Item 1. Business.
(a) General
Registrant is a partnership which was organized on July 11, 1961. Registrant holds the tenant's interest in a master operating leasehold of the Empire State Building (the "Building") and of the land thereunder, located at 350 Fifth Avenue, New York, New York (collectively, the "Property"). The fee owner of the Property is Trump Empire State Partners.
The master lease (the "Master Lease"), which commenced on December 27, 1961, currently expires on January 5, 2013. The Lease contains three 21-year renewal options, which have not been exercised. If all of the options are exercised, the Lease will expire on January 5, 2076. Registrant previously exercised an option to renew the Lease for the term ending January 5, 2013.
Registrant does not operate the Property. It subleases the Building to Empire State Building Company (the "Sublessee") pursuant to a net operating sublease (the "Sublease") with a term and renewal options essentially coextensive with those contained in the Master Lease. On January 30, 1989, Sublessee exercised its option to renew the Sublease for the first renewal term from January 4, 1992 to January 4, 2013.
Registrant's partners are Stanley Katzman, John L. Loehr and Peter L. Malkin (individually, a "Partner" and, collectively, the "Partners") each of whom also acts as an agent for holders of participations in their respective partnership interests in Registrant (each holder of a participation, individually, a "Participant" and, collectively, the "Participants").
Sublessee is a partnership in which Peter L. Malkin is a partner. Two of the Partners in Registrant are also current members and one Partner in Registrant is a former, retired member of the law firm of Wien & Malkin LLP, 60 East 42nd Street, New York, New York, counsel to Registrant and to Sublessee (the "Counsel"). See Items 10, 11, 12 and 13 hereof for a description of the ongoing services rendered by, and compensation paid to, Counsel and for a discussion of certain relationships which may pose potential conflicts of interest among Registrant, Sublessee and certain of their respective affiliates.
As of December 31, 1997, the Building was 88% occupied by approximately 750 tenants who engage in various businesses, including the practice of law and accounting, ladies' and men's apparel, and ladies' and men's shoes. Registrant does not maintain a full-time staff. See Item 2
Item 2. Property.
Registrant owns the tenant's interest in a master operating leasehold on the Building known as the Empire State Building and on the land thereunder located at 350 Fifth Avenue in New York City. See Item 1 hereof. The Building, erected in 1931 and containing 102 stories, a concourse and a lower lobby, occupies the entire blockfront from 33rd Street to 34th Street on Fifth Avenue. The Building has 72 passenger elevators and 4 freight elevators and is equipped with air conditioning and individual air handling units. The Building is subleased to Sublessee under the Sublease which expires on January 4, 2013 and contains three 21-year renewal options. See Item 1 hereof for a description of the terms of the Lease and Sublease.
Item 3.
Item 3. Legal Proceedings.
The Property of Registrant is the subject of the following pending litigation:
Studley v. Empire State Building Associates: On October 21, 1991, in an action entitled Studley v. Empire State Building Associates et al., the holder of a $20,000 original participation in Registrant brought suit in New York Supreme Court, New York County against the Agents for Registrant (Peter L. Malkin, Donald A. Bettex and Alvin Silverman), in their individual capacities and Wien, Malkin & Bettex (currently "Wien & Malkin LLP") counsel to Registrant. The suit claimed that the defendants had engaged in breaches of fiduciary duty and acts of self-dealing in relation to the Agents' solicitation of consents and authorizations from the participants in Registrant in September 1991 and in relation to
other unrelated acts of the Agents and the sublessee. By order dated July 14, 1997, and entered July 29, 1997, the Court granted defendants' motion for summary judgment and dismissal of the action. The Plaintiff filed an appeal with respect to the foregoing order. By decision and order entered April 2, 1998, the Appellate Court unanimously affirmed the order dismissing the action.
Proceedings Involving Trump Empire State Partners: In December 1994, Registrant received a notice of default from Trump. The Trump default notice to Registrant claimed that Registrant was in violation of its master lease because of extensive work which Sublessee had undertaken as part of an improvement program that commenced before Trump reportedly acquired its interest in the property in 1994. Trump's notice also complained that the Building was in need of repairs. On February 14, 1995, Registrant and Sublessee filed an action in New York State Supreme Court against Trump for a declaratory judgment that none of the matters set forth in the notice of default constitutes a violation of the master lease or sublease, and that the notice of default is entirely without merit. Registrant's and Sublessee's suit also seeks an injunction to prevent Trump from implementing the notice of default. On March 24, 1995, the Court granted Registrant a preliminary injunction against Trump. In 1996 the Court granted two additional preliminary injunctions against Trump with respect to two additional default notices. The preliminary injunctions prohibit Trump from acting on its notices of default to Registrant at any time, pending the prosecution of claims by Registrant and Sublessee for a final declaratory judgment and an injunction and other relief against the Trump defendants. The Appellate Court has upheld and affirmed the granting of such preliminary injunctions against the Trump defendants.
