FORM 10-Q


                       SECURITIES AND EXCHANGE COMMISSION


                             Washington, D.C. 20549

                                   (Mark one)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005


                                       or

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934


                        Commission File Number: 000-32859

                              BFA LIQUIDATION TRUST

             (Exact name of registrant as specified in its charter)


           Arizona                                           86-1018485
(State or other jurisdiction of                           (I.R.S. Employer
 incorporation or organization)                          Identification No.)

2375 E. Camelback, Suite 700, Phoenix, Arizona                   85016
  (Address of principal executive offices)                     (Zip Code)

       Registrant's telephone number, including area code: (602) 279-3587

       Former Addresses: 3300 N Central Ave. Suite 900, Phoenix, AZ 65012
                 1313 E. Osborn Rd, Suite 250, Phoenix, AZ 85014

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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
described in Rule 12b-2 of the Act [ ] Yes [X] No

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common  stock as of the  latest  practicable  date:  As of  November  12,  2005,
448,610,056 units of Class A Beneficial Interests and 137,246,636 units of Class
B Beneficial Interests were outstanding.

<PAGE>

                              BFA Liquidation Trust
                                    Form 10-Q
                                Table of Contents

                         PART I - FINANCIAL INFORMATION


Item 1. Financial Statements.                                                 1

Item 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operation.                                 11

Item 3. Qualitative and Quantitative Disclosures about Market Risk.           15

Item 4. Controls and Procedures.                                              15

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.                                                    15

<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.



                     BFA LIQUIDATION TRUST AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>

                                                                      September 30,     December 31,
                                                                           2005             2004
                                                                       -----------      -----------
<S>                                                                    <C>              <C>
ASSETS IN LIQUIDATION AT ESTIMATED FAIR VALUE
Cash and cash equivalents                                              $ 5,064,751      $ 3,754,649
Receivables, net                                                           200,000        1,586,280
Other trust assets, net                                                 21,627,216       18,615,802
Restricted cash and cash equivalents                                       361,725          360,200
                                                                       -----------      -----------

      TOTAL ASSETS                                                      27,253,692       24,316,931
                                                                       -----------      -----------

                   LIABILITIES IN LIQUIDATION
Accounts Payable and accrued liabilities                                   638,683          527,866
Estimated costs to complete liquidation                                  2,346,552        3,889,611
Settlement liability                                                       349,744          349,744
                                                                       -----------      -----------

      TOTAL LIABILITIES                                                  3,334,979        4,767,221
                                                                       -----------      -----------

Commitments and contingencies

      NET ASSETS IN LIQUIDATION                                        $23,918,713      $19,549,710
                                                                       ===========      ===========

CLAIMS AGAINST NET ASSETS IN LIQUIDATION CONSIST OF THE
FOLLOWING:
 Class "3A" Certificate,
       448,610,056 units outstanding,  $.04 per unit at September
30, 2005 and $.03 per unit at December 31, 2004                         18,315,358       14,969,867
 Class "3B" Certificate,
       137,246,636 units outstanding,  $.04 per unit at September
30, 2005 and $.03 per unit at December 31, 2004                          5,603,355        4,579,843
                                                                       -----------      -----------

      TOTAL NET ASSETS                                                 $23,918,713      $19,549,710
                                                                       ===========      ===========

<FN>
The  accompanying  notes are an integral  part of these  Consolidated  Financial
Statements.
</FN>
</TABLE>

                                       1
<PAGE>


                     BFA LIQUIDATION TRUST AND SUBSIDIARIES
         CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION

<TABLE>
<CAPTION>
                                                                  Three Months Ended
                                                            ------------------------------
                                                            September 30,     September 30,
                                                                2005              2004
                                                            ------------      ------------
<S>                                                         <C>               <C>
Net Assets in liquidation, beginning July 1                 $ 20,699,750      $ 28,062,886

Interest on notes receivable and cash                             30,490            88,954
Changes in fair value of other trust assets and
liabilities                                                    3,135,850           962,832
Changes in fair value of estimated costs to complete
liquidation                                                       52,623              --
Distributions to holders of Class 3A and 3B beneficial
interests                                                           --             (10,486)
                                                            ------------      ------------

Net assets in liquidation, ending September 30              $ 23,918,713      $ 29,104,186
                                                            ============      ============

<FN>
The  accompanying  notes are an integral  part of these  Consolidated  Financial
Statements.
</FN>
</TABLE>

                                       2
<PAGE>


                     BFA LIQUIDATION TRUST AND SUBSIDIARIES
         CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION

<TABLE>
<CAPTION>


                                                                   Nine months Ended
                                                            -------------------------------
                                                            September 30,      September 30,
                                                                2005               2004
                                                            ------------       ------------
<S>                                                         <C>                <C>
Net Assets in liquidation, beginning January 1              $ 19,549,710       $ 31,665,813

