Company and the NetApp,
Inc. There are currently approximately 38 tenants leasing office space at the Property.



Most of the Property’s
leases are structured on a full-service base year system, where tenants reimburse the landlord for operating expenses above an
initial base year. However, as of July 2007, for new leases, management initiated a conversion from full-service base year leases
to net leases, where tenants pay annual base net rent, plus the tenant’s proportionate share of operating expenses. Normal
operating expenses at the Property include, but are not limited to, maintenance, repairs, real estate taxes, insurance, utilities
and management costs. The landlord is generally obligated, at its expense, to maintain and replace, if necessary, all structural
components of the Property, including walls, roof, slab and foundation.



FSP Property Management
LLC, a wholly-owned subsidiary of Franklin Street, provides the Company with asset management and financial reporting services,
which include but are not limited to, selecting and supervising a local property management company and local leasing brokers,
approving lease transactions, evaluating performance of the asset, and recommending appropriate stockholder distributions to the
Board of Directors of the Company. The asset management agreement between the Company and FSP Property Management LLC requires
the Company to pay FSP Property Management LLC a monthly fee equal to one percent (1%) of that month’s gross revenues of
the Property. The asset management agreement between the Company and FSP Property Management LLC may be terminated by either party
without cause at any time, upon at least thirty (30) days written notice. Hines Interests Limited Partnership provides the Company
with local, on-site property management and building maintenance services and periodic financial, operating and budget reports
relating to the operation of the Property for review by FSP Property Management LLC. Hines Interests Limited Partnership is a third-party
service provider that is not related to or affiliated with Franklin Street. The management agreement between the Company and Hines
Interests Limited Partnership requires the Company to pay Hines Interests Limited Partnership a monthly fee equal to three percent
(3%) of the net operating receipts collected in the preceding month. The management agreement between the Company and Hines Interests
Limited Partnership may be terminated by either party without cause at any time, upon at least thirty (30) days written notice.

3





Investment Objectives



The Company’s objectives
are to (i) improve and reposition the Property in the marketplace, (ii) obtain cash available to pay dividends through rental receipts
from operations of the Property, (iii) have that cash increase over time as a result of rental rate step increases in existing
leases, (iv) have our rental revenue potentially increase over time if rental rates increase for new leases, (v) provide increased
equity in the Property to our holders of Preferred Stock as a result of appreciation in market value, and (vi) preserve and protect
the capital invested by the holders of our Preferred Stock. We cannot be sure of meeting our objectives.



Our policy is not to make
loans to other persons, not to invest in the securities of other issuers for the purpose of exercising control, not to underwrite
the securities of other issuers, not to offer securities in exchange for property and not to purchase or otherwise reacquire our
securities. These policies may be changed by our directors without a vote of the holders of shares of our Preferred Stock.



We have issued our shares
of Preferred Stock in the 2006 offering described above. No additional shares of Preferred Stock are authorized by our charter,
and authorization of any increase in the number of authorized shares or the creation of any new series or class of stock would
require the affirmative vote of the holders of 66.67% of the outstanding shares of Preferred Stock.



We intend to dispose of
the Property at such time that our directors determine that we have achieved our investment objectives. We do not intend to reinvest
the proceeds and would distribute cash proceeds to stockholders following such disposition. We also do not intend to list our shares
of Preferred Stock on an exchange and therefore do not expect any trading market to develop in such shares.



We have the right to obtain
a line of credit as described below.



Revolving Line of Credit



Given the amount
of space that needs to be leased and the potential for significant tenant improvement allowances and leasing commissions,
on December 4, 2008, we entered into a three-year secured promissory note for a revolving line of credit, which we refer to
as the Phoenix Revolver, with Franklin Street for up to $15,000,000. Advances under the Phoenix Revolver bear interest at a
rate equal to the 30-day LIBOR rate plus 300 basis points (3.26% at December 31, 2010) and each advance thereunder requires
a payment of 50 basis point draw fee. The Phoenix Revolver matures on November 30, 2011 and is secured by a mortgage on
the Property. We anticipate that the Phoenix Revolver will be replaced or refinanced on or before its maturity date. However,
there can be no assurance that we will be able to replace or refinance the Phoenix Revolver on favorable terms or at all. As
of December 31, 2010, advances drawn and outstanding under the Phoenix Revolver totaled $6,500,000. For the years ended
December 31, 2010 and 2009, the draw fees were $14,500 and $18,000, respectively, and interest expense paid to Franklin
Street was approximately $135,000 and $115,000, respectively.



Competition



The Property is
an office building located in Houston, Texas. The Property is competing against the other office buildings which are or
may become available in the general area in which the Property is located and which may be priced at rental levels lower
than those for space in the Property or which may otherwise be more attractive to tenants. In order to lease existing
vacancy, the Property must be competitive, in regards to cost and amenities, with other buildings of similar use near our
location. 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 lower 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.
If, at any time, there is no significant existing competition for the Property, our competitors may decide to enter the
market and build new buildings to compete with our Property. Our competition is not only with other developers, but also with
property users who choose to own their building. In addition, larger market forces beyond our control, such as
general economic conditions,  may increase competition among landlords for quality tenants and individual decisions
beyond our control. Given that the Property is a multi-tenant office building that is leased to a diverse group of tenants
with staggered lease expirations, we cannot predict which competitive factors will be relevant to prospective future tenants
at this time.



4





In light of the recent
improvements to the Property, management believes that the position of the Property in the local office market is strong and management
is optimistic that the existing vacant space will ultimately be leased to new tenants. Please see “Part I, Item 2. Properties”
for additional information on the improvements to the Property.



Employees



We had no employees as of December 31, 2010.



Available Information



We are subject to the informational
requirements of the Securities Exchange Act of 1934, and, in accordance therewith, we file reports and other information with the
Securities and Exchange Commission (SEC). This Annual Report on Form 10-K and other 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 on official business days during
the hours of 10:00 to 3:00 pm. Such reports, proxy and information statements, if any, and other information about issuers that
file electronically with the SEC 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 will make available
and voluntarily provide, free of charge upon written request at the address on the cover of this Annual Report on Form 10-K, a
copy of 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) of the Exchange Act as soon as reasonably practicable after we electronically file
such material with, or furnish such material to, the SEC. We do not maintain a website.



|Item 1A. | Risk Factors
|-------- | ------------



Not applicable.



|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------



Not applicable.

5







|Item 2. | Properties
|------- | ----------



Set forth below is information regarding the
Property as of December 31, 2010:



|                       |          |             | Percent     |            |                          
|---------------------- | -------- | ----------- | ----------- | ---------- | -------------------------
|                       | Date of  | Approx.     | Leased as   | Number     |                          
|Property Location      | Purchase | Square Feet | of 12/31/10 | of Tenants | Name of Major Tenant     
|                       |          |             |             |            |                          
|3200 Southwest Freeway | 02/22/06 | 629,054     | 68%         | 38         | Permian Mud Service, Inc.
|Houston, TX 77027      |          |             |             |            |                          



Weacquired the Property on February 22, 2006 through a limited partnership, all of whose equity interest is owned, directly
or indirectly, by the Company. In the opinion of our management, the Property is adequately covered
by insurance.



The Property was completed
in 1984 and is a 34-story multi-tenant office building containing approximately 629,054 rentable square feet of space located on
approximately 2.1 acres of land in Houston, Texas. The Property includes approximately 1,649 parking spaces located inside a glass-enclosed
fully-integrated attached eight-level parking garage and approximately 17 on-site surface parking spaces. The Property also has
the right to use approximately 190 additional uncovered off-site parking spaces at an adjacent property pursuant to a lease that
expires on February 28, 2019.



The Property underwent
a remeasurement of space in 1997. This remeasurement concluded that the rentable space in the Property should be increased from
approximately 618,578 square feet to approximately 629,054 square feet. Holders of our Preferred Stock should note that this Annual
Report on Form 10-K makes reference to the newly determined 629,054 square foot number in all of its general descriptions of the
Property. Because lease payments are calculated on a per square foot basis, the Company believes that the potential exists in the
future to gain greater amounts of rental income from leasing this extra space. However, the Company also believes that any such
potential gains will not come immediately as existing tenants and their respective leases are based for the most part upon the
previous 618,578 square foot measurement. Accordingly, holders of our Preferred Stock should note that all tenant and lease descriptions
set forth in this Annual Report on Form 10-K reflect the terms and conditions of their respective lease documents, which in most
cases are based on the 618,578 square foot measurement instead of the 629,054 square foot number.



Since its completion in
1984, the Property has competed within the office market in Houston, Texas.  Management believes that the Property is still
competitive with other office buildings, but given its age, determined at the time of acquisition that it needed improvements in
several important areas in order to maintain or enhance its prominent position in the marketplace.  Management believes that
such a repositioning could increase the value of the Property and lead to higher future rent and occupancy levels.  The improvements
included, among others, remediation of the glass façade and upgrades to the garage, ground floor lobby, ninth floor sky
lobby and terrace, streetscape and landscape.  The improvements were substantially completed in June 2009 at a cost of approximately
$11.7 million and have received favorable responses from our existing tenants, potential future tenants and the local leasing community.



Conditions, including new
leasing activity, at the Property have caused management to make additional improvements at additional cost in order to further
enhance the Property. Through December 31, 2010, the Company had incurred additional costs of approximately $2 million to make
additional improvements to the Property, including an elevator modernization project (described further below), common corridor
upgrades, multi-tenant corridor conversions and the establishment of a fitness center.  If future conditions warrant, management
may elect to make additional improvements at additional cost in order to further enhance the Property.



On September 15, 2010,
we entered into a $2.8 million dollar contract with Thyssen Krupp Elevator Corporation to modernize 21 elevators serving the Property.
Over the years, the increasing costs to maintain and operate the system’s mechanical relay controls, as well as the declining
level of performance of the vertical transportation, have warranted the modernization project. The work commenced during the fourth
quarter of 2010 and is anticipated to be complete by the end of 2011. Management believes that the elevator
modernization project could reduce operating costs, improve the overall performance of elevator service, and provide another positive
attribute to entice prospective tenants.



Below
is certain information with respect to the Property’s tenants and leases.