On February 15, 1995, Trump filed an action against Registrant, Sublessee, Counsel, Harry B. Helmsley, a partner in Sublessee, Helmsley-Spear, Inc. (the management company of the Empire State Building), and the Agents for Registrant in New York State Supreme Court, alleging that the notice of default is valid and seeking damages and related relief based thereon. On October 24, 1996 the Court dismissed all of Trump's claims in their entirety against all defendants in the action. Trump appealed this Order. The Appellate Court has unanimously affirmed the dismissal of Trump's claims.
In May, 1995, Registrant and Sublessee filed a separate legal action against Trump and various affiliated persons for breach of the master lease and sublease, and disparagement of the property in violation of Registrant' and Sublessee's leasehold rights. The action was amended to include additional claims by Registrant and Sublessee seeking a declaratory judgment that they
may act as an owner of the Property for purposes of making applications and related activities pursuant to the New York City Building Code. By decision and order dated October 24, 1996, the Court sustained Registrant's and Sublessee's claims concerning the parties who may act as owner of the Property under the Building Code, but dismissed Registrant's and Sublessee's claims against Trump and co-defendants for money damages. Registrant and Sublessee appealed that portion of the Court's order dismissing their claims for money damages. The Appellate Court has affirmed that part of the Court's order dismissing the claims for money damages.
New York Skyline Inc.: Registrant is a defendant in an action instituted in the Supreme Court of the State of New York, County of New York, entitled New York Skyline Inc. v. Empire State Building Company, Empire State Building Associates, Nell H. Kessner, Helmsley-Spear, Inc. and Stephen A. Tole. This lawsuit, which was brought by a tenant in the Building and was filed on December 23, 1997, seeks at least $205,000,000 in damages. In its complaint, plaintiff-tenant asserts thirteen causes of action (twelve of which are against Sublessee) in connection with its leases and license agreements of space in the Building and alleges that it is entitled to, among other things, specific performance as to its alleged rights under its leases and licensing agreements with Sublessee, a declaratory judgment as to the rights of the parties under the leases and licensing agreements, any monies allegedly due plaintiff under those agreements, as well as injunctive relief and additional money damages. While the complaint includes Registrant as a named defendant, it does not allege or identify any agreement between plaintiff and Registrant or any other basis of liability on Registrant's part to plaintiff.
On or about February 5, 1998, plaintiff served an amended complaint which, among other things, added Kessner & Cyruli, f/k/a Nell H. Kessner & Associates, former landlord-tenant counsel for the Building, and Eileen Aluska, a former Helmsley- Spear, Inc. employee, as party defendants. The amended complaint asserts eleven causes of action, similar to those asserted in the original complaint.
On March 16, 1998, Registrant filed an answer to the amended complaint denying all allegations of liability. Registrant intends to contest the case vigorously.
Because the action is still in the pleading stage and pre-trial discovery has not yet started, counsel for Registrant has not formed a professional conclusion that an adverse outcome is either probable or remote.
Wien & Malkin LLP, et. al. v. Helmsley-Spear, Inc., et. al. On June 19, 1997 Wien & Malkin LLP and Peter L. Malkin filed an action in the Supreme Court of the State of New York, against Helmsley-Spear, Inc. and Leona Helmsley concerning various partnerships which own, lease or operate buildings managed by Helmsley-Spear, Inc., including Registrant's property. In their complaint, plaintiffs sought the removal of Helmsley-Spear, Inc. as managing and leasing agent for all of the buildings. Plaintiffs also sought an order precluding Leona Helmsley from exercising any partner management powers in the partnerships. In August, 1997, the Supreme Court directed that the foregoing claims proceed to arbitration. As a result, Mr. Malkin and Wien & Malkin LLP filed an arbitration complaint against Helmsley-Spear, Inc. and Mrs. Helmsley before the American Arbitration Association. Helmsley-Spear, Inc. and Mrs. Helmsley served answers denying liability and asserting various affirmative defenses and counterclaims; and Mr. Malkin and Wien & Malkin LLP filed a reply denying the counterclaims. By agreement dated December 16, 1997, Mr. Malkin and Wien & Malkin LLP (each for their own account and not in any representative capacity) reached a settlement with Mrs. Helmsley of the claims and counterclaims in the arbitration and litigation between them. Mr. Malkin and Wien & Malkin LLP are continuing their prosecution of claims in the arbitration for relief against Helmsley-Spear, Inc., including its termination as the leasing and managing agent for various entities and properties, including the Registrant's Sublessee.
Item 4.
Item 4. Submission of Matters to a Vote of Participants.
During the fourth quarter of the fiscal year ended December 31, 1997, Registrant did not submit any matter to a vote by the Participants through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Security Holder Matters.
Registrant is a partnership organized pursuant to a partnership agreement dated as of July 11, 1961.
Registrant has not issued any common stock. The securi- ties registered by it under the Securities Exchange Act of 1934, as amended, consist of participations in the partnership interests of the Partners in Registrant (the "Participations") and are not shares of common stock nor their equivalent. The Participations represent each Participant's fractional share in a Partner's undivided interest in Registrant and are divided approximately equally among the Partners. A full unit of the Participations was offered originally at a purchase price of $10,000; fractional units were also offered at proportionate purchase prices. Registrant has not repurchased Participations in the past and is not likely to change that policy in the future.
