**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





**(Mark
      one)**





x
            Quarterly
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934
              for the quarterly period ended June
                30, 2008
                or





o
            Transition
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934





**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)





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





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes
                  x
              No
                  o







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





Large
      accelerated filer oAccelerated filer
o


Non-accelerated
      filer o 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




Indicate
      by 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
                  o




**HECHINGER
      LIQUIDATION TRUST**


**INDEX
      TO FORM 10-Q**


**FOR
      THE QUARTERLY PERIOD ENDED JUNE 30, 2008**





**Description**
            
            **Page**PART
                I. FINANCIAL INFORMATION:Item
                1.
            Financial
                StatementsUnaudited
                Statements of Net Assets in Liquidation
            
            3Unaudited
                Statements of Changes in Net Assets in Liquidation
            
            4Unaudited
                Statements of Cash Receipts and Disbursements
            
            5Notes
                to Unaudited Financial Statements
            
            6Item
                2.
            Management's
                Discussion and Analysis of Financial Condition andResults
                of Operations
            
            14Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            19Item
                4.
            Controls
                and Procedures
            
            19PART
                II. OTHER INFORMATION:Item
                1.
            Legal
                Proceedings
            
            20Item
                1A.
            Risk
                Factors
            
            21Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            21Item
                3.
            Defaults
                Upon Senior Securities
            
            21Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            21Item
                5.
            Other
                Information
            
            21Item
                6.
            Exhibits
            
            22SIGNATURES
            
            23INDEX
              TO EXHIBITS
            
            24


2


**PART
      I – FINANCIAL INFORMATION**





**Item
      1. Financial Statements**




**Hechinger
      Liquidation Trust**




**Unaudited
      Statements of Net Assets in Liquidation**




**($
      in thousands)**




**As of**
            ****
            **As of**
            ********
            ****
            **June 30,**
            ****
            **September 30,**
            ********
            ****
            **2008**
            ****
            **2007****Assets**Cash
                and cash equivalentsCash
                designated as available for distributionto
                holders of impaired claims
            
            $
            1,223
            
            $
            2,681Reserved
                cash
            
            
            6,019
            
            
            10,661Other
                cash
            
            
            12,339
            
            
            6,136Total
                cash and cash equivalents
            
            
            19,581
            
            
            19,478Preference
                      receivables (net of costs of recovery of $53 and
                      $53, respectively)
            
            
            211
            
            
            210Other
                assets
            
            
            2
            
            
            2Total
                assets
            
            
            19,794
            
            
            19,690**Liabilities**Unimpaired
                and convenience claims payable
            
            
            1,337
            
            
            1,337Uncashed
                claims checks
            
            
            435
            
            
            435Distributions
                payable
            
            
            487
            
            
            421Estimated
                costs of liquidationWind-down
                reserve
            
            
            718
            
            
            1,210Litigation
                reserve
            
            
            156
            
            
            307Total
                liabilities
            
            
            3,133
            
            
            3,710**Net
                Assets in Liquidation**
            
            **$**
            **16,661**
            
            **$**
            **15,980**




See
      accompanying notes to unaudited financial statements.


3




**Hechinger
      Liquidation Trust**


**Unaudited
      Statements of Changes in Net Assets in Liquidation**




**($
      in thousands)**





**For the three**
            
            **For the three****months ended**
            
            **months ended****June 30, 2008**
            
            **June 30, 2007**Increase/(decrease)
              in Net Assets in Liquidation(Decrease)
                in estimated fair value of preference receivables, net
            
            $
            -
            
            $
            (663
            )Interest
                income
            
            
            78
            
            
            233Other
                increases, net
            
            
            16
            
            
            5Net
                increase/(decrease) in Net Assets in Liquidation before distributions
                authorized
            
            
            94
            
            
            (425
            )Distributions
                authorized
            
            
            (71
            )
            
            -Net
                increase/(decrease) in Net Assets in Liquidation after distributions
                authorized
            
            
            23
            
            
            (425
            )Net
                Assets in Liquidation at beginning of period
            
            
            16,638
            
            
            16,278Net
                Assets in Liquidation at end of period
            
            $
            16,661
            
            $
            15,853





**For the nine**
            
            **For the nine****months ended**
            
            **months ended****June 30, 2008**
            
            **June 30, 2007**Increase/(decrease)
              in Net Assets in
              Liquidation(Decrease)
                in estimated fair value of preference receivables, net
            
            $
            (3
            )
            $
            (663
            )Interest
                income
            
            
            443
            
            
            688Other
                increases, net
            
            
            312
            
            
            10Net
                increase in Net Assets in Liquidation before distributions
                authorized
            
            
            752
            
            
            35Distributions
                authorized
            
            
            (71
            )
            
            (187
            )Net
                increase/(decrease) in Net Assets in Liquidation after distributions
                authorized
            
            
            681
            
            
            (152
            )Net
                Assets in Liquidation at beginning of period
            
            
            15,980
            
            
            16,005Net
                Assets in Liquidation at end of period
            
            $
            16,661
            
            $
            15,853




See
      accompanying notes to unaudited financial statements.


