**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-K**

 

**x****ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the fiscal year ended December 31, 2008**

 

**or**

 

**o****TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from                         to                        **

 

**Commission file number: 000-53209**

 

**AdelphiaRecovery Trust**

(Exact name of registrant asspecified in its charter)

 

| **Delaware**                                                    | ** ** | **11-6615508**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

**919 NorthMarket Street, 17th Floor, P.O. Box 705**

**Wilmington,Delaware 19899**

(Addressof Principal Executive Offices) (Zip Code)

** **

**302-652-4100Attn: Dean Ziehl**

(Registrant’s telephonenumber, including area code)

 

**Securitiesto be registered pursuant to Section 12(g) of the Act:**

**CVV Series ACC-7Interests**

(Titleof Classes)

 

Indicate by check mark if the registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act.

Yes  o   **No ****x**

 

Indicate by check mark if the registrant is not required to filereports pursuant to Section 13 or Section 15(d) of the Act.

Yes  o   **No ****x**

 

**Note –** Checking the box above will not relieve any registrant required tofile reports pursuant to Section 13 or 15(d) of the Exchange Act fromtheir obligations under those Sections.

 

(Mark One)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. **Yes  ****x**    No  o

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,and will not be contained, to the best of registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendment to this Form 10-K.  **Yes****x**    No  o

 

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

 
| Large  accelerated filer  o                                                 | Accelerated filer  o         |
|----------------------------------------------------------------------------------|-----------------------------------|
| Non-accelerated  filer (Do not check if a smaller reporting company)  **x** | Smaller reporting company  o |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Act). Yes o   **No  ****x**

 

State the aggregate market value of the voting and non-voting commonequity held by non-affiliates computed by reference to the price at which thecommon equity was last sold, or the average bid and asked price of such commonequity, as of the last business day of the registrant’s most recently completedsecond fiscal quarter.

 

$0

 

**Note.**—If a determination as to whether a particular person or entity is anaffiliate cannot be made without involving unreasonable effort and expense, theaggregate market value of the common stock held by non-affiliates may becalculated on the basis of assumptions reasonable under the circumstances,provided that the assumptions are set forth in this Form.

 

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGSDURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documentsand reports required to be filed by Section 12, 13 or 15(d) of theSecurities Exchange Act of 1934 subsequent to the distribution of securitiesunder a plan confirmed by a court.

Yes  o   No  o

 

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

 

Indicate the number of shares outstanding of each of the registrant’sclasses of common stock, as of the latest practicable date.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

List hereunder the following documents if incorporated by reference andthe Part of the Form 10-K (e.g., Part I, Part II, etc.) intowhich the document is incorporated: (1) Any annual report to securityholders; (2) Any proxy or information statement; and (3) Anyprospectus filed pursuant to Rule 424(b) or (c) under theSecurities Act of 1933. The listed documents should be clearly described foridentification purposes (e.g., annual report to security holders for fiscalyear ended December 24, 1980).

 

 

 

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**PART I**

 

**Item 1. Business.**

 

Overview

 

The Adelphia Recovery Trust (the “ART”) was formed as a Delawarestatutory trust pursuant to that certain First Modified Fifth Amended JointChapter 11 Plan of Reorganization (the “Plan”) of Adelphia CommunicationsCorporation (“Adelphia”) and certain of its subsidiaries. The purpose of theART is to prosecute the various causes of action transferred to the ARTpursuant to the Plan (the “Causes of Action”) and distribute to the owners (the“Holders”) of the interests in the ART (“Interests”) the net proceeds of suchCauses of Action, according to the relative priorities established pursuant tothe Plan, subject to the retention of various amounts to fund the prosecutionof those Causes of Action and operations of the ART. Pursuant to the Plan, inaddition to the Causes of Action, Adelphia transferred $25 million in cash tothe ART and paid certain expenses of the ART, in order to fund the initialexpenses of operation. The ART has no purpose other than to prosecute itsCauses of Action and to distribute net proceeds to Holders.

 

Adelphia and certain of its subsidiaries filed for bankruptcyprotection under Chapter 11 in June 2002. During the bankruptcy, on July 31,2006 substantially all of the assets of Adelphia were sold for a combination ofcash and stock in Time Warner Cable (“TWC”). In late 2006, representatives ofvarious groups of creditors reached agreement on the allocation anddistribution of the cash, TWC stock, other proceeds from the sale of estateassets and relative priorities to any distributions arising from the Causes ofAction contributed to the ART. This agreement was embodied in the Plan, whichwas confirmed in January 2007 and became effective on February 13,2007. Under the Plan, the creditors and equity holders of Adelphia and certainof its subsidiaries received one or more of the following: cash, TWC stock,rights to future distributions from Adelphia excess reserves up to payment infull and the Interests.

 

Interestsallocated to holders of disputed claims and equity interests were deemedtransferred to a reserve that is a “disputed ownership fund” for tax purposes(pursuant to the Plan and U.S. Treasury Regulations Section 1.468B-9(c)).The disputed ownership fund (the “ART DOF”) is a separate taxable entity. TheART DOF and issues relating to the ART DOF are not the subject of this Form 10-K.

 

The ART will dissolve upon the earlier of the distribution of all ofits assets to the Holders or the fifth anniversary of its creation. However,the Bankruptcy Court for the Southern District of New York (the “BankruptcyCourt”) may approve an extension of the term if deemed necessary for thepurposes of resolving the Causes of Action and distributing the net proceeds toHolders.

 

As set forth in the Plan and the Declaration of Trust for the ART, asamended (the “Declaration”), the ART is administered by five trustees (the “Trustees”).These Trustees are authorized to carry out the purposes of the ART. Inparticular, the Trustees are responsible for protecting, maintaining,liquidating to cash and maximizing the value of the Causes of Action contributedto the ART, whether by litigation, settlement or otherwise.

 

Distributions

 

Pursuant to the Plan and the Declaration, distributions to Holders arenet of any costs and expenses incurred by the ART in connection withadministering, litigating or otherwise resolving the various Causes of Action.Such amounts withheld from distribution may also include fees and expenses ofthe Trustees, premiums for directors and officers insurance, and otherinsurance and fees and expenses of attorneys and consultants. Distributionswill be made only from assets of the ART and only to the extent that the ARThas sufficient assets (over amounts retained for contingent liabilities andfuture costs and expenses) to make such payments in accordance with the Planand the Declaration. No distribution is required to be made to any Holderunless such Holder is to receive in such distribution at least $25.00 (perHolder class, name and address),  orunless such distribution is the final distribution to such Holder pursuant to thePlan and the Declaration.

 

Distributions will be made at the sole discretion of the Trustees inaccordance with the provisions of the Plan and the Declaration. As of the datehereof, the Trustees have determined the present best course of action is to retainthe existing cash in reserve to administer the ART and fund the prosecution ofthe Causes of Action. Consequently, there have been no distributions throughthe date of this Form 10—K and none have been announced.

 

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ART Operations and Management

 

Overview

 

The Trustees are Mr. Bryan E. Bloom, Mr. Lee S. Hillman, Mr. DavidP. Stowell, Mr. Ralph J. Takala and Mr. Dean A. Ziehl. The Trusteeswere appointed by various groups of creditors of the Adelphia estate. TheTrustees have authority to carry out the purposes of the ART.

 

The ART is required to have a Delaware Trustee, and also has anInstitutional Trustee. The Delaware Trustee of the ART is Bank of New YorkMellon (Delaware) and has been appointed for the purpose of fulfilling therequirements of the Delaware Statutory Trust Act. The Institutional Trustee ofthe ART is Bank of New York Mellon. The Institutional Trustee is responsiblefor authentication of ART certificates (for Interests) distributed to Holders,the distribution through a paying agent of amounts due to Holders and thetaking of all actions that may be necessary or appropriate for the preservationand the continuation of the ART’s valid existence, rights, franchises, andprivileges as a statutory trust. Quest Turnaround Advisors, L.L.C. (“Quest”) isthe plan administrator (the “Plan Administrator”) of the debtors named in thePlan (the “Debtors”). Pursuant to the terms of the Plan Administrator Agreementbetween Quest and the Debtors, Quest and the Debtors agreed with each other toprovide certain administrative services to the ART. In order to facilitate theprovision of such administrative services, the ART has appointed Quest as thetrust administrator of the ART (in that capacity, the “Trust Administrator”).

 

The Bankruptcy Court has retained exclusive jurisdiction over allmatters relating to the ART.

 

The Trustees

 

The ART does not have directors, executive officers or employees. TheTrustees have the duty and authority to take actions necessary to protect,maintain, liquidate to cash and maximize the value of its Causes of Action,whether by litigation, settlement or otherwise. The Declaration includes thefollowing material duties and powers of the Trustees:

 

· taking any action necessary or desirable tocarry out the purposes of the ART;

· maintaining the value of the assets of theART;

· making distributions to the Holders;

· determining reserves to cover future costsand expenses associated with the ART;

· causing the ART to retain professionals oremployees or agents as they may deem necessary to aid in the performance oftheir responsibilities pursuant to the terms of the Declaration and the Plan,including the prosecution of Causes of Action and the liquidation anddistribution of the assets of the ART;

· causing the ART to pay all costs andexpenses incurred in connection with the prosecution of Causes of Action andthe administration of the ART;

· filing any and all tax returns with respectto the ART;

· causing valuations of property transferredto and held by the ART to be made for all United States federal income taxpurposes; and

· winding up the affairs and liquidation ofthe ART.

 

A Trustee may be removed, but only by (i) the creditor(s) whoappointed such Trustee or (ii) Bankruptcy Court order made after suchnotice and hearing as the Bankruptcy Court may direct. Any motion to remove aTrustee must be for cause shown and can only be brought by the OfficialCommittee of Unsecured Creditors of Adelphia Communications Corporation (the “CreditorsCommittee”). Upon the death, resignation, removal or incompetency (determinedby a court of competent jurisdiction) of a Trustee, the applicable creditor(s) whoinitially appointed such Trustee will have the authority to appoint a successorTrustee, provided, however, that if such creditor(s) does not make suchappointment within 40 days of such death, resignation, removal or determinationof incompetency, a majority of the remaining Trustees will have the power toappoint a successor Trustee. If a successor Trustee has not been appointedwithin 60 days of such written notice, the remaining Trustees may petition theBankruptcy Court to appoint a successor Trustee.

 

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Audit Committee

 

The Audit Committee of the ART is appointed by the Trustees to oversee (i) theintegrity of the financial statements of the ART, (ii) the accounting andfinancial reporting processes of the ART and its audits, (iii) theindependent auditor of the ART and the independence, qualifications andperformance of such auditor, (iv) the performance of the internal auditfunction and independent auditor of the ART, in the event that the ART has aninternal audit function, and (v) the compliance by the ART with legal andregulatory requirements. The Audit Committee is composed of Mr. Bryan E.Bloom, Mr. Lee S. Hillman, and Mr. Ralph J. Takala (Chairman). TheBoard of Trustees has determined that Ralph J. Takala, Chairman of the AuditCommittee,  is an independent financialexpert.

 

Trust Administrator

 

The Plan Administrator Agreement between Quest and the Debtors providesthat the Plan Administrator will, among other things, cause the Debtors toperform bookkeeping, accounting, financial reporting and other administrativefunctions of the ART, as reasonably requested by the Trustees and necessary ordesirable to support the ART. In addition, the Plan Administrator will causethe Debtors to provide support for the Causes of Action, including: maintainingand providing the ART with access to the books, records and other documents ofthe Debtors and providing the ART with access to those employees of the Debtorsthat perform such administrative services. The Plan Administrator alsosupervises the Debtors in performing the foregoing functions for the ART.Finally, the Plan Administrator assists the ART in the preparation of andexecution of required reports, forms or applications for filing with the SEC orother governmental authorities.

 

In order to facilitate the provision of the services described above,the ART has appointed Quest as the Trust Administrator of the ART. In thatcapacity, the ART has requested that the Trust Administrator, under directionof the Trustees, provide the following services:

 

· assist in the preparation of the financialstatements of the ART, including quarterly and annual statements; commencingwith the financial statements of the ART for the fiscal year ended December 31,2007;

· assist with establishing, maintaining andevaluating disclosure controls and procedures as defined in Rules 13a-15(e) and15d-15 (e) of the Securities Exchange Act of 1934, as amended (“ExchangeAct”) and internal controls over financial reporting as defined in Exchange ActRules 13a-15(f) and 15d-15(f), as applicable to the ART;

· assist the ART in the preparation andsubmission of all filings required of the ART under the Exchange Act;

· sign Exchange Act filings (Form 10, Form 10-Kand otherwise) in its capacity as Trust Administrator, including thecertifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of2004; and

· assist the ART in such other matters asreasonably requested by the Trustees to enable the ART to comply with theExchange Act and the Exchange Act Rules.

 

For its role as Plan Administrator, Quest is compensated exclusively bythe Debtors. The ART does not pay Quest any additional amounts of compensationfor serving as either Plan Administrator or Trust Administrator. The ART isrequired to reimburse Quest and the Debtors for out-of-pocket expenses incurredin performance of services on behalf of the ART.

 

Pursuant to the Plan Administrator Agreement, Quest may be removed asPlan Administrator of the Debtors by the Trustees for cause, upon notice, orwithout cause, upon 30 day notice. The Trustees may remove Quest as TrustAdministrator at any time.

 

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**Item 1A. Risk Factors.**

 

**The ART is controlled by the Trustees and the Holdershave no authority regarding decisions made on behalf of the ART**

 

All decisions concerning the conduct of the Causes of Action anddistribution of assets of the ART are to be made by the Trustees, in accordancewith the terms of the Plan and Declaration. A decision to settle a Cause ofAction requires the approval of a majority of the Trustees. Generally, theHolders have no right to elect or remove a Trustee. A Trustee may be removed,but only by (i) the creditor(s) who appointed such Trustee or (ii) BankruptcyCourt order made after such notice and hearing as the Bankruptcy Court maydirect. Any motion to remove a Trustee must be for cause shown and can only bebrought by the Creditors Committee.

 

**The ART may not be successful in litigating the Causesof Action or if the ART is successful, there could be a significant delay beforeany recovery is obtained and distributed**

 

It is not possible to predict whether any distributions will be made tothe Holders or, if any distributions are made, the timing and amount of thosedistributions. The ART will only make distributions to the Holders if and tothe extent that it receives proceeds from the Causes of Action, and then onlyto the extent that the proceeds from the Causes of Action exceed any amountswithheld by the Trustees to fund the prosecution of remaining Causes of Actionand operations of the ART. There can be no assurance that the ART will obtain afavorable judgment or settlement with respect to any particular Cause ofAction. In addition, if there is a recovery, there can be no assurance as tothe timing of any such recovery. To the extent the Causes of Action do notultimately result in a judgment or settlement favorable to the ART, the valueof the Interests will decrease.

 

**Holders will have only limited rights against theTrustees and the Trustees have limited liability to the ART**

 

The Declaration provides that the Institutional Trustee, the DelawareTrustee and the Trustees (and their respective affiliates, directors, officers,employees and representatives) and any officer, employee or agent of the ART orits affiliates will have no liability to the ART or the Holders except for (i) actsor omissions of the Trustees undertaken with the deliberate intent to injurethe Holders or with reckless disregard for the best interests of the Holdersand (ii) acts or omissions of the Institutional Trustee or DelawareTrustee undertaken with gross negligence, willful misconduct or bad faith. Anyliability of the Trustees will be limited to actual, proximate and quantifiabledamages.

 

The Declaration further provides that, with certain exceptions, noHolder has the right to institute any action or proceeding against the Trusteesor otherwise under the Declaration unless the Holder has given theInstitutional Trustee written notice of default and unless the requisiteHolders have joined in the request for such action or proceeding. “RequisiteHolders” means the Holders holding Interests that would be entitled to receivemore than fifty percent of a hypothetical $50 million distribution of the ART,if such distribution were made as of a date for such determination asreasonably fixed by the Trustees.

 

The Declaration provides that the Holders have no voting rights (exceptin connection with certain amendments to the Declaration and except for limitedrights in connection with the appointment of a successor Institutional Trusteeor Delaware Trustee) and no rights to dividends, liquidation preferences orother distributions other than their pro rata share of the net proceeds of theCauses of Action actually distributed by the Trustees pursuant to the Plan andDeclaration.

 

**Even if there is a recovery based on the Causes ofAction, there can be no assurances that there will be sufficient funds to makeany distributions to Holders**

 

Even if the ART obtains a settlement or award based on the Causes ofAction, there can be no assurance that the Holders will receive any proceedsfrom such settlement or award. Prior to Holders receiving any payments, theTrustees will pay all of the expenses of the ART and may set aside funds forfuture expenses or contingencies of the ART. Furthermore, distributions (ifany) to a particular class of Interests is contingent upon payment in full (orin some cases, in part) to classes of Interests with higher distributionpriorities.