(a) The Participations neither are traded on an established securities market nor are readily tradable on a secondary market or the substantial equivalent thereof. Based on Registrant's transfer records, Participations are sold by the holders thereof from time to time in privately negotiated transactions and, in many instances, Registrant is not aware of the prices at which such transactions occur. During the past year there were 169 transfers. In 21 instances, the indicated purchase price was equal to 1.5 times the face amount of the participation transferred, i.e., $15,000 for a $10,000 participation. In seven instances, the indicated purchase price was equal to 2.25 times the face amount of the Participation transferred. In one instance, the purchase price was equal to 1.7 times the face amount of the participation transferred. In all other cases, no consideration was indicated.
(b) As of December 31, 1997, there were 2,622 holders of Participations of record.
(c) Registrant does not pay dividends. During the year ended December 31, 1997, Registrant made regular monthly distributions of $98.21 for each $10,000 Participation. There was Overage Rent payable of $2,401,300 for the year ended December 31, 1997 and Registrant made additional distributions for each $10,000 Participation of $321.61 on March 5, 1998. See Item 1 hereof. There are no restrictions on Registrant's present or future ability to make distributions; however, the amount of such distri- butions, particularly distributions of Overage Rent, depends solely on Sublessee's ability to make payments of Basic Rent and
Overage Rent to Registrant. See Item 1 hereof. Registrant expects to make monthly distributions in the future so long as it receives the payments provided for under the Sublease. See Item 7 hereof.
Item 6.
Item 6. EMPIRE STATE BUILDING ASSOCIATES
SELECTED FINANCIAL DATA
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Registrant was organized solely for the purposes of owning the Property described in Item 2 hereof subject to the Sublease. Registrant is required to pay from Basic Rent the amounts due for supervisory services and to distribute the balance of such rental payments to Participants. Registrant is required to pay from Overage Rent additional amounts for supervisory services and then to distribute the balance of such Overage Rent to the Participants. Pursuant to the Sublease, Sublessee has assumed sole responsibility for the condition, operation, repair, maintenance and management of the Building. Registrant need not maintain substantial reserves or otherwise maintain liquid assets to defray any operating expenses of the Property.
The supervisory services provided to Registrant by Counsel include legal, administrative services and financial services. The legal and administrative services include acting as general counsel to Registrant, maintaining all of its partnership records, performing physical inspections of the Building, reviewing insurance coverage and conducting annual partnership meetings. Financial services include monthly receipt of rent from the Sublessee, payment of monthly rent to the fee owner, payment of monthly and additional distributions to the Participants, payment of all other disbursements, confirmation of the payment of real estate taxes, and active review of financial statements submitted to Registrant by the Sublessee and financial statements audited by and tax information prepared by Registrants' independent certified public accountant, and distribution of such materials to the Participants. Counsel also prepares quarterly, annual and other periodic filings with the Securities and Exchange Commission and applicable state authorities and distributes to the Participants quarterly source of distribution reports.
Registrant's results of operations are affected primarily by the amount of rent payable to it under the Sublease. The amount of Overage Rent payable to Registrant is affected by (i) the cycles in the New York City economy and real estate rental market and (ii) the cost of the Property improvement program described herein under Other Information. It is difficult for management to forecast the New York City real estate market over the next few years.
A decrease as compared with a prior year or the absence of Overage Rent results in a reduction as against such prior year in the dollar amount of distributions made to the Participants and a reduction in the expenditure for supervisory services. Reductions in the amount of Overage Rent paid to Registrant in the future will not have any other impact on Registrant. See paragraph 1 of Item 7 hereof and Notes 3, 4, 5, and 7 of the Notes.
The following summarizes the material factors affecting Registrant's results of operations for the three preceding years:
(a) Total income increased for the year ended December 31, 1997 as compared with the year ended December 31, 1996. Such increase resulted from the receipt of Overage Rent in the year 1997 and an increase in dividend income earned as compared with the year ended December 31, 1996. Total income decreased for the year ended December 31, 1996 as compared with the year ended December 31, 1995 because of a reduction in dividend income earned. See Note 3 of the Notes.
(b) Total expenses increased for the year ended December 31, 1997 as compared with the year ended December 31, 1996. Such increase was the result of an increase in additional payment for supervisory services because of the receipt of Overage Rent and the incurrence of legal fees during the year ended December 31, 1997. Total expenses were the same for the years ended December 31, 1996 and December 31, 1995. See Notes 3, 5 and 9 of the Notes.
