SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q


[X]      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
 Exchange Act of 1934

For the Quarterly Period Ended June 30, 1998

Or

[  ]     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 0-29120

                           MICROCAP LIQUIDATING TRUST
                     (Successor to The MicroCap Fund, Inc.)
===============================================================================
             (Exact Name of Registrant as Specified in its Charter)


New York                                                              13-7110611
=============================================================================
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)


c/o Raymond S. Troubh
Ten Rockefeller Plaza, Suite 712
New York, New York                                                     10020
=============================================================================
(Address of Principal Executive Offices)                             (Zip Code)


Registrant's Telephone Number, Including Area Code:  (800) 888-6534


Not applicable
==============================================================================
Former name, former address and former fiscal year, if changed since last report


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

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock as of the latest  practicable date. As of August 1, 1997 there were
2,427,281 units of beneficial interest outstanding.


<PAGE>


                           MICROCAP LIQUIDATING TRUST
                     (SUCCESSOR TO THE MICROCAP FUND, INC.)
                                      INDEX


PART I.       FINANCIAL INFORMATION

Item 1.       Financial Statements.

Statements of Net Assets in Liquidation as of June 30, 1998 (Unaudited)
 and December 31, 1997

Schedule of Portfolio Investments as of June 30, 1998 (Unaudited)

Statements of Operations for the three months ended June 30, 1998 and 1997
(Unaudited)

Statements  of  Operations  for the six months  ended June 30,  1998 and for
 the period from  February  25, 1997 to June 30, 1997
(Unaudited)

Statements  of Changes in Net Assets for the six months  ended June 30,  1998
and for the period from  February  25, 1997 to June
30, 1997 (Unaudited)

Statements  of Cash Flows for the six months  ended June 30,  1998 and for the
period  from  February  25,  1997 to June 30, 1997
(Unaudited)

Notes to Financial Statements (Unaudited)

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


PART II.      OTHER INFORMATION

Item 1.       Legal Proceedings.

Item 2.       Changes in Securities.

Item 3.       Defaults upon Senior Securities.

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

Item 5.       Other Information.

Item 6.       Exhibits and Reports on Form 8-K.



<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF NET ASSETS IN LIQUIDATION

<TABLE>


                                                                                            June 30, 1998     December 31,
                                                                                             (Unaudited)             1997
ASSETS

Portfolio investments at fair value (cost $2,177,500 at June 30, 1998
<S>             <C> <C>                                                                     <C>                <C>             
   and December 31, 1997)                                                                   $     1,310,781    $      1,622,500
Cash and cash equivalents - unrestricted                                                          2,680,658           2,651,802
Cash and cash equivalents - restricted                                                            2,790,218           2,790,218
Accrued interest receivable                                                                          15,633              18,644
Other assets                                                                                         50,382                 883
                                                                                            ---------------    ----------------
   Total assets                                                                                   6,847,672           7,084,047
                                                                                            ---------------    ----------------

LIABILITIES

Accounts payable and accrued expenses                                                                65,337             152,677
                                                                                            ---------------    ----------------
   Total liabilities                                                                                 65,337             152,677
                                                                                            ---------------    ----------------

NET ASSETS IN LIQUIDATION                                                                   $     6,782,335    $      6,931,370
                                                                                            ===============    ================


Net assets per unit of beneficial interest                                                    $        2.79         $     2.86
                                                                                              =============         ==========

Number of units of beneficial interest                                                            2,427,281         2,427,281
                                                                                                  =========         =========
</TABLE>






See notes to financial statements.


<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
SCHEDULE OF PORTFOLIO INVESTMENTS (Unaudited)
June 30, 1998
<TABLE>

                                                                                                                         % of
Issuer / Position                                                                   Cost              Fair Value       Net Assets(1)

Publicly-Held Securities:

Unigene Laboratories, Inc.
Warrant to purchase 475,000 shares of Common Stock
<S>   <C>              <C> <C>                                                  <C>                 <C>                  <C>  
   at $1.375, expiring 7/7/00                                                   $           0       $      282,031       4.17%
                                                                                -------------       --------------     -------

YES! Entertainment Corporation(A)
Warrant to purchase 11,437 shares of Common Stock
   at $15.30 per share, expiring 7/16/98                                                    0                    0           0%
                                                                                -------------       --------------   ----------

Privately-Held Securities:

