UNITED ~~STATES~~ ~~SECURITIES AND EXCHANGE COMMISSION~~ STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

~~[X]~~x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, ~~2004~~2008.

~~[ ]~~¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____

Commission file number 000-50160

HECHINGER LIQUIDATION TRUST

(Exact name of registrant as specified in its charter)

Delaware		52-7230151
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
405 East Gude Drive, Suite 206 Rockville, Maryland		20850
(Address of principal executive offices)		(Zip Code)

405 East Gude Drive, Suite 206 Rockville, Maryland		20850
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (301) 838-4311

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

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

Class 4A, Class 4B, and Class 5 ~~Beneficial Interests in the Liquidation Trust Established Under the Liquidation Trust Agreement (Title of class)~~

~~Indicate by check mark whether the registrant (1) has filed all reports~~Beneficial 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. Interests

~~Yes~~in ~~[x] No [ ]~~the Liquidation Trust Established Under

~~Indicate by check mark if~~ the ~~disclosure of delinquent filers pursuant to Item~~ ~~405~~Liquidation ofTrust ~~Regulation~~Agreement S-K is not contained herein, and will not be contained, to the best of the 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.

~~Yes~~(Title ~~[x] No [ ]~~of class)

1Indicate 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 ~~whether~~if the registrant is annot ~~accelerated~~required ~~filer~~to ~~(as~~file reports pursuant to ~~defined~~Section in13 ~~Rule 12b-2~~or 15(d) of the Securities Exchange Act). of 1934. Yes ¨ No x.

~~Yes~~Indicate by ~~[ ] No~~check ~~[x]~~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 ¨

~~State~~Indicate by ~~the~~check ~~aggregate~~mark ~~market~~if ~~value~~the disclosure of ~~the~~delinquent ~~voting~~filers ~~stock~~pursuant ~~held~~to byItem ~~non-affiliates~~405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant.'s ~~(No~~knowledge, ~~voting~~in ~~stock.)~~definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes x No ¨

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 definition 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 ¨		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 o No x.

State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant.

— $ 0 —

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS ~~DURING THE PRECEDING FIVE YEARS:~~

~~Indicate by check mark whether the registrant has filed all documents and~~DURING ~~reports~~THE ~~required~~PRECEDING toFIVE ~~be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.~~ YEARS:

~~Yes~~Indicate by ~~[x] No~~check [mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, ]or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

		Page
PART I
ITEM 1.	BUSINESS	1	4
ITEM 2.	PROPERTIES		9
ITEM 1A.	RISK FACTORS	7
ITEM 3.	LEGAL PROCEEDINGS		9
ITEM 1B	UNRESOLVED STAFF COMMENTS	7
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		11
ITEM 2.	PROPERTIES	7
PART II
ITEM 3.	LEGAL PROCEEDINGS	7
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS		12
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	8
ITEM 6.	SELECTED FINANCIAL DATA		12
PART II
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		12
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	8
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		25
ITEM 6.	SELECTED FINANCIAL DATA	8
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		25
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	9
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		25
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19
ITEM 9A.	CONTROLS AND PROCEDURES		26
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	19
PART III
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	19
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS		26
ITEM 9A.	CONTROLS AND PROCEDURES	20
ITEM 11.	EXECUTIVE COMPENSATION		27
ITEM 9A(T).	CONTROLS AND PROCEDURES	20
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT		28
ITEM 9B.	OTHER INFORMATION	21
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		28
PART III
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES		28
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	21
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		28
ITEM 11.	EXECUTIVE COMPENSATION	22
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	23
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	23
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	23
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	24

PART I

Item 1.

Business

A. Background

Hechinger Liquidation Trust (the “Liquidation Trust”) was established ~~effective~~ effective October 26, 2001 (the “Effective Date”) in accordance with the ~~Revised~~ Revised First Amended Consolidated Plan of Liquidation (the “Plan”) for ~~Hechinger~~ Hechinger Investment Company of Delaware, Inc. and affiliates (the “Debtors”), ~~confirmed~~ confirmed by the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) by an order dated October 5, 2001.

The Liquidation Trust has no authority to engage in any trade or business. The purpose of the Liquidation Trust is to:

•· liquidate any and all remaining assets of the Debtors; • pursue causes of action assigned to the Liquidation Trust, including preference, fraudulent conveyance and other avoidance actions, lender liability actions, fraud actions and breach of fiduciary duty actions, for the benefit of beneficiaries of the Liquidation Trust; • resolve, either consensually or through litigation, all disputed claims asserted against the Debtors, pursuant to the Plan; and • make all distributions required under the Plan (“Distributions”) and payments to holders of claims allowed pursuant to the Plan.

~~The~~· ~~trustee~~pursue causes of action assigned to the Liquidation Trust, isincluding ~~Mr. Conrad~~preference, F.fraudulent ~~Hocking~~conveyance ~~(the “Liquidation~~and ~~Trustee”).~~other Inavoidance ~~addition~~actions, tolender ~~the~~liability ~~Liquidation Trustee~~actions, ~~the Liquidation~~fraud ~~Trust~~actions ~~had~~and 4breach ~~employees~~of asfiduciary ofduty ~~September 30~~actions, ~~2004.~~ for the benefit of beneficiaries of the Liquidation Trust;

~~Pursuant~~· ~~to the provisions of the Plan~~resolve, aeither ~~committee~~consensually ~~(the~~or ~~“Committee”)~~through ~~was appointed to represent the interests of the beneficiaries of the Liquidation Trust. The members of the Committee initially were: Teachers Insurance and Annuity Association of America~~litigation, ~~The Sherwin Williams Company, HSBC Bank USA, Masco Corporation, The Scotts Company, and Kmart Corporation. During January 2003, subsequent to waiving~~ all ~~its~~disputed claims inasserted aagainst ~~comprehensive mutual settlement with~~ the ~~Liquidation Trust~~Debtors, The Scotts Company resigned from the Committee. No replacement has been designated. Members of the Committee have fiduciary duties to the beneficiaries of the Liquidation Trust in the same manner that members of an official committee of creditors appointed pursuant to ~~Section 1102 of~~ the ~~Bankruptcy~~Plan; ~~Code have fiduciary duties to the creditor constituents represented by such committee.~~ and

~~The~~· ~~Bankruptcy~~make ~~Court~~all ~~has~~distributions ~~retained~~required ~~exclusive~~under ~~jurisdiction over~~ the ~~Liquidation~~ ~~Trust~~Plan (“Distributions”) and ~~its~~payments ~~assets~~to asholders ~~provided in the Plan, including the determination~~ of ~~all~~claims ~~controversies~~allowed ~~and~~pursuant ~~disputes~~to ~~arising under or in connection with~~ the ~~Liquidation Trust~~Plan.

The Liquidation Trust will terminate upon the earlier of (i) the fulfillment of its purpose by the liquidation of all of its assets and the distribution of the proceeds of the liquidation thereof in accordance with the Plan, or (ii) by March ~~October 26~~31, ~~2005~~2009, unless the Bankruptcy Court approves an a further extension of the term.

During the fiscal year ended September 30, ~~2004~~2008, the principal activities of the Liquidation Trust included pursuing preference recovery actions as well as other significant actions, ~~resolution~~in ofthe ~~disputed~~United ~~claims,~~States ~~claims~~District ~~payments,~~Court for the District of ~~and~~Delaware ~~Distributions~~(the “District Court”), ~~all~~and asin ~~further~~the ~~explained~~United ~~below.~~States ~~Amounts~~Court ~~shown~~of ~~throughout~~Appeals for ~~this~~the ~~document~~Third ~~are~~Circuit ~~rounded~~(the “Court of Appeals”), resolution of disputed claims, and Distributions ~~are~~to ~~therefore~~holders ~~approximate.~~of beneficial interests in the Liquidation Trust, all as further explained below.

4As of December 2008, substantially all assets of the Debtors, including causes of action, have been liquidated, and all Disputed Claims have either been resolved or are expected to be waived. The Liquidation Trust is in the process of winding up its limited operations, and expects to request that the Bankruptcy Court authorize a final Distribution during early calendar year 2009 and terminate the Liquidation Trust thereafter.

BThe trustee of the Liquidation Trust is Mr. ~~Preference~~Conrad ~~recovery~~F. ~~actions~~Hocking (the “Liquidation Trustee”). As of September 30, 2008, the Liquidation Trust had no full-time employees. The Liquidation Trustee and one other ~~significant~~employee manage ~~actions~~and monitor the affairs of the Liquidation Trust on a part-time basis, with periodic assistance from two other part-time employees.

1Pursuant to the provisions of the Plan, a committee (the “Committee”) was appointed to represent the interests of the beneficiaries of the Liquidation Trust. ~~Preference~~ The ~~recovery~~members ~~actions~~of the Committee initially were: Teachers Insurance and Annuity Association of America, The Sherwin Williams Company, HSBC Bank USA, Masco Corporation, The Scotts Company, and Kmart Corporation (“Kmart”). During 2003, subsequent to waiving all of its claims in a comprehensive mutual settlement with the Liquidation Trust, The Scotts Company resigned from the Committee. No replacement has been designated. Members of the Committee have fiduciary duties to the beneficiaries of the Liquidation Trust in the same manner that members of an official committee of creditors appointed pursuant to Section 1102, Chapter 11, Title 11 of the United States Code (the “Bankruptcy Code”), have fiduciary duties to the creditor constituents represented by such committee.

Pursuant to Section 547 of the Bankruptcy Code, a debtor may seek to recover, through adversary proceedings in the bankruptcy court, certain transfers of the debtor’s property, including payments of cash, made during the 90 days immediately prior to the commencement of the bankruptcy case. Although there are certain defenses to such recoveries, the Bankruptcy Code’s preference statute can be very broad in its application because it allows the debtor to recover payments regardless of whether there was any impropriety in such payments. 1

The ~~Liquidation~~Bankruptcy ~~Trust~~Court ~~continued~~has ~~to prosecute preference recovery actions,~~retained ~~resolving~~exclusive 80jurisdiction ~~actions~~over ~~during~~ the ~~fiscal~~Liquidation ~~year~~Trust ~~ended September 30, 2004,~~ and ~~leaving~~ aits ~~total~~assets ~~of 10 preference actions being actively pursued~~ as ofprovided ~~September~~in ~~30,~~the ~~2004. In addition~~Plan, including the ~~Liquidation~~determination ~~Trust~~of ~~made~~all ~~collections~~controversies ~~efforts~~and ~~with~~disputes arising ~~respect~~under toor ~~numerous~~in ~~default~~connection ~~judgments~~with ~~obtained~~the ~~for~~Liquidation ~~other preference actions~~Trust.

~~2. Other~~Amounts shown ~~significant~~throughout ~~actions~~this document are rounded and are therefore approximate.

~~Pursuant to the Plan, two significant actions were assigned to the Liquidation Trust on the Effective Date~~B. Preference ~~The~~recovery Official Committee of Unsecured Creditors, appointed by the United States Trustee pursuant to Section 1102 of the Bankruptcy Code to represent the interests of creditors, as well as the trustee under an indenture governing certain debt instruments issued by one of the Debtors, had each filed actions ~~(respectively, the “Committee Action”~~ and ~~the~~ “Bondholder Action”) against various parties involved in a business combination among the Debtors during 1997 and the related financing (the “1997 Transactions”), including certain insiders and/or lenders for fraudulent conveyance, among other ~~causes of action.~~significant actions

~~The Liquidation Trust continues to pursue these actions in the belief they may provide significant returns to the beneficiaries of the Liquidation Trust~~1. Preference ~~During~~recovery the fiscal year ended September 30, 2004, the Liquidation Trust was engaged in the October 2003 trial and post-trial briefings and arguments with respect to, and the appeal of an adverse decision in, the Bondholder Action, and was also engaged in pre-trial preparation, including filing briefs in opposition to defendants’ motions for summary judgment, with respect to the Committee Action. actions

InPursuant to ~~addition,~~Section ~~during~~547 ~~December 2003,~~of the ~~Liquidation~~Bankruptcy ~~Trust~~Code, ~~filed~~ a ~~complaint with~~debtor ~~the~~may ~~Bankruptcy~~seek ~~Court~~to ~~seeking~~recover, ~~among~~through adversary ~~other~~proceedings ~~things,~~in tothe ~~reduce~~bankruptcy ~~the~~court, ~~letter~~certain transfers of the debtor’s ~~credit~~property, ~~securing~~including ~~its~~payments ~~largest~~of ~~Unimpaired~~cash, ~~Claim~~made ~~(defined~~during ~~below)~~the ~~and~~90 days immediately prior to ~~fix~~ the ~~amount~~ commencement of ~~this~~the ~~Claim,~~bankruptcy ~~and~~case. Although ~~has~~there ~~continued~~are certain defenses to ~~pursue~~such ~~discovery~~recoveries, ~~and~~the ~~negotiation~~Bankruptcy inCode’s preference statute ~~this~~can ~~matter.~~be ~~Subsequent~~very tobroad ~~year-end,~~in ~~the~~its ~~parties~~application ~~reached~~because anit ~~agreement~~allows ~~with~~the ~~respect~~debtor to ~~certain~~recover payments regardless of ~~the~~whether ~~issues addressed~~there inwas ~~this~~any ~~complaint.~~impropriety in such payments.

~~Each~~As of September ~~these~~30, ~~actions~~2008, ~~and~~one ~~the~~significant ~~status~~preference ~~thereof,~~litigation isaction ~~more~~continued ~~fully described~~(see ~~herein~~Part ~~under~~I, Item 3., “Legal Proceedings”, below). During March 2006, the District Court upheld the Bankruptcy Court’s award to the Liquidation Trust of $1.0 million in this case. The defendant appealed the affirmation by the District Court to the Court of Appeals. During June 2007, the Court of Appeals remanded the case to the District Court, with instructions to remand to the Bankruptcy Court for specific findings. Pursuant to the Bankruptcy Court’s scheduling order, both parties filed briefings by February 2008. The Bankruptcy Court may decide the case or schedule further proceedings, up to and including a trial, at its discretion. The Liquidation Trust and its counsel intend to vigorously pursue collection of the original judgment. In addition, the Liquidation Trust continued to make collections efforts with respect to settlements and default judgments obtained for other preference actions.

C2. ~~Resolution of disputed claims~~ Other significant actions

~~When~~Pursuant to anthe ~~entity~~Plan, ~~files~~two ~~for~~significant ~~bankruptcy,~~actions ~~its~~were ~~liabilities,~~assigned ~~such~~to asthe ~~accounts~~Liquidation ~~and~~Trust on ~~notes~~the ~~payable,~~Effective ~~any~~Date. The ~~lawsuits~~Official ~~against~~Committee itof Unsecured Creditors, appointed ~~and~~by ~~any~~the ~~damages~~United itStates ~~causes~~Trustee bypursuant ~~canceling contracts~~to ~~all~~Section 1102 ~~become~~of ~~potential~~the Bankruptcy ~~claims~~Code ~~against~~to represent the ~~debtor.~~interests ~~The~~of ~~debtor~~creditors, as well as the trustee ~~acknowledges~~under ~~claims~~an itindenture isgoverning ~~aware~~certain ofdebt ininstruments aissued ~~filing~~by ~~with~~one of the Debtors, ~~Bankruptcy~~had ~~Court~~each filed actions (respectively, the “Committee Action” and the ~~any~~“Bondholder ~~interested~~Action”) ~~party~~against ~~may~~various ~~file~~parties involved in a ~~claim~~business ~~against~~combination among athe ~~debtor~~Debtors induring ~~any~~1997 ~~amount~~and ~~they assert~~the isrelated ~~owed~~financing (~~collectively,~~ the “~~Claims~~1997 Transactions”)., including certain insiders and/or lenders for fraudulent conveyance, among other causes of action.

The Debtors, and the Liquidation Trust as successor-in-interest, are responsible for researching and resolving every Claim. Claims may be resolved, under Bankruptcy Court procedures, by being expunged from the record, waived by the claimant, allowed in a ~~different amount and/or classification (discussed below under D~~., ~~“Claims~~Status ~~payments~~of ~~and distributions”), or allowed as filed.~~ litigation

5In the Bondholder Action, following adverse decisions during 2004 and 2005, the Liquidation Trust determined not to pursue that action further.

AIn ~~Claim~~the Committee ~~may be “Allowed~~Action,” ~~meaning~~during ~~that~~July ~~either~~2005, the ~~Claim~~District ~~has~~Court ~~been~~issued ~~fixed~~a asmemorandum toopinion ~~amount~~ and ~~classification~~order byon ~~order~~pending ofsummary ~~the~~judgment ~~Bankruptcy~~motions ~~Court~~(collectively, or the ~~Liquidation~~“Summary ~~Trust~~Judgment ~~agrees~~Decision”), ~~with~~dismissing the ~~claimant~~Liquidation asTrust’s toclaims ~~the amount and classification~~against ofFleet ~~the~~Retail ~~Claim~~Finance ~~and is making no objection to the Claim~~Inc. ~~Otherwise~~(“Fleet”), anGeneral ~~unresolved Claim~~Electric isCredit ~~termed~~Corp. (“~~Disputed~~GECC”), ~~meaning the Liquidation Trust does not agree~~ and ~~has~~certain ~~filed,~~other ordefendants. During ~~may~~August ~~still file~~2005, anthe ~~objection~~District ~~or other legal proceeding intended~~Court tosubstantively ~~dispute~~denied the ~~Claim~~Liquidation inTrust’s ~~whole~~motion orfor inreconsideration ~~part. All the types~~ of ~~Claims discussed~~the ~~below~~Summary ~~under~~Judgment ~~“Rights of Claimants” may contain both Allowed Claims and Disputed Claims~~Decision.

~~During the fiscal year ended September 30, 2004, the Liquidation Trust resolved 156 previously Disputed Claims, leaving a total of 58 Disputed Claims as of September 30, 2004.~~ 2

DDuring December 2005, the Liquidation Trust filed its notice of appeal from the Summary Judgment Decision and related judgment in the Committee Action with the Court of Appeals. A ~~Claims~~March ~~payments~~2006 mediation that was ordered and ~~distributions~~conducted by the Court of Appeals did not result in a settlement among the remaining parties to the Committee Action. The Liquidation Trust continued to pursue the Committee Action against certain remaining defendants with which it had not reached a settlement. Pursuant to a scheduling order issued by the Court of Appeals during March 2007, briefing in the Committee Action appeal was completed during July 2007. The Court of Appeals heard oral argument during April 2008. During May 2008, the Court of Appeals issued a decision affirming the Summary Judgment Decision. After consultation with counsel, the Liquidation Trustee determined that the Liquidation Trust would not pursue an appeal of the May 2008 adverse decision.

1No further activity in this matter, other than paying final professional fees related to the case, is expected. ~~Rights~~ As of ~~Claimants~~September 30, 2007, the Liquidation Trust maintained a contingency reserve of $4.0 million, the litigation appeals provision, to allow the Liquidation Trust to pursue or defend a future trial and appeals of the Committee Action. When the Liquidation Trustee determined that the Liquidation Trust would not pursue the Committee Action further, the litigation appeals provision was released.

Claims against the Debtors are classified in the priorities established under the Bankruptcy Code, and paid under the provisions of the Plan, which provides the framework under which the Liquidation Trust operatesb. ~~The Plan~~ Related ~~spells out the rights and priorities of each specific classification of Claim, formalized as various “Classes” of Claims against the Debtors as follows:~~ settlements

~~Summary~~During September 2005, the Liquidation Trust reached a settlement with certain of ~~Payment~~the remaining ~~Rights~~defendants in the Committee Action, as a result of ~~Allowed~~which, ~~Claimants~~in ~~Under~~addition to other consideration, those defendants paid the ~~Plan~~Liquidation Trust $7.0 million during October 2005.

		Claimant’s
		Relationship
		to
Claims Allowed with		Liquidation	Names of Claims Classes
Respect to:	Payment Rights	Trust	as Defined in the Plan
Liabilities incurred after the filing for bankruptcy.	Paid in full.	Creditor	Administrative and Fee Claims
Liabilities incurred before the filing for bankruptcy, to the extent they were secured or among the limited number of specific liabilities granted priority under the Bankruptcy Code.	Paid in full.	Creditor	Class 2 (DIP Bank Secured and Bank Letter of Credit) and Class 3 (Non-Bank Secured) Claims; and Priority Tax and Class 1 (Priority Non-Tax) Claims
Other liabilities incurred before the filing for bankruptcy, and totaling $2,500 or less.	Not paid in full. Paid at 7.5% of Allowed amount.	Creditor	Class 4C (Convenience) Claims
All other liabilities incurred before the filing for bankruptcy.	Not paid in full. Paid pro rata. See “Beneficiaries of the Liquidation Trust,” below.	Beneficiary (owner)	Class 4A (Senior Unsecured), Class 4B (General Unsecured), and Class 5 (Subordinated Debentures) Claims

During August 2006, the Liquidation Trust reached an agreement with both Fleet and GECC, previous defendants in the Bondholder Action and the Committee Action (the “Fleet Settlement”). Pursuant to an August 2002 stipulation between the Liquidation Trust and Fleet (the “Fleet Stipulation”), the Liquidation Trust established a Fleet Reserve totaling $11.0 million. The Fleet Stipulation contained provisions pursuant to which Fleet could seek reimbursement of certain legal fees and expenses in the event of certain outcomes in proceedings by the Liquidation Trust against Fleet, including the ultimate resolution of the Committee Action and/or the Bondholder Action in favor of Fleet. Under the terms of the Fleet Settlement, during October 2006, the Liquidation Trust paid Fleet $8.3 million of the $11.0 million Fleet Reserve, Fleet and GECC released any claim to the balance of the Fleet Reserve, and the Liquidation Trust, Fleet and GECC released each other from all further claims.

~~“Paid~~In accordance ~~pro~~with ~~rata”~~the ~~means~~procedures ~~that~~set ~~all~~forth ~~remaining~~in ~~net~~the ~~proceeds~~Plan, ifapproval ~~any,~~ of ~~the Liquidation Trust, after the~~each ~~expenses~~settlement ~~and~~was ~~all~~obtained ~~creditors~~from of the ~~Liquidation~~Committee ~~Trust~~that ~~(including~~represents ~~Claims Classes shown above as creditors) are paid and all contingencies are resolved, are divided among its beneficiaries in proportion to~~ the ~~amounts~~interests of ~~their respective Allowed Claims and pursuant to~~ the beneficiaries ~~terms~~ of the ~~Plan~~Liquidation Trust.

aC. ~~Creditors~~ Resolution of ~~the~~disputed ~~Liquidation Trust~~ claims

AsWhen ~~shown~~an ~~above~~entity files for bankruptcy, its ~~Allowed~~liabilities, ~~Claims~~such inas ~~certain~~accounts ~~Claims~~and ~~Classes~~notes ~~will~~payable, beany ~~paid~~lawsuits inagainst it, ~~full~~and ~~under~~any ~~the~~damages ~~Plan.~~it ~~Such~~causes ~~Claims~~by ~~are~~canceling ~~therefore~~contracts ~~referred~~all tobecome aspotential ~~“Unimpaired~~claims ~~Claims”~~against the debtor. The ~~These~~debtor ~~claimants~~acknowledges ~~include~~claims ~~(a) trade~~it ~~vendors,~~is ~~landlords,~~aware ~~utilities,~~of in ~~contractors,~~a ~~professionals,~~filing ~~certain~~with ~~employees~~the ~~and~~bankruptcy ~~numerous others~~court, toand ~~the extent~~any ~~they~~interested ~~did~~party ~~business~~may ~~with~~file ~~the~~a ~~Debtors~~claim against ~~after~~a ~~the~~debtor ~~bankruptcy~~in ~~filing,~~any ~~(b) lenders~~amount ~~with~~they aassert ~~security~~is ~~interest~~owed in(collectively, ~~property of~~the “Claims”).

6The Debtors, and the Liquidation Trust as successor-in-interest, are responsible for researching and resolving every Claim. Claims may be resolved, under Bankruptcy Court procedures, by being expunged from the record, waived by the claimant, allowed in a different amount and/or classification (discussed below under D., “Claims payments and distributions”), or allowed as filed.

~~the~~A ~~Debtors~~Claim may be “Allowed,” ~~such~~meaning asthat ~~mortgage~~either ~~holders,~~the ~~and~~Claim ~~(c) a~~has ~~limited~~been ~~group~~fixed ~~of individuals~~as to amount and classification ~~entities~~by ~~which~~order ~~are~~of ~~afforded~~the ~~payment~~Bankruptcy ~~priority~~Court, ~~under~~or the Liquidation Trust agrees ~~Bankruptcy~~with ~~Code.~~the ~~This~~claimant ~~latter~~as ~~category~~to ~~mainly~~the ~~includes~~amount ~~employees,~~and ~~for~~classification ~~certain~~of the Claim and is making ~~wages~~no upobjection to $4the Claim. Otherwise,~~300~~ an unresolved Claim is termed “Disputed,” ~~and~~meaning ~~taxing~~the ~~authorities.~~Liquidation ~~Any~~Trust ~~disagreement~~does asnot toagree ~~the~~and ~~Claims~~has filed, or may ~~Class~~still offile, ~~any~~an ~~given~~objection ~~Claim~~or isother ~~settled~~legal ~~between~~proceeding ~~the~~intended ~~claimant~~to ~~and~~dispute the ~~Liquidation~~Claim ~~Trust~~in whole or, in part. All the ~~last~~types ~~resort,~~of byClaims ~~the~~discussed ~~Bankruptcy~~below ~~Court.~~under “Rights of Claimants” may contain both Allowed Claims and Disputed Claims.

~~Each General Unsecured Claim (discussed below) which is Allowed in an amount of $2,500 or less is classified as a Convenience Claim under the Plan, and is paid a fixed 7.5% of the Allowed amount.~~ 3

~~Holders~~As of ~~Unimpaired~~September ~~and~~30, ~~Convenience~~2008, ~~Claims~~ten ~~are creditors of the~~Disputed ~~Liquidation~~Claims ~~Trust~~remained unresolved. Subsequent ~~Although the amounts ultimately Allowed are subject~~ to ~~reconciliation~~ ~~and~~September ~~negotiation based on the Debtors’ and creditors’ records~~30, ~~and~~ ~~to ultimate determination~~2008, ~~if necessary, in~~ the ~~Bankruptcy Court, the~~ Liquidation Trust’s ~~liability~~has Allowed ~~resulting~~one ~~from~~Disputed ~~such~~Claim ~~Claims~~and isexpunged ~~analogous,~~six inDisputed ~~substance, to accounts payable~~Claims. The ~~These~~Liquidation ~~claimants~~Trust ~~have~~expects nothat ~~ownership~~the ~~interest~~three inremaining ~~the~~Disputed ~~Liquidation~~Claims ~~Trust~~will be waived.

~~During~~D. Claims ~~the fiscal year ended September 30, 2004, the Liquidation Trust made~~ payments ~~in settlement of 204 Unimpaired~~ and ~~Convenience Class Claims.~~ distributions

b1. ~~Beneficiaries~~ Rights of ~~the Liquidation Trust~~ Claimants

AsClaims against ~~indicated~~the ~~above~~Debtors ~~and~~are classified in the ~~following~~priorities ~~chart,~~established ~~three~~under ~~types of claimants~~the ~~are~~Bankruptcy ~~the beneficiaries of the Liquidation Trust (i.e.~~Code, ~~its~~and ~~owners).~~paid ~~Under~~under the ~~Plan,~~ ~~none~~provisions of ~~these~~the ~~claimants~~Plan, iswhich ~~expected~~provides ~~to be paid in full for~~ the ~~amounts~~ ~~the~~framework ~~Debtors~~under ~~owed~~which ~~them as of~~ the ~~bankruptcy~~Liquidation ~~filing~~Trust operates. The ~~Claims~~Plan inspells out the ~~Plan’s~~rights ~~Class 4A~~and ~~(Senior~~priorities ~~Unsecured~~of ~~Claims),~~each ~~Class 4B~~specific ~~(General~~classification ~~Unsecured~~of ~~Claims)~~Claim, ~~and Class 5~~ ~~(Subordinated~~formalized ~~Debentures Claims) are referred to~~ as ~~“Impaired~~various ~~Claims~~“Classes” ~~because the rights~~ of ~~the~~Claims ~~claimants~~against ~~have been impaired in~~ the ~~bankruptcy~~Debtors ~~and their~~as ~~Claims are not likely to be paid in full.~~ follows:

Summary of Payment Rights of ~~Trust~~Allowed ~~Beneficiaries~~Claimants ~~(i.e., Holders of Impaired Claims)~~ Under the Plan

Claims Allowed with Respect to:	Payment Rights	Claimant’s Relationship to Liquidation Trust	Names of Claims Classes as Defined in the Plan
Senior Notes and Debentures (Class 4A)	Paid pro rata, based on the sum of the amount of the Senior Notes and Debentures and the amount of the Subordinated Debentures.
Liabilities incurred after the filing for bankruptcy.	Paid in full.	Creditor	Administrative and Fee Claims
All other liabilities incurred before the filing for bankruptcy (Class 4B)	Paid pro rata, based on the Allowed amount of each Claim.
Liabilities incurred before the filing for bankruptcy, to the extent they were secured or among the limited number of specific liabilities granted priority under the Bankruptcy Code.	Paid in full.	Creditor	Class 2 (DIP Bank Secured and Bank Letter of Credit) and Class 3 (Non-Bank Secured) Claims; and Priority Tax and Class 1 (Priority Non-Tax) Claims
Subordinated Debentures (Class 5)	No payment rights until Senior Notes and Debentures are paid in full.
Other liabilities incurred before the filing for bankruptcy, and totaling $2,500 or less.	Not paid in full. Paid at 7.5% of Allowed amount.	Creditor	Class 4C (Convenience) Claims
All other liabilities incurred before the filing for bankruptcy.	Not paid in full. Paid pro rata. See “Beneficiaries of the Liquidation Trust,” below.	Beneficiary (owner)	Class 4A (Senior Unsecured), Class 4B (General Unsecured), and Class 5 (Subordinated Debentures) Claims

~~“Paid pro rata” means that all remaining net proceeds, if any, of the Liquidation Trust,~~a. Creditors ~~after the expenses and all creditors~~ of the Liquidation Trust (including Claims Classes shown above as creditors) are paid and all contingencies are resolved, are divided among its beneficiaries in proportion to the amounts of their respective Allowed Claims and pursuant to the terms of the Plan.

~~The~~As ~~holders~~shown above, ofAllowed ~~these~~Claims in certain Claims Classes, atwill be paid in full under the Plan. ~~time~~Such Claims are therefore referred to as “Unimpaired Claims.” Any disagreement as to the ~~Debtors~~Claims ~~entered~~Class of any given Claim ~~Chapter 11~~is ~~bankruptcy~~settled onbetween ~~June 11,~~the ~~1999~~claimant (and the ~~“Petition~~Liquidation ~~Date”)~~Trust or, ~~were~~in ~~either:~~the last resort, by the Bankruptcy Court.

•		Holders of the public debt issued by Hechinger Company (one of the Debtors, and, together with its subsidiaries, “Hechinger”), either Senior Notes and Debentures (Class 4A) or Subordinated Debentures (Class 5), or
•		Other creditors of the Debtors whose Claims were not eligible for payment priority under the Bankruptcy Code (Class 4B).

Each General Unsecured Claim (discussed below) which is Allowed in an amount of $2,500 or less is classified as a Convenience Claim under the Plan, and is paid a fixed 7.5% of the Allowed amount.

7Holders of Unimpaired and Convenience Claims are creditors of the Liquidation Trust. Although the amounts ultimately Allowed are subject to reconciliation and negotiation based on the Debtors’ and creditors’ records, and to ultimate determination, if necessary, in the Bankruptcy Court, the Liquidation Trust’s liability resulting from such Claims is analogous, in substance, to accounts payable. These claimants have no ownership interest in the Liquidation Trust.

~~The~~During ~~Hechinger public debt, as of~~ the ~~Petition~~fiscal ~~Date,~~year ~~consisted~~ended ~~of $206.4~~September ~~million of Senior Notes and Debentures~~30, ~~including interest accrued thereon~~2008, ~~and $90.9 million~~the ofLiquidation ~~Subordinated~~Trust ~~Debentures,~~made ~~including~~no ~~interest~~payments ~~accrued~~in ~~thereon. The~~settlement ~~payment rights~~ of ~~holders~~Unimpaired ~~of the Subordinated Debentures were contractually~~and ~~subordinate~~Convenience toClass ~~the~~Claims, ~~payment~~because ~~rights~~substantially ofall ~~the holders~~ of the ~~Senior~~Unimpaired ~~Notes~~ and ~~Debentures.~~Convenience ~~Pursuant~~Claims tohad ~~the~~been ~~Bankruptcy~~settled ~~Code,~~and ~~this~~paid ~~contractual~~in ~~subordination~~previous isfiscal ~~preserved under the Plan~~years.

The other creditors of the Debtors as of the Petition Date whose Claims were not eligible for payment priority (the “General Unsecured Claims”) include trade vendors, landlords, general liability claimants, utilities, contractors, employees and numerous others. In each case, these Claims were for liabilities incurred before the filing for bankruptcy. 4

ib. ~~General~~ Beneficiaries of ~~beneficiary~~the ~~information~~ Liquidation Trust

~~Each~~As indicated ~~holder~~above ofand ~~an Allowed Claim~~ in the ~~Plan’s~~following ~~Class 4A (Senior Unsecured Claims)~~chart, ~~Class 4B~~three ~~(General~~types ~~Unsecured~~of ~~Claims),~~claimants ~~and~~are ~~Class 5 (Subordinated Debentures Claims) is deemed to hold a pro rata beneficial interest (~~the ~~“Beneficial~~beneficiaries ~~Interests”)~~of in the Liquidation Trust ~~based~~(i.e., ~~upon~~its owners). Under the Plan, ~~amount~~none of ~~their Allowed~~these ~~Impaired~~claimants ~~Claim~~is asexpected ~~compared~~ to ~~the~~be ~~total~~paid ~~amount~~in offull ~~all~~for ~~Impaired Claims ultimately allowed. When and to~~ the ~~extent~~amounts ~~that Disputed Impaired Claims~~the ~~become~~Debtors ~~Allowed~~owed ~~Impaired~~them ~~Claims,~~as ~~holders~~ of ~~such~~the bankruptcy filing. Claims ~~receive Beneficial Interests~~ in ~~accordance with~~ the Plan.’s Class 4A ~~Allowed~~(“Senior ~~Impaired~~Unsecured Claims”), toClass 4B ~~the~~(“General ~~extent~~Unsecured ~~they~~Claims”), ~~exceed~~and ~~the~~Class 5 ~~Liquidation~~(“Subordinated ~~Trust’s~~Debentures ~~estimate,~~Claims”) asare ofreferred ~~September 30,~~to ~~2004, that~~as ~~$724.8 million of~~ “Impaired Claims” ~~will~~because ~~ultimately~~the berights ~~allowed,~~of ~~dilute~~ the ~~interest~~ ofclaimants ~~each~~have ~~holder~~been ofimpaired ~~Beneficial~~in ~~Interests proportionately. The~~the ~~Liquidation~~bankruptcy ~~Trust~~and ~~estimates~~their ~~that~~Claims ~~there~~are ~~will~~not ~~ultimately~~likely to be aspaid ~~many~~in ~~as 2,100 beneficiaries of the Liquidation Trust~~full.

~~The Beneficial Interests do not entitle any beneficiary of the Liquidation~~Summary ~~Trust to any title in or to any~~ of ~~its~~Payment ~~assets,~~Rights ~~and do not represent an obligation~~ of ~~the Liquidation~~ Trust toBeneficiaries ~~pay a sum certain amount~~(i. ~~The Beneficial Interests represent only a right to receive a pro rata portion of the net proceeds of the Liquidation Trust assets pursuant to the terms of the Plan~~e. ~~Therefore~~, ~~the~~Holders ~~value, if any,~~ of ~~the~~Impaired ~~Beneficial Interests is speculative~~Claims) ~~and~~Under ~~subject to changes based on~~ the ~~net cash ultimately realized by the Liquidation Trust.~~ Plan

ii. Distributions to Class 4A, Class 4B and Class 5 holders of Beneficial Interests

Claims Allowed with Respect to:		Payment Rights

Senior Notes and Debentures (Class 4A)		Paid pro rata, based on the sum of the amount of the Senior Notes and Debentures and the amount of the Subordinated Debentures.

All other liabilities incurred before the filing for bankruptcy (Class 4B)		Paid pro rata, based on the Allowed amount of each Claim.

Subordinated Debentures (Class 5)		No payment rights until Senior Notes and Debentures are paid in full.