The State of New York has asserted utility tax deficiencies through December 31, 1992 in connection with water, steam and non-metered electricity rent inclusion charges to tenants, plus estimated accrued interest. The Supreme Court, New York County, granted summary judgment in favor of the State, which ruling was affirmed by the Appellate Division, First Department, holding that the State utility tax applies to such inclusion charges. Sublessee sought permission to appeal the Appellate Division's decision and order to the Court of Appeals. The Court of Appeals denied Sublessee's motion. In May, 1996, Sublessee entered into a settlement agreement with the State. Pursuant to the terms of the settlement agreement, Sublessee agreed to pay the State's assessed tax in the sum of $979,109, plus interest of approximately $605,000 through July 31, 1996. The State has agreed to payment of the aforesaid liability over a period of four years, commencing August, 1996, in equal monthly installments of $40,000, including interest on the unpaid balance at the statutory rate. Installment payments to the State of $40,000 per month have been made by Sublessee commencing on August 1, 1996. It is anticipated that New York State will seek to impose liability on Sublessee for State utility tax for periods after December 31, 1992. The amount of such additional tax has yet to be determined.
The City of New York has asserted a utility tax deficiency in the amount of $277,125 against Sublessee, through December 31, 1994, in connection with water, steam and non-metered electricity rent inclusion charges to tenants, plus accrued interest of approximately $163,012 through December 31, 1997. Sublessee is contesting the calculation of the City's proposed utility tax deficiency before the New York City Tax Appeals Tribunal. The final outcome of Sublessee's appeal cannot
presently be determined. It is anticipated that New York City will seek to impose liability on Sublessee for additional New York City utility tax for periods after December 31, 1994. The amount of such additional tax has yet to be determined.
Liquidity and Capital Resources
There has been no significant change in Registrant's liquidity or capital resources for the fiscal year ended December 31, 1997 as compared with the fiscal year ended December 31, 1996.
Inflation
Inflationary trends in the economy do not directly impact Registrant's operations. As noted above, Registrant does not actively engage in the operation of the Property. Inflation may impact the operations of the Sublessee. The Sublessee is required to pay the Basic Rent regardless of the results of its operations. Inflation and other operating factors affect only the amount of Overage Rent payable by the Sublessee, which is based on the Sublessee's net operating profit.
Other Information
The Sublessee maintains the Building as a high-class office building as required by the terms of the Sublease.
In 1990, the Sublessee commenced its latest improvement program which is estimated to be completed in 1999 at a total cost of approximately $68,000,000. Under this program, approximately 6,400 windows are being replaced and this portion of the program is completed. In addition, the elevators have been upgraded through installation of a computerized control system and the replacement of all electrical and mechanical equipment. The elevator modernization program has increased elevator speed from 800 to 950 feet per minute to 1200 feet per minute. Also included is waterproofing the Building's exterior, resetting and repairing the limestone facade, upgrading the Building's security system, upgrading and replacing the Building's fire safety system and making substantial further improvement to the air-conditioning, domestic pump and water systems, waterproofing the mooring mast and installing a new observation deck ticket office.
The Sublessee anticipates that the costs of improvements to be incurred will reduce Overage Rent during the years 1998 and 1999, but should have no effect on the payment of Basic Rent in those years.
Under Sublessee's management, the Building recently won three awards from the Building Owners and Management Association ("BOMA") (BOMA/NY Award 1989; BOMA Middle Atlantic Region Award
1990/91 and the BOMA International Award for excellence 1992/93). The New York Landmarks Conservancy recently awarded a Merit Citation to the Building. In 1994, Metaloptics recognized the Building for excellence in lighting efficiency. In December 1994, Energy User News, a national publication, awarded a Certificate of Merit in the lighting category for excellence and innovation in energy efficiency and management of the Building.
Item 8.
Item 8. Financial Statements and Supplementary Data.
The financial statements, together with the accompanying report by, and the consent to the use thereof by Jacobs Evall & Blumenfeld LLP, immediately following, are being filed in response to this item.
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10.
Item 10 hereof) beneficially owned, directly or indirectly, the following Participations:
Name & Address Amount of of Beneficial Beneficial Percent Title of Class Owners Ownership of Class
Participations John L. Loehr $ 40,000 .1212% in Partnership 286 Alpine Circle Interests Rivervale, NJ 07675
Peter L. Malkin $138,750 .4205% 21 Bobolink Lane Greenwich, CT 06830
At such date, certain of the Partners (or their respective spouses) held additional Participations as follows:
Stanley Katzman owned of record as trustee but not beneficially $27,500 of Participations. Mr. Katzman disclaims any beneficial ownership of such Participations.
Peter L. Malkin owned of record as trustee or co-trustee but not beneficially, $175,000 of Participations. Mr. Malkin disclaims any beneficial ownership of such Participations.
Isabel W. Malkin, the wife of Peter L. Malkin, owned of record and beneficially, $153,333.34 of Participations. Mr. Malkin disclaims any beneficial ownership of such Participations.
(c) Not applicable.
Item 13. Certain Relationships and Related Transactions.