First Colony Acquisition Corp.
106,562 shares of Series A1 Preferred Stock                                           594,174              297,087
240,179 shares of Series B1 Preferred Stock                                         1,343,326              671,663
Warrant to purchase 7,560 shares of Common Stock
   at $5.00, expiring 1/24/00                                                               0                    0
                                                                                -------------       --------------
                                                                                    1,937,500              968,750      14.28%
                                                                                -------------       --------------    --------
Oh-La-La! Inc.
9% Convertible Senior Note                                                            140,000               34,800
9% Convertible Senior Note                                                            100,000               25,200
                                                                                -------------       --------------
                                                                                      240,000               60,000     .88%
                                                                                -------------       -----------------------

Total Portfolio Investments(B)                                                  $   2,177,500       $    1,310,781      19.33%
                                                                                =============       ==============    ========
</TABLE>


(1) Represents fair value as a percentage of net assets.

(A)  The Trust's warrant to purchase 11,437 common shares of Yes! Entertainment
 Corporation expired unexercised on July 16, 1998.

(B) All portfolio securities held at June 30, 1998 are non-income producing.

     See notes to financial statements.


<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF OPERATIONS (Unaudited)


<TABLE>

                                                                                         Three Months           Three Months
                                                                                             Ended                  Ended
                                                                                        June 30, 1998           June 30, 1997
                                                                                   ---------------------    -----------------

INVESTMENT INCOME AND EXPENSES

Income:
<S>                                                                                  <C>                       <C>             
   Interest from short-term investments                                              $        70,257           $         95,851
   Other interest income                                                                           -                      6,021
   Other income                                                                              186,298                          -
   Miscellaneous                                                                                   -                      1,196
                                                                                     ---------------           ----------------
   Total                                                                                     256,555                    103,068
                                                                                     ---------------           ----------------

Expenses:
   Administrative fees                                                                        18,779                     11,616
   Legal fees                                                                                (16,729)                     3,024
   Accounting fees                                                                            12,639                     17,425
   Trustee fees                                                                               25,500                     25,500
   Transfer agent and custodian fees                                                           4,986                      5,672
   Mailing and printing expenses                                                                (438)                     1,463
   Other operating expenses                                                                      102                        630
                                                                                     ---------------           ----------------
   Total expenses                                                                             44,839                     65,330
                                                                                     ---------------           ----------------

NET INVESTMENT INCOME                                                                        211,716                     37,738

   Change in net unrealized depreciation of investments                                     (282,032)                   704,094
                                                                                     ---------------           ----------------

NET (DECREASE) INCREASE IN NET
   ASSETS IN LIQUIDATION                                                             $       (70,316)          $        741,832
                                                                                     ===============           ================
</TABLE>


See notes to financial statements.


<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF OPERATIONS (Unaudited)


<TABLE>
                                                                                                           Period From
                                                                                        Six Months            February 25,
                                                                                           Ended                 1997 to
                                                                                       June 30, 1998          June 30, 1997
                                                                                   --------------------  ------------------

INVESTMENT INCOME AND EXPENSES

Income:
<S>                                                                                  <C>                    <C>            
   Interest from short-term investments                                              $       144,013        $       132,154
   Other interest income                                                                           -                  8,865
   Other income                                                                              186,298                      -
   Miscellaneous                                                                              11,815                  1,196
                                                                                     ---------------        ---------------
   Total investment income                                                                   342,126                142,215
                                                                                     ---------------        ---------------

Expenses:
   Administrative fees                                                                        36,837                 25,978
   Legal fees                                                                                 56,982                124,087
   Accounting fees                                                                            23,889                 31,425
   Trustee fees                                                                               51,000                 34,000
   Transfer agent and custodian fees                                                          10,414                  6,738
   Mailing and printing expenses                                                                (438)                 1,463
   Other operating expenses                                                                      758                    630
                                                                                     ---------------        ---------------
   Total expenses                                                                            179,442                224,321
                                                                                     ---------------        ---------------

NET INVESTMENT INCOME (LOSS)                                                                 162,684                (82,106)

   Change in net unrealized depreciation of investments                                     (311,719)               351,787
                                                                                     ---------------        ---------------

NET (DECREASE) INCREASE IN NET
   ASSETS IN LIQUIDATION                                                             $      (149,035)       $       269,681
                                                                                     ===============        ===============
</TABLE>


See notes to financial statements.