6







Tenants



The Property is occupied
by a diverse group of tenants, including financial institutions, energy firms, law firms and other professional service organizations.
As of December 31, 2010, the Property was approximately 68% leased and management is aggressively working to lease all vacant space.
Management believes that any tenant that leases 10% or more of the Property’s rentable space is material. As of December
31, 2010, Permian Mud Service, Inc., an energy-related firm d/b/a Champion Technologies, leased approximately 78,166 square feet
(13%) of the Property’s rentable space through February 2018. Other prominent additional tenants include Phillips & Akers,
a Texas professional corporation (law firm), which leases approximately 26,939 square feet (4%) through November 2011 and Allen
Boone Humphries Robinson LLP, (law firm), which leases approximately 51,153 square feet (8%) through July 2018. Permian Mud Service,
Inc., Phillips & Akers, and Allen Boone Humphries Robinson LLP account for approximately 156,258 square feet (26%) of the rentable
area of the Property. Other well-known tenants include Sprint Communications, Lincoln National Life Insurance Company and the NetApp,
Inc. There are currently approximately 38 tenants leasing office space at the Property.



Permian Mud Service,
Inc. (d/b/a Champion Technologies)



Champion Technologies is
a specialty chemical company that offers innovative and environmentally acceptable solutions to oil and gas production problems.
Champion Technologies delivers technical solutions that enhance productivity and improve well economics. The information contained
in the preceding sentences is from Champion Technologies’ website and has not been independently verified by us. Additional
information is available on Permian Mud Service, Inc.’s website at http://www.permianmud.com or Champion Technologies’
website at http://www.champ-tech.com.



Leases



Most of the Property’s
leases are structured on a full-service base year system, where tenants reimburse the landlord for operating expenses above an
initial base year. However, as of July 2007, for new leases, management initiated a conversion from full-service base year leases
to net leases, where tenants pay annual base net rent, plus the tenant’s proportionate share of operating expenses. Normal
operating expenses at the Property include, but are not limited to, maintenance, repairs, real estate taxes, insurance, utilities
and management costs. The landlord is generally obligated, at its expense, to maintain and replace, if necessary, all structural
components of the Property, including walls, roof, slab and foundation.



Additional Operating Data



Additional information
regarding the amount of the Property’s annual real estate taxes and insurance can be found in the Statements of Operations
that are included with this Annual Report on Form 10-K. Additional information regarding the Property’s Federal tax basis,
rate, method and life claimed for purposes of depreciation can be found in the Notes to Consolidated Financial Statements that
are included with this Annual Report on Form 10-K.



|Item 3. | LegalProceedings
|------- | ----------------



There are no material legal
proceedings to which the Company is a party. The Company from time to time may be involved in lawsuits including, but not limited
to, lawsuits relating to the real property it owns for liability for slips and falls, damage to automobiles in the parking garage,
minor theft or similar matters. The Company expects that most of these suits will be covered by insurance, subject to customary
deductions. In addition, in the ordinary course of business, the Company may become involved in litigation to collect rents or
other income due to it from tenants.



|Item 4. | Removed and Reserved
|------- | --------------------

7





PART II



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



There is no established
public trading market for the Company’s Common Stock or Preferred Stock.



As of February 28, 2011,
Franklin Street was the sole holder of record of the Common Stock and there were 797 holders of record of the Preferred Stock.
This computation is based upon the number of record holders reflected in our corporate records. The final sale of Preferred Stock
occurred on September 22, 2006 and following that date no further distributions have been or will be declared on the Common Stock.
The last Common Stock distribution was declared on September 21, 2006 and was paid on September 29, 2006.



Set forth below are the
distributions made to Preferred Stockholders in respect of each quarter from the last two fiscal years. Distributions are determined
based on the Company’s Board of Directors’ review of cash available for distribution and distribution requirements
necessary for the Company to continue to qualify as a real estate investment trust. We cannot guarantee the future payment of dividends
or the amount of any such dividends. See Note 4 of the Notes to Consolidated Financial Statements for additional information.





|                   |  | Distributions
|------------------ |  | -------------
|                   |  | paid to      
|Quarter            |  | Preferred    
|Ended              |  | Stockholders 
|                   |  |              
|March 31, 2009     |  | $            
|June 30, 2009      |  |              
|September 30, 2009 |  |              
|December 31, 2009  |  |              
|                   |  |              
|March 31, 2010     |  | $            
|June 30, 2010      |  |              
|September 30, 2010 |  |              
|December 31, 2010  |  |              



The following schedule
summarizes tax components of the distributions paid for the years ended December 31:





|(dollars in thousands) |  | 2010 |           | 2009
|---------------------- |  | ---- | --------- | ----
|                       |  |      | Preferred |     
|Ordinary income        |  | $    | 923       |     
|Return of Capital      |  |      | 2,986     |     
|Total                  |  | $    | 3,909     |     



The Company does not have
an equity compensation plan or any outstanding stock options or other securities convertible into the Company’s Common Stock.



|Item 6. | Selected Financial Data
|------- | -----------------------



Not applicable.



8







|Item 7. | Management’s Discussion and Analysis of Financial
    Condition and Results of Operations
|------- | -----------------------------------------------------------------------------------------



The following discussion
should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. Historical results
and percentage relationships set forth in the consolidated financial statements, including trends which might appear, should not
be taken as necessarily indicative of future operations. The following discussion and other parts of this Annual Report on Form
10-K may also contain forward-looking statements based on current judgments and current knowledge of management, which are subject
to certain risks, trends and uncertainties that could cause actual results to differ materially from those indicated in such forward
looking statements. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Investors are
cautioned that our forward-looking statements involve risks and uncertainty, including without limitation, economic conditions
in the United States and in the market where we own the Property, continued disruptions in the debt markets, risks of a lessening
of demand for the type of real estate owned by us, our ability to lease our vacant space, 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. 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 Phoenix Tower Corp.,
which we refer to as the Company, is a Delaware corporation formed to purchase, own, operate, improve and reposition in the marketplace
a 34-story multi-tenant office building containing approximately 629,054 rentable square feet of space located on approximately
2.1 acres of land in Houston, Texas, which we refer to as the Property.  The Property was completed in 1984 and includes
approximately 1,649 parking spaces located inside a glass-enclosed fully-integrated attached eight-level parking garage and approximately
17 on-site surface parking spaces.  The Property also has the right to use approximately 190 additional uncovered off-site
parking spaces at an adjacent property pursuant to a lease that expires on February 28, 2019.



Franklin Street Properties
Corp., which we refer to as Franklin Street, is the sole holder of our one share of common stock, $.01 par value per share, which
we refer to as the Common Stock, that is issued and outstanding. Between March 2006 and September 2006, FSP Investments LLC (member
FINRA and SIPC), a wholly-owned subsidiary of Franklin Street, completed the sale on a best efforts basis of 1,050 shares of our
preferred stock, $.01 par value per share, which we refer to as the Preferred Stock. FSP Investments LLC sold the Preferred Stock
in a private placement offering to “accredited investors” within the meaning of Regulation D under the Securities Act
of 1933. Since the completion of the placement of the Preferred Stock in September 2006, Franklin Street has not been entitled
to share in any earnings or dividend related to the Common Stock.



We operate in one business
segment, which is real estate operations, and own a single property. Our real estate operations involve real estate rental operations,
leasing services and property management services. The main factor that affects our real estate operations is the broad economic
market conditions in the United States and, more specifically, the economic conditions in Houston, Texas, the relevant submarket.
These market conditions affect the occupancy levels and the rent levels on both a national and local level. We have no influence
on national or local market conditions.



Trends and Uncertainties



Economic Conditions



The economy in the United
States is continuing to experience a period of limited economic growth, including historically high levels of unemployment, the
failure and near failure of a number of large financial institutions, reduced liquidity and increased credit risk premiums for
a number of market participants. Economic conditions may be affected by numerous factors, including but not limited to, inflation
and employment levels, energy prices, recessionary concerns, changes in currency exchange rates, the availability of debt and interest
rate fluctuations. We believe that the current state of the U.S. economy has affected real estate values, occupancy levels and
property income levels and may continue or worsen in the future. We also believe that the current state of the U.S. economy has
negatively impacted our ability to lease vacant space at the Property. At this time, we cannot predict the extent or duration of
the negative impact that these disruptions will have on our business and, more specifically, on our efforts to lease currently
vacant space.

9







Real Estate Operations



The Property is occupied
by a diverse group of tenants, including financial institutions, energy firms, law firms and other professional service organizations.
As of December 31, 2010, the Property was approximately 68% leased and management is aggressively working to lease all vacant space.
Management believes that any tenant that leases 10% or more of the Property’s rentable space is material. As of December
31, 2010, Permian Mud Service, Inc., an energy-related firm d/b/a Champion Technologies, leased approximately 78,166 square feet
(13%) of the Property’s rentable space through February 2018. Other prominent additional tenants include Phillips & Akers,
a Texas professional corporation (law firm), which leases approximately 26,939 square feet (4%) through November 2011 and Allen
Boone Humphries Robinson LLP, (law firm), which leases approximately 51,153 square feet (8%) through July 2018. Permian Mud Service,
Inc., Phillips & Akers, and Allen Boone Humphries Robinson LLP account for approximately 156,258 square feet (26%) of the rentable
area of the Property. Other well-known tenants include Sprint Communications, Lincoln National Life Insurance Company and the NetApp,
Inc. There are currently approximately 38 tenants leasing office space at the Property.



Since its completion in
1984, the Property has competed within the office market in Houston, Texas.  Management believes that the Property is still
competitive with other office buildings, but given its age, determined at the time of acquisition that it needed improvements in
several important areas in order to maintain or enhance its prominent position in the marketplace.  Management believes that
such a repositioning could increase the value of the Property and lead to higher future rent and occupancy levels.  The improvements
included, among others, remediation of the glass façade and upgrades to the garage, ground floor lobby, ninth floor sky
lobby and terrace, streetscape and landscape.  The improvements were substantially completed in June 2009 at a cost of approximately
$11.7 million and have received favorable responses from our existing tenants, potential future tenants and the local leasing community.



Conditions, including new
leasing activity, at the Property have caused management to make additional improvements at additional cost in order to further
enhance the Property. Through December 31, 2010, the Company had incurred additional costs of approximately $2 million to make
additional improvements to the Property, including an elevator modernization project (described further below), common corridor
upgrades, multi-tenant corridor conversions and the establishment of a fitness center.  If future conditions warrant, management
may elect to make additional improvements at additional cost in order to further enhance the Property.