4




**Hechinger
      Liquidation Trust**


**Unaudited
      Statements of Cash Receipts and Disbursements**




**($
      in thousands)**




**For the nine**
            
            **For the nine****months ended**
            
            **months ended****June 30, 2008**
            
            **June 30, 2007**Cash
                receiptsPreference
                    collections, before costs of recovery
            
            $
            -
            
            $
            80Interest
                income
            
            
            443
            
            
            688Other
                receipts
            
            
            312
            
            
            605Total
                cash receipts
            
            
            755
            
            
            1,373Cash
                disbursementsCosts
                of liquidationOperating
                expenses
            
            
            239
            
            
            333Legal
                and professional feesLiquidation
                Trust operations
            
            
            253
            
            
            139Litigation
            
            
            151
            
            
            51Preference
                recoveries
            
            
            4
            
            
            25(Voided)/reissued
                claims checks, net
            
            
            -
            
            
            (24
            )Total
                cash disbursements
            
            
            647
            
            
            524Increase
                in cash and cash equivalents before distributions paid
            
            
            108
            
            
            849Distributions
                paid
            
            
            5
            
            
            189Increase
                in cash and cash equivalents
            
            
            103
            
            
            660Cash
                and cash equivalents at beginning of period
            
            
            19,478
            
            
            18,723Cash
                and cash equivalentsat
                end of period
            
            $
            19,581
            
            $
            19,383




See
      accompanying notes to unaudited financial statements.


5


**Hechinger
      Liquidation Trust**


**Notes
      to Unaudited Financial Statements**





**1.**  **Background
      and Basis of Presentation**





**Background**





Hechinger
      Liquidation Trust (the “Liquidation Trust”) was established effective
      October 26, 2001 (the “Effective Date”) in accordance with the Revised
      First Amended Consolidated Plan of Liquidation (the “Plan”) for Hechinger
      Investment Company of Delaware, Inc. and affiliates (the “Debtors”), 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 (i) liquidate any and all remaining
      assets of the Debtors; (ii) pursue causes of action assigned to the
      Liquidation Trust, including preference, fraudulent conveyance and other
      avoidance 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 of all of its assets and the
      distribution of the proceeds of the liquidation thereof in accordance with
      the
      Plan, or (b) by October 26, 2008, unless the Bankruptcy Court approves
      a further extension of the term.





Pursuant
      to the Bankruptcy Code, certain types of Allowed Claims will be paid in full
      under the Plan. Such Claims are therefore referred to as “Unimpaired Claims.”
The Plan defines which types of Claims are paid in full.





The
      Liquidation Trust exists primarily for the benefit of the majority of claimants
      who will not be repaid in full for the amounts the Debtors owed them as of
      the
      bankruptcy filing. These Claims are referred to as “Impaired Claims” because the
      rights of the claimants have been impaired by the Debtors’ bankruptcy. Each
      holder of an Allowed Claim in the Plan’s Class 4A (Senior Unsecured
      Claims), Class 4B (General Unsecured Claims), and Class 5
      (Subordinated Debentures Claims) (each a “Class”) 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 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.





The
      holders of Beneficial Interests receive all remaining net proceeds of the
      Liquidation Trust, if any, after the expenses and all creditors of the
      Liquidation Trust are paid, including Allowed Unimpaired and Convenience Claims
      (certain small Claims paid at 7.5% of their Allowed amounts in accordance with
      the Plan), and after 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.





Through
      June 30, 2008, the Liquidation Trust has authorized cumulative Distributions
      to
      holders of Beneficial Interests (i.e., to holders of Allowed Impaired Claims)
      of
      10.2911% of the Allowed amount of the Impaired Claims, and established a reserve
      of 10.2911% 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”).




6




**Basis
      of Presentation**





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. In addition, liabilities include loss contingency accruals
      for
      losses considered probable and estimable, if any. 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, including changes resulting from
      significant events in, or the resolution of, litigation pursued by the
      Liquidation Trust. The Liquidation Trust’s fiscal year ends on
      September 30.





The
      accompanying unaudited financial statements reflect all adjustments, consisting
      only of normal recurring adjustments that are, in the opinion of the Liquidation
      Trustee, necessary for a fair statement of the results for the interim periods
      presented. Such financial statements and these notes thereto should be read
      in
      conjunction with the audited Liquidation Trust financial statements as of
      September 30, 2007 and September 30, 2006, and for the fiscal years ended
      September 30, 2007, September 30, 2006 and September 30, 2005, and the
      notes thereto.





The
      amounts shown in this document are rounded and are therefore approximate.





**2.** **Significant
          Accounting Policies**





**Use
      of Estimates**





The
      preparation of the 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.





**Cash
      and 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 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 Cash and
      Other Cash (see Note 3).





**Taxes**





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


7


**3.**  **Cash
      and Cash Equivalents**





Cash
      is
      invested in highly liquid investments with a maturity of three months or 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
      9).





Cash
      Designated as Available for Distribution to Holders of Impaired
      Claims (“Available Cash”) is designated solely to assure the availability of funds for
      payment to holders of Impaired Claims who have not received their Distributions
      (see Notes 7 and 10).





Available
      Cash consists of:





**($
                in thousands)**
            
            **As of**
            
            **As of****June 30, 2008**
            
            **September 30, 2007**Distributions
                payable
            
            $
            487
            
            $
            421Reserve
                for remaining disputed impairedclaims
                at 10.2911%
            
            
            736
            
            
            2,260Total
                available cash
            
            $
            1,223
            
            $
            2,681





Reserved
      Cash is held
      by the Liquidation Trust to assure payment of 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 specific contingencies should occur. See Note 9 for details of specific
      reserves and their related amounts.




Other
      Cash is cash
      and cash equivalents not designated to a specific reserve or fund.