<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)


<TABLE>
                                                                                                                 Period From
                                                                                          Six Months            February 25,
                                                                                             Ended                 1997 to
                                                                                         June 30, 1998     June 30, 1997

<S>                                                                                   <C>                    <C>              
Net investment income (loss)                                                          $       162,684        $        (82,106)
Change in net unrealized appreciation or depreciation of
     portfolio investments                                                                   (311,719)                351,787
                                                                                      ---------------        ----------------
(Decrease) increase in net assets resulting from operations                                  (149,035)                269,681

Cash distributions paid or accrued                                                                  -              (2,427,281)
                                                                                      ---------------        ----------------

Decrease in net assets for the period                                                        (149,035)             (2,157,600)

Net assets in liquidation at beginning of period                                            6,931,370               9,783,311
                                                                                      ---------------        ----------------

NET ASSETS IN LIQUIDATION AT END OF PERIOD                                            $     6,782,335        $      7,625,711
                                                                                      ===============        ================

Net assets per unit of beneficial interest at end of period                             $       2.79           $       3.14
                                                                                        ============           ============

Number of units of beneficial interest at end of period                                     2,427,281               2,427,281
                                                                                        =============          ==============

</TABLE>


See notes to financial statements.



<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
STATEMENTS OF CASH FLOWS (Unaudited)

<TABLE>

                                                                                                               Period From
                                                                                       Six Months             February 25,
                                                                                          Ended                  1997 to
                                                                                      June 30, 1998            June 30, 1997
                                                                                   -----------------      ------------------

CASH FLOWS PROVIDED FROM (USED FOR)
   OPERATING ACTIVITIES

<S>                                                                                 <C>                     <C>             
Net investment income (loss)                                                        $       162,684         $       (82,106)
Adjustments to reconcile net investment income (loss) to cash
   provided from operating activities:
Depreciation expense                                                                              -                   1,835
Decrease in payables and other liabilities                                                  (87,340)               (110,916)
(Increase) decrease in receivables and other assets                                         (46,488)                216,185
                                                                                    ---------------         ---------------
Cash flows provided from operating activities                                                28,856                  24,998
                                                                                    ---------------         ---------------

CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES

Covered call options written                                                                      -                  37,500
                                                                                    ---------------         ---------------
Cash flows provided from investing activities                                                     -                  37,500
                                                                                    ---------------         ---------------

Increase in cash and cash equivalents                                                        28,856                  62,498
Cash and cash equivalents at beginning of period                                          5,442,020               7,571,246
                                                                                    ---------------         ---------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                          $     5,470,876         $     7,633,744
                                                                                    ===============         ===============
</TABLE>


See notes to financial statements.


<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
NOTES TO FINANCIAL STATEMENTS (Unaudited)

1.     Organization and Purpose

The MicroCap  Liquidating  Trust (the "Trust"),  a liquidating trust established
under the laws of the State of New York, is the successor to The MicroCap  Fund,
Inc., formerly Commonwealth Associates Growth Fund, Inc. (the "Fund"). The Fund,
which  was  a  Maryland   corporation   formed  on  January  26,  1993,   was  a
non-diversified,  closed-end  management  investment  company and  operated as a
business  development  company  under the  Investment  Company Act of 1940.  The
Fund's investment  objective was to achieve  long-term  capital  appreciation of
assets,  rather than current income,  by investing in debt and equity securities
of  emerging  and  established   companies  that  management   believed  offered
significant growth potential.

Pursuant to its Plan of Liquidation,  which was approved at a special meeting of
shareholders on July 23, 1996, the Fund  transferred all of its remaining assets
and its remaining fixed and contingent liabilities to the Trust, effective as of
the close of business on February 24, 1997, the Fund's termination date.

Also  effective as of the close of business on February 24, 1997,  the 2,188,085
common  shares and 191,357  preferred  shares of the Fund,  outstanding  on such
date,  were  automatically  deemed to represent  2,427,281  units of  beneficial
interest  in the Trust  ("Units").  As a result,  on  February  24,  1997,  each
shareholder  of the Fund  received  one Unit of the Trust for each  share of the
Fund's common stock held on such date and 1.25 Units of the Trust for each share
of the Fund's preferred stock held on such date.