~~The~~“Paid ~~availability~~pro rata” ofmeans ~~cash~~that all remaining net proceeds, if any, ~~for~~of ~~distribution~~the toLiquidation ~~holders of~~Trust, ~~Beneficial~~after ~~Interests~~the isexpenses ~~determined~~and byall creditors of the Liquidation ~~Trustee~~Trust in(including ~~conjunction~~Claims ~~with~~Classes ~~periodic~~shown ~~application~~above toas ~~the~~creditors) ~~Bankruptcy~~are ~~Court~~paid ~~for~~and ~~determination~~all ofcontingencies ~~reserves for~~are ~~Disputed Claims. On August 9~~resolved, are ~~2002,~~divided ~~the~~among ~~Bankruptcy~~its ~~Court~~beneficiaries ~~approved~~in ~~an initial~~proportion ~~Distribution~~to ofthe ~~4.515%~~amounts of ~~the~~their respective Allowed ~~amount~~Claims ofand ~~Claims~~pursuant to the ~~holders~~ terms of ~~Allowed~~the ~~Impaired Claims~~Plan.

~~On June 6, 2003, the Liquidation Trust filed the Notice of the Liquidation~~The ~~Trust~~holders of ~~Second~~these ~~Interim~~Claims ~~Distribution to~~ Classes ~~4A and 4B~~, ~~pursuant~~at ~~to which~~ the ~~Liquidation~~time ~~Trust~~the ~~authorized~~Debtors anentered ~~additional~~Chapter ~~Distribution of 2.058% of the~~11 ~~Allowed~~bankruptcy ~~amount~~on toJune ~~the holders of Allowed Impaired Claims~~11, ~~which~~1999 ~~was paid during~~ (the ~~fiscal~~“Petition ~~year ended September 30~~Date”), ~~2003.~~ were either:

On· ~~September 20,~~Holders ~~2004,~~of the ~~Liquidation~~public ~~Trust~~debt ~~filed~~issued ~~the~~by ~~Notice~~Hechinger ofCompany ~~the Liquidation~~(one ~~Trust~~ of ~~Third~~the ~~Interim~~Debtors, ~~Distribution~~and, totogether ~~Classes~~with 4Aits ~~and~~subsidiaries, ~~4B (Exhibit 99.6 hereto~~“Hechinger”), ~~pursuant~~either toSenior ~~which~~Notes ~~the~~and ~~Liquidation~~Debentures ~~Trust~~(Class ~~authorized~~4A) anor ~~additional Distribution~~Subordinated ofDebentures ~~1.527%~~(Class ~~of the Allowed amount to the holders of Allowed Impaired Claims. This Distribution was paid prior to September 30~~5), ~~2004 to substantially all holders of Beneficial Interests.~~ or

~~Each~~· ~~Distribution~~Other ~~was~~creditors ~~subject~~of ~~to maintaining reserves for~~ the ~~estimated amount~~Debtors ofwhose ~~Disputed Impaired~~ Claims, ~~as approved by the Bankruptcy Court~~ for ~~the purpose~~liabilities ofincurred ~~establishing~~before ~~adequate reserves. The Liquidation Trust has therefore reserved a total of 8.1%,~~ the ~~cumulative~~filing ~~Distribution rate, of the estimated amount~~ for ~~each~~bankruptcy ~~remaining~~were ~~Disputed~~not ~~Impaired~~eligible ~~Claim. The reserve~~ for ~~Disputed Impaired~~payment ~~Claims,~~priority ~~totaling~~under ~~$3.2 million~~the asBankruptcy ~~of September 30~~Code, ~~2004, is periodically paid out to holders of previously Disputed Impaired Claims when, and to~~ the ~~extent~~General ~~that,~~Unsecured ~~such~~ Claims ~~become~~(Class ~~Allowed~~4B).

8The Hechinger public debt, as of the Petition Date, consisted of $206.4 million of Senior Notes and Debentures, including interest accrued thereon, and $90.9 million of Subordinated Debentures, including interest accrued thereon. The payment rights of holders of the Subordinated Debentures were contractually subordinate to the payment rights of the holders of the Senior Notes and Debentures. Pursuant to the Bankruptcy Code, this contractual subordination is preserved under the Plan.

~~These Distribution rates do not imply anything about future Distributions, if any~~i. ~~The timing and amount of any future Distributions are subject to the~~ General ~~Liquidation~~beneficiary Trust accumulating additional available cash, as the Liquidation Trust continues to resolve Claims filed against it and to collect amounts which may be due to it pursuant to various pending matters and litigation described herein. information

AsEach holder of ~~September~~an Allowed Claim in the Plan’s Class 304A (Senior Unsecured Claims), ~~2004~~Class 4B (General Unsecured Claims), and Class 5 (Subordinated Debentures Claims) is deemed to hold a pro rata beneficial interest (the “Beneficial Interests”) in the Liquidation Trust based upon the amount of their Allowed Impaired Claim as compared to the total ~~Distributions~~amount ~~authorized~~of all Impaired Claims ultimately allowed. When and to ~~date~~the ~~for~~extent that Disputed Impaired Claims become Allowed Impaired Claims, holders of ~~Allowed~~such Claims receive Beneficial Interests in accordance with the Plan. Allowed Impaired Claims, ~~totaled~~to the extent they exceed the Liquidation Trust’s estimate, as of September 30, 2008, that $57720.1 million of Impaired Claims will ultimately be allowed, asdilute ~~follows:~~the interest of each holder of Beneficial Interests proportionately. The Liquidation Trust believes that the 2,080 beneficiaries of the Liquidation Trust as of September 30, 2008, plus one beneficiary whose claim was Allowed subsequent to year-end, will constitute all of the beneficiaries of the Liquidation Trust.

~~($ in millions)~~ 5

Class 4A (Senior Unsecured Claims)	$	24.1
Class 4B (General Unsecured Claims)		33.0
Class 5 (Subordinated Debentures Claims)		—
Total	$	57.1

The Beneficial Interests do not entitle any beneficiary of the Liquidation Trust to any title in or to any of its assets, and do not represent an obligation of the Liquidation Trust to pay a sum certain amount. The Beneficial Interests represent only a right to receive a pro rata portion of the net proceeds of the Liquidation Trust assets pursuant to the terms of the Plan. Therefore, the value, if any, of the Beneficial Interests is speculative and subject to changes based on the net cash ultimately realized by the Liquidation Trust.

ii. Distributions ~~are made in accordance with the priority and subordination~~ ~~provisions~~to ~~set~~Class ~~forth in the Plan. These provisions enforce the terms of the indenture for issuance of the Subordinated Debentures~~4A, under which the payment rights of holders of the Subordinated Debentures were subordinated to the payment rights of holders of the Senior Notes and Debentures. Until such time as all holders of Allowed Claims in Class 4A ~~(Senior~~4B ~~Unsecured Claims – consisting of the holders of the Senior Notes~~ and ~~Debentures) have received the full amount of their Allowed Claims, any amounts which would otherwise be allocated for payment to holders of Claims in~~ Class 5 ~~(Subordinated Debentures Claims – consisting of the~~ holders of ~~the~~Beneficial ~~Subordinated Debentures) will be distributed to holders of Claims in Class 4A (Senior Unsecured Claims).~~ Interests

~~Therefore~~The availability of cash, ~~although~~if ~~the~~any, for distribution to holders of ~~Claims~~Beneficial Interests inis ~~Class 5~~determined ~~(Subordinated~~by the Liquidation Trustee subject to application to the ~~Debentures~~Bankruptcy Court for determination of reserves for Disputed Claims). Distributions ~~are~~to holders of ~~Beneficial~~Allowed ~~Interests,~~Impaired ~~they~~Claims have ~~no current~~been ~~economic~~authorized, ~~interest~~through September 30, 2008, in the ~~Liquidation~~cumulative ~~Trust~~amount ~~because~~of ~~they~~11.9411% ~~are~~of the ~~not~~Allowed ~~receiving~~amount of Impaired Claims, as follows: August 2002, 4.515%; June ~~Distributions~~2003, 2.058%; September 2004, 1.527%; April 2005, 1.0%; November 2005, 1.1911%; and August 2008, 1.65%.

~~The~~Each Distribution ~~payment~~was ~~priority~~subject ~~rights~~to ofmaintaining ~~the~~reserves ~~Claims~~for inthe ~~Class 4A~~estimated ~~(Senior~~amount ~~Unsecured~~of Disputed Impaired Claims), ~~have~~as noapproved ~~effect~~by onthe Bankruptcy Court for the ~~rights~~purpose of establishing adequate reserves. As of September 30, ~~and~~2008, ~~Distributions~~the Liquidation toTrust has therefore reserved a total of 11.9411%, the ~~holders~~cumulative Distribution rate, of the estimated amount for each remaining Disputed Impaired ~~Claims~~Claim. The inreserve ~~Class 4B~~for ~~(General~~Disputed ~~Unsecured~~Impaired Claims), totaling $1.0 million ~~Holders~~as of ~~Allowed~~September ~~Claims~~30, ~~in Class 4B~~2008, ~~(General~~is ~~Unsecured~~paid out to holders of previously Disputed Impaired Claims) ~~have~~when, ~~received~~and ~~their~~to ~~pro~~the ~~rata~~extent ~~Distributions as~~that, such ~~Distributions~~Claims ~~were made.~~become Allowed.

EThese Distribution rates do not imply anything about future Distributions. The ~~Other~~timing ~~information~~and amount of any future Distributions, including a final Distribution for which the Liquidation Trust expects to request authorization from the Bankruptcy Court in early calendar year 2009, is subject to the Liquidation Trust accumulating additional available cash, as the Liquidation Trust resolves the remaining Claims filed against it, collects amounts which may be due to it pursuant to various pending matters and litigation described herein, and obtains authorization from the Bankruptcy Court to reduce or eliminate the $3.0 million minimum reserve established under the Plan to assure adequate liquidity for the Liquidation Trust.

~~The~~As ~~Liquidation~~of September ~~Trust~~30, ~~does~~2008, ~~not~~total ~~maintain~~Distributions aauthorized ~~web~~to ~~site.~~date for holders of Allowed Impaired Claims totaled $83.3 million, as follows:

~~Item~~($ ~~2. Properties~~in millions)

The Liquidation Trust does not have any material physical properties.

Class 4A (Senior Unsecured Claims)	$	35.5
Class 4B (General Unsecured Claims)		47.8
Class 5 ( Subordinated Debentures Claims)		-
Total	$	83.3

~~Item~~Distributions are 3made in accordance with the priority and subordination provisions set forth in the Plan. These ~~Legal~~provisions ~~Proceedings~~enforce the terms of the indenture for issuance of the Subordinated Debentures, under which the payment rights of holders of the Subordinated Debentures were subordinated to the payment rights of holders of the Senior Notes and Debentures. Until such time as all holders of Allowed Claims in Class 4A (Senior Unsecured Claims – consisting of the holders of the Senior Notes and Debentures) have received the full $206.4 million amount of their Allowed Claims, any amounts which would otherwise be allocated for payment to holders of Claims in Class 5 (Subordinated Debentures Claims – consisting of the holders of the Subordinated Debentures) will be distributed to holders of Claims in Class 4A (Senior Unsecured Claims).

~~Litigation and Other Proceedings on behalf of the Liquidation Trust~~ 6

~~Federal~~Therefore, although ~~Court~~the ~~Cases~~holders of Claims in Class 5 (Subordinated Debentures Claims) are holders of Beneficial Interests, they have no current economic interest in the Liquidation Trust because they are not receiving Distributions.

The payment ~~Liquidation~~priority ~~Trust~~rights ~~is pursuing two major actions on behalf~~ of ~~its beneficiaries in~~ the ~~United~~Claims ~~States District Court, District of Delaware, and~~ in ~~the~~ ~~United~~Class ~~States~~4A ~~Court~~(Senior ofUnsecured ~~Appeal~~Claims) ~~for the Third Circuit. Both actions arise from the 1997 Transactions, and~~ have ~~been filed against certain parties that~~ ~~arranged,~~no ~~approved,~~effect oron ~~financed~~ the ~~1997~~rights ~~Transactions.~~of, ~~The 1997 Transactions were arranged~~ and~~/or~~ ~~approved~~Distributions ~~by Leonard Green & Partners~~to, ~~L.P. and related entities and~~ the ~~controlling~~holders ~~shareholders and directors~~ of ~~the~~Claims ~~Debtors~~in Class 4B (~~collectively,~~General ~~the~~Unsecured ~~“Insiders”~~Claims). Holders ~~The 1997 Transactions were financed by a series~~ of ~~secured~~Allowed ~~credit~~Claims ~~agreements,~~in ~~under~~Class ~~which the Chase Manhattan Bank and~~4B ~~Fleet~~ (~~Fleet~~General ~~Retail~~Unsecured ~~Finance~~Claims) ~~Inc.,~~have ~~formerly~~received ~~BankBoston~~their ~~Retail~~pro ~~Finance~~rata ~~Inc.) served~~Distributions as ~~agent~~such Distributions ~~for~~were ~~the pre-petition lender group (the “Pre-petition Lenders”)~~made.

9 E. Other information

The Liquidation ~~Bondholder~~Trust ~~Action~~does ~~and~~not ~~related~~maintain ~~appeal~~ a web site.

~~The complaint with respect to the first of these actions, filed in the~~Item ~~United States Bankruptcy Court for the District of Delaware on May 26, 2000, as Adversary Proceeding No~~1A. ~~00-644,~~ ~~was~~Risk styled “HSBC Bank, USA, not individually, but solely as Indenture Trustee, Plaintiff, v. BankBoston Retail Finance, Inc., individually and as agent for lenders under Credit Agreement dated as of September 26, 1991 [sic], Credit Agreement dated as of December 31, 1998, and Amended and Restated Credit Agreement dated March 18, 1999, Defendant.” Factors

~~The~~Because ~~Bondholder Action, initially filed on behalf of~~ the ~~holders of Hechinger Company’s senior debt instruments, and assigned to the~~ Liquidation Trust ~~pursuant~~is ~~to the Plan, against Fleet (individually and as agent) and~~not ~~General~~engaged ~~Electric~~in ~~Credit~~any ~~Corporation~~trade ~~(“GECC”),~~or ~~alleges that the 1997 Transactions effected a breach of the applicable indenture~~business, and ~~that~~generally ~~the plaintiff~~exists isfor ~~entitled to an equitable lien and equitable subordination of~~ the ~~Claims~~ oflimited ~~the Prepetition Lenders to the Claims of the holders of the Hechinger~~purpose ~~senior debt instruments. Pursuant to the terms~~ of ~~the~~liquidating ~~Plan, net proceeds from the Bondholder Action, if~~ any, ~~will~~and beall ~~allocated~~remaining ~~60%~~assets toof the ~~senior debt holders (i.e.~~Debtors, ~~Class 4A~~risks ~~– Senior Unsecured Claims), and 40% to holders~~ of ~~Beneficial Interests in~~ the Liquidation Trust (iare limited.~~e.,~~ Risks ~~Classes~~primarily ~~4A, 4B, and 5; respectively, Senior Unsecured, General Unsecured and Subordinated Debentures Claims).~~ include:

In· ~~March 2004,~~Unfavorable ~~following~~results ~~a non-jury trial held in October 2003, the United States District Court for the District~~ of ~~Delaware~~causes ~~issued an opinion and order (collectively, “the Decision”) in the Bondholder Action, directing the entry~~ of ~~judgment~~ inaction ~~favor~~assigned ofto ~~Fleet and GECC. In April 2004,~~ the Liquidation Trust filed an appeal from the Decision and related judgment in the United States Court of Appeals for the Third Circuit, as Case Number 04-2112. The Liquidation Trust, Fleet and GECC each filed appeal briefs during September 2004. The Third Circuit has not heard oral argument and no date for such argument has been set. The timing of a ruling is unknown. There can be no assurance of the outcome of the appeal. ;

~~The~~· ~~Committee~~Unfavorable ~~Action~~ resolutions of disputed claims asserted against the Debtors; and

An· ~~amended~~Disputes ~~complaint~~arising ~~with~~out ~~respect to the second~~ of ~~these~~Distributions ~~actions was filed in the United States Bankruptcy Court for the District of Delaware on April 3, 2001, as Civil Action No. 00-840-RRM~~ and ~~was~~payments ~~styled~~to ~~“The~~holders ~~Official Committee~~ of ~~Unsecured~~ ~~Creditors~~Claims ofallowed ~~Hechinger~~pursuant ~~Investment Company of Delaware, Inc., et al., Plaintiff, v. Fleet Retail Finance Group, The Chase Manhattan Bank, Back Bay Capital Funding, LLC, each individually and as agent for various parties~~ to ~~credit~~the ~~agreements described herein, Leonard Green & Partners, L~~Plan. P., Green Equity Investors II, L. P., John W. Hechinger, Jr., John W. Hechinger, S. Ross Hechinger, Ann D. Jordan, Robert S. Parker, Melvin A. Wilmore, Alan J. Zakon, Kenneth J. Cort, W. Clark McClelland, June R. Hechinger, Nancy Hechinger Lowe, Sally Hechinger Rudoy, Catherine S. England, Richard England, Jr., June L. P., and Jarsan Associates L. P., Defendants.”

~~The Committee Action, initially filed by the Official Committee of~~Item Unsecured Creditors appointed for the Debtors, and assigned to the Liquidation Trust pursuant to the Plan, alleges that the defendants carried out the 1997 Transactions despite their knowledge that Hechinger was insolvent at the time, and asserts fraudulent conveyance and/or breach of fiduciary duty claims against the Insiders, seeking recovery of at least $127 million in damages1B. ~~It also~~Unresolved ~~asserts~~Staff ~~fraudulent conveyance claims against the Pre-petition Lenders and challenges the repayment of the Pre-petition Lenders using the proceeds of a post-petition loan.~~ Comments

InNot ~~April 2004, the Committee Action was assigned to the judge who presided in the Bondholder Action, who has scheduled the Committee Action for trial in August 2005~~applicable. The court has begun hearing oral argument on motions for summary judgment filed by various defendants. Oral argument for the remaining such motions is scheduled for January 2005. The timing of a decision on defendants’ motions is unknown.

~~The various defendants are vigorously opposing these actions~~Item 2. ~~There is no assurance that the Liquidation Trust will prevail on the claims asserted in the Committee Action and in the appeal of the~~ Properties

10The Liquidation Trust does not have any material physical properties.

~~Bondholder Action~~Item 3. ~~While~~Legal the Liquidation Trust is pursuing this litigation with the intent to obtain a very substantial recovery, the Liquidation Trust cannot predict with any certainty the outcome of the litigation or the amount or range of potential recoveries. Proceedings

~~Cases~~Litigation and ~~before~~Other Proceedings on behalf of the ~~Bankruptcy~~Liquidation ~~Court~~ Trust

AsPursuant to ofthe ~~September 30~~Plan, ~~2004,~~the 10Liquidation ~~preference~~Trust ~~litigation~~was assigned certain actions, ~~all~~referred ~~filed~~to as ~~during~~the or“Bondholder ~~prior~~Action” toand ~~June 2001~~the ~~against~~“Committee ~~various~~Action”. Both ~~trade~~actions arose ~~creditors~~from a business combination among the Debtors during 1997 and the related financing (the “1997 Transactions”), and were ~~being actively~~filed ~~prosecuted.~~against ~~The~~certain ~~basis~~parties ~~for~~that arranged, ~~such~~approved, ~~actions~~or byfinanced the 1997 Transactions. The Liquidation Trust isceased its pursuit of the Bondholder Action following an ~~described~~adverse ~~herein~~decision ~~under~~on ~~Item 1.,~~the ~~Business.~~action ~~These~~by ~~actions~~the ~~are~~United inStates ~~various~~Court ~~stages~~ of ~~resolution,~~Appeals ~~ranging~~for ~~from~~the Third ~~reconciliation,~~Circuit ~~negotiation~~(the ~~and~~“Court of Appeals”) during August 2005. The ~~pre-trial~~Liquidation ~~hearing,~~Trust determined not to ~~awaiting~~further pursue the Committee Action following the May 2008 Court of Appeals affirmation of a lower court’s summary judgment decision ofdismissing the ~~trial~~remaining ~~judge.~~defendants in this Action.

InAs ~~addition~~of September 30, on2008, ~~December 3~~one significant preference litigation action continued – of approximately 1,800 ~~2003~~preference actions filed by the Debtors in 2001. During March 2006, the District Court upheld the Bankruptcy Court’s award to the Liquidation Trust ~~filed~~of a$1.0 ~~complaint~~ million in this case. The defendant further appealed the ~~United~~affirmation ~~States~~by ~~Bankruptcy~~the District Court ~~for~~to the ~~District~~Court of ~~Delaware~~Appeals. During ~~styled~~June 2007, the Court of Appeals ~~“Hechinger~~remanded ~~Liquidation~~the ~~Trust,~~case ~~Plaintiff,~~to ~~vs.~~the ~~Broadspire~~District ~~Services~~Court, ~~Inc~~with instructions to remand to the Bankruptcy Court for specific findings., Pursuant ~~Kemper~~to the Bankruptcy ~~Risk~~Court’s ~~Management~~scheduling ~~Group~~order, ~~American~~both ~~Motorists~~parties ~~Insurance~~filed ~~Company,~~briefings ~~Lumbermans~~by ~~Mutual~~February ~~Casualty~~2008. The ~~Company,~~Bankruptcy ~~American~~Court ~~Manufacturers~~may ~~Mutual~~decide ~~Insurance~~the ~~Company,~~case ~~American Protection~~or ~~Insurance~~schedule ~~Company~~further proceedings, ~~and~~up ~~National~~to ~~Loss~~and ~~Control~~including ~~Services~~a ~~Corporation~~trial, at its discretion. The ~~Defendants”~~Liquidation ~~(which~~Trust ~~defendants~~and ~~are~~its ~~referred~~counsel intend to ~~collectively~~vigorously aspursue ~~“Kemper”)~~collection (of the ~~“Kemper~~original ~~Complaint”)~~judgment. Prosecution of all other significant preference litigation has been completed. The basis for such actions by the Liquidation Trust is described herein under Part I, Item 1., “Business.”

In the Kemper Complaint, arising under various insurance policies that the Debtors purchased from Kemper, the Liquidation Trust seeks, among other things, an estimate under Section 502(c) of the Bankruptcy Code of the aggregate loss amounts owed by the Liquidation Trust for unliquidated workers’ compensation claims against the Debtors (the “Insurance Claims”), a reduction in the letter of credit securing the amount owed by the Liquidation Trust with respect to such Insurance Claims, and the return of excess collateral, deposits and other amounts held by Kemper to the Liquidation Trust. As of September 30, 2004, Kemper held an irrevocable cash-collateralized letter of credit with a balance of $8.6 million to secure payment of the Insurance Claims. 7

~~Subsequent to year-end, Kemper and the Liquidation Trust reached an~~Litigation ~~agreement to settle the Insurance Claims for $1.7 million, offset by a $0.1 million prepayment held by a third-party claims administrator, to reduce the letter of credit to $1.6 million,~~ and toOther ~~release~~Proceedings aAgainst ~~$12.0 million bond held as additional security for~~ the ~~Insurance Claims. The reduction of the letter of credit will result in releasing to the~~ Liquidation Trust $7.4 million of cash collateral presently securing the letter of credit. The Liquidation Trust’s claims against Kemper for the return of excess collateral, deposits and other amounts due to the Liquidation Trust remain unresolved. Any recovery will further reduce the settlement amount for the Insurance Claims. While the Liquidation Trust is pursuing this litigation with the intent to obtain a substantial recovery, the Liquidation Trust cannot predict with any certainty the outcome of the litigation or the amount or range of potential recoveries.

~~Litigation~~Settling Claims ~~and~~filed ~~Other~~with ~~Proceedings~~the ~~Against~~Bankruptcy Court is the ordinary course of business for the Liquidation Trust. As of September 30, 2008, a total of ten Disputed Claims remained unresolved. None of these Disputed Claims, if resolved in favor of the claimant, would have a material effect on the financial condition of the Liquidation Trust. Subsequent to September 30, 2008, the Liquidation Trust Allowed one Disputed Claim and expunged six Disputed Claims. The Liquidation Trust expects that the three remaining Disputed Claims will be waived.

~~Settling~~Other than ~~Claims~~as ~~filed~~described ~~with~~herein, the ~~Bankruptcy~~Liquidation ~~Court~~Trust is ~~the~~not ~~ordinary~~a ~~course~~defendant ~~of business~~in ~~for~~any ~~the~~action or ~~Liquidation~~proceeding ~~Trust. As of September 30~~which, ~~2004,~~if athe ~~total~~Liquidation ofTrust ~~58 Disputed~~were ~~Claims~~to ~~remained~~be ~~unresolved.~~found ~~None~~liable ofin ~~these Disputed Claims, if~~such ~~resolved~~action inor ~~favor of the claimant~~proceeding, would ~~have~~materially aadversely ~~material~~impact ~~effect~~the onLiquidation ~~the~~Trust’s financial condition ~~of the Liquidation Trust~~.

~~Other than as described herein, the Liquidation Trust is not a defendant~~Item in4. ~~any~~Submission ~~action~~of orMatters ~~proceeding which, if the Liquidation Trust were~~ to bea ~~found liable~~Vote inof ~~such~~Security ~~action or proceeding, would materially adversely impact the Liquidation Trust’s financial condition.~~ Holders

~~Item 4~~None. ~~Submission of Matters to a Vote of Security Holders~~

~~None.~~PART II

11Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities

~~PART~~The Liquidation IITrust’s Beneficial Interests were issued pursuant to the Plan and their issuance was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 1145 of the Bankruptcy Code.

~~Item~~The Beneficial 5Interests are not listed on any securities exchange or quoted on the OTC Bulletin Board. The ~~Market~~Liquidation ~~for~~Trust ~~Registrant’s~~is ~~Common~~not ~~Equity~~currently aware of the existence of an established public trading market for the Beneficial Interests and ~~Related~~the ~~Stockholder~~Liquidation ~~Matters~~Trust does not expect any public trading market to develop. At September 30, 2008, there were 2,080 holders of record of Beneficial Interests.

The Liquidation Trust’s ~~Beneficial~~does ~~Interests~~not ~~were issued pursuant to the~~pay ~~Plan and their issuance was exempt from the registration requirements of the Securities Act of 1933~~dividends, asnor ~~amended,~~can ~~pursuant~~it topurchase ~~Section 1145~~or ofredeem ~~the~~Beneficial ~~Bankruptcy Code~~Interests.

The availability ~~Beneficial~~of ~~Interests~~cash, ~~are~~if ~~not~~any, ~~listed~~for ondistribution ~~any~~to ~~securities~~holders ~~exchange~~of orBeneficial ~~quoted~~Interests onis ~~the~~determined ~~Nasdaq~~by ~~Stock~~the ~~Market~~Liquidation orTrustee ~~OTC~~subject ~~Bulletin~~to ~~Board.~~application ~~The~~to ~~Liquidation Trust~~the isBankruptcy ~~not~~Court ~~currently~~for ~~aware~~determination of ~~the~~reserves ~~existence~~for ofDisputed Claims. As andescribed ~~established~~more ~~public~~fully ~~trading~~under ~~market~~Part I, Item 1., “Business,” ~~for~~above, ~~the~~under ~~Beneficial~~subheading ~~Interests~~D., “Claims payments and ~~the~~distributions,” ~~Liquidation~~as ~~Trust~~of ~~does~~September 30, ~~not~~2008, ~~expect~~Distributions ~~any public~~have ~~trading~~been ~~market~~authorized toand ~~develop.~~paid Atat ~~September 30,~~the ~~2004,~~cumulative ~~there~~rate ~~were~~of ~~approximately~~11.9411% ~~2,060~~of ~~holders~~the amount of ~~record~~each ofImpaired ~~Beneficial~~Claim ~~Interests~~as Allowed.

~~The Liquidation Trust does not pay dividends~~Item 6. Selected Financial Data

The Selected ~~availability~~Financial Data disclosures of ~~cash,~~Item 301 ifof ~~any~~Regulation S-K, designed ~~for distribution~~ to ~~holders~~add ~~of Beneficial~~insight ~~Interests~~into istrends ~~determined by the Liquidation Trustee~~ in ~~conjunction with~~financial ~~periodic~~condition ~~application~~and toresults ~~the Bankruptcy Court for determination~~ of ~~reserves~~ ~~for Disputed Claims. As described more fully under Item 1.~~operations, ~~“Business”, herein,~~are ~~under~~not ~~subheading~~relevant ~~D.,~~in ~~“Claims~~a ~~payments~~liquidating environment and ~~distributions”,~~therefore ~~Distributions~~are ~~have been authorized at the cumulative rate of 8~~omitted.~~1% of the amount of each Impaired Claim as Allowed.~~

~~Item 6. Selected Financial Data~~8

~~The Selected Financial Data disclosures of~~ Item ~~301 of Regulation S-K,~~ ~~designed~~7. toManagement’s ~~add~~Discussion ~~insight into trends in financial condition~~ and ~~results~~Analysis of ~~operations,~~ ~~are~~Financial ~~not~~Condition ~~relevant in a liquidating environment~~ and ~~therefore~~Results ~~are~~of ~~omitted.~~ Operations

~~Item~~A 7.typical discussion ~~Management’s~~of ~~Discussion~~the ability to generate adequate cash flows for operations, potential capital resources and ~~Analysis~~trends concerning sales and inflation as required by Item 303 of ~~Financial~~Regulation S-K ~~Condition~~is not relevant to the Liquidation Trust, and ~~Results~~therefore ofis ~~Operations~~omitted.

AI. ~~typical~~Cautionary ~~discussion~~Statement ofRegarding ~~the~~Risks ~~ability to generate adequate cash flows for operations, potential capital resources~~ and ~~trends~~Uncertainties ~~concerning~~That ~~sales~~May ~~and inflation~~Affect asFuture ~~required by Item 303 of Regulation S-K is not relevant to the Liquidation Trust, and therefore is omitted.~~ Results

IThis Annual Report on Form 10-K contains forward-looking statements about the business, financial condition and prospects of the Liquidation Trust. The ~~Cautionary~~actual ~~Statement~~results ~~Regarding~~of ~~Risks~~the Liquidation Trust could differ materially from those indicated by the forward-looking statements because of various risks and ~~Uncertainties~~uncertainties, ~~That~~including, ~~May~~without ~~Affect~~limitation, ~~Future~~the ~~Results~~Liquidation Trust’s success in securing claims settlements on the terms currently contemplated in ongoing negotiations and in other estimates of settlement value, the effect of substantial delays in settling contingent assets and liabilities, resulting in a prolonged period of liquidation, economic conditions, changes in tax and other governmental rules and regulations applicable to the Liquidation Trust and other risks. These risks are beyond the ability of the Liquidation Trust to control, and in many cases, the Liquidation Trust cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by any forward-looking statements included in this Form 10-K. When used in this Annual Report on Form 10-K, the words “believes,” “estimates,” “plans,” “expects,” “anticipates” and other similar expressions as they relate to the Liquidation Trust or the Liquidation Trustee are intended to identify forward-looking statements.

~~This Annual Report on Form 10-K contains forward-looking statements about the business, financial condition and prospects of the Liquidation Trust~~II. ~~The~~ Critical ~~actual~~Accounting ~~results~~Policies ~~of the Liquidation Trust could differ materially from those indicated by the forward-looking statements because of various risks~~ and ~~uncertainties,~~ including, without limitation, the Liquidation Trust’s success in securing claims settlements on the terms currently contemplated in ongoing negotiations and in other estimates of settlement value, the effect of substantial delays in settling contingent assets and liabilities, resulting in a prolonged period of liquidation, economic conditions, changes in tax and other governmental rules and regulations applicable to the Liquidation Trust and other risks. These risks are beyond the ability of the Liquidation Trust to control, and in many cases, the Liquidation Trust cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by any forward-looking statements included in this Form 10-K. When used in this Annual Report on Form 10-K, the words “believes,” “estimates,” “plans,” “expects,” “anticipates” and other similar expressions as they relate to the Liquidation Trust or the Liquidation Trustee are intended to identify forward-looking statements. Estimates

IIThe following discussion and analysis of the Liquidation Trust’s changes in net assets in liquidation, cash receipts and disbursements and net assets in liquidation is based on the Liquidation Trust Financial Statements (as identified and defined under “Management’s Discussion and Analysis of Financial Information,” under the heading III., ~~Critical~~below), ~~Accounting~~which ~~Policies~~have been prepared in accordance with accounting principles generally accepted in the United States of America and ~~Estimates~~in accordance with the liquidation basis of accounting. During preparation of these Financial Statements, the Liquidation Trustee is required to make estimates and assumptions which affect the reported amounts of assets and liabilities in liquidation at estimated fair value, including estimates and assumptions concerning resolution of Disputed Claims, resolution of current and potential litigation, and the fair value, and related disclosure, of contingent assets and liabilities. On an ongoing basis, the Liquidation Trustee evaluates and updates these estimates and assumptions based on historical experience and on various other assumptions the Liquidation Trustee believes are reasonable under the circumstances. Actual results may differ from these estimates and different assumptions would lead to different estimates.

The ~~following discussion and analysis of the~~ Liquidation Trust’s ~~changes in~~believes ~~net~~that ~~assets~~the infollowing ~~liquidation,~~critical ~~cash~~accounting ~~receipts and disbursements and net assets in~~policies ~~liquidation~~affect ~~is based on~~ the ~~Liquidation~~more ~~Trust~~significant ~~Financial~~estimates ~~Statements (as identified~~ and ~~defined~~assumptions ~~under~~used ~~“Management’s~~in ~~Discussion~~the ~~and~~preparation ~~Analysis~~ of ~~Financial~~ ~~Information”, under~~ the ~~heading~~Financial ~~III.,~~Statements ~~below),~~in ~~which~~accordance ~~have~~with ~~been~~the ~~prepared~~liquidation ~~in accordance~~basis ~~with accounting~~of accounting:

12 A. Assets

~~principles~~Total ~~generally~~assets ~~accepted~~as ~~in the United States~~ of ~~America~~September ~~and~~30, in2008 ~~accordance~~were ~~with the liquidation basis of accounting~~$8.3 ~~During preparation of these Financial Statements~~million, ~~the~~mainly ~~Liquidation~~consisting ~~Trustee is required to make estimates and assumptions which affect the reported amounts~~ of ~~assets~~cash and ~~liabilities~~ incash ~~liquidation~~equivalents ~~at estimated fair value, including estimates~~ and ~~assumptions concerning~~preference ~~resolution~~receivables. Of ofthis ~~Disputed Claims~~amount, ~~resolution~~$0.2 ofmillion ~~current and potential litigation, and the fair value, and related disclosure,~~ of ~~contingent~~net ~~assets and liabilities. On an ongoing basis,~~preference ~~the~~receivables ~~Liquidation~~were ~~Trustee~~subject evaluates and updates these estimates and assumptions based on historical experience and on various other assumptions the Liquidation Trustee believes are reasonable under the circumstances. Actual results may differ from these estimates and different assumptions would lead to ~~different estimates~~estimation.

~~The Liquidation Trust believes that the following critical accounting~~1. Preference ~~policies affect the more significant estimates and assumptions used in the preparation of the Financial Statements in accordance with the liquidation basis of accounting:~~ receivables

A.Preference receivables ~~Assets~~are recorded at fair value, which requires that the Liquidation Trust make assumptions about the likely ultimate outcome of any remaining preference cases. As of the periods presented in the Financial Statements, the Liquidation Trust estimated the fair value of preference receivables primarily based on the fair value, net of costs of recovery, of one remaining significant action.

~~Total assets as of September 30, 2004 were $37.7 million, primarily consisting of cash and cash equivalents. Of this amount, $3.1 million of net preference receivables were subject to estimation.~~ 9

The Liquidation Trust estimated the fair value of preference receivables as of September 30, 2006 primarily based on the Bankruptcy Court’s award to the Liquidation Trust of $1.0 ~~Preference~~million ~~receivables~~in this case. During June 2007, the Court of Appeals remanded the case to the District Court, with instructions to remand to the Bankruptcy Court for specific findings (see Part I, Item 3., “Legal Proceedings”, above). Pursuant to the Bankruptcy Court’s scheduling order, both parties filed briefings by February 2008. The Bankruptcy Court may decide the case or schedule further proceedings, up to and including a trial, at its discretion.