(a) As stated in Item 1 hereof, Mr. Stanley Katzman, Mr. John L. Loehr and Mr. Peter L. Malkin are the three Partners of Registrant and also act as agents for the Participants in their respective partnership interests. Mr. Malkin is also a partner in Sublessee. As a consequence of one of the three Partners being a partner in Sublessee, two of the Partners being current members of Counsel and one Partner being a retired, former member of Counsel (which represents Registrant and Sublessee), certain actual and potential conflicts of interest may arise with respect to the management and administration of the business of Registrant. However, under the respective participating agreements pursuant to which the Partners act as agents for the Participants, certain transactions require the prior consent from
Participants owning a specified interest under the agreement in order for the agents to act on their behalf. Such transactions include modifications and extensions of the Sublease, or a sale or other disposition of the Property or substantially all of Registrant's other assets.
Reference is made to Items 1 and 2 hereof for a description of the terms of the Sublease between Registrant and Sublessee. The respective interests of the Partners in Registrant and in the Sublease arise solely from ownership of their respective participations in Registrant and, in the case of Mr. Malkin, his ownership of a partnership interest in Sublessee. The Partners receive no extra or special benefit not shared on a pro rata basis with all other security holders of Registrant or partners in Sublessee. However, two of the Partners, by reason of their respective interest in Counsel, are entitled to receive their pro rata share of any legal fees or other remuneration paid to Counsel for professional services rendered to Registrant and Sublessee. See Item 11
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) Financial Statements:
Consent of Jacobs Evall & Blumenfeld LLP, Certified Public Accountants, dated March 12, 1998.
Accountant's Report of Jacobs Evall & Blumenfeld LLP, Certified Public Accountants, dated March 4, 1998.
Balance Sheets at December 31, 1997 and at December 31, 1996 (Exhibit A).
Statements of Income for the fiscal years ended December 31, 1997, 1996 and 1995 (Exhibit B).
Statement of Partners' Capital for the fiscal year ended December 31, 1997 (Exhibit C-1).
Statement of Partners' Capital for the fiscal year ended December 31, 1996 (Exhibit C-2).
Statement of Partners' Capital for the fiscal year ended December 31, 1995 (Exhibit C-3).
Statements of Cash Flows for the fiscal years ended December 31, 1997, 1996 and 1995 (Exhibit D).
Notes to Financial Statements for the fiscal years ended December 31, 1997, 1996 and 1995.
(2) Financial Statement Schedules:
List of Omitted Schedules.
Real Estate and Accumulated Depreciation - December 31, 1997 (Schedule III).
(3) Exhibits: See Exhibit Index.
(b) No Form 8-K was filed by Registrant for the final quarter of 1997.
[LETTERHEARD OF JACOBS EVALL & BLUMENFELD LLP CERTIFIED PUBLIC ACCOUNTANTS]
March 12, 1998
Empire State Building Associates New York, N. Y.
We consent to the use of our independent accountants' report dated
March 4, 1998 covering our audits of the accompanying financial
statements of Empire State Building Associates in connection with and as
part of your December 31, 1997 annual report (Form 10-K) to the
Securities and Exchange Commission.
Jacobs Evall & Blumenfeld LLP Certified Public Accountants
	INDEPENDENT ACCOUNTANTS' REPORT
To the participants in Empire State Building Associates (a Partnership) New York, N. Y.
We have audited the accompanying balance sheets of Empire State Building Associates ("Associates") as of December 31, 1997 and 1996, and the related statements of income, partners' capital and cash flows for each of the three years in the period ended December 31, 1997, and the supporting financial statement schedule as contained in Item 14(a)(2) of this Form 10-K. These financial statements and schedule are the responsibility of Associates' management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. 			 We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Empire State Building Associates as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles, and the related financial statement schedule, when considered in relation to the basic financial statements, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 9 to the financial statements, Associates has been included as a defendant in actions with other related parties, including the Agents for Associates and Empire State Building Company, the sublessee.
						Jacobs Evall & Blumenfeld LLP 						Certified Public Accountants New York, N. Y. March 4, 1998
EXHIBIT A
EMPIRE STATE BUILDING ASSOCIATES
BALANCE SHEETS
A S S E T S
	See accompanying notes to financial statements.
EXHIBIT B
EMPIRE STATE BUILDING ASSOCIATES
STATEMENTS OF INCOME
	See accompanying notes to financial statements.
EXHIBIT C-3
EMPIRE STATE BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL YEAR ENDED DECEMBER 31, 1995
	See accompanying notes to financial statements.
EXHIBIT C-1
EMPIRE STATE BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL YEAR ENDED DECEMBER 31, 1997
	See accompanying notes to financial statements.
EXHIBIT C-2
EMPIRE STATE BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL YEAR ENDED DECEMBER 31, 1996
	See accompanying notes to financial statements.
EXHIBIT D
EMPIRE STATE BUILDING ASSOCIATES
STATEMENTS OF CASH FLOWS
	See accompanying notes to financial statements.
EMPIRE STATE BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. Business Activity
Empire State Building Associates ("Associates") is a general partnership which holds the tenant's position in the master leasehold of the Empire State Building, located at 350 Fifth Avenue, New York City. Associates subleases the property to Empire State Building Company ("Company").