**4.**  **Preference
      Receivables**





The
      Liquidation Trust’s preference receivables are reflected in the accompanying
      Statements of Net Assets in Liquidation at their estimated fair value, net
      of
      estimated costs of recovery. As of June 30, 2008 and September 30, 2007,
      preference receivables consisted mainly of one remaining significant action.
      During June 2005, the Bankruptcy Court awarded the Liquidation Trust $1.0
      million in this action. During March 2006, the District Court upheld the
      Bankruptcy Court ruling in its entirety. 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. The Liquidation Trust’s
      current estimate of the fair value of preference receivables is primarily based
      on the content of the Court of Appeals ruling and on the status of negotiations
      with the defendant in this action.





The
      fair
      value of the preference receivables is reassessed quarterly and adjustments
      to
      estimated fair values are reflected in the period in which they become known.
      The eventual net realizable value of preference receivables is likely to differ
      from their estimated net fair value and these differences may be significant.


8


**5.**  **Unimpaired
      and Convenience Claims Payable**





Unimpaired
      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. Convenience Claims, also included in this classification, are not
      significant.





Unimpaired
      and Convenience Claims payable consists of:





**($
                in thousands)****As of**
            
            **As of****June 30, 2008**
            
            **September 30, 2007**Allowed
                unimpaired claims
            
            $
            1,335
            
            $
            1,335Convenience
                claims
            
            
            2
            
            
            2Total
            
            $
            1,337
            
            $
            1,337Number
                of disputed unimpaired claims
            
            
            3
            
            
            3




Pursuant
      to the Plan, certain fees and expenses which Kmart Corporation (“Kmart”)
      incurred in connection with the Debtors’ bankruptcy filing were allowed as an
      Unimpaired Claim. Allowed Unimpaired Claims as of June 30, 2008 and September
      30, 2007 include this Claim, which has not yet been substantiated by Kmart
      as
      required by the Plan, at its estimated amount of $1.3 million.





The
      amount asserted by the holders of the remaining Disputed Unimpaired Claims
      is
      insignificant as of June 30, 2008 and September 30, 2007. The Liquidation Trust
      believes that the likelihood of paying any of these Claims is remote and
      anticipates that each of these Claims will be expunged or waived; accordingly,
      no liability has been recorded with respect to the remaining Disputed Unimpaired
      Claims.





Unimpaired
      Claims are valued by reviewing the facts available to the Liquidation Trust,
      including the Debtors’ records and information submitted by the claimants, and
      estimating the ultimate settlement value of the Claims. The fair value of
      Unimpaired Claims payable is reassessed quarterly and adjustments to estimated
      fair values are reflected in the period in which they become known. However,
      no
      assurance can be given as to the ultimate allowance, disallowance or settlement
      of the remaining Disputed Unimpaired Claims, individually or in the aggregate.





**6.**  **Uncashed
      Claims Checks**





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.
      Such checks currently may be reissued upon timely request of the payee, subject
      to applicable fees.





**7.**  **Distributions
      Payable**





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 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.


9


**8.**  **Estimated
      Costs of Liquidation**





The
      Wind-down Reserve and Litigation Reserve described below together 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”). 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 the current estimated
      termination date of February 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 filings
      with regulatory authorities and with the Bankruptcy Court. The Wind-down Reserve
      includes provision for costs after the current Court-authorized termination
      date
      of October 26, 2008, because the Liquidation Trust believes that certain
      responsibilities such as filing final tax returns will occur after that
      date.





Pursuant
      to the Plan, the Liquidation Trust also established and funded a reserve to
      pay
      the costs of pursuing certain actions, including the case referred to as the
      “Committee Action” (the “Litigation Reserve”). All such actions have been
      settled, dismissed or otherwise concluded as of June 30, 2008 (see Note 11).
      The
      amount of the Litigation Reserve as of June 30, 2008 and September 30, 2007
      represents the estimated amount of the final unpaid costs associated with the
      Committee Action.





The
      fair
      value of the estimated costs of liquidation is reassessed 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.





**9.**  **Bankruptcy
      Reserves Required**





The
      reserves for which Reserved Cash is maintained consist of the
      following:





**($
                in thousands)****As of**
            
            **As of****June 30, 2008**
            
            **September 30, 2007**Liability
                reservesWind-down
            
            $
            718
            
            $
            1,210Litigation
            
            
            156
            
            
            307Unimpaired
                and convenience claims
            
            
            1,337
            
            
            1,337Uncashed
                claims checks
            
            
            435
            
            
            435Total
                liability reserves
            
            
            2,646
            
            
            3,289Contingency
                reservesLitigation
                appeals provision
            
            
            -
            
            
            4,000Excess
                disputed unimpaired claims
            
            
            300
            
            
            300Preference
                settlement claims
            
            
            73
            
            
            72Minimum
                reserve
            
            
            3,000
            
            
            3,000Total
                contingency reserves
            
            
            3,373
            
            
            7,372Total
                reserves
            
            $
            6,019
            
            $
            10,661





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
      appeals of the Committee Action. Because the Liquidation Trustee has determined
      that the Liquidation Trust will not pursue the Committee Action further (see
      Note 11), the litigation appeals provision has been released as of June 30,
      2008.




10




The
      minimum reserve, 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.