 

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**Potential conflicts of interest exist among theclasses of Interests**

 

The existence of separate classes of Interests and the differentdistribution priority of each class could give rise to occasions when theinterests of the Holders could diverge, conflict or appear to diverge orconflict. Operational and financial decisions by the Trustees regarding thelitigation could favor one group of Holders over another, adversely affectingthe market value of a particular class of Interests or the distribution to thatparticular class of Interests. For example, the decision to settle a Cause ofAction for a smaller amount than that which could potentially be recoveredthrough litigation could favor those classes of Interests with a higherdistribution priority in the waterfall, as those classes would be more likelyto ultimately receive a distribution with respect to such a settlement asopposed to those with a lower distribution priority in the waterfall.

 

**There is no trading market for the Interests, whichcould limit liquidity, and it may be difficult to establish a price perInterest**

 

There is no current established trading market for the Interests andthe ART does not intend to seek to have the Interests listed on an exchange ora national market. There is minimal trading in the over the counter market onthe pink sheets, which has limited liquidity. The price of the Interests maydepend on a number of factors, including (but not limited to) the nature ofcourt decisions, speculation about the outcome of the Causes of Action and thesufficiency of the funds available to the ART to prosecute the Causes ofAction. There may be wide fluctuations in the price of the Interests. SeeManagement’s discussion and Analysis of Financial Condition and Results of Operationsincluded in Item 7 of this Form 10-K.

 

**The outcome of litigation is inherently speculativeand limited information regarding their developments and potential outcomeswill be available; therefore, it may be difficult for Holders to assess theamount of recovery**

 

The ART files annual reports on Form 10-K and quarterly reports onForm 10-Q that will include an overview of the status of the pendingCauses of Action. The ART will also advise Holders if there is a material finaljudicial decision in any of the Causes of Action or any material settlements.The ART’s ability to disclose details of the Causes of Action in this filing orin future public filings may be limited, however, by the inherent nature and rules ofjudicial proceedings, including, among other things, proceedings and filingsthat are sealed by a court, matters involving attorney-client and work productprivilege and proceedings that are conducted on a confidential basis byagreement of the parties, such as settlement negotiations. Furthermore, due tothe speculative nature of litigation, it may be difficult for holders to make ameaningful determination of the potential outcome on any Cause of Action.

 

**A Holder’s tax liability could exceed distributions**

 

If the ART has income for a taxable year, the appropriate portion ofthat income may be includable in a Holder’s taxable income, whether or not anycash is actually distributed to the Holder by the ART. The Plan and Declarationpermit the Trustees to reserve certain amounts to fund, among other things,operating and other expenses, and do not contain a mandatory tax distributionprovision. Therefore, for any particular year there may be no distribution or adistribution that is less than a Holder’s tax liability on its share of theincome of the ART.

 

**Certaintax positions are subject to challenge by the Internal Revenue Service.**

 

Certaintax positions taken by the ART could be challenged by the Internal RevenueService. If successful, such challenge could result in additional taxableincome or accelerated income recognition to the Holders.  For tax purposes, the ART’s assets weredeemed transferred by the bankruptcy estate to the Holders, who thencontributed them to the ART.  The ART wasrequired to value the assets transferred to it on the formation of the trustand to notify Holders of those valuations. The Holders were then responsible for determining their individual taxconsequences of the transfer.  Because theassets are litigation claims against third parties, they are difficult to valuewith precision.  The Internal RevenueService could disagree with the value determined by the ART, and if the IRSwere to sustain a higher valuation that could result in additional taxableincome to the Holders.  In addition, theART has taken the position that recoveries from settlements and litigationconstitute basis recovery first, and any additional recoveries will be treatedas gain.  The Internal Revenue Servicecould take a different position with respect to basis recovery, which ifsuccessful would accelerate the timing of income recognition.

 

**The ART’s ability to recover a judgment or settlement paymentmay be affected by the financial condition of a defendant.**

 

Adverse economic conditionsaffecting, or the financial condition of, a defendant may affectthe ART’s ability to collect a judgment or settlement payment from thatdefendant or may cause a delay in such collection.

 

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**Item 1B. Unresolved Staff Comments.**

 

Not applicable.

 

**Item 2. Properties**.

 

The ART does not own or lease any physical properties.

 

**Item 3. Legal Proceedings.**

 

***Pending Causes of Action***

 

Bank Litigation

 

On July 6, 2003, the Creditors Committee filed a complaint (the “CreditorsCommittee Complaint”) in the Bankruptcy Court for the Southern District of NewYork against Adelphia’s pre-petition commercial banks and lenders, Adelphia’sformer investment bankers and financial advisors, and assignees of Adelphia’spre-petition bank debt. The Creditors Committee Complaint asserted 52 Causes ofAction seeking (a) recovery as fraudulent transfers the principal andinterest paid by Adelphia to defendants, (b) avoidance as fraudulentobligations Adelphia’s obligations, if any, to repay the defendants, (c) recoveryof damages for fraud and breaches of fiduciary duties to Adelphia and foraiding and abetting fraud and breaches of fiduciary duties by members of theRigas family relating to Adelphia’s credit facilities, (d) equitabledisallowance, subordination or re-characterization of each of the defendants’claims in Adelphia’s bankruptcy cases, (e) avoidance and recovery ofpreferential transfers made to certain defendants shortly prior to Adelphia’sbankruptcy filing, and (f) recovery of damages for violations of the BankHolding Company Act. In addition, the Creditors Committee and Adelphia moved inthe Bankruptcy Court seeking authority for the Committee to prosecute theseclaims together with Adelphia (the “Standing Motion”). On July 31, 2003,the Official Committee of Equity Security Holders for Adelphia filed a motionwith the Bankruptcy Court to assert additional claims against the defendants inthe form of an intervenor complaint. The Equity Committee was granted leave tofile its complaint (the “Equity Committee Complaint”), which joined certain ofthe claims asserted in the Creditors Committee Complaint and also asserted newclaims against the investment bank defendants for fraudulent concealment andagainst the agent bank and investment bank defendants for fraud and RICOviolations.

 

In October 2003, various defendants moved to dismiss bothcomplaints and filed objections to the Standing Motion. On August 30,2005, the Bankruptcy Court granted the Standing Motion, holding that theCreditors Committee had standing to pursue the claims in the Original Complainton behalf of, and together with, Adelphia. On February 9, 2006, the UnitedStates District Court for the Southern District of New York granted a motionfiled by certain defendants to withdraw the reference to the Bankruptcy Court,subject to the proviso, with the consent of all parties, that the motions todismiss would remain with the Bankruptcy Court. No decision was rendered on themotions to dismiss during the Adelphia bankruptcy proceedings. The claimsasserted in the Creditors Committee Complaint and the Equity CommitteeComplaint were transferred to the ART pursuant to the Plan.

 

In 2007, the Bankruptcy Court issued separate decisions with respect toeach of the two complaints. *In re AdelphiaCommc’ns Corp.*, 365 B.R. 24, 62 (Bankr. S.D.N.Y. 2007); *In re Adelphia Commc’ns Corp.*, Adversary No. 03-04942(REG), 2007 WL 2403553 at *11 (Bankr. S.D.N.Y. Aug. 17, 2007). In thefirst decision, the Bankruptcy Court sustained the fraudulent transfer claims,the aiding and abetting breach of fiduciary duty claims, the breach offiduciary duty claims against certain defendants, the equitable subordinationand disallowance claims, the Bank Holding Company Act claims, and the voidablepreference claims in the Creditors Committee Complaint, but dismissed, withleave to replead, the claims for aiding and abetting fraud. In the seconddecision, the Bankruptcy Court dismissed the additional claims asserted in theEquity Committee’s Complaint, but granted leave to replead the claims for fraudand fraudulent concealment.

 

On July 10, 2007, all of the original moving defendants soughtleave to appeal with respect to all the claims in the Creditors Committee’sComplaint that the Bankruptcy Court had declined to dismiss. The District Courtdenied leave to appeal from the rulings that sustained the fraudulent transferclaims, the voidable preference claims, and the equitable subordination claims,but granted leave to appeal on certain discrete issues of law concerning theART’s standing, application of the Bank Holding Company Act, the existence ofequitable disallowance under the Bankruptcy Code, and the existence of aidingand abetting breach of fiduciary duty liability under Pennsylvania law as wellas the adequacy of 

 

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the pleadings on that claim. *AdelphiaRecovery Trust v. Bank of Am., N.A.*, No. 05 Civ 9050 (LMM),2007 WL 2585065 (S.D.N.Y. Sept. 05, 2007); *AdelphiaRecovery Trust v. Bank of Am., N.A.*, No. 05 Civ. 9050 (LMM),2007 WL 2890220 (S.D.N.Y. Sept. 28, 2007).

 

On October 31, 2007, while the appeal was pending, the ART filedan Amended Complaint. The Amended Complaint (i) consolidated the earliercomplaints into a single complaint; (ii) added additional allegations tosupport the claims on which the Bankruptcy Court granted leave to replead(aiding and abetting fraud, fraudulent concealment, and fraud); and (iii) addedas defendants approximately 380 new entities that became assignees of theAdelphia bank debt after the original complaints were filed. Certain defendantsfiled motions to dismiss the Amended Complaint and certain defendants filedanswers to the Amended Complaint.

 

In its January 17, 2008 decision on appeal, the District Courtconcluded, *inter alia*, that theART had standing to assert the tort claims and the Bankruptcy Court properlyhad sustained the claims for aiding and abetting breach of fiduciary duty andequitable disallowance. The Court dismissed the Bank Holding Company Act claimwith leave to replead to cure an ambiguity in the original allegations. *Adelphia Recovery Trust v. Bank of Am*., *N.A*., No. 05 Civ 9050 (LMM), 2008 WL217057 at *6, 13 (S.D.N.Y. Jan. 17, 2008). The Bank Holding Company Actclaims subsequently were repleaded in a Second Amended Complaint filed March 4,2008. Certain defendants filed motions to dismiss the repleaded Bank HoldingCompany Act claims set forth in the Second Amended Complaint.

 

On June 18, 2008, the District Court dismissed certain fraudulenttransfer claims, voidable preference claims, and equitable subordination anddisallowance claims. Under the current scheduling order, the trial on theremaining claims will commence on February 22, 2010.

 

With respect to the claims dismissed by the District Court on June 18,2008 and certain claims dismissed in 2007 by the Bankruptcy Court, theDistrict Court entered a final judgment.  The ART filed a timelynotice of appeal and the appeal is pending in the Second Circuit Court ofAppeals.  No schedule for the appeal has been set.

 

At this time, the ART cannot predict the outcome of these proceedingsor estimate the possible financial effect of these proceedings on the ART’sfinancial statements.

 

Motorola Litigation

 

On June 22, 2006, Adelphia filed an adversary complaint againstMotorola, Inc. and certain of its subsidiaries, as well as transferees ofclaims filed by Motorola in the Adelphia bankruptcy cases in the BankruptcyCourt for the Southern District of New York. The complaint seeks recovery for (a) Motorola’saiding and abetting breaches of fiduciary duty by members of the Rigas familyin manipulating Adelphia’s financial statements and performance results for thefiscal years 2000 and 2001; (b) avoidance and recovery of preferential andfraudulent transfers made to Motorola of more than $60 million; (c) avoidanceof purported (but unperfected) liens asserted by Motorola; and (d) equitabledisallowance or subordination of Motorola’s claims in the Adelphia bankruptcycases (the total face amount of which is approximately $66.6 million).

 

The ART and Adelphia are co-plaintiffs in this litigation. On September 11,2007, Adelphia and the ART amended the complaint against Motorola to add acause of action for equitable disallowance and additional factual allegations.If Adelphia and the ART do not prevail on the claim for equitable disallowance,Adelphia has an interest senior to the ART to receive the amount necessary tooffset any of Motorola’s claims allowed by the Bankruptcy Court.

 

On August 22, 2007, plaintiffs moved for summary judgment todisallow a portion of the defendants’ claims against certain Adelphia debtors.Plaintiffs’ motion is pending. Discovery is ongoing and the bankruptcy courthas ordered the parties to be ready for trial on the claims for equitablesubordination and equitable disallowance on April 20, 2009.

 

At this time, the ART cannot predict the outcome of these proceedingsor estimate the possible financial effect of these proceedings on the ART’sfinancial statements.

 

Prestige and FPL Litigation

 

On June 24, 2004, the Unsecured Creditors’ Committee filed twoseparate fraudulent conveyance complaints, one against FPL Group, Inc. andWest Boca Security, Inc. (“FPL”) and the other against PrestigeCommunications of NC, Inc., Jonathan J. Oscher,  Lorraine Oscher McClain, Robert F. Buckfelder,Buckfelder Investment Trust, and Anverse, Inc. Both actions were filed inthe Bankruptcy Court for the Southern District of New York and relate topre-petition 

 

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transactions. In a decision dated January 8, 2008, the DistrictCourt withdrew the reference in the Prestige action and transferred the case tothe District Court. The FPL action remains pending in the Bankruptcy Court.Discovery is ongoing in both actions.

 

The Prestige action seeks to recover fraudulent transfers in connectionwith Adelphia’s purchase of the assets of Prestige Communications of N.C., Inc.,an acquisition that closed on July 5, 2000, as well as a claim that theowners of the Prestige Cable Systems aided and abetted breaches of fiduciaryduty on the part of the Rigas family in connection with the transaction. TheDistrict Court has not set a trial date in the Prestige action.

 

The FPL action seeks to recover an alleged fraudulent transfer arisingout of Adelphia’s repurchase of certain of its stock from FPL in January 1999for $149.5 million. The trial date in the FPL action is June 7, 2010.

 

At this time, the ART cannot predict the outcome of these proceedingsor estimate the possible financial effect of these proceedings on the ART’sfinancial statements.

 

Avoidance Actions

 

On July 31, 2003, Adelphia and its debtor affiliates filed withthe Bankruptcy Court their Statements of Financial Affairs, which included aschedule of payments to insider entities made within one year prior to Adelphia’sfiling for bankruptcy and payments to non-insider entities made within ninetydays prior to Adelphia’s filing for bankruptcy. Subsequently, Adelphia engagedin extensive analysis of all such payments to determine if they could beavoided pursuant to provisions of the Bankruptcy Code.

 

On April 20, 2004, Adelphia filed a motion seeking to abandon mostof the potential actions to avoid the pre-petition payments because, amongother reasons, (i) Adelphia believed that pursuing certain of such actionsagainst parties with whom Adelphia was continuing to do business could have asignificant adverse impact on important, ongoing business relationships, and (ii) thecosts associated with pursuing such actions far outweighed any potentialbenefit to the Adelphia debtors’ estates that might otherwise result frombringing such actions. In response to certain objections to Adelphia’s motion,Adelphia amended its initial motion.

 

On May 27, 2004, the Bankruptcy Court entered an order tolling allclaims to avoid inter-debtor payments and authorizing the abandonment ofpotential actions to avoid (i) transfers to taxing authorities; (ii) transfersto human resource providers engaged in business with Adelphia; (iii) transfersdetermined to have been made in the ordinary course of business; and (iv) certaintransfers deemed *de minimis*. Asto the remainder of the transfers made by Adelphia during the relevant one-yearand ninety-day periods prior to the bankruptcy filing, Adelphia either (i) enteredinto tolling agreements with the transferee extending Adelphia’s time toinitiate an action, or (ii) filed a complaint and initiated an adversaryproceeding against the transferee.

 

As of June 25, 2004, Adelphia secured approximately 250 tollingagreements with various transferees, including members of the Rigas family, theRigas family entities, former executives James Brown and Michael Mulcahey, andformer directors Erland Kailbourne, Dennis Coyle, Leslie Gelber, and Peter Metros,among others. Certain of these tolling agreements have been amended from timeto time. In addition, Adelphia filed approximately 150 complaints in theBankruptcy Court commencing actions to avoid certain pre-petition transfers andpayments. Some of those complaints have since been dismissed after furtherinvestigation.

 

On July 21, 2004, the Bankruptcy Court temporarily stayed allactivity in the avoidance actions commenced by Adelphia and approved notice andservice procedures in connection therewith.

 

At this time, the ART cannot predict the outcome of these proceedingsor estimate the possible financial effect of these proceedings on the ART’sfinancial statements.

 

***Settled Litigation***

 

Deloitte & Touche Litigation

 

On November 6, 2002, Adelphia filed a lawsuit against Deloitte &Touche LLP (“Deloitte”), Adelphia’s former independent auditor, for accountingmalpractice in Pennsylvania state court. Adelphia alleged that Deloitte (i) failedto conduct an audit in compliance with generally accepted auditing standardsand (ii) provided an opinion that Adelphia’s

 

9

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financial statements conformed with generally accepted accountingprinciples when Deloitte allegedly knew or should have known that thosefinancial statements did not so conform.