On September 15, 2010,
we entered into a $2.8 million dollar contract with Thyssen Krupp Elevator Corporation to modernize 21 elevators serving the Property.
Over the years, the increasing costs to maintain and operate the system’s mechanical relay controls, as well as the declining
level of performance of the vertical transportation, have warranted the modernization project. The work commenced during the fourth
quarter of 2010 and is anticipated to be complete by the end of 2011. Management believes that the elevator
modernization project could reduce operating costs, improve the overall performance of elevator service, and provide another positive
attribute to entice prospective tenants.



It is difficult for management
to predict what will happen to occupancy and rents at the Property because the need for space and the price tenants are willing
to pay are tied to both the local economy and to the larger trends in the national economy, such as job growth, interest rates,
the availability of credit and corporate earnings, which in turn are tied to even larger macroeconomic and political factors, such
as recessionary concerns, volatility in energy pricing and the risk of terrorism. In addition to the difficulty of predicting macroeconomic
factors, it is difficult to predict how our local market or tenants (existing and potential) will suffer or benefit from changes
in the larger economy. In addition, because the Property is in a single geographical market, these macroeconomic trends may have
a different effect on the Property and on its tenants (existing and potential), some of which may operate on a national level.
Although we cannot predict how long it will take to lease vacant space at the Property or what the terms and conditions of any
new leases will be, we expect to sign new leases at current market rates which may be below the expiring rates. Until the existing
vacancy is re-leased, we could see lower occupancy rates and/or lower dividend yields.



Given the amount
of space that needs to be leased and the potential for significant tenant improvement allowances and leasing commissions,
on December 4, 2008, we entered into a three-year secured promissory note for a revolving line of credit, which we refer to
as the Phoenix Revolver, with Franklin Street for up to $15,000,000. Advances under the Phoenix Revolver bear interest at a
rate equal to the 30-day LIBOR rate plus 300 basis points (3.26% at December 31, 2010) and each advance thereunder requires a
50 basis point draw fee. The Phoenix Revolver matures on November 30, 2011 and is secured by a mortgage on the Property.
We anticipate that the Phoenix Revolver will be replaced or refinanced on or before its maturity date. However, there can be
no assurance that we will be able to replace or refinance the Phoenix Revolver on favorable terms or at all. As of December
31, 2010, advances drawn and outstanding under the Phoenix Revolver totaled $6,500,000. For the twelve months ended December
31, 2010 and 2009, the draw fees were $14,500 and $18,000, respectively, and interest expense paid to Franklin Street was
approximately $135,000 and $115,000, respectively.



10





For the three months ended
December 31, 2010, we believe that vacancy rates and rental rates for buildings in the Houston office market decreased slightly
over third quarter 2010. These trends may continue, worsen or improve in the future. Continuing economic turmoil has slowed the
pace of leasing activity in the Houston market and will likely prolong the time it takes to lease the vacant space at the Property.
However, management believes that the repositioning of the Property in the marketplace, combined with a dwindling supply of
large blocks of available Class A office space in the area, will continue to result in increased inquiries from prospective tenants.
Management also believes that the position of the Property within the city’s office market is strong, and management is optimistic
that the existing vacant space will ultimately be leased to new tenants.



Given the current economic
downturn, the potential for any of our tenants to default on its lease or to seek the protection of bankruptcy laws has increased.
If any of our tenants defaults on its lease, we may experience delays in enforcing our rights as a landlord and may incur substantial
costs in protecting our investment. In addition, at any time, a tenant 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. Bankruptcy or a material adverse change in the financial condition of a material tenant would likely have
a material adverse effect on our results of operations.



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 ongoing 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. These policies affect our:



|· |  | our
recognition of rental income and depreciation and amortization expense; and
|- |  | -------------------------------------------------------------------------------

|· |  | assessment
of the carrying values and impairments of long-lived assets.
|- |  | -----------------------------------------------------------------------



Depreciation and Amortization



We compute depreciation
expense using the straight-line method over estimated useful lives of up to 39 years for the building and improvements, and up
to 15 years for personal property. The allocated cost of land is not depreciated. The value of above or below-market leases are
amortized over the remaining non-cancelable periods of the 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
would be 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
the Property 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 investment. 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.



11







Lease Classification



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.



Results of Operations



The Property is occupied
by a diverse group of tenants, including financial institutions, energy firms, law firms and other professional service organizations.



Comparison of the year
ended December 31, 2010 to the year ended December 31, 2009.



Revenue



Total revenue decreased
$0.2 million to $11.5 million for the year ended December 31, 2010, as compared to $11.7 million for the year ended December 31,
2009. This decrease was primarily attributable to decrease of $0.7 million in base rent which was partially offset by an increase
of $0.5 million in recoverable rent revenue.



Expenses



Total expenses increased
approximately $1.4 million to $12.5 million for the year ended December 31, 2010 as compared to $11.1 million for the year ended
December 31, 2009. This increase was attributable to a $0.2 million increase in rental operating expenses and an increase of $1.2
million in depreciation and amortization.



Liquidity and Capital
Resources



Cash and cash equivalents
decreased $0.3 million to $4.0 million at December 31, 2010 from $4.3 million at December 31, 2009. The decrease was primarily
attributable to $3.3 million provided by operating activities and was offset by $2.6 million used for investing activities and
$1.0 million used for financing activities.



As of December 31,
2010, advances drawn under the Phoenix Revolver totaled $6.5 million and the facility matures on November 30, 2011. We also
made an additional draw under the Phoenix Revolver in early 2011. We anticipate that the Phoenix Revolvers will be replaced
or refinanced on or before its maturity date. However, there can be no assurance that we will be able to replace or refinance
the Phoenix Revolver on favorable terms or at all.



Management believes that
the existing cash and cash equivalents as of December 31, 2010 of $4.0 million and cash anticipated to be generated internally
by operations and borrowings will be sufficient to meet working capital requirements, distributions and anticipated capital expenditures
for at least the next 12 months.



Operating Activities



The cash provided by operating
activities of $3.3 million is primarily attributable to net loss of approximately $1.0 million, plus non-cash items of $4.7 million
consisting primarily of depreciation and amortization and uses arising from other current accounts of $0.1 million which was partially
offset by payments of deferred leasing costs of $0.5 million.



Investing Activities



Cash used for investing
activities for the year ended December 31, 2010 of approximately $2.6 million was primarily for capital expenditures.



Financing Activities



Cash used for financing
activities for the year ended December 31, 2010 of $1.0 million was attributable to the advance on the Phoenix Revolver of $2.9
million and was offset by distributions to stockholders of $3.9 million.



12





Sources and Uses of
Funds



The Company’s principal demands on liquidity
are cash for operations, capital expenditures, and distributions to equity holders. As of December 31, 2010, we had approximately
$4.2 million in accrued liabilities and $6.5 million in long-term debt. In the near term, liquidity is generated by cash from operations
and borrowings.



Contingencies



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



Related Party Transactions



We have in the past engaged in and currently
engage in transactions with a related party, Franklin Street and its subsidiaries FSP Investments LLC and FSP Property Management
LLC, which we collectively refer to as FSP. We expect to continue to have related party transactions with FSP in the form of management
fees paid to FSP to manage the Company on behalf of our stockholders. FSP Property Management LLC currently provides the Company
with asset management and financial reporting services. The asset management agreement between the Company and FSP Property Management
LLC requires the Company to pay FSP Property Management LLC a monthly fee equal to one percent (1%) of the gross revenues of the
Property for the corresponding month. The asset management agreement between the Company and FSP Property Management LLC may be
terminated by either party without cause at any time, upon at least thirty (30) days’ written notice. For the years ended
December 31, 2010 and 2009, management fees paid were $165,000 and $117,000, respectively.



On December 4, 2008, we
entered into a three-year secured promissory note for a revolving line of credit, which we refer to as the Phoenix Revolver, with
Franklin Street for up to $15,000,000. Advances under the Phoenix Revolver bear interest at a rate equal to the 30-day LIBOR rate
plus 300 basis points (3.26% and 3.23% at December 31, 2010 and 2009, respectively) and each advance thereunder requires a 50 basis
point draw fee. The Phoenix Revolver matures on November 30, 2011 and is secured by a mortgage on the Property. We anticipate that
the Phoenix Revolver will be replaced or refinanced on or before its maturity date. However, there can be
no assurance that we will be able to replace or refinance the Phoenix Revolver on favorable terms or at all. As of December 31, 2010, advances drawn and outstanding under the Phoenix Revolver
totaled $6,500,000. For the years ended December 31, 2010 and 2009, the draw fees were $14,500 and $18,000, respectively, and interest
expense paid to Franklin Street was approximately $135,000 and $115,000, respectively.



On September 22, 2006,
Franklin Street purchased 48 shares of Preferred Stock for $4,116,000. Prior to purchasing any shares of Preferred Stock, Franklin
Street agreed to vote any shares held by it on any matter presented to the holders of Preferred Stock in a manner that approximates
as closely as possible the votes cast in favor of and opposed to such matter by the holders of the Preferred Stock other than Franklin
Street and its affiliates. For purposes of determining how Franklin Street votes its shares of Preferred Stock, abstentions and
non-votes by stockholders other than Franklin Street are not considered. Franklin Street is entitled to distributions that are
declared on the Preferred Stock.



Franklin Street is the
sole holder of the Company’s one share of Common Stock that is issued and outstanding. Subsequent to the completion of the
private placement of the Preferred Stock in September 2006, Franklin Street has not been entitled to share in any earnings or any
dividend as a result of its ownership of the Common Stock of the Company.



13





Rental Income Commitments



Our commercial real estate operations consist
of the leasing of the Property. Approximate future minimum rental income under non-cancelable operating leases as of December 31,
2010 is:



|Year EndingDecember 31, |  | Amount(in thousands)
|----------------------- |  | --------------------
|                        |  |                     
|2011                    |  | $                   
|2012                    |  |                     
|2013                    |  |                     
|2014                    |  |                     
|2015                    |  |                     
|Thereafter              |  |                     
|                        |  | $                   



Off Balance Sheet Arrangements



The Company is not party
to any off balance sheet arrangements. The Company is a party to management, construction management and leasing agreements with
an unaffiliated third party management company, Hines Interests Limited Partnership, to provide property management, construction
management and leasing services, and is party to an asset management agreement with an affiliate, FSP Property Management LLC,
to provide asset management and financial reporting services, all of which agreements may be terminated by either party without
cause at any time, upon at least thirty (30) days’ written notice. The asset management agreement between the Company and
FSP Property Management LLC requires the Company to pay FSP Property Management LLC a monthly fee equal to one percent (1%) of
the gross revenues of the Property for the corresponding month.