2. Summary of Significant Accounting Policies
a. Cash and Cash Equivalents:
Cash and cash equivalents include investments in money market funds and all highly liquid debt instruments purchased with a maturity of three months or less.
b. Real Estate and Amortization of Leasehold:
Real estate, consisting of a leasehold, is stated at cost. In 1988, Associates determined that it would exercise its first renewal option under the lease, and did so in January 1989. Amortization of the leasehold is being computed by the straight-line method over the estimated useful life of 25 years, from January 1, 1988 to January 5, 2013 (see Note 4).
c. Use of Estimates:
In preparing financial statements in conformity with generally accepted accounting principles, management often makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
3. Related Party Transactions - Rent Income
Rent income for the years ended December 31, 1997, 1996 and 1995, totalling $8,420,050, $6,018,750 and $6,018,750, respectively, consists of the minimum annual rent plus additional rent under an operating sublease dated December 27, 1961, as modified February 15, 1965, with Company (the "Sublessee"), as follows:
Year ended December 31,
1997 1996 1995
Minimum net basic rent...... $6,018,750 $6,018,750 $ 6,018,750 Additional rent earned...... 2,401,300 - -
$8,420,050 $6,018,750 $ 6,018,750
EMPIRE STATE BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
3. Related Party Transactions - Rent Income (continued)
The sublease provides for the same initial term and renewal options as the leasehold (see Note 4), less one day. In January 1989, the Sublessee exercised its option to renew the sublease for the first renewal period from January 4, 1992 to January 4, 2013. The annual minimum net basic rent during the first renewal term was reduced to $6,018,750, and is to be further reduced to $5,895,625 during each of the remaining three renewal terms.
Additional rent earned is equal to fifty percent of the sublessee's annual net income (as defined in the sublease) in excess of $1,000,000.
A partner in Associates is also a partner in the Sublessee.
4. Leasehold Rent
Leasehold rent represents the net basic rent of $1,970,000 per annum under an operating lease dated December 27, 1961, as modified February 15, 1965, with The Prudential Insurance Company of America ("Prudential"), over the first renewal term of the lease, 21 years, from January 5, 1992 to January 5, 2013.
The lease contains options for Associates to renew the leasehold for an additional 3 successive periods of 21 years each. The basic rent is to be further reduced to $1,723,750 per annum during each of the remaining three renewal terms.
On November 27, 1991, Prudential sold the property to E.G. Holding Co., Inc. which, through merger and conveyance, reportedly transferred its interest as lessor to Trump Empire State Partners (see Note 9b). Associates' rights under the master leasehold remain unchanged.
5. Related Party Transactions - Supervisory Services
Supervisory services (including disbursements and cost of regular accounting services) during the years ended December 31, 1997, 1996 and 1995, totalling $227,161, $159,417 and $159,417, respectively, represent fees paid to the firm of Wien & Malkin LLP. Some members of that firm are partners in Associates.
Fees for supervisory services are paid pursuant to an agreement, which amount is based on a rate of return of investment achieved by the participants in Associates each year.
EMPIRE STATE BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Number of Participants
There were approximately 2,620 participants in the participating groups at December 31, 1997, 1996 and 1995.
7. Determination of Distributions to Participants
Distributions to participants in 1997, 1996 and 1995 of $3,889,333, $3,889,333 and $7,308,634, respectively, represented the following:
EMPIRE STATE BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
8. Distributions and Amount of Income per $10,000 Participation Unit
Distributions per $10,000 participation unit during the years 1997, 1996 and 1995 based on 3,300 participation units outstanding during each year, consisted of the following:
Year ended December 31,
1997 1996 1995
Income........................ $1,179 $1,118 $1,126
Return of capital............. - 61 1,089
TOTAL DISTRIBUTIONS....... $1,179 $1,179 $2,215
Net income is computed without regard to income tax expense since Associates does not itself pay a tax on its income; instead, any such taxes are paid by the participants in their individual capacities.
9. Litigation, Legal Fees and Related Party Transactions and Subsequent Event
a. On October 21, 1991, in an action entitled Studley v. Empire State Building Associates et al., the holder of a $20,000 original participation in Associates brought suit in New York Supreme Court, New York County against the Agents for Associates (Peter L. Malkin, Donald A. Bettex and Alvin Silverman), in their individual capacities and Wien, Malkin & Bettex (currently "Wien & Malkin LLP"), counsel to Associates. The suit claims that the defendants had engaged in breaches of fiduciary duty and acts of self-dealing in relation to the Agents' solicitation of consents and authorizations from the participants in Associates in September 1991 and in relation to other unrelated acts of the Agents and the sublessee. By order dated July 14, 1997, the Court granted defendants' application for summary judgment and dismissal of the action. Plaintiff's appeal of the dismissal is pending. Associates is a nominal defendant and the complaint does not seek any direct relief from it; accordingly, no loss or other unfavorable outcome of the action against Associates is anticipated. b. In December 1994, Associates received a notice of default from Trump Empire State Partners (Note 4) ("Trump"). The Trump default notice to Associates claims that Associates was in violation of its master lease because of extensive work which Company, the sublessee, had undertaken as part of an improvement program that commenced before Trump reportedly acquired its interest in the property in 1994. Trump's notice also complains that the building is in need of repairs. On February 14, 1995, Associates and Company filed an action in New York State Supreme Court against Trump for a declaratory judgment that none of the matters set forth in the notice of default constitutes a violation of the master lease or sublease, and that the notice of default is entirely without merit.