 2.   Significant Accounting Policies

Valuation of  Investments - Portfolio  investments  are carried at fair value as
determined  quarterly  by the  Trustee.  The fair  value  of each  publicly-held
portfolio  security is adjusted to the closing  public  market price on the last
day of the  calendar  quarter  discounted  by a  factor  of 0% to 20% for  sales
restrictions,  if any. Factors considered in the determination of an appropriate
discount include:  underwriter lock-up,  affiliate status by owning greater than
10% of the  outstanding  shares of a  portfolio  security,  and other  liquidity
factors such as the size of the Trust's  position in a given  portfolio  company
compared to the trading history of the public security. Privately-held portfolio
securities  are carried at cost until  significant  developments  affecting  the
portfolio company provide a basis for change in valuation, including adjustments
to reflect meaningful third-party transactions in the private market.

Use of Estimates - The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Investment  Transactions  - Realized  gains and losses on  investments  sold are
computed on a specific  identification basis. The Trust records its transactions
on the accrual method.

Income Taxes - The Trust is a complete  pass-through  entity for federal  income
tax  purposes  and,  accordingly,  is not subject to income tax.  Instead,  each
beneficiary  of the Trust is required to take into account,  in accordance  with
such  beneficiary's  method of accounting,  such beneficiary's pro rata share of
the Trust's income, gain, loss,  deduction or expense,  regardless of the amount
or timing of distributions to beneficiaries.



<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued

Cash and  Cash  Equivalents  - The  Trust  invests  its  available  cash in U.S.
Treasury Bills and overnight repurchase agreements  collateralized by securities
issued by the U.S.  Government or its agencies.  Such investments are considered
to be cash equivalents for the statement of cash flows.

The  cash  and  cash  equivalents  of  the  Trust  include  restricted  cash  of
approximately  $2.8 million,  comprised of $2.4 million  relating to the Regency
Holdings (Cayman) Inc. litigation,  $250,000 relating to certain indemnification
agreements with Mr. Raymond S. Troubh,  the Trustee of the Trust, and certain of
the Fund's former directors and officers and $120,000  relating to the potential
reimbursement  of  out-of-pocket  expenses  of  a  shareholder  group  that  had
solicited  proxies in opposition to the Fund's Plan of Liquidation.  See Notes 4
and 5 below.

3.     Related Party Transactions

In July 1996, the Fund entered into an agreement with Raymond S. Troubh, whereby
Mr. Troubh provided  management services to the Fund in connection with its Plan
of  Liquidation  and has  continued to provide such services to the Trust during
its liquidation.  For services rendered under the agreement, Mr. Troubh receives
$8,500 per month,  plus 1% of the amount of each  distribution  (other  than the
initial  distribution paid by the Fund on August 30, 1996), plus a percentage of
any  proceeds  of sale or other  revenues  received  by the Fund or the Trust in
excess of the investment in the particular asset. Mr. Troubh was paid 5% of such
excess for amounts  received in 1996 and 1997 and will be paid 4% in 1998, 2% in
1999 and 0% thereafter.

4.     Litigation

Regency  Holdings   (Cayman)  Inc.   ("Holdings")  and  Regency  Maritime  Corp.
("Maritime")  (collectively  "Regency")  along with other  related  entities are
debtors in a bankruptcy case pending in the United States  Bankruptcy  Court for
the Southern  District of New York, 95 B 45197 (TLB). In that  bankruptcy  case,
Regency  initiated an adversary  proceeding  against the Fund and certain  other
persons and entities to recover monies that it paid them on the ground that such
payments constituted  voidable  preferences or fraudulent  conveyances under the
Bankruptcy Code.  Holdings  maintains that a payment made to the Fund between 90
days and one year prior to the filing of  Regency's  bankruptcy  petition in the
amount of  $1,940,000  to satisfy a bridge loan the Fund made to  Regency,  is a
voidable preference because Kamal Mustafa, the former president of the Fund, was
a director of Regency (and  therefore an insider) for a portion of the time that
such amounts were due and owing.  Holdings also maintains that such relationship
had an  impact on the  decision  to pay these  amounts.  Additionally,  Holdings
maintains that a payment of $145,728 made to the Fund to redeem certain warrants
issued  with  respect  to the loan  transaction  was made  within 90 days of the
filing of the bankruptcy petition and is therefore a voidable preference without
regard to whether Mustafa was an insider.  The Fund has served an answer denying
the allegations of the amended complaint and is vigorously  contesting Regency's
claims.  Pursuant to an order filed with the Bankruptcy Court, the Trust has set
aside  approximately  $2.4 million in an  interest-bearing  cash account pending
resolution  by the  Bankruptcy  Court of the adversary  proceeding.  Substantial
discovery has been undertaken. A limited trial based upon written submissions to
address the validity of Regency's  preference  claims was held in December  1997
and  resulted in a judgment  in favor of the Trust,  dismissing  the  preference
claims with prejudice.  It is expected that a trial on the fraudulent conveyance
claims will be held during 1998.