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



Not applicable.



|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------



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



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



Not applicable.



14







|Item 9A. | Controls and Procedures
|-------- | -----------------------



Disclosure Controls and Procedures

Our management, with the
participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure
controls and procedures as of December 31, 2010. The term “disclosure controls and procedures,” as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or 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, 2010, our principal executive officer and principal 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, 2010. In making
this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework.



Based on our assessment,
management concluded that, as of December 31, 2010, the Company’s internal control over financial reporting is effective
based on those criteria.



This annual report is not
required to include an attestation report of the Company's registered public accounting firm regarding internal control over financial
reporting. This report shall not be deemed to be filed for the purposes of Section 18 of the Exchange Act or otherwise subject
to the liabilities of that section.

15







Changes in Internal Control
Over Financial Reporting



No change in our internal
control over financial reporting occurred during the year ended December 31, 2010 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.



|Item 9B. | Other
    Information
|-------- | ---------------------



Not applicable.

16





PART III

|Item 10. | Directors, Executive Officers and Corporate Governance
|-------- | ------------------------------------------------------



Directors and Executive Officers

Information regarding the
executive officers and directors of the Company as of February 28, 2011 is set forth below. The biographies of each of the directors
below contain information regarding the person’s service as a director, business experience, director positions held currently
or at any time during the last five years, information regarding involvement in certain legal or administrative proceedings, if
applicable, and the experiences, qualifications, attributes or skills that caused our Board of Directors to determine that the
person should serve as a director of the Company. In addition, all of our directors bring to our Board executive leadership experience
derived from their service as executives of a public company and specifically as an executive of Franklin Street and employee of
FSP Investments, a wholly-owned subsidiary of Franklin Street, as well as other key attributes that are important to an effective
board: integrity, candor, analytical skills, the willingness to engage management and each other in a constructive and collaborative
fashion. In addition, we have included information about each nominee’s specific experience, qualifications, attributes,
or skills that led the Board to conclude that he or she should serve as a director of the Company, in light of our business and
structure.



George J. Carter, age 62,
is President and a director of the Company. Since 1996 he has also been President and Chief Executive Officer and a director of
Franklin Street and is responsible for all aspects of the business of Franklin Street and its affiliates, with special emphasis
on the evaluation, acquisition and structuring of real estate investments. From 1992 through 1996 he was President of Boston Financial
Securities, Inc. (“Boston Financial”). Prior to joining Boston Financial, Mr. Carter was owner and developer of Gloucester
Dry Dock, a commercial shipyard in Gloucester, Massachusetts. From 1979 to 1988, Mr. Carter served as Managing Director in charge
of marketing at First Winthrop Corporation, a national real estate and investment banking firm headquartered in Boston, Massachusetts.
Prior to that, he held a number of positions in the brokerage industry including those with Merrill Lynch & Co. and Loeb Rhodes
& Co. Mr. Carter is a graduate of the University of Miami (B.S.). Mr. Carter is a FINRA General Securities Principal (Series
24) and holds a FINRA Series 7 general securities license and a FINRA Series 79, Investment Banker Registration license.



Barbara J. Fournier, age
55, is the Vice President, Chief Operating Officer, Treasurer and Secretary and a director of the Company. Since 1996, she has
also been Chief Operating Officer, Treasurer and Secretary and a director of Franklin Street. In 2008, Ms. Fournier became an Executive
Vice President of Franklin Street. Ms. Fournier has as her primary responsibility, together with Mr. Carter, the management of
all operating business affairs of Franklin Street and its affiliates. From 1993 through 1996, she was Director of Operations for
the private placement division of Boston Financial. Prior to joining Boston Financial, Ms. Fournier served as Director of Operations
for Schuparra Securities Corp. and as the Sales Administrator for Weston Financial Group. From 1979 through 1986, Ms. Fournier
worked at First Winthrop Corporation in administrative and management capacities, including Office Manager, Securities Operations
and Partnership Administration. Ms. Fournier attended Northeastern University and the New York Institute of Finance. Ms. Fournier
is a member of the NYSE Amex Listed Company Council. Ms. Fournier is a FINRA General Securities Principal (Series 24). She also
holds other FINRA supervisory licenses including Series 4 and Series 53, and a FINRA Series 7 general securities license and a
FINRA Series 79, Investment Banker Registration license.



William W. Gribbell, age
51, is an Executive Vice President and a director of the Company. Since 1996, he has been an Executive Vice President of Franklin
Street and has as his primary responsibility the direct equity placement of Franklin Street-sponsored investment programs. 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
and a FINRA Series 79, Investment Banker Registration license.



R. Scott MacPhee, age 53,
is an Executive Vice President and a director of the Company. Since 1996, he has been an Executive Vice President of Franklin Street
and has as his primary responsibility the direct equity placement of Franklin Street-sponsored investment programs. 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 and a FINRA Series
79, Investment Banker Registration license.

17







Janet Prier Notopoulos,
age 63, is a Vice President and a director of the Company. In addition, she is President of FSP Property Management LLC and an
Executive Vice President and a director of Franklin Street and has as her primary responsibility the oversight of the management
of the real estate assets of Franklin Street and its affiliates. Prior to joining Franklin Street in 1997, Ms. Notopoulos was a
real estate and marketing consultant for various clients. From 1975 to 1983, she was Vice President of North Coast Properties,
Inc., a Boston real estate investment company. Between 1969 and 1973, she was a real estate paralegal at Goodwin, Procter &
Hoar. Ms. Notopoulos is a graduate of Wellesley College (B.A.) and the Harvard School of Business Administration (M.B.A).



Each of our directors holds
office 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. Each of the above persons has been associated with us in the positions
described above since our inception in 2005. Each of them is an employee of FSP Investments, a wholly-owned subsidiary of Franklin
Street, which is the sole owner of the Common Stock. Each of our officers serves in that capacity at the request of Franklin Street.



Mr. Carter, Ms. Fournier,
Mr. MacPhee, Mr. Gribbell and Ms. Notopoulos also serve as directors of FSP Galleria North Corp., FSP 50 South Tenth Street Corp.
and FSP 303 East Wacker Drive Corp., which are public reporting companies sponsored by Franklin Street. In their capacities as
directors of FSP Galleria North Corp., FSP 50 South Tenth Street Corp. and FSP 303 East Wacker Drive Corp., Mr. Carter, Ms. Fournier,
Mr. MacPhee, Mr. Gribbell and Ms. Notopoulos each holds office 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.



Sections 16(a) Beneficial Ownership
Reporting Compliance

Based solely on its
review of copies of reports filed by the directors and executive officers of the Company pursuant to Section 16(a) of the Exchange
Act, the Company believes that during 2010 all filings required to be made by its reporting persons were timely made in accordance
with the requirements of the Exchange Act.

Corporate Governance

Our board of directors
does not have standing compensation, nominating and corporate governance or audit committees. Our officers are compensated by Franklin
Street in connection with their employment by Franklin Street and serve as our executive officers at Franklin Street’s request.
Our directors are officers of Franklin Street and we do not consider it necessary to establish a nominating committee or a policy
for reviewing nominees recommended by stockholders. We do not have a director who qualifies as an “audit committee financial
expert” under the regulations of the SEC. We have not adopted a code of business conduct or code of ethics for our executive
officers because all of our officers are officers of Franklin Street and are governed by Franklin Street’s code of business
conduct and ethics.



|Item 11. | Executive Compensation
|-------- | ----------------------



Each of the executive officers
of the Company is compensated by Franklin Street in connection with his or her employment by Franklin Street and serves as an executive
officer of the Company at Franklin Street’s request without compensation. Franklin Street is subject to the informational
requirements of the Exchange Act, and, in accordance therewith, files reports and other information with the Securities and Exchange
Commission (SEC). Franklin Street’s common stock is traded on the NYSE Amex under the symbol “FSP”.



18







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



The following tables set
forth the beneficial ownership of the Company’s Common Stock and Preferred Stock as of February 28, 2011 by each holder who
beneficially owns more than five percent of the Company’s Common Stock or Preferred Stock, by each director, by each of the
Company’s executive officers and by all current directors and executive officers as a group. To the Company’s knowledge,
no person or group, other than as set forth below, beneficially owns more than five percent of the Company’s Common Stock
or Preferred Stock.



|Common Stock                                                                  | Number of Shares |  | Percentage of
|----------------------------------------------------------------------------- | ---------------- |  | -------------
|                                                                              | Beneficially     |  | Outstanding  
|Name of Holder                                                                | Owned            |  | Common Stock 
|                                                                              |                  |  |              
|Franklin Street Properties Corp. (1)                                          | 1                |  | 100%         
|                                                                              |                  |  |              
|George J. Carter(2)                                                           | -                |  | 0%           
|                                                                              |                  |  |              
|Barbara J. Fournier(2)                                                        | -                |  | 0%           
|                                                                              |                  |  |              
|R. Scott MacPhee(2)                                                           | -                |  | 0%           
|                                                                              |                  |  |              
|William W. Gribbell(2)                                                        | -                |  | 0%           
|                                                                              |                  |  |              
|Janet P. Notopoulos(2)                                                        | -                |  | 0%           
|                                                                              |                  |  |              
|All Directors and Executive Officers as a Group  (consisting of 5 persons)(2) | -                |  | 0%           





|Preferred Stock                                                            | Number of Shares |  | Percentage of  
|-------------------------------------------------------------------------- | ---------------- |  | ---------------
|                                                                           | Beneficially     |  | Outstanding    
|Name of Holder                                                             | Owned            |  | Preferred Stock
|                                                                           |                  |  |                
|Franklin Street Properties Corp. (1)                                       | 48               |  | 4.6%           
|                                                                           |                  |  |                
|George J. Carter(2)                                                        | -                |  | 0%             
|                                                                           |                  |  |                
|Barbara J. Fournier(2)                                                     | -                |  | 0%             
|                                                                           |                  |  |                
|R. Scott MacPhee(2)                                                        | -                |  | 0%             
|                                                                           |                  |  |                
|William W. Gribbell(2)                                                     | -                |  | 0%             
|                                                                           |                  |  |                
|Janet P. Notopoulos(2)                                                     | -                |  | 0%             
|                                                                           |                  |  |                
|Edward Darman Company Limited Partnership(3)                               | 98               |  | 9.33%          
|                                                                           |                  |  |                
|All Directors and Executive Officers as a Group  (consisting of 5 persons) | -                |  | 0%             



(1)	The
address of Franklin Street Properties Corp. is401 Edgewater Place, Wakefield, Massachusetts 01880.