**10.**  **Impaired
      Claims**





The
      Liquidation Trust’s estimate of Impaired Claims consists of:





**($
                in thousands)**
            
            **As of**
            
            **As of****June 30, 2008**
            
            **September 30, 2007**Allowed
                impaired claims
            
            $
            712,412
            
            $
            711,770Estimated
                fair value of disputed impaired claims
            
            
            7,662
            
            
            8,584Total
                estimated impaired claims
            
            $
            720,074
            
            $
            720,354Asserted
                value of disputed impaired claims
            
            $
            8,113
            
            $
            22,669Number
                of disputed impaired claims
            
            
            6
            
            
            9





Distributions
      to holders of Allowed Impaired Claims have been authorized, through June 30,
      2008, in the cumulative amount of 10.2911% of the Allowed amount of the Impaired
      Claims. A total of $71.1 million has been paid to holders of Allowed Impaired
      Claims through June 30, 2008. Subsequent to June 30, 2008, the Liquidation
      Trust
      authorized a sixth interim Distribution in the amount of approximately $12.0
      million, or 1.65% of the Allowed amount of Impaired Claims plus the estimated
      amount of the remaining Disputed Impaired Claims. The Liquidation Trust plans
      to
      pay this Distribution during August 2008.





The
      decrease in the asserted value of Disputed Impaired Claims from
      September 30, 2007 to June 30, 2008 resulted from the settlement
      of three such Claims, including the largest remaining Disputed Impaired Claim.
      These settlements were reached at amounts which aggregated $0.3 million less
      than their estimated value as of September 30, 2007, resulting in the $0.3
      million decrease in total estimated Impaired Claims from September 30, 2007
      to June 30, 2008.





In
      conjunction with the authorized Distributions, as of June 30, 2008, the
      Liquidation Trust held a total of $1.2 million of Available Cash for
      Distribution to holders of Impaired Claims, including the $0.7 million Disputed
      Impaired Claims Reserve for Distribution to holders of Disputed Impaired Claims
      should such Disputed Claims become Allowed, as well as Distributions payable
      to
      certain holders of Allowed Impaired Claims (see Notes 3 and 7). The Disputed
      Impaired Claims Reserve is determined based on the cumulative Distribution
      rate
      and on the estimated amount, approved by the Bankruptcy Court for reserve
      purposes, of each remaining Disputed Impaired Claim.





No
      assurance can be given as to the ultimate allowance, disallowance or settlement
      of the remaining Disputed Impaired Claims, individually or in the aggregate.





**11.**  **Contingencies**





**Litigation
      and Other Proceedings on behalf of the Liquidation Trust**





Federal
      Court Case




The
      Liquidation Trust has been pursuing an action, initially filed by the Official
      Committee of Unsecured Creditors appointed for the Debtors and assigned to
      the
      Liquidation Trust pursuant to the Plan (referred to as the “Committee Action”),
      on behalf of its beneficiaries in the United States District Court for the
      District of Delaware (the “District Court”) and in the Third Circuit Court of
      Appeals (the “Court of Appeals”). This action arose from a business combination
      among the Debtors during 1997 and the related financing (the “1997
      Transactions”), and was filed against certain parties that arranged, approved,
      or financed the 1997 Transactions. The 1997 Transactions were arranged and/or
      approved by Leonard Green & Partners, L.P. and related entities and the
      controlling shareholders and directors of the Debtors (including the “Officer
      and Director Defendants”) (collectively, the “Insiders”). The 1997 Transactions
      were financed by a series of secured credit agreements, under which the Chase
      Manhattan Bank and Fleet (Fleet Retail Finance Inc., formerly BankBoston Retail
      Finance Inc.) served as agent for the pre-petition lender group (the
“Pre-petition Lenders”).




11




An
      amended complaint with respect to the Committee Action 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 styled “The Official Committee of Unsecured
      Creditors of Hechinger 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 agreements described herein, Leonard Green & Partners, L.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 alleged that the defendants carried out the 1997 Transactions
      despite their knowledge that Hechinger was insolvent at the time, and asserted
      fraudulent conveyance and/or breach of fiduciary duty claims against the
      Insiders, seeking recovery of at least $127 million in damages. It also asserted
      fraudulent conveyance claims against the Pre-petition Lenders and challenged
      the
      repayment of the Pre-petition Lenders using the proceeds of a post-petition
      loan.




During
      July 2005, the District Court issued a memorandum opinion and order on pending
      summary judgment motions (collectively, the “Summary Judgment Decision”),
      dismissing the Liquidation Trust’s claims against Fleet, General Electric Credit
      Corp. (“GECC”), and certain other defendants in the Committee Action. During
      August 2005, the District Court substantively denied the Liquidation Trust’s
      motion for reconsideration of the Summary Judgment Decision. During 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
      March
      2006 mediation that was ordered and 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. On May 19, 2008, the Court of Appeals
      issued a decision affirming the Summary Judgment Decision.





After
      consultation with counsel, the Liquidation Trustee has determined that the
      Liquidation Trust will not pursue an appeal of the May 19, 2008 adverse
      decision.





Bankruptcy
      Court Case




The
      Debtors filed approximately 1,800 preference actions in 2001. As of June 30,
      2008, only one significant preference litigation action continued. During March
      2006, the District Court upheld the Bankruptcy Court’s award to the Liquidation
      Trust of $1.0 million in this action. 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. Prosecution
      of
      all other significant preference litigation has been completed.




12




**Litigation
      and Other Proceedings Against the Liquidation Trust**




Settling
      Claims filed with the Bankruptcy Court is the ordinary course of business for
      the Liquidation Trust. As of June 30, 2008, a total of 11 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.




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.