 

On August 3, 2007, the ART announced that it had reached asettlement with Deloitte to resolve the claims between Adelphia, the ART, andDeloitte in exchange for consideration of $167.5 million, subject to theapproval of the Bankruptcy Court. The Bankruptcy Court entered an orderapproving the settlement on August 16, 2007.

 

Rosensweig and Tow Litigation

 

On August 3, 2007, the ART announced the settlement of variouspending adversary actions and bankruptcy claims pending in the Bankruptcy Courtfor the Southern District of New York involving Leonard Tow, his wife, andDavid Rosensweig, the Trustee of two trusts created in connection with Tow’sexercise of his right to terminate his employment as the Chief ExecutiveOfficer of Century Communications Corporation when Adelphia acquired Century in1999. The settlement provided for a cash payment to the ART of approximately$15.8 million and an interest-bearing note in the principal amount ofapproximately $4.9 million issued by Adelphia with simple, non-compounding,interest thereon at the rate of 8%. That note is recourse only to the proceedsof a $28 million life insurance policy on the lives of Mr. Tow and hiswife, the proceeds of which policy shall not be paid until the death of thelast to die of Mr. Tow and his wife. The Bankruptcy Court entered an orderapproving the settlement on September 6, 2007.

 

*Contingent Liabilities*

 

Litigation Indemnification Fund Litigation

 

Pursuant to theThird Modified Fourth Amended Joint Plan of Reorganization Under Chapter 11 ofthe Bankruptcy Code for Century-TCI Debtors and Parnassos Debtors (the “JVPlan”), which became effective on July 31, 2006; the First Modified FifthAmended Joint Chapter 11 Plan for Adelphia Communications Corporation andCertain of Its Affiliated Debtors (the “Main Plan”), which became effective on February 13,2007; and certain other orders entered by the Bankruptcy Court, litigationindemnification funds (each, a “LIF”) were created to provide certaindefendants in the Bank Litigation (see above) provisional and conditionalreimbursement of legal fees and expenses expected to be incurred in connectionwith defending litigation involving certain credit facilities.

 

The JV LIF,established in the initial amount of $10 million, was created to fund certainallowable claims for indemnification arising under the Parnassos and Century-TCIprepetition credit facilities.  Subject to certain conditions, the JV LIFis “evergreen” ; in other words, the JV Plan provides the JV LIF willbe replenished under certain conditions, such as “upon the receipt . . . of netproceeds of any Designated Litigation” after first deducting any requireddistribution to the government.

 

The Main Plan LIFsare fixed in amounts and not subject to replenishment.  Because the JV LIFis evergreen, whereas the Main Plan LIFs are capped, the allocation ofdefense costs  among the categories of LIFs is a matter of economicsignificance to Adelphia and the ART.

 

Certain  bankdefendants have asserted claims of approximately $11 million (“JV LIF Claims”)against the evergreen JV LIF.  Adelphia has asserted that the bankdefendants are not entitled to reimbursement on the basis, among others, thatthe JV LIF claims are improper.  On November 13 2008, certain ofthose claimants filed, or subsequently joined in, the *Motion of the Bank of Nova Scotia, Citibank N.A. and TheAd Hoc Committee of Non-Agent Secured Lenders in the Parnassos and Century-TCIFacilities for Payment of Bank Lender Post Effective Date Fee Claims and toCompel Compliance of the Plan Administrator (defined in the JV Plan asAdelphia) and the Art with the Third Modified Fourth Amended Joint Plan ofReorganization Under Chapter 11 of the Bankruptcy Code and the Century TCIStipulation* (the “LIF Motion”).  Other claimants have not takenany action.

 

Discovery relatingto the JV LIF Claims is ongoing and an evidentiary hearing on the Motion isscheduled for April 20, 2009.  If the Bankruptcy Court grants the LIFMotion, the JV LIF may need to be replenished to indemnify the futuredefense costs of the JV bank defendants.  In addition, the BankruptcyCourt could determine that the JV LIF must be replenished by the amount of thedisputed JV LIF Claims while the dispute is still pending.

 

At this time, the ART cannotpredict the outcome of these proceedings or estimate the possible financialeffect of these proceedings on the ART.

 

**Item 4. Submission of Matters to a Vote of SecurityHolders.**

 

None.

 

10

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**PART II**

 

**Item 5. Market for Registrant’s Common Equity, RelatedStockholder Matters and Issuer Purchases of Equity Securities.**

 

On June 4, 2008, the Bankruptcy Court granted the ART’s motion forapproval to amend the Declaration to remove the ART’s obligation to list theInterests on any national exchange. The amendment was a condition to the ART’sreceipt of a private letter ruling from the Internal Revenue Service confirmingthe ART’s treatment for tax purposes as a pass-through grantor trust so thatlitigation proceeds generally will not be subject to taxation at the trustlevel.

 

There is no established market for any class of Interests. TheInterests have not been quoted in the automated quotation system of aregistered securities association nor have there been any quotations of anybids for the Interests.

 

As of February 17, 2009, the approximate number of record holdersin each class of Interests was as follows:

 
| ** **     | ** ** | **Holders** | ** ** |
|----------------|------------|-------------|------------|
| **Class**      | ** ** | **(#)**     | ** ** |
| RF             |       | 1           |       |
| Arahova        |       | 59          |       |
| FrontierVision |       | 17          |       |
| FPL            |       | 3           |       |
| Olympus        |       | 11          |       |
| ESL            |       | 1           |       |
| ACC-1          |       | 87          |       |
| ACC-2          |       | 190         |       |
| ACC-3          |       | 28          |       |
| ACC-4          |       | 61          |       |
| ACC-5          |       | 1           |       |
| ACC-6B         |       | 30          |       |
| ACC-6B1        |       | 1           |       |
| ACC-6D         |       | 40          |       |
| ACC-6D1        |       | 2           |       |
| ACC-6E/F       |       | 49          |       |
| ACC-6E/F1      |       | 3           |       |
| ACC-7          |       | 2,551       |       |
| ACC-7A         |       | 28          |       |
| **Total**      | ** ** | **3,163**   | ** ** |

 

The Interests were issued pursuant to the Plan and their issuance wasexempt from the registration requirements of the Securities Act of 1933, as amended,pursuant to Section 1145 of the Bankruptcy Code.

 

The Interests were issued to certain creditors of the Adelphiabankruptcy estate pursuant to the Plan. Generally, a creditor received oneInterest for each dollar of such creditor’s claim deficiency as of theeffective date of the plan, February 13, 2007 (“Effective Date”).The deficiency was equal to the amount of such creditor’s allowed claim plus,in some cases, post-petition accrued interest, less any distributions to suchcreditor pursuant to the Plan. In the case of CVV Series ACC-7 Interests,each creditor received one Interest for each share of Adelphia Class ACommon Stock owned with no regard to dollar value.

 

11

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**Description of Securities to be Registered**

 

The securitiesbeing registered are beneficial interests in a grantor trust.  Nineteen classes of claimants and equitygroups received Interests in the ART.  Adescription of the 19 classes that received Interests is set forth in the tablebelow.

 

**Description of Classes of Interests in the Adelphia Recovery Trust**

 
| **Series**                | ** ** | **Description**                                                                                                               |
|---------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------|
| RF                        |       | Restitution  Fund administered by US Attorney General and the SEC for investors harmed by  the activities of prior management |
|                      |       |                                                                                                                          |
| Subsidiary  Debtor Claims |       |                                                                                                                          |
|                      |       | Arahova                                                                                                                       |   | Senior Notes  issued by Century Communications prior to an assumption of the company’s debt  by Adelphia Communications Corporation (“ACC”) in an acquisition of Century  Communications |
|                      |       | FrontierVision                                                                                                                |   | Senior Notes  issued by FrontierVision Holdings prior to the assumption of the company’s  debt by ACC in an acquisition of FrontierVision |
|                      |       | FPL                                                                                                                           |   | Claims  arising in connection with a note issued by Ft. Myers Acquisition Limited  Partnership to Olympus Communications, L.P., assigned to West Boca Security, Inc.,  and further assigned to Lehman Commercial Paper, Inc. |
|                      |       | Olympus                                                                                                                       |   | Senior Notes  issued by Olympus Communications, L.P. (a joint venture between ACC and  unaffiliated third parties that was eventually wholly-owned by ACC) and  Olympus Capital Corporation |
|                      |       |                                                                                                                          |   |   |
| **                        |       | ESL(1)                                                                                                                        |   | Subsidiary  debtor existing Securities Law claims |
|                      |       |                                                                                                                          |
| ACC Debtor Claims         |       |                                                                                                                          |
|                      |       | ACC-1                                                                                                                         |   | Senior Notes  issued by ACC |
|                      |       | ACC-2                                                                                                                         |   | ACC Trade  claims |
|                      |       | ACC-3                                                                                                                         |   | ACC Other  Unsecured claims |
|                      |       | ACC-4                                                                                                                         |   | Convertible  Subordinated Notes issued by ACC |
|                      |       |                                                                                                                          |   |   |
| ACC Equity  Interests     |       |                                                                                                                          |
|                      |       | ACC-5                                                                                                                         |   | ACC Existing  Securities Law claims |
|                      |       | ACC-6B                                                                                                                        |   | ACC  Series B Preferred Stock |
|                      |       | ACC-6B1(1)                                                                                                                    |   | ACC  Series B Preferred Stock existing Securities Law claims |
|                      |       | ACC-6D                                                                                                                        |   | ACC  Series D Preferred Stock |
|                      |       | ACC-6D1(1)                                                                                                                    |   | ACC  Series D Preferred Stock existing Securities Law claims |
|                      |       | ACC-6EF                                                                                                                       |   | ACC  Series E/F Preferred Stock |
|                      |       | ACC-6EF1(1)                                                                                                                   |   | ACC  Series E/F Preferred Stock existing Securities Law claims |
|                      |       | ACC-7                                                                                                                         |   | ACC Common  Stock |
|                      |       | ACC-7A(1)                                                                                                                     |   | ACC Common  Stock existing Securities Law claims |

 

----

**                                  Subsidiarypreexisting equity claims

 

(1)                                  Foreach of these categories of Interests, each holder of a disputed claim wasawarded one unit. 

 

Each class ofInterest has a different distribution priority. As set forth in the distribution priority waterfall below, distributions(if any) to certain classes of Interests are contingent upon payment in full(or in some cases, in part) to classes of Interests with higher distributionpriorities.  In connection with a distribution,Holders are entitled to receive their pro rata portion of a stated amount anddividends on such stated amount, the rate of which is set forth in the Plan foreach class of Interests. However, Holders of CVV Series RF Interests, CVV Series ACC-7and CVV Series ACC-7A Interests do not earn dividends on their statedamount. A graphical representation of the distribution priority waterfall isset forth below

 

12

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ART DISTRIBUTION WATERFALL (1)

 
| **Aggregate  Distributions (2)** | ** ** | **Distribution Description (3)**                                                                                                                                                              | ** ** | **ART Distribution Recipient** | ** ** |
|---------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
|                                  |       |                                                                                                                                                                                                    |       | Series RF                                |       | 50.00 | % |
|                                  |       |                                                                                                                                                                                                    |       | Series Arahova                           |       | 22.94 | % |
|                                  |       |                                                                                                                                                                                                    |       | Series ACC-1                             |       | 21.54 | % |
|                                  |       |                                                                                                                                                                                                    |       | Series Olympus                           |       | 2.50 | % |
|                                  |       |                                                                                                                                                                                                    |       | Series FrontierVision                    |       | 1.25 | % |
|                                  |       |                                                                                                                                                                                                    |       | Series ACC-2                             |       | 0.94 | % |
|                                  |       | Until RF holders have received an aggregate  $115                                                                                                                                                       |       | Series ACC-3                             |       | 0.45 | % |
| Up to  230,000,000                    |       | million                                                                                                                                                                                                 |       | Series FPL                               |       | 0.38 | % |
|                                  |       |                                                                                                                                                                                                    |       |                                     |       |   |   |
|                                  |       |                                                                                                                                                                                                    |       | Series Arahova                           |       | 45.87 | % |
|                                  |       |                                                                                                                                                                                                    |       | Series ACC-1                             |       | 43.09 | % |
|                                  |       |                                                                                                                                                                                                    |       | Series Olympus                           |       | 5.00 | % |
|                                  |       |                                                                                                                                                                                                    |       | Series FrontierVision                    |       | 2.50 | % |
|                                  |       | Until Series Olympus has received aggregate                                                                                                                                                             |       | Series ACC-2                             |       | 1.88 | % |
| 230,000,001  -                        |       | distributions of $16 million plus the  Olympus Fees,                                                                                                                                                    |       | Series ACC-3                             |       | 0.91 | % |
| 512,000,000                           |       | plus accrued post-Effective Date dividends                                                                                                                                                              |       | Series FPL                               |       | 0.75 | % |
|                                  |       |                                                                                                                                                                                                    |       |                                     |       |   |   |
|                                  |       |                                                                                                                                                                                                    |       | Series Arahova                           |       | 48.37 | % |
|                                  |       |                                                                                                                                                                                                    |       | Series ACC-1                             |       | 45.43 | % |
|                                  |       |                                                                                                                                                                                                    |       | Series FrontierVision                    |       | 2.50 | % |
|                                  |       |                                                                                                                                                                                                    |       | Series ACC-2                             |       | 1.98 | % |
| 512,000,001  -                        |       |                                                                                                                                                                                                    |       | Series ACC-3                             |       | 0.96 | % |
| 1,165,000,000                         |       | Until cumulative distribution is $1,165  million                                                                                                                                                        |       | Series FPL                               |       | 0.75 | % |
|                                  |       |                                                                                                                                                                                                    |       |                                     |       |   |   |
|                                  |       |                                                                                                                                                                                                    |       | Seriers ACC-1                            |       | 77.24 | % |
|                                  |       |                                                                                                                                                                                                    |       | Series Arahova                           |       | 14.51 | % |
|                                  |       |                                                                                                                                                                                                    |       | Series ACC-2                             |       | 3.37 | % |
|                                  |       | Until Series Arahova has received $625  million plus                                                                                                                                                    |       | Series FrontierVision                    |       | 2.50 | % |
| 1,165,000,001  -                      |       | the Arahova Fees plus accrued  post-Effective Date                                                                                                                                                      |       | Series ACC-3                             |       | 1.62 | % |
| 3,145,000,000                         |       | dividends                                                                                                                                                                                               |       | Series FPL                               |       | 0.75 | % |
|                                  |       |                                                                                                                                                                                                    |       |                                     |       |   |   |
|                                  |       |                                                                                                                                                                                                    |       | Series ACC-1                             |       | 90.87 | % |
|                                  |       |                                                                                                                                                                                                    |       | Series ACC-2                             |       | 3.97 | % |
|                                  |       | Until Series FPL has received aggregate  distributions                                                                                                                                                  |       | Series FrontierVision                    |       | 2.50 | % |
| 3,145,000,001  -                      |       | of $6.2 million plus Default Interest, plus  accrued                                                                                                                                                    |       | Series ACC-3                             |       | 1.91 | % |
| 4,085,000,000                         |       | post-Effective Date dividends                                                                                                                                                                           |       | Series FPL                               |       | 0.75 | % |
|                                  |       |                                                                                                                                                                                                    |       |                                     |       |   |   |
|                                  |       | Until Series FrontierVision has received  aggregate                                                                                                                                                     |       | Series ACC-1                             |       | 91.57 | % |
|                                  |       | distributions of $85 million plus 80% of  the                                                                                                                                                           |       | Series ACC-2                             |       | 4.00 | % |
| 4,085,000,001  -                      |       | FrontierVision Fees, plus accrued  post-Effective Date                                                                                                                                                  |       | Series FrontierVision                    |       | 2.50 | % |
| 4,160,000,000                         |       | dividends                                                                                                                                                                                               |       | Series ACC-3                             |       | 1.93 | % |
|                                  |       |                                                                                                                                                                                                    |       |                                     |       |   |   |
|                                  |       | Until the holders of Claims in Class ACC  Notes and                                                                                                                                                     |       | Series ACC-1                             |       | 93.92 | % |
|                                  |       | in Classes ACC Trade and ACC Other  Unsecured                                                                                                                                                           |       | Series ACC-2                             |       | 4.10 | % |
|                                  |       | have been paid in full including Case  Contract                                                                                                                                                         |       | Series ACC-3                             |       | 1.98 | % |
|                                  |       | Interest (ACC Notes) and Case 8% Interest  (ACC                                                                                                                                                         |       |                                     |       |   |   |
| 4,160,000,001  -                      |       | Trade and ACC Other Unsecured) and accrued  post-                                                                                                                                                       |       |                                     |       |   |   |
| 4,274,000,000                         |       | Effective Date Dividends                                                                                                                                                                                |       |                                     |       |   |   |
|                                  |       |                                                                                                                                                                                                    |       |                                     |       |   |   |
|                                  |       | Until the additional distribution to the  Series Arahova                                                                                                                                                |       |                                     |       |   |   |
| 4,274,000,001  -                      |       | Interests equals $50 million plus accrued  post-                                                                                                                                                        |       |                                     |       |   |   |
| 4,329,000,000                         |       | Effective Date dividends at a rate of 5%  per annum                                                                                                                                                     |       | Series Arahova                           |       | 100 | % |
|                                  |       |                                                                                                                                                                                                    |       |                                     |       |   |   |
| Not  Quantifiable                     |       | Until ESL holders have received Payment in  Full of their Claims and Case 8% interest plus accrued post-Effective Date  dividends                                                                       |       |                                     |       |   |   |
|                                  |       |                                                                                                                                                                                                    |       |                                     |       |   |   |
| Not  Quantifiable                     |       | Until ACC-4 holders have received the full  amount of their Allowed Claims plus Case Contract Interest plus accrued  post-Effective Date dividends                                                      |       |                                     |       |   |   |
|                                  |       |                                                                                                                                                                                                    |       |                                     |       |   |   |
| Not  Quantifiable                     |       | Until ACC-5 holders have received the full  amount of their Allowed Claims plus Case 8% interest plus accrued  post-Effective Date dividends                                                            |       |                                     |       |   |   |
|                                  |       |                                                                                                                                                                                                    |       |                                     |       |   |   |
| Not  Quantifiable                     |       | Until ACC-6 holders receive distributions  in accordeance with the relative priorities established by the Liquidation  Preferences governing the shares of ACC Preferred Stock and the Bankruptcy  Code |       |                                     |       |   |   |
|                                  |       |                                                                                                                                                                                                    |       |                                     |       |   |   |
| Not  Quantifiable                     |       | Each ACC-7 holder is entitled to receive a  pro rata share of any distributions remaining                                                                                                               |       |                                     |       |   |   |