(2)	Each
of the Executive Officers is employed by FSP Investments LLC, a subsidiary of Franklin Street Properties Corp. Franklin Street
Properties Corp. owns 100% of the issued and outstanding Common Stock of the Company.



19







(3)	Edward
Darman is the Chief Executive Officer of Edward Darman Company Limited Partnership, or the Partnership, and, in such capacity,
has sole voting and dispositive power over the shares of Preferred Stock held by the Partnership. The address of the Partnership
is c/o Saxon Real Estate Partners, 200 Oak Point Drive, Middleboro, Massachusetts 02346-1325.



Equity Compensation Plan Information



The Company does not have
any equity compensation plans.



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



Certain Relationships and
Related Transactions



Messrs. Carter, MacPhee
and Gribbell and Mses. Fournier and Notopoulos, each of whom is an executive officer of the Company, are executive officers of
Franklin Street and, except for Messrs. MacPhee and Gribbell, are directors of Franklin Street. None of such persons received any
remuneration from the Company for their services.



We have in the past engaged
in and currently engage in transactions with a related party, Franklin Street and its subsidiaries FSP Investments LLC and FSP
Property Management LLC, which we collectively refer to as “FSP”. We expect to continue to have related party transactions
with FSP in the form of management fees paid to FSP to manage the Company on behalf of our stockholders. FSP Property Management
LLC currently provides the Company with asset management and financial reporting services. The asset management agreement between
the Company and FSP Property Management LLC requires the Company to pay FSP Property Management LLC a monthly fee equal to one
percent (1%) of the gross revenues of the Property for the corresponding month. The asset management agreement between the Company
and FSP Property Management LLC may be terminated by either party without cause at any time, upon at least thirty (30) days’
written notice. For the years ended December 31, 2010 and 2009, management fees paid were $165,000 and $117,000, respectively.



On December 4, 2008, we
entered into a three-year secured promissory note for a revolving line of credit, which we refer to as the Phoenix Revolver, with
Franklin Street for up to $15,000,000. Advances under the Phoenix Revolver bear interest at a rate equal to the 30-day LIBOR rate
plus 300 basis points (3.26% at December 31, 2010) and each advance thereunder requires a 50 basis point draw fee. The Phoenix
Revolver matures on November 30, 2011 and is secured by a mortgage on the Property. We anticipate that the Phoenix Revolver will be replaced or refinanced on or before its maturity date. However, there can be
no assurance that we will be able to replace or refinance the Phoenix Revolver on favorable terms or at all. As of December 31, 2010, advances drawn and outstanding under the Phoenix Revolver totaled $6,500,000. For
the twelve months ended December 31, 2010 and 2009, the draw fees were $14,500 and $18,000 and interest expense paid to Franklin
Street was approximately $135,000 and $115,000, respectively.



On September 22, 2006,
Franklin Street purchased 48 shares of Preferred Stock for $4,116,000. Prior to purchasing any shares of Preferred Stock, Franklin
Street agreed to vote any shares held by it on any matter presented to the holders of Preferred Stock in a manner that approximates
as closely as possible the votes cast in favor of and opposed to such matter by the holders of the Preferred Stock other than Franklin
Street and its affiliates. For purposes of determining how Franklin Street votes its shares of Preferred Stock, abstentions and
non-votes by stockholders other than Franklin Street are not considered.



Franklin Street is the
sole holder of the Company’s one share of Common Stock that is issued and outstanding. Subsequent to the completion of the
private placement of the Preferred Stock in September 2006, Franklin Street has not been entitled to share in any earnings or any
dividend as a result of its ownership of the Common Stock of the Company.



Director Independence



Our securities are not
listed on a national securities exchange or in an inter-dealer quotation system. None of our directors qualifies as “independent”
under the standards of the NYSE Amex, where Franklin Street is listed.



20







|Item 14. | Principal Accounting Fees and Services
|-------- | --------------------------------------



Independent Auditor Fees and Other Matters



The following tables
summarize the aggregate fees billed by the Company’s independent registered public accounting firm, Braver PC, for audit
services for each of the last two fiscal years and for other services rendered to the Company in each of the last two fiscal years.



|Fee Category           | 2010 |        | 2009
|---------------------- | ---- | ------ | ----
|Audit Fees (1)         | $    | 64,050 |     
|Audit-Related Fees (2) |      | —      |     
|Tax Fees (3)           |      | 5,250  |     
|All Other Fees (4)     |      | —      |     
|Total Fees             | $    | 69,300 |     



(1)	Audit
fees consist of fees for the audit of our financial statements, the review of the interim financial statements included in our
quarterly reports on Form 10-Q, and other professional services provided in connection with statutory and regulatory filings or
engagements.

(2)	 Audit-related
fees consist of fees for assurance and related services that are reasonably related to the performance of the audit and the review
of our financial statements and which are not reported under “Audit Fees”.

(3) 	Tax
fees consist of fees for tax compliance, tax advice and tax planning services. Tax compliance services, which relate to the preparation
of tax returns, claims for refunds and tax payment-planning services, accounted for $5,250 of the total tax fees incurred in 2010
and 2009.

(4) 	The Company
was not billed by its independent registered public accounting firm in 2010 or 2009 for any other fees.

Pre-Approval Policy and Procedures



The Company has not
adopted policies and procedures relating to the pre-approval of audit and non-audit services that are to be performed by the Company’s
independent registered public accounting firm.







21





PART IV



|Item 15. | Exhibits, Financial Statement Schedules
|-------- | ---------------------------------------



| |  | (a)	The
following documents are filed as part of this report.
| |  | -------------------------------------------------------------



|1. |  | Financial
Statements: The Financial Statements listed in the accompanying Index to Consolidated Financial Statements
are filed as part of this Annual Report on Form 10-K.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. |  | Financial
Statement 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.
|-- |  | --------------------------------------------------------------------------------------------------------





22





SIGNATURES

Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
as of March 11, 2011 by the undersigned, thereunto duly authorized.



| | FSP PHOENIX TOWER CORP.
| | -----------------------
| |                        
| | By:                    
| |                        
| |                        



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

|Signature               |  | Title                                      | Date          
|----------------------- |  | ------------------------------------------ | --------------
|                        |  |                                            |               
|/s/ George J. Carter    |  | President and Director                     | March 11, 2011
|George J. Carter        |  | (Principal Executive Officer)              |               
|                        |  |                                            |               
|/s/ Barbara J. Fournier |  | Vice President, Chief Operating Officer,   | March 11, 2011
|Barbara J. Fournier     |  | Treasurer, Secretary and Director          |               
|                        |  | (Principal Financial Officer and Principal |               
|                        |  | Accounting Officer)                        |               
|                        |  |                                            |               
|/s/ R. Scott MacPhee    |  | Director, Executive Vice President         | March 11, 2011
|R. Scott MacPhee        |  |                                            |               
|                        |  |                                            |               
|/s/ William W. Gribbell |  | Director, Executive Vice President         | March 11, 2011
|William W. Gribbell     |  |                                            |               
|                        |  |                                            |               
|/s/ Janet P. Notopoulos |  | Director, Vice President                   | March 11, 2011
|Janet P. Notopoulos     |  |                                            |               



23





EXHIBIT INDEX

|Exhibit No. | Description                                                                                                                                                                                                                                                                                                                                                   
|----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         | Amended and Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 3.1 to FSP Phoenix Tower Corp.’s Registration Statement on Form 10, as amended (File No. 000-52559)                                                                                                                                                            
|            |                                                                                                                                                                                                                                                                                                                                                               
|3.2         | By-Laws, incorporated herein by reference to Exhibit 3.2 to FSP Phoenix Tower Corp.’s Registration Statement on Form 10, as amended (File No. 000-52559)                                                                                                                                                                                                      
|            |                                                                                                                                                                                                                                                                                                                                                               
|10.1        | Permian Mud Service, Inc. d/b/a Champion Technologies Lease, as amended, incorporated herein by reference to Exhibit 10.4 to FSP Phoenix Tower Corp.’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 000-52559)                                                                                                                   
|            |                                                                                                                                                                                                                                                                                                                                                               
|10.2        | Asset Management Agreement, incorporated herein by reference to Exhibit 10.2 to FSP Phoenix Tower Corp.’s Registration Statement on Form 10, as amended (File No. 000-52559)                                                                                                                                                                                  
|            |                                                                                                                                                                                                                                                                                                                                                               
|10.3        | Voting Agreement, incorporated herein by reference to Exhibit 10.3 to FSP Phoenix Tower Corp.’s Registration Statement on Form 10, as amended (File No. 000-52559)                                                                                                                                                                                            
|            |                                                                                                                                                                                                                                                                                                                                                               
|10.4        | Secured Promissory Note (Revolving), dated December 4, 2008, from FSP Phoenix Tower Limited Partnership in favor of Franklin Street Properties Corp., incorporated herein by reference to Exhibit 10.1 to FSP Phoenix Tower Corp.’s Current Report on Form 8-K filed on December 9, 2008 (File No. 000-52559)                                                 
|            |                                                                                                                                                                                                                                                                                                                                                               
|10.5        | Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing, dated December 4, 2008, from FSP Phoenix Tower Limited Partnership in favor of Franklin Street Properties Corp., incorporated herein by reference to Exhibit 10.2 to FSP Phoenix Tower Corp.’s Current Report on Form 8-K filed on December 9, 2008 (File No. 000-52559)
|            |                                                                                                                                                                                                                                                                                                                                                               
|21.1        | Subsidiaries of the Registrant, incorporated herein by reference to Exhibit 21.1 to FSP Phoenix Tower Corp.’s Registration Statement on Form 10, as amended (File No. 000-52559)                                                                                                                                                                              
|            |                                                                                                                                                                                                                                                                                                                                                               
|31.1        | Certification of FSP Phoenix Tower Corp.'s principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                              
|            |                                                                                                                                                                                                                                                                                                                                                               
|31.2        | Certification of FSP Phoenix Tower Corp.'s principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                              
|            |                                                                                                                                                                                                                                                                                                                                                               
|32.1        | Certification of FSP Phoenix Tower Corp.'s principal 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 Phoenix Tower Corp.'s principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                               

24





FSP Phoenix Tower Corp.