Interest on notes receivable and cash                             88,813            307,653
Changes in fair value of other trust assets and
liabilities                                                    4,375,313          4,250,568
Changes in fair value of estimated costs to complete
liquidation                                                     (206,753)        (1,872,213)
Receipts/(Distributions) to holders of Class 3A and 3B
beneficial interests                                             111,630         (5,247,635)
                                                            ------------       ------------

Net assets in liquidation, ending September 30              $ 23,918,713       $ 29,104,186
                                                            ============       ============

<FN>
The  accompanying  notes are an integral  part of these  Consolidated  Financial
Statements.
</FN>
</TABLE>

                                       3
<PAGE>


                     BFA LIQUIDATION TRUST AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

The BFA  Liquidation  Trust  (the  "TRUST")  was formed  pursuant  to the "First
Amended Joint Liquidating Plan of Reorganization of the Debtors Under Chapter 11
of the Bankruptcy  Code" proposed by the Baptist  Foundation of Arizona  ("BFA")
and related subsidiaries and affiliates (the "DEBTORS"), Official Collateralized
Investors'  Committee  and Official  Joint  Committee  of  Unsecured  Creditors,
relating to Case No.  99-13275 ECF GBN (the "PLAN"),  which was confirmed by the
Bankruptcy Court for the District of Arizona  ("BANKRUPTCY  COURT"), by an order
entered  on  December  22,  2000  and  became  effective  on  January  22,  2001
("EFFECTIVE DATE").

The primary purpose of the Trust is to (i) oversee and direct the liquidation of
the assets that were  transferred  to the Trust pursuant to the Plan (the "TRUST
ASSETS") for the benefit of the Trust's beneficiaries; (ii) prosecute all claims
and causes of action  that the Trust may have  against any person or entity (the
"LITIGATION  CLAIMS")  for the benefit of the Trust's  beneficiaries;  and (iii)
distribute any proceeds of the Litigation  Claims and the Trust Assets  received
by the Trust to the Trust's beneficiaries.

The Trust is not operated  with the  objective of  continuing or engaging in the
conduct of a trade or  business,  except to the extent  reasonably  necessary to
preserve or enhance the liquidation  value of the Trust Assets,  consistent with
the primary  purpose of the Trust. To facilitate the orderly  administration  of
the Trust and to  maximize  the value of the Trust  Assets,  the Trust  owns one
subsidiary,  New Asset Subsidiary,  LLC ("NAS"). The assets will be grouped in a
consistent and coherent manner and held, pending sale, by NAS. The Trust and NAS
are charged with the  responsibility of appraising the assets,  listing them for
sale in an orderly manner,  and  distributing  the proceeds from the sale to its
beneficiaries on a regular basis. The Trust was expected to terminate after five
(5) years on January 22, 2006,  however,  on May 16, 2005 the  Bankruptcy  Court
granted the Trust's request for a one (1) year extension.

The Plan provides for the appointment of a liquidating trustee (the "LIQUIDATING
TRUSTEE") and a liquidating trust board  ("LIQUIDATION  TRUST BOARD") to oversee
the  liquidation  of the Trust  Assets and to ensure  that such  liquidation  is
conducted in a cost-effective manner and in a reasonable time. In addition,  the
Liquidating Trustee and Liquidating Trust Board are directing the prosecution of
the Litigation Claims in an attempt to maximize the Trust's recoveries from such
claims.  The  Liquidating  Trustee  and the  Liquidating  Trust Board are making
ongoing efforts to dispose of the Trust Assets, to make timely distributions and
to minimize the duration of the Trust.

The Trust has a  wholly-owned  subsidiary to assist in  liquidating  the assets,
NAS, an Arizona limited liability company. NAS was formed on the Effective Date,
and the Trust is the sole  member of that  company.  The Trust is able to direct
NAS to take any actions that the Liquidating  Trustee believes will maximize the
value of the assets held by NAS. The Trust transferred  substantially all of its
assets to NAS,  which NAS is currently  marketing for sale. NAS is not permitted
to sell any assets or take any other  action  unless so  directed  by the Trust.
Collectively, the Trust and NAS are referred to as the "Trust".

BASIS OF PRESENTATION

The accompanying  consolidated financial statements as of September 30, 2005 and
December 31, 2004 and for the three and nine months ended September 30, 2005 and
2004 include the accounts of the Trust and NAS.  All  intercompany  transactions
and accounts are eliminated in consolidation. The Trust's investments in certain
wholly-owned  entities  are  included  in these  financial  statements  at their
estimated  fair value since the Trust  expects to liquidate the  investments  by
selling the entire individual businesses as going concerns.