 

----

| (1)  Capitalized terms used but not  otherwise defined have the respective meaning given to them under the Plan.  Aggregate distributions and ART distribution percentages are as of  December 31, 2008.                                                                                                                                                                    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  Pursuant to the terms of the  Plan, certain series of Interests are entitled to post-Effective Date  Dividends on certain amounts due to the corresponding class of claims. For  purposes of calculating the reference amount on which post-Effective Date  Dividends accrue, the distribution of the True-Up Holdback is treated as if  it occurred on the Effective Date. |
| (3)  Unless otherwise stated,  post-Effective Date Dividends accrue at a rate of 8.9% per annum.                                                                                                                                                                                                                                                                                 |

 

13

----

 

The Declaration does not provide the Holders any voting rights (exceptin connection with certain amendments to the Declaration and except for limitedrights in connection with the appointment of a successor Institutional Trusteeor Delaware Trustee). The beneficial interests are freely transferable andtradable, although they are not listed on any exchange.

 

Distributions will be made to the Holders from amounts recoveredthrough resolution of the Causes of Action, and any other cash held by the ART,subject to, among other things, the establishment of reasonable reserves forcontingent liabilities and future costs and expenses. Pursuant to the Plan andthe Declaration, all distributions are net of any costs and expenses incurredby the ART in connection with administering, litigating or otherwise resolvingthe various Causes of Action of the ART and operating the ART.

 

Amounts withheld and not distributed may also include fees and expensesof the Trustees, premiums for directors and officers insurance, and otherinsurance and fees and expenses of attorneys and consultants. Distributionswill be made only from assets of the ART and only to the extent that the ARThas sufficient assets (over reserves for contingent liabilities and futurecosts and expenses) to make such payments in accordance with the Plan and theDeclaration. No distribution is required to be made to any Holder unless suchHolder is to receive in such distribution at least $25.00 (per Holder class,name and address), or unless such distribution is the final distribution tosuch Holder pursuant to the Plan and the Declaration.

 

The Interests only represent a right to receive a pro rata portion ofthe distributions from the ART to each respective class of Interests, pursuantto the terms of the Plan and the Declaration. The Holders have no right withrespect to, or interest in, (i) the Causes of Action, (ii) theDebtors or (iii) any amount with respect to the Causes of Action,including any judgment or settlement proceeds.

 

Distributions will be made at the sole discretion of the Trustees inaccordance with the provisions of the Plan and the Declaration. As of December 31,2008, the Trustees have determined the present best course of action is toretain the existing cash in reserve to administer the ART and fund theprosecution of the Causes of Action. Consequently, there have been nodistributions through the date of this Form 10-K and none have beenannounced.

 

**Item 6. Selected Financial Data.**

 

**Selected Financial Data**

 

The Selected Financial Data should be read in conjunction with thefinancial statements and related notes, which are included in Item 8 below, and“Management’s Discussion and Analysis of Financial Statements and Results ofOperations” included in Item 7.

 

**Summary ofChanges in Net Assets**

** **
| ** **                           | ** ** | **Year ended  December 31, 2008** | ** **  | **February 13, 2007 (date  established) to December  31, 2007** | ** ** |
|--------------------------------------|------------|--------------------------------------------------|-------------|-----------------------------------------------------------------------------------------------|------------|
|                                 |       |                                             |        |                                                                                          |       |
| **Net  assets, beginning of period** |       | $                                                | 187,988,198 |                                                                                          | $          | — |   |
| Revenues                             |       | 5,866,860                                        |        | 192,597,684                                                                                   |       |
| Expenses                             |       | 27,585,441                                       |        | 30,653,236                                                                                    |       |
| Net (Loss) Income                    |       | (21,718,581                                      | )           | 161,944,448                                                                                   |       |
| Contributions from Debtor            |       | —                                           |        | 26,043,750                                                                                    |       |
| **Net  assets, end of period**       |       | $                                                | 166,269,617 |                                                                                          | $          | 187,988,198 |   |

 

14

----

 

**Summary ofBalance Sheet Items**

** **
| ** **        | ** ** | **As of  December 31, 2008** | ** **  | **As of  December 31, 2007** | ** ** |
|-------------------|------------|---------------------------------------------|-------------|---------------------------------------------|------------|
|              |       |                                        |        |                                        |       |
| Total Assets      |       | $                                           | 166,820,488 |                                        | $          | 194,808,000 |   |
| Total Liabilities |       | $                                           | 550,871     |                                        | $          | 6,819,802 |   |

 

**Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

** **

**Management’sDiscussion and Analysis**

 

Overview

 

The Adelphia Recovery Trust was formed as a Delaware statutory trustpursuant to that certain First Modified Fifth Amended Joint Chapter 11 Plan ofReorganization of Adelphia and certain of its subsidiaries. The purpose of theART is to prosecute the various causes of action transferred to the ARTpursuant to the Plan and distribute to the owners of the Interests in the ARTthe net proceeds of such Causes of Action, according to the relative prioritiesestablished pursuant to the Plan, subject to the retention of various amountsto fund the prosecution of those Causes of Action and operations of the ART.Pursuant to the Plan, in addition to the Causes of Action, Adelphia transferred$25 million in cash to the ART and paid certain expenses of the ART, in orderto fund the initial expenses of operation.

 

Adelphia and certain of its subsidiaries filed for Chapter 11bankruptcy protection in June 2002. During the bankruptcy, on July 31,2006 the assets of Adelphia were sold for a combination of cash and stock inTime Warner Cable, Inc. (“TWC”). In late 2006, representatives of variousgroups of creditors reached agreement on the allocation and distribution of thecash, TWC stock, other proceeds from the sale of estate assets and relativepriorities to any Distributions arising from the Causes of Action contributedto the ART. This agreement was embodied in the Plan, which was confirmed in January 2007and became effective on the Effective Date. Under the Plan, the creditors andequity holders of Adelphia and certain of its subsidiaries received one or moreof the following: cash, TWC stock, rights to future distributions from Adelphiaexcess reserves up to payment in full and the Interests.

 

The ART will dissolve upon the earlier of the resolution of all Causesof Action and the distribution of all of its assets to the Holders or the fifthanniversary of its creation. However, the Bankruptcy Court may approve anextension of the term if deemed necessary for the purposes of resolving theCauses of Action and distributing the net proceeds to Holders.

 

As set forth in the Plan and the Declaration of Trust for the ART, asamended (the “Declaration”), the ART is administered by five Trustees. TheseTrustees are authorized to carry out the purposes of the ART. In particular,the Trustees are responsible for protecting, maintaining, liquidating to cashand maximizing the value of the Causes of Action contributed to the ART,whether by litigation, settlement or otherwise.

 

Distributions

 

Pursuant to the Plan and the Declaration, distributions to Holders arenet of any costs and expenses incurred by the ART in connection withadministering, litigating or otherwise resolving the various Causes of Action.Such amounts withheld before distribution may also include fees and expenses ofthe Trustees, premiums for directors and officers insurance, taxes and otherinsurance and fees and expenses of attorneys and consultants. Distributionswill be made only from assets of the ART and only to the extent that the ARThas sufficient assets (over amounts retained for contingent liabilities andfuture costs and expenses) to make such payments in accordance with the Planand the Declaration. No distribution is required to be made to any Holderunless such Holder is to receive in such distribution at least $25.00(perHolder class, name and address), unless such distribution is the finaldistribution to such Holder pursuant to the Plan and the Declaration.

 

Distributions will be made at the sole discretion of the Trustees inaccordance with the provisions of the Plan and the Declaration. As of the datehereof, the Trustees have determined the present best course of action is toretain the existing cash in reserve to administer the ART and fund theprosecution of the Causes of Action. Consequently, there have been nodistributions through the filing date of this Form 10-K and none have beenannounced.

 

15

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As of February 17, 2009, the number of Interests outstanding ineach series eligible to receive a Distribution is as follows:

 
| **CVV series of interest:** | ** ** | **As of  February 17, 2009** | ** ** |
|--------------------------------------------|------------|---------------------------------------------|------------|
| Series RF                             |       | 115,000,000                                 |       |
| Series Arahova                        |       | 722,639,681                                 |       |
| Series Frontier Vision                |       | 86,600,001                                  |       |
| Series FPL                            |       | 25,575,129                                  |       |
| Series Olympus                        |       | 17,000,001                                  |       |
| Series ACC-1                          |       | 4,839,988,165                               |       |
| Series ACC-2 (2)                      |       | 281,960,771                                 |       |
| Series ACC-3                          |       | 119,430,302                                 |       |
| Series ESL (1)                        |       | 17                                          |       |
| Series ACC-4                          |       | 1,790,968,272                               |       |
| Series ACC-5 (1)                      |       | 458                                         |       |
| Series ACC-6B                         |       | 150,000,000                                 |       |
| Series ACC-6B1 (1)                    |       | 3                                           |       |
| Series ACC-6D                         |       | 575,000,000                                 |       |
| Series ACC-6D1 (1)                    |       | 229,004                                     |       |
| Series ACC-6E/F                       |       | 935,812,456                                 |       |
| Series ACC-6E/F1 (1)                  |       | 277,210                                     |       |
| Series ACC-7                          |       | 217,022,640                                 |       |
| Series ACC-7A (1)                     |       | 1,537,766,752                               |       |

 

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(1) For each of these categories of Interests (which includedisputed claims), each holder of a disputed claim was awarded one Interest. Thenumber of Interests is expected to change based on the resolution of disputedclaims.

(2) As of February 18, 2009, 281,933,289 Interests are outstanding as the final disputed claim hasbeen resolved.

 

16

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**Results ofOperations**

 

**Twelvemonths ended December 31, 2008 versus the period from February 13,2007 (date established) to December 31, 2007**

 

The ART operates pursuant tothe Plan and the Declaration. The ART was formed as a Delaware statutory trustto prosecute various claims originally owned by Adelphia and, if any of theprosecutions are successful or are settled in a manner which provides economicbenefit to the ART, to distribute excess proceeds to the Holders.

 

Settlement revenues in 2008were $1.4 million compared to settlement revenues of $188.3 million in 2007. In2008 there were two preference recoveries by the ART which totaled $1.2million. In addition, there was $0.2 million of additional proceeds from theTow litigation settled in 2007. In 2008, income from recoveries decreased by$186.9 million primarily as a result of the fact that two material Causes ofAction had been settled in 2007.  Alllitigation and bankruptcy claims between Leonard Tow, Claire Tow, relatedentities, David Rosensweig, Adelphia and the ART were settled. As part of thesettlement, the ART received a cash payment of approximately $15.8 million andan interest bearing note in the principal amount of approximately $4.9 million.Also in 2007, the ART settled all of its claims against Adelphia’s formerauditor Deloitte & Touche LLP. Pursuant to the settlement, the ARTreceived $167.5 million.

 

In addition Adelphia andBuchanan Ingersoll & Rooney P.C. have tolled the statute oflimitations on any claims between them as of March 26, 2004. BuchananIngersoll & Rooney P.C. was corporate counsel to Adelphia prior to thefiling of Adelphia’s bankruptcy petition in June 2002. That tollingagreement remains in effect and is terminable by either party upon notice.There is no assurance that any recovery will be obtained from BuchananIngersoll.

 

As of the date of this Form 10-K,there remain other Causes of Action such as those described in Item 3 of this Form 10-K.

 

Both 2008 and 2007 includeinterest income from invested cash balances. Interest totaled $4.5 million in2008 which is up from $4.3 million in 2007 due to higher average invested cashbalances and a full year of performance in 2008 but offset by reductions ininvestment yields. Investment yield reductions were expected due to global anddomestic economic conditions not from a change in investment strategy.

 

Total revenues aresignificantly reduced to $5.9 million in 2008 compared to $192.6 million in2007 due to the difference in settlement recoveries from Causes of Action. The2008 result is not unexpected as ART revenue derived from Causes of Action willbe highly variable and unpredictable. The legal proceedings could continue foryears.

 

Operating expenses of theART were reduced in 2008 to $27.6 million from $30.7 million in 2007. Thereduction was due to reduced professional expenses from pursuing Causes ofAction in 2008. Specifically, the settlement related to the Deloitte &  Touche LLP Cause of Action in 2007, asmentioned above, resulted in lower professional costs in 2008.

 

The costs related to theprosecution of the Causes of Action are substantial. Although the ART hasreceived a total of $189.7 million since inception for settled Causes ofAction, the ART cannot be certain at this time of the ultimate costs in prosecutingthe various remaining Causes of Action or the timing and amount of futureCauses of Action recoveries. Additionally, the ART’s primary expense relates toprofessional fees that are necessary for the prosecution of the Causes ofAction. It is possible that the ART may retain additional professionals, whichwould increase the ART’s expenses. The ART may be negatively impacted if thecost for these services were to change significantly, if a professionalproviding services needed to be replaced or supplemented or if the cost forthese services were to vary from the expected amount. Expenses for 2008 may notbe indicative of future expenses, which may be significantly higher. The ARTTrustees have determined the present best course of action is to retain theexisting cash in reserve to administer the ART and fund the prosecution of theCauses of Action. Consequently, there have been no distributions through thedate of this Form 10—K and none have been announced.

 

The ART Trustees willcontinue to assess the adequacy of funds held and may distribute ART excessassets if any to Holders. Such distribution will be made according to thewaterfall priority established in the Plan and discussed herein.

 

The net loss for the yearended December 31, 2008 of  $21.7 millionis $183.6 million less than the 2007 net income of $161.9 million. Thesignificant difference is related to the lower settlement revenues in 2008 vs2007 of $186.9 million offset by slightly higher investment income and reducedoperating expenses of $3.0 million in 2008, all as discussed in more detailabove.

 

17

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**FinancialCondition and Cash Flows**

 

The ART’s sources ofliquidity result from (a) the $25 million transferred to the ART byAdelphia pursuant to the Plan on the Effective Date, (b) the successfulresolution of Causes of Action and (c) earnings on invested cash balances.Receipts from these sources are used to pay professional and operating expensesof the ART and as distributions to the Holders after reserving cash required topay future professional and operating expenses of the ART. After carefulevaluation of future needs the Trustees have determined that the present bestcourse of action is to retain the existing cash in reserve to administer theART and fund the prosecution of the Causes of Action. Consequently, there havebeen no distributions through the date of this Form 10—K and none havebeen announced.

 

Given cash and cashequivalent balances as of December 31, 2008 totaling approximately $161.1million and expected expenses and other potential disbursements, the ART doesnot expect a deficiency in liquidity in the next twelve months. Due to theuncertain nature of future revenues and expenses beyond twelve months, it isnot possible to be certain that current liquidity will be adequate to cover allthe future financial needs of the ART. Incurring debt, creating contingentobligation agreements and or seeking methods to reduce legal professional andadministrative costs are all strategies that could be undertaken to addressliquidity issues should they arise. These strategies could impact the ART’sability to maximize recoveries from Causes of Action.

