Supervisory Services

9 Months Ended

Sep. 30, 2012

Supervisory Services

Note E Supervisory Services

Supervisory and other services are provided to Registrant by its supervisor, Malkin Holding LLC (“Malkin Holdings” or “Supervisor”), a related party. As of September 30, 2012, entities for the benefit of Peter L. Malkin’s family own member interests in Lessee.

Registrant pays Supervisor for supervisory services and disbursements. The basic fee (the “Basic Payment”) has been payable at the rate of $24,000 per annum, payable $2,000 per month, since October 1, 1958. The Basic Payment was increased, with the approval of the Agents, by an amount equal to the increase in the consumer price index since such date, resulting in an increase in the Basic Payment to $180,000 per annum effective July 1, 2010 to be adjusted annually for any subsequent increase in the Consumer Price Index. The fee is payable (i) not less than $2,000 per month and (ii) the balance out of available reserves from Further Additional Rent. If Further Additional Rent is insufficient to pay such balance, any deficiency shall be payable in the next year in which Further Additional Rent is sufficient. The Agents also approved payment by Registrant, effective July 1, 2010, of the expenses in connection with regular accounting services related to maintenance of Registrant’s books and records. Such expenses were previously paid by Supervisor.

Registrant pays Supervisor an additional payment (“Additional Payment”) equal to 10% of all distributions to Participants in Registrant in excess of 14% per annum on their remaining cash investment in Registrant (which remaining cash investment at September 30, 2012 was equal to the Participants’ original cash investment of $7,000,000). For tax purposes, such Additional Payment is recognized as a profits interest, and the Supervisor is treated as a partner, all without modifying each Participant’s distributive share of reportable income and cash distribution. Supervisor receives $7,380 a year as an advance against the Additional Payment, which Registrant expenses monthly.

The basic supervisory services provided to Registrant by Supervisor include, but are not limited to, maintaining all of its entity and Participant records, performing physical inspections of the Building, providing or coordinating certain counsel services to Registrant, reviewing insurance coverage and conducting annual supervisory review meetings, receipt of monthly rent from Lessee, payment of monthly and additional distributions to the Participants, payment of all other disbursements, confirmation of the payment of real estate taxes, active review of financial statements submitted to Registrant by Lessee and financial statements audited by and tax information prepared by Registrant’s independent registered public accounting firm, and distribution of related materials to the Participants. Supervisor also prepares quarterly, annual and other periodic filings with the SEC and applicable state authorities.

Accrued supervisory fees, to a related party, were $0 and $81,625 at September 30, 2012 and December 31, 2011, respectively. Due to Supervisor, a related party, was $657,430 and $922,728 at September 30, 2012 and December 31, 2011, respectively.

Registrant pays Supervisor for other services at hourly rates. Pursuant to the fee arrangements described herein, Registrant incurred supervisory fees of $146,090 and $142,168 for the nine-month periods ended September 30, 2012 and 2011, respectively. As indicated above in Note C, any Additional Payment to Supervisor for the current lease year will be reflected in Registrant’s Annual Report on Form 10-K for the year ending December 31, 2012. No remuneration was paid during the nine-month periods ended September 30, 2012 and 2011 by Registrant to any of the Members. Included in professional fees are amounts for services provided by Supervisor, a related party, of $92,804 and $172,991 for the three and nine months ended September 30, 2012, respectively, and $49,582 and $96,750 for the three and nine months ended September 30, 2011, respectively.

Distributions are paid from a cash account held by Supervisor. That account is included in the condensed Balance Sheets as “Due from Supervisor.” The funds of $87,202 at September 30, 2012 and December 31, 2011 were paid to participants on October 1, 2012 and January 1, 2012, respectively.

Reference is made to Note C above for a description of the terms of the Lease between Registrant and Lessee. The respective interests, if any, of the Members in Registrant and in Lessee arise solely from ownership of their respective Participations in Registrant and, in the case of Peter L. Malkin, his individual ownership of a member interest in Lessee. The Members as such receive no extra or special benefit not shared on a pro rata basis with all other Participants in Registrant or members in Lessee. However, all of the Members hold senior positions at Supervisor (which supervises Registrant and Lessee) and, by reason of their positions at Supervisor, may receive income attributable to supervisory or other remuneration paid to Supervisor by Registrant and Lessee.