<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued

5.     Other Information

On July 15, 1996,  the Fund entered into a settlement  agreement with a group of
shareholders of the Fund's common stock that had solicited proxies in opposition
to the  Fund's  Plan of  Liquidation  (the "13D  Group").  Under the  settlement
agreement,  the Fund and the 13D Group agreed that,  (i) certain  members of the
13D Group and affiliated  persons would cease to have business  dealings with or
receive compensation from the Fund, (ii) a 13D Group member would have the right
to receive  notice of and attend all meetings of the Board of Directors  and any
committee  meeting thereof,  and (iii) subject to the approval of the Securities
and Exchange Commission (the "SEC"), the Trust would reimburse the 13D Group for
its reasonable out of pocket  expenses up to $120,000 in connection with the 13D
Group's efforts.  An application  relating to such reimbursement by the Trust to
the 13D Group was filed with the SEC on September 27, 1996.

Effective on August 1, 1996,  the Fund entered into  indemnification  agreements
with Mr. Raymond Troubh and certain of the Fund's former directors and officers.
Pursuant  to such  agreements,  the Fund  established  an  escrow  account  that
contains  approximately  $250,000  in cash or cash  equivalents  to provide  for
potential  legal fees and settlement  payments  relating to certain actions that
may arise against such individuals relating to activity involving the Fund.

The  Trust is a  creditor  of PSSS,  Inc.,  formerly  known  as  Oh-La-La!  Inc.
("PSSS").  PSSS confirmed its reorganization  plan on May 15, 1998.  Pursuant to
the  confirmed  plan,  the Trust may  receive a payment  on account of its claim
against  PSSS if funds  become  available  for  distribution.  Currently,  it is
uncertain  whether there will ever be any funds to distribute,  or the timing of
any distribution if funds ever become available.

6.     Other income

This includes  income  received as a result of the  settlement of certain claims
against former counsel by the Fund,  Commonwealth  Associates,  Falk and Warner.
The terms of the  settlement  agreement  provide  that  there  will be a further
payment on January 15, 1999.

7.     Classification of Portfolio Investments

The Trust's investments were categorized as follows as of June 30, 1998:
<TABLE>
                                                                                                                 % of
Type of Investments                                        Cost                   Fair Value                  Net Assets*
-------------------                                   ---------------           ---------------               -----------
<S>                                                  <C>                         <C>                          <C>   
Preferred Stock                                      $      1,937,500            $      968,750               14.28%
Common Stock                                                        0                   282,031                4.17%
Debt Securities                                               240,000                    60,000              .88%
                                                     ----------------            --------------            ------
Total                                                $      2,177,500            $    1,310,781               19.33%
                                                     ================            ==============               ======

Country/Geographic Region
Western U.S.                                         $        240,000            $       60,000                 .88%
Eastern U.S.                                                1,937,500                 1,250,781               18.45%
                                                     ----------------            --------------               ------
Total                                                $      2,177,500            $    1,310,781               19.33%
                                                     ================            ==============               ======

Industry
Biotechnology                                        $              0            $      282,031                4.17%
Consumer Products                                           1,937,500                   968,750               14.28%
Food Services                                                 240,000                    60,000              .88%
                                                     ----------------            --------------           -------
Total                                                $      2,177,500            $    1,310,781               19.33%
                                                     ================            ==============               ======
</TABLE>

* Represents fair value as a percentage of net assets


<PAGE>


MICROCAP LIQUIDATING TRUST
(Successor to The MicroCap Fund, Inc.)
NOTES TO FINANCIAL STATEMENTS (Unaudited) - continued

8.   Subsequent Event - Cash Distribution

On August 4,  1998,  the Trust  declared  an  interim  liquidating  distribution
totaling $1,820,461,  or $.75 per Unit. Such distribution will be paid on August
28, 1998 to unit holders of record on August 14, 1998.