 

The nature of the ART’soperation does not give rise to capital expenditures and there are no currentor expected commitments for capital expenditures in the next twelve months.Should a need for capital expenditures arise, the ART would fund therequirement from existing assets. Additionally, the ART currently has nolong-term contracts or other long term obligations.

 

Cash and cash equivalentbalances at December 31, 2008 of approximately $161.1 million areapproximately $28.6 million lower than the balance at December 31, 2007due to a net loss for the twelve months ended December 31, 2008 ofapproximately $21.7 million and an additional use of cash by operatingactivities of approximately $6.9 million, primarily related to the payment of$6.3 million in accrued expenses. Other uses of cash from operating activitiesinclude the purchase of prepaid insurance and the accrual of interest on asettlement receivable totaling $0.6 million. Available cash is invested in either FDIC insured deposit accounts or afederally insured money market fund invested in short-term U.S. Treasury andgovernment agency securities. The money market fund manager has elected toparticipate in the Treasury Department’s temporary guarantee insurance programfor money market funds.

 

**Debt andOther Long-term Obligations**

 

The ART has no debt, capitalor operating lease or other long-term obligations and has no current plans toincur such obligations.

 

**Critical Accounting Policies**

 

Basis of accounting

 

The ART has assessed therequirements to report under the liquidation basis of accounting. At this timethe liquidation basis of accounting has been deemed inappropriate due to theongoing and extended nature of the work concerning the Causes of Action and theadequacy of the cash required to fund the required work. Consequently, the ARTwill report under United States generally accepted accounting principles forgoing-concern entities. The ART will periodically assess the need to adopt theliquidation basis of accounting subject to current facts and circumstancesrelated to the adequacy of the ART’s liquidity and the status of the remainingCauses of Action.

 

Fair value estimates

 

As noted in the footnotes tothe financial statements in Item 8, the ART has assessed the fair value of itsnote receivable and accrued interest to be $4.2 million. The market value ofthe note receivable was calculated using a discounted cash flow model. Thediscount rate was derived using the published yield on the 10 year benchmarktreasury bond plus the average reported spread on the public unsecured bonds oflife insurance companies that provided the Tow life insurance policies, theproceeds from which will pay the note. The maturity date was derived using thelife expectancy of Leonard Tow and his wife based on the 2004 Period Life Tablepublished by the Social Security Administration.

 

18

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**CautionaryStatement Regarding Risks and Uncertainties That May Affect Future Results**

 

This report on Form 10-Kcontains forward-looking statements about the business, financial condition andprospects of the ART. The actual results of the ART could differ materiallyfrom those indicated by the forward-looking statements because of various risksand uncertainties, including, without limitation, the number and amounts oflitigations and/or settlements which are successful, delays in obtainingproceeds, the amount of funding required for the litigations and otheroperating expenses, economic conditions, changes in tax and other governmental rules andregulations applicable to the ART, and other risks identified and described inItem 1A- Risk factors. These risks and uncertainties are beyond the ability ofthe ART to control, and in many cases, the ART cannot predict the risks anduncertainties that could cause its actual results to differ materially fromthose indicated by the forward-looking statements. When used in this report thewords “believes,” “estimates,” “plans,” “expects,” and “anticipates” andsimilar expressions as they relate to the ART or its management are intended toidentify forward-looking statements.

 

**Item 7A.Quantitative and Qualitative Disclosures About Market Risk.**

 

Asthe ART’s activities are limited by the terms of the Plan and the BankruptcyCode, the disclosures of item 305 of Regulation S-K with regard to Market Riskare not applicable, and therefore are omitted.

 

19

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**Item 8.Financial Statements and Supplementary Data.**

 

**AdelphiaRecovery Trust**

 

**Indexto Financial Statements**

 

**Financial Statements**

 
| Report of Independent Registered  Public Accounting Firm                                                                                                                                    | 21     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                        |   |
| Balance Sheets as of December 31, 2008 and  December 31, 2007                                                                                                                     | 22     |
|                                                                                                                                                                                        |   |
| Statements of Operations and  Changes in Net Assets for the year ended December 31, 2008 and for the  period from February 13, 2007 (date established) to December 31,  2007 | 23     |
|                                                                                                                                                                                        |   |
| Statements of Cash Flows for the year  ended December 31, 2008 and for the period from February 13, 2007  (date established) to December 31, 2007                            | 24     |
|                                                                                                                                                                                        |   |
| Notes to Financial  Statements                                                                                                                                                              | 25     |

 

20

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

 

Tothe Trustees of the

 

AdelphiaRecovery Trust

 

 

We have audited the accompanying balance sheets of the AdelphiaRecovery Trust (the “ART”) as of December 31, 2008 and  2007, and the related statements ofoperations and changes in net assets, and cash flows for the year ended December 31,2008 and for the period from February 13, 2007 (date established) to December 31,2007.  These financial statements are theresponsibility of the ART’s Trustees. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. The ART is not requiredto have, nor were we engaged to perform, an audit of the ART’s internal controlover financial reporting. An audit includes consideration of internal controlover financial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the ART’s internal control over financialreporting. Accordingly, we express no such opinion. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by the ART’s Trustees, as wellas evaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

 

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of the ART as of December 31,2008 and 2007 and the results of its operations and its cash flows for the yearended December 31, 2008 and for the period from February 13, 2007 to December 31,2007 in conformity with accounting principles generally accepted in the UnitedStates of America.

 

 

/s/ UHY LLP

 

New Haven, Connecticut

March 9, 2009

 

21

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**AdelphiaRecovery Trust**

**BalanceSheets**

 
| ** **                           | ** ** | **As of  December 31, 2008** | ** **  | **As of  December 31, 2007** | ** ** |
|--------------------------------------|------------|---------------------------------------------|-------------|---------------------------------------------|------------|
| ** **                           | ** ** | ** **                                  | ** **  | ** **                                  | ** ** |
| **Assets**                           |       |                                        |        |                                        |       |
| Cash and cash equivalents            |       | $                                           | 161,057,351 |                                        | $          | 189,684,573 |   |
| Prepaid insurance                    |       | 374,356                                     |        | 124,670                                     |       |
| Note and accrued interest receivable |       | 5,388,781                                   |        | 4,998,757                                   |       |
| Total assets                         |       | $                                           | 166,820,488 |                                        | $          | 194,808,000 |   |
|                                 |       |                                        |        |                                        |       |
| **Liabilities and net assets**       |       |                                        |        |                                        |       |
| Accrued expenses                     |       | $                                           | 550,871     |                                        | $          | 6,819,802 |   |
| Total liabilities                    |       | 550,871                                     |        | 6,819,802                                   |       |
|                                 |       |                                        |        |                                        |       |
| Net assets                           |       | 166,269,617                                 |        | 187,988,198                                 |       |
|                                 |       |                                        |        |                                        |       |
| **Total liabilities and net assets** |       | $                                           | 166,820,488 |                                        | $          | 194,808,000 |   |

 

See accompanying notes to financialstatements.

 

22

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**AdelphiaRecovery****T****rust**

** Statements of Operations and Changes in NetAssets**

 
| ** **                              | ** ** | **For the  year ended  December 31, 2008** | ** **  | **For the period from  February 13, 2007 (date  established) to  December 31, 2007** | ** ** |
|-----------------------------------------|------------|----------------------------------------------------------------|-------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|
|                                    |       |                                                           |        |                                                                                                                              |       |
| **Revenues**                            |       |                                                           |        |                                                                                                                              |       |
| Litigation - court approved settlements |       | $                                                              | 200,206     |                                                                                                                              | $          | 188,196,702 |   |
| Litigation - other settlements          |       | 1,160,194                                                      |        | 100,000                                                                                                                           |       |
| Interest income                         |       | 4,506,460                                                      |        | 4,300,982                                                                                                                         |       |
| Total revenues                          |       | 5,866,860                                                      |        | 192,597,684                                                                                                                       |       |
|                                    |       |                                                           |        |                                                                                                                              |       |
| **Operating expenses**                  |       |                                                           |        |                                                                                                                              |       |
| General and administrative expenses     |       | 2,434,354                                                      |        | 1,854,119                                                                                                                         |       |
| Professional expenses - litigation      |       | 23,138,236                                                     |        | 26,417,616                                                                                                                        |       |
| Professional expenses - administrative  |       | 2,012,851                                                      |        | 2,381,501                                                                                                                         |       |
| Total operating expenses                |       | 27,585,441                                                     |        | 30,653,236                                                                                                                        |       |
|                                    |       |                                                           |        |                                                                                                                              |       |
| **Net (loss) income**                   |       | (21,718,581                                                    | )           | 161,944,448                                                                                                                       |       |
|                                    |       |                                                           |        |                                                                                                                              |       |
| **Net assets, beginning of period**     |       | 187,988,198                                                    |        | —                                                                                                                            |       |
| Contributions from Debtor               | ** ** | ** **                                                     | ** **  | ** **                                                                                                                        | ** ** |
| Cash                                    |       | —                                                         |        | 25,000,000                                                                                                                        |       |
|                                    |       |                                                           |        |                                                                                                                              |       |
| Non-cash                                |       | —                                                         |        | 1,043,750                                                                                                                         |       |
|                                    |       |                                                           |        |                                                                                                                              |       |
| **Net assets, end of period**           |       | $                                                              | 166,269,617 |                                                                                                                              | $          | 187,988,198 |   |

 

See accompanying notes to financialstatements.

 

23

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**AdelphiaRecovery Trust**

**Statementsof Cash Flows**

 
| ** **                                                                                       | ** ** | **For the  year ended  December 31, 2008** | ** **  | **For the period from  February 13, 2007 (date  established) to  December 31, 2007** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|-------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                       | ** ** | ** **                                                     | ** **  | ** **                                                                                                                        | ** ** |
| **Operating activities**                                                                         |       |                                                           |        |                                                                                                                              |       |
| Net (loss) income                                                                                |       | $                                                              | (21,718,581 | )                                                                                                                                 | $          | 161,944,448 |   |
| Adjustments to reconcile net (loss) income  to net cash (used) provided by operating activities: |       |                                                           |        |                                                                                                                              |       |
| Insurance funded by Debtor                                                                       |       | —                                                         |        | 1,043,750                                                                                                                         |       |
| Changes in operating assets and  liabilities:                                                    |       |                                                           |        |                                                                                                                              |       |
| Prepaid insurance                                                                                |       | (249,686                                                       | )           | (124,670                                                                                                                          | )          |
| Note and accrued interest receivable                                                             |       | (390,024                                                       | )           | (4,998,757                                                                                                                        | )          |
| Accrued expenses                                                                                 |       | (6,268,931                                                     | )           | 6,819,802                                                                                                                         |       |
| Net cash (used) provided by operating  activities                                                |       | (28,627,222                                                    | )           | 164,684,573                                                                                                                       |       |
|                                                                                             |       |                                                           |        |                                                                                                                              |       |
| **Financing activities**                                                                         |       |                                                           |        |                                                                                                                              |       |
| Contribution from Debtor - cash                                                                  |       | —                                                         |        | 25,000,000                                                                                                                        |       |
| Net cash provided by financing activities                                                        |       | —                                                         |        | 25,000,000                                                                                                                        |       |
|                                                                                             |       |                                                           |        |                                                                                                                              |       |
| **Net change in cash and cash equivalents**                                                      |       | (28,627,222                                                    | )           | 189,684,573                                                                                                                       |       |
| **Cash and cash equivalents, beginning of  period**                                              |       | 189,684,573                                                    |        | —                                                                                                                            |       |
| **Cash and cash equivalents, end of period**                                                     |       | $                                                              | 161,057,351 |                                                                                                                              | $          | 189,684,573 |   |

 

See accompanying notes to financialstatements.

 

24

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**Adelphia Recovery Trust**

 

**Notes to Financial Statements**

 

**December 31, 2008**

 

****1.********                                     ********Nature andPurpose****

 

TheAdelphia Recovery Trust (the “ART”) is a Delaware statutory trust. The ART wascreated at the expense of Adelphia Communications Corporation (“Adelphia”) andcertain of its subsidiaries (together with Adelphia the “Debtors”). The ART wasestablished on February 13, 2007 pursuant to the First Modified FifthAmended Joint Chapter 11 Plan of Reorganization of Adelphia CommunicationsCorporation and Certain Affiliated Debtors (the “Plan”), which was confirmed bythe United States Bankruptcy Court for the Southern District of New York (the “BankruptcyCourt”) by an order dated January 5, 2007. The ART became effective February 13,2007 (the “Effective Date”). The ART holds certain litigation claimstransferred to it pursuant to the Plan against various third parties (the “Causesof Action”). The Causes of Action transferred to the ART for resolution wererecorded at the nominal amount of $1. The ART exists to resolve the Causes ofAction through litigation or settlement for the holders of interests (the “Holders”)in the ART. The Holders on the Effective Date were the restitution fundestablished under the Plan by the U.S. Treasury (the “Restitution Fund”) andcertain creditors and equity holders of the Debtors. The ART will distribute tothe Holders the net proceeds from resolving the Causes of Action, less amountswithheld for the costs of administering the ART and prosecuting the remainingCauses of Action.

 

The ART will dissolve upon the earlier of thedistribution of all of its assets to the Holders or the fifth anniversary ofits creation. However, an extension of the term may be granted by theBankruptcy Court if deemed necessary to resolve the remaining Causes of Actionand or for distributing the net proceeds to the Holders. Any extension must beapproved by the Bankruptcy Court within six months of the beginning of eachsuch extension.

 

The ART is administered by five individual trustees(the “Trustees”) who were appointed by creditors of the Adelphia estate. TheART had no employees through December 31, 2008. The Trustees engage thirdparty professionals and others including a trust administrator (the “TrustAdministrator”), which along with Adelphia, assist the Trustees inadministering the activities of the ART. The Trustees have the duty andauthority to take actions necessary to protect, maintain, liquidate to cash andmaximize the Causes of Action, whether by litigation, settlement or otherwise.  The time frame for ultimate resolution of anyof the Causes of Action cannot be estimated. For a description of the ongoingCauses of Action see Note 7.

 

On the Effective Date, Adelphia contributed$25,000,000 to the ART and paid certain expenses of the ART, to fund theinitial costs of operation. Additional amounts appropriate to prosecuteoutstanding Causes of Action or otherwise fund the activities of the ART willbe obtained from any proceeds received from resolved Causes of Action, throughearnings on ART investments or through loans from third parties includingAdelphia. These amounts, and any amounts held pending distribution to theHolders, will be the only amounts held by the ART.

 

Pursuant tothe Plan and the Declaration of Trust as amended (the “Declaration”), theTrustees are permitted to retain amounts for contingent and future costs andexpenses. Pursuant to the Plan and the Declaration, all distributions are netof any costs and expenses incurred by the ART in connection with administering,litigating or otherwise resolving the various Causes of Action of the ART. Thedistribution of any net proceeds from settlements or judgments will be made atthe sole discretion of the Trustees in accordance with the Plan and theDeclaration. As of the date hereof, the Trustees have determined to retain theexisting cash and cash equivalents to administer the ART and fund theprosecution of the pending Causes of Action. Therefore, there have been nodistributions as of December 31, 2008.

 

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

 

**Use of Estimates**

 

Thefinancial statements were prepared in conformity with accounting principlesgenerally accepted in the United States and require the ART to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities. Actual results are likely todiffer from those estimates and those differences may be significant.

 

25

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**Cash and Cash Equivalents**

 

TheART considers all highly liquid investments purchased with a maturity of threemonths or less to be cash equivalents. Substantially all cash and cashequivalents are held in the trust department of a financial institution. Theamount on deposit exceeds the federally insured limit. As of December 31,2008 and 2007 substantially all cash equivalents consist of money market fundswhich are invested in US Government Treasury obligations in accordance with theART investment policy. The money market fund manager has elected to participatein the Treasury Department’s temporary guarantee insurance program for moneymarket funds.

 

**Income Taxes**

 

The ART is not subject to federal or state incometaxes. The ART is not aware of any transactions or events up to and including December 31,2008 that would subject it to federal or state income taxes. Further, the ARThas no unrecognized income tax benefits as defined in Financial AccountingStandards Board Interpretation 48 as of December 31, 2008 and 2007 nor arethere any amounts required to be included in the financial statements forinterest or penalties on unrecognized income tax benefits.

 

The Plan and Declaration provide that, for federalincome tax purposes, the ART was deemed to be formed in two steps.  The contribution by Adelphia of $25 millionfor the purpose of pursuing the Causes of Action, the Causes of Action and anyand all other property transferred to the ART (together, the “ART Property”)were treated first as a deemed transfer of the ART Property to the holders ofclaims and equity interests who receive interests in the ART (“Interests”) (inproportion to the fair market values of the Interests they receive). This wasfollowed by a deemed transfer by each such holder of its interest in the ARTProperty to the ART, in exchange for Interests.