Index to Consolidated Financial Statements



Table of Contents



|                                                                                                          | Page
|--------------------------------------------------------------------------------------------------------- | ----
|Consolidated Financial Statements                                                                         |     
|                                                                                                          |     
|Report of Independent Registered Public Accounting Firm                                                   | F-2 
|                                                                                                          |     
|Consolidated Balance Sheets as of December 31, 2010 and 2009                                              | F-3 
|                                                                                                          |     
|Consolidated Statements of Operations for the years ended December 31, 2010 and 2009                      | F-4 
|                                                                                                          |     
|Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2009 and 2010 | F-5 
|                                                                                                          |     
|Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009                      | F-6 
|                                                                                                          |     
|Notes to Consolidated Financial Statements                                                                | F-7 
|                                                                                                          |     
|Financial Statement Schedule – Schedule III                                                               | F-15



F-1





[LETTERHEAD
OF BRAVER PC]





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM





To the Stockholders

FSP Phoenix Tower Corp.

Wakefield, Massachusetts





We have audited the accompanying consolidated
balance sheets of FSP Phoenix Tower Corp. as of December 31, 2010 and 2009, and the related consolidated statements of operations,
changes in stockholders’ equity and cash flows for the years then ended. Our audits also included the financial statement
schedule listed in the Index at Item 15(a)(2). These consolidated financial statements and schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial
statements referred to above present fairly, in all material respects, the financial position of FSP Phoenix Tower Corp. as of
December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.





/s/ Braver PC

Newton, Massachusetts

March 11, 2011

F-2









|FSP Phoenix Tower Corp. Consolidated Balance Sheets
|---------------------------------------------------



|                                                                                               |  | December 31,
|---------------------------------------------------------------------------------------------- |  | ------------
|(in thousands, except share and par value amounts)                                             |  | 2010        
|                                                                                               |  |             
|Assets:                                                                                        |  |             
|                                                                                               |  |             
|Real estate investments, at cost:                                                              |  |             
|Land                                                                                           |  | $           
|Buildings and improvements                                                                     |  |             
|Furniture and fixtures                                                                         |  |             
|                                                                                               |  |             
|                                                                                               |  |             
|Less accumulated depreciation                                                                  |  |             
|                                                                                               |  |             
|Real estate investments, net                                                                   |  |             
|                                                                                               |  |             
|Acquired real estate leases, net of accumulated amortization of $1,202 
    and $1,183         |  |             
|Acquired favorable real estate leases, net of accumulated amortization of 
    $317 and $299   |  |             
|Cash and cash equivalents                                                                      |  |             
|Tenant rent receivable, less allowance for doubtful accounts                                   |  |             
|of $5 and $49, respectively                                                                    |  |             
|Step rent receivable                                                                           |  |             
|Deferred leasing costs, net of accumulated amortization of $938 and $670                       |  |             
|Prepaid expenses and other assets                                                              |  |             
|                                                                                               |  |             
|Total assets                                                                                   |  | $           
|                                                                                               |  |             
|Liabilities and Stockholders’ Equity:                                                          |  |             
|                                                                                               |  |             
|Liabilities:                                                                                   |  |             
|Accounts payable and accrued expenses                                                          |  | $           
|Tenant security deposits                                                                       |  |             
|Loan payable - affiliate                                                                       |  |             
|Acquired unfavorable real estate leases, net of accumulated amortization 
    of $361 and $308 |  |             
|                                                                                               |  |             
|Total liabilities                                                                              |  |             
|                                                                                               |  |             
|Commitments and Contingencies:                                                                 |  |             
|                                                                                               |  |             
|Stockholders’ Equity:                                                                          |  |             
|Preferred Stock, $.01 par value, 1,050 shares authorized,                                      |  |             
|issued and outstanding, aggregate liquidation preference $105,000                              |  |             
|                                                                                               |  |             
|Common Stock, $.01 par value, 1 share authorized, 
        issued and outstanding              |  |             
|Additional paid-in capital                                                                     |  |             
|Retained earnings and distributions in excess of earnings                                      |  |             
|                                                                                               |  |             
|Total Stockholders’ Equity                                                                     |  |             
|                                                                                               |  |             
|Total Liabilities and Stockholders’ Equity                                                     |  | $           
|See accompanying notes to consolidated financial statements.                                  





F-3









|FSP Phoenix Tower Corp. Consolidated Statements of Operations
|-------------------------------------------------------------



|                                                            |  | For the Year Ended December 31,
|----------------------------------------------------------- |  | -------------------------------
|(in thousands, except per share and share amounts)          |  | 2010                           
|                                                            |  |                                
|Revenues:                                                   |  |                                
|Rental                                                      |  | $                              
|                                                            |  |                                
|Total revenue                                               |  |                                
|                                                            |  |                                
|Expenses:                                                   |  |                                
|                                                            |  |                                
|Rental operating expenses                                   |  |                                
|Real estate taxes and insurance                             |  |                                
|Depreciation and amortization                               |  |                                
|Interest expense                                            |  |                                
|                                                            |  |                                
|Total expenses                                              |  |                                
|                                                            |  |                                
|Net income (loss) before interest income                    |  |                                
|                                                            |  |                                
|Interest income                                             |  |                                
|                                                            |  |                                
|Net income (loss) attributable to preferred stockholders    |  | $                              
|                                                            |  |                                
|Weighted average number of preferred shares outstanding,    |  |                                
|basic and diluted                                           |  |                                
|                                                            |  |                                
|Net income (loss) per preferred share, basic and diluted    |  | $                              
|See accompanying notes to consolidated financial statements | 





F-4







|FSP Phoenix Tower Corp. Consolidated Statements of Changes in Stockholders’ Equity  For the Years Ended December 31, 2009 and 2010
|----------------------------------------------------------------------------------------------------------------------------------





|(in thousands, except per share amounts)                             |  | Preferred  Stock |   | Common  Stock |  | Additional  Paid-in Capital |   | Retained  Earnings and Distributions in Excess of Earnings |  | Total  Stockholders' Equity
|-------------------------------------------------------------------- |  | ---------------- | - | ------------- |  | --------------------------- | - | ---------------------------------------------------------- |  | ---------------------------
|                                                                     |  |                  |   |               |  |                             |   |                                                            |  |                            
|Balance, January 1, 2009                                             |  | $                | — |               |  | $                           | — |                                                            |  | $                          
|                                                                     |  |                  |   |               |  |                             |   |                                                            |  |                            
|Distributions - preferred stockholders or $2,613 per preferred share |  |                  | — |               |  |                             | — |                                                            |  |                            
|                                                                     |  |                  |   |               |  |                             |   |                                                            |  |                            
|Net income                                                           |  |                  | — |               |  |                             | — |                                                            |  |                            
|                                                                     |  |                  |   |               |  |                             |   |                                                            |  |                            
|Balance, December 31, 2009                                           |  |                  | — |               |  |                             | — |                                                            |  |                            
|                                                                     |  |                  |   |               |  |                             |   |                                                            |  |                            
|Distributions - preferred stockholders or $3,723 per preferred share |  |                  | — |               |  |                             | — |                                                            |  |                            
|                                                                     |  |                  |   |               |  |                             |   |                                                            |  |                            
|Net loss                                                             |  |                  | — |               |  |                             | — |                                                            |  |                            
|                                                                     |  |                  |   |               |  |                             |   |                                                            |  |                            
|Balance, December 31, 2010                                           |  | $                | — |               |  | $                           | — |                                                            |  | $                          
|See accompanying notes to consolidated financial statements.        





F-5







|FSP Phoenix Tower Corp. Consolidated Statements of Cash Flows
|-------------------------------------------------------------



|                                                             |  | For the Year Ended December 31,
|------------------------------------------------------------ |  | -------------------------------
|(in thousands)                                               |  | 2010                           
|                                                             |  |                                
|Cash flows from operating activities:                        |  |                                
|Net income (loss)                                            |  | $                              
|Adjustments to reconcile net income (loss) to net cash       |  |                                
|provided by operating activities:                            |  |                                
|Depreciation and amortization                                |  |                                
|Amortization of favorable real estate leases                 |  |                                
|Amortization of unfavorable real estate leases               |  |                                
|Bad debt expense                                             |  |                                
|Changes in operating assets and liabilities:                 |  |                                
|Tenant rent receivable                                       |  |                                
|Step rent receivable                                         |  |                                
|Prepaid expenses and other assets                            |  |                                
|Accounts payable and accrued expenses                        |  |                                
|Tenant security deposits                                     |  |                                
|Payment of deferred leasing costs                            |  |                                
|                                                             |  |                                
|Net cash provided by operating activities                    |  |                                
|                                                             |  |                                
|Cash flows from investing activities:                        |  |                                
|Purchase of real estate assets                               |  |                                
|                                                             |  |                                
|Net cash used for investing activities                       |  |                                
|                                                             |  |                                
|Cash flows from financing activities:                        |  |                                
|Distributions to stockholders                                |  |                                
|Proceeds from loan payable - affiliate                       |  |                                
|                                                             |  |                                
|Net cash provided by (used for) financing activities         |  |                                
|                                                             |  |                                
|Net increase (decrease) in cash and cash equivalents         |  |                                
|                                                             |  |                                
|Cash and cash equivalents, beginning of year                 |  |                                
|                                                             |  |                                
|Cash and cash equivalents, end of year                       |  | $                              
|                                                             |  |                                
|Supplemental disclosure of cash flow information:            |  |                                
|                                                             |  |                                
|Cash paid for interest                                       |  | $                              
|                                                             |  |                                
|Disclosure of non-cash investing activities:                 |  |                                
|Accrued costs for purchase of real estate assets             |  | $                              
|                                                             |  |                                
|See accompanying notes to consolidated financial statements.







F-6







FSP Phoenix Tower Corp.

Notes to Consolidated
Financial Statements

1.      Organization



FSP Phoenix Tower Corp. (the
“Company”) was organized on December 20, 2005 as a corporation under the laws of the State of Delaware to purchase,
own and operate, improve, and reposition a thirty-four story multi-tenant office building containing approximately 629,054 rentable
square feet of space located on approximately 2.1 acres of land in Houston, Texas (the “Property”). The Company acquired
the Property and commenced operations on February 22, 2006. Franklin Street Properties Corp. (“Franklin Street”) (NYSE
Amex: FSP) holds the sole share of the Company’s common stock, $.01 par value per share (the “Common Stock”).
Between March 2006 and September 2006, FSP Investments LLC (member, FINRA and SIPC), a wholly-owned subsidiary of Franklin Street,
completed the sale on a best efforts basis of 1,050 shares of the Company’s preferred stock, $.01 par value per share (the
“Preferred Stock”). FSP Investments LLC sold the Preferred Stock in a private placement offering to “accredited
investors” within the meaning of Regulation D under the Securities Act of 1933.