~~Preference~~The Liquidation ~~receivables~~Trust ~~are~~and ~~recorded~~its atcounsel ~~fair~~intend ~~value,~~to ~~which~~vigorously ~~requires~~pursue ~~that~~collection of the ~~Liquidation~~original ~~Trust~~judgment. However, ~~make~~during ~~assumptions about~~ the ~~likely~~fiscal ~~ultimate~~year ~~outcome~~ended ~~of various~~September ~~preference~~30, ~~cases~~2007, ~~being~~primarily ~~litigated.~~based Ason ofthe ~~September 30,~~content ~~2004,~~of the ~~Liquidation Trust~~ruling ~~estimated~~and on the ~~fair~~status ~~value~~ of negotiations ~~preference~~with ~~receivables~~the defendant, ~~including~~the ~~10 remaining~~Liquidation ~~preference~~Trust ~~litigation~~reduced ~~actions~~its ~~being~~estimate ~~actively~~of the ~~prosecuted,~~fair tovalue beof ~~$3.1 million~~preference receivables, net of ~~$1.0 million of~~ costs of recovery., Offrom ~~this~~ $30.1 9 million ~~net balance,~~to $0.8 2 million, ~~related~~consistent towith ~~amounts~~generally ~~receivable~~accepted ~~on settled cases, while~~accounting $2principles.~~3 million~~ As ~~related to the remaining 10 actions being actively prosecuted. The Liquidation Trust has specifically reviewed each~~ of ~~these~~September 1030, ~~cases~~2008, ~~based on~~ the Liquidation Trust’s estimate ~~preference collection experience and that~~ of ~~its preference~~the ~~collections counsel, and estimated their~~ fair value ~~based~~of ~~primarily on~~preference ~~significant~~receivables ~~settlements achieved subsequent to year-end, and on the most~~remained substantially ~~recent~~unchanged ~~available~~pending ~~information~~action inby ~~cases not yet at~~ the ~~settlement~~Bankruptcy ~~stage~~Court.

As of September 30, 2004, because the remaining number of cases was small and the fact-finding and negotiation process close to completion in most instances, the Liquidation Trust based its estimate on a review of each remaining caseB. In prior years, the Trust estimated the fair value of its numerous preference actions, collectively, either on an aggregate basis or on a case-by-case analysis. Based on the Liquidation Trust’s experience and that of its preference collections counsel, the Liquidation Trust established an estimated aggregate collections factor, which was applied to the majority of the preference cases to estimate their ultimate aggregate value. This estimated aggregate collections factor was periodically updated as more information became available through the fact-finding and negotiation process. In addition, the Liquidation Trust originally assigned no value to eight of the largest potential preference cases (from among the 1,800 total cases filed) until fact-finding and initial negotiation indicated that some collection was likely. These estimates were then updated as more information became available. Each of these cases has been settled. Liabilities

BTotal liabilities as of September 30, 2008 were $3.5 ~~Liabilities~~million, consisting of: $1.3 million of estimated Unimpaired Claims payable; $1.3 million of uncashed claims checks and Distributions payable (which are not subject to estimation, as these amounts are specifically determined for each applicable Allowed Impaired Claim); and $0.9 million of estimated costs of liquidation, mainly the Wind-down Reserve.

~~Total liabilities as of September 30, 2004 were $9~~1.~~2 million, mainly consisting of $3.0 million of estimated~~ Unimpaired ~~Claims payable and $5.9~~ ~~million~~claims ~~of estimated costs of liquidation.~~ payable

1.Claims liabilities ~~Unimpaired~~are recorded at estimated aggregate settlement amounts, which requires estimates of claims ~~payable~~resolution results. Claims are evaluated by reviewing the facts available to the Liquidation Trust, including the Debtors’ records and information submitted by the claimants, and estimating the ultimate settlement amount of each Claim based on currently available information.

~~Claims~~As ~~liabilities are recorded at estimated aggregate settlement amounts, which requires estimates~~ of ~~claims resolution results. Claims are evaluated by~~the ~~reviewing~~periods ~~the~~presented ~~facts~~in ~~available to~~ the ~~Liquidation~~Financial ~~Trust~~Statements, ~~including~~Unimpaired ~~the~~Claims ~~Debtors’~~payable ~~records~~included ~~and~~(i) ~~information~~three ~~submitted~~Disputed byUnimpaired ~~the~~Claims ~~claimants,~~with ~~and~~an ~~estimating~~estimated ~~the~~fair ~~ultimate settlement~~value ~~amount~~ of ~~each Claim based on currently available information. As~~ ~~of September 30~~zero, ~~2004,~~because ~~Unimpaired~~the ~~Claims~~Liquidation ~~payable~~Trust ~~was~~expects ~~$3.0 million~~these ~~and~~claims ~~consisted of~~will ~~Disputed~~not ~~Unimpaired~~be ~~Claims~~paid, ~~with an estimated fair value of $1.6 million~~ and (ii) Allowed but unpaid Unimpaired Claims totaling $1.3 million.

13Pursuant to the Plan, certain fees and expenses which Kmart incurred in connection with the Debtors’ bankruptcy filing were allowed as an Unimpaired Claim. Allowed Unimpaired Claims as of the periods presented in the Financial Statements include this Claim, which has not yet been substantiated by Kmart as required by the Plan, at its estimated amount per the Plan of $1.3 million. The Liquidation Trust has requested substantiation of this Claim, and is currently working with Kmart in an effort to resolve the matter.

~~Substantially~~If ~~all of~~ the three ~~$1.6 million~~remaining ~~estimated fair value of~~ Disputed Unimpaired Claims ~~related~~were to abe ~~Claim~~allowed ~~filed~~at bythe ~~Kemper with respect to certain~~amounts ~~insurance~~estimated ~~claims~~by (the ~~“Kemper~~Liquidation ~~Claim”).~~Trust ~~The~~and ~~estimated~~approved ~~fair~~by ~~value~~the ofBankruptcy ~~the~~Court ~~Kemper~~for ~~Claim~~reserve ~~was~~purposes, ~~based~~net onassets anin ~~agreement~~liquidation ~~reached~~would ~~between~~not ~~Kemper~~be ~~and~~materially reduced. However, the Liquidation Trust ~~subsequent~~expects tothat ~~year-end~~these tothree ~~settle~~Claims ~~the~~will ~~Kemper~~be ~~Claim for $1~~waived.~~7 million, offset by a $0.1 million prepayment held by a third-party claims administrator.~~

~~If all remaining Disputed Unimpaired Claims were to be allowed at the~~2. Estimated ~~amounts~~costs ~~asserted~~of ~~by the claimants, or estimated by the Liquidation Trust and approved by the Bankruptcy Court for reserve purposes, net assets in~~ liquidation ~~would not be materially reduced.~~

2.The estimated ~~Estimated~~ costs of liquidation, representing the projected costs of operating the Liquidation Trust through its expected termination, consist of the Wind-down Reserve and the Litigation Reserve. These costs, which include professional fees, insurance and personnel, among other things, are based on various assumptions regarding the number of employees, the use of professionals (particularly in connection with continuing Claims resolution and litigation), the anticipated termination date of the Liquidation Trust, and other matters. The most significant assumptions related to estimated costs of liquidation have been the length of time and the intensity of litigation required in order to settle the affairs of the Liquidation Trust while maximizing its value to the holders of Beneficial Interests.

The estimated costs of liquidation, representing the projected costs of operating the Liquidation Trust through its expected termination, consist of the Wind-down Reserve and the Litigation Reserve. These costs, which include personnel, facilities and professional fees, among other things, are based on various assumptions regarding the number of employees, the use of professionals (particularly in connection with continuing Claims resolution and litigation), the anticipated termination date of the Liquidation Trust, and other matters. The most significant assumptions related to estimated costs of liquidation are the length of time and the intensity of litigation required in order to settle the affairs of the Liquidation Trust while maximizing its value to the holders of Beneficial Interests. 10

Substantially all of the day-to-day operations of the Liquidation Trust were terminated as of June 2005; however, provision has been made for necessary management oversight and administrative, legal and accounting processes to continue through its expected termination in early calendar year 2009. These final items include resolution of the remaining Disputed Claims and all litigation, a final Distribution, if applicable, and any necessary filings with regulatory authorities and with the Bankruptcy Court. The Liquidation Trust believes the remaining Wind-down ~~reserve~~Reserve balance of $0.8 million is sufficient for its limited remaining operations and final termination obligations.

~~As of October 26, 2001 (Effective Date), the Liquidation Trust established~~The ~~its~~actual ~~Wind-down~~duration ~~Reserve in the amount~~ of ~~$9.6 million, based on estimates that~~ the Liquidation Trust ~~would~~and ~~substantially complete all of its operations by early 2003. Subsequently, however, based on~~ the ~~pace~~associated ~~and~~Wind-down ~~status~~costs ~~of Claims~~have ~~resolution,~~proved ~~asset~~difficult ~~liquidations,~~to ~~litigation, and Distributions, the estimated termination of the Liquidation Trust’s operations has been extended through 2005~~estimate. The ~~Among other reasons for the change, the initial~~ Wind-down Reserve was ~~based~~ onincreased ~~an estimate of effort required to resolve Disputed Claims against the~~by ~~Debtors and to collect amounts believed to be owed to the Debtors~~$1.0 ~~Given~~million, ~~their number (i~~$0.~~e.,~~1 3million,~~600~~ ~~Disputed Claims,~~ and $0.1~~,800~~ ~~preference~~million ~~actions~~during asthe offiscal ~~October~~years ended 26September 30, ~~2001 (Effective Date))~~2006, ~~and~~September ~~nature (e.g.~~30, ~~the~~2007 ~~parties dispute their legitimacy~~ and~~/or~~ ~~true~~September ~~value~~30, ~~and many claims are in the form of lawsuits)~~2008, ~~the~~respectively, ~~process~~based ofon ~~resolving~~revised ~~these~~forecasts ~~claims~~of ~~can~~operational berequirements ~~prolonged~~prior ~~and difficult~~ to ~~predict~~and associated with ~~any certainty, and many times beyond~~ the ~~ability~~expected termination of the Liquidation Trust to, ~~directly~~as ~~control.~~extended from time to time.

AsThe pace of ~~September 30~~litigation, ~~2004,~~which is not under the Liquidation Trust’s ~~remaining operations included the pursuit of the Bondholder Action~~control, ~~the~~has ~~Committee~~been ~~Action,~~ the ~~Kemper~~ ~~Complaint~~greatest ~~and~~uncertainty ~~various~~in ~~preference~~estimating ~~actions;~~ the ~~resolution of 58 remaining Disputed Claims; and~~ final ~~Claims~~termination ~~payments~~date ~~and~~of athe ~~final Distribution, if any.~~Liquidation ~~Substantially~~Trust. Should ~~all of~~ the ~~day-to-day~~termination ~~operations~~date of the Liquidation Trust ~~are~~extend ~~planned~~beyond ~~to cease in~~ early ~~2005;~~calendar ~~however~~year 2009, ~~provision~~the ~~has~~Liquidation ~~been~~Trust’s ~~made~~costs ~~for~~of ~~certain~~liquidation ~~necessary~~may ~~administrative~~increase, ~~legal~~ and ~~accounting~~any ~~processes~~increase tomay beutilize ~~completed thereafter~~funds ~~through~~which ~~the~~might ~~end~~otherwise ~~of 2005. These final items include resolution of~~be ~~all~~available ~~litigation (excluding the costs provided~~ for indistribution ~~the~~to ~~Litigation~~holders ~~Reserve, discussed~~of ~~below),~~Beneficial ~~a final Distribution, if applicable, and filings with regulatory authorities and with the Bankruptcy Court~~Interests.

~~Accordingly, the Wind-down Reserve was increased by $1~~C.7 million, $0.9 million, and $3.7 million during the fiscal years ended September 30, 2004 and September 30, 2003 and during the period from October 26, 2001 (Effective Date) through September 30, 2002, respectively, based on revised forecasts of operational requirements prior to the expected termination of the Liquidation Trust, as extended. The Liquidation Trust still expects to terminate substantially all of its day-to-day operations in early 2005, and believes the remaining Wind-down Reserve balance of $3.5 million is sufficient for its remaining operations and final termination obligations. Contingencies

~~While the pace and expected duration of Claims resolutions, preference~~Contingent ~~recoveries,~~assets and ~~Claims~~liabilities ~~payments~~are ~~and~~valued ~~Distributions~~at ~~could have been considered relatively uncertain as of October 26, 2001 (Effective Date),~~ the ~~expected duration of material operating activities of the~~ Liquidation Trust’s asestimated offuture ~~September 30~~cash flows, ~~2004~~which isrequire ~~based~~a onsignificant ~~more~~number ~~information~~of estimates and ~~experience with the~~assumptions ~~operations~~regarding ofcollectability, ~~the~~probable ~~Liquidation Trust~~outcomes, ~~and~~courses onof ~~fewer~~action, ~~although~~and ~~still complex,~~various ~~outstanding~~other ~~issues~~factors. ~~Should the termination date of the~~

14 D. Taxes

The Liquidation Trust ~~extend~~is ~~beyond~~intended ~~2005,~~to ~~the~~qualify ~~Liquidation~~as ~~Trust’s~~a ~~costs~~liquidating oftrust for federal ~~liquidation~~income ~~may~~tax ~~increase~~purposes, and ~~any~~therefore ~~increase~~should ~~may~~be ~~utilize~~taxable ~~funds~~as ~~which~~a ~~might~~grantor ~~otherwise~~trust. The holders of Beneficial Interests will be ~~available~~treated ~~for~~as grantors; ~~distribution~~accordingly, totheir ~~holders~~pro rata share of all items of income, gain, loss, deduction and credit will be included in the income tax returns of the holders of Beneficial Interests.

bIII. ~~Litigation reserve~~ Management’s Discussion and Analysis of Financial Information

~~Among~~Reference is ~~the~~made ~~property transferred~~ to the Liquidation Trust ~~pursuant~~Financial toStatements, consisting of the audited ~~Plan~~financial asstatements of the ~~Effective~~Liquidation ~~Date~~Trust as of September 30, 2008 and September as30, ~~defined~~2007 and ~~more~~for ~~fully~~the ~~described~~fiscal inyears ~~Item 3.,~~ended ~~“Legal~~September ~~Proceedings”~~30, ~~above~~2008, ~~were~~September 30, ~~two~~2007 ~~separate~~and ~~legal~~September ~~actions~~30, ~~commenced against~~2006, ~~third~~and ~~parties~~the bynotes ~~the~~thereto, ~~Official~~which ~~Committee~~are ofincluded ~~Unsecured~~with this ~~Creditors~~report ~~and~~on ~~by the~~Form ~~trustee~~10-K under anPart ~~indenture~~IV, ~~governing~~Item ~~certain~~15., ~~debt~~below. The following ~~instruments~~information ~~issued~~concerning bythe ~~one~~Liquidation Trust’s financial performance ofand ~~the~~condition ~~Debtors,~~should ~~respectively~~be ~~referred~~read toin ~~herein~~conjunction aswith the ~~Committee~~Liquidation ~~Action~~Trust ~~and the~~Financial ~~Bondholder Action~~Statements.

The Liquidation Trust ~~established~~Financial ~~the~~Statements ~~Litigation~~have ~~Reserve,~~been ~~with~~prepared anusing ~~initial~~the liquidation ~~balance~~basis of $3accounting.~~0 million~~ Under asthis method of ~~October 26~~accounting, ~~2001 (Effective Date), for~~ the ~~estimated~~ ~~costs~~ Statements of ~~pursuing~~Net ~~this~~Assets ~~litigation.~~in ~~The~~Liquidation ~~prosecution~~reflect ofall ~~these~~assets ~~actions is complex in nature~~ and ~~scale and forecasting its total cost is very difficult~~liabilities, ~~especially~~including ~~during~~ the ~~early stages of the litigation and the~~ ~~discovery~~projected ~~process. The Litigation Reserve has been increased from this initial balance by a~~ total ofcost ~~$9.1 million, with increases~~ of ~~$2.6 million,~~liquidating ~~$3.0 million,~~the assets and ~~$3.5 million~~winding ~~during~~down the ~~fiscal~~affairs ~~years ended September 30, 2004 and~~of ~~September 30, 2003 and during~~ the ~~period~~Liquidation ~~from October 26~~Trust, ~~2001~~at ~~(Effective~~estimated ~~Date) through~~fair ~~September 30, 2002, respectively~~value. The ~~These~~Statements ~~increases arose primarily as a~~of ~~result~~Changes ofin ~~the~~Net ~~Decision~~Assets in, ~~and~~Liquidation ~~appeal~~primarily ~~of,~~reflect ~~the~~any ~~Bondholder Action, and as a~~Distributions ~~result~~authorized offor aholders ~~higher than planned level~~ of ~~activity~~Beneficial Interests and ~~duration,~~changes ~~primarily~~ in ~~connection~~ ~~with~~ the ~~Committee~~estimated ~~Action. The initial plan for these actions did~~fair ~~not~~value ~~anticipate the number and scope~~ of ~~discovery requests, depositions, and motions, and~~ the ~~various~~Liquidation ~~delays~~Trust’s inassets ~~scheduling~~ and ~~proceeding with the cases~~liabilities. ~~Additionally, the defenses raised by the defendants required expenditures, at levels not originally anticipated, for experts in insolvency and valuation.~~

~~Each~~Significant financial activities of the ~~increases~~Liquidation inTrust during the ~~Litigation~~periods ~~Reserve~~reflected ~~has been based on the~~below ~~Liquidation~~include ~~Trust’s~~Distribution ~~ongoing~~payments, ~~evaluation~~resolution of ~~the~~Claims ~~costs~~asserted, ~~and~~pursuit ~~potential benefits~~ of ~~continuing~~preference ~~the~~recovery actions. ~~The costs associated with these increases are considered both probable~~ and ~~estimable~~other ~~based on the then existing plans for pursuing the~~ litigation~~. In accordance with the procedures set forth in the Plan~~, ~~increases~~and incarrying ~~the~~out ~~Litigation Reserve require approval. The Liquidation Trust is in~~ the ~~process of obtaining such approval with respect to an increase~~ ofliquidation ~~$0.6 million,~~activities ~~included in the increase~~ of ~~$2.6 million recorded for~~ the ~~fiscal~~ ~~year ended September 30, 2004. The~~ Liquidation Trust ~~believes that the $2~~.4 million remaining balance in the Litigation Reserve as of September 30, 2004 is sufficient to cover the costs of pursuing both actions through the trial of the Committee Action and a decision in the appeal of the Bondholder Action.

C.Net assets ~~Contingencies~~in liquidation are subject to material change when either (1) Distributions to holders of Allowed Impaired Claims are authorized, or (2) estimates of the fair value of the Liquidation Trust’s assets and/or liabilities change, including as a result of significant events in, or the resolution of, litigation pursued by the Liquidation Trust. Both the authorization of Distributions and changes in estimates are non-cash changes. These changes are shown in the Liquidation Trust’s Statements of Changes in Net Assets in Liquidation and are discussed below.

Contingent assets and liabilities are valued at the Liquidation Trust’s estimated future cash flows, which require a significant number of estimates and assumptions regarding collectibility, probable outcomes, courses of action, and various other factors. 11

InMost ~~particular~~cash transactions, ~~although~~on the ~~Liquidation~~other ~~Trustee~~hand, ~~the~~such ~~Committee,~~as collection of receivables and ~~their~~payments ~~respective~~of ~~counsel~~liabilities ~~believe~~and ~~that~~Distributions, ~~continued~~cause ~~pursuit~~offsetting ofchanges in the ~~Bondholder Action and~~associated ~~the~~components ~~Committee~~of ~~Action~~assets ~~may~~and ~~result~~liabilities, inbut ~~significant~~do ~~returns~~not tochange ~~the~~net ~~beneficiaries~~assets ofin ~~the~~liquidation. The Liquidation Trust,’s Statements of Cash Receipts and Disbursements show the ~~amount~~results of ~~any~~these ~~such~~transactions, ~~return~~which isare ~~not~~also ~~reasonably~~discussed ~~quantifiable,~~later ~~and~~under ~~therefore,~~the noheading ~~asset~~“Cash ~~has~~Receipts ~~been~~and ~~recorded~~Disbursements. ”

~~Further, the Liquidation Trust’s claims against Kemper for the return of excess collateral, deposits and other amounts due to the Liquidation Trust remain unresolved~~A. Changes ~~While~~in ~~the~~net ~~Liquidation~~assets ~~Trust is pursuing this litigation~~in with the intent to obtain a substantial recovery, the amount of any such return is not reasonably quantifiable based on the information currently available to the Liquidation Trust, and therefore, no asset has been recorded. liquidation

~~Future increases in the Litigation Reserve are anticipated if and when the~~The ~~Liquidation~~following ~~Trust~~table ~~commits~~summarizes ~~to pursue~~ the ~~Committee~~significant ~~Action~~changes ~~and~~in ~~the~~net ~~Bondholder Action,~~assets ~~subsequent to the trial of the Committee Action and a ruling on the appeal of the Decision~~ in ~~the Bondholder Action. Any increase may utilize~~liquidation ~~funds which might otherwise be available~~ for ~~distribution~~the toperiods ~~holders~~as ~~of Beneficial Interests.~~ indicated:

15($ in thousands)

D. Taxes

	For the fiscal year ended September 30, 2008			For the fiscal year ended September 30, 2007			For the fiscal year ended September 30, 2006
Increase/(decrease) in net assets in liquidation

Distributions authorized	$	(11,707	)	$	(187	)	$	(6,977	)
(Decrease)/increase in estimated fair value of preference recoveries, net		(146	)		(666	)		119
Increase in estimated costs of liquidation		(123	)		(103	)		(973	)
Fleet settlement accrual		-			-			(4,750	)
Interest income		515			911			1,083
Other increases		317			20			638
Net decrease in net assets in liquidation after distributions authorized	$	(11,144	)	$	(25	)	$	(10,860	)

~~The Liquidation Trust is intended to qualify as a liquidating trust for federal income tax purposes, and therefore should be taxable as a grantor trust~~1. ~~The holders of Beneficial Interests will be treated as grantors;~~ Distributions ~~accordingly, their pro rata share of all items of income, gain, loss, deduction and credit will be included in the income tax returns of the holders of Beneficial Interests.~~ authorized

~~III~~During November 2005, the Liquidation Trust authorized a fifth interim Distribution, of 1.1911% ~~Management~~of the Allowed amount of Impaired Claims, to holders of Beneficial Interests. Because this Distribution resulted from the $7.0 million proceeds of the Committee Action settlement, pursuant to the Plan, Kmart’s ~~Discussion~~Class ~~and~~4B ~~Analysis~~Claim, allowed in the amount of ~~Financial~~$150.0 ~~Information~~million, was excluded from this Distribution. Distributions authorized during the fiscal year ended September 30, 2006 totaled $7.0 million, primarily representing the fifth interim Distribution for holders of $559.8 million of Allowed Impaired Claims, as well as Distributions payable at the previous cumulative rate of 9.1% to holders of $3.7 million of Impaired Claims newly allowed during the fiscal year ended September 30, 2006.

~~Reference~~No ~~is made to the Liquidation Trust Financial Statements,~~new ~~consisting~~interim ofDistribution ~~the~~was ~~audited~~authorized ~~financial~~during ~~statements of~~ the ~~Liquidation Trust as of September 30, 2004 and September 30, 2003, for the~~ fiscal ~~years~~year ended September ~~30,~~ ~~2004 and September~~ 30, ~~2003, and for the period from October 26, 2001~~ ~~(Effective~~2007. Distributions ~~Date)~~payable ~~through~~at ~~September 30, 2002, and~~ the ~~notes~~previously ~~thereto,~~authorized ~~which~~rate ~~are~~of ~~included~~10.2911% ~~with~~were ~~this~~made ~~report~~to onholders ~~Form~~of ~~10-K under Item 15~~$2.0 ~~The~~million ~~following information~~of ~~concerning~~Impaired ~~the~~Claims ~~Liquidation~~newly ~~Trust’s financial performance and~~allowed ~~condition~~during ~~should~~the befiscal ~~read~~year inended ~~conjunction~~September ~~with~~30, ~~the Liquidation Trust Financial Statements~~2007.

~~The~~During August 2008, the Liquidation Trust ~~Financial~~authorized ~~Statements~~a ~~have~~sixth ~~been~~interim ~~prepared~~Distribution, ~~using the~~of ~~liquidation~~1.65% ~~basis~~ of ~~accounting.~~the ~~Under~~Allowed ~~this~~amount ~~method~~ of ~~accounting~~Impaired Claims, ~~the Statements~~to holders of ~~Net~~Beneficial Interests. Distributions ~~Assets~~authorized induring ~~Liquidation~~the ~~reflect~~fiscal ~~all~~year ~~assets~~ended September ~~and liabilities~~30, ~~including~~ ~~the~~2008 ~~projected~~totaled ~~total~~$11.7 ~~cost~~million, ofprimarily ~~liquidating~~representing the ~~assets~~sixth interim ~~and~~Distribution ~~winding~~for ~~down the~~holders ~~affairs~~ of ~~the~~$712.4 ~~Liquidation~~million ~~Trust,~~of atAllowed ~~estimated~~Impaired ~~fair value. The Statements~~Claims, ofas ~~Changes~~well inas ~~Net~~Distributions ~~Assets~~payable inat ~~Liquidation~~the ~~primarily~~previous ~~reflect~~cumulative ~~any~~rate ~~Distributions authorized~~of ~~for~~10.2911% to holders of ~~Beneficial~~$0.6 ~~Interests~~million ~~and~~of ~~changes~~Impaired inClaims ~~the~~newly ~~estimated fair~~allowed ~~value~~during of the ~~Liquidation~~fiscal ~~Trust’s~~year ended ~~assets~~September ~~and~~30, ~~liabilities~~2008.

A.As ~~Changes~~of September 30, 2008, total authorized Distributions to holders of Allowed Impaired Claims in ~~net~~Classes ~~assets~~4A and 4B aggregated $83.3 million. No Distributions have been made to holders of Allowed Impaired Claims in ~~liquidation~~Class 5, as a result of certain subordination provisions enforced in the Plan.

Significant financial activities of the Liquidation Trust during the periods reflected below include Distributions and Claims payments, resolution of Claims asserted, pursuit of preference recovery actions and other litigation, and carrying out the liquidation activities of the Liquidation Trust. 12

~~Net~~These Distribution ~~assets~~rates indo ~~liquidation~~not ~~are~~imply ~~subject~~anything toabout ~~material~~future Distributions. The ~~change~~timing ~~when~~and ~~either~~amount ~~(1)~~ of any future Distributions, including toa ~~holders~~final ofDistribution ~~Allowed~~for ~~Impaired~~which ~~Claims~~the ~~are~~Liquidation ~~authorized,~~Trust orexpects ~~(2)~~to ~~estimates~~request ofauthorization from the ~~fair~~Bankruptcy ~~value~~Court ofin early calendar year 2009, is subject to the Liquidation Trust’s ~~assets~~accumulating ~~and/or~~additional available cash, as the ~~liabilities~~Liquidation ~~change.~~Trust ~~Both~~resolves the ~~authorization~~remaining ofClaims ~~Distributions~~filed ~~and~~against ~~changes~~it, incollects ~~estimates~~amounts ~~are~~which ~~non-cash~~may ~~changes.~~be ~~These~~due ~~changes~~to ~~are~~it ~~shown~~pursuant into various pending matters and litigation, and obtains authorization from the ~~Liquidation~~Bankruptcy Court to reduce or ~~Trust’s~~eliminate ~~Statements~~the of$3.0 ~~Changes~~million inminimum ~~Net~~reserve ~~Assets~~established inunder ~~Liquidation~~the ~~and~~Plan ~~are~~to ~~discussed~~assure ~~below~~adequate liquidity for the Liquidation Trust.

Most cash transactions, on the other hand, such as collection of receivables and payments of liabilities and Distributions, cause offsetting changes in the associated components of assets and liabilities, but do not change net assets in liquidation2. ~~The Liquidation Trust’s Statements of Cash~~ Estimated ~~Receipts~~fair ~~and~~value ~~Disbursements show the results~~ of ~~these~~preference ~~transactions~~recoveries, ~~which are also discussed later under the heading “Cash Receipts and Disbursements.”~~ net

16The Liquidation Trust has pursued a number of actions against former creditors of the Debtors on the basis of preferential payments in the period preceding the Debtors’ bankruptcy filings. The fair value of such actions (the “Preference Receivables”) is estimated by the Liquidation Trust based on its experience and on that of its preference collection counsel. As of September 30, 2008 and September 30, 2007, the Liquidation Trust estimated the value of its Preference Receivables, net of costs of recovery, at $0.2 million, primarily based on the net fair value of one remaining significant action.

~~The~~In addition ~~following~~to ~~table~~the ~~summarizes~~anticipated proceeds from collection of Preference Receivables, the ~~significant~~Liquidation ~~changes~~Trust inreceives ~~net~~preference ~~assets~~recoveries of amounts owed under default judgments and under settlements with other entities in bankruptcy, the ~~liquidation~~value of which is uncertain until collected. The related collection fees for the ~~periods~~Liquidation asTrust’s ~~indicated:~~preference collections counsel likewise can not be estimated prior to such recoveries. Moreover, the Liquidation Trust pays its preference collections counsel contingent fees with respect to waivers of otherwise valid Impaired Claims obtained in the course of preference settlements, because each such waiver eliminates Distribution payments to the holder of the waived Impaired Claim (“Waiver Fees”). Each time the Liquidation Trust authorizes an additional interim Distribution, preference collection counsel is entitled to additional Waiver Fees.

($ in thousands)
							For the period from
	For the fiscal year			For the fiscal year			October 26, 2001
	ended			ended			(Effective Date) through
	September 30, 2004			September 30, 2003			September 30, 2002
Distributions authorized	$	(12,732	)	$	(17,439	)	$	(26,909	)
Changes in estimates - increase/(decrease) in net assets in liquidation
Claims payable		6,020			2,080			7,525
Preference receivables		3,639			6,830			4,224
Costs of liquidation
Wind-down reserve		(1,673	)		(906	)		(3,744	)
Litigation reserve		(2,600	)		(3,000	)		(3,500	)
Net increase in estimates		5,386			5,004			4,505
Other increases		1,212			2,829			1,855
Net decrease in net assets in liquidation	$	(6,134	)	$	(9,606	)	$	(20,549	)

During the fiscal year ended September 30, 2006, the Liquidation Trust increased its estimate of the net fair value of its preference recoveries by $0.1 million, primarily as a result of its collection of $0.3 million owed under default judgments and under settlements with other entities in bankruptcy, partially offset by associated costs of recovery of $0.2 million, including $0.1 million of Waiver Fees related to the fifth Interim Distribution, authorized during December 2005.

1During the fiscal year ended September 30, 2007, substantially all of the $0.7 million ~~Distributions~~decrease ~~authorized~~in the Liquidation Trust’s estimate of the net fair value of its preference recoveries resulted from a decrease in its estimate of the net fair value of Preference Receivables of $0.7 million, primarily based on the Court of Appeals ruling remanding the one remaining significant preference case to the Bankruptcy Court (see Part I, Item 3., “Legal Proceedings”, above).

During the ~~August 2002,~~fiscal ~~the~~year ~~Bankruptcy~~ended ~~Court~~September ~~authorized~~30, 2008, the Liquidation Trust to ~~make~~decreased anits estimate ~~initial Distribution to holders~~ of ~~Beneficial~~the ~~Interests~~net ~~(i.e., holders~~fair value of ~~Allowed~~its ~~Impaired~~preference ~~Claims)~~recoveries ofby 4$0.~~515%~~1 ofmillion, primarily ~~the~~as ~~Allowed~~a ~~amount~~result of ~~Impaired Claims (the “Initial Distribution”)~~$0.1 ~~The~~million ~~Initial Distribution authorized to holders~~ of ~~Beneficial~~Waiver ~~Interests~~Fees ~~during~~related to the ~~period from October 26, 2001~~Sixth ~~(Effective~~Interim ~~Date) through September 30~~Distribution, ~~2002~~authorized ~~totaled~~during ~~$26.9 million,~~August ~~based on Allowed Impaired Claims totaling $595~~2008.~~8 million as of September 30, 2002.~~

~~During~~Because the ~~June 2003,~~Preference ~~the~~Receivables ~~Liquidation~~arise ~~Trust~~from ~~notified~~literally ~~the~~millions ~~Bankruptcy~~of ~~Court~~transactions, ~~that~~and itbecause ~~would~~they ~~make~~are abeing ~~second~~pursued ~~interim~~in ~~Distribution.~~litigation, ~~Pursuant~~it is not possible to ~~this~~confirm ~~notice~~the amounts receivable with the vendor defendants. As a result, the Liquidation Trust’s ~~authorized~~independent aregistered ~~second~~public ~~interim~~accounting ~~Distribution~~firms ofhave ~~2.058%~~not ~~of the~~been ~~Allowed~~able ~~amount~~to ofobtain ~~Impaired~~sufficient ~~Claims,~~evidential matter to ~~holders~~evaluate ofthe ~~Beneficial~~fair ~~Interests.~~value of the ~~Distributions~~Preference ~~authorized~~Receivables, ~~during~~either ~~the~~by ~~fiscal~~direct ~~year~~confirmation ~~ended~~or ~~September 30,~~by ~~2003 totaled~~other ~~$17~~auditing procedures.~~4 million~~ Therefore, ~~primarily~~the ~~representing~~Reports ~~the~~of ~~second~~Independent ~~interim~~Registered ~~Distribution,~~Public asAccounting ~~well~~Firms on the ~~Initial~~Liquidation ~~Distribution~~Trust ~~payable~~Financial toStatements ~~holders~~contain ofa scope limitation with respect to the ~~additional~~Preference ~~$78~~Receivables.7 Other ~~million~~estimates ofcontained ~~Impaired~~in ~~Claims~~the ~~newly~~financial ~~allowed~~statements ~~during~~of the ~~fiscal~~Liquidation ~~year~~Trust ~~ended September~~were 30subject to customary audit procedures, ~~2003~~as applicable.

~~During September 2004, the Liquidation Trust notified the Bankruptcy Court that it would make a third interim Distribution~~3. ~~Pursuant to this notice, the~~ Estimated ~~Liquidation~~costs ~~Trust authorized a third interim Distribution~~ of 1.527% of the Allowed amount of Impaired Claims, to holders of Beneficial Interests. Distributions authorized during the fiscal year ended September 30, 2004 totaled $12.7 million, primarily representing the third interim Distribution, as well the Initial and second interim Distributions payable to holders of the additional $29.5 million of Impaired Claims newly allowed during the fiscal year ended September 30, 2004. liquidation

AsSubstantially all of ~~September 30,~~the ~~2004,~~day-to-day ~~total~~operations ~~authorized~~of ~~Distributions~~the toLiquidation ~~holders~~Trust ofwere terminated during ~~Allowed~~June ~~Impaired~~2005; ~~Claims~~however, inprovision ~~Classes~~has 4Abeen ~~and~~made 4Bfor ~~aggregated~~necessary ~~$57.1 million.~~management Nooversight ~~Distributions~~and ~~have~~administrative, ~~been~~legal ~~made~~and accounting processes to ~~holders~~continue through its expected termination in early calendar year 2009. These final items include resolution of ~~Allowed~~the ~~Impaired~~remaining Disputed Claims inand ~~Class 5~~all litigation, as a ~~result~~final Distribution, ofif ~~certain~~applicable, ~~subordination~~and ~~provisions~~any ~~enforced~~necessary infilings with regulatory authorities and with the ~~Plan~~Bankruptcy Court.

These Distribution rates do not imply anything about future Distributions, if any. The timing and amount of any future Distributions are subject to the Liquidation Trust accumulating additional available cash, as the Liquidation Trust continues to resolve Claims filed against it and to collect amounts which may be due to it pursuant to various pending matters and litigation. 13

17Based on revised forecasts of operational requirements prior to and associated with the expected termination of the Liquidation Trust, as extended, the remaining Wind-down Reserve was increased by $1.0 million during the fiscal year ended September 30, 2006, both as a result of the remaining obligations of the Liquidation Trust taking longer to complete than expected, and because the estimated cost and applicable term of necessary insurance coverages increased significantly from the Liquidation Trust’s previous estimates. As of September 30, 2007, based on an anticipated 2008 hearing date in the Committee Action, the expected term of the Liquidation Trust was further extended. However, because spending had occurred more slowly than previously planned, and because the expected cost of the Liquidation Trust’s insurance coverages decreased significantly, the necessary increase in the Wind-Down Reserve during the fiscal year ended September 30, 2007 totaled $0.1 million. The Wind-Down Reserve was increased by $0.1 million during the fiscal year ended September 30, 2008 as a result of the remaining obligations of the Liquidation Trust taking longer to complete than expected, somewhat offset by lower spending than planned.