 

The Holders will be treated as the grantors of the ARTand the Trustees have and will continue to file tax returns for the ART as a “grantortrust” pursuant to Section 1.671-4(a) of the U.S. TreasuryRegulations. The ART obtained a private letter ruling from the Internal RevenueService confirming the ART’s treatment for tax purposes as a pass-throughgrantor trust.  As a condition toreceiving that private letter ruling, the ART amended its Declaration toeliminate the Trustees’ obligation under the Declaration of Trust to “usereasonable best efforts and with the approval of the Bankruptcy Court to havethe [ART] interests ... listed on a national securities exchange.”  On June 4, 2008, the United StatesBankruptcy Court for the Southern District of New York granted the Trust’smotion to so amend the ART’s Declaration.

 

Items of income, gain, loss, deduction and other taxitems have been and will be allocated to the Holders  that would be entitled to receive such itemsif they constituted cash distributions or reductions therefrom. The Holders areresponsible for the payment of taxes on a current basis that result from suchallocations whether or not cash is distributed.

 

As of December 31, 2008 and 2007  the net tax basis of the ART is approximately$512 million and $490 million higher than the reported amount of net assets inthe ART financial statements.

 

**Revenue Recognition**

 

Revenuefrom Causes of Action is recognized when collection is reasonably assured and:

 

Forsettlements that are not submitted to the Bankruptcy Court forapproval, when the settlement agreement is fully executed by allparties to the agreement.

 

Forsettlements that are submitted for Bankruptcy Court approval, when an orderentered by the Bankruptcy Court approving the settlement becomes a final orderand is not subject to appeal. Settlements collected but subject to appeal are recorded as deferredsettlement revenue until the time for appeal expires.

 

Forjudgments, when a judgment entered by the Bankruptcy Court becomes a finaljudgment and is not subject to appeal or such appeal when made is determined tobe frivolous or have a remote chance of success.

 

The ART is currently in the process of prosecuting numerous Causes ofAction as discussed in Note 7.

 

26

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**3.****                                     ****Notes Receivable**

 

On August 3*,*2007 the ARTsettled a Cause of Action and received an unsecured note bearing simple(non-compounding) interest, at a rate of 8%, in the principal amount of$4,875,250. The Court approved the settlement of that Cause of Action on September 6,2007. The note is recourse only to the proceeds of a $28 million life insurancepolicy on the lives of Mr. Leonard Tow and his wife, the proceeds of whichpolicy shall not be paid until the death of the last to die of Mr. Tow andhis wife. Payment of the principal and interest is not expected before December 31,2009.  As of December 31, 2008, and2007 the balance under the note was $5,388,781 and $4,998,757 comprised of theprincipal amount of the note and accrued interest of $513,531 and $123,507respectively. Principal and accrued interest are considered fully collectable.

 

**4.**                                      **Other Related Party Transactionsand Prepaid Expenses**

 

In2007, Adelphia was directed by the ART Trustees to pre-pay director and officerinsurance premiums on behalf of the ART in the amount of $1,043,750. The ARThas characterized the payment as a non-cash contribution from Adelphia. Allfuture insurance costs are to be paid for by the ART.  The prepaid amount of these premiums at December 31,2007 was $124,670.

 

In 2008 the ART paid  $908,438 in D&O insurance premiums. Thereremains a prepaid insurance balance of $374,356 as of December 31, 2008.

 

TheTrust Administrator and Adelphia continue to provide administrative support tothe ART including maintaining electronic data and paper documents used inprosecuting the Causes of Action, support for Holder distributions when theymight occur (including maintenance of data related to the implementation ofPlan provisions) and financial reporting. These services have and will continue to be provided at no cost to theART under the terms of various agreements between the ART, the TrustAdministrator and Adelphia. The ART financial statements do not reflect anyamounts for these services.

 

**5.****                                     ****Fair Value of FinancialInstruments**

 

TheART has not expanded the use of fair value measurements to the amounts shown inits financial statements for financial instruments, including its cash and cashequivalents, note and accrued interest receivable, and accrued expenses underStatement of Financials Accounting Standards No. 157, *Fair ValueMeasurements,* (SFAS 157) which became effective January 1,2008. The fair value disclosures for such financials instruments as of December 31,2008 have been determined under SFAS 157.

 

Asof December 31, 2008, the fair value of cash and cash equivalents, andaccrued expenses approximate their carrying values using active market data(i.e. Level 1 as defined in SFAS 157). Further, the fair value of the notereceivable and accrued interest has been determined using unobservable inputs(i.e. Level 3 as defined in SFAS 157) and approximates $4.2 million.

 

Asof December 31, 2007 the fair value of all of the ART’s financialinstruments, including its cash and cash equivalents, note and accrued interestreceivable and accrued expenses approximated their carrying values using fairvalue measurements then in effect.

 

**6.****                                     ****Trustee Compensation**

 

AfterDecember 31, 2007 the Official Committee of Unsecured Creditors ofAdelphia Communications Corporation and all of its AffiliatedDebtors-In-Possession (the “Creditors Committee”) agreed to Trusteecompensation of $43,750 per quarter, or $175,000 annually, retroactive to January 1,2007. The incremental annual compensation,of $25,000 per Trustee for 2007 aboveamounts previously paid as interim compensation, was paid and recognized asexpense in 2008.

 

In 2008 each of the five Trustees received annual basecompensation of $175,000 paid at the beginning of each quarter in the amount of$43,750. Additionally they received cash payments of $25,000 each for basecompensation related to 2007 as discussed above. The Trustees may awardadditional reasonable service compensation to any Trustee for additionalservice to the ART. The aggregate amount of additional service compensationdistributed to all Trustees as a group in a year may not exceed $350,000. As ofthe date of this report $230,000 of additional service compensation 

 

27

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was awarded for 2008 service. The decision andobligation to award additional service compensation and the related paymentwere both finalized after December 31, 2008 and will be expensed in 2009.

 

Incentivecompensation may be awarded in conjunction with the termination of the ART,based on the amount of aggregate distributions to the Holders over theexistence of the ART. The Incentive Compensation for each Trustee shall equal(A + B - (C)) divided by 5, where:

 

(A) equals 60 basispoints of the amount distributable to the Holders in an aggregate amount ofdistributions to Holders of up to $1,500,000,000;

 

(B) equals 110 basispoints of the amount distributable to Holders in an aggregate amount ofdistributions to Holders of$1,500,000,000or more; and

 

(C) equals the amountspaid or attributable to the Trustees as Base Compensation and AdditionalService Compensation in total (for the avoidance of doubt, the sum of the BaseCompensation and Additional Service Compensation during the existence of theART shall be applied as a credit and deducted from any sums payable to anyTrustee under (A) and (B) above).

 

Incentive Compensation for aTrustee shall never be less than zero. That is, the Base Compensation and theAdditional Service Compensation shall be retained by the Trustees regardless ofwhether any Incentive Compensation is due.

 

**7.****                                     ****Causes of Action**

 

***Court Approved Settlements***

Court approved settlements of Causes of Actionfollow:

 
| ** **                     | ** ** | ** **                      | ** ** | **For the period from**     | ** ** |
|--------------------------------|------------|---------------------------------|------------|--------------------------------------------|------------|
| ** **                     | ** ** | **For the**                | ** ** | **February 13, 2007 (date** | ** ** |
| ** **                     | ** ** | **year ended**             | ** ** | **established) to**                   | ** ** |
| ** **                     | ** ** | **December 31, 2008** | ** ** | **December 31, 2007**            | ** ** |
|                           |       |                            |       |                                       |       |
| Deloitte & Touche LLP |       | $                               | —     |                                       | $          | 167,500,000 |   |
| Tow & Rosensweig      |       | 200,206                         |       | 20,696,702                                 |       |
| Court approved settlements     |       | 200,206                         |       | 188,196,702                                |       |
| Other settlements              |       | 1,160,194                       |       | 100,000                                    |       |
| Total Settlements              |       | $                               | 1,360,400  |                                       | $          | 188,296,702 |   |

 

***Pending Causes of Action***

 

Bank Litigation

 

On July 6, 2003, theCreditors Committee filed a complaint (the “Creditors Committee Complaint”) inthe Bankruptcy Court for the Southern District of New York against Adelphia’spre-petition commercial banks and lenders, Adelphia’s former investment bankersand financial advisors, and assignees of Adelphia’s pre-petition bank debt. TheCreditors Committee Complaint asserted 52 Causes of Action seeking (a) recoveryas fraudulent transfers the principal and interest paid by Adelphia todefendants, (b) avoidance as fraudulent obligations Adelphia’sobligations, if any, to repay the defendants, (c) recovery of damages forfraud and breaches of fiduciary duties to Adelphia and for aiding and abettingfraud and breaches of fiduciary duties by members of the Rigas family relatingto Adelphia’s credit facilities, (d) equitable disallowance, subordinationor recharacterization of each of the defendants’ claims in Adelphia’sbankruptcy cases, (e) avoidance and recovery of  preferential transfers made to certaindefendants shortly prior to Adelphia’s bankruptcy 

 

28

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filing, and (f) recoveryof damages for violations of the Bank Holding Company Act. In addition, theCreditors Committee and Adelphia moved in the Bankruptcy Court seekingauthority for the Committee to prosecute these claims together with Adelphia(the “Standing Motion”). On July 31, 2003, the Official Committee of EquitySecurity Holders for Adelphia filed a motion with the Bankruptcy Court toassert additional claims against the defendants in the form of an intervenorcomplaint. The Equity Committee was granted leave to file its complaint (the “EquityCommittee Complaint”), which joined certain of the claims asserted in theCreditors Committee Complaint and also asserted new claims against theinvestment bank defendants for fraudulent concealment and against the agentbank and investment bank defendants for fraud and RICO violations.

 

In October 2003,various defendants moved to dismiss both complaints and filed objections to theStanding Motion. On August 30, 2005, the Bankruptcy Court granted theStanding Motion, holding that the Creditors Committee had standing to pursuethe claims in the Original Complaint on behalf of, and together with, Adelphia.On February 9, 2006, the United States District Court for the SouthernDistrict of New York granted a motion filed by certain defendants to withdrawthe reference to the Bankruptcy Court, subject to the proviso, with the consentof all parties, that the motions to dismiss would remain with the BankruptcyCourt. No decision was rendered on the motions to dismiss during the Adelphiabankruptcy proceedings. The claims asserted in the Creditors CommitteeComplaint and the Equity Committee Complaint were transferred to the ARTpursuant to the Plan.

 

In 2007, the BankruptcyCourt issued separate decisions with respect to each of the two complaints. *In re Adelphia Commc’ns Corp.*, 365 B.R.24, 62 (Bankr. S.D.N.Y. 2007); *In reAdelphia Commc’ns Corp.*, Adversary No. 03-04942 (REG), 2007 WL2403553 at *11 (Bankr. S.D.N.Y. Aug. 17, 2007). In the first decision, theBankruptcy Court sustained the fraudulent transfer claims, the aiding andabetting breach of fiduciary duty claims, the breach of fiduciary duty claimsagainst certain defendants, the equitable subordination and disallowanceclaims, the Bank Holding Company Act claims, and the voidable preference claimsin the Creditors Committee Complaint, but dismissed, with leave to replead, theclaims for aiding and abetting fraud. In the second decision, the BankruptcyCourt dismissed the additional claims asserted in the Equity Committee’sComplaint, but granted leave to replead the claims for fraud and fraudulentconcealment.

 

On July 10, 2007, allof the original moving defendants sought leave to appeal with respect to allthe claims in the Creditors Committee’s Complaint that the Bankruptcy Court haddeclined to dismiss. The District Court denied leave to appeal from the rulingsthat sustained the fraudulent transfer claims, the voidable preference claims,and the equitable subordination claims, but granted leave to appeal on certaindiscrete issues of law concerning the ART’s standing, application of the BankHolding Company Act, the existence of equitable disallowance under theBankruptcy Code, and the existence of aiding and abetting breach of fiduciaryduty liability under Pennsylvania law as well as the adequacy of the pleadings onthat claim. *Adelphia Recovery Trust v. Bankof Am., N.A.*, No. 05 Civ 9050 (LMM), 2007 WL 2585065 (S.D.N.Y.Sept. 05, 2007); *Adelphia Recovery Trust v.Bank of Am., N.A.*, No. 05 Civ. 9050 (LMM), 2007 WL 2890220(S.D.N.Y. Sept. 28, 2007).

 

On October 31, 2007,while the appeal was pending, the ART filed an Amended Complaint. The AmendedComplaint (i) consolidated the earlier complaints into a single complaint;(ii) added additional allegations to support the claims on which theBankruptcy Court granted leave to replead (aiding and abetting fraud,fraudulent concealment, and fraud); and (iii) added as defendantsapproximately 380 new entities that became assignees of the Adelphia bank debtafter the original complaints were filed. Certain defendants filed motions todismiss the Amended Complaint and certain defendants filed answers to theAmended Complaint.

 

In its January 17, 2008decision on appeal, the District Court concluded, *inter alia*, that the ART had standing to assert the tortclaims and the Bankruptcy Court properly had sustained the claims for aidingand abetting breach of fiduciary duty and equitable disallowance. The Courtdismissed the Bank Holding Company Act claim with leave to replead to cure anambiguity in the original allegations. *AdelphiaRecovery Trust v. Bank of Am*., *N.A*.,No. 05 Civ 9050 (LMM), 2008WL 217057 at *6, 13 (S.D.N.Y. Jan. 17, 2008). The Bank HoldingCompany Act claims subsequently were repleaded in a Second Amended Complaintfiled March 4, 2008. Certain defendants filed motions to dismiss therepleaded Bank Holding Company Act claims set forth in the Second AmendedComplaint.

 

On June 18, 2008, theDistrict Court dismissed certain fraudulent transfer claims, voidablepreference claims, and equitable subordination and disallowance claims. Underthe current scheduling order, the trial on the remaining claims will commenceon February 22, 2010.

 

29

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With respect to the claimsdismissed by the District Court on June 18, 2008 and certain claimsdismissed in 2007 by the Bankruptcy Court, the District Court entered a finaljudgment.  The ART filed a timely notice of appeal and the appeal ispending in the Second Circuit Court of Appeals.  No schedule for theappeal has been set.

 

At this time, the ART cannotpredict the outcome of these proceedings or estimate the possible financialeffect of these proceedings on the ART’s financial statements.

 

Motorola Litigation

 

On June 22, 2006,Adelphia filed an adversary complaint against Motorola, Inc. and certainof its subsidiaries, as well as transferees of claims filed by Motorola in theAdelphia bankruptcy cases in the Bankruptcy Court for the Southern District ofNew York. The complaint seeks recovery for (a) Motorola’s aiding andabetting breaches of fiduciary duty by members of the Rigas family inmanipulating Adelphia’s financial statements and performance results for thefiscal years 2000 and 2001; (b) avoidance and recovery of preferential andfraudulent transfers made to Motorola of more than $60 million; (c) avoidanceof purported (but unperfected) liens asserted by Motorola; and (d) equitabledisallowance or subordination of Motorola’s claims in the Adelphia bankruptcycases (the total face amount of which is approximately $66.6 million).

 

The ART and Adelphia areco-plaintiffs in this litigation. On September 11, 2007, Adelphia and theART amended the complaint against Motorola to add a cause of action forequitable disallowance and additional factual allegations. If Adelphia and theART do not prevail on the claim for equitable disallowance, Adelphia has aninterest senior to the ART to receive the amount necessary to offset any ofMotorola’s claims allowed by the Bankruptcy Court.

 

On August 22, 2007,plaintiffs moved for summary judgment to disallow a portion of the defendants’claims against certain Adelphia debtors. Plaintiffs’ motion is pending.Discovery is ongoing and the bankruptcy court has ordered the parties to beready for trial on the claims for equitable subordination and equitabledisallowance on April 20, 2009.

 

At this time, the ART cannotpredict the outcome of these proceedings or estimate the possible financialeffect of these proceedings on the ART’s financial statements.

 

Prestige and FPL Litigation

 

On June 24, 2004, theUnsecured Creditors’ Committee filed two separate fraudulent conveyancecomplaints, one against FPL Group, Inc. and West Boca Security, Inc.(“FPL”) and the other against Prestige Communications of NC, Inc.,Jonathan J. Oscher,  Lorraine OscherMcClain, Robert F. Buckfelder, Buckfelder Investment Trust, and Anverse, Inc.Both actions were filed in the Bankruptcy Court for the Southern District ofNew York and relate to pre-petition transactions. In a decision dated January 8,2008, the District Court withdrew the reference in the Prestige action andtransferred the case to the District Court. The FPL action remains pending inthe Bankruptcy Court. Discovery is ongoing in both actions.