EMPIRE STATE BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
9. Litigation, Legal Fees and Related Party Transactions and Subsequent Event (continued)
Associates' and Company's suit also seeks an injunction to prevent Trump from implementing the notice of default. On March 24, 1995, the Court granted Associates a preliminary injunction against Trump. In 1996 the Court granted two additional injunctions against Trump with respect to two additional default notices. The preliminary injunctions prohibit Trump from acting on its notices of default to Associates at any time, pending the prosecution of claims by Associates and Company for a final declaratory judgment and an injunction and other relief against the Trump defendants. The Appellate Court has upheld and affirmed the granting of such preliminary injunctions against the Trump defendants.
On February 15, 1995, Trump filed an action against Associates, Company, Wien & Malkin LLP, Harry B. Helmsley, a partner in Company, Hel msley-Spear, Inc. (the management company of the Empire State Building (the "Building")), and the Agents for Associates in New York State Supreme Court, alleging that the notice of default is valid and seeking damages and related relief based thereon. On October 24, 1996 the Court dismissed all of Trump's claims in their entirety against all defendants in the action. Trump appealed this Order. The Appellate Court has unanimously affirmed the dismissal of Trump's claims.
In May 1995, Associates and Company filed a separate legal action against Trump and various affiliated persons for breach of the master lease and sublease, and disparagement of the property in violation of Associates' and Company's leasehold rights. The action was amended to include additional claims by Associates and Company seeking a declaratory judgment that they may act as an owner of the Property for purposes of making applications and related activities pursuant to the New York City Building Code. By decision and order dated October 24, 1996, the Court sustained Associates' and Company's claims concerning the parties who may act as owner of the Property under the Building Code, but dismissed Associates' and Company's claims against Trump and co-defendants for money damages. Associates and Company appealed that portion of the Court's order dismissing their claims for money damages. The Appellate Court has affirmed that part of the Court's order dismissing the claims for money damages.
c. Associates is a defendant in an action instituted in the Supreme Court of the State of New York, County of New York, entitled New York Skyline Inc. v. Empire State Building Company, Empire State Building Associates, Neil H. Kessner, Helmsley-Spear, Inc. and Stephen A. Tole. This lawsuit, which was brought by a tenant in the Building and was filed on December 23, 1997, seeks at least $205,000,000 in damages.
EMPIRE STATE BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
9. Litigation, Legal Fees and Related Party Transactions and Subsequent Event (continued)
In its complaint, plaintiff-tenant asserts thirteen causes of action (twelve of which are against Company) in connection with its leases and license agreements of space in the Building and alleges that it is entitled to, among other things, specific performance as to its alleged rights under its leases and licensing agreements with Company, a declaratory judgment as to the rights of the parties under the leases and licensing agreements, any monies allegedly due plaintiff under those agreements, as well as injunctive relief and additional money damages. While the complaint includes Associates as a named defendant, it does not allege or identify any agreement between plaintiff and Associates or any other basis of liability on Associates' part to plaintiff.
On or about February 5, 1998, plaintiff served an amended complaint which, among other things, added Kessner & Cyruli, f/n/a Nell H. Kessner & Associates, former landlord-tenant counsel for the Building, and Eileen Aluska, a former Helmsley-Spear, Inc. employee, as party defendants. The amended complaint asserts eleven causes of action, similar to those asserted in the original complaint.
Associates has until March 16, 1998 to answer or make a motion with respect to the amended complaint. Associates intends to contest the case vigorously.
Because the action is still in the pleading stage and pre-trial discovery has not yet started, counsel for Associates has not formed a professional conclusion that an adverse outcome is either probable or remote.
The accompanying statement of income reflects an expense of $1,272,237 and the accompanying balance sheet reflects a corresponding accrued liability of $1,272,237 for reimbursement to the Agents from Associates of their legal and accounting expenses relating to the Studley and Trump suits. Through December 31, 1997, legal and accounting expenses in connection with the Studley suit amounted to $960,065 of which $647,761 has been advanced by Wien & Malkin LLP, counsel (a related party), to third party professional firms and $312,304 represents accumulated professional time of Wien & Malkin LLP. Counsel has advised that its records at December 31, 1997 also indicate $312,172 in accumulated professional time and disbursements related to the Trump suits. Substantial additional legal and accounting costs may be incurred in both suits.
The determination of the allocable share of the net legal and accounting costs and disbursements accrued by Associates that are chargeable to Company involve complex issues of fact and law. Therefore, although Associates may be entitled to indemnification from Company, because of uncertainties concerning these issues, amounts for professional fees to be reimbursed to Associates cannot be estimated, and consequently, have not been provided for in the accompanying financial statements.