24. ~~Changes in estimate – estimated fair value of claims payable~~ Fleet settlement accrual

~~Amounts~~As ~~relating~~of September to30, ~~Convenience~~2005, ~~Claims~~the ~~are~~Liquidation ~~excluded~~Trust ~~from~~maintained the ~~following~~Fleet settlement ~~discussion,~~accrual ~~which~~in ~~itemizes~~the ~~only~~amount ~~Unimpaired~~of ~~Claims,~~$3.5 ~~because~~million. Following ~~Convenience~~the ~~Claims~~August 2005 ~~are~~Summary ~~relatively~~Judgment ~~insignificant~~Decision ~~and~~in the ~~changes~~Committee ~~therein~~Action ~~are~~(as ~~explained~~discussed byabove in Part ~~the~~1., ~~same~~Item ~~trends~~3., “Legal Proceedings”), the Liquidation Trust’s liability to Fleet under the terms of the Fleet Stipulation was settled during August 2006, requiring a $4.8 million addition to the Fleet settlement accrual, and the total of $8.3 million paid during September 2006, pursuant to the Fleet Settlement.

~~As of October 26, 2001 (Effective Date), the Liquidation Trust estimated its obligation for Unimpaired Claims payable as $34~~5.~~1 million, based on the~~ Other best information available at that time. Allowed Unimpaired Claims, for which no estimates were necessary, totaled $8.7 million. Several hundred Disputed Unimpaired Claims, with estimated aggregate settlement amounts of $25.4 million, remained to be resolved by the Liquidation Trust. increases

~~The following table summarizes the activity, for the fiscal periods as indicated, which reduced Unimpaired Claims payable from $34~~a.~~1 million as of~~ Interest ~~October 26, 2001 (Effective Date) to the balance of $3.0 million as of September 30, 2004:~~ income

(The Liquidation Trust’s cash investments yielded interest income, which increased net assets in liquidation, totaling $1.1 million, $0.9 million and $0.5 million during the fiscal years ended September 30, 2006, September 30, 2007 and September 30, 2008, respectively. The decreases in ~~thousands)~~interest income for each successive fiscal year primarily related to decreases in the average amount of cash available for investment and significant declines in interest rates.

							For the period from
	Fiscal year			Fiscal year			October 26, 2001
	ended			ended			(Effective Date) through
	September 30, 2004			September 30, 2003			September 30, 2002
Balance at beginning of period	$	11,044		$	15,421		$	34,145
Unimpaired claims paid		(883	)		(2,306	)		(11,177	)
Deposit applied to Kemper claim		(1,190	)		—			—
Changes in estimate, including claims expunged or waived		(6,003	)		(2,071	)		(7,547	)
Balance at end of period	$	2,968		$	11,044		$	15,421
Number of disputed unimpaired claims remaining at the end of each period		9			22			119

b. Other

AsRealization of aother ~~result~~miscellaneous assets in excess of ~~the~~their ~~ongoing~~previously ~~Claims~~estimated ~~resolution~~net ~~process~~fair value, ~~fewer~~if ~~Disputed Unimpaired~~any, ~~Claims~~increased ~~remain~~net asassets ofin ~~each~~liquidation ~~successive~~by ~~valuation~~$0.6 ~~date,~~million and ~~the~~$0.3 ~~Liquidation~~million ~~Trust~~during ~~becomes~~the ~~more~~fiscal ~~familiar~~years ~~with~~ended ~~the~~September ~~validity~~30, 2006 and ~~estimated~~September ~~value~~30, 2008, respectively. As of ~~each~~September ~~remaining~~30, ~~Disputed~~2006, ~~Unimpaired~~the ~~Claim~~Liquidation Trust recorded a $0.6 ~~Therefore,~~million ~~changes~~settlement inwith ~~estimate during~~former counsel to the ~~fiscal~~Debtors ~~year~~in connection ~~ended~~with ~~September 30,~~the ~~2004~~1997 ~~related~~Transactions. No ~~almost~~value ~~exclusively~~had been assigned to this matter prior to settlement of the ~~Kemper~~associated ~~Claim,~~negotiations. No such asevents ~~opposed~~occurred toduring the ~~significant~~fiscal ~~number~~year ofended ~~Claims~~September ~~revalued~~30, ~~during~~2007. During the fiscal year ended September 30, ~~2003~~2008, ~~and~~the Liquidation Trust received a $0.3 million distribution in the ~~significant~~liquidation ~~number~~of ~~and~~the ~~amount~~Debtors’ offormer ~~Claims~~company-owned ~~revalued~~life ~~during~~insurance policy carrier, related to policies that were surrendered by the ~~period~~Debtors ~~from~~in ~~October 26,~~2000 ~~2001~~in ~~(Effective~~return for their net cash ~~Date)~~values. No ~~through~~value ~~September 30~~was assigned to the distribution prior to its receipt, ~~2002~~as the timing and amount was not determinable.

The total decrease of $8.1 million in Unimpaired Claims payable from September 30, 2003 to September 30, 2004 primarily resulted from (a) Claims payments of $0.9 million, (b) application of a $1.2 million receivable from Kemper, which Kemper asserted had been applied against the Insurance Claims, and (c) a $6.0 million decrease in the estimated fair value of Unimpaired Claims payable, primarily for the Kemper Claim. The change in estimated fair value of the Kemper Claim was based on an agreement reached between Kemper and the Liquidation Trust subsequent to year-end to settle the Kemper Claim for $1.7 million, offset by a $0.1 million prepayment held by a third-party claims administrator. Because Kemper and the Liquidation Trust had not established a mutually agreeable basis for determining the fair value of the Insurance Claims, the Liquidation Trust previously valued the Kemper Claim in Unimpaired Claims payable at the full amount of the letter of credit held by Kemper. This amount represented the only available estimate of the Liquidation Trust’s potential liability for the Insurance Claims including Kemper’s actuarial estimate of applicable losses. As a result, the Kemper Claim has been the largest single estimated Unimpaired Claim at the end of each period shown, valued at $9.0 million as of September 30, 2003 and $10.1 million as of September 30, 2002. 14

18 B. Cash receipts and disbursements

~~During the fiscal year ended~~The ~~September 30,~~following ~~2003,~~table ~~the~~summarizes ~~Liquidation~~cash ~~Trust~~receipts ~~paid out $2.3 million to holders of Allowed Unimpaired Claims,~~ and ~~decreased~~ ~~its~~disbursements ~~estimate of the aggregate settlement amounts of the remaining Claims by $2.1 million. This decrease in estimate resulted from a number of Unimpaired Claims which were settled~~ for ~~substantially~~ ~~less than~~ the ~~originally~~periods ~~estimated fair value of such Claims. The majority of the decrease related to otherwise valid Unimpaired Claims which were waived~~ as ~~part of comprehensive~~ ~~settlements in preference recovery actions.~~ indicated:

~~During the period from October 26, 2001~~ (~~Effective Date) through September 30, 2002, the Liquidation Trust paid out~~ $~~11.2 million~~ ~~to holders of Allowed Unimpaired Claims, and decreased its estimate of the aggregate settlement amounts of the remaining Claims by $7.5 million. This decrease~~ in ~~estimate~~ resulted from a significant number of Unimpaired Claims being settled for, or in substantive negotiation as of September 30, 2002 at, substantially less than the originally estimated fair value of such Claims. The majority of the reduction related to otherwise valid Unimpaired Claims which were waived subsequent to year-end as part of comprehensive settlements in preference recovery actions (in addition to those referred to in the previous paragraphthousands).

3. Changes in estimate - estimated fair value of preference receivables

	For the fiscal year ended September 30, 2008			For the fiscal year ended September 30, 2007			For the fiscal year ended September 30, 2006

Cash receipts
Preference collections, before costs of recovery	$	-		$	80		$	257
Committee action collection		-			-			7,000
Other		316			614			34
Interest income		515			911			1,083

Total cash receipts		831			1,605			8,374

Cash disbursements
Operating expenses		287			364			480
Legal and professional fees
Trust operations		293			211			247
Litigation		151			64			359
Preference recoveries		147			26			189
Fleet settlement		-			-			8,250
Reissued/(voided) claims checks, net		9			(4	)		(70	)
Distributions paid		11,337			189			6,845

Total cash disbursements		12,224			850			16,300

Net (decrease)/increase in cash and cash equivalents	$	(11,393	)	$	755		$	(7,926	)

The Liquidation Trust is pursuing a number of actions against former creditors of the Debtors on the basis of preferential payments in the period preceding the Debtors’ bankruptcy filings (the “Preference Receivables”). The value of Preference Receivables is estimated by the Liquidation Trust based on its experience and on that of its preference collection counsel. As of September 30, 2004 and September 30, 2003, the Liquidation Trust estimated the value of its Preference Receivables, net of costs of recovery, at $3.1 ~~million and $6~~.~~0 million, respectively.~~ Cash receipts

~~The~~Preference collections ~~following~~have ~~table~~been ~~summarizes~~ongoing since approximately 1,800 preference actions were filed in mid-2001. As a result of the ~~significant~~declining ~~sources~~number of ~~changes~~open preference incases, preference collections during each recent fiscal year have ~~estimated~~declined ~~fair~~substantially. During ~~value~~the offiscal ~~Preference~~year ~~Receivables~~ended ~~for~~September 30, 2006, preference collections aggregating $0.3 million were received from ten vendors. During the ~~periods~~fiscal asyear ~~indicated:~~ended September 30, 2007, preference collections aggregating $0.1 million were substantially all from a single vendor. There were no preference collections during the year ended September 30, 2008. Except for any proceeds of the single significant remaining preference case, no future preference collections are expected.

($During September 2005, the Liquidation Trust reached a settlement with certain of the remaining defendants in ~~thousands)~~the Committee Action, as a result of which, in addition to other consideration, those defendants paid the Liquidation Trust $7.0 million during October 2005.

						For the period from
	For the fiscal year			For the fiscal year		October 26, 2001
	ended			ended		(Effective Date) through
	September 30, 2004			September 30, 2003		September 30, 2002
Basis of change in estimate
Aggregate estimate	$	(111	)	$	5,030	$	1,740
Case-by-case estimate for certain large cases		3,750			1,800		2,484
Net increase in fair value	$	3,639		$	6,830	$	4,224

Other receipts were not significant during the fiscal year ended September 30, 2006. During the fiscal year ended September 30, 2007, the Liquidation Trust collected a $0.6 million settlement from former counsel to the Debtors in connection with the 1997 Transactions. During the fiscal year ended September 30, 2008, the Liquidation Trust received a distribution of $0.3 million from a former insurer of the Debtors.

During the fiscal year ended September 30, 2004, the Liquidation Trust increased its estimate of the net fair value of its preference cases by $3.6 million, based on recent settlements and partially offset by the Liquidation Trust’s increased costs of collections related to the final, most complicated and heavily litigated cases. During the fiscal year ended September 30, 2003, based on the Liquidation Trust’s collections experience to date, which was favorable compared to the previous estimate, the Liquidation Trust increased the estimated fair value of its preference cases by $6.8 million. During the period from October 26, 2001 (Effective Date) through September 30, 2002, the Liquidation Trust increased its estimate of the fair value of its preference cases by $4.2 million, based on the Liquidation Trust’s collections experience and recent settlements. 15

~~The~~Interest income ~~ultimate~~decreased ~~outcome~~in of each ~~preference~~successive ~~action,~~fiscal ~~especially~~year ~~the~~primarily ~~larger,~~because ~~and by~~of ~~their very nature, more complicated cases, is unpredictable until long after~~decreases in the ~~case~~average ~~has been filed, and until a considerable~~ amount of ~~research~~cash ~~has occurred,~~available ~~specific~~for ~~underlying~~investment ~~facts have been determined,~~ and ~~analysis~~significant ~~has been~~declines ~~completed.~~in ~~Therefore,~~interest ~~the Liquidation Trust originally assigned no value to eight of the largest potential preference cases until fact-finding and initial negotiation indicated that some collection was likely~~rates.

192. Operating expenses

~~Subsequently,~~The decline ~~each~~in ~~of these~~operating ~~cases~~expenses ~~was~~from ~~settled,~~the ~~resulting~~fiscal inyear ~~increases~~ended inSeptember ~~estimates~~30, ~~(which~~2006 ~~are~~to ~~included~~the infiscal ~~the~~year ~~changes~~ended inSeptember ~~estimate~~30, ~~totals~~2007 ~~cited~~resulted inprimarily ~~the~~from ~~previous~~a ~~paragraph)~~decreased level of ~~$3.8 million,~~ ~~$1.8 million~~operations and $2the associated decrease in employee compensation.~~5 million~~ The ~~during~~decline in operating expenses from the fiscal ~~years ended~~year ended September 30, ~~2004~~2007 ~~and~~to the fiscal year ended September 30, ~~2003~~2008 ~~and~~resulted primarily ~~during~~from substantial decreases in the ~~period~~insurance ~~from~~premiums ~~October~~for the ~~26,~~Liquidation ~~2001~~Trust’s ~~(Effective~~business ~~Date)~~and ~~through~~liability ~~September 30,~~insurance ~~2002,~~resulting ~~respectively.~~from a more favorable market for such coverages.

~~Because the Preference Receivables arise from literally millions of~~3. Legal ~~transactions,~~ and ~~because~~professional they are being pursued in litigation, it is not possible to confirm the amounts receivable with the vendor defendants. As a result, the Liquidation Trust’s independent registered public accounting firm has not been able to obtain sufficient evidential matter to evaluate the fair value of the Preference Receivables, either by direct confirmation or by other auditing procedures. Therefore, the Report of Independent Registered Public Accounting Firm on the Liquidation Trust Financial Statements contains a scope limitation with respect to the Preference Receivables. Other estimates contained in the financial statements of the Liquidation Trust were subject to customary audit procedures, as applicable. fees

4.Legal ~~Changes~~and professional infees ~~estimate~~reflect -the ~~estimated~~activity ~~costs~~level in various areas of ~~liquidation~~the Liquidation Trust’s responsibilities.

~~The estimated costs of liquidation consist of the Wind-down Reserve and the Litigation Reserve, representing the projected costs of operating the~~ a. Liquidation Trust ~~through its termination.~~ operations

~~As of October 26, 2001 (Effective Date), substantially all of the~~Legal ~~operations~~fees offor ~~the~~ Liquidation Trust ~~were~~operations ~~assumed~~decreased toslightly bebetween ~~completed~~the byyear ~~early 2003.~~ended ~~Subsequently,~~September ~~however~~30, ~~based~~2006 onand the ~~pace~~year ~~and~~ended ~~status~~September ~~of Claims resolution~~30, ~~asset~~ ~~liquidations,~~2007 ~~litigation,~~as ~~and Distributions,~~ the ~~estimated~~number ~~termination~~and oftype ~~the~~of ~~Liquidation~~open ~~Trust’s~~matters ~~operations has been extended through 2005~~declined. ~~Substantially~~ During ~~all of~~ the ~~day-to-day~~fiscal ~~operations~~year ofended ~~the~~September ~~Liquidation Trust are planned to cease in early 2005; however~~30, ~~provision has been made for certain~~ ~~necessary administrative~~2008, ~~legal~~such ~~and~~fees ~~accounting~~increased ~~processes~~as tocounsel beassisted ~~completed thereafter.~~the ~~These~~Liquidation ~~final~~Trust ~~items~~in ~~include resolution of all litigation, a final~~resolving ~~Distribution,~~the ifremaining ~~applicable,~~Disputed ~~and~~Claims ~~filings with regulatory authorities~~ and ~~with the~~in ~~Bankruptcy~~preparing ~~Court.~~for ~~Accordingly,~~ the ~~estimated~~Liquidation ~~costs of liquidation have~~Trust’s ~~been increased as follows:~~ termination.

ab. ~~Wind-down Reserve~~ Litigation fees

~~Based~~Litigation fees ondecreased ~~revised~~from ~~forecasts~~$0.4 ofmillion ~~operational~~during ~~requirements~~the ~~prior~~year toended ~~the~~September 30, 2006 to ~~expected~~$0.1 ~~termination~~million ofduring the ~~Liquidation~~year ~~Trust,~~ended asSeptember ~~extended~~30, ~~the~~2007, ~~remaining Wind-down~~because ~~Reserve~~the ~~was~~level ~~increased~~of litigation byactivity $1declined substantially.~~7 million~~ During ~~during~~ the fiscal year ~~ended~~ ended September 30, ~~2004~~2006, inthe ~~part~~Liquidation ~~because,~~Trust’s ~~during~~fees ~~that~~related ~~period,~~mainly ~~certain~~to preparation ~~key~~for ~~trial dates~~the ~~were~~initial ~~scheduled~~appeal ~~for~~brief ~~2005.~~in ~~The~~the ~~reserve~~Committee ~~was~~Action ~~previously~~and participation ~~increased~~in bymediations, in addition to a $0.9 1 million ~~during~~payment to an expert in key matters. During the fiscal year ended September 30, ~~2003~~ 2007, asthe aLiquidation ~~result~~Trust ofsubmitted ~~the extension~~its ofappeals brief. During the year ~~expected~~ended ~~termination~~September of30, ~~the~~2008, ~~Liquidation~~litigation ~~Trust~~fees ~~into~~increased ~~2004,~~to ~~and by~~ $30.7 2 million ~~during~~ because the ~~period~~Liquidation ~~from~~Trust ~~October 26,~~paid ~~2001~~litigation ~~(Effective~~counsel ~~Date) through September 30, 2002, based on~~ a ~~comprehensive~~final ~~reforecast~~payment offor ~~the~~services with ~~requirements~~respect ofto the ~~Liquidation~~now ~~Trust~~concluded ~~following~~Committee ~~its early operations~~Action.

bc. ~~Litigation Reserve~~ Preference recovery fees

The ~~Litigation Reserve was established to pay the costs of pursuing certain~~ ~~actions,~~following ~~primarily~~table ~~the~~details ~~Bondholder~~preference ~~Action~~collections and the ~~Committee~~associated ~~Action.~~fees ~~The~~and ~~Litigation Reserve was increased by $2.6 million during the fiscal year ended September 30, 2004, based on estimated future~~ expenses with respect to the appeal of the Bondholder Action Decision and the trial of the Committee Action. In comparison, the Litigation Reserve was increased by $3.0 million during fiscal year ended September 30, 2003 and $3.5 million during the period from October 26, 2001 (Effective Date) through September 30, 2002, based primarily on a higher than planned level of activity and duration in connection with the Committee Action. Each of these increases was based on the Liquidation Trust’s ongoing evaluation of the costs and potential benefits of continuing these actions. In accordance with the procedures set forth in the Plan, increases in the Litigation Reserve require approval. The Liquidation Trust is in the process of obtaining such approval with respect to an increase of $0.6 million, included in the increase of $2.6 million recorded for the ~~fiscal~~periods ~~year~~as ~~ended September 30, 2004.~~ indicated:

20($ in thousands)

5. Other increases

	For the fiscal year ended September 30, 2008		For the fiscal year ended September 30, 2007		For the fiscal year ended September 30, 2006


Preference collections	$	-	$	80	$	257

Preference recovery fees
Contingent collection fees	$	143	$	14	$	179
Expenses		4		12		10

Total preference recovery fees	$	147	$	26	$	189

~~a. Interest income~~ 16

~~The~~Preference recovery ~~Liquidation~~fees ~~Trust’s~~were ~~cash~~not ~~investments~~comparable, ~~yielded~~as ~~interest~~a ~~income,~~percentage of total preference ~~increasing~~collections, ~~net~~from ~~assets~~year into ~~liquidation~~year, because of ~~$0.3 million,~~the ~~$0.5 million~~contingent ~~and~~fee ~~$1.2~~structure for ~~million~~preference ~~during~~collections ~~the~~counsel. The ~~fiscal~~collection ~~years~~fees ~~ended~~payable ~~September 30,~~to ~~2004~~the Liquidation ~~and~~Trust’s ~~September 30,~~preference ~~2003~~collections counsel for most preference ~~and~~settlements ~~during~~are ~~the~~set ~~period~~at ~~from~~a ~~October 26,~~declining ~~2001~~rate (~~Effective~~generally ~~Date)~~ranging ~~through~~from ~~September 30,~~35% ~~2002,~~to ~~respectively.~~7% ~~The~~of collections) ~~decrease~~for inlarger ~~interest~~cases. In ~~income~~addition, ~~resulted~~as ~~from substantial~~discussed ~~decreases~~above ~~each~~under III.A.2., ~~period~~“Estimated infair ~~total~~value ~~cash~~of ~~available~~preference ~~for~~recoveries, ~~investment~~net,” above, ~~primarily~~the asLiquidation aTrust ~~result~~pays ofWaiver ~~Claims~~Fees ~~payments~~each ~~and~~time ~~Distributions,~~the asLiquidation ~~well as a~~Trust ~~general~~authorizes ~~decrease~~an inadditional ~~interest~~interim ~~rates~~Distribution.

b.During the fiscal year ended September 30, 2006, preference ~~Other~~recoveries were primarily collections of default judgments and less significant settlements, for which the contingent fees were therefore nearer the higher end of the rate scale. In addition, during the fiscal year ended September 30, 2006, the Liquidation Trust paid Waiver Fees of $0.1 million with respect to the fifth interim Distribution, authorized during December 2005. Most of the amount collected during the fiscal year ended September 30, 2007 related to one case, and, due to its size, resulted in an effective rate in the middle of the rate scale. During the fiscal year ended September 30, 2008, the Liquidation Trust paid Waiver Fees of $0.1 million with respect to the sixth interim Distribution, authorized during August 2008.

~~Realization of other miscellaneous assets in excess of their estimated net fair value recorded as of October 26, 2001 (Effective Date) increased net assets in liquidation by $0~~4.~~9 million, $2.3 million and $0.6 million during the~~ Fleet fiscal years ended September 30, 2004 and September 30, 2003 and during the period from October 26, 2001 (Effective Date) through September 30, 2002. Each of these increases in estimated net fair value is primarily due to one specific item during each of the fiscal periods. During the fiscal year ended September 30, 2004, the Liquidation Trust reached, recorded and collected a $0.7 million settlement in litigation against a former insurance broker of the Debtors. During the fiscal year ended September 30, 2003, the Liquidation Trust received $2.0 million as proceeds of the liquidation of the Debtor’s former company-owned life insurance policy carrier, related to policies that were surrendered by the Debtors in 2000 in return for their net cash values. The Debtors were entitled to these liquidation proceeds solely as a result of the occurrence and particular terms of this insurance carrier’s liquidation, and therefore no receivable from the carrier had been recorded as an asset of the Liquidation Trust. During the period from October 26, 2001 (Effective Date) through September 30, 2002, an increase of $0.5 million resulted from the demutualization of an insurance vendor of the Debtors and the associated value realized when the Liquidation Trust sold its resulting equity interest.

21During the fiscal year ended September 30, 2006, the Liquidation Trust paid the $8.3 million Fleet Settlement, discussed above in “Changes in Net Assets in Liquidation.”

B5.~~Cash receipts and disbursements~~ Distributions paid

~~The~~Distributions paid ~~following~~depend ~~table~~primarily ~~summarizes~~on ~~cash~~the ~~receipts~~amount of Allowed Impaired Claims, including Claims newly allowed, and ~~disbursements~~on ~~for~~the Distributions authorized from time to time. The fifth interim Distribution, authorized during November 2005, was paid during December 2005 at a rate of 1.1911% (excluding the ~~periods~~Kmart General asUnsecured ~~indicated:~~Claim of $150.0 million pursuant to the Plan, because this Distribution resulted from the $7.0 million proceeds of the Committee Action settlement). No new interim Distribution was authorized or paid during the year ended September 30, 2007. The sixth interim Distribution was authorized and paid during August 2008 at a rate of 1.65%. As described above, Impaired Claims newly allowed during each period became eligible for payment at the then cumulative Distribution rate.

($C. Cash inand ~~thousands)~~selected contingency and other reserves

							For the period from
	For the fiscal year			For the fiscal year			October 26, 2001
	ended			ended			(Effective Date) through
	September 30, 2004			September 30, 2003			September 30, 2002
Cash receipts
Preference collections, before costs of recovery	$	8,242		$	13,345		$	13,634
Other		1,366			3,820			1,997
Total receipts		9,608			17,165			15,631
Cash disbursements
Legal and professional fees
Litigation		2,676			3,919			3,121
Preference recoveries		1,797			2,414			2,721
Trust operations		1,571			1,699			2,707
Operating expenses		1,735			2,331			2,396
Claims payments		886			2,323			11,400
Reissued/(voided) claims checks, net		235			(346	)		(31	)
Distributions paid		13,170			20,629			23,055
Total disbursements		22,070			32,969			45,369
Net decrease in cash and cash equivalents	$	(12,462	)	$	(15,804	)	$	(29,738	)

1. Cash and cash equivalents

The Liquidation Trust’s cash and cash equivalents balance decreased by $11.4 million, from $19.5 million as of September 30, 2007 to $8.1 million as of September 30, 2008. The ~~Cash~~decrease ~~receipts~~resulted primarily from payment of the sixth interim Distribution.

~~Preference collections have been ongoing since 1,800 preference actions~~The ~~were~~Liquidation ~~filed~~Trust’s incash ~~mid-2001.~~and Bycash ~~September 30,~~equivalents ~~2003,~~balance ~~more~~is ~~than~~classified ~~two~~as ~~years after the filing~~either of(a) Designated ~~the~~as ~~actions,~~Available ~~the~~for ~~majority~~Distribution ~~of the cases had been settled. The remaining cases were both more difficult and slower~~ to ~~settle,~~Holders ~~with~~of ~~many~~Impaired ~~cases settled~~Claims ~~only~~(“Available ~~as trial dates~~Cash”), ~~which~~(b) Reserved ~~were~~or ~~first~~(c) ~~scheduled~~Other. Under by the ~~Bankruptcy Court during~~terms ~~2004,~~of ~~approached.~~the ~~As a result~~Plan, ~~preference collections during~~ the ~~fiscal~~Liquidation ~~year ended~~Trust ~~September 30,~~is ~~2004~~not ~~declined,~~required ~~as compared~~ to ~~preference~~segregate ~~collections~~funds ~~during~~for ~~the fiscal year ended September 30, 2003 and during the period from October 26, 2001 (Effective Date) through September 30, 2002~~reserves.

~~Other~~a. Available Cash ~~cash~~is ~~receipts~~designated ~~during~~to assure the ~~fiscal~~availability ~~year~~of ~~ended~~funds ~~September 30,~~for ~~2003~~payment ~~were~~to holders of ~~also~~Impaired ~~higher~~Claims ~~than~~who ~~during~~have ~~the~~not ~~fiscal~~received ~~year~~authorized Distributions. Available ~~ended~~Cash ~~September 30,~~has ~~2004~~two ~~and~~components: ~~during~~Distributions payable, and the Impaired Claims Reserve. The required amount of ~~period~~Available ~~from~~Cash ~~October 26,~~of ~~2001~~$2.7 ~~(Effective~~million ~~Date)~~as ~~through~~of September 30, ~~2002, primarily~~2007 ~~because~~was ofbased primarily on the Impaired Claims Reserve of $2.0 3 million, ~~receipt~~at ~~from~~ the ~~insurance~~cumulative ~~carrier~~Distribution rate ~~liquidation~~of ~~discussed~~10.2911%, ~~under~~for ~~“Other~~$23.1 ~~Increases”,~~million inof ~~the~~Disputed ~~section~~Impaired ~~above.~~Claims In(at their estimated ~~addition~~value for reserve purposes), ~~the~~as ~~Liquidation~~well ~~Trust~~as ~~collected~~Distributions payable of $1.0 .4 million, consisting ~~with~~of ~~respect~~unpaid Distributions to ~~various accounts~~holders ~~receivable~~of ~~and~~Allowed ~~other~~Impaired ~~assets~~Claims ~~during~~who have not met all the ~~fiscal~~requirements ~~year~~for ~~ended~~a ~~September 30~~Distribution, ~~2003,~~ asor ~~compared~~have tonot ~~fewer~~cashed ~~collections~~a Distribution ofcheck ~~such~~and ~~items~~therefore ~~during~~have ~~the~~not ~~fiscal~~been ~~year ended~~paid ~~September 30~~subsequent Distributions, ~~2004~~in accordance ~~and~~with ~~during~~ the ~~period~~Plan. The ~~from~~required ~~October 26,~~amount ~~2001~~of ~~(Effective~~Available Cash of ~~Date)~~$1.8 ~~through~~million as of September 30, ~~2002.~~2008 Onwas ~~the~~based ~~other~~primarily ~~hand,~~on ~~interest~~the ~~income~~Impaired ~~during~~Claims ~~the~~Reserve ~~period~~of ~~from~~$1.0 ~~October 26~~million, ~~2001~~at ~~(Effective~~the ~~Date)~~cumulative ~~through~~Distribution ~~September 30~~rate of 11.9411%, ~~2002~~for ~~was~~$8.3 ~~significantly~~million ~~greater~~of ~~than~~Disputed ~~during~~Impaired ~~the~~Claims ~~two~~(at ~~following~~their ~~fiscal~~estimated ~~years,~~value asfor areserve ~~result~~purposes), ofas ~~higher~~well ~~cash~~as ~~balances~~Distributions ~~and~~payable ~~interest~~of ~~rates~~$0.8 ~~during that period~~million.

22 17

2The value of Disputed Impaired Claims, for the purpose of establishing adequate reserves, was estimated by the Liquidation Trust and approved by the Bankruptcy Court in an order establishing the amounts of Disputed Claims Reserves. As ~~Legal~~of September 30, 2007 and ~~professional~~September 30, ~~fees~~2008, the asserted value of Disputed Impaired Claims was $22.7 million and $8.1 million, respectively. During the fiscal year ended September 30, 2008, the Liquidation Trust reduced the amount of asserted Disputed Impaired Claims outstanding by $14.6 million, primarily by resolving a Disputed Impaired Claim asserted and reserved at $14.4 million for an amount approximating its estimated value of $0.6 million. The $1.4 million thereby released from the Impaired Claims Reserve increased Other Cash (see below) during the year ended September 30, 2008.

~~Legal~~During November ~~and~~2008, ~~professional fees reflect~~ the ~~activity~~Liquidation ~~level~~Trust innotified ~~various~~holders ~~areas~~ of ~~the~~ ~~Liquidation~~Allowed ~~Trust’s~~Impaired ~~responsibilities.~~Claims who ~~Litigation~~had ~~fees~~not ~~decreased~~met byall ~~$1.2 million from~~ the ~~fiscal~~requirements ~~year~~for ~~ended~~a ~~September 30~~Distribution, ~~2003~~generally toby ~~the~~not providing ~~fiscal~~their ~~year~~taxpayer ~~ended September 30,~~identification ~~2004.~~number ~~During~~ (the ~~fiscal~~“TIN ~~year~~Motion ~~ended~~and ~~September 30~~Order”), ~~2004, the~~or ~~Liquidation~~who ~~Trust~~had ~~was~~not ~~actively~~cashed ~~pursuing~~a ~~the~~Distribution ~~Bondholder~~check ~~Action~~and ~~through~~therefore ~~trial~~have ~~and~~not been paid ~~appeal.~~subsequent ~~During~~Distributions (the ~~fiscal~~“Unclaimed ~~year~~Property ~~ended~~Notice”) ~~September 30~~(collectively, ~~2003,~~the “Notices”) ~~however~~that, ~~pre-trial preparation~~in ~~for~~accordance ~~both~~with the ~~Bondholder~~terms ~~Action~~of ~~and~~ the ~~Committee Action~~Plan, ~~particularly~~ ~~extensive~~they ~~depositions~~forfeited ~~and~~their interest ~~research by experts~~ in ~~key matters~~past Distributions, ~~resulted~~ inmaking ~~relatively~~the ~~higher~~unclaimed ~~litigation~~funds ~~costs.~~available ~~Because~~to of the ~~extensive~~ ~~activity~~Liquidation ~~during~~Trust ~~the fiscal year ended September 30~~and, ~~2003~~ultimately, ~~litigation~~for ~~fees increased~~distribution ~~by $0.8 million during that period as compared~~ to the ~~period~~remaining ~~from~~holders of ~~October 26,~~Beneficial ~~2001 (Effective Date) through September 30, 2002~~Interests.

~~Preference~~Distributions payable ~~recovery~~totaling ~~fees were 21~~$0.8%, ~~18.1%~~million and ~~20.0%~~uncashed ofchecks ~~preference collections~~totaling ~~for~~$0.4 ~~the~~million ~~fiscal~~as ~~years ended~~ of September 30, ~~2004~~2008 ~~and~~were ~~September 30, 2003~~included ~~and~~in ~~for~~ the ~~period from October 26, 2001 (Effective Date) through September 30, 2002, respectively~~Notices. As ~~The~~of ~~largest~~December ~~single factor increasing~~23, ~~preference recovery fees~~2008, ~~relative to collections, for~~ the ~~fiscal~~amount ~~year~~of ~~ended September 30,~~unclaimed ~~2004~~funds ashad ~~compared~~been reduced to ~~the~~a ~~fiscal~~total ~~year~~of ~~ended September 30, 2003 was~~ $0.~~4 million~~8 ~~in expert fees paid in preparation for trials. The legal fees for~~million ~~preference~~based ~~settlements are largely earned and paid~~ on aresponses ~~contingent~~to ~~basis,~~the ~~and are set at a declining rate for larger cases~~Notices. No Aassurance ~~significant~~can ~~number~~be ofgiven ~~the smaller~~as ~~cases were settled sooner than the larger matters, resulting in a~~to ~~higher fee percentage during~~ the ~~period~~ultimate ~~from~~availability ~~October 26,~~of ~~2001~~unclaimed ~~(Effective~~funds ~~Date) through~~for ~~September 30,~~distribution ~~2002 as compared~~ to ~~during~~ the ~~subsequent~~remaining holders ~~fiscal~~of ~~years~~Beneficial Interests.

~~Legal~~b. Reserved Cash ~~fees~~is held by the Liquidation Trust to assure payment of the Liquidation Trust’s obligations. Under the terms of the Plan, Reserved Cash is intended to provide for (a) operating expenses of the Liquidation Trust, (b) estimated ~~operations~~payments ~~have~~to holders of Allowed Unimpaired and Convenience Claims in accordance with the Plan, and (c) payments which may become necessary if and as Disputed Unimpaired Claims become allowed, or if certain specific contingencies should occur. Reserved Cash decreased by $4.7 million from September 30, 2007 to September 30, 2008, to a balance of $6.0 million, primarily as a result of (i) disbursements totaling $0.7 million from the ~~number~~Wind-down Reserve and the Litigation Reserve and (ii) the Liquidation Trust releasing the $4.0 million litigation appeals provision to Other Cash. The litigation appeals provision as of September 30, 2007 represented a contingency reserve to allow the Liquidation Trust to pursue or defend a future trial and ~~type~~appeals of ~~open~~the ~~matters~~Committee ~~declines~~Action. When the Liquidation Trustee determined that the Liquidation Trust would not pursue the Committee Action further, the litigation appeals provision was released.

3c. Other Cash ~~Operating~~decreased ~~expenses~~by $5.8 million from the September 30, 2007 balance of $6.1 million to a balance of $0.3 million as of September 30, 2008, primarily as a result of the Liquidation Trust’s payment of $11.3 million with respect to the sixth interim Distribution, partially offset by the $4.0 million released from Reserved Cash and the $1.4 million released from Available Cash during the year ended September 30, 2008.

~~Operating expenses during the fiscal year ended September 30, 2004 decreased by $0~~2.~~6 million from the fiscal year ended September 30, 2003~~ Significant ~~primarily~~contingency due to payroll and severance paid to several employees released during the fiscal year ended September 30, 2003. Operating expenses during fiscal year ended September 30, 2003 were substantially comparable to those during the period from October 26, 2001 (Effective Date) through September 30, 2002. Although the number of Liquidation Trust employees decreased, as noted, the related decrease in payroll was largely offset by severance paid to the terminated employees. reserves

4.The estimated ~~Claims~~amounts of the operating expenses of the Liquidation Trust, as well as estimated payments to holders of Allowed Unimpaired and Convenience Claims in accordance with the Plan, are recorded as liabilities in the Statements of Net Assets in Liquidation. Certain other reserves represent contingencies that are not deemed probable of actual payment in the opinion of the Liquidation Trustee, and therefore are not recorded as liabilities in the accompanying Statements of Net Assets in Liquidation. These reserves do not currently, but could ultimately, reduce the Liquidation Trust’s net assets in liquidation. Such reserves currently reduce the availability of cash for Distributions to holders of Beneficial Interests. Significant contingency reserves as of September 30, 2008 include the minimum reserve and the Excess Disputed Unimpaired Claims Reserve.