<PAGE>


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

Liquidity and Capital Resources

On June 30, 1998, the Trust had cash and cash equivalents  totaling  $5,470,876,
of which  $2,790,218 was restricted due to certain  contingencies,  as discussed
below.  The  Trust's  cash  balances  are  invested  in U.S.  Treasury  Bills or
overnight repurchase agreements  collateralized by securities issued by the U.S.
Government or its agencies.  Interest earned from such investments for the three
and six months ended June 30, 1998, totaled $70,257 and $144,013,  respectively.
Interest  earned  from such  cash  balances  in future  periods  is  subject  to
fluctuations  in short-term  interest  rates and changes in amounts  invested in
such securities.

The restricted cash and cash equivalents  balance of approximately  $2.8 million
is comprised  of $2.4 million  relating to the Regency  Holdings  (Cayman)  Inc.
litigation,  $250,000  relating to certain  indemnification  agreements with Mr.
Raymond S. Troubh,  the Trustee of the Trust,  and certain of the Fund's  former
directors and officers and $120,000  relating to the potential  reimbursement of
out-of-pocket  expenses of a  shareholder  group that had  solicited  proxies in
opposition to the Fund's Plan of Liquidation.  See Notes 4 and 5 of the Notes to
Financial Statements.

On August 4,  1998,  the Trust  declared  an  interim  liquidating  distribution
totaling $1,820,461,  or $.75 per Unit. Such distribution will be paid on August
28, 1998 to unit holders of record on August 14, 1998. The Trust expects to make
one or more additional cash  distributions  to beneficiaries of the Trust as the
remaining  assets are  liquidated  and after the  payment of and reserve for all
current and contingent liabilities.

Results of Operations

The Trust is  pursuing  the  orderly  liquidation  of its assets and  subsequent
distribution  to unit holders of the proceeds from such  liquidation,  including
the Trust's  remaining  cash balances  after  payment of, or provision  for, all
current, future and contingent liabilities.  Prior to the creation of the Trust,
the Fund had begun to pursue  this  objective  with the  approval of its Plan of
Liquidation in July 1996.

Realized and Unrealized Gains and Losses from Portfolio Investments
For the three and six  months  ended  June 30,  1998,  the Trust had  unrealized
losses  from its  remaining  portfolio  investments  of $282,032  and  $311,719,
respectively.  The Trust had no  realized  gains or  losses  from its  portfolio
investments during the three and six months ended June 30, 1998.

The $311,719  unrealized  loss for the six months ended June 30, 1998,  resulted
from  the  net  downward  revaluation  of  the  Trust's  investment  in  Unigene
Laboratories,  Inc., due to the decreased  public market price of Unigene common
stock at the end of the period.

For the three months ended June 30, 1997,  and for the period from  February 25,
1997 to June 30, 1997 (the "1997 Period"),  the Trust had unrealized  gains from
its remaining portfolio investments of $704,094 and $351,787,  respectively. The
Trust had no realized gains or losses from its portfolio  investments during the
three months ended June 30, 1997 and the 1997 Period.

The $351,787  unrealized  gain for the 1997 Period  resulted from the net upward
revaluation of the Trust's publicly-held portfolio investments, primarily due to
the  increased  public  market  price of Unigene  common stock at the end of the
period.

Investment Income and Expenses
For the three months ended June 30, 1998 and 1997,  the Trust had net investment
income of $211,716 and $37,738,  respectively. For the six months ended June 30,
1998 and for the 1997 Period,  the Trust had net  investment  income of $162,684
and a net investment loss $82,106, respectively.

The increase in net investment  income for the three months ended June 30, 1998,
as  compared to the same period in 1997,  resulted  from a $153,487  increase in
investment income and a $20,491 decrease in operating expenses.  The increase in
investment  income  primarily  was due to the $186,298 of other income  recorded
during the 1998 period and discussed in Note 6 of Notes to Financial Statements.
Interst income from short-term  investments decreased $25,564 primarily due to a
decrease in funds available for investment in such  securities  during the three
months ended June 30, 1998.