 

The Prestige action seeks torecover fraudulent transfers in connection with Adelphia’s purchase of theassets of PrestigeCommunicationsof N.C., Inc., an acquisition that closed on July 5, 2000, as well asa claim that the owners of the Prestige Cable Systems aided and abettedbreaches of fiduciary duty on the part of the Rigas family in connection withthe transaction. The District Court has not set a trial date in the Prestigeaction.

 

The FPL action seeks torecover an alleged fraudulent transfer arising out of Adelphia’s repurchase ofcertain of its stock from FPL in January 1999 for $149.5 million. Thetrial date in the FPL action is June 7, 2010.

 

At this time, the ART cannotpredict the outcome of these proceedings or estimate the possible financialeffect of these proceedings on the ART’s financial statements.

 

Avoidance Actions

 

On July 31, 2003,Adelphia and its debtor affiliates filed with the Bankruptcy Court theirStatements of Financial Affairs, which included a schedule of payments toinsider entities made within one year prior to Adelphia’s filing for bankruptcyand payments to non-insider entities made within ninety days prior to Adelphia’sfiling for bankruptcy. Subsequently, 

 

30

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Adelphia engaged inextensive analysis of all such payments to determine if they could be avoidedpursuant to provisions of the Bankruptcy Code.

 

On April 20, 2004,Adelphia filed a motion seeking to abandon most of the potential actions toavoid the pre-petition payments because, among other reasons, (i) Adelphiabelieved that pursuing certain of such actions against parties with whomAdelphia was continuing to do business could have a significant, adverse impacton important, ongoing business relationships, and (ii) the costsassociated with pursuing such actions far outweighed any potential benefit tothe Adelphia debtors’ estates that might otherwise result from bringing suchactions. In response to certain objections to Adelphia’s motion, Adelphiaamended its initial motion.

 

On May 27, 2004, theBankruptcy Court entered an order tolling all claims to avoid inter-debtorpayments and authorizing the abandonment of potential actions to avoid (i) transfersto taxing authorities; (ii) transfers to human resource providers engagedin business with Adelphia; (iii) transfers determined to have been made inthe ordinary course of business; and (iv) certain transfers deemed *de minimis*. As to the remainder of thetransfers made by Adelphia during the relevant one-year and ninety-day periodsprior to the bankruptcy filing, Adelphia either (i) entered into tollingagreements with the transferee extending Adelphia’s time to initiate an action,or (ii) filed a complaint and initiated an adversary proceeding againstthe transferee.

 

As of June 25, 2004,Adelphia secured approximately 250 tolling agreements with various transferees,including members of the Rigas family, the Rigas family entities, formerexecutives James Brown and Michael Mulcahey, and former directors ErlandKailbourne, Dennis Coyle, Leslie Gelber, and Peter Metros, among others. Certainof these tolling agreements have been amended from time to time. In addition,Adelphia filed approximately 150 complaints in the Bankruptcy Court commencingactions to avoid certain pre-petition transfers and payments. Some of thosecomplaints have since been dismissed after further investigation.

 

On July 21, 2004, theBankruptcy Court temporarily stayed all activity in the avoidance actionscommenced by Adelphia and approved notice and service procedures in connectiontherewith.

 

At this time, the ART cannotpredict the outcome of these proceedings or estimate the possible financialeffect of these proceedings on the ART’s financial statements.

 

**8.****                                     ****Contingent****Liabilities**

 

Pursuant to theThird Modified Fourth Amended Joint Plan of Reorganization Under Chapter 11 ofthe Bankruptcy Code for Century-TCI Debtors and Parnassos Debtors (the “JVPlan”), which became effective on July 31, 2006; the First Modified FifthAmended Joint Chapter 11 Plan for Adelphia Communications Corporation andCertain of Its Affiliated Debtors (the “Main Plan”), which became effective on February 13,2007; and certain other orders entered by the Bankruptcy Court, litigationindemnification funds (each, a “LIF”) were created to provide certaindefendants in the Bank Litigation (see above) provisional and conditionalreimbursement of legal fees and expenses expected to be incurred in connectionwith defending litigation involving certain credit facilities.

 

The JV LIF, established in the initial amount of $10 million, wascreated to fund certain allowable claims for indemnification arising under theParnassos and Century-TCI prepetition credit facilities.  Subject tocertain conditions, the JV LIF is “evergreen” ; in other words, the JVPlan provides the JV LIF will be replenished under certain conditions,such as “upon the receipt . . . of net proceeds of any Designated Litigation”after first deducting any required distribution to the government.

 

The Main Plan LIFs are fixed in amounts and not subject toreplenishment.  Because the JV LIF is evergreen, whereas the Main PlanLIFs are capped, the allocation of defense costs  among thecategories of LIFs is a matter of economic significance to Adelphia and theART.

 

Certain  bank defendants have asserted claims ofapproximately $11 million (“JV LIF Claims”) against the evergreen JV LIF. Adelphia has asserted that the bank defendants are not entitled toreimbursement on the basis, among others, that the JV LIF claims areimproper.  On November 13 2008, certain of those claimants filed, orsubsequently joined in, the *Motion of theBank of Nova Scotia, Citibank N.A. and The Ad Hoc Committee of Non-AgentSecured Lenders in the Parnassos and Century-TCI Facilities for Payment of BankLender Post Effective Date Fee Claims and to Compel Compliance of the PlanAdministrator (defined in the JV Plan as Adelphia) and the Art with the ThirdModified Fourth Amended Joint Plan of Reorganization Under Chapter 11 of theBankruptcy Code and the Century TCI Stipulation* (the “LIFMotion”).  Other claimants have not taken any action.

 

Discovery relating to the JV LIF Claims is ongoing and an evidentiaryhearing on the Motion is scheduled for April 20, 2009.  If theBankruptcy Court grants the LIF Motion, the JV LIF may need to bereplenished to indemnify the future defense costs of the JV bankdefendants.  In addition, the Bankruptcy Court could determine that the JVLIF must be replenished by the amount of the disputed JV LIF Claims while thedispute is still pending.

 

Atthis time, the ART cannot predict the outcome of these proceedings or estimatethe possible financial effect of these proceedings on the ART.

 

**9.****                                     ****Subsequent Events**

 

Subsequent to December 31, 2008 and through March 9, 2009there have been no events that would be material to the financial statements ofthe ART including Cause of Action settlements or judgments or Holderdistributions or decisions concerning future Holder distributions.

 

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**10.****      ****Unaudited Quarterly Financial Data**

 

**2008**

 
| ** **                               | ** ** | **For the quarter ended  March 31, 2008** | ** ** | **For the quarter ended  June 30, 2008** | ** ** | **For the quarter ended  September 30, 2008** | ** ** | **For the quarter ended  December 31, 2008** | ** ** | **For the  year ended  December 31, 2008** | ** ** |
|------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
|                                     |       |                                                               |       |                                                              |       |                                                                   |       |                                                                  |       |                                                           |       |
| **Revenues**                             |       |                                                               |       |                                                              |       |                                                                   |       |                                                                  |       |                                                           |       |
| Litigation -  court approved settlements |       | $                                                                  | 200,206    |                                                              | $          | —                                                                 |       | $                                                                     | —     |                                                           | $          | — |   | $ | 200,206 |   |
| Litigation -  other settlements          |       | 60,000                                                             |       | 850,194                                                           |       | —                                                                 |       | 250,000                                                               |       | 1,160,194                                                      |       |
| Interest income                          |       | 1,689,819                                                          |       | 1,101,159                                                         |       | 1,034,219                                                              |       | 681,263                                                               |       | 4,506,460                                                      |       |
| Total revenues                           |       | 1,950,025                                                          |       | 1,951,353                                                         |       | 1,034,219                                                              |       | 931,263                                                               |       | 5,866,860                                                      |       |
|                                     |       |                                                               |       |                                                              |       |                                                                   |       |                                                                  |       |                                                           |       |
| **Operating  expenses**                  |       |                                                               |       |                                                              |       |                                                                   |       |                                                                  |       |                                                           |       |
| General and  administrative expenses     |       | 515,010                                                            |       | 933,470                                                           |       | 481,901                                                                |       | 503,973                                                               |       | 2,434,354                                                      |       |
| Professional  expenses - litigation      |       | 6,480,741                                                          |       | 5,507,525                                                         |       | 5,589,722                                                              |       | 5,560,248                                                             |       | 23,138,236                                                     |       |
| Professional  expenses - administrative  |       | 724,444                                                            |       | 940,322                                                           |       | 199,329                                                                |       | 148,756                                                               |       | 2,012,851                                                      |       |
| Total operating  expenses                |       | 7,720,195                                                          |       | 7,381,317                                                         |       | 6,270,952                                                              |       | 6,212,977                                                             |       | 27,585,441                                                     |       |
|                                     |       |                                                               |       |                                                              |       |                                                                   |       |                                                                  |       |                                                           |       |
| **Net loss**                             |       | $                                                                  | (5,770,170 | )                                                                 | $          | (5,429,964                                                             | )          | $                                                                     | (5,236,733 | )                                                              | $          | (5,281,714 | ) | $ | (21,718,581 | ) |

 

**2007**

 
| ** **                               | ** ** | **For the period from  February 13, 2007  (date established) to  March 31, 2007** | ** ** | **For the quarter ended  June 30, 2007** | ** ** | **For the quarter ended  September 30, 2007** | ** ** | **For the quarter ended  December 31, 2007** | ** **  | **For the period from  February 13, 2007  (date established) to  December 31, 2007** |   |
|------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|-------------|-----------------------------------------------------------------------------------------------------------------------------------|--------|
|                                     |       |                                                                                                                           |       |                                                              |       |                                                                   |       |                                                                  |        |                                                                                                                              |   |
| **Revenues**                             |       |                                                                                                                           |       |                                                              |       |                                                                   |       |                                                                  |        |                                                                                                                              |   |
| Litigation -  court approved settlements |       | $                                                                                                                              | —     |                                                              | $          | —                                                                 |       | $                                                                     | 172,375,250 |                                                                                                                              | $      | 15,821,452 |   | $ | 188,196,702 |   |
| Litigation -  other settlements          |       | —                                                                                                                         |       | —                                                            |       | —                                                                 |       | 100,000                                                               |        | 100,000                                                                                                                           |   |
| Interest income                          |       | 165,597                                                                                                                        |       | 309,304                                                           |       | 1,649,145                                                              |       | 2,176,936                                                             |        | 4,300,982                                                                                                                         |   |
| Total revenues                           |       | 165,597                                                                                                                        |       | 309,304                                                           |       | 174,024,395                                                            |       | 18,098,388                                                            |        | 192,597,684                                                                                                                       |   |
|                                     |       |                                                                                                                           |       |                                                              |       |                                                                   |       |                                                                  |        |                                                                                                                              |   |
| **Operating  expenses**                  |       |                                                                                                                           |       |                                                              |       |                                                                   |       |                                                                  |        |                                                                                                                              |   |
| General and  administrative expenses     |       | 333,605                                                                                                                        |       | 477,634                                                           |       | 509,358                                                                |       | 533,522                                                               |        | 1,854,119                                                                                                                         |   |
| Professional  expenses - litigation      |       | 5,224,370                                                                                                                      |       | 8,397,410                                                         |       | 5,809,634                                                              |       | 6,986,202                                                             |        | 26,417,616                                                                                                                        |   |
| Professional  expenses - administrative  |       | 776,275                                                                                                                        |       | 614,312                                                           |       | 466,531                                                                |       | 524,383                                                               |        | 2,381,501                                                                                                                         |   |
| Total operating  expenses                |       | 6,334,250                                                                                                                      |       | 9,489,356                                                         |       | 6,785,523                                                              |       | 8,044,107                                                             |        | 30,653,236                                                                                                                        |   |
|                                     |       |                                                                                                                           |       |                                                              |       |                                                                   |       |                                                                  |        |                                                                                                                              |   |
| **Net  income (loss)**                   |       | $                                                                                                                              | (6,168,653 | )                                                                 | $          | (9,180,052                                                             | )          | $                                                                     | 167,238,872 |                                                                                                                              | $      | 10,054,281 |   | $ | 161,944,448 |   |

 

32

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**Item 9.Changes in and Disagreements with Accountants on Accounting and FinancialDisclosure.**

 

Not applicable.

 

**Item 9A(T).Controls and Procedures.**

 

*Evaluationof Disclosure Controls and Procedures*

 

The ART maintains disclosurecontrols and procedures that are designed to ensure that information requiredto be disclosed in its reports filed under the Securities and Exchange Act of1934, as amended (“Exchange Act”) is recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission’s rules and forms. Disclosure controls and procedures includecontrols and procedures designed to ensure that such information is accumulatedand communicated to ART Trustees and the Trust Administrator as appropriate, toallow timely decisions regarding required financial disclosure.

 

The Trustees and the TrustAdministrator have completed an evaluation of the effectiveness of the designand operation of the ART’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e)) promulgated under the Exchange Act as of December 31,2008. Based on their evaluation of the effectiveness of the ART’s disclosurecontrols and procedures (as defined in paragraph (b) of Rules 13a-15or 15d-15), the Trustees and the Trust Administrator concluded that as of December 31,2008, the ART’s disclosure controls and procedures were effective.

 

*Management’sAnnual Report on Internal Control over Financial Reporting*

 

This annual report does notinclude a report of management’s assessment regarding internal control overfinancial reporting or an attestation report of the ART’s independent  registered public accounting firm due to atransition period established by the rules of the Securities and ExchangeCommission for newly public companies.

 

*Changes inInternal Control Over Financial Reporting*

 

During the quarter ended December 31,2008, there were no changes in the ART’s internal control over financialreporting that have materially affected, or are reasonably likely to materiallyaffect, the ART’s internal control over financial reporting.

 

*Limitationson the Effectiveness of Controls*

 

The Trustees and the TrustAdministrator do not expect that the ART’s disclosure controls and proceduresor its internal control over financial reporting (collectively a controlsystem) will prevent or detect all errors and all fraud. A control system, nomatter how well designed and operated, can provide only reasonable, notabsolute, assurance that the control system’s objectives will be met. Further,the design of a control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to theircosts. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within the Trust have been detected. Theseinherent limitations include the realities that judgments in decision-makingcan be faulty, and that breakdowns can occur because of simple error ormistake. Controls can also be circumvented by the individual acts of somepersons, by collusion of two or more people, or by management override of thecontrols. The design of any system of controls is based in part upon certainassumptions about the likelihood of future events, and there can be noassurance that any design will succeed in achieving its stated goals under allpotential future conditions. Over time, controls may become inadequate becauseof changes in conditions or deterioration in the degree of compliance withassociated policies or procedures. Because of the inherent limitations in acost-effective control system, misstatements due to error or fraud may occurand not be detected.

 

**Item 9B. Other Information**

 

None

 

33

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**PART III**

 

**Item 10.Directors, Executive Officers and Corporate Governance.**

 

There are five Trustees ofthe ART, each of whom has served since the inception of the ART:

 

Bryan E. Bloom, age 50,presently serves as in-house counsel, analyst and portfolio manager at W.R.Huff Asset Management Co., L.L.C., an investment management firm, and itsvarious affiliates. Mr. Bloom joined Huff in 1994. Prior to that time, hewas a tax partner at the law firm of Shanley & Fisher. Mr. Bloomis currently an observer to the board of directors for CKX, Inc., is adirector of FXRE Inc. and is on the board of several private companies. Mr. Bloomserves on the Audit Committee of the ART.

 

Lee S. Hillman, age 53serves as President of Liberation Advisory Group, LLC and Liberation ManagementServices, LLC, a private management and advisory services consultant tocommercial and investment banks, private equity and hedge funds and growthstage businesses. Previously Mr. Hillman served as Chairman of the Boardand Chief Executive Officer of Power Plate International, a globalmanufacturer, distributor and licensor of health and exercise equipment. Mr. Hillmanpreviously served as President of Power Plate North America since 2005, whichmerged into Power Plate International in February 2006.  Mr. Hillman also serves on the boards ofdirectors for Lawson Products, Inc. and RCN Corporation. Mr. Hillmanserves on the Audit Committee of the ART.

 

David P. Stowell, age 56,presently serves as a professor in the Department of Finance at Kellogg Schoolof Management, Northwestern University, which he joined in March 2005.Prior to this position, Mr. Stowell was a managing director in JP Morgan’sinvestment banking division.

 

Ralph J. Takala, age 69,served as Senior Vice President and Chief Financial Officer of Cumberland Farms, Inc.,a company that operates convenience stores and gas stations and is a wholesalerof refined petroleum products, from December 2006 through December 2008.Prior to that, he worked as an independent financial and business consultant,which included serving as the interim Chief Financial Officer of PicturetelCorp., a manufacturer of video conferencing systems, from 2000 to 2001. Mr. Takalais a Certified Public Accountant and serves as the chairman of the ART Audit Committee..