Payments of Unimpaired Claims were significantly lower during the fiscal year ended September 30, 2004 than during the fiscal year ended September 30, 2003 because nearly all significant Unimpaired Claims, other than the Kemper Claim, had been settled and paid by September 30, 2003a. ~~Payments of~~ Minimum Unimpaired Claims were significantly lower during the fiscal year ended September 30, 2003 than during the period from October 26, 2001 (Effective Date) through September 30, 2002, largely because $8.7 million of Unimpaired Claims had been allowed as of October 26, 2001 (Effective Date), but payments were not permitted until after the Plan became effective on the Effective Date. These one-time payments with respect to $8.7 million of Allowed Claims, the majority of which were paid prior to September 30, 2002, were primarily for professional fees, Claims settlements allowed in the Plan, and employee Claims for unpaid vacation and severance. reserve

5The minimum reserve, established in the amount of $3.0 ~~Distributions~~million ~~paid~~pursuant to the Plan and intended to assure adequate liquidity for the Liquidation Trust, is to be maintained, subject to reduction by an order of the Bankruptcy Court, until the Liquidation Trust makes a final Distribution, if any, or is otherwise terminated.

Distributions paid depend primarily on the amount of Allowed Impaired Claims, including Claims newly allowed, and on the Distributions authorized from time to time. As described under “Distributions authorized,” above, the third interim Distribution was authorized and paid during September 2004 at a rate of 1.527%, the second interim Distribution was authorized and paid during June 2003 at the rate of 2.058%, and the Initial Distribution was authorized and paid during August 2002 at a rate of 4.515%. 18

23b. Excess Disputed Unimpaired Claims Reserves

C.The ~~Cash~~value of Disputed Claims, for the purpose of establishing adequate reserves, was estimated by the Liquidation Trust and ~~selected~~approved ~~contingency~~by the Bankruptcy Court in an order establishing the amounts of Disputed Claims Reserves (the "Claims Reserves"). The Excess Disputed Unimpaired Claims Reserve balance of $0.3 million as of September 30, 2008 and ~~other~~September ~~reserves~~30, 2007 represented the reserved value of Disputed Unimpaired Claims in excess of the amount the Liquidation Trust expected to pay with respect to such Claims. Although the Liquidation Trust expects that the three remaining Disputed Unimpaired Claims will be waived, until the Claims are resolved, the Excess Disputed Unimpaired Claims Reserve is maintained with respect to each such Claim in accordance with the Bankruptcy Court order establishing the Claims Reserves.

1Item 7A. ~~Cash~~Quantitative and ~~cash~~Qualitative ~~equivalents~~ Disclosures about Market Risk

~~The~~As the Liquidation Trust’s ~~cash~~investment ~~and~~activities ~~cash~~are ~~equivalents~~limited ~~balance~~by ~~decreased~~the ~~by $12.5 million,~~terms ~~from~~of ~~$46.8 million~~the asPlan and ofthe ~~September 30,~~Bankruptcy ~~2003~~Code, tothe ~~$34.4 million~~disclosures as of ~~September~~Item ~~30,~~305 ~~2004. The decrease resulted primarily from Distributions to holders~~ of ~~Beneficial Interests and cash disbursements associated~~ Regulation S-K with ~~the costs~~regard ofto ~~liquidation,~~Market ~~partially~~Risk ~~offset~~are bynot ~~cash receipts~~applicable, ~~primarily~~and ~~from preference~~therefore ~~recovery actions.~~are omitted.

~~The Liquidation Trust’s cash and cash equivalents balance is classified as either (a)~~Item ~~Designated as Available for Distribution to Holders of Impaired Claims (“Available Cash”), (b) Reserved, (c) Restricted or (d) Other~~8. ~~Under~~ ~~the~~Financial ~~terms~~Statements ofand ~~the~~Supplementary ~~Plan, the Liquidation Trust is not required to segregate funds for reserves.~~ Data

~~a. Available~~The ~~Cash~~financial isstatements ~~designated to assure the availability of funds for~~and ~~payment~~supplementary tofinancial ~~holders~~data ~~of Impaired Claims who have not received authorized Distributions. The~~ required ~~amount~~by ofthis ~~Available~~Item ~~Cash of $3.4 million as of September 30, 2004 was based on the cumulative Distribution rate of~~ 8~~.1%,~~ ~~for $1.9 million~~are ofset ~~Allowed~~forth ~~but~~in ~~unpaid~~Part ~~Impaired Claims plus $39.5 million of Disputed Impaired Claims (at their estimated value for reserve purposes). The required amount of Available Cash of $7.1 million as of September 30~~IV, ~~2003 was~~ ~~based~~Item ~~on the cumulative Distribution rate of 6~~15.~~573%,~~ ~~for $9.3 million~~ of ~~Allowed~~ ~~but~~this ~~unpaid~~Form ~~Impaired Claims plus $98~~10-K.~~4 million~~ Any ofinformation ~~Disputed~~which ~~Impaired Claims~~has ~~(at~~been ~~their~~omitted ~~estimated value for reserve purposes). The value of Disputed~~is ~~Impaired~~either ~~Claims,~~inapplicable ~~for~~or ~~the~~not ~~purpose of establishing adequate reserves, was estimated by the Liquidation Trust and approved by the Bankruptcy Court in an order establishing the amounts of Disputed Claims Reserves~~required.

~~b. Reserved Cash is held by the Liquidation Trust to assure payment of the~~Item ~~Liquidation Trust’s obligations~~9. ~~Under~~Changes ~~the~~in ~~terms of the Plan, Reserved Cash is intended to provide for (a) operating expenses of the Liquidation Trust, (b) estimated payments to holders of Allowed Unimpaired~~ and ~~Convenience~~Disagreements ~~Claims in accordance~~ with ~~the~~Accountants ~~Plan,~~on ~~and~~Accounting ~~(c) payments which may become necessary if~~ and asFinancial Disputed Unimpaired Claims become allowed, or if certain specific contingencies should occur. Reserved Cash decreased by $2.8 million from September 30, 2003 to September 30, 2004, to a balance of $21.5 million, as a result of net decreases in various liability reserves, primarily the Wind-down Reserve and Unimpaired Claims payable. Disclosure

c. AsChanges ofin ~~September 30,~~Registrant’s ~~2004, Restricted Cash of $9.3 million relates~~Certifying primarily to the Secured Claim asserted by Kemper. Kemper held an irrevocable cash-collateralized letter of credit with a balance of $8.6 million as of September 30, 2004 to secure payment of certain Insurance Claims. Subsequent to year-end, Kemper and the Liquidation Trust reached an agreement, subject to approval by the Bankruptcy Court, to settle the Insurance Claims for $1.7 million, offset by a $0.1 million prepayment held by a third-party claims administrator, and to reduce the letter of credit to $1.6 million. Restricted Cash decreased primarily as a result of payments relating to the Insurance Claims during the fiscal year ended September 30, 2004. Accountant

2.(a) Dismissal of ~~Significant~~Kaiser ~~contingency~~Scherer ~~reserves~~ & Schlegel, PLLC

~~The estimated amounts of the operating expenses of the Liquidation Trust~~On ~~and~~April 16, ~~estimated~~2007, ~~payments to holders of Allowed Unimpaired and Convenience Claims in accordance with~~ the ~~Plan are recorded as liabilities in the Statements of Net Assets in~~ Liquidation. ~~Certain other reserves represent contingencies that are not deemed probable of actual payment in the opinion of the Liquidation~~ Trustee, ~~and~~dismissed ~~therefore~~Kaiser ~~are~~Scherer ~~not recorded as liabilities in the accompanying~~& ~~Statements of Net Assets in Liquidation. These reserves do not currently~~Schlegel, ~~but could~~PLLC ~~ultimately~~(“KSS”), ~~reduce~~as the Liquidation Trust’s ~~net~~independent ~~assets~~registered inpublic accounting ~~liquidation~~firm. ~~Such~~ In ~~reserves~~accordance ~~currently~~with ~~reduce~~ the ~~availability~~procedures ofset ~~cash~~forth ~~for~~in ~~Distributions to holders of Beneficial Interests. Significant contingency reserves include~~ the ~~Fleet Reserve~~Plan, ~~the~~approval ~~Disputed~~of ~~Unimpaired~~the ~~Claims~~dismissal ~~Reserve,~~was ~~and~~obtained from the ~~Impaired Claims Reserve, as follows:~~ Committee.

24The principal accountant reports of KSS as to the Liquidation Trust’s financial statements as of September 30, 2006 and September 30, 2005 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles except for the following:

a“We were unable to confirm preference receivables aggregating $0. ~~Fleet~~853 ~~Reserve~~million as of September 30, 2006 and $0.869 million as of September 30, 2005 with the parties subject to such claims, and we were unable to satisfy ourselves about the fair value of, and changes in estimates relating to, preference receivables through alternative procedures.”

~~The~~During the Liquidation Trust’s ~~maintains~~fiscal ~~the~~years ~~Fleet~~ended ~~Reserve~~September 30, in2006 ~~the~~and ~~amount of $11.0~~September ~~million~~30, ~~pursuant~~2005 toand athe ~~stipulation~~subsequent ~~with~~interim ~~Fleet,~~period ~~for~~through ~~certain~~April 15, ~~claims~~2007, ~~related to~~there ~~the~~were ~~Bondholder~~(i) no ~~Action~~disagreements ~~and/or~~between the ~~Committee~~Liquidation ~~Action~~Trust ~~which~~and ~~Fleet~~KSS ~~may~~on ~~assert. The~~any ~~Fleet~~matter ~~Reserve~~of isaccounting ~~likely~~principles toor bepractices, ~~drawn~~financial ~~upon~~statement ~~if Fleet~~disclosure, asor auditing ascope ~~defendant~~or ~~in these Actions~~procedure, ~~should~~which ~~ultimately~~disagreement, ~~prevail.~~if Nonot ~~liability~~resolved ~~has~~to ~~been recorded in~~the ~~connection~~satisfaction ~~with~~of ~~the~~KSS, ~~Fleet~~would ~~Reserve~~have ~~because~~caused ~~the~~KSS ~~Liquidation~~to ~~Trust~~make ~~has~~reference ~~appealed the~~to ~~adverse order and judgment in~~ the ~~Bondholder Action, does not consider~~subject ~~Fleet~~matter ~~likely~~of tothe ~~ultimately~~disagreements ~~prevail~~ in ~~either~~connection ofwith ~~these~~its ~~Actions~~reports, and ~~has~~ (ii) no ~~access~~“reportable toevents” ~~information~~(as todescribed ~~estimate~~in ~~the~~Item 304(a)(1)(v) ~~amount,~~of ~~if any, that Fleet may validly~~Regulation ~~assert against the Fleet Reserve~~S-K).

~~b. Disputed Unimpaired Claims Reserves~~ 19

The value of Disputed Claims, for the purpose of establishing adequate reserves, was estimated by the Liquidation Trust and approved by the Bankruptcy Court in an order establishing the amounts of Disputed Claims Reserves (~~the “Claims Reserves”~~b)~~. Total required Claims Reserves for Unimpaired Claims~~ Appointment ~~(which exclude the Kemper Insurance Claim) totaled $1.7 million as~~ of ~~September 30,~~Reznick ~~2004. Of this amount~~Group, $1P.~~4 million was already accrued in Unimpaired Claims payable, requiring a contingency reserve for Excess Disputed Unimpaired Claims of $0~~C.3 million as of September 30, 2004. As of September 30, 2003, of the total Claims Reserves for Unimpaired Claims of $2.4 million, $2.0 million was already accrued by the Liquidation Trust as part of Unimpaired Claims payable. The $0.4 million balance of the Claims Reserves was included in the Liquidation Trust’s contingency reserves as of September 30, 2003 as the Excess Disputed Unimpaired Claims Reserve.

c.On April ~~Impaired~~16, ~~Claims~~2007, ~~Reserve~~the Liquidation Trustee engaged Reznick Group, P.C. (“Reznick”) as the Liquidation Trust’s independent registered public accounting firm. In accordance with the procedures set forth in the Plan, approval of the appointment was obtained from the Committee.

~~The~~Prior ~~Liquidation~~to the ~~Trust~~engagement ~~also~~of ~~maintains~~Reznick by the ~~Impaired~~Liquidation ~~Claims Reserve~~Trust, ~~which totaled~~the ~~$3.2 million~~Liquidation asTrust ofdid not ~~September 30,~~consult ~~2004~~with ~~and~~Reznick ~~$6.5 million~~on asany ofmatter ~~September 30,~~that ~~2003~~(1) involved at the ~~then~~application ~~current~~of accounting ~~cumulative~~principles ~~Distribution~~to ~~rate.~~a ~~The~~specified ~~Impaired~~transaction, ~~Claims Reserve~~either ~~represents~~completed anor ~~equity~~proposed, or ~~interest~~the intype ~~the~~of ~~net~~audit ~~assets,~~opinion ifthat ~~any,~~might ~~after~~be ~~payment of~~rendered ~~all~~on the Liquidation Trust’s financial ~~liabilities~~statements, ~~for~~or (2) was either the ~~benefit~~subject of ~~holders~~a ofdisagreement ~~Impaired~~(as ~~Claims~~defined ~~which~~in ~~remain~~paragraph ~~disputed.~~304(a)(1)(iv) ~~The~~and ~~decrease in~~ the ~~Impaired~~related ~~Claims~~instructions ~~Reserve~~to ~~from September~~Item ~~30,~~304 of ~~2003~~Regulation toS-K) ~~September 30,~~or ~~2004~~a ~~reflects~~reportable ~~the~~event ~~decrease~~(as described in ~~the~~Item 304(a)(1)(v) of ~~value~~Regulation ~~of Disputed~~S-K). Prior ~~Impaired~~to ~~Claims~~its engagement, ~~partially~~Reznick ~~offset~~did bynot ~~the~~provide any ~~increase~~written inor oral advice to the ~~cumulative Distribution~~Liquidation ~~rate~~Trust as to ~~8.1%~~any ~~from~~accounting, auditing 6or financial reporting issues.~~573%.~~

~~As of September 30, 2004 and September 30, 2003, the asserted value of~~Item ~~Disputed Impaired Claims was $64~~9A.~~1 million~~ ~~and~~Controls $128.2 million, respectively. During the fiscal year ended September 30, 2004, the Liquidation Trust reduced the amount of asserted Disputed Impaired Claims outstanding by $64.1 million by settling Impaired Claims for amounts which, in the aggregate, were substantially less than the original amounts claimed, and ~~arranging for the waiver of Impaired Claims in conjunction with a number of preference recovery settlements.~~ Procedures

~~Item 7A~~Not applicable. ~~Quantitative and Qualitative Disclosures about Market Risk~~

~~As the Liquidation Trust’s investment activities are limited by the terms of the Plan and the Bankruptcy Code, the disclosures of~~ Item ~~305 of Regulation~~ ~~S-K~~9A(T). ~~with~~Controls ~~regard to Market Risk are not applicable,~~ and ~~therefore are omitted.~~ Procedures

~~Item~~Disclosure Controls ~~8. Financial Statements~~ and ~~Supplementary Data~~Procedures

The Liquidation ~~financial~~Trust ~~statements~~has designed and ~~supplementary~~maintains ~~financial~~disclosure ~~data~~controls and procedures to ensure that information required byto ~~this~~be disclosed in its reports filed or ~~Item 8~~submitted ~~are~~under ~~set~~the ~~forth~~Exchange inAct ~~Item 15~~is ofrecorded, ~~this~~processed, ~~Form~~summarized ~~10-K~~and reported within the time periods specified in the Commission’s rules and regulations. These ~~Any~~controls ~~information~~and ~~which~~procedures ~~has~~are also designed to ~~been~~ensure ~~omitted~~that such information is ~~either~~communicated ~~inapplicable~~to orthe ~~not~~Liquidation Trustee, to allow him to make timely decisions about required disclosures.

~~Item~~The Liquidation 9.Trust, ~~Changes~~including inthe Liquidation Trustee, has conducted an evaluation of the effectiveness of disclosure controls and ~~Disagreements~~procedures ~~with~~pursuant to ~~Accountants~~Exchange Act Rule 13a-15 and 15d-15. Based on ~~Accounting~~that evaluation, the Liquidation Trustee concluded that the Liquidation Trust’s disclosure controls and ~~Financial~~procedures ~~Disclosure~~are effective as of September 30, 2008.

~~None.~~Internal Control over Financial Reporting

25(a) Annual Report on Internal Control over Financial Reporting

~~Item~~The Liquidation 9ATrust, including the Liquidation Trustee, is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of the financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. ~~Controls~~Internal control over financial reporting includes those policies and ~~Procedures~~procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Liquidation Trust, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the receipts and expenditures of the Liquidation Trust are being made only in accordance with the authorizations of the Liquidation Trustee, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements of the Liquidation Trust.

The Liquidation Trust, ~~has~~including ~~designed~~the ~~and~~Liquidation ~~maintains~~Trustee, ~~disclosure~~assessed ~~controls~~the ~~and~~Liquidation ~~procedures~~Trust’s tointernal ~~ensure~~control ~~that~~over ~~information~~financial ~~required~~reporting toas beof ~~disclosed~~September in30, ~~its~~2008, ~~reports~~the ~~filed~~end orof ~~submitted~~the ~~under~~Liquidation ~~the~~Trust’s ~~Exchange~~fiscal ~~Act~~year. isThe ~~recorded,~~Liquidation ~~processed,~~Trust ~~summarized~~ and ~~reported~~the Liquidation ~~within~~Trustee ~~the~~based ~~time~~this ~~periods~~assessment ~~specified~~on criteria established in Internal Control—Integrated Framework issued by the ~~Commission’s~~Committee ~~rules~~of ~~and~~Sponsoring Organizations ~~regulations~~of the Treadway Commission. The ~~These~~Liquidation ~~controls~~Trust and ~~procedures~~the ~~are~~Liquidation Trustee’s ~~also~~assessment ~~designed~~included toevaluation ~~ensure~~of ~~that~~ such ~~information~~elements isas ~~communicated~~the todesign ~~the~~and operating ~~Liquidation~~effectiveness ~~Trustee,~~of tokey ~~allow~~financial ~~him~~reporting tocontrols, process ~~make~~documentation, ~~timely~~accounting ~~decisions~~policies, ~~about~~and ~~required~~the ~~disclosures.~~Liquidation Trust’s overall control environment.

The Liquidation Trust, including the Liquidation Trustee, has conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 and 15d-15. Based on that evaluation, the Liquidation Trustee concluded that the Liquidation Trust’s disclosure controls and procedures are effective as of September 30, 2004. 20

~~There~~Based ~~has~~on this ~~been~~assessment, nothe ~~change~~Liquidation inTrust and the Liquidation Trustee concluded that the Liquidation Trust’s internal control over financial reporting ~~that~~was effective ~~occurred~~as ~~during~~of the ~~Liquidation~~end ~~Trust’s~~of ~~most~~the ~~recent~~ fiscal ~~quarter~~year ~~that~~to ~~has~~provide ~~materially~~reasonable ~~affected,~~assurance regarding orthe isreliability ~~reasonably~~of ~~likely~~financial ~~to materially~~reporting ~~affect,~~and the ~~Liquidation~~preparation ~~Trust’s~~of financial ~~internal~~statements ~~control~~for ~~over~~external ~~financial~~ reporting. purposes in accordance with generally accepted accounting principles.

~~The~~This annual ~~Liquidation~~report ~~Trust’s~~does ~~internal~~not ~~controls~~include ~~over~~an ~~financial~~attestation ~~reporting~~report ~~will be subject to audit as~~ of ~~September 30,~~the ~~2005. The~~ Liquidation Trust ~~has completed~~’s ~~its~~registered ~~documentation~~public ofaccounting ~~current~~firm regarding internal ~~controls~~control over financial reporting. The ~~requirements~~ report of the ~~Sarbanes~~Liquidation –Trust ~~Oxley~~and ~~Act~~the ~~of 2002 have been taken into account~~Liquidation inTrustee ~~planning~~was ~~for~~not ~~the~~subject ~~future~~to ~~administrative~~attestation ~~requirements~~by of the Liquidation Trust’s registered ~~when~~public itaccounting ~~suspends~~firm ~~day-~~pursuant to~~-day~~ ~~operations.~~temporary ~~Because~~rules of the ~~Liquidation~~Securities ~~Trust expects~~and toExchange ~~have~~Commission nothat ~~full-time~~permit ~~employees as of September 30, 2005,~~ the Liquidation Trust is ~~currently~~to ~~assessing~~provide only its ~~ability~~report in tothis ~~maintain~~annual ~~an effective control environment~~report.

~~PART III~~(b) Changes in Internal Control Over Financial Reporting

~~Item~~There ~~10.~~has been ~~Directors~~no ~~and~~change ~~Executive~~in ~~Officers~~the Liquidation Trust’s internal control over financial reporting that occurred during the Liquidation Trust’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Liquidation Trust’s internal control over financial reporting.

~~Conrad~~The remaining F.responsibilities ~~Hocking,~~of the Liquidation ~~Trustee,~~Trust ~~age~~no ~~51,~~longer ~~was~~require ~~employed by~~the ~~Hechinger~~full-time ~~for~~attention ~~over~~of ~~30 years~~the ~~and~~Liquidation ~~has~~Trustee ~~served~~or asof ~~the~~ Liquidation ~~Trustee~~Trust employees. Consequently, ~~since~~in conjunction with the termination of most ~~inception~~of the day-to-day activities of the Liquidation Trust., Inall ~~May~~employees, ofincluding the ~~2000~~Liquidation Trustee, ~~Mr. Hocking~~were ~~was~~released ~~appointed as~~from ~~Chief~~full-time ~~Executive~~employment ~~Officer~~by ~~and~~the Liquidation ~~Chief~~Trust ~~Financial~~in ~~Officer~~June ~~of Hechinger~~2005. The ~~Prior thereto,~~Liquidation ~~Mr. Hocking~~Trustee ~~served~~and asone ~~Chief~~other employee ~~Financial~~are ~~Officer~~performing ~~commencing~~necessary inmanagement, ~~October~~accounting ofand reporting functions ~~1999.~~on ~~Immediately~~a ~~prior~~part-time tobasis, ~~the~~with ~~time~~periodic ofassistance ~~Hechinger’s~~from ~~Chapter 11~~other ~~bankruptcy~~former ~~filing,~~employees. While inthe ~~June~~Liquidation ofTrustee ~~1999,~~believes ~~Mr. Hocking~~that ~~was~~these individuals ~~named~~will ~~Vice~~consistently ~~President~~make –themselves ~~Finance~~available ~~and Acting~~as ~~Chief~~needed ~~Financial~~to ~~Officer,~~perform their ~~after~~assigned ~~previously~~responsibilities, ~~serving~~including asfunctions ~~Director~~related –to ~~Planning~~internal control ~~and~~over ~~Analysis.~~financial ~~Mr. Hocking~~reporting, ~~holds~~there acan ~~Bachelor~~be ofno ~~Science~~assurance ~~degree~~that ~~from~~this ~~George~~availability ~~Mason~~will ~~University~~continue. As ~~Mr. Hocking’s~~a ~~principal~~result, ~~business~~there ~~address~~may isbe ~~405~~future ~~East~~deficiencies ~~Gude~~in ~~Drive,~~internal ~~Suite 206,~~accounting ~~Rockville,~~controls ~~Maryland~~related ~~20850~~to a lack of segregation of duties.

~~The Liquidation Trust does not have directors or executive officers. All~~Item ~~of the management and executive authority over the Liquidation Trust resides in the Liquidation Trustee, who has the full right, power and discretion to manage the Liquidation Trust~~9B. ~~The~~Other ~~Liquidation Trust Agreement prescribes the following material duties and powers of the Liquidation Trustee:~~ Information

• Exercising all power and authority which could have been exercised by any officer, director or shareholder of the Debtors; • Collecting and liquidating all assets, including pursuing, prosecuting or settling all litigation and other claims of the Liquidation Trust against third parties; • Objecting to claims against the Debtors and defending, compromising or settling such claims; • Making Distributions or payments to holders of Allowed Claims; and • Assuring compliance of the Liquidation Trust in matters such as maintaining books and records, determining and paying for applicable insurance, entering into agreements and signingNone.

26PART III

~~documents~~Item 10. Directors, ~~filing~~Executive ~~tax~~Officers ~~returns,~~ and ~~taking~~Corporate ~~all other actions, consistent with the Plan, which the Liquidation Trustee deems necessary or desirable with respect to administering the Plan.~~Governance

~~The~~Conrad ~~Liquidation Trust has no Board of Directors, no Audit Committee, and~~F. ~~no director serving as a designated financial expert~~Hocking, as the Liquidation ~~Trust is~~Trustee, aage ~~limited-purpose~~55, ~~entity~~was ~~with~~employed aby ~~narrowly~~Hechinger ~~specified~~for ~~purpose,~~over ~~limited life,~~30 years and ~~minimal~~has ~~staffing.~~served ~~The~~as ~~actions of~~ the Liquidation Trustee ~~are~~since ~~prescribed by~~ the ~~Liquidation~~inception ~~Trust Agreement, and circumscribed by the requirements~~ of the ~~Bankruptcy~~Liquidation ~~Code~~Trust. Prior ~~and~~thereto, ~~of the Plan~~Mr. ~~The~~Hocking ~~Liquidation~~served ~~Trustee~~as ~~periodically reports~~Chief toExecutive ~~the~~Officer ~~Committee~~and asChief toFinancial ~~the~~Officer ~~status~~ of ~~all~~Hechinger ~~material~~since ~~litigation and Claims~~May ~~objections~~2000. Mr. ~~and~~Hocking ~~all~~holds ~~other~~a ~~material~~Bachelor ~~matters~~of ~~affecting~~Science ~~the~~degree ~~Liquidation~~from ~~Trust.~~George ~~Additionally,~~Mason ~~the~~University. Mr. ~~Liquidation~~Hocking’s ~~Trustee~~principal ~~provides~~business ~~written~~address ~~notice~~is ~~to the Committee~~405 ~~prior~~East toGude ~~taking~~Drive, ~~any~~Suite ~~action~~206, ~~regarding~~Rockville, ~~the~~Maryland ~~following matters:~~ 20850.

•The ~~Settlements~~Liquidation ~~for~~Trust ~~which~~does ~~the~~not ~~Bankruptcy~~have directors ~~Court~~or ~~had~~executive ~~previously~~officers. ~~required~~All ~~approval by the Official Committee~~ of ~~Unsecured Creditors (i.e., based upon~~ the ~~significance~~management and ~~type~~executive ofauthority over ~~Claim);~~the •Liquidation ~~Distributions~~Trust orresides ~~payments~~in tothe ~~holders~~Liquidation ofTrustee, ~~Allowed~~who ~~Claims;~~has •the ~~Engaging and compensating consultants~~full right, ~~agents,~~power ~~employees~~ and ~~all~~discretion ~~professional~~to ~~persons,~~manage ~~other~~the ~~than~~Liquidation ~~those~~Trust. The Liquidation ~~already~~Trust ~~approved~~Agreement byprescribes the ~~Bankruptcy~~following ~~Court;~~material duties and •powers of ~~All~~the ~~other~~Liquidation ~~material matters and decisions.~~Trustee:

A• ~~proposed~~Exercising ~~action~~all ispower ~~deemed~~and ~~approved~~authority bywhich ~~the~~could ~~Committee~~have ~~unless~~been ~~the Liquidation~~exercised ~~Trustee~~by ~~receives~~any ~~objections~~officer, ~~from~~director aor ~~majority~~shareholder of the ~~members~~Debtors; of• ~~the Committee~~Collecting ~~within~~and ~~ten~~liquidating ~~days~~all ~~after~~assets, ~~written~~including ~~notice~~pursuing, isprosecuting ~~provided~~or tosettling ~~the~~all ~~Committee. In~~litigation ~~the~~and ~~event~~other claims of ~~an objection by~~ the ~~Committee~~Liquidation ~~which~~Trust ~~cannot~~against bethird ~~resolved consensually,~~parties; ~~the~~• ~~matter~~Objecting ~~will be resolved by the Bankruptcy Court, pursuant~~ to ~~the~~ ~~terms~~claims ofagainst the ~~Plan~~Debtors and ~~the~~defending, ~~Liquidation~~compromising ~~Trust~~or ~~Agreement.~~ settling such claims;

~~The Bankruptcy Court continues to maintain jurisdiction over the Liquidation Trust in all significant matters, such as:~~ 21

• ~~Protecting~~Making ~~the~~Distributions ~~property~~or payments to holders of Allowed Claims; and • Assuring compliance of the Liquidation Trust ~~from~~in ~~interference,~~matters ~~authorizing~~such ~~sales~~as ofmaintaining ~~assets~~books and ~~approving~~records, ~~Distributions~~determining orand ~~payments~~paying tofor ~~holders~~applicable ofinsurance, ~~Allowed~~entering ~~Claims;~~into agreements and •signing ~~Taking~~documents, ~~any~~filing tax returns, and taking all other ~~action~~actions, toconsistent ~~enforce~~with ~~and~~the ~~execute~~Plan, which the Liquidation Trustee deems necessary or desirable with respect to administering the Plan.

The Liquidation ~~Trustee~~Trust has no Board of Directors, no Audit Committee, and ~~all~~no director serving as a designated financial expert, as the Liquidation Trust ~~employees~~is ~~have~~a limited-purpose ~~executed~~entity with a narrowly specified purpose, limited life, and minimal staffing. The actions of the Liquidation Trustee are prescribed by the Liquidation Trust Agreement, and circumscribed by the requirements of the Bankruptcy Code and of ~~Ethics~~the Plan. The Liquidation Trustee periodically reports to the Committee as to the status of all material litigation and Claims objections and all other material matters affecting the Liquidation Trust. Additionally, the Liquidation Trustee provides written notice to the Committee prior to taking any action regarding the following matters:

~~Item~~• 11Settlements for which the Bankruptcy Court had previously required approval by the Official Committee of Unsecured Creditors (i.e., ~~Executive~~based ~~Compensation~~upon the significance and type of Claim); • Distributions or payments to holders of Allowed Claims; • Engaging and compensating consultants, agents, employees and all professional persons, other than those already approved by the Bankruptcy Court; and • All other material matters and decisions.

~~The Liquidation Trustee is currently employed on a full-time basis and is~~A ~~paid~~proposed anaction ~~annual salary of $343,600. The Liquidation Trustee~~ is ~~not~~deemed ~~eligible~~approved ~~for any~~by ~~incentive compensation, equity compensation, or other benefits. During~~ the ~~fiscal~~ ~~year~~Committee ~~ended~~unless ~~September 30, 2004, salary payments to~~ the Liquidation Trustee ~~totaled~~receives ~~$343,600.~~objections ~~The~~from ~~Liquidation~~a ~~Trustee~~majority ~~is entitled to be reimbursed for all documented actual, reasonable and necessary out-~~of~~-pocket~~ ~~expenses incurred in~~ the ~~performance~~members of ~~his duties; during~~ the ~~fiscal year ended~~Committee ~~September 30,~~within ~~2004,~~ten ~~reimbursements~~days ~~for~~after ~~such~~written ~~expenses,~~notice ~~which~~is ~~are~~provided ~~subject~~ to ~~Committee~~ ~~review, totaled $25,783, primarily for repairs to~~ the ~~Liquidation~~Committee. In ~~Trust’s~~the ~~AS/400~~event ~~computer,~~of ~~travel,~~an ~~and~~objection ~~supplies~~by ~~purchased for~~ the ~~Liquidation Trust’s office. The~~ Committee orwhich ~~the~~cannot ~~Liquidation~~be ~~Trustee may determine that~~resolved consensually, the ~~Liquidation~~matter ~~Trustee~~will isbe ~~required~~resolved ~~solely~~by onthe aBankruptcy ~~part-time basis~~Court, atpursuant ~~which time~~to the ~~Liquidation~~terms ~~Trustee~~of ~~will~~the bePlan ~~employed part-time~~ and ~~be compensated at~~ the ~~rate~~ ofLiquidation ~~$190.00~~Trust ~~per hour~~Agreement.

The ~~Liquidation Trustee is irrevocably entitled to a severance payment in~~ ~~the fixed amount of $278,087 pursuant to a retention program approved by the~~ Bankruptcy Court bycontinues ~~order~~to ~~dated~~maintain ~~September 10,~~jurisdiction ~~1999~~over ~~and pursuant to~~ the Liquidation Trust in ~~Agreement,~~all ~~which~~significant ~~will~~matters, besuch ~~paid upon the earliest of (i) his~~ as:

27 • Protecting the property of the Liquidation Trust from interference, authorizing sales of assets and approving Distributions or payments to holders of Allowed Claims; and • Taking any other action to enforce and execute the Plan.

~~resignation as~~ The Liquidation Trustee, ~~(ii) termination~~and ofall ~~his appointment or removal as~~ Liquidation ~~Trustee,~~Trust oremployees ~~(iii) reduction~~have ofexecuted ~~his duties as Liquidation~~the ~~Trustee~~Liquidation toTrust aCode ~~part-time basis~~ of ~~less than forty hours per week~~Ethics.

Item 12 11. Executive ~~Securities Ownership of Certain Beneficial Owners and Management~~Compensation

The Liquidation ~~Trust~~Trustee ~~does~~is ~~not~~employed ~~have~~on ~~any~~a ~~securities~~part-time ~~that~~basis ~~vote~~at ~~for~~ the ~~election~~ rate of ~~the~~$190 ~~Liquidation Trustee and, consequently, does not have any~~per ~~“voting~~hour. During ~~securities” within~~ the ~~meaning~~fiscal ofyear ~~the~~ended ~~Exchange~~September ~~Act of 1934~~30, ~~as amended~~2008, salary ~~and~~payments ~~the regulations thereunder applicable~~ to the ~~disclosure~~Liquidation ofTrustee 5%totaled ~~holders of voting securities~~$32,570. The Liquidation Trustee is not aeligible ~~beneficial~~for ~~owner of~~ any ~~Beneficial~~ ~~Interests.~~incentive ~~The~~compensation, ~~Liquidation~~equity ~~Trustee~~compensation, ~~has no knowledge of any~~or ~~arrangements~~other ~~which may result in a change of control of the Liquidation Trust~~benefits.

~~Item~~The Liquidation ~~13.~~Trustee ~~Certain~~is ~~Relationships~~reimbursed for all documented actual, reasonable and necessary ~~Related~~out-of-pocket ~~Transactions~~expenses incurred in the performance of his duties; during the fiscal year ended September 30, 2008, reimbursements for such expenses, which are subject to Committee review, totaled $2,866, primarily for supplies purchased for the Liquidation Trust’s office.

~~None.~~ 22

Item 14 12. ~~Principal~~Securities Ownership ~~Accounting~~of ~~Fees~~Certain Beneficial Owners and ~~Services~~Management and Related Stockholder Matters

~~Fees~~The Liquidation ~~paid~~Trust todoes not have any securities that vote for the election of the Liquidation ~~Trust’s~~Trustee ~~principal~~and, ~~accounting~~consequently, ~~firm~~does ~~during~~not ~~the~~have any “voting securities” ~~periods~~within the meaning of the Exchange Act of 1934, as ~~indicated~~amended, ~~were:~~and the regulations thereunder applicable to the disclosure of 5% holders of voting securities. The Liquidation Trustee is not a beneficial owner of any Beneficial Interests. The Liquidation Trustee has no knowledge of any arrangements which may result in a change of control of the Liquidation Trust.

($Item 13. Certain Relationships inand ~~thousands)~~Related Transactions and Director Independence

	For the fiscal year		For the fiscal year
	ended		ended
	September 30, 2004		September 30, 2003
Audit services	$	47	$	53
Tax services		21		—
Total	$	68	$	53

None. The Liquidation Trust has no Board of Directors. The entities serving as members of the Committee are holders of significant Beneficial Interests and are therefore not independent with respect to the Liquidation Trust.