**12.**  **Other**





During
      the nine months ended June 30, 2008, the Liquidation Trust received a $0.3
      million distribution in the liquidation of the former company-owned life
      insurance policy carrier for one of the Debtors. The Debtors were entitled
      to
      these liquidation proceeds solely as a result of the occurrence and particular
      terms of this insurance carrier’s liquidation. Therefore, no receivable from the
      carrier had previously been recorded as an asset of the Liquidation Trust.
      The
      receipt was included in “Other Increases, net” in the Statement of Changes in
      Net Assets in Liquidation.





During
      the nine months ended June 30, 2007, the Liquidation Trust collected a
      settlement payment due from certain former counsel to the Debtors in connection
      with the 1997 Transactions. This settlement was reached and recorded as an
      asset
      of the Liquidation Trust as of September 30, 2006.





**13.**  **Subsequent
      Events**





Subsequent
      to June 30, 2008, the Liquidation Trust authorized a sixth interim Distribution
      in the amount of approximately $12.0 million, or 1.65% of the Allowed amount
      of
      Impaired Claims plus the estimated amount of Disputed Impaired Claims. The
      Liquidation Trust plans to pay this Distribution during August
      2008.


13


**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**





Reference
      is made to the unaudited financial statements of the Liquidation Trust as of
      June 30, 2008 and September 30, 2007 and for the three months and the nine
      months ended June 30, 2008 and June 30, 2007, and the notes thereto (the
“Unaudited Liquidation Trust Financial Statements”), included as Item 1. of this
      Form 10-Q. The following information concerning the Liquidation Trust’s
      financial performance and condition should be read in conjunction with the
      audited Liquidation Trust financial statements as of September 30, 2007 and
      September 30, 2006, and for the fiscal years ended September 30, 2007,
      September 30, 2006 and September 30, 2005, and the notes
      thereto.





The
      Unaudited Liquidation Trust Financial Statements have been prepared on the
      same
      basis as the Liquidation Trust’s audited financial statements, using the
      liquidation basis of accounting, and, in the opinion of the Liquidation Trustee,
      contain all adjustments, consisting of normal recurring adjustments necessary
      for a fair presentation of the Liquidation Trust’s results for such periods. The
      Liquidation Trust’s results for the three months ended June 30, 2008 are not
      necessarily indicative of the results to be expected for any other interim
      period or any future fiscal year. All amounts are rounded and are therefore
      approximate.





**I.** **Accounting
          Policies and Estimates**





The
      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 Unaudited Liquidation Trust Financial Statements
      which have been prepared in accordance with accounting principles generally
      accepted in the United States of America and in accordance with the liquidation
      basis of accounting. During preparation of these financial statements, the
      Liquidation Trustee is required to make certain 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
      Liquidation Trust’s critical accounting policies are described in Management’s
      Discussion and Analysis of Financial Condition and Results of Operations in
      the
      Liquidation Trust’s annual report on Form 10-K for the year ended September 30,
      2007.





**II.**  **Changes
      in Net Assets in Liquidation**





Net
      assets in liquidation are subject to material change when either (a)
      Distributions to holders of Allowed Impaired Claims are authorized, or (b)
      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.





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
      liquidation. The Liquidation Trust’s Statements of Cash Receipts and
      Disbursements show the results of these transactions, which are also discussed
      later under the heading “Cash Receipts and Disbursements.”


14




The
      following table summarizes the significant changes in net assets in liquidation
      for the periods as indicated:





**($ in thousands)**
            
            **For the three months ended****June 30, 2008**
            
            **June 30, 2007**Distributions
                authorized
            
            $
            (71
            )
            $
            -(Decrease)
                in estimated fair value of preference receivables, net
            
            
            -
            
            
            (663
            )Interest
                income and other increases, net
            
            
            94
            
            
            238Net
                increase/(decrease) in net assets in liquidation
            
            $
            23
            
            $
            (425
            )





**For the nine months ended****June 30, 2008**
            
            **June 30, 2007**Distributions
                authorized
            
            $
            (71
            )
            $
            (187
            )(Decrease)
                in estimated fair value of preference receivables, net
            
            
            (3
            )
            
            (663
            )Other
                increases, net
            
            
            312
            
            
            10Interest
                income
            
            
            443
            
            
            688Net
                increase/(decrease) in net assets in liquidation
            
            $
            681
            
            $
            (152
            )





**A.**  **Distributions
      Authorized**





During
      the three months and the nine months ended June 30, 2008, no new interim
      Distribution was authorized; however, Distributions at the cumulative rate
      of
      10.2911%, totaling $0.1 million, were authorized during the three months ended
      June 30, 2008 to holders of $0.6 million of Impaired Claims newly allowed during
      the period. No new interim Distribution was authorized during the three months
      or the nine months ended June 30, 2007; however, Distributions at the cumulative
      rate of 10.2911%, totaling $0.2 million, were authorized during the three months
      ended March 31, 2007 to holders of $2.0 million of Impaired Claims newly allowed
      during the period.





**B.** **Estimated
      fair value of preference receivables, net**





During
      the three months and the nine months ended June 30, 2008, changes in the
      estimated fair value of preference receivables were not significant. Most of
      the
      value of preference receivables during the periods as indicated above consisted
      of the sole remaining preference recovery action being actively pursued, net
      of
      estimated costs of recovery. During June 2005, the Bankruptcy Court awarded
      the
      Liquidation Trust $1.0 million in this action. During March 2006, the District
      Court upheld the Bankruptcy Court ruling in its entirety. 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 (see Part II, Item
      1., “Legal Proceedings”, below). The Liquidation Trust and its counsel intend to
      vigorously pursue collection of the original judgment. However, during the
      three
      months ended June 30, 2007, based primarily on the content of the ruling and
      on
      the status of negotiations with the defendant in this action, the Liquidation
      Trust reduced its estimate of the fair value of preference receivables, net,
      from $0.9 million to $0.2 million. Changes in the estimated fair value of
      preference receivables during the nine months ended June 30, 2007, other than
      for this case, were not significant.