 

Dean A. Ziehl, age 56,presently is a partner in the law firm of Pachulski Stang Ziehl &Jones LLP, which he joined in 1983. Mr. Ziehl serves on the board ofdirectors for *Plan*Member ServicesCorporation. Mr. Ziehl is the Chairman of the Board of Trustees.

 

TrustAdministrator

 

Quest Turnaround Advisors,L.L.C., a Connecticut limited liability company, serves as Plan Administratorof the Debtors and as Trust Administrator of the ART. Quest is in the businessof providing interim management, turnaround, crisis management and advisoryservices to Boards of Directors, management and creditors committees. Themembers of Quest who are currently actively engaged in providing services tothe ART include:

 

Jeffrey A. Brodsky, age 50,is a co-founder and a Managing Director of Quest. In addition to hisresponsibilities at Adelphia, Mr. Brodsky serves as the Chairman of theBoard and CEO of PTV, Inc. In addition, Mr. Brodsky serves on theBoard of Directors of AboveNet, Inc. and TVMAX, Inc.

 

Barry D. Shalov, age 67, isa Managing Director of Quest, which he joined in 2007. Prior to that time, Mr. Shalovwas a senior partner in the law firm of DLA Piper US LLP, which he joined in2000. Previously, Mr. Shalov was a senior partner with the law firm ofGordon Altman Butowsky Weitzen Shalov & Wein. Currently, Mr. Shalovserves on the board of Cytokine Pharmasciences, Inc.

 

Indemnificationof the Trustees

 

The Declaration states thatthe ART shall indemnify, to the fullest extent permitted by law, the Trusteesin connection with any threatened, pending or completed action, suit,proceeding or claim, whether civil, criminal, administrative or investigative,arising out of or relating to the ART, the Interests, the issuance ordistribution of the Interest certificates, the Causes of Action, including, butnot limited to, (i) in connection with the prosecution or settlement ofsuch Causes of Action or the enforcement of any determination, judgment ororder with respect thereto and (ii) any decision, determination or approvalby the Trustees regarding the prosecution, disposition, settlement, resolutionor liquidation of 

 

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any such cause of action, orany acts or omissions of the ART, or actions taken by the Trustees in theircapacity or purportedly in their capacity as Trustees, against any and alllosses, liabilities, damages, judgments, demands, suits, claims, assessments,charges, fines, penalties and other costs and expenses, including attorneys’fees and expenses and other fees and expenses associated with the defense of aclaim or incurred by the Trustees in obtaining indemnification under theDeclaration, whether or not in a formal proceeding (collectively, “Damages”).

 

Notwithstanding thepreceding paragraph, the ART shall not be required to indemnify a Trustee if itis established in a final judicial determination by clear and convincingevidence that such Damages arose as the result of acts or omissions of theTrustee with deliberate intent to injure the Holders or with reckless disregardfor the best interests of such Holders. The termination of any action, suit orproceeding by judgment, order, settlement, conviction, or upon a plea of nolocontendere or its equivalent, shall not, of itself, create a presumption thatthe Trustee acted or decided with deliberate intent to injure the Holders orwith reckless disregard for the best interests of such Holders.

 

To the fullest extentpermitted by law, expenses (including attorneys’ fees and expenses) incurred bya Trustee in defending a civil, criminal, administrative or investigativeaction, suit, proceeding or claim referred to above shall be paid by the ART inadvance of the final disposition of such action, suit, proceeding or claimpromptly upon receipt of an undertaking (without bond or security) by or onbehalf of such Trustee to repay such amount if it shall ultimately bedetermined that he is not entitled to be indemnified by  the ART as authorized in the Declaration. TheDeclaration also authorizes the ART to purchase and maintain insurance to coverits indemnification obligations and any other liabilities of the Trustees. TheART maintains applicable policies insuring the ART and the Trustees againstcertain claims.

 

Indemnificationof the Trust Administrator

 

Under the TrustAdministrator Agreement, if the Trust Administrator or any Trust Administratorstaff member (collectively, “Trust Administrator Person”) becomes involved inany capacity in any claim, suit, action, proceeding, or investigation(including, without limitation, any shareholder or derivative action orarbitration proceeding) (collectively, a “Proceeding”) in connection with anymatter in any way relating to, or arising out of the services to be performedby the Trust Administrator under the Trust Administrator Agreement (including,but not limited to, its role as Trust Administrator or the role of any staffmember as a governor, officer or director of any of the Debtors), the Debtors(to the extent services are not services for the ART described in theimmediately succeeding parenthetical) and the ART (to the extent services areadministrative services or other services being performed for the ART pursuantto a written request therefore by the Trustees) shall indemnify, defend andhold such Trust Administrator Person harmless to the fullest extent permittedby law, from and against any losses, claims, damages, liabilities and expenses,except to the extent that it shall be determined by a court of competentjurisdiction in a judgment that has become final in that it is no longersubject to appeal or other review that such losses, claims, damages,liabilities and/or expenses resulted primarily from the willful misconduct,gross negligence, bad faith, or fraud of the Trust Administrator Person.

 

In addition, in the eventthat any Trust Administrator Person becomes involved in any capacity in anyProceeding in connection with any matter in any way relating to, or arising outof the services to be performed by the Trust Administrator under the Trust AdministratorAgreement (except to the extent such Proceeding is a result of or related to aTrust Administrator Person’s violation or breach of any of the terms of thePlan, the Trust Administrator Agreement or other applicable order as determinedby a court of competent jurisdiction in a judgment or finding, as applicable,that has become final in that it is no longer subject to appeal or otherreview) the Debtors and the ART (to the extent services are being performed forthe ART) shall reimburse such Trust Administrator Person for its reasonablelegal and other expenses (including the cost of any investigation andpreparation) as such expenses are incurred by such Trust Administrator Personin connection therewith, subject to the obligation of such Trust AdministratorPerson to repay such reimbursement if it is ultimately determined that suchTrust Administrator Person is not entitled to such reimbursement. The ARTmaintains applicable policies insuring Quest as the Trust Administrator againstcertain claims in connection with its services to the ART.

 

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**Item 11.Executive Compensation.**

 
| **Name**         | ** ** | **Fees Earned or  Paid in Cash in  2007 (1)** | ** ** | **Fees Earned or  Paid in Cash in  2008 (1)** | ** ** |
|------------------|------------|-----------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| Bryan E. Bloom   |       | $                                                                           | 175,000    |                                                                        | $          | 195,000 |   |
| Lee S. Hillman   |       | $                                                                           | 175,000    |                                                                        | $          | 195,000 |   |
| David P. Stowell |       | $                                                                           | 175,000    |                                                                        | $          | 195,000 |   |
| Ralph J. Takala  |       | $                                                                           | 175,000    |                                                                        | $          | 195,000 |   |
| Dean A. Ziehl    |       | $                                                                           | 425,000    |                                                                        | $          | 325,000 |   |

 

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(1)  Dean Ziehl received $175,000 in base compensation and$250,000 in Additional Compensation in 2007. In 2008 Dean Ziehl received$175,000 in Base Compensation and $150,000 in Additional compensation. The fourother Trustees received $175,000 of Base Compensation and $20,000 in AdditionalCompensation.

 

Each Trustee receives annualbase compensation of $175,000 (“Base Compensation”). Each of the five Trusteeswas paid $150,000 as base compensation for services performed in 2007 on aninterim basis. The compensation was paid quarterly at the beginning of eachcalendar quarter in the amount of $37,500 per Trustee. After December 31,2007, the Creditors Committee reached agreement with the Trustees on Trusteecompensation, which set the Trustee’s Base Compensation at $43,750 per quarterretroactive to January 1, 2007. The incremental annual compensation of$25,000 per Trustee earned in 2007 was paid in 2008.

 

In addition, under thecompensation agreement, The Trustees may award, in their sole discretion,additional reasonable compensation to any Trustee for additional service to theART (“Additional Service Compensation”). The aggregate amount of AdditionalService Compensation distributed to all Trustees as a group in a year may notexceed $350,000. Any Additional Service Compensation must be approved by a voteof a majority of the Trustees. Additional Service Compensation may be awardedto Trustees for service on the Audit Committee and for other services above andbeyond the expected level of service, such as for close supervision of theCauses of Action. Dean Ziehl was awarded $250,000 and $150,000 respectively forhis services in 2007 and 2008 respectively related to supervision of the Causesof Action. The other four Trustees each were paid $0 in 2007 and $20,000 in2008 as additional service compensation. Additional Service Compensation isbased on estimates of hours worked and contributions by the Trustees including,without limitation, supervision and mediation of the Causes of Action and thepreparation of the ART’s initial securities and tax filings.

 

As soon as practicable afterthe termination of the ART, but no later than 2.5 months after the end of thecalendar year in which it terminates, each Trustee may receive additionalcompensation (“Incentive Compensation”). The Incentive Compensation for eachTrustee shall equal (A + B - (C)) divided by 5, where:

 

(A) equals 60 basispoints of the amount distributable to the Holders in an aggregate amount ofdistributions to Holders of up to $1,500,000,000;

 

(B) equals 110 basis pointsof the amount distributable to Holders in an aggregate amount of distributionsto Holders of $1,500,000,000 or more; and

 

(C) equals the amountspaid or attributable to the Trustees as Base Compensation and AdditionalService Compensation in total (for the avoidance of doubt, the sum of the BaseCompensation and Additional Service Compensation during the existence of theART shall be applied as a credit and deducted from any sums payable to anyTrustee under (A) and (B) above).

 

Incentive Compensation for aTrustee shall never be less than zero. That is, the Base Compensation and theAdditional Service Compensation shall be retained by the Trustees regardless ofwhether any Incentive Compensation is due.

 

For its role as TrustAdministrator, Quest is compensated exclusively by the Debtors. The ART doesnot pay Quest any additional amounts of compensation for service as either PlanAdministrator or Trust Administrator. The ART is 

 

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required to reimburse Questand the Debtors for out-of-pocket expenses incurred in performance of serviceson behalf of the ART.

 

**Item 12.Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters.**

 

The ART does not have anysecurities that vote for the election of the Trustees and, consequently doesnot have any “voting securities” within the meaning of the Securities ExchangeAct of 1934, as amended, and the regulations thereunder applicable to thedisclosure of 5% holders of voting securities.

 

**Item 13.Certain Relationships and Related Transactions, and Director Independence.**

 

The ART has chosen to applythe independence standards of the NYSE and the SEC’s independence standards setforth in Rule 10A-3 applicable to audit committee members to both theTrustees and the Audit Committee members. The Trustees have determined that Messrs. Hillman,Stowell, Takala and Ziehl are independent. The independent Trustees havedetermined that Mr. Bloom is not independent based on his affiliation withW.R. Huff Asset Management Co., L.L.C. and its affiliates (collectively, “Huff”),which control Interests in the ART. Additionally, Huff, on behalf of certain ofits clients, former clients and affiliates, had, prior to the commencement ofthe litigation by the Adelphia bankruptcy estate, commenced separate third partylitigation alleging securities law violations and other claims against some ofthe same defendants as the ART.

 

The Trust Administrator andAdelphia continue to provide administrative support to the ART includingmaintaining electronic data and paper documents used in prosecuting the Causesof Action, financial reporting and support for Distributions when they mightoccur (including maintenance of data related to the implementation of Planprovisions). These services have and will continue to be provided at no cost tothe ART under the terms of various agreements between the ART, the TrustAdministrator and Adelphia. The ART financial statements do not reflect anyamounts for these services.

 

**Item 14.Principal Accounting Fees and Services.**

 

In 2007, the ART appointed UHY LLP. UHY has been the only firm engaged by the ART to provide attestation services. To date, they have provided services and billed the ART only for attestation services associated with quarterly reviews and annual audits in 2007 and 2008.

 

Through March 9, 2009, UHY LLP had a continuing relationship with UHY Advisors, Inc. (“Advisors”). Under their relationship UHY LLP leased auditing staff who were full-time, permanent employees of Advisors. UHY LLP partners provide non-audit services through Advisors. UHY LLP has only a few full-time employees. Therefore, few, if any, audit services performed were provided by permanent full-time employees of UHY LLP. UHY LLP manages and supervises the audit services and the audit staff, and is exclusively responsible for the opinion rendered in connection with its audit.

 
| (1) |   | AUDIT FEES |
|-----|--------|------------|

 

The aggregate fees billed for 2008 and 2007 for professional services rendered for the audit of the ART’s annual financial statements and review of the statements in the ART’s Form 10-Q filings were approximately $91k and $77k respectively.
|   |   |               |
|--------|--------|--------------------|
| (2)    |   | AUDIT RELATED FEES |
|   |   |               |
| None   |
|   |
| (3)    |   | TAX FEES           |
|   |   |               |
| None   |
|   |
| (4)    |   | ALL OTHER FEES     |
|   |   |               |
| None   |

 

37

 

**PART IV**

 

**Item 15.Exhibits and Financial Statement Schedules**

 

(a) The followingdocuments are filed as a part of this report

 

  (1) Financial statements. See the indexto the financial statements as presented in Item 8 of this filing

 

(b) Exhibits

 
| 2.1*   |   | First  Modified Fifth Amended Joint Chapter 11 Plan of Reorganization of Adelphia Communications  Corporation and Certain of its Affiliated Debtors, effective February 13,  2007 |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                              |
| 3.1*   |   | Restated  Certificate of Trust, dated February 13, 2007                                                                                                                      |
|   |   |                                                                                                                                                                              |
| 3.2*   |   | Amendment  to Restated Certificate of Trust, dated March 15, 2007                                                                                                            |
|   |   |                                                                                                                                                                              |
| 3.3*   |   | Amended  and Restated Declaration of Trust, dated February 13, 2007                                                                                                          |
|   |   |                                                                                                                                                                              |
| 3.4*   |   | Second Amended and Restated Declaration of Trust, dated June 4, 2008.                                                                                                             |
|   |   |                                                                                                                                                                              |
| 3.4*   |   | Rules and  Procedures of Adelphia Recovery Trust                                                                                                                             |
|   |   |                                                                                                                                                                              |
| 4.1*   |   | Form of  Certificate Evidencing Undivided Beneficial Interests in the Assets of the Adelphia  Recovery Trust (Global Certificate)                                            |
|   |   |                                                                                                                                                                              |
| 4.2*   |   | Form of Certificate Evidencing Undivided Beneficial Interests in  the Assets of the Adelphia Recovery Trust (Book Entry Certificate)                                         |
|   |   |                                                                                                                                                                              |
| 10.1*  |   | Plan  Administrator Agreement, dated February 12, 2007                                                                                                                       |
|   |   |                                                                                                                                                                              |
| 10.2*  |   | Trustee  Compensation Agreement                                                                                                                                                   |
|   |   |                                                                                                                                                                              |
| 31.1   |   | Section 302  Certificate of Trustee                                                                                                                                          |
|   |   |                                                                                                                                                                              |
| 31.2   |   | Section 302  Certificate of Trust Administrator                                                                                                                              |
|   |   |                                                                                                                                                                              |
| 32.1   |   | Certificate of Trustee  pursuant to 18 U.S.C. 1350 Section 1350, as adopted pursuant to  Section 906 of the Sarbanes Oxley Act of 2002                                  |
|   |   |                                                                                                                                                                              |
| 32.2   |   | Certificate of Trust  Administrator pursuant to 18 U.S.C. 1350 Section 1350, as adopted  pursuant to Section 906 of the Sarbanes Oxley Act of 2002                      |

 

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*Incorporatedby reference to the Form 10 of Adelphia Recovery Trust (File No. 000-53209)filed April 30, 2008 and the amended Form 10 filed July 2, 2008.

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 

 

Date: March 9, 2009

 

 
| By: Quest Turnaround  Advisors, L.L.C.                 |   |
|--------------------------------------------------------|--------|
|                                                   |   |
| as Trust Administrator of  the Adelphia Recovery Trust |   |
|                                                   |   |
| /s/ Jeffrey A. Brodsky                                 |   |
|                                                   |   |
| Jeffrey A. Brodsky                                     |   |
|                                                   |   |
| Member                                                 |   |

 

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Pursuant to the requirementsof the Securities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the registrant and in the capacities and onthe dates indicated, including a majority of the Trustees.

 
| /s/ BRYAN E. BLOOM                              |   | Trustee |
|-------------------------------------------------|--------|---------|
|      Bryan  Bloom      |   |    |
|                                            |   |    |
| /s/ LEE S. HILLMAN                              |   | Trustee |
|      Lee  S. Hillman   |   |    |
|                                            |   |    |
| /s/ DAVID P. STOWELL                            |   | Trustee |
|      David  P. Stowell |   |    |
|                                            |   |    |
| /s/ RALPH J. TAKALA                             |   | Trustee |
|      Ralph  J. Takala  |   |    |
|                                            |   |    |
| /s/ DEAN A. ZIEHL                               |   | Trustee |
|      Dean  A. Ziehl    |   |    |

 

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