~~The Liquidation Trust has no Audit Committee; therefore, the related~~Item 14. Principal ~~pre-approval~~Accounting ~~policies~~Fees and ~~procedures are not applicable.~~ Services

~~Tax~~Fees ~~services~~paid to ~~performed for~~ the Liquidation Trust’s ~~relate~~principal toaccounting ~~preparation~~firms of during the ~~Liquidation~~periods ~~Trust’s tax returns.~~as indicated were:

~~Item~~($ ~~15. Exhibits and Financial Statement Schedules~~in thousands)

1.	Financial Statements
	For the fiscal year		For the fiscal year		For the fiscal year
	Financial Statements as of September 30, 2004 and September 30, 2003, for the fiscal years ended September 30, 2004 and September 30, 2003, and for the period from October 26, 2001 (Effective Date) through September 30, 2002
	ended		ended		ended
	Table of Contents
	September 30, 2008		September 30, 2007		September 30, 2006
Current principal accounting firm
Audit services	$	73	$	28	$	-
Tax services		14		6		-
Total	$	87	$	34	$	-
Predecessor principal accounting firm
Audit services	$	2	$	35	$	52
Tax services		-		-		8
Total	$	2	$	35	$	60

	Page
Report of Independent Registered Public Accounting Firm		F-1
Statements of Net Assets in Liquidation		F-2
Statements of Changes in Net Assets in Liquidation		F-3
Statements of Cash Receipts and Disbursements		F-4
Notes to Financial Statements		F-5

The Liquidation Trust has no Audit Committee; therefore, the related pre-approval policies and procedures are not applicable. Tax services performed for the Liquidation Trust relate to preparation of the Liquidation Trust’s tax returns and related professional services.

28 23

2.		Financial Statement Schedules
		Financial statement schedules are either not applicable or the required information has been provided in the financial statements or the notes thereto, filed herewith under Item 15.
3.		Exhibits
		The following exhibits are filed with this Form 10-K:

PART IV

Exhibit
No.		Description
2.1*		Disclosure Statement for First Amended Consolidated Plan of Liquidation under Chapter 11 of the United States Bankruptcy Code, dated August 14, 2001, including as its Exhibit A, the Revised First Amended Consolidated Plan of Liquidation.
4.1*		Hechinger Liquidation Trust Agreement, dated as of October 23, 2001, by and among Hechinger Investment Company of Delaware, Inc., et al., The Official Committee of Unsecured Creditors of Hechinger Investment Company of Delaware, Inc., et al. and Conrad F. Hocking, as the Liquidation Trustee.
14.1**		Code of Ethics.
23.1***		Consent of Independent Registered Public Accounting Firm.
31.1***		Certification by Liquidation Trustee.
32.1***		Liquidation Trustee’s Certification Pursuant to 18 U.S.C. Section 1350.
99.1*		Order Confirming First Amended Consolidated Plan of Liquidation.
99.2*		Motion of the Hechinger Liquidation Trust for an Order Establishing Amounts of Disputed Claim Reserves under the First Amended Consolidated Plan of Liquidation of the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code, and associated exhibits.
99.3*		Order Allowing the Motion of the Hechinger Liquidation Trust Establishing Amounts of Disputed Claims Reserve.
99.4*		Stipulation between the Liquidation Trust and Fleet Retail Finance Inc., dated August 9, 2002.
99.5**		Notice of the Liquidation Trust of Second Interim Distribution to Classes 4A and 4B.
99.6***		Notice of the Liquidation Trust of Third Interim Distribution to Classes 4A and 4B.

Item 15. Exhibits, Financial Statement Schedules

*1. ~~Incorporated~~Financial ~~herein by reference to the Liquidation Trust’s Form 10 Filing dated January 28, 2003.~~ Statements

**Financial Statements ~~Incorporated~~as ~~herein~~of bySeptember 30, ~~reference~~2008 toand ~~the~~September ~~Liquidation~~30, ~~Trust’s~~2007, ~~Form~~and ~~10-K Filing~~ for the fiscal ~~period~~years ended September 30, ~~2003.~~2008, September 30, 2007 and September 30, 2006

***Filed herewith.

Table of Contents		Page

Reports of Independent Registered Public Accounting Firms		F-1
Statements of Net Assets in Liquidation		F-3
Statements of Changes in Net Assets in Liquidation		F-4
Statements of Cash Receipts and Disbursements		F-5
Notes to Financial Statements		F-6

29 2. Financial Statement Schedules

~~SIGNATURES~~Financial statement schedules are either not applicable or the required information has been provided in the financial statements or the notes thereto, filed herewith under Item 15.

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 by the undersigned, thereunto duly authorized3. Exhibits

	HECHINGER LIQUIDATION TRUST
Date: December 23, 2004	By:	/s/ Conrad F. Hocking
	Name: Conrad F. Hocking
	Title: Liquidation Trustee

The following exhibits are filed with this Form 10-K:

30 24

Index to Financial Statements Hechinger Liquidation Trust

Exhibit
No.	Note	Description
2.1	(1)	Disclosure Statement for First Amended Consolidated Plan of Liquidation under Chapter 11 of the United States Bankruptcy Code, dated August 14, 2001, including as its Exhibit A, the Revised First Amended Consolidated Plan of Liquidation.

4.1	(1)	Hechinger Liquidation Trust Agreement, dated as of October 23, 2001, by and among Hechinger Investment Company of Delaware, Inc., et al., The Official Committee of Unsecured Creditors of Hechinger Investment Company of Delaware, Inc., et al. and Conrad F. Hocking, as the Liquidation Trustee.

14.1	(2)	Code of Ethics.

31.1	(6)	Certification by Liquidation Trustee.

32.1	(6)	Liquidation Trustee’s Certification Pursuant to 18 U.S.C. Section 1350.

99.1	(1)	Order Confirming First Amended Consolidated Plan of Liquidation.

99.2	(1)	Motion of the Hechinger Liquidation Trust for an Order Establishing Amounts of Disputed Claim Reserves under the First Amended Consolidated Plan of Liquidation of the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code, and associated exhibits.

99.3	(1)	Order Allowing the Motion of the Hechinger Liquidation Trust Establishing Amounts of Disputed Claims Reserve.

99.4	(1)	Stipulation between the Liquidation Trust and Fleet Retail Finance Inc., dated August 9, 2002.

99.5	(2)	Notice of the Liquidation Trust of Second Interim Distribution to Classes 4A and 4B.

99.6	(3)	Notice of the Liquidation Trust of Third Interim Distribution to Classes 4A and 4B.

99.7	(4)	Notice of the Liquidation Trust of Fourth Interim Distribution to Classes 4A and 4B.

99.8	(4)	Notice of the Liquidation Trust of Fifth Interim Distribution to Classes 4A and 4B.

99.9	(5)	Notice of the Liquidation Trust of Sixth Interim Distribution to Classes 4A and 4B.

~~Financial~~(1) ~~Statements~~Incorporated asherein ofby ~~September 30, 2004~~reference ~~and~~to ~~September 30, 2003, for~~ the ~~fiscal years~~Liquidation ~~ended~~Trust’s ~~September 30,~~Form ~~2004~~10 ~~and September 30,~~Filing ~~2003,~~dated ~~and~~January ~~for the period from October 26~~28, ~~2001 (Effective Date) through September 30, 2002~~ 2003.

~~Table~~(2) ofIncorporated ~~Contents~~ herein by reference to the Liquidation Trust’s Form 10-K Filing for the period ended September 30, 2003.

	Page
Report of Independent Registered Public Accounting Firm		F-1
Statements of Net Assets in Liquidation		F-2
Statements of Changes in Net Assets in Liquidation		F-3
Statements of Cash Receipts and Disbursements		F-4
Notes to Financial Statements		F-5

(3)	Incorporated herein by reference to the Liquidation Trust’s Form 10-K Filing for the period ended September 30, 2004.

31 (4) Incorporated herein by reference to the Liquidation Trust’s Form 10-K Filing for the period ended September 30, 2005.

~~Report~~(5) ofIncorporated ~~Independent~~herein ~~Registered~~by ~~Public~~reference ~~Accounting~~to ~~Firm~~ the Liquidation Trust’s Form 10-Q Filing for the period ended June 30, 2008.

~~We have audited the Statements of Net Assets in Liquidation of Hechinger Liquidation Trust~~ (~~“the Liquidation Trust”~~6) asFiled of September 30, 2004 and September 30, 2003 and the related Statements of Changes in Net Assets in Liquidation and Statements of Cash Receipts and Disbursements for the fiscal years ended September 30, 2004 and September 30, 2003 and for the period from October 26, 2001 (Effective Date) through September 30, 2002herewith. ~~The financial statements are the responsibility of the Liquidation Trustee of the Liquidation Trust. Our responsibility is to express an opinion on these financial statements based on our audits.~~

Except as discussed in the following paragraph, we conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 the Liquidation Trustee, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 25

We were unable to confirm preference receivables aggregating $3.149 million as of September 30, 2004 and $5.955 million as of September 30, 2003 with the parties subject to such claims, and we were unable to satisfy ourselves about the fair value of, and changes in estimates relating to, preference receivables through alternative procedures. SIGNATURES

As Pursuant to ~~described~~the inrequirements ~~Note~~of 1Section 13 or 15(d) of the Securities Exchange Act of 1934, ~~these~~the ~~financial~~Registrant ~~statements~~has ~~have~~duly ~~been~~caused ~~prepared~~this report to be signed on ~~the~~its behalf ~~liquidation~~by ~~basis~~the ofundersigned, ~~accounting~~thereunto duly authorized.

In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary to the financial statements had we been able to examine evidence supporting the fair value of preference receivables, the financial statements referred to above present fairly, in all material respects, the Net Assets in Liquidation of the Liquidation Trust as of September 30, 2004 and September 30, 2003 and the Changes in Net Assets in Liquidation and Cash Receipts and Disbursements for the fiscal years ended September 30, 2004 and September 30, 2003 and for the period from October 26, 2001 (Effective Date) through September 30, 2002, in conformity with U. S. generally accepted accounting principles, applied on the basis described in the preceding paragraph.

	HECHINGER LIQUIDATION TRUST

Date: December 29, 2008	By:	/s/ Conrad F. Hocking
	Name: Conrad F. Hocking Title: Liquidation Trustee

As described in Note 1, preparation of the financial statements on the liquidation basis of accounting requires that management make a number of assumptions including those regarding the resolution of disputed claims and the estimated costs of liquidation. There may be differences between the assumptions and the actual results because events and circumstances frequently do not occur as expected. Those differences, if any, could result in a change in claims payable, estimated costs of liquidation, and net assets recorded in the accompanying Statements of Net Assets in Liquidation. 26

~~/s/~~Index to ~~Kaiser,~~Financial ~~Scherer & Schlegel, PLLC~~ Statements

~~McLean,~~Hechinger ~~Virginia~~Liquidation ~~December 21, 2004~~ Trust

FFinancial -Statements 1 as of September 30, 2008 and September 30, 2007, and for the fiscal years ended September 30, 2008, September 30, 2007 and September 30, 2006

Hechinger Liquidation Trust Statements of Net Assets in Liquidation ($ in thousands)

Table of Contents		Page

Reports of Independent Registered Public Accounting Firms		F-1
Statements of Net Assets in Liquidation		F-3
Statements of Changes in Net Assets in Liquidation		F-4
Statements of Cash Receipts and Disbursements		F-5
Notes to Financial Statements		F-6

	As of		As of
	September 30, 2004		September 30, 2003
Assets
Cash and cash equivalents
Designated as available for distribution to holders of impaired claims	$	3,388	$	7,136
Reserved		21,471		24,288
Restricted		9,312		9,730
Other		204		5,683
Total cash and cash equivalents		34,375		46,837
Preference receivables (net of costs of recovery of $1,029 and $1,491, respectively)		3,149		5,955
Other assets		160		1,503
Total assets		37,684		54,295
Liabilities
Unimpaired claims payable		2,968		11,044
Convenience claims payable		2		22
Uncashed claims checks		142		377
Distributions payable to holders of allowed impaired claims		228		665
Estimated costs of liquidation
Wind-down reserve		3,518		5,151
Litigation reserve		2,384		2,460
Total liabilities		9,242		19,719
Net Assets in Liquidation	$	28,442	$	34,576

Report of Independent Registered Public Accounting Firm

~~See~~We ~~accompanying~~have audited ~~notes~~the tostatements of net assets in liquidation of Hechinger Liquidation Trust (“the Liquidation Trust” or the “Company”) as of September 30, 2008 and September 30, 2007, and the related statements of changes in net assets in liquidation and cash receipts and disbursements for the years then ended. The financial statements are the responsibility of the Liquidation Trustee of the Liquidation Trust. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Hechinger Liquidation Trust for the year ended September 30, 2006 were audited by other auditors whose report dated December 27, 2006, expressed a qualified opinion on those statements.

FExcept -as discussed 2in the following paragraph, we conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. An audit includes 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 financial statements, assessing the accounting principles used and significant estimates made by the Liquidation Trustee, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

~~Hechinger~~We ~~Liquidation Trust~~were ~~Statements~~unable to confirm preference receivables aggregating $0.21 million as of September ~~Changes~~30, in2008 ~~Net~~and ~~Assets~~September in30, ~~Liquidation~~2007 with the party subject to such claim, ($and we were unable to satisfy ourselves about the fair value of, and changes in estimates ~~thousands)~~relating to, preference receivables through alternative procedures.

							For the period from
	For the fiscal year			For the fiscal year			October 26, 2001
	ended			ended			(Effective Date) through
	September 30, 2004			September 30, 2003			September 30, 2002
Increase/(decrease) in Net Assets in Liquidation
Decrease in estimated fair value of unimpaired andconvenience claims payable	$	6,020		$	2,080		$	7,525
Increase in estimated fair value of preference receivables, net		3,639			6,830			4,224
Interest income		287			482			1,223
Other increases		925			2,347			632
Increase in estimated costs of liquidation
Wind-down reserve		(1,673	)		(906	)		(3,744	)
Litigation reserve		(2,600	)		(3,000	)		(3,500	)
Net increase in Net Assets in Liquidation before distributions authorized		6,598			7,833			6,360
Distributions authorized		(12,732	)		(17,439	)		(26,909	)
Net decrease in Net Assets in Liquidation after distributions authorized		(6,134	)		(9,606	)		(20,549	)
Net Assets in Liquidation at beginning of period		34,576			44,182			64,731
Net Assets in Liquidation at end of period	$	28,442		$	34,576		$	44,182

As described in Note 1, these financial statements have been prepared on the liquidation basis of accounting.

~~See~~In ~~accompanying~~our opinion, ~~notes~~except for the effects of such adjustments, if any, as might have been determined to be necessary to the financial statements. had we been able to examine evidence supporting the fair value of preference receivables, the financial statements referred to above present fairly, in all material respects, the net assets in liquidation of the Liquidation Trust as of September 30, 2008 and September 30, 2007, and the changes in net assets in liquidation and cash receipts and disbursements for the years then ended, in conformity with accounting principles generally accepted in the United States of America, applied on the basis described in the preceding paragraph.

FAs described -in 3Note 1, preparation of the financial statements on the liquidation basis of accounting requires that management make a number of assumptions including those regarding the resolution of disputed claims and the estimated costs of liquidation. There may be differences between the assumptions and the actual results because events and circumstances frequently do not occur as expected. Those differences, if any, could result in a change in claims payable, estimated costs of liquidation, and net assets recorded in the accompanying statements of net assets in liquidation.

~~Hechinger~~/s/ ~~Liquidation~~Reznick ~~Trust Statements~~Group, ~~of Cash Receipts and Disbursements ($ in thousands)~~ P.C.

							For the period from
	For the fiscal year			For the fiscal year			October 26, 2001
	ended			ended			(Effective Date) through
	September 30, 2004			September 30, 2003			September 30, 2002
Cash receipts
Preference collections, before costs of recovery	$	8,242		$	13,345		$	13,634
Other receipts		1,079			3,338			774
Interest income		287			482			1,223
Total cash receipts		9,608			17,165			15,631
Cash disbursements
Costs of liquidation
Legal and professional fees
Litigation		2,676			3,919			3,121
Preference recoveries		1,797			2,414			2,721
Trust operations		1,571			1,699			2,707
Operating expenses		1,735			2,331			2,396
Unimpaired and convenience claims		886			2,323			11,400
Reissued/(voided) claims checks, net		235			(346	)		(31	)
Total cash disbursements		8,900			12,340			22,314
Increase/(decrease) in cash and cash equivalents beforedistributions paid		708			4,825			(6,683	)
Distributions paid		13,170			20,629			23,055
Decrease in cash and cash equivalents		(12,462	)		(15,804	)		(29,738	)
Cash and cash equivalents at beginning of period		46,837			62,641			92,379
Cash and cash equivalents at end of period	$	34,375		$	46,837		$	62,641

Vienna, Virginia

~~See accompanying notes to financial statements.~~December 27, 2008

F - 4 1

~~Hechinger~~Report of ~~Liquidation~~Independent ~~Trust Notes~~Registered toPublic ~~Financial~~Accounting ~~Statements~~ Firm

1.We ~~Background~~have audited the Statement of Changes in Net Assets in Liquidation and ~~Basis~~Statement of Cash ~~Presentation~~Receipts and Disbursements for the fiscal year ended September 30, 2006. The financial statements are the responsibility of the Liquidation Trustee of the Liquidation Trust. Our responsibility is to express an opinion on these financial statements based on our audit.

~~Background~~Except as discussed in the following paragraph, we conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 the Liquidation Trustee, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

~~Hechinger~~We ~~Liquidation Trust (the “Liquidation Trust”) was established~~were ~~effective~~unable ~~October 26,~~to ~~2001~~confirm ~~(the~~preference ~~“Effective~~receivables ~~Date”)~~aggregating in$0.853 ~~accordance~~million ~~with~~as ~~the Revised First Amended Consolidated Plan~~ of ~~Liquidation (the “Plan”) for~~ ~~Hechinger~~September ~~Investment Company of Delaware~~30, ~~Inc.~~2006 ~~and~~with ~~its affiliates (~~the ~~“Debtors”),~~ ~~which~~parties ~~had~~subject ~~filed~~to ~~for~~such ~~bankruptcy under Chapter 11~~claims, ~~Title~~and 11we ofwere ~~the~~unable ~~United~~to ~~States~~satisfy ~~Code~~ourselves ~~(the~~about ~~“Bankruptcy Code”). The Plan was confirmed by~~ the ~~United~~ ~~States~~fair ~~Bankruptcy~~value ~~Court for the District~~ of ~~Delaware (the “Bankruptcy Court”) by an order dated October 5~~, ~~2001.~~and ~~The~~changes ~~Liquidation~~in ~~Trust~~estimates ~~is governed~~relating ~~under~~to, ~~the~~preference ~~terms~~receivables ofthrough aalternative ~~Liquidation Trust Agreement~~procedures.

~~The~~As described ~~Liquidation Trust has no authority to engage~~ in ~~any~~Note ~~trade or business. The purpose of the Liquidation Trust is to (i) liquidate any and all remaining assets of the Debtors; (ii) pursue causes of action assigned to the Liquidation Trust~~1, ~~including~~these ~~preference,~~financial ~~fraudulent~~statements ~~conveyance~~have ~~and~~been ~~other~~prepared ~~avoidance~~on ~~actions; (iii) resolve, either consensually or through litigation, all disputed claims asserted against~~ the ~~Debtors (“Disputed Claims”), pursuant to the Plan; and~~ (iv) make all distributions required under the Plan (“Distributions”), and payments to holders of claims allowed under the terms of the Plan (“Allowed Claims” and, together with the Disputed Claims, the “Claims”). The Liquidation Trust will terminate upon the earlier of (a) the fulfillment of its purpose by the liquidation ofbasis ~~all~~ of ~~its assets and the distribution of the proceeds of the liquidation thereof in accordance with the Plan, or (b) by October 26, 2005, unless the Bankruptcy Court approves an extension of the term~~accounting.

~~Pursuant~~In toour opinion, except for the ~~Bankruptcy~~effects ~~Code~~of such adjustments, ~~certain~~if ~~types~~any, ofas ~~Allowed~~might ~~Claims~~have ~~will~~been determined to be ~~paid~~ innecessary ~~full~~to ~~under~~the financial statements had we been able to examine evidence supporting the ~~Plan.~~fair ~~Such~~value ~~Claims~~of ~~are~~preference ~~therefore~~receivables, the financial statements referred to asabove present fairly, in all material respects, ~~“Unimpaired~~the ~~Claims.”~~Changes ~~The~~in ~~Plan~~Net ~~defines~~Assets ~~which~~in ~~types~~Liquidation and Cash Receipts and Disbursements of the ~~Claims~~Liquidation ~~are~~Trust ~~paid~~for the fiscal year ended September 30, 2006, in conformity ~~full~~with U. S. generally accepted accounting principles, applied on the basis described in the preceding paragraph.

~~The~~As described ~~Liquidation~~in ~~Trust~~Note ~~exists~~1, ~~primarily~~preparation ~~for the benefit~~ of the ~~majority~~financial ~~of claimants~~statements ~~who~~on ~~will not be repaid in full for~~ the ~~amounts the Debtors owed them~~liquidation asbasis of ~~the~~accounting ~~bankruptcy~~requires ~~filing.~~that ~~These~~management ~~Claims~~make ~~are~~a ~~referred~~number toof asassumptions including ~~“Impaired~~those ~~Claims” because~~regarding the ~~rights~~resolution of ~~the~~disputed ~~claimants~~claims ~~have~~and ~~been impaired by~~ the ~~Debtors’~~estimated ~~bankruptcy.~~costs ~~Each holder~~ of anliquidation. There ~~Allowed~~may ~~Claim~~be indifferences ~~the~~between ~~Plan’s Class 4A (Senior~~the ~~Unsecured~~assumptions ~~Claims), Class 4B (General Unsecured Claims),~~ and ~~Class 5 (Subordinated~~the ~~Debentures~~actual ~~Claims)~~results ~~(each~~because aevents ~~“Class”)~~and iscircumstances ~~deemed~~frequently do tonot ~~hold~~occur aas ~~pro~~expected. Those ~~rata beneficial~~differences, ~~interest~~if ~~(the~~any, ~~“Beneficial~~could ~~Interests”)~~result in ~~the Liquidation Trust based~~ ~~upon~~a ~~the~~change ~~amount~~in ofclaims ~~their~~payable, ~~Allowed~~estimated ~~Impaired~~costs ~~Claim as compared to the total amount~~ of ~~all~~liquidation, ~~Impaired Claims ultimately Allowed. When~~ and tonet ~~the~~assets ~~extent Disputed~~that ~~Impaired~~would ~~Claims~~affect ~~become~~amounts ~~Allowed~~recorded ~~Impaired~~in ~~Claims,~~the ~~holders~~Statement of ~~such~~Changes ~~Claims become holders of Beneficial Interests~~ in ~~accordance~~Net ~~with~~Assets ~~the Plan.~~in Liquidation.

~~The~~/s/ ~~holders of Beneficial Interests receive all remaining net proceeds of the Liquidation Trust~~Kaiser, ifScherer ~~any,~~& ~~after the expenses and all creditors of the Liquidation Trust~~Schlegel, including Allowed Unimpaired and Convenience Claims (certain small Claims to be paid at 7.5% of their Allowed amounts in accordance with the Plan) are paid, and all contingencies are resolved. Holders of each Class of Beneficial Interests (i.e., each Class of Impaired Claims) have the same rights, except with respect to payment of Distributions (see Note 11). Through September 30, 2004, the Liquidation Trust has authorized Distributions to holders of Beneficial Interests (i.e., to holders of Allowed Impaired Claims) of 8.1% of the Allowed amount of the Impaired Claims, and established a reserve of 8.1% of the estimated amount of Disputed Impaired Claims, based on the estimated amount of such Claims approved by the Bankruptcy Court for reserve purposes (the “Disputed Impaired Claims Reserve”). PLLC

~~F - 5~~McLean, Virginia

~~Basis of Presentation~~December 27, 2006

The Liquidation Trust’s financial statements have been prepared using the liquidation basis of accounting. Under this method of accounting, the Statements of Net Assets in Liquidation reflect all assets and liabilities, including the projected total cost of liquidating the assets and winding down the affairs of the Liquidation Trust, at estimated fair value. Unimpaired Claims, to be paid in full, are reflected in the Statements of Net Assets in Liquidation as liabilities at estimated aggregate settlement amounts. The unpaid amount of the authorized Distributions to holders of Allowed Impaired Claims is also reflected as a liability. The Statements of Changes in Net Assets in Liquidation primarily reflect authorized Distributions to holders of Beneficial Interests and changes in the estimated fair value of the Liquidation Trust’s assets and liabilities. The Liquidation Trust’s fiscal year ends on September 30. F-2

~~The amounts shown in this document are rounded and are therefore~~Hechinger ~~approximate.~~ Liquidation Trust

~~Certain amounts in the financial statements as of September 30, 2003 and~~Statements ~~for the fiscal year ended September 30, 2003 and for the period from October 26, 2001 (Effective Date) through September 30, 2002 have been reclassified to conform to the presentation as~~ of ~~September 30,~~Net ~~2004~~Assets ~~and~~in for the fiscal year ended September 30, 2004. In particular, estimated costs of liquidation and changes therein have been shown separately between the Wind-down Reserve and the Litigation Reserve, voided Claims checks (net) have been shown separately from other cash receipts, and payments to holders of Unimpaired and Convenience Claims have been aggregated. Liquidation

2.($ ~~Significant Accounting Policies~~in thousands)

Use of Estimates

	As of		As of
	September 30, 2008		September 30, 2007
Assets
Cash and cash equivalents
Designated as available for distribution to holders of impaired claims	$	1,818	$	2,681
Reserved		5,972		10,661
Other		295		6,136

Total cash and cash equivalents		8,085		19,478

Preference receivables (net of costs of recovery of $54 and $53, respectively)		211		210
Other assets		37		2

Total assets		8,333		19,690

Liabilities
Unimpaired and convenience claims payable		1,337		1,337
Uncashed claims checks		426		435
Distributions payable		825		421
Estimated costs of liquidation
Wind-down reserve		757		1,210
Litigation reserve		152		307

Total liabilities		3,497		3,710

Net Assets in Liquidation	$	4,836	$	15,980

~~The preparation of the financial statements in conformity with generally~~See ~~accepted~~accompanying ~~accounting~~notes ~~principles requires the Liquidation Trustee~~ to ~~make estimates~~financial ~~and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities~~statements. ~~Actual results are likely to differ from those estimates and those differences may be significant.~~

~~Cash and Cash Equivalents~~ F-3

~~The Liquidation Trust considers all highly liquid investments purchased~~Hechinger ~~with a maturity of three months or less to be cash equivalents. The~~ Liquidation Trust holds substantially all cash balances in operating and investment accounts in excess of federally insured limits. Cash is classified as: Designated as Available for Distribution to Holders of Impaired Claims, Reserved, Restricted, and Other (see Note 3).

~~Taxes~~Statements of Changes in Net Assets in Liquidation

~~The~~($ Liquidation Trust is intended to qualify as a liquidating trust for federal income tax purposes, and therefore should be taxable as a grantor trust. The holders of Beneficial Interests are treated as grantors; accordingly their pro rata share of all items of income, gain, loss, deduction and credit is included in ~~the income tax returns of the holders of Beneficial Interests.~~ thousands)

The Liquidation Trust pays applicable taxes on the taxable net income and gain allocable to holders of Disputed Impaired Claims on behalf of such holders. When such Disputed Claims are ultimately resolved, holders whose Disputed Claims were determined to be Allowed Claims receive Distributions from the Liquidation Trust net of taxes, if any, which the Liquidation Trust previously paid on their behalf.

	For the fiscal year			For the fiscal year			For the fiscal year
	ended			ended			ended
	September 30, 2008			September 30, 2007			September 30, 2006

Increase/(decrease) in Net Assets in Liquidation
(Decrease)/increase in estimated fair value of preference recoveries, net	$	(146	)	$	(666	)	$	119
(Increase) in estimated costs of liquidation		(123	)		(103	)		(973	)
Fleet settlement accrual		-			-			(4,750	)
Interest income		515			911			1,083
Other increases		317			20			638

Net increase/(decrease) in Net Assets in Liquidation before distributions authorized		563			162			(3,883	)

Distributions authorized		(11,707	)		(187	)		(6,977	)

Net decrease in Net Assets in Liquidation after distributions authorized		(11,144	)		(25	)		(10,860	)

Net Assets in Liquidation at beginning of year		15,980			16,005			26,865

Net Assets in Liquidation at end of year	$	4,836		$	15,980		$	16,005

~~The Liquidation Trust incurs no taxable income or gain on its own behalf;~~See ~~therefore,~~accompanying nonotes ~~tax~~to ~~provision is recorded in the~~ financial statements ~~of the Liquidation Trust~~.

F - 6 4

~~3. Cash~~Hechinger Liquidation Trust

~~Cash is invested in highly liquid investments with a maturity~~ Statements of ~~three months~~Cash orReceipts ~~less,~~ and in accordance with Section 345 of the Bankruptcy Code or as otherwise permitted by order of the Bankruptcy Court. Under the terms of the Plan, the Liquidation Trust is not required to segregate funds for reserves (see Note 10). Disbursements

~~Cash Designated as Available for Distribution to Holders of Impaired Claims~~ (~~“Available~~$ ~~Cash”) is designated to assure the availability of funds~~in ~~for payment to holders of Impaired Claims who have not received their Distributions. As such, Available Cash includes Distributions payable (see Note 8~~thousands) ~~and the Disputed Impaired Claims Reserve (see Note 10). Available Cash does not include Reserved Cash, Restricted Cash, or Other Cash, each further described below.~~

Available Cash consists of:

	For the fiscal year			For the fiscal year			For the fiscal year
	ended			ended			ended
	September 30, 2008			September 30, 2007			September 30, 2006
Cash receipts
Preference collections, before costs of recovery	$	-		$	80		$	257
Collection of committee action settlement		-			-			7,000
Other receipts		316			614			34
Interest income		515			911			1,083
Total cash receipts		831			1,605			8,374

Cash disbursements
Operating expenses		287			364			480
Legal and professional fees
Liquidation Trust operations		293			211			247
Litigation		151			64			359
Preference recoveries		147			26			189
Fleet settlement		-			-			8,250
Reissued/(voided) claims checks, net		9			(4	)		(70	)
Total cash disbursements before distributions paid		887			661			9,455
(Decrease)/increase in cash and cash equivalents before distributions paid		(56	)		944			(1,081	)

Distributions paid		(11,337	)		(189	)		(6,845	)

(Decrease)/increase in cash and cash equivalents		(11,393	)		755			(7,926	)

Cash and cash equivalents at beginning of year		19,478			18,723			26,649

Cash and cash equivalents at end of year	$	8,085		$	19,478		$	18,723

($See inaccompanying ~~thousands)~~ notes to financial statements.

	As of		As of
	September 30, 2004		September 30, 2003
Distributions payable	$	228	$	665
Reserve for remaining disputed impaired claims at 8.1% and 6.573%, respectively		3,160		6,471
Total available cash	$	3,388	$	7,136

F-5

~~Reserved Cash is held by the Liquidation Trust to assure payment of~~Hechinger ~~the~~ Liquidation Trust’s obligations in accordance with the Plan. Under the terms of the Plan, Reserved Cash is intended to provide for (a) operating expenses of the Liquidation Trust, (b) estimated payments to holders of Allowed Unimpaired and Convenience Claims in accordance with the Plan, and (c) payments which may become necessary if and as Disputed Unimpaired Claims become Allowed, or if certain contingencies should occur. See Note 10 for details of specific reserves and their related amounts.

~~Restricted~~Notes ~~Cash~~to ~~consists of cash held as collateral for a letter of~~Financial ~~credit (see Note 6) and cash held in an escrow account.~~ Statements

~~Other~~1. Background ~~Cash is cash~~ and ~~cash~~Basis ~~equivalents not designated to a~~of ~~specific reserve or fund.~~ Presentation

~~4. Preference Receivables~~ Background

~~Pursuant~~Hechinger Liquidation toTrust (the ~~Bankruptcy~~“Liquidation ~~Code,~~Trust”) awas ~~debtor~~established ~~may~~effective October 26, ~~seek~~2001 to(the ~~recover,~~“Effective ~~through adversary~~Date”) ~~proceedings~~ in accordance with the ~~bankruptcy~~Revised First ~~court,~~Amended ~~certain~~Consolidated ~~transfers~~Plan of Liquidation (the ~~debtor’s~~ ~~property,~~“Plan”) ~~including~~for ~~payments~~Hechinger Investment Company of ~~cash~~Delaware, ~~made~~Inc. ~~during~~and its affiliates (the ~~90 days~~“Debtors”), which ~~immediately~~had ~~prior~~filed tofor ~~the~~bankruptcy ~~commencement~~under Chapter 11, Title 11 of the ~~bankruptcy~~United ~~case.~~States ~~Although there~~Code ~~are~~(the ~~certain~~“Bankruptcy ~~defenses~~Code”). The toPlan ~~such~~was ~~recoveries,~~confirmed by the United States Bankruptcy ~~Code’s~~Court ~~preference statute~~for ~~can~~the beDistrict ~~very~~of ~~broad~~Delaware in(the ~~its~~“Bankruptcy ~~application~~Court”) ~~because~~by itan order ~~allows~~dated ~~the~~October 5, ~~debtor~~2001. The ~~to recover~~Liquidation ~~payments~~Trust ~~regardless~~is ofgoverned under ~~whether~~the ~~there~~terms ~~was~~of ~~any~~a ~~impropriety~~Liquidation inTrust ~~such payments~~Agreement.

The Liquidation ~~estimated~~Trust ~~fair~~has ~~value~~no ofauthority ~~the~~to ~~recoverable~~engage ~~preferential~~in ~~payments~~any ~~(the~~trade or ~~“Preference~~business. The ~~Receivables”)~~purpose isof ~~based on~~ the Liquidation Trust’s ~~preference~~is to ~~collections~~(i) liquidate ~~experience~~any and ~~that~~all ofremaining ~~its~~assets ~~preference~~of ~~collections~~the ~~counsel,~~Debtors; ~~significant~~(ii) pursue ~~settlements~~causes ~~achieved~~of ~~subsequent~~action assigned to ~~year-end~~the Liquidation Trust, including preference, fraudulent conveyance and aother ~~review~~avoidance ofactions; ~~the~~(iii) ~~outstanding~~resolve, either ~~preference~~consensually ~~litigation~~or ~~actions~~through ~~being~~litigation, ~~prosecuted~~all bydisputed ~~the~~claims ~~Liquidation~~asserted ~~Trust.~~against ~~The~~the ~~Preference~~Debtors ~~Receivables~~(“Disputed ~~are~~Claims”), ~~reflected~~pursuant into the ~~accompanying~~Plan; ~~Statements~~and of(iv) ~~Net~~make all ~~Assets~~distributions inrequired ~~Liquidation~~under atthe ~~their~~Plan ~~estimated~~(“Distributions”), ~~fair~~and ~~value,~~payments ~~net~~to holders of ~~estimated~~claims ~~costs~~allowed ~~of recovery.~~under ~~The~~the ~~fair~~terms ~~value~~ of ~~Liquidation~~the ~~Trust~~Plan ~~assets~~(“Allowed isClaims” ~~reassessed~~and, ~~at least~~together ~~quarterly~~with ~~and~~the ~~adjustments~~Disputed toClaims, ~~estimated~~the ~~fair~~“Claims”). The ~~values~~Liquidation ~~are~~Trust ~~reflected~~will terminate inupon the ~~period in~~earlier ~~which~~of ~~they~~(a) the ~~become~~fulfillment ~~known.~~of Asits purpose by the liquidation of ~~September 30,~~all ~~2004,~~of its assets and the ~~Liquidation~~distribution ~~Trust was~~of ~~actively~~the ~~pursuing~~proceeds 10of ~~remaining~~the liquidation ~~actions~~thereof ~~seeking~~in toaccordance ~~recover~~with ~~preferential transfers~~the Plan, asor ~~well~~(b) by asMarch ~~making~~31, ~~collections~~2009, unless ~~efforts~~the onBankruptcy ~~recently~~Court ~~settled~~approves ~~cases~~a ~~and numerous~~further ~~default~~extension ~~judgments~~of ~~issued.~~the term.

F As of -December 72008, substantially all assets of the Debtors, including causes of action, have been liquidated, and all Disputed Claims have either been resolved or are expected to be waived. The Liquidation Trust is in the process of winding up its limited operations, and expects to request that the Bankruptcy Court authorize a final Distribution during early calendar year 2009 and terminate the Liquidation Trust thereafter.

~~During the fiscal years ended September 30, 2004 and September 30, 2003~~Pursuant ~~and~~to ~~during~~ the ~~period~~Bankruptcy ~~from October 26~~Code, ~~2001~~certain ~~(Effective~~types ~~Date)~~of ~~through~~Allowed ~~September 30,~~Claims ~~2002,~~will ~~the~~be ~~Liquidation Trust collected $8.2 million, $13.3 million and $13.6 million in preference recoveries, and~~ paid ~~$1.8 million, $2.4 million and $2.7 million~~ in ~~fees and expenses associated with such recoveries, respectively. In~~full ~~addition~~under to the ~~cash~~Plan. Such ~~preference~~Claims ~~recoveries~~are ~~contemplated~~therefore inreferred ~~the~~to ~~Preference Receivables,~~as ~~substantial amounts of valid~~ “Unimpaired ~~and Impaired~~ Claims.” The ~~have been~~Plan ~~waived~~defines aswhich ~~part~~types of ~~comprehensive~~Claims ~~settlements~~are inpaid ~~preference~~in ~~recovery actions (see Notes 6 and 11)~~full.