EMPIRE STATE BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
10. Concentration of Credit Risk
Associates maintains cash balances in a bank, money market fund (Fidelity U.S. Treasury Income Portfolio), additional rent advance account held by Wien & Malkin LLP (Note 5), which was transferred to the money market fund in January 1998, and a distribution account held by Wien & Malkin LLP. The bank balance is insured by the Federal Deposit Insurance Corporation up to $100,000, and at December 31, 1997 was completely insured. The cash in the money market fund and in the two accounts held by Wien & Malkin LLP are not insured. The funds held in the distribution account were paid to the participants on January 1, 1998.
EMPIRE STATE BUILDING ASSOCIATES
OMITTED SCHEDULES
The following schedules have been omitted as not applicable in the present instance:
	SCHEDULE I -	Condensed financial information of registrant.
	SCHEDULE II -	Valuation and qualifying accounts.
	SCHEDULE IV -	Mortgage loans on real estate.
SCHEDULE III 	EMPIRE STATE BUILDING ASSOCIATES
	Real Estate and Accumulated Depreciation 	 December 31, 1997
(a)	There have been no changes in the carrying values of real estate for the years ended December 31, 1997, December 31, 1996 and December 31, 1995. The costs for federal income tax purposes are the same as for financial statement purposes.
(b) Accumulated amortization Balance at January 1, 1995 $35,247,551 Amortization: F/Y/E 12/31/95 $208,469 12/31/96 208,469 12/31/97 208,469 625,407
Balance at December 31, 1997 $35,872,958
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
The individual signing this report on behalf of Registrant is Attorney-in-Fact for Registrant and each of the Partners in Registrant, pursuant to a Power of Attorney, dated August 6, 1996 (the "Power").
EMPIRE STATE BUILDING REGISTRANT (Registrant)
By /s/Stanley Katzman Stanley Katzman, Attorney-in-Fact*
Date: April 15, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person as Attorney-in-Fact for each of the Partners in Registrant, pursuant to the Power, on behalf of Registrant and as a Partner in Registrant on the date indicated.
By /s/ Stanley Katzman Stanley Katzman, Attorney-in-Fact*
Date: April 15, 1998
______________________ * Mr. Katzman supervises accounting functions for Registrant.
EXHIBIT INDEX
Number Document Page*
3(a) Registrant's Partnership Agreement dated July 11, 1961, filed as Exhibit No. 1 to Registrant's Registration Statement on Form S-1 as amended (the "Registration Statement") by letter dated August 8, 1962 and assigned File No. 2-18741, is incorporated by reference as an exhibit hereto.
3(b) Amended Business Certificate of Registrant filed with the Clerk of New York County on August 19, 1996 reflecting a change in the Partners of Registrant which was filed as Exhibit 3(b) to Registrant's Annual Report on 10-K for the fiscal year ended December 31, 1996 and is incorporated by reference as an exhibit hereto.
4 Registrant's form of Participating Agreement, filed as Exhibit No. 6 to the Registration Statement by letter dated August 8, 1962 and assigned File No. 2-18741, is incorporated by reference as an exhibit hereto.
10(a) Mortgage dated December 21, 1951 from Imperium Corporation to Prudential Insurance Company of America ("Prudential"), filed by letter dated March 31, 1981 (Commission File No. 0-827) as Exhibit 10(a) to Registrant's Form 10-K for the fiscal year ended December 31, 1980, is incorporated by reference as an exhibit hereto.
10(b) Modification of Indenture of Lease dated December 27, 1961 between Prudential and Registrant filed by letter dated March 31, 1981 (Commission File No. 0-827) as Exhibit 10(b) to Registrant's Form 10-K for the fiscal year ended December 31, 1980, is incorporated by reference as an exhibit hereto.
______________________ * Page references are based on sequential numbering system.
10(c) Sublease dated December 27, 1961 between Registrant and Sublessee, filed by letter dated March 31, 1981 (Commission File No. 0-827) as Exhibit 10(d) to Registrant's Form 10-K for the fiscal year ended December 31, 1980, is incorporated by reference as an exhibit hereto.
10(e) Modification and Extension Agreement, dated October 26, 1964 between The Bowery Savings Bank and Celeritas Realty Corp., filed by letter dated March 31, 1981 (Commission File No. 0-827) as Exhibit 10(e) to Registrant's Form 10-K for the fiscal year ended December 31, 1980, is incorporated by reference as an exhibit hereto.
13 Letter to Participants dated April 1, 1998.
24 Power of Attorney dated August 6,1996, between Peter L. Malkin, John L. Loehr and Stanley Katzman, the partners of Registrant and Richard A. Shapiro and Stanley Katzman, filed as Exhibit 25 to Registrant's 10-Q for the quarter ended September 30, 1996 and incorporated by reference as an exhibit hereto.
27 Financial Data Schedule of Registrant for the fiscal year ended December 31, 1997.