All references to the Company
refer to FSP Phoenix Tower Corp. and its consolidated subsidiaries, collectively, unless the context otherwise requires.



2.     Summary
of Significant Accounting Policies



BASIS OF PRESENTATION



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



ESTIMATES AND ASSUMPTIONS



The Company prepares its consolidated 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 consolidated financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ from those estimates.



REAL ESTATE AND DEPRECIATION

Real estate assets are stated at the
lower of cost or fair value, as appropriate, 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. Funding for capital improvements typically is provided by cash set aside at the time the Property
was purchased.

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               | Years
| | ---------------------- | -----
| | Building - Commercial  | 39   
| | Building Improvements  | 15-39
| | Furniture and Fixtures | 5-7  



The Company reviews the Property to
determine if the carrying amount will be recovered from future cash flows if certain indicators of impairment are identified at
the Property. 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. When indicators
of impairment are present and the sum of the undiscounted future cash flows is less than the carrying value of such asset, an impairment
loss is recorded equal to the difference between the asset’s current carrying value and its fair value based on discounting
its estimated future cash flows. At December 31, 2010 and 2009, no impairment charges were recorded.

Depreciation expense of $3,594,000
and $2,722,000 is included in Depreciation and Amortization in the Company’s Consolidated Statements of Operations for the
years ended December 31, 2010 and 2009, respectively.

F-7





FSP Phoenix Tower Corp.

Notes to Consolidated
Financial Statements



2.     Summary
of Significant Accounting Policies (continued)



ACQUIRED REAL ESTATE LEASES



The acquired real estate leases represent the
estimated value of legal and leasing costs related to the acquired leases that were included in the purchase price when the Company
acquired the Property. The Company segregates these costs from its investment in real estate. The Company subsequently amortizes
these costs on a straight-line basis over the remaining lives of the related leases. Amortization expense of $282,000 and $384,000
is included in Depreciation and Amortization in the Company’s Consolidated Statements of Operations for the years ended December
31, 2010 and 2009, respectively.



Acquired real estate lease costs included in
the purchase price of the Property were $4,516,000. Detail of the acquired real estate leases is as follows:



|                         |  | December 31,
|------------------------ |  | ------------
|(in thousands)           |  | 2010        
|Cost                     |  | $           
|Accumulated amortization |  |             
|Book value               |  | $           



The estimated annual
amortization expense for the five years succeeding December 31, 2010 is as follows:



|(in thousands) |  |   |     | 
|-------------- |  | - | --- | 
|2011           |  | $ | 243 | 
|2012           |  | $ | 182 | 
|2013           |  | $ | 153 | 
|2014           |  | $ | 133 | 
|2015           |  | $ | 53  | 





ACQUIRED FAVORABLE REAL ESTATE LEASES



Acquired favorable real estate leases
represents the value related to the lease when the lease payments due under a tenant’s lease exceed the market rate of the
lease at the date the Property was acquired. The Company reports this value separately from its investment in real estate. The
Company subsequently amortizes this amount on a straight-line basis over the remaining life of the related lease. Amortization
of $69,000 and $79,000 is shown as a reduction of rental income in the Company’s Consolidated Statements of Operations for
the years ended December 31, 2010 and 2009, respectively.

The acquired favorable real estate lease
costs included in the purchase price of the property were $1,568,000. Detail of the acquired favorable real estate leases is as
follows:

|                         |  | December 31,
|------------------------ |  | ------------
|(in thousands)           |  | 2010        
|Cost                     |  | $           
|Accumulated amortization |  |             
|Book value               |  | $           



The estimated annual amortization for the four
years succeeding December 31, 2010 is as follows:



|(in thousands) |  |   |    | 
|-------------- |  | - | -- | 
|2011           |  | $ | 66 | 
|2012           |  | $ | 63 | 
|2013           |  | $ | 43 | 
|2014           |  | $ | 25 | 



F-8







FSP Phoenix Tower Corp.

Notes to Consolidated
Financial Statements



2.     Summary
of Significant Accounting Policies (continued)



ACQUIRED UNFAVORABLE REAL ESTATE LEASES



Acquired unfavorable real estate leases
represent the value relating to leases with rents below the market rate at the time of property acquisition. Amortization is computed
using the straight-line method over the remaining lives of the related leases. Amortization of $79,000 and $92,000 is included
with rental revenue in the Company’s Consolidated Statements of Operations for the years ended December 31, 2010 and 2009,
respectively.

The acquired unfavorable real estate lease
costs included in the purchase price of the property was $826,000. Detail of the acquired unfavorable real estate leases is as
follows:



|                         |  | December 31
|------------------------ |  | -----------
|(in thousands)           |  | 2010       
|Cost                     |  | $          
|Accumulated amortization |  |            
|Book value               |  | $          



The estimated annual amortization for the five
years succeeding December 31, 2010 is as follows:



|(in thousands) |  |   |    | 
|-------------- |  | - | -- | 
|2011           |  | $ | 75 | 
|2012           |  | $ | 75 | 
|2013           |  | $ | 67 | 
|2014           |  | $ | 66 | 
|2015           |  | $ | 35 | 



CASH AND CASH EQUIVALENTS



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



CONCENTRATION OF CREDIT RISKS



Cash, cash equivalents and short-term investments
are financial instruments that potentially subject the Company to a concentration of credit risk. The Company maintains its cash
balances and short-term investments principally in banks which the Company believes to be creditworthy. The Company periodically
assesses the financial condition of the banks and believes that the risk of loss is minimal. Cash balances held with various financial
institutions frequently exceed the insurance limit of $250,000 provided by the Federal Deposit Insurance Corporation.



For the years ended December 31, 2010 and 2009,
rental income was derived from various tenants. As such, future receipts are dependent upon the financial strength of the lessees
and their ability to perform under the lease agreements.



The following tenants represent greater
than 10% of rental revenue as of December 31, 2010 and 2009:



|Tenant                     |     |     | 2010 | 2009
|-------------------------- | --- | --- | ---- | ----
|Permian Mud d/b/a Champion | 15% | 12%
|Allen, Boone and Humphries | 12% | 10%



FINANCIAL INSTRUMENTS



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



F-9





FSP Phoenix Tower Corp.

Notes to Consolidated
Financial Statements



2.     Summary
of Significant Accounting Policies (continued)



STEP RENT RECEIVABLE



The leases provide
for fixed rental increases over the life of the lease. Rental revenue is recognized on the straight-line basis over the related
lease term; however, billings by the Company are based on required minimum rentals in accordance with the lease agreements. Step
rent receivable, which is the cumulative revenue recognized in excess of amounts billed by the Company, is $1,789,000 and $1,839,000
at December 31, 2010 and2009, respectively.



TENANT RENT RECEIVABLE



Tenant rent receivable is reported at the amount
the Company expects to collect on balances outstanding at year-end. 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.Management monitors outstanding balances
and tenant relationships and concluded that an allowance of $5,000 and $49,000 as of December 31, 2010 and 2009, respectively,
is sufficient.



DEFERRED LEASING COSTS



Deferred leasing
commissions represent direct and incremental external leasing costs incurred in the leasing of commercial space. These costs are
capitalized and are amortizedon a straight-line basis over the terms of the related lease agreement. Amortization
expense was $793,000 and $396,000 for the years ended December 31, 2010 and 2009, respectively.



REVENUE RECOGNITION



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



|                                   |  | Year Ended  
|---------------------------------- |  | ------------
|                                   |  | December 31,
|(in thousands)                     |  | 2010        
|Income from leases                 |  | $           
|Straight-line rent adjustment      |  |             
|Reimbursable expenses              |  |             
|Amortization of favorable leases   |  |             
|Amortization of unfavorable leases |  |             
|                                   |  |             
|Total                              |  | $           



INTEREST INCOME



Interest income is recognized when the earnings
process is complete.



INCOME TAXES



The Company has elected to be taxed as a Real
Estate Investment Trust (“REIT”) under the Internal Revenue Code of 1986, as amended. As a REIT, the Company generally
is entitled to a tax deduction for dividends paid to its stockholders, thereby effectively subjecting the distributed net income
of the Company to taxation at the stockholder level only. The Company must comply with a variety of restrictions to maintain its
status as a REIT. These restrictions include the type of income it can earn, the type of assets it can hold, the number of stockholders
it can have and the concentration of their ownership, and the amount of the Company’s taxable income that must be distributed
annually.



F-10





FSP Phoenix Tower Corp.

Notes to Consolidated Financial Statements



2.     Summary
of Significant Accounting Policies (continued)



NET INCOME PER SHARE

Basic net income per share of Preferred
Stock is computed by dividing net income by the weighted average number of shares of Preferred Stock outstanding during the period.
Diluted net income per share of Preferred Stock 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,
2010 and 2009. Subsequent to the completion of the offering of shares of Preferred Stock, the holders of Common Stock are not entitled
to share in any income nor in any related dividend.

SUBSEQUENT EVENTS

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



3.      Income
Taxes



The Company files as a REIT
under Sections 856-860 of the Internal Revenue Code of 1986, as amended. In order to qualify as a REIT, the Company is required
to distribute at least 90% of its taxable income to stockholders and to meet certain asset and income tests as well as certain
other requirements. The Company will generally not be liable for federal income taxes, provided it satisfies these requirements.
Even as a qualified REIT, the Company is subject to certain state and local taxes on its income and property. For the period ended
December 31, 2006, the Company incurred a net operating loss for income tax purposes of approximately $2,267,000 that can be carried
forward until it expires in the year 2026.



The Company adopted an accounting pronouncement
related to uncertainty in income taxes effective January 1, 2007, which did not result in recording a liability, nor was any accrued
interest and penalties recognized with the adoption. Accrued interest and penalties will be recorded as income tax expense, if
the Company records a liability in the future. The Company’s effective tax rate was not affected by the adoption. The Company
files income tax returns in the U.S. federal jurisdiction and State of Texas jurisdiction. 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 2007 and thereafter.



At December 31, 2010, the Company’s net
tax basis of its real estate assets was $85,232,000.