The Liquidation ~~estimated~~Trust ~~net~~exists ~~fair~~primarily ~~value~~for the benefit of ~~Preference~~the ~~Receivables~~majority ~~was~~of ~~increased~~claimants who bywill not be repaid in full for the amounts the Debtors owed them as of the ~~$3.6 million,~~bankruptcy $6filing.~~8 million~~ These ~~and~~Claims ~~$4.2 million~~are ~~during~~referred to as “Impaired Claims” because the ~~fiscal~~rights ~~years~~of ~~ended~~the claimants have been impaired by the Debtors’ ~~September~~bankruptcy. Each holder of an Allowed Claim in the Plan’s Class 304A (Senior Unsecured Claims), ~~2004~~Class 4B (General Unsecured Claims), and ~~September~~Class ~~30,~~5 ~~2003~~(Subordinated ~~and~~Debentures ~~during~~Claims) ~~the~~(each ~~period~~a ~~from~~“Class”) ~~October~~is ~~26,~~deemed ~~2001~~to hold a pro rata beneficial interest (~~Effective~~the ~~Date~~“Beneficial Interests”) ~~through~~in the ~~September 30,~~Liquidation ~~2002,~~Trust ~~respectively,~~based ~~mainly~~upon the amount of their Allowed Impaired Claim as ~~based~~compared onto the ~~following~~total ~~factors:~~amount of all Impaired Claims ultimately Allowed. When and to the extent Disputed Impaired Claims become Allowed Impaired Claims, holders of such Claims become holders of Beneficial Interests in accordance with the Plan.

i) The holders ~~Liquidation~~of ~~Trust~~Beneficial ~~originally~~Interests ~~assigned~~receive noall ~~value~~remaining tonet ~~certain~~proceeds of the Liquidation ~~largest~~Trust, ~~potential~~if ~~preference~~any, ~~cases~~after ~~until~~the ~~fact-finding~~expenses and ~~initial~~all ~~negotiation~~creditors ~~indicated that some collection was likely. Subsequently, each~~ of ~~these~~the Liquidation ~~cases was settled. As a result~~Trust, ~~the~~including ~~estimated~~Allowed ~~fair~~Unimpaired ~~value~~and ofConvenience ~~Preference~~Claims ~~Receivables~~(certain small ~~was~~Claims ~~increased~~to bybe ~~$3.8~~paid ~~million,~~at $17.~~8 million, and $2.~~5% ~~million~~of ~~during~~their ~~the~~Allowed ~~fiscal~~amounts ~~years~~in ~~ended~~accordance ~~September~~with ~~30,~~the Plan) ~~2004~~are ~~and September 30~~paid, ~~2003~~ and ~~during~~all ~~the~~contingencies ~~period~~are ~~from~~resolved. Holders ~~October~~of ~~26,~~each Class ~~2001~~of ~~(Effective~~Beneficial ~~Date)~~Interests ~~through September 30, 2002, respectively~~(i. ~~ii) Partially offsetting the $3~~e.~~8 million increase noted above~~, ~~the~~each ~~Liquidation~~Class ~~Trust~~of ~~incurred~~Impaired ~~significant~~Claims) ~~additional~~have ~~expenses~~the same ~~for expert reports and trial preparation~~rights, ~~resulting~~except inwith arespect ~~decrease~~to inpayment ~~the estimated fair value~~ of ~~all~~Distributions ~~other~~(see ~~remaining preference cases, net of costs of recovery, of $0~~Note 10).1 Through ~~million during the fiscal year ended~~ September 30, ~~2004.~~2008, ~~iii) Based on~~ the Liquidation Trust’s ~~aggregate~~has ~~collections~~authorized Distributions ~~experience~~ to ~~date,~~holders ~~which~~of ~~was~~Beneficial ~~favorable~~Interests ~~compared~~(i.e., to ~~the~~holders ~~previous~~of ~~estimates,~~Allowed Impaired ~~the~~Claims) ~~Liquidation~~of ~~Trust~~11.9411% ~~increased~~of the ~~estimated~~Allowed ~~fair~~amount ~~value~~ of ~~its~~the ~~remaining~~Impaired ~~preference cases~~Claims, ~~net~~and established ofa ~~costs~~reserve of ~~recovery, by $5~~11.09411% ~~million~~of ~~during~~ the ~~fiscal~~estimated ~~year~~amount ~~ended~~of ~~September~~Disputed 30Impaired Claims, ~~2003~~based ~~and~~on ~~by $1.7 million during~~ the ~~period~~estimated ~~from~~amount ~~October~~of ~~26,~~such ~~2001~~Claims ~~(Effective~~approved ~~Date)~~by ~~through~~the ~~September~~Bankruptcy Court ~~30,~~for ~~2002,~~reserve inpurposes ~~addition to~~ (the ~~increases~~“Disputed ~~related~~Impaired ~~to the larger cases as noted above~~Claims Reserve”).

~~The eventual net realizable value of Preference Receivables is likely to differ from their estimated net fair value and these differences may be significant.~~ F-6

~~5. Other Assets~~Basis of Presentation

~~Other~~The ~~assets~~Liquidation ~~consist~~Trust’s offinancial statements ~~receivables~~have ~~from~~been ~~various~~prepared ~~former~~using ~~vendors,~~the ~~service providers,~~liquidation ~~and~~basis ~~others~~of accounting. Under Asthis method of ~~September 30~~accounting, ~~2003,~~the ~~other~~Statements of Net Assets in Liquidation reflect all assets ~~included~~and aliabilities, ~~$1.2~~including the ~~million~~projected ~~receivable~~total ~~from~~cost aof ~~group~~liquidating the assets and winding down the affairs of the ~~insurance~~Liquidation ~~companies~~Trust, ~~collectively~~at ~~referred~~estimated fair value. Unimpaired Claims, to asbe ~~Kemper~~paid ~~Insurance~~in ~~Company (“Kemper”)~~full, ~~the~~are ~~insurer~~reflected ~~for~~in the ~~Debtors’~~Statements ~~workers’~~of Net Assets in Liquidation as ~~compensation~~liabilities ~~claims~~at ~~for~~estimated aaggregate ~~number~~settlement ofamounts. The ~~years,~~unpaid amount ~~which~~of ~~was~~the ~~subject~~authorized Distributions to ~~offset~~holders of Allowed Impaired Claims is also reflected as a liability. In addition, liabilities include loss ~~collateral~~contingency accruals for ~~certain~~any ~~insurance~~losses ~~claims~~considered ~~(see~~probable ~~Note 6)~~and estimable. The ~~During~~Statements ~~the~~of ~~fiscal~~Changes ~~year~~in Net Assets in Liquidation ~~ended~~primarily ~~September 30,~~reflect ~~2004,~~authorized ~~Kemper~~Distributions ~~provided~~to holders of Beneficial Interests and changes in the estimated fair value of the Liquidation Trust’s ~~with~~assets ~~documents~~and ~~asserting~~liabilities, ~~that~~including ~~this~~changes ~~collateral~~resulting ~~had~~from ~~been~~significant ~~applied~~events ~~against~~in, ~~these~~or ~~insurance claims.~~the ~~Accordingly~~resolution of, litigation pursued by the Liquidation Trust. The Liquidation ~~has~~Trust’s ~~applied~~fiscal ~~the~~year ~~receivable~~ends ~~against~~on ~~the related Claim liability~~September 30.

~~Other assets are reported at estimated net fair value, based on either the~~The ~~amount~~amounts ~~paid~~shown ~~(generally~~ in ~~the~~this ~~form~~document ofare ~~cash~~rounded ~~deposits) or the estimated recoverable amount, whichever is more determinable. The eventual net realizable value of these assets is likely to differ from their estimated net fair value~~ and ~~these~~are ~~differences may be significant.~~therefore approximate.

62. Significant ~~Unimpaired Claims Payable~~Accounting Policies

~~Unimpaired~~Use ~~Claims payable represents the estimated aggregate settlement amount~~ of Unimpaired Claims against the Debtors prior to the Effective Date of the Plan which will be paid out at 100% of their Allowed amount. Such Claims are valued at the Liquidation Trust’s best estimate of the amount that will ultimately be allowed. Estimates

FThe preparation -of 8the financial statements in conformity with generally accepted accounting principles requires the Liquidation Trustee to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Actual results are likely to differ from those estimates and those differences may be significant.

~~Unimpaired~~Cash ~~Claims~~and ~~payable consists of:~~Cash Equivalents

($The Liquidation Trust considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Liquidation Trust holds substantially all cash balances in ~~thousands)~~operating and investment accounts in excess of federally insured limits. Cash is classified as: Designated as Available for Distribution to Holders of Impaired Claims, Reserved and Other (see Note 3).

	As of		As of
	September 30, 2004		September 30, 2003
Allowed claims	$	1,339	$	1,392
Estimated fair value of disputed claims
Kemper claim, net		1,600		9,002
Other disputed claims		29		650
Total estimated fair value of disputed claims		1,629		9,652
Total unimpaired claims payable	$	2,968	$	11,044
Reserved or restricted value of disputed claims
Kemper claim (restricted amount)	$	8,603	$	9,002
Other disputed claims (reserved amount)		339		1,075
Total	$	8,942	$	10,077
Number of disputed claims		9		22

Taxes

The Liquidation ~~reserved~~Trust ~~amount~~is intended to qualify as a liquidating trust for ~~Disputed~~federal income ~~Unimpaired~~tax ~~Claims~~purposes, isand ~~based~~therefore onshould ~~the~~be taxable as a grantor ~~estimated~~trust. The ~~amount~~holders of ~~such~~Beneficial ~~Claims~~Interests ~~approved~~are bytreated ~~the~~as ~~Bankruptcy~~grantors; accordingly, ~~Court~~their ~~for~~pro ~~reserve purposes~~rata ~~(the~~share ~~“Disputed~~of ~~Unimpaired~~all ~~Claims~~items ~~Reserve”).~~of ~~Secured~~income, ~~Claims~~gain, ~~are~~loss, indeduction ~~effect,~~and ~~reserved~~credit ~~for~~is byincluded in the ~~restrictions~~income ontax returns of the ~~related~~holders ~~collateral.~~of Beneficial Interests.

The ~~largest remaining Disputed Unimpaired Claim is a secured Claim~~ ~~asserted by Kemper (the “Kemper Claim”) for payment of certain liability claims against the Debtors (the “Insurance Claims”). During December 2003, the~~ Liquidation Trust ~~filed~~incurs ano ~~complaint~~taxable inincome ~~the~~or ~~Bankruptcy~~gain ~~Court~~on ~~requesting,~~its ~~among other~~own ~~things,~~behalf; ~~that the Bankruptcy Court fix the amount of the Kemper Claim~~therefore, ~~reduce~~no ~~the~~tax ~~amount~~provision ofis the irrevocable cash-collateralized letter of credit held by Kemper to assure payment of the Insurance Claims, and compel the return of excess collateral, deposits and other amounts held by Kemper to the Liquidation Trust (the “Kemper Complaint”) (see Note 12). The Liquidation Trust recorded ~~the~~ ~~estimated~~in ~~net fair value of~~ the ~~Kemper~~financial ~~Claim~~statements as of ~~September 30, 2004 at $1.6 million, based on an agreement reached between Kemper and~~ the Liquidation Trust ~~subsequent to September 30, 2004 to settle the Kemper Claim for $1~~.~~7 million, offset by a $0.1 million prepayment held by a third-party claims administrator.~~

~~During the fiscal year ended September 30, 2004, the Liquidation Trust~~Recent ~~paid~~Accounting out $0.9 million to holders of Allowed Unimpaired Claims, reduced the Kemper Claim by the amount of a $1.2 million receivable from Kemper, which Kemper asserted had been applied against the Insurance Claims (see Note 5), and decreased its estimate of the aggregate settlement amounts of Unimpaired Claims, primarily for the Kemper Claim, by $6.0 million. Because Kemper and the Liquidation Trust had not established a mutually agreeable basis for determining the fair value of the Insurance Claims, the Liquidation Trust previously valued the Kemper Claim in Unimpaired Claims payable at the full amount of the letter of credit held by Kemper. This amount represented the only available estimate of the Liquidation Trust’s potential liability for the Insurance Claims including Kemper’s actuarial estimate of applicable losses. As a result, the Kemper Claim was valued at $9.0 million as of September 30, 2003. Pronouncements

~~During~~In September 2006, the ~~fiscal~~Financial ~~year~~Accounting ~~ended~~Standards ~~September~~Board issued Statement of Financial Accounting Standards No. 30157, ~~2003~~"Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, ~~the~~establishes ~~Liquidation~~a framework ~~Trust~~for measuring fair value under generally accepted accounting ~~paid~~principles, ~~out~~and $2expands disclosures about fair value measurements.3 SFAS ~~million~~157 todoes ~~holders~~not ofrequire ~~Allowed~~any ~~Unimpaired~~new ~~Claims~~fair value measurements; rather, ~~and~~SFAS 157 ~~decreased~~is applied under other accounting ~~its~~pronouncements ~~estimate~~that require or permit fair value measurements. Substantially all of the ~~aggregate~~assets ~~settlement~~and ~~amounts~~liabilities of the Liquidation ~~remaining~~Trust ~~Claims~~are byaccounted for at their fair value under the liquidation $2basis of accounting.1 SFAS ~~million.~~157 ~~This~~becomes ~~decrease~~effective infor ~~estimate~~fiscal ~~resulted~~years beginning ~~from~~after aNovember 15, ~~number~~2007, ofand ~~Unimpaired Claims~~will ~~which~~therefore ~~were~~be ~~settled~~effective for ~~substantially~~the Liquidation ~~less~~Trust ~~than~~for the ~~originally~~fiscal ~~estimated fair~~year ~~value~~beginning ofOctober ~~such~~1, ~~Claims~~2008. The ~~majority~~adoption of SFAS 157 ~~the~~in ~~decrease~~fiscal ~~related~~2008 tois ~~otherwise valid~~not ~~Unimpaired~~expected ~~Claims~~to ~~which~~have ~~were~~a ~~waived~~material asimpact ~~part~~on ofthe financial ~~comprehensive~~condition ~~settlements in~~of ~~preference~~the ~~recovery~~Liquidation ~~actions~~Trust.

During the period from October 26, 2001 (Effective Date) through September 30, 2002, the Liquidation Trust paid out $11.2 million to holders of Allowed Unimpaired Claims, and decreased its estimate of the aggregate settlement amounts of the remaining Claims by $F-7~~.5 million. This decrease in~~

~~F - 9~~ 3. Cash

~~estimate~~Cash ~~resulted~~is invested ~~from~~in ahighly ~~significant~~liquid ~~number~~investments ofwith ~~Unimpaired~~a ~~Claims~~maturity ~~being settled~~of ~~for,~~three months or less, and in ~~substantive~~accordance ~~negotiation~~with asSection 345 of ~~September 30,~~the ~~2002~~Bankruptcy ~~at, substantially~~Code ~~less~~or ~~than~~as ~~the~~otherwise permitted ~~originally~~by ~~estimated~~order ~~fair value~~ of ~~such~~the ~~Claims~~Bankruptcy Court. ~~The~~ Under ~~majority~~the terms of the Plan, ~~reduction~~the ~~related~~Liquidation toTrust ~~otherwise~~is ~~valid~~not ~~Unimpaired~~required ~~Claims which were waived subsequent~~ to ~~year-end~~segregate asfunds ~~part~~for ofreserves ~~comprehensive settlements~~(see inNote ~~preference recovery actions~~9).

~~Unimpaired~~Cash ~~Claims~~Designated ~~are~~as ~~valued~~Available for byDistribution ~~reviewing the facts available~~ to ~~the Liquidation~~Holders ~~Trust, including the Debtors’ records and information submitted by the claimants, and estimating the ultimate settlement value~~ of ~~the~~Impaired Claims. ~~The fair~~(“Available ~~value~~Cash”) ~~of Unimpaired Claims payable~~ is ~~reassessed at least quarterly and~~ ~~adjustments~~designated solely to ~~estimated~~assure ~~fair values are reflected in~~ the ~~period~~availability inof ~~which~~funds ~~they become~~for ~~known.~~payment ~~However, no assurance can be given as~~ to ~~the~~holders ~~ultimate allowance,~~of ~~disallowance~~Impaired orClaims ~~settlement~~who ofhave ~~the~~not ~~remaining~~received ~~Disputed~~their ~~Unimpaired~~Distributions ~~Claims, individually~~(see orNotes in7 ~~the aggregate.~~and 10).

7.Available Cash ~~Uncashed~~consists ~~Claims Checks~~ of:

~~Pursuant to the Plan, any Claims payments and Distributions which remain~~($ ~~uncashed~~in for 90 days following their issuance date are forfeited to the Liquidation Trust for Distribution to other holders of Allowed Claims. Pending a final order from the Bankruptcy Court, the Liquidation Trust has treated such items as a liability. Such checks may be reissued upon request of the payee, subject to applicable fees. thousands)

8. Distributions Payable

	As of		As of
	September 30, 2008		September 30, 2007

Distributions payable	$	825	$	421
Reserve for remaining disputed impaired claims at 11.9411% and 10.2911%, respectively		993		2,260
Total available cash	$	1,818	$	2,681

~~Distributions~~During November ~~payable~~2008, ~~primarily~~the ~~represents~~Liquidation ~~8.1%~~Trust ~~and~~notified ~~6.573%~~holders of ~~the~~ Allowed ~~amount~~ of Impaired Claims who ~~for which the Liquidation Trust~~ had not ~~yet~~met ~~paid Distributions~~all asthe ofrequirements ~~September 30,~~for ~~2004~~a ~~and September 30~~Distribution, ~~2003,~~generally ~~respectively.~~by not Asproviding oftheir ~~these~~taxpayer ~~dates,~~identification a number, ofor ~~holders~~who ofhad ~~such~~not ~~Allowed~~cashed ~~Claims, while otherwise~~a ~~eligible~~Distribution ~~for~~check ~~Distributions,~~and ~~had~~therefore ~~either~~have not ~~yet~~been ~~provided~~paid ~~all~~subsequent ~~information~~Distributions ~~necessary for payment~~that, orin ~~were~~accordance ~~subject~~with tothe anterms ~~offsetting~~of ~~claim~~the byPlan, ~~the Liquidation~~they ~~Trust~~forfeited ~~which~~their ~~had~~interest ~~not~~in past ~~yet~~Distributions, ~~been~~making ~~resolved.~~the ~~Until~~unclaimed ~~all~~funds ~~such~~available ~~issues~~to ~~are~~the Liquidation ~~resolved~~Trust and, ~~the~~ultimately, ~~holder~~for ofdistribution anto ~~Allowed~~the ~~Claim~~remaining ~~may~~holders ~~not~~of ~~receive~~Beneficial Interests. (See aNote ~~Distribution~~13. )

9Reserved Cash is held by the Liquidation Trust to assure payment of the Liquidation Trust’s obligations in accordance with the Plan. Under ~~Estimated~~the ~~Costs~~terms of the Plan, Reserved Cash is intended to provide for (a) operating expenses of the Liquidation Trust, (b) estimated payments to holders of Allowed Unimpaired and Convenience Claims in accordance with the Plan, and (c) payments which may become necessary if and as Disputed Unimpaired Claims become Allowed, or if certain contingencies should occur. See Note 9 for details of specific reserves and their related amounts.

~~The~~Other ~~Wind-down~~Cash ~~Reserve~~is cash and ~~the~~cash ~~Litigation~~equivalents ~~Reserve~~not ~~together~~designated ~~constitute~~to ~~the estimated~~a ~~costs~~specific ofreserve ~~liquidation~~or ~~in the accompanying Statements of Net Assets in Liquidation~~fund.

Under the Plan, the Liquidation Trust was required to establish and fund a reserve to pay administration costs and costs of holding and liquidating the Liquidation Trust’s assets (the “Wind-down Reserve”)4. ~~The amounts included in~~ Preference the Wind-down Reserve represent the projected costs of operating the Liquidation Trust through its expected termination. These costs, which include personnel, facilities and professional fees, among other things, are based on various assumptions regarding the number of employees, the use of professionals (particularly in connection with continuing Claims resolution and litigation), the anticipated termination date of the Liquidation Trust and other matters. Receivables

AsPursuant to ofthe ~~September 30,~~Bankruptcy ~~2004~~Code, ~~the~~a ~~Liquidation~~debtor ~~Trust’s~~may ~~remaining~~seek ~~operations included~~to ~~the~~recover, ~~pursuit~~through ofadversary proceedings ~~various~~in ~~litigation~~the ~~and~~bankruptcy ~~preference~~court, ~~actions;~~certain ~~resolution~~ transfers of the ~~remaining~~debtor’s ~~Disputed~~property, including ~~Claims; and final Claims~~ payments ~~and~~of ~~a final Distribution~~cash, ifmade ~~any.~~during ~~Substantially~~the ~~all~~90 days ofimmediately ~~the~~prior ~~day-~~to~~-day~~ the ~~operations~~commencement of the ~~Liquidation~~ ~~Trust~~bankruptcy case. Although there are ~~planned~~certain defenses to ~~cease~~such ~~in early 2005; however~~recoveries, ~~provision~~the ~~has been~~Bankruptcy ~~made~~Code’s ~~for~~preference ~~certain~~statute ~~necessary~~can ~~administrative,~~be very ~~legal~~broad ~~and~~in ~~accounting~~its ~~processes to~~application bebecause ~~completed~~it ~~thereafter~~allows ~~through~~ the ~~end~~debtor ofto ~~2005.~~recover ~~These final items include~~payments ~~resolution~~regardless of ~~all~~whether ~~litigation~~there ~~(excluding~~was ~~the~~any ~~costs~~impropriety ~~provided for~~ in ~~the Litigation~~such ~~Reserve), a final Distribution, if applicable, and filings with regulatory authorities and with the Bankruptcy Court~~payments.

The recoverable preferential payments (the “Preference Receivables”) are reflected in the accompanying Statements of Net Assets in Liquidation at their estimated fair value, net of estimated costs of ~~liquidation~~recovery. As of September 30, ~~excluding~~2008 ~~those~~and ~~costs~~September ~~provided~~30, ~~for~~2007, inPreference Receivables consisted ~~the~~mainly ~~Litigation~~of ~~Reserve~~one remaining significant action. During June 2005, ~~were~~the Bankruptcy ~~increased~~Court byawarded athe ~~total~~Liquidation ofTrust $1.7 0 million, $0in this action.9 ~~million~~During ~~and~~March $32006, the District Court upheld the Bankruptcy Court ruling in its entirety.~~7 million~~ ~~during~~The defendant appealed the ~~fiscal~~affirmation ~~years~~by ~~ended~~the ~~September 30,~~District ~~2004~~Court ~~and~~to the ~~September 30,~~Court ~~2003~~of ~~and~~Appeals. ~~during~~During June 2007, the ~~period~~Court ~~from~~of ~~October 26,~~Appeals ~~2001~~remanded ~~(Effective~~the ~~Date)~~case to ~~through~~the ~~September 30,~~District ~~2002~~Court, ~~respectively,~~with ~~based~~instructions onto ~~revised~~remand ~~forecasts~~to ofthe Bankruptcy Court for ~~operational~~specific ~~requirements~~findings. ~~prior~~Pursuant to the ~~expected~~Bankruptcy ~~termination~~Court’s ofscheduling order, both parties filed briefings by February 2008. The Bankruptcy Court may decide the case ~~Liquidation~~or schedule further proceedings, up to and including a trial, at its discretion. The Liquidation Trust, asand ~~extended~~its counsel intend to vigorously pursue collection of the original judgment. ~~Expenses~~The ~~paid~~Liquidation ~~from~~Trust’s current estimate of the ~~Wind-down~~fair ~~Reserve~~value ~~during~~of preference receivables is primarily based on the ~~fiscal~~content of ~~years~~the ~~ended~~Court ~~September 30,~~of ~~2004~~Appeals ruling and ~~September 30,~~on ~~2003~~the ~~and~~status ~~during~~of negotiations with the ~~period~~defendant in this action.

F - 10 8

~~from~~During ~~October 26~~the fiscal years ended September 30, ~~2001~~2008, ~~(Effective~~September ~~Date)~~30, ~~through~~2007 and September 30, ~~2002~~2006, ~~totaled~~respectively, the Liquidation Trust collected $30.3 0 million, $40.1 million and $0 .3 million in preference recoveries, and paid $50.1 million, ~~respectively~~$0.0 million, and $0.2 million in fees and expenses associated with such recoveries. Preference fees paid during the fiscal year ended September 30, 2008, and a portion of preference fees paid during the fiscal year ended September 30, 2006, relate to waivers of otherwise valid Impaired Claims obtained in the course of preference settlements (“Waiver Fees.”)

~~Pursuant~~The estimated tonet ~~the~~fair ~~Plan,~~value ~~the~~of ~~Liquidation~~preference ~~Trust~~recoveries ~~also~~decreased ~~established~~by ~~and~~$0.1 ~~funded a~~million ~~reserve~~during ~~to pay~~ the ~~costs~~fiscal ofyear ~~pursuing~~ended ~~certain~~September ~~actions~~30, ~~referred~~2008, toprimarily as ~~the “Bondholder~~a ~~Action”~~result ~~and~~of ~~the~~Waiver Fees, ~~“Committee~~and ~~Action”~~by ~~(see~~$0.7 ~~Note~~million ~~12)~~during (the ~~“Litigation Reserve”).~~fiscal Inyear ~~March 2004,~~ended ~~the~~September ~~court~~30, ~~ruled~~2007, inas ~~favor~~a result of the ~~defendants~~court ~~and against~~rulings ~~the~~discussed ~~Liquidation Trust in the Bondholder Action~~above. The Inestimated ~~April 2004,~~net ~~the~~fair ~~Liquidation~~value ~~Trust~~of ~~filed~~preference anrecoveries ~~appeal~~increased ~~from~~by ~~this ruling~~$0.1 ~~The~~million ~~Liquidation~~during ~~Trust and~~ the ~~defendants~~fiscal ~~each~~year ended ~~filed appeal briefs during~~ September ~~2004.~~ ~~The~~30, ~~Third Circuit~~2006, ~~has~~primarily ~~not~~as ~~heard~~a ~~oral~~result ~~argument~~of ~~and~~collections ~~no date for such argument has been set. The timing~~ of ~~a ruling is unknown~~$0.3 ~~Also in April 2004, the Committee Action~~million ~~was~~of ~~assigned~~amounts toowed ~~the~~under ~~judge~~default ~~who~~judgments ~~presided~~and inunder ~~the~~settlements ~~Bondholder~~with ~~Action, who has~~other ~~scheduled~~entities ~~the Committee Action for trial~~ in ~~August 2005. Subsequent to September 30~~bankruptcy, ~~2004,~~ the ~~court~~value ~~began~~of ~~hearing~~which ~~oral~~was ~~argument~~uncertain onuntil ~~motions for~~collected, ~~summary~~reduced ~~judgment filed~~ by ~~various~~costs ~~defendants.~~of ~~Oral~~recovery ~~argument~~of ~~for~~$0.2 ~~the~~million, ~~remaining such~~including ~~motions is scheduled for January 2005~~$0.1 ~~The~~million ~~timing~~ of ~~a decision on~~Waiver ~~defendants’ motions is unknown~~Fees.

The ~~Litigation Reserve is periodically adjusted based on updated estimates~~fair ofvalue ~~the aggregate litigation expenses~~ of ~~the~~Preference ~~Liquidation~~Receivables ~~Trust~~is ~~for~~reassessed ~~these actions.~~quarterly ~~Primarily as a result of the decision in,~~ and ~~appeal~~adjustments ~~of, the~~to ~~Bondholder~~estimated ~~Action,~~fair ~~and~~values asare areflected ~~result of a higher than planned level of activity and duration, primarily~~ in ~~connection with~~ the Committee Action, the estimated Litigation Reserve was increased by $2.6 million, $3.0 million and $3.5 million during the fiscal years ended September 30, 2004 and September 30, 2003 and during the period ~~from October 26, 2001 (Effective Date) through September 30, 2002, respectively. Each of the increases~~ in ~~the~~which ~~Litigation~~they ~~Reserve has been~~become ~~based on the Liquidation Trust’s ongoing evaluation of the costs and potential benefits of continuing the actions~~known. The ~~costs~~eventual ~~associated~~net ~~with~~realizable ~~these~~value ~~increases are~~of ~~considered~~Preference ~~both~~Receivables ~~probable and estimable based on the then existing plans for~~is ~~pursuing~~likely the litigation. In accordance with the procedures set forth in the Plan, increases in the Litigation Reserve require approval. The Liquidation Trust is in the process of obtaining such approval with respect to andiffer ~~increase of~~from ~~$0.6 million,~~their ~~included~~estimated innet ~~the~~fair ~~increase~~value ~~of $2.6 million recorded for the fiscal year ended September 30, 2004. Litigation expenditures during the fiscal years ended September 30, 2004~~ and ~~September 30,~~these ~~2003~~differences ~~and during the~~may ~~period~~be ~~from October 26, 2001 (Effective Date) through September 30, 2002 totaled $2~~significant.~~7 million, $3.9 million and $3.1 million, respectively.~~

~~The fair value of estimated costs of liquidation is reassessed at least quarterly and adjustments to estimated fair values are reflected in the period in which they become known~~5. Unimpaired ~~Actual costs are likely to differ from the estimated costs~~ and ~~these~~Convenience ~~differences may be significant.~~Claims Payable

~~During~~Unimpaired Claims payable represents the ~~fiscal~~estimated ~~years~~aggregate ~~ended~~settlement ~~September 30,~~amount ~~2004~~of ~~and~~Unimpaired ~~September 30,~~Claims ~~2003~~against the ~~and~~Debtors ~~during~~prior to the ~~period~~Effective ~~from~~Date ~~October 26,~~of ~~2001~~the ~~(Effective~~Plan ~~Date)~~which ~~through~~will ~~September~~be paid out at 100% ~~30,~~of ~~2002,~~their Allowed amount. Such Claims are valued at the Liquidation Trust’s ~~incurred~~best ~~rent~~estimate ~~expense~~ of ~~$0.1 million,~~the ~~$0.2 million~~amount ~~and~~that $0will ultimately be allowed.~~1 million,~~ Convenience ~~respectively~~Claims, ~~all~~also ~~under~~included ~~short-term~~in ~~leases.~~this classification, are not significant.

~~10.~~Unimpaired ~~Bankruptcy~~and ~~Reserves~~Convenience ~~Required~~Claims payable consists of:

Pursuant to the terms of the Plan, the Liquidation Trust is required to establish and maintain various reserves intended, among other things, to assure that Claims are paid in accordance with the funding priorities established in the Plan, to administer the Plan and the Liquidation Trust, and to wind down the affairs of the Debtors. Reserves which represent liabilities that would be recorded using the liquidation basis of accounting in accordance with generally accepted accounting principles (~~the “Liability Reserves”) are reflected as such~~$ in ~~the accompanying Statements of Net Assets in Liquidation. Such Liability Reserves include the Wind-down Reserve and the Litigation Reserve.~~ thousands)

Certain other reserves relate to contingencies which are not deemed probable of actual payment (the “Contingency Reserves”) and therefore are not included as liabilities in the Statements of Net Assets in Liquidation. Such Contingency Reserves include the excess of the Disputed Unimpaired Claims Reserve over Unimpaired Claims payable; a minimum reserve to assure adequate liquidity; and other reserves held pending resolution of certain matters in dispute.

	As of		As of
	September 30, 2008		September 30, 2007

Allowed unimpaired claims	$	1,335	$	1,335

Estimated fair value of disputed unimpaired claims		-		-

Convenience claims		2		2

Total unimpaired and convenience claims payable	$	1,337	$	1,337

Reserved value of disputed unimpaired claims	$	300	$	300

Number of disputed unimpaired claims		3		3

~~The~~There have ~~Fleet~~been ~~Reserve,~~no ~~established~~changes ~~pursuant~~in tothe astatus ~~stipulated~~of ~~order~~any ~~between~~of the Unimpaired Claims Payable ~~Fleet~~during ~~Retail~~the ~~Finance~~fiscal ~~Inc~~years ended September 30, 2008 and September 30, 2007. Pursuant to the Plan, certain fees and expenses which Kmart Corporation (“~~Fleet~~Kmart”) ~~and~~incurred in connection with the ~~Liquidation~~Debtors’ ~~Trust,~~bankruptcy isfiling were ~~likely~~allowed toas bean Unimpaired Claim. Allowed Unimpaired Claims as of ~~drawn~~September ~~upon~~30, if2008 ~~Fleet~~and September 30, as2007 ainclude ~~defendant~~this inClaim, which has not yet been substantiated by Kmart as required by the ~~Committee~~Plan, at its estimated amount of $1.3 million.

F - 11 9

~~Action~~The reserved ~~and~~amount ~~the~~for ~~Bondholder~~Disputed ~~Action,~~Unimpaired ~~should~~Claims ~~ultimately~~(the ~~prevail~~“Excess inDisputed ~~one~~Unimpaired Claims orReserve”) ~~both~~is ~~of such~~based ~~actions.~~on Nothe ~~liability~~estimated ~~has~~amount ~~been~~of ~~accrued~~such inClaims ~~connection~~approved ~~with~~by the ~~Fleet~~ ~~Reserve~~Bankruptcy ~~because~~Court ~~the~~for ~~Liquidation~~reserve ~~Trust~~purposes. ~~has~~The ~~appealed~~amount ~~the~~asserted ~~adverse~~by ~~decision~~the inholders of the ~~Bondholder~~remaining ~~Action~~Disputed ~~(see~~Unimpaired ~~Note~~Claims ~~12)~~is insignificant as of September 30, ~~does~~2008 and ~~not~~September ~~believe~~30, ~~Fleet~~2007. The ~~will~~Liquidation ~~ultimately~~Trust ~~prevail~~believes that the inlikelihood ~~either~~of paying any of these ~~actions,~~Claims is remote and ~~has~~anticipates that each of these Claims will be waived; accordingly, no ~~access~~liability tohas ~~information~~been torecorded ~~estimate~~with respect to the ~~amount,~~ ifremaining ~~any,~~Disputed ~~that~~Unimpaired ~~Fleet~~Claims ~~may~~as ~~validly~~of ~~assert~~September ~~against~~30, ~~the~~2008 ~~Fleet~~or September ~~Reserve~~30, 2007.

~~Reserves~~Unimpaired Claims are valued by reviewing the facts available to the Liquidation Trust, including ~~other~~the ~~than~~Debtors’ ~~those~~records ~~funded~~and information submitted by ~~Restricted~~the ~~Cash~~claimants, orand estimating ~~included~~the ultimate settlement value of the Claims. The fair value of Unimpaired Claims payable is reassessed at least quarterly and adjustments to estimated fair values are reflected in the period in which they ~~Available~~become ~~Cash~~known. However, ~~consist~~no assurance can be given as to the ultimate allowance, disallowance or settlement of: the remaining Disputed Unimpaired Claims, individually or in the aggregate.

~~($ in thousands)~~6. Uncashed Claims Checks

	As of		As of
	September 30, 2004		September 30, 2003
Liability reserves
Wind-down (net of related escrow of $278)	$	3,240	$	4,873
Litigation		2,384		2,460
Unimpaired claims (excluding secured claims (see Note 6))		1,368		2,042
Uncashed claims checks		142		377
Convenience claims		2		22
Total liability reserves		7,136		9,774
Contingency reserves
Fleet		11,000		11,000
Excess disputed unimpaired claims		309		425
Preference settlement claims		26		89
Minimum reserve		3,000		3,000
Total contingency reserves		14,335		14,514
Total reserves	$	21,471	$	24,288

Pursuant to the Plan, any Claims payments and Distributions which remain uncashed for 90 days following their issuance date are forfeited to the Liquidation Trust for distribution to other holders of Allowed Claims. Pending a final order from the Bankruptcy Court, the Liquidation Trust has treated such items as a liability, and has reissued uncashed checks upon timely request of the payee, subject to applicable fees. (See Notes 3 and 13.)