15


**C.**  **Interest
      income**





Interest
      income decreased during the three months and the nine months ended June 30,
      2008
      as compared to the three months and the nine months ended June 30, 2007,
      primarily as a result of substantial declines in interest rates.





**D.**  **Other
      increases, net**





Other
      increases, net during the nine months ended June 30, 2008 consisted primarily
      of
      a $0.3 million distribution in the liquidation of the former company-owned
      life
      insurance policy carrier for one of the Debtors. The Debtors were entitled
      to
      these liquidation proceeds solely as a result of the occurrence and particular
      terms of this insurance carrier’s liquidation. Therefore, no receivable from the
      carrier had previously been recorded as an asset of the Liquidation Trust.
      During the three months ended June 30, 2008 and during the three months and
      the
      nine months ended June 30, 2007, other increases, net were not
      significant.





**III.**  **Cash
      Receipts and Disbursements**





The
      following table summarizes the cash receipts and disbursements for the periods
      as indicated:





**($ in thousands)**
            
            **For the nine months ended****June 30, 2008**
            
            **June 30, 2007**Cash
                receiptsPreference
                collections, before costs of recovery
            
            $
            -
            
            $
            80Interest
                income
            
            
            443
            
            
            688Other
                receipts
            
            
            312
            
            
            605Total
                cash receipts
            
            
            755
            
            
            1,373Cash
                disbursementsOperating
                expenses
            
            
            239
            
            
            333Legal
                and professional feesLiquidation
                Trust operations
            
            
            253
            
            
            139Litigation
            
            
            151
            
            
            51Preference
                recoveries
            
            
            4
            
            
            25(Voided)/reissued
                claims checks, net
            
            
            -
            
            
            (24
            )Total
                cash disbursements
            
            
            647
            
            
            524Distributions
                paid
            
            
            5
            
            
            189Increase
                in cash and cash equivalents
            
            $
            103
            
            $
            660





**A.** **Cash
          receipts**





During
      the nine months ended June 30, 2008, there were no cash receipts from
      collections of preference receivables. Preference collections during the nine
      months ended June 30, 2007 resulted from collections efforts on settled cases
      and certain default judgments issued. With the exception of one substantial
      case, discussed under “Net Assets in Liquidation”, Part I, Item 2.IV.A., below,
      no substantial preference actions remain as of June 30, 2008. Future preference
      receipts, other than from this one case, are expected to be
      insignificant.




16




Cash
      receipts from interest income decreased during the nine months ended June 30,
      2008 as compared to the nine months ended June 30, 2007, primarily as a result
      of substantial declines in interest rates.





Other
      receipts during the nine months ended June 30, 2008 related primarily to the
      $0.3 million distribution discussed in “Changes in Net Assets in Liquidation,”
Part I, Item 2.II.C., above. Other receipts during the nine months ended June
      30, 2007 related primarily to collection of a previously recorded settlement
      with certain former counsel to the Debtors in connection with the 1997
      Transactions (as defined in Part II., Item 1., “Legal Proceedings”,
      below).





**B.**  **Operating
      expenses**





A
      significant portion of operating expenses for the nine months ended June 30,
      2008 and for the nine months ended June 30, 2007 consisted of annual insurance
      premiums for the Liquidation Trust. Operating expenses during the nine months
      ended June 30, 2008 were significantly lower than those during the nine months
      ended June 30, 2007, primarily due to substantial decreases in the insurance
      premiums for the Liquidation Trust’s business and liability insurance resulting
      from a more favorable market for such coverages.





**C.**  **Legal
      and professional fees**





Legal
      and
      professional fees reflect the activity level in various areas of the Liquidation
      Trust’s responsibilities.





Legal
      and
      professional fees for Liquidation Trust operations include all legal,
      accounting, and other support services except for the expenses of prosecuting
      the Committee Action, and expenses related to preference collections pursued
      on
      a contingency-fee basis. During the nine months ended June 30, 2008, these
      fees
      increased compared to the nine months ended June 30, 2007, primarily because
      Liquidation Trust counsel assisted in the appeal of the remaining significant
      preference action and resolved the largest remaining Disputed Impaired Claim,
      and because costs for the Liquidation Trust’s first year-end audit by its new
      principal accounting firm increased over the prior year’s audit.





The
      litigation fees paid for the Committee Action during the nine months ended
      June
      30, 2008 were significantly more than those paid during the nine months ended
      June 30, 2007. Fees paid during the nine months ended June 30, 2008 covered
      over
      ten months of legal services, primarily related to the Committee Action appeal.
      Fees paid during the nine months ended June 30, 2007, however, related mainly
      to
      a settlement with certain prior defendants in the Committee Action, and covered
      approximately five months of services.