The following schedule reconciles net
income (loss) to taxable income subject to dividend requirements, which are calculated annually:



|                                               |  | Year Ended December 31,
|---------------------------------------------- |  | -----------------------
|(in thousands)                                 |  | 2010                   
|                                               |  |                        
|Net income (loss)                              |  | $                      
|                                               |  |                        
|Adjustments:                                   |  |                        
|Book depreciation and amortization             |  |                        
|Amortization of favorable real estate leases   |  |                        
|Deferred rent                                  |  |                        
|Other adjustments                              |  |                        
|Tax depreciation and amortization              |  |                        
|Amortization of unfavorable real estate leases |  |                        
|Straight-line rents                            |  |                        
|Taxable income                                 |  | $                      



F-11





FSP Phoenix Tower Corp.

Notes to Consolidated
Financial Statements



3.      Income
Taxes (continued)



The following schedule summarizes the
tax components of the distributions paid, which are calculated annually, for the years ended December 31:



|(dollars in thousands) |  | 2010 |           | 2009
|---------------------- |  | ---- | --------- | ----
|                       |  |      | Preferred |     
|Ordinary income        |  | $    | 923       |     
|Return of Capital      |  |      | 2,986     |     
|                       |  |      |           |     
|Total                  |  | $    | 3,909     |     



4.      Capital Stock



PREFERRED STOCK



Generally, each holder of shares of Preferred
Stock is entitled to receive ratably all dividends, if any, declared by the Board of Directors out of funds legally available.
The right to receive dividends is non-cumulative, and no right to dividends shall accrue by reason of the fact that no dividend
has been declared in any prior year. Each holder of shares of Preferred Stock will be entitled to receive, to the extent that funds
are available therefore, $100,000 per share of Preferred Stock, before any payment to the holder of Common Stock, out of distributions
to stockholders upon liquidation, dissolution or the winding up of the Company; the balance of any such funds available for distribution
will be distributed among the holders of shares of Preferred Stock and the holder of Common Stock, pro rata based on the number
of shares held by each; provided, however, that for these purposes, one share of Common Stock will be deemed to equal one-tenth
of a share of Preferred Stock.



In addition to certain rights to remove and
replace directors, the holders of a majority of the then outstanding shares of Preferred Stock shall have the further right to
approve or disapprove a proposed sale of the Property, the merger of the Company with any other entity and amendments to the corporate
charter. A vote of the holders of not less than 66.67% of then outstanding shares of Preferred Stock is required for the issuance
of any additional shares of capital stock. Holders of shares of Preferred Stock have no redemption or conversion rights.



COMMON STOCK



Franklin Street is the sole holder
of the Company’s Common Stock. Franklin Street has the right to vote to elect the directors of the Company and to vote on
all matters, subject to the voting rights of the Preferred Stock set forth above. Subsequent to the completion of the offering
of the shares of Preferred Stock in September 2006, Franklin Street, as the holder of Common Stock, was not entitled to share in
any earnings nor any related dividend.



5.      Related
Party Transactions

The Company has in the past engaged in and
currently engages in transactions with a related party, Franklin Street and its subsidiaries FSP Investments LLC and FSP Property
Management LLC (collectively “FSP”). The Company expects to continue to have related party transactions with FSP in
the form of management fees paid to FSP to manage the Company on behalf of our stockholders. FSP Property Management LLC currently
provides the Company with asset management and financial reporting services. The asset management agreement between the Company
and FSP Property Management LLC requires the Company to pay FSP Property Management LLC a monthly fee equal to one percent (1%)
of the gross revenues of the Property for the corresponding month. The asset management agreement between the Company and FSP Property
Management LLC may be terminated by either party without cause at any time, upon at least thirty (30) days’ written notice.
For the years ended December 31, 2010 and 2009, management fees paid were $165,000 and $117,000, respectively.



F-12





FSP Phoenix Tower Corp.

Notes to Consolidated
Financial Statements



5.     Related
Party Transactions (continued)

On December 4,
2008, the Company entered into a three-year secured promissory note for a revolving line of credit (the
“Phoenix Revolver”) with Franklin Street for up to $15,000,000. Advances under the Phoenix Revolver bear interest
at a rate equal to the 30-day LIBOR rate plus 300 basis points (3.26% and 3.23% at December 31, 2010 and 2009, respectively)
and each advance thereunder requires a payment of 50 basis point draw fee. The Phoenix Revolver matures on November 30, 2011
and is secured by a mortgage on the Property. The Company anticipates that the Phoenix Revolver will be replaced or
refinanced on or before its maturity date. However, there can be no assurance that  the Company will be able to replace or
refinance the Phoenix Revolver on favorable terms or at all. As of December 31, 2010, advances drawn and outstanding under
the Phoenix Revolver totaled $6,500,000. For the years ended December 31, 2010 and 2009, the draw fees were $14,500 and
$18,000, respectively, and interest expense paid to Franklin Street was approximately $135,000 and $115,000,
respectively.



On September 22, 2006, Franklin
Street purchased 48 shares of Preferred Stock for $4,116,000. Prior to purchasing any shares of Preferred Stock, Franklin Street
agreed to vote any shares held by it on any matter presented to the holders of Preferred Stock in a manner that approximates as
closely as possible the votes cast in favor of and opposed to such matter by the holders of the Preferred Stock other than Franklin
Street and its affiliates. For purposes of determining how Franklin Street votes its shares of Preferred Stock, abstentions and
non-votes by stockholders other than Franklin Street are not considered. Franklin Street is entitled to distributions that are
declared on the Preferred Stock.



Franklin Street is the sole
holder of the Company’s one share of Common Stock that is issued and outstanding. Subsequent to the completion of the private
placement of the Preferred Stock in September 2006, Franklin Street has not been entitled to share in any earnings or any dividend
as a result of its ownership of the Common Stock of the Company.



6.      Commitments
and Contingencies



The Company, as lessor, has minimum future rentals due under
non-cancelable operating leases as follows:

|               | Year Ending  |  |                  
|-------------- | ------------ |  | -----------------
|(in thousands) | December 31, |  | Amount           
|               | 2011         |  | $           5,463
|               | 2012         |  | 4,807            
|               | 2013         |  | 3,648            
|               | 2014         |  | 3,138            
|               | 2015         |  | 2,676            
|               | Thereafter   |  | 6,594            
|               |              |  |                  
|               |              |  | $         26,326 



In addition, the lessees are liable
for real estate taxes and certain operating expenses of the Property.

Upon acquiring the commercial rental property on February 22, 2006,
the Company was assigned the lease agreements between the seller of the Property and the existing tenants.



F-13





FSP Phoenix Tower Corp.

Notes
to Consolidated Financial Statements



6.       Commitments
and Contingencies (continued)



Upon acquiring the commercial rental property
on February 22, 2006, the Company was assigned a lease agreement to lease parking spaces at an adjacent property for approximately
190 additional uncovered off-site parking spaces. The lease expires on February 28, 2019. Future minimum lease payments payable
by the Company are as follows:



|               | Year Ending  |  |                   
|-------------- | ------------ |  | ------------------
|(in thousands) | December 31, |  | Amount            
|               | 2011         |  | $              194
|               | 2012         |  | 194               
|               | 2013         |  | 194               
|               | 2014         |  | 194               
|               | 2015         |  | 194               
|               | Thereafter   |  | 614               
|               |              |  |                   
|               |              |  | $           1,584 



On September 15, 2010, the Company entered
into a $2.8 million dollar contract with Thyssen Krupp Elevator Corporation to modernize 21 elevators serving the property. The
project commenced during the fourth quarter, and is projected to be completed by the end of 2011. As of December 31, 2010, $1.5
million of work has been completed under the contract.



7.       Segment
Reporting



The Company operates in one industry segment
– real estate ownership of commercial property. As of December 31, 2010 and 2009 the Company owned and operated a thirty-four
story office tower in that one segment.



8.       Accounts
Payable and Accrued Expenses



Accounts payable and accrued expenses
consists of accounts payable, accrued property tax, accrued capital expenditures, deferred rental income and other accrued expenses.
A schedule showing these components is as follows:



|                                            |  | December 31,
|------------------------------------------- |  | ------------
|(in thousands)                              |  | 2010        
|                                            |  |             
|Accrued property tax                        |  | $           
|Deferred rental income                      |  |             
|Accrued capital expenditures                |  |             
|Accounts payable and other accrued expenses |  |             
|Due to tenant - tenant improvements         |  |             
|                                            |  |             
|Total                                       |  | $           



9.     Subsequent
Event



On January 26, 2011, the Board of Directors
of the Company declared a cash distribution of $749,700 payable on March 1, 2011 to stockholders of record on February 9, 2011.



On January 26, 2011, a $2,100,000 advance was drawn under the Phoenix
Revolver.



F-14





SCHEDULE III



FSP Phoenix Tower Corp.

Real Estate and Accumulated Depreciation

December 31, 2010



|                                  |                  | Initial Cost           | Historical Costs                                     |                                                        |       
|--------------------------------- | ---------------- | ---------------------- | ---------------------------------------------------- | ------------------------------------------------------ | ------
|Description                       | Encumbrances (1) | Land                   | Buildings
        Improvements
        and Equipment | Costs
Capitalized
(Disposals)
Subsequent toAcquisition | Land  
|                                  |                  | (dollars in thousands) |                                                      |                                                       
|Phoenix Tower,
    Houston, Texas | $6,500           | $3,300                 | $66,806                                              | $20,034                                                | $3,300



(1)	On December 4, 2008, the
Company entered into a revolving line of credit (the “Phoenix Revolver”) with Franklin Street Properties Corp. for
up to $15,000.

The Phoenix Revolver is secured by a mortgage on the Property.
As of December 31, 2010, $6,500 has been advanced under the Phoenix Revolver.



(2)	The aggregate cost for Federal
Income Tax purposes is $95,398





F-15





FSP Phoenix Tower Corp.





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





|                                  |  | December 31, |        | December 31,
|--------------------------------- |  | ------------ | ------ | ------------
|(in thousands)                    |  | 2010         |        | 2009        
|                                  |  |              |        |             
|Real estate investments, at cost: |  |              |        |             
|Balance, beginning of year        |  | $            | 86,805 |             
|Improvements                      |  |              | 3,335  |             
|                                  |  |              |        |             
|Balance, end of year              |  | $            | 90,140 |             
|                                  |  |              |        |             
|Accumulated depreciation:         |  |              |        |             
|Balance, beginning of year        |  | $            | 8,240  |             
|Depreciation                      |  |              | 3,594  |             
|                                  |  |              |        |             
|Balance, end of year              |  | $            | 11,834 |             



F-16