The Liquidation Trust also maintains the Disputed Impaired Claims Reserve, which, as an equity reserve, is designated as part of Available Cash (see Note 3), for Distribution to holders of Disputed Impaired Claims should such Claims become Allowed7. ~~The reserve for the remaining Disputed Impaired Claims is~~ Distributions ~~determined based on the then current cumulative Distribution rate and on the estimated amount of remaining Disputed Impaired Claims.~~ Payable

~~11.~~Distributions payable represents the amount of authorized Distributions which the Liquidation Trust has been unable to pay to holders of Allowed Impaired Claims. A number of holders of such Allowed Claims, while otherwise eligible for Distributions, have either not yet provided all information necessary for payment; were subject to an offsetting claim by the Liquidation Trust which had not yet been resolved; or, because they had not cashed a previous Distribution check, were not paid any subsequent Distributions. Until all such issues are resolved, the holder of an Allowed Claim may not receive a Distribution.

~~Each holder of an Allowed Impaired Claim is deemed to hold a pro rata~~During ~~Beneficial~~November ~~Interest~~2008, in the Liquidation Trust ~~based~~notified ~~upon~~substantially ~~the~~all ~~amount~~holders of ~~their~~the Allowed Impaired ~~Claim~~Claims asincluded ~~compared~~in toDistributions ~~the~~payable ~~total~~as ~~amount~~ of ~~all~~September ~~Impaired Claims~~30, ~~ultimately~~2008 ~~allowed. When and to the extent~~ that ~~Disputed Impaired Claims become Allowed Impaired Claims~~, ~~holders of such Claims receive Beneficial Interests~~ in accordance with the ~~Plan.~~terms ~~The Beneficial Interests do not entitle any beneficiary~~ of the ~~Liquidation~~Plan, ~~Trust~~they toforfeited ~~any~~their interest ~~title~~ in orpast toDistributions, ~~any~~making ofthe ~~its assets~~unclaimed ~~and~~funds doavailable ~~not~~to ~~represent an obligation of~~ the Liquidation Trust toand, ~~pay~~ultimately, afor ~~sum certain~~distribution ~~amount. The Beneficial Interests represent only a right~~ to ~~receive a pro rata portion of~~ the ~~net~~remaining ~~proceeds~~holders of ~~the Liquidation Trust assets pursuant~~ toBeneficial ~~the~~Interests. (See ~~terms~~Notes of3 ~~the~~and ~~Plan~~13. )

F8. Estimated -Costs 12of Liquidation

The ~~Liquidation~~Wind-down ~~Trust’s~~Reserve ~~estimate~~and ofthe Litigation ~~Impaired~~Reserve ~~Claims~~together ~~consists~~constitute the estimated costs of: liquidation in the accompanying Statements of Net Assets in Liquidation.

Under the Plan, the Liquidation Trust was required to establish and fund a reserve to pay administration costs and costs of holding and liquidating the Liquidation Trust’s assets ($the “Wind-down Reserve”). The amounts included in ~~thousands)~~the Wind-down Reserve represent the projected costs of operating the Liquidation Trust through its expected termination. These costs, which include professional fees, insurance and personnel, among other things, are based on various assumptions regarding the number of employees, the use of professionals (particularly in connection with continuing Claims resolution and litigation), the anticipated termination date of the Liquidation Trust and other matters.

	As of		As of
	September 30, 2004		September 30, 2003
Allowed claims	$	704,015	$	674,508
Estimated fair value of disputed claims		20,798		84,219
Total estimated impaired claims	$	724,813	$	758,727
Asserted value of disputed claims	$	64,068	$	128,213
Number of disputed claims		47		172

Substantially all of the day-to-day operations of the Liquidation Trust were terminated during June 2005; however, provision has been made for necessary management oversight and administrative, legal and accounting processes to continue through its expected termination in early calendar year 2009. These final items include resolution of the remaining Disputed Claims and all litigation (excluding the costs provided for in the Litigation Reserve), a final Distribution, if applicable, and any necessary filings with regulatory authorities and with the Bankruptcy Court.

No assurance can be given as to the ultimate allowance, disallowance or settlement of the remaining Disputed Impaired Claims, individually or in the aggregate. The amount of Impaired Claims ultimately allowed determines the base amount for calculation of Distributions to holders of Beneficial Interests. F-10

~~Distributions to holders of Allowed Impaired Claims have been authorized~~The ~~during~~Wind-down ~~August 2002,~~Reserve ~~June 2003~~was ~~and~~increased ~~September 2004~~by ina ~~the~~total ~~amounts~~ of 4$0.~~515%, 2.058% and~~ 1~~.527%,~~ ~~respectively~~million, ~~for total authorized Distributions of 8~~$0.1% ~~of the~~million ~~Allowed amount of the Impaired Claims~~and $1.0 ~~Distributions~~million ~~authorized~~ during the fiscal ~~year~~years ended September 30, ~~2004~~2008, ~~totaled~~September ~~$12.7 million~~30, ~~primarily~~ ~~representing~~2007 ~~the~~and ~~third~~September ~~interim~~30, ~~Distribution~~2006, ~~of 1.527%~~respectively, asbased ~~well~~on asrevised ~~the previously~~forecasts ~~authorized Distributions~~ of operational ~~6.573%~~requirements ~~payable~~prior to ~~holders~~and ofassociated ~~the additional~~with ~~$29.5 million of Impaired Claims newly allowed during~~ the ~~period. Distributions~~expected ~~authorized during the fiscal year ended September 30, 2003~~termination ~~totaled~~of ~~$17.4 million, primarily representing~~ the ~~second~~Liquidation ~~interim Distribution of 2.058%~~Trust, as ~~well~~extended ~~the~~from ~~initial~~time ~~Distribution~~to ~~of 4~~time.~~515%~~ Expenses paid ~~payable~~from ~~to holders of~~ the ~~additional~~ ~~$78.7 million~~Wind-down ofReserve ~~Impaired Claims newly allowed~~ during the ~~period. During~~fiscal ~~the~~years ~~period~~ended ~~from~~September ~~October 26~~30, 2008, ~~2001~~September ~~(Effective~~30, ~~Date)~~2007 ~~through~~and September 30, ~~2002,~~ a2006 ~~Distribution~~totaled of $260.~~9 million~~6 ~~was authorized~~million, ~~representing the initial~~$0.6 ~~Distribution~~million ofand ~~4.515% payable to holders of~~ $~~595~~0.8 7 million, ~~of Allowed Impaired Claims~~respectively.

~~In conjunction with the authorized Distributions, as of September 30, 2004~~The ~~the~~ Liquidation Trust ~~held~~rents aits ~~total~~office ofspace ~~$3.4 million~~under ~~of Available Cash for Distribution to holders of Impaired Claims, including~~ a ~~reserve for~~short-term ~~Distribution to holders of Disputed Impaired Claims should such Disputed Claims become Allowed (see Note 3)~~lease. During Aeach ~~total~~ of ~~$56.9 million~~the ~~has~~fiscal ~~been~~years ~~paid~~ended ~~to holders of Allowed Impaired Claims through~~ September 30, ~~2004. Of this total~~2008, ~~$32.8~~ ~~million~~September ~~was~~30, ~~paid~~2007 toand ~~holders~~September of30, ~~General~~2006, ~~Unsecured~~the ~~Claims~~Liquidation ~~Allowed~~Trust atincurred ~~$406.7~~rent ~~million,~~expense ~~and~~of $240.1 million, toall ~~holders~~under ofshort-term ~~Senior Unsecured Claims Allowed at $206~~leases.~~4 million.~~

~~Distributions~~Pursuant to ~~are~~the ~~made~~Plan, inthe ~~accordance~~Liquidation ~~with~~Trust ~~the~~also ~~priority~~established and ~~subordination provisions~~funded ~~set~~a ~~forth~~reserve into pay the ~~Plan.~~costs ~~Until~~of ~~such~~pursuing ~~time~~certain asactions ~~all~~referred ~~holders~~to ofas ~~Allowed Senior~~the ~~Unsecured~~“Bondholder ~~Claims~~Action” ~~have received~~ and the ~~full~~“Committee ~~amount~~Action” of(the ~~their~~“Litigation ~~Allowed~~Reserve”). Both ~~Claims,~~actions arose ~~any~~from ~~amounts~~a ~~allocated~~business ~~for~~combination ~~payment~~among tothe ~~holders~~Debtors ofduring ~~Subordinated~~1997 ~~Debentures~~and ~~Claims~~the related ~~will~~financing be(the ~~distributed~~“1997 toTransactions”), ~~holders~~and ofwere ~~Senior~~filed ~~Unsecured~~against ~~Claims.~~certain ~~Therefore,~~parties ~~although~~that ~~the~~arranged, ~~holders~~approved, ofor ~~Subordinated~~financed ~~Debentures~~the ~~Claims~~1997 ~~are~~Transactions. The Liquidation ~~holders~~Trust ofceased ~~Beneficial Interests,~~its ~~they~~pursuit ~~have~~of nothe ~~current~~Bondholder ~~economic~~Action ~~interest~~following inadverse decisions on the ~~Liquidation~~action ~~Trust.~~by Of the ~~$24.1 million~~United inStates ~~cumulative~~Court ~~Distributions~~of ~~paid~~Appeals tofor ~~holders~~the ~~of Senior~~Third ~~Unsecured~~Circuit ~~Claims~~(the ~~during~~“Court ~~the~~of ~~period~~Appeals”) ~~from~~during ~~October 26,~~July ~~2001~~and ~~(Effective~~August ~~Date)~~2005. The ~~through~~Liquidation ~~September 30,~~Trust ~~2004,~~determined ~~$7.4 million~~not ~~represents~~to ~~the~~further ~~amount~~pursue ~~which~~the ~~would~~Committee Action ~~otherwise~~following ~~have~~the ~~been~~May ~~paid~~2008 toCourt ~~holders~~of Appeals affirmation of ~~Subordinated~~a ~~Debentures~~lower ~~Claims~~court’s ~~Allowed~~summary injudgment decision dismissing the ~~amount~~remaining ofdefendants ~~$90~~in this Action.~~9 million.~~ The ~~Holders~~amount of ~~Allowed~~the ~~General~~Litigation ~~Unsecured~~Reserve ~~Claims~~as of September 30, 2008 ~~receive~~and ~~their~~September ~~pro~~30, ~~rata~~2007 ~~Distribution~~represents asthe ~~such~~estimated ~~Distributions~~amount ~~are~~of ~~made.~~the final unpaid costs associated with the Committee Action.

FThe Litigation -Reserve 13is periodically adjusted based on updated estimates of the aggregate litigation expenses of the Liquidation Trust for these actions. No adjustment was deemed necessary during any of the three most recent fiscal years based on the status of the litigation and its estimated costs. Litigation expenditures during the fiscal years ended September 30, 2008, September 30, 2007 and September 30, 2006 totaled $0.2 million, $0.1 million and $0.4 million, respectively.

~~12.~~The ~~Contingencies~~fair value of estimated costs of liquidation is reassessed at least quarterly and adjustments to estimated fair values are reflected in the period in which they become known. Actual costs are likely to differ from the estimated costs and these differences may be significant.

~~Litigation~~9. Bankruptcy ~~and Other Proceedings on behalf of the Liquidation Trust~~Reserves Required

~~Federal~~Pursuant ~~Court~~to ~~Cases~~the terms of the Plan, the Liquidation Trust is required to establish and maintain various reserves intended, among other things, to assure that Claims are paid in accordance with the funding priorities established in the Plan, to administer the Plan and the Liquidation Trust, and to wind down the affairs of the Debtors. Reserves which represent liabilities that would be recorded using the liquidation basis of accounting in accordance with generally accepted accounting principles (the “Liability Reserves”) are reflected as such in the accompanying Statements of Net Assets in Liquidation. Such Liability Reserves include the Wind-down Reserve, the Litigation Reserve, Unimpaired Claims payable, and uncashed Claims checks.

~~The~~Certain ~~Liquidation~~other ~~Trust~~reserves isrelate ~~pursuing two major actions on behalf of its~~to ~~beneficiaries~~contingencies inwhich ~~the~~are ~~United~~not ~~States~~deemed ~~District~~probable ~~Court, District~~ of ~~Delaware,~~actual ~~and~~payment ~~in the United States Court of Appeal for the Third Circuit. Both actions arise from a business combination among the Debtors during 1997 and the related Financing~~ (the “~~1997 Transactions~~Contingency Reserves”) and ~~have~~therefore ~~been~~are ~~filed~~not ~~against~~included ~~certain~~as ~~parties~~liabilities ~~that arranged,~~in ~~approved, or financed~~ the ~~1997~~Statements ~~Transactions. The 1997 Transactions~~of ~~were~~Net ~~arranged~~Assets ~~and/or~~in ~~approved by Leonard Green & Partners, L~~Liquidation.P. Such ~~and~~Contingency ~~related entities~~Reserves ~~and~~include the Excess ~~controlling~~Disputed ~~shareholders~~Unimpaired ~~and~~Claims ~~directors of the Debtors (collectively~~Reserve, ~~the~~a ~~“Insiders”).~~minimum ~~The~~reserve ~~1997~~to ~~Transactions~~assure ~~were financed by a~~adequate ~~series of secured credit agreements~~liquidity, ~~under which the Chase Manhattan Bank~~ and ~~Fleet~~ ~~(Fleet~~other ~~Retail~~reserves ~~Finance~~held ~~Inc.,~~pending ~~formerly~~resolution ~~BankBoston~~of ~~Retail~~certain ~~Finance~~matters ~~Inc.)~~in ~~served as agent for the pre-petition lender group (the “Pre-petition Lenders”)~~dispute.

~~The Bondholder Action and related appeal~~ F-11

~~The~~Reserves, in ~~complaint~~addition ~~with respect~~ to ~~the~~those ~~first~~included ~~of these actions, filed~~ in ~~the United~~Available ~~States Bankruptcy Court for the District of Delaware on May 26~~Cash, ~~2000,~~consist as Adversary Proceeding No. 00-644, was styled “HSBC Bank, USA, not individually, but solely as Indenture Trustee, Plaintiff, v. BankBoston Retail Finance, Inc., individually and as agent for lenders under Credit Agreement dated as of ~~September 26, 1991 [sic], Credit Agreement dated as of December 31, 1998, and Amended and Restated Credit Agreement dated March 18, 1999, Defendant.”~~ :

~~The Bondholder Action, initially filed on behalf of the holders of Hechinger Company’s senior debt instruments, and assigned to the Liquidation Trust pursuant to the Plan, against Fleet~~ (~~individually and as agent) and~~$ General Electric Credit Corporation (“GECC”), alleges that the 1997 Transactions effected a breach of the applicable indenture, and that the plaintiff is entitled to an equitable lien and equitable subordination of the Claims of the Prepetition Lenders to the Claims of the holders of the Hechinger senior debt instruments. Pursuant to the terms of the Plan, net proceeds from the Bondholder Action, if any, will be allocated 60% to the senior debt holders (i.e., Class 4A – Senior Unsecured Claims), and 40% to holders of Beneficial Interests in ~~the Liquidation Trust (i.e., Classes 4A, 4B, and 5; respectively, Senior Unsecured, General Unsecured and Subordinated Debentures Claims~~thousands).

In March 2004, following a non-jury trial held in October 2003, the United States District Court for the District of Delaware issued an opinion and order (collectively, “the Decision”) in the Bondholder Action, directing the entry of judgment in favor of Fleet and GECC. In April 2004, the Liquidation Trust filed an appeal from the Decision and related judgment in the United States Court of Appeals for the Third Circuit, as Case Number 04-2112. The Liquidation Trust, Fleet and GECC each filed appeal briefs during September 2004. The Third Circuit has not heard oral argument and no date for such argument has been set. The timing of a ruling is unknown. There can be no assurance of the outcome of the appeal.

	As of		As of
	September 30, 2008		September 30, 2007
Liability reserves
Unimpaired and convenience claims	$	1,337	$	1,337
Uncashed claims checks		426		435
Wind-down		757		1,210
Litigation		152		307

Total liability reserves		2,672		3,289

Contingency reserves
Minimum reserve		3,000		3,000
Excess disputed unimpaired claims		300		300
Litigation appeals provision		-		4,000
Preference settlement claims		-		72

Total contingency reserves		3,300		7,372

Total reserves	$	5,972	$	10,661

The minimum ~~Committee~~reserve, ~~Action~~established pursuant to the Plan and intended to assure adequate liquidity for the Liquidation Trust, is to be maintained, subject to reduction by an order of the Bankruptcy Court, until the Liquidation Trust makes a final Distribution, if any, or is otherwise terminated.

~~An amended complaint with respect to the second of these actions was filed~~The inlitigation ~~the~~appeals ~~United~~provision ~~States Bankruptcy Court for the District of Delaware on April 3, 2001,~~ as ~~Civil Action No. 00-840-RRM and was styled “The Official Committee~~ of ~~Unsecured~~ ~~Creditors~~September ~~of Hechinger Investment Company of Delaware~~30, ~~Inc., et~~2007 ~~al.,~~represented ~~Plaintiff,~~a ~~v. Fleet Retail Finance Group, The Chase~~contingency ~~Manhattan~~reserve ~~Bank,~~to ~~Back~~allow ~~Bay~~the ~~Capital~~Liquidation ~~Funding,~~Trust ~~LLC, each individually and as agent for various parties~~ to ~~credit~~pursue ~~agreements~~or ~~described~~defend ~~herein,~~a ~~Leonard~~future ~~Green~~trial &and ~~Partners,~~appeals L.of ~~P.,~~the ~~Green~~Committee ~~Equity Investors II, L~~Action. ~~P.,~~Because ~~John~~the W.Liquidation ~~Hechinger,~~Trustee ~~Jr.,~~has ~~John~~determined W.that ~~Hechinger,~~the S.Liquidation ~~Ross~~Trust ~~Hechinger,~~will ~~Ann~~not D.pursue ~~Jordan,~~the ~~Robert~~Committee S.Action ~~Parker,~~further ~~Melvin A.~~(see ~~Wilmore,~~Note ~~Alan J. Zakon~~8), ~~Kenneth~~the J.litigation ~~Cort,~~appeals W.provision ~~Clark~~has ~~McClelland,~~been ~~June R~~released. ~~Hechinger, Nancy Hechinger Lowe, Sally Hechinger Rudoy, Catherine S. England, Richard England, Jr., June L. P., and Jarsan Associates L. P., Defendants.”~~

FThe preference -settlement 14claims reserve has been eliminated as of September 30, 2008 based on the Liquidation Trust’s determination that the filing dates of the potential claims for which this reserve provided had passed.

The Committee Action, initially filed by the Official Committee of Unsecured Creditors appointed for the Debtors, and assigned to the Liquidation Trust pursuant to the Plan, alleges that the defendants carried out the 1997 Transactions despite their knowledge that Hechinger was insolvent at the time, and asserts fraudulent conveyance and/or breach of fiduciary duty claims against the Insiders, seeking recovery of at least $127 million in damages10. Impaired ~~It also asserts fraudulent conveyance claims against the Pre-petition Lenders and challenges the repayment of the Pre-petition Lenders using the proceeds of a post-petition loan.~~ Claims

InEach ~~April 2004,~~holder ~~the~~of ~~Committee~~an ~~Action~~Allowed ~~was~~Impaired Claim ~~assigned~~is deemed to ~~the~~hold ~~judge~~a ~~who~~pro ~~presided~~ rata Beneficial Interest in the ~~Bondholder~~Liquidation ~~Action,~~Trust based ~~who~~upon ~~has~~the ~~scheduled~~amount ~~the~~of ~~Committee~~their ~~Action~~Allowed ~~for~~Impaired ~~trial~~Claim inas compared to the total ~~August 2005~~amount of all Impaired Claims ultimately allowed. When ~~The~~and ~~court~~to ~~has~~the extent ~~begun~~that ~~hearing~~Disputed ~~oral~~Impaired ~~argument~~Claims onbecome ~~motions~~Allowed ~~for~~Impaired ~~summary~~Claims, holders of ~~judgment~~such ~~filed~~Claims byreceive ~~various~~Beneficial ~~defendants~~Interests in accordance with the Plan. The ~~Oral~~Beneficial ~~argument~~Interests ~~for~~do not entitle any beneficiary of the Liquidation ~~remaining~~Trust ~~such~~to any title in or to any of its assets and do not represent ~~motions~~an isobligation ~~scheduled~~of ~~for~~the ~~January 2005.~~Liquidation Trust to pay a sum certain amount. The ~~timing~~Beneficial ofInterests represent only a ~~decision~~right onto ~~defendants’~~receive a ~~motions~~pro israta ~~unknown.~~portion of the net proceeds of the Liquidation Trust assets pursuant to the terms of the Plan.

The various defendants are vigorously opposing these actions. There is no assurance that the Liquidation Trust will prevail on the claims asserted in the Committee Action and in the appeal of the Bondholder Action. While the Liquidation Trust is pursuing this litigation with the intent to obtain a very substantial recovery, the Liquidation Trust cannot predict with any certainty the outcome of the litigation or the amount or range of potential recoveries. F-12

~~Cases~~The ~~before~~Liquidation ~~the~~Trust’s ~~Bankruptcy~~estimate ~~Court~~of Impaired Claims consists of:

~~During December 2003, the Liquidation Trust filed a complaint~~($ in the United States Bankruptcy Court for the District of Delaware styled “Hechinger Liquidation Trust, Plaintiff, vs. Broadspire Services, Inc., Kemper Risk Management Group, American Motorists Insurance Company, Lumbermans Mutual Casualty Company, American Manufacturers Mutual Insurance Company, American Protection Insurance Company, and National Loss Control Services Corporation, Defendants” (which defendants are referred to collectively as “Kemper”thousands) ~~(the “Kemper Complaint”).~~

	As of		As of
	September 30, 2008		September 30, 2007

Allowed impaired claims	$	712,412	$	711,770
Estimated fair value of disputed impaired claims		7,703		8,584

Total estimated impaired claims	$	720,115	$	720,354

Asserted value of disputed impaired claims	$	8,086	$	22,669

Number of disputed impaired claims		5		9

~~Subsequent~~The amount toof ~~year-end,~~Impaired ~~Kemper~~Claims ~~and~~ultimately ~~the~~allowed ~~Liquidation~~determines ~~Trust~~the ~~reached~~base anamount for ~~agreement,~~calculation asof ~~described~~Distributions ~~herein,~~ to ~~settle~~holders ~~the~~of ~~Insurance~~Beneficial ~~Claims~~Interests. Subsequent ~~The~~to ~~Liquidation~~year-end, ~~Trust’s~~one ~~claims~~Disputed ~~against~~Impaired ~~Kemper~~Claim was settled for ~~the~~an ~~return~~amount ofapproximating ~~excess~~its ~~collateral,~~estimated ~~deposits~~value ~~and~~of ~~other amounts due to the Liquidation Trust remain unresolved~~$7.5 ~~Any~~million, ~~recovery~~and ~~will further reduce the~~an ~~settlement~~Order ~~amount~~authorized ~~for~~by the ~~Insurance~~Bankruptcy ~~Claims.~~Court ~~While~~expunged the ~~Liquidation~~remaining ~~Trust~~four isDisputed ~~pursuing~~Impaired ~~this~~Claims ~~litigation~~(see ~~with~~Note ~~the intent to obtain a substantial recovery~~13), ~~the Liquidation~~further ~~Trust~~reducing ~~cannot~~total ~~predict~~estimated ~~with~~Impaired ~~any certainty the outcome of the~~Claims ~~litigation~~by or$0.1 ~~the amount or range of potential recoveries~~million.

FOn -or about 15August 12, 2008, the Liquidation Trust notified the Bankruptcy Court of its Sixth Interim Distribution in the amount of 1.65% of Allowed Impaired Claims. Distributions to holders of Allowed Impaired Claims have been authorized, through September 30, 2008, in the cumulative amount of 11.9411% of the Allowed amount of the Impaired Claims.

~~Litigation~~Distributions authorized ~~and~~during ~~Other~~the ~~Proceedings~~fiscal ~~Against~~year ended September 30, 2008 totaled $11.7 million, primarily representing the ~~Liquidation~~sixth ~~Trust~~interim Distribution of 1.65%, as well as the previously authorized Distributions of 10.2911% payable to holders of the additional $0.6 million of Impaired Claims newly allowed during the year.

~~Settling~~Distributions authorized ~~Claims~~during ~~filed with~~ the ~~Bankruptcy~~fiscal ~~Court~~year isended ~~the~~September ~~ordinary~~30, ~~course~~2007 ~~of business~~totaled ~~for the Liquidation Trust~~$0.2 Asmillion, consisting of ~~September 30,~~the ~~2004,~~previously aauthorized ~~total~~Distributions of ~~58 Disputed Claims remained unresolved~~10.2911% ~~None~~payable ~~of these Disputed Claims, if~~to ~~resolved~~holders ~~in favor~~ of the ~~claimant,~~additional ~~would~~$2.0 ~~have~~million aof ~~material~~Impaired ~~effect~~Claims onnewly ~~the financial~~allowed ~~condition of~~ during the ~~Liquidation Trust~~year.

~~Other~~Distributions authorized ~~than~~during asthe ~~described~~fiscal ~~herein,~~year ~~the~~ended ~~Liquidation~~September ~~Trust~~30, is2006 ~~not~~totaled a$7.0 ~~defendant~~million, inprimarily ~~any~~representing ~~action~~the orfifth ~~proceeding~~interim ~~which~~Distribution of 1.1911%, ifas well as the previously ~~Liquidation~~authorized ~~Trust~~Distributions ~~were~~of 9.1% payable to beholders ~~found~~of the additional ~~liable~~$3.7 inmillion ~~such~~of ~~action~~Impaired orClaims ~~proceeding,~~newly ~~would~~allowed ~~materially~~during ~~adversely~~the year. Because ~~impact~~the fifth interim Distribution resulted from $7.0 million of proceeds of the Committee Action settlement described in Note 12, ~~Liquidation~~below, ~~Trust~~pursuant to the Plan, Kmart’s ~~financial~~General ~~condition.~~Unsecured Claim, allowed in the amount of $150.0 million, was excluded from this Distribution.

13In conjunction with the authorized Distributions, as of September 30, 2008, the Liquidation Trust held a total of $1.8 million ~~Other~~of Available Cash for Distribution to holders of Impaired Claims, including a $1.0 million reserve for Distribution to holders of Disputed Impaired Claims should such Disputed Claims become Allowed, and $0.8 million in Distributions payable to holders of Allowed Impaired Claims (see Note 3). A total of $82.5 million has been paid to holders of Allowed Impaired Claims through September 30, 2008. Of this total, $47.0 million was paid to holders of General Unsecured Claims Allowed at $415.1 million, and $35.5 million to holders of Senior Unsecured Claims Allowed at $206.4 million.

InDistributions are ~~September 2003,~~made in accordance with the ~~Liquidation~~priority ~~Trust~~and ~~received~~subordination ~~$2.0 million~~provisions asset ~~proceeds~~forth ofin the ~~liquidation~~Plan. Until ofsuch ~~the~~time ~~Debtor’s~~as ~~former~~all ~~company-owned~~holders ~~life~~of ~~insurance~~Allowed ~~policy~~Senior ~~carrier,~~Unsecured ~~related~~Claims tohave ~~policies~~received ~~that~~the ~~were~~full ~~surrendered~~$206.4 bymillion ~~the~~amount ~~Debtors~~of intheir ~~2000 in~~Allowed ~~return~~Claims, ~~for~~any ~~their~~amounts ~~net~~allocated ~~cash~~for ~~values.~~payment ~~The~~to ~~Debtors~~holders ~~were~~of ~~entitled~~Subordinated ~~to these~~Debentures ~~liquidation~~Claims ~~proceeds~~will ~~solely~~be asdistributed ato ~~result~~holders of Senior Unsecured Claims. Therefore, although the ~~occurrence~~holders ~~and~~of ~~particular~~Subordinated ~~terms~~Debentures ofClaims ~~this~~are ~~insurance~~holders ~~carrier’s~~of ~~liquidation~~Beneficial Interests, ~~and~~they ~~therefore~~have no ~~receivable~~current ~~from the~~economic ~~carrier~~interest ~~had~~in ~~been recorded as an asset of~~ the Liquidation Trust. Of ~~As a result, these proceeds constitute~~ the ~~majority~~$35.5 ofmillion ~~the~~in ~~Liquidation Trust’s other~~cumulative ~~increases~~Distributions inpaid ~~Net~~to ~~Assets~~holders inof ~~Liquidation,~~Senior asUnsecured ~~well~~Claims asduring ~~other~~the ~~cash~~period ~~receipts~~from October 26, ~~for~~2001 ~~the fiscal~~(Effective ~~year~~Date) ~~ended~~through September 30, ~~2003~~2008, $10.9 ~~Although~~million represents the ~~Liquidation~~amount ~~Trust~~which ~~has~~would ~~been informed~~otherwise ~~that~~have anbeen ~~additional~~paid ~~distribution~~to ~~with~~holders ~~respect~~of Subordinated toDebentures ~~this~~Claims ~~liquidation~~Allowed ~~is planned,~~in the amount ~~and timing~~ of ~~any future proceeds from the carrier’s~~$90.9 ~~liquidation is unknown~~million. Holders Noof ~~such~~Allowed ~~event~~General ~~occurred~~Unsecured ~~during~~Claims ~~the~~receive ~~fiscal year ended~~their ~~September 30,~~pro ~~2004~~rata orDistribution ~~during~~as ~~the~~such ~~period~~Distributions ~~from~~are ~~October 26, 2001 (Effective Date) through September 30, 2002~~made.

~~14. Subsequent Events~~ F-13

~~Subsequent to year-end, Kemper and the Liquidation Trust reached an agreement to settle the Insurance Claims for $1~~11.7 million, offset by a $0.1 million prepayment held by a third-party claims administrator, to reduce the letter of credit to $1.6 million, and to release a $12.0 million bond held as additional security for the Insurance Claims. The reduction of the letter of credit will result in releasing $7.4 million of cash collateral securing the letter of credit to the Liquidation Trust. This settlement of the Insurance Claims has been recorded in the amounts reported by the Liquidation Trust as of September 30, 2004. Contingencies

~~In addition, subsequent to year-end~~ Litigation and ~~subject~~Other toProceedings ~~Bankruptcy~~on ~~Court~~behalf ~~approval,~~ of the Liquidation Trust ~~has settled, or agreed in principle to settle, most remaining significant preference recovery actions.~~

FAs -of September 1630, 2008, the Liquidation Trust was pursuing one significant preference litigation action. During March 2006, the District Court upheld the Bankruptcy Court’s award to the Liquidation Trust of $1.0 million in this case. The defendant further appealed the affirmation by the District Court to the Court of Appeals. During June 2007, the Court of Appeals remanded the case to the District Court, with instructions to remand to the Bankruptcy Court for specific findings. Pursuant to the Bankruptcy Court’s scheduling order, both parties filed briefings by February 2008. The Bankruptcy Court may decide the case or schedule further proceedings, up to and including a trial, at its discretion. The Liquidation Trust and its counsel intend to vigorously pursue collection of the original judgment.

~~Hechinger~~Litigation and Other Proceedings Against the Liquidation Trust

~~Index~~Settling Claims tofiled ~~Exhibits~~with the Bankruptcy Court is the ordinary course of business for the Liquidation Trust. As of September 30, 2008, none of the ten remaining Disputed Claims, if resolved in favor of the claimant, would have a material effect on the financial condition of the Liquidation Trust.

Exhibit
No.		Description
2.1*		Disclosure Statement for First Amended Consolidated Plan of Liquidation under Chapter 11 of the United States Bankruptcy Code, dated August 14, 2001, including as its Exhibit A, the Revised First Amended Consolidated Plan of Liquidation.
4.1*		Hechinger Liquidation Trust Agreement, dated as of October 23, 2001, by and among Hechinger Investment Company of Delaware, Inc., et al., The Official Committee of Unsecured Creditors of Hechinger Investment Company of Delaware, Inc., et al. and Conrad F. Hocking, as the Liquidation Trustee.
14.1**		Code of Ethics.
23.1***		Consent of Independent Registered Public Accounting Firm.
31.1***		Certification by Liquidation Trustee.
32.1***		Liquidation Trustee’s Certification Pursuant to 18 U.S.C. Section 1350.
99.1*		Order Confirming First Amended Consolidated Plan of Liquidation.
99.2*		Motion of the Hechinger Liquidation Trust for an Order Establishing Amounts of Disputed Claim Reserves under the First Amended Consolidated Plan of Liquidation of the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code, and associated exhibits.
99.3*		Order Allowing the Motion of the Hechinger Liquidation Trust Establishing Amounts of Disputed Claims Reserve.
99.4*		Stipulation between the Liquidation Trust and Fleet Retail Finance Inc., dated August 9, 2002.
99.5**		Notice of the Liquidation Trust of Second Interim Distribution to Classes 4A and 4B.
99.6***		Notice of the Liquidation Trust of Third Interim Distribution to Classes 4A and 4B.

Other than as described herein, the Liquidation Trust is not a defendant in any action or proceeding which, if the Liquidation Trust were to be found liable in such action or proceeding, would materially adversely impact the Liquidation Trust’s financial condition.

* Incorporated herein by reference to the Liquidation Trust’s Form 10 Filing dated January 28, 200312. Other

** Incorporated herein by reference to the Liquidation Trust’s Form 10-KCommittee ~~Filing~~Action ~~for the period ended September 30, 2003.~~ settlement

~~***~~During September ~~Filed~~2005, ~~herewith.~~the Liquidation Trust reached a settlement with certain of the remaining defendants in the Committee Action, as a result of which, in addition to other consideration, those defendants paid the Liquidation Trust $7.0 million during October 2005.

Fleet Settlement

Fleet was one of the defendants in both the Committee Action and the Bondholder Action (see Note 8). Subsequent to adverse decisions in both actions, the Liquidation Trust reached a settlement with Fleet whereby the Liquidation Trust paid Fleet $8.3 million during the fiscal year ended September 30, 2006.

Other settlements and receipts

During the fiscal year ended September 30, 2008, the Liquidation Trust received a $0.3 million distribution in the liquidation of the Debtors’ former company-owned life insurance policy carrier, related to policies that were surrendered by the Debtors in 2000 in return for their net cash values. During the fiscal year ended September 30, 2006, the Liquidation Trust recorded a $0.6 million settlement agreement with certain former counsel to the Debtors, collected during the fiscal year ended September 30, 2007.

F-14

13. Subsequent Events

During November 2008, the Liquidation Trust notified holders of Allowed Impaired Claims who had not met all the requirements for a Distribution, generally by not providing their taxpayer identification number (the “TIN Motion and Order”), or who had not cashed a Distribution check and therefore have not been paid subsequent Distributions (the “Unclaimed Property Notice”) (collectively, the “Notices”) that, in accordance with the terms of the Plan, they forfeited their interest in past Distributions, making the unclaimed funds available to the Liquidation Trust and, ultimately, for distribution to the remaining holders of Beneficial Interests.

Distributions payable totaling $0.8 million and uncashed checks totaling $0.4 million as of September 30, 2008 were included in the Notices. As of December 23, 2008, the amount of unclaimed funds had been reduced to a total of $0.8 million based on responses to the Notices. No assurance can be given as to the ultimate availability of unclaimed funds for distribution to the remaining holders of Beneficial Interests.

Subsequent to year-end, one Disputed Impaired Claim was settled for an amount approximating its estimated value of $7.5 million, and an Order authorized by the Bankruptcy Court expunged the remaining four Disputed Impaired Claims and the remaining two Disputed Convenience Claims. The financial statement effect of this Order is not significant.

F-15

Hechinger Liquidation Trust

Index to Exhibits

Exhibit
No.	Note	Description
2.1	(1)	Disclosure Statement for First Amended Consolidated Plan of Liquidation under Chapter 11 of the United States Bankruptcy Code, dated August 14, 2001, including as its Exhibit A, the Revised First Amended Consolidated Plan of Liquidation.

4.1	(1)	Hechinger Liquidation Trust Agreement, dated as of October 23, 2001, by and among Hechinger Investment Company of Delaware, Inc., et al., The Official Committee of Unsecured Creditors of Hechinger Investment Company of Delaware, Inc., et al. and Conrad F. Hocking, as the Liquidation Trustee.

14.1	(2)	Code of Ethics.

31.1	(6)	Certification by Liquidation Trustee.

32.1	(6)	Liquidation Trustee’s Certification Pursuant to 18 U.S.C. Section 1350.

99.1	(1)	Order Confirming First Amended Consolidated Plan of Liquidation.

99.2	(1)	Motion of the Hechinger Liquidation Trust for an Order Establishing Amounts of Disputed Claim Reserves under the First Amended Consolidated Plan of Liquidation of the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code, and associated exhibits.

99.3	(1)	Order Allowing the Motion of the Hechinger Liquidation Trust Establishing Amounts of Disputed Claims Reserve.

Filing Compare · HECHINGER LIQUIDATION TRUST