The decrease in operating  expenses for the three months ended June 30, 1998, as
compared  to the same period in 1997,  primarily  was due to a decrease in legal
fees which resulted from the reversal of certain legal expenses during the three
months ended June 30, 1998 that had been accrued in prior periods.

Net  investment  income of  $162,684  for the six months  ended June 30, 1998 as
compared to a net investment loss of $82,106 for the 1997 Period,  resulted from
a $199,911  increase in  investment  income and a $44,879  decrease in operating
expenses. The increase in investment income primarily was due to the $186,298 of
other income recorded during the six months ended June 30, 1998 and discussed in
Note 6 of  Notes  to  Financial  Statements.  Interest  income  from  short-term
investments also increased $11,859,  reflecting the longer full six month period
for 1998 compared to the shorter 1997 Period of slightly over four months.

The  decrease  in  operating  expenses  for the six months  ended June 30,  1998
compared  to the 1997  Period  was due to a  $67,105  decrease  in  legal  fees,
partially offset by a $22,226 increase in other operating expenses. The decrease
in legal fees primarily was the result of the reversal of certain legal expenses
accrued in prior periods,  as discussed  above.  The increase in other operating
expenses  reflects  the longer  full six month  period for 1998  compared to the
shorter 1997 Period of slightly over four months.

Net Assets in Liquidation
As of June 30, 1998, net assets in liquidation totaled $6,782,335, a decrease of
$149,035 from net assets in liquidation of $6,931,370 at December 31, 1997. This
decrease is  comprised  of the  $162,684  net  investment  income  offset by the
$311,719 net unrealized loss from portfolio investments for the six months ended
June 30,  1998.  As of June 30,  1998,  the net asset  value per Unit was $2.79,
compared to $2.86 per Unit as of December 31, 1997.


<PAGE>


                           PART II - OTHER INFORMATION

Item 1.       Legal Proceedings.


Regency  Holdings   (Cayman)  Inc.   ("Holdings")  and  Regency  Maritime  Corp.
("Maritime")  (collectively  "Regency")  along with other  related  entities are
debtors in a bankruptcy case pending in the United States  Bankruptcy  Court for
the Southern  District of New York, 95 B 45197 (TLB). In that  bankruptcy  case,
Regency  initiated an adversary  proceeding  against the Fund and certain  other
persons and entities to recover monies that it paid them on the ground that such
payments constituted  voidable  preferences or fraudulent  conveyances under the
Bankruptcy Code.  Holdings  maintains that a payment made to the Fund between 90
days and one year prior to the filing of  Regency's  bankruptcy  petition in the
amount of  $1,940,000  to satisfy a bridge loan the Fund made to  Regency,  is a
voidable preference because Kamal Mustafa, the former president of the Fund, was
a director of Regency (and  therefore an insider) for a portion of the time that
such amounts were due and owing.  Holdings also maintains that such relationship
had an  impact on the  decision  to pay these  amounts.  Additionally,  Holdings
maintains that a payment of $145,728 made to the Fund to redeem certain warrants
issued  with  respect  to the loan  transaction  was made  within 90 days of the
filing of the bankruptcy petition and is therefore a voidable preference without
regard to whether Mustafa was an insider.  The Fund has served an answer denying
the allegations of the amended complaint and is vigorously  contesting Regency's
claims.  Pursuant to an order filed with the Bankruptcy Court, the Trust has set
aside  approximately  $2.4 million in an  interest-bearing  cash account pending
resolution  by the  Bankruptcy  Court of the adversary  proceeding.  Substantial
discovery has been undertaken. A limited trial based upon written submissions to
address the validity of Regency's  preference  claims was held in December  1997
and  resulted in a judgment  in favor of the Trust,  dismissing  the  preference
claims with prejudice.  It is expected that a trial on the fraudulent conveyance
claims will be held during 1998.

Item 2.       Changes in Securities.

Not applicable.

Item 3.       Defaults Upon Senior Securities.

Not applicable.

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

No matter was brought to a vote of security holders during the period covered by
this report.

Item 5.       Other Information.

Not applicable.

Item 6.       Exhibits and Reports on Form 8-K.

              (a)  Exhibits

                    (27)   Financial Data Schedule

              (b)  Reports on Form 8-K

                   None.


<PAGE>


                                   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.



              MICROCAP LIQUIDATING TRUST


              /s/    Raymond S. Troubh
              Raymond S. Troubh
              Trustee



Date:         August 13, 1998