Total
      preference recovery fees during the nine months ended June 30, 2008 were not
      comparable to such fees during the three months ended June 30, 2007. The
      collection fees for most preference settlements are contingent, and are set
      at a
      declining rate (generally ranging from 35% to 7% of collections) for larger
      cases. In addition, preference recovery fees include expenses incurred in
      support of preference collections and associated litigation. During the nine
      months ended June 30, 2008, no preference recoveries were received, but the
      Liquidation Trust paid nominal ongoing expenses of preference collection
      counsel. During the nine months ended June 30, 2007, preference recovery fees
      related to collections on settled cases and certain default judgments issued.





**D.**  **Distributions
      paid**





Distributions
      paid depend primarily on the amount of Allowed Impaired Claims, including Claims
      newly allowed, and on the Distributions authorized from time to time. No new
      interim Distribution was authorized or paid during the nine months ended June
      30, 2008; however, the holder of one newly Allowed Impaired Claim received
      a
      payment. No new interim Distribution was authorized or paid during the nine
      months ended June 30, 2007; however, holders of $2.0 million of Allowed Impaired
      Claims received payments at the cumulative Distribution rate of 10.2911%.





17




**IV.**  **Net
      Assets in Liquidation**





**A.**  **Assets**




1. Cash
          and cash equivalents





The
      Liquidation Trust’s cash and cash equivalents balance of $19.6 million as of
      June 30, 2008 and $19.5 million as of September 30, 2007 is classified as either
      (a) cash designated as available for distribution to holders of Impaired Claims
      (“Available Cash”), (b) Reserved Cash or (c) Other Cash.





Available
      Cash is designated to assure the availability of funds for payment to holders
      of
      Impaired Claims who have not received authorized Distributions. The required
      amount of Available Cash of $1.2 million as of June 30, 2008 was based primarily
      on the cumulative Distribution rate of 10.2911%, for $8.3 million of Disputed
      Impaired Claims (at their estimated value for reserve purposes), as well as
      unpaid Distributions to holders of Allowed Impaired Claims who have not met
      all
      the requirements for a Distribution, or have not cashed a Distribution check
      and
      therefore have not been paid subsequent Distributions, in accordance with the
      Plan. The required amount of Available Cash of $2.7 million as of September
      30,
      2007 was based primarily on the cumulative Distribution rate of 10.2911%, for
      $23.1 million of Disputed Impaired Claims (at their estimated value for reserve
      purposes), as well as unpaid Distributions to holders of Allowed Impaired
      Claims. 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.





Reserved
      cash 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 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
      specific contingencies should occur. Reserved cash decreased to a balance of
      $6.0 million as of June 30, 2008, a change of $4.6 million from September 30,
      2007, primarily as a result of the release of the litigation appeals provision
      (See “Liabilities and Reserves”, below), as well as disbursements from the
      Wind-down Reserve and the Litigation Reserve, as discussed below.


Other
        cash is cash and cash equivalents not designated to a specific reserve or
        fund.
        Other cash increased to a balance of $12.3 million as of June 30, 2008, a
        change
        of $6.2 million from the September 30, 2007 balance of $6.1 million. This
        increase resulted primarily from the release of the $4.0 million litigation
        appeals provision from reserved cash, discussed above, as well as a $1.5
        million
        reduction in Available Cash as a result of the reduced amount of Disputed
        Impaired Claims. On August 12, 2008, the Liquidation Trust authorized a sixth
        interim Distribution in the amount of approximately $12.0 million, funded
        from
        other cash.
  **B.** **Liabilities
        and Reserves**





Estimated
      costs of liquidation decreased by $0.6 million, to a balance of $0.9 million
      as
      of June 30, 2008, compared to September 30, 2007. The decrease is due to
      disbursements totaling $0.5 million from the Wind-down Reserve, and $0.1 million
      from the Litigation Reserve.





The
      Liquidation Trustee previously designated the amount of $4.0 million as the
      litigation appeals provision. This contingency reserve was released as of June
      30, 2008 in connection with the determination that the Liquidation Trust would
      no longer pursue the Committee Action. See Part II., Item 1., “Legal
      Proceedings,” below.





**V.**  **Forward-Looking
      Statements**





This
      quarterly report on Form 10-Q contains forward-looking statements about the
      business, financial condition and prospects of the Liquidation Trust. The actual
      results 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 government 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-Q. When used in this
      quarterly report, 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.





18




**Item
      3.**  **Quantitative
      and Qualitative Disclosures About Market Risk**





The
      Liquidation Trust does not hold any market risk sensitive
      instruments.





**Item
      4.**  **Controls
      and Procedures**





The
      Liquidation Trust has designed and maintains disclosure controls and procedures
      to ensure that information required to be disclosed in its reports filed or
      submitted under the Exchange Act is recorded, processed, summarized and reported
      within the time periods specified in the Commission’s rules and regulations.
      These controls and procedures are also designed to ensure that such information
      is communicated to the Liquidation Trustee, to allow him to make timely
      decisions about required disclosures.





The
      Liquidation Trust, including the Liquidation Trustee, has conducted an
      evaluation of the effectiveness of disclosure controls and procedures pursuant
      to Exchange Act Rules 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 June 30, 2008.





There
      has
      been no change in 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.





The
      remaining responsibilities of the Liquidation Trust no longer require the
      full-time attention of the Liquidation Trustee or of Liquidation Trust
      employees. The Liquidation Trustee and one other employee are performing
      necessary management oversight and administrative, legal and accounting
      processes on a part-time basis, with periodic assistance from two other
      part-time employees. While the Liquidation Trustee believes that these
      individuals will consistently make themselves available as needed to perform
      their assigned responsibilities, including functions related to internal control
      over financial reporting, there can be no assurance that this availability
      will
      continue. As a result, there may be future deficiencies in internal accounting
      controls related to a lack of segregation of duties.


19


**PART
      II – OTHER INFORMATION**





**Item
      1. Legal Proceedings**





Further
      background information about the following cases is disclosed in Part I, Item
      3., “Legal Proceedings,” of the Liquidation Trust’s Form 10-K for the fiscal
      year ended September 30, 2007.





Federal
      Court Case





The
      Liquidation Trust has been pursuing an action, initially filed by the Official
      Committee of Unsecured Creditors appointed for the Debtors and assigned to
      the
      Liquidation Trust pursuant to the Plan (referred to as the “Committee Action”),
      on behalf of its beneficiaries in the District Court and in the Court of
      Appeals. This action arose from a business combination among the Debtors during
      1997 and the related financing (the “1997 Transactions”), and was filed against
      certain parties that arranged, approved, or financed the 1997 Transactions.
      The
      1997 Transactions were arranged and/or approved by Leonard Green & Partners,
      L.P. and related entities and the controlling shareholders and directors of
      the
      Debtors (including the “Officer and Director Defendants”) (collectively, the
“Insiders”). The 1997 Transactions were financed by a series of secured credit
      agreements, under which the Chase Manhattan Bank and Fleet (Fleet Retail Finance
      Inc., formerly BankBoston Retail Finance Inc.) served as agent for the
      pre-petition lender group (the “Pre-petition Lenders”).





An
      amended complaint with respect to the Committee Action 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 styled “The Official Committee of Unsecured
      Creditors of Hechinger 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 agreements described herein, Leonard Green & Partners, L.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 alleged that the defendants carried out the 1997 Transactions
      despite their knowledge that Hechinger was insolvent at the time, and asserted
      fraudulent conveyance and/or breach of fiduciary duty claims against the
      Insiders, seeking recovery of at least $127 million in damages. It also asserted
      fraudulent conveyance claims against the Pre-petition Lenders and challenged
      the
      repayment of the Pre-petition Lenders using the proceeds of a post-petition
      loan.




During
      July 2005, the District Court issued a memorandum opinion and order on pending
      summary judgment motions (collectively, the “Summary Judgment Decision”),
      dismissing the Liquidation Trust’s claims against Fleet, General Electric Credit
      Corp. (“GECC”), and certain other defendants in the Committee Action. During
      August 2005, the District Court substantively denied the Liquidation Trust’s
      motion for reconsideration of the Summary Judgment Decision. During December
      2005, the Liquidation Trust filed its notice of appeal from the Summary Judgment
      Decision with the Court of Appeals.




A
      March
      2006 mediation that was ordered and 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 appeal was completed during July 2007. The Court of Appeals heard oral
      argument during April 2008. On May 19, 2008, the Court of Appeals issued a
      decision affirming the Summary Judgment Decision.





After
      consultation with counsel, the Liquidation Trustee has determined that the
      Liquidation Trust will not pursue an appeal of the May 19, 2008 adverse
      decision.





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Bankruptcy
      Court Case




The
      Debtors filed approximately 1,800 preference actions in 2001. As of June 30,
      2008, one significant preference litigation action continued. During March
      2006,
      the District Court upheld the Bankruptcy Court’s award to the Liquidation Trust
      of $1.0 million in this action. 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. Prosecution
      of
      all other significant preference litigation has been completed.




**Litigation
      and Other Proceedings Against the Liquidation Trust**




Settling
      Claims filed with the Bankruptcy Court is the ordinary course of business for
      the Liquidation Trust. As of June 30, 2008, a total of 11 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.




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.




**Item
      1A.**  **Risk
      Factors**





There
      are
      no material changes in risk factors as previously disclosed in the Liquidation
      Trust’s annual report on Form 10-K for the year ended September 30,
      2007.





**Item
      2.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds**





None.





**Item
      3.**  **Defaults
      Upon Senior Securities**





None.





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





None.





**Item
      5.**  **Other
      Information**





On
      August
      12, 2008, the Liquidation Trust filed the Notice of the Liquidation Trust of
      Sixth Interim Distribution to Classes 4A and 4B (Exhibit 99.9 hereto).
      Pursuant to the Notice, the Liquidation Trust authorized an additional
      Distribution of 1.65% of the Allowed amount to the holders of Allowed Impaired
      Claims, to be paid during August 2008.


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**Item
      6.**  **Exhibits**





**Exhibit**
              **Number**
            ****
            **Document**31.1
            
            Certification
                by Liquidation Trustee32.1
            
            Liquidation
                Trustee’s Certification Pursuant to 18 U.S.C. Section
                135099.9
            
            Notice
                of the Liquidation Trust of Sixth Interim Distribution to Classes
                4A and
                4B


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**SIGNATURES**





Pursuant
      to the requirements 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 authorized.




HECHINGER
                LIQUIDATION TRUSTDate:
                August 13, 2008
            By:
            /s/
                Conrad F. HockingName: 
                Conrad F. HockingTitle:   
                Liquidation Trustee


23





**INDEX
      TO EXHIBITS**


**FORM
      10-Q**





**Exhibit
                No.**31.1
            
            Certification
                by Liquidation Trustee32.1
            
            Liquidation
                Trustee’s Certification Pursuant to 18 U.S.C. Section
                135099.9
            
            Notice
                of the Liquidation Trust of Sixth Interim Distribution to Classes
                4A and
                4B


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