                                       4
<PAGE>
These unaudited  consolidated  financial  statements have been prepared based on
the liquidation  basis of accounting,  accordingly  assets and liabilities  have
been recorded at estimated fair values. In accordance with the liquidation basis
of  accounting,   the  financial  statements  reflect  the  estimated  costs  of
liquidating  the assets and  distributing  the proceeds to holders of beneficial
interests.

The  accompanying   unaudited  consolidated  financial  statements  reflect  all
adjustments,  consisting only of normal  recurring  adjustments that are, in the
opinion of  management,  necessary  for a fair  statement of the results for the
interim  period  presented.   Such  financial  information  should  be  read  in
conjunction with the consolidated financial statements and related notes thereto
as of December 31, 2004 and for the fiscal year ended December 31, 2003 included
in the  Trust's  Form  10  -K's  as  filed  with  the  Securities  and  Exchange
Commission.  The results for the nine months ended September 30, 2005 may not be
indicative of the future results for the entire year 2005.

The Trust's  management has made certain  estimates and assumptions  relating to
the reporting of assets and liabilities and the disclosure of contingent  assets
and liabilities to prepare these consolidated financial statements in conformity
with accounting  principles  generally accepted in the United States of America.
Under the  liquidation  basis of accounting,  assets and  liabilities  have been
recorded  at  their  estimated  fair  values.   Given  that  there  is  inherent
uncertainty in the valuation  process,  the amounts actually realized or settled
could  be  materially   different  from  those  reflected  in  the  accompanying
consolidated financial statements.

TRUST ASSETS

The assets of the Trust are carried at estimated  fair market values  determined
by discounting, at appropriate risk adjusted discount rates, the Trust's current
best  estimate  of cash  flows  expected  to be  realized  from the  collection,
liquidation  and  disposition  of assets held by the Trust.  Such assets consist
principally of notes  receivable,  income producing real estate and interests in
real estate, interests in partnerships and operating companies and miscellaneous
other  assets.  The  estimates of the future cash flows and discount  rates from
which the asset values of the Trust were derived are updated  quarterly  and are
made under the direction of the  management of the Trust based upon  information
available  and  believed to be reliable.  These  estimates  reflect  significant
judgments  regarding  assumptions,  discount rates, timing of cash flows, market
risk  and  allowable  disputed  claims.  Because  of  the  inherent  uncertainty
regarding the valuation of these assets there will likely be differences between
actual  results and the  estimated  fair values  reflected  in the  accompanying
consolidated financial statements and the differences may be material.

The fair value of Trust Assets is reassessed at least  quarterly and adjustments
to estimated fair values are reflected in the period in which they become known.
For each asset,  estimates of income,  expenses and net cash flow on a quarterly
basis through the expected final  disposition date are prepared.  The individual
asset cash flow  estimates  are  developed  based  upon  factors  which  include
appraisals by independent  appraisers,  physical  inspection of the asset or the
collateral  underlying the related loans, local market  conditions,  contractual
payments and discussions with the relevant borrower.

ESTIMATED COSTS TO COMPLETE LIQUIDATION AND LITIGATION

The estimated costs to complete  liquidation  represent the estimated cash costs
of operating the Trust through its termination, discounted using a present value
factor of 6.25% at  September  30, 2005 and 5.25% at December  31,  2004.  These
costs, which include personnel, facilities,  Liquidating Trustee and Liquidating
Trust Board compensation,  professional fees, litigation costs and other related
costs,  are  estimated  based on  various  assumptions  regarding  the number of
employees,   the  use  of  outside   professionals   (including   attorneys  and
accountants) and other costs. Litigation costs contain assumptions based on what
management expects the likely course of actions will be regarding litigating and
or  settling  certain  contingencies  (Note 7).  Given  that  there is  inherent
uncertainty  in the  estimation  process,  actual  results  could be  materially
different.  On May 16, 2005 the Bankruptcy Court granted the Trust's request for
a one (1) year extension.

                                       5
<PAGE>
DISTRIBUTIONS

Under  the  terms of the  Plan,  the  Trust  makes  quarterly  distributions  to
Beneficiaries, if able after providing for certain reserves and expenses.

DISTRIBUTIONS TO TRUST BENEFICIARIES. Each holder of Class 3A or Class 3B claims
("INVESTORS")  received  an  uncertificated,  beneficial  interest in the Trust,
which entitles the Investor to receive cash  distributions  from the Trust based
upon the orderly  liquidation of all of the Trust assets and the recoveries,  if
any,  from  litigation  against  potentially   responsible  third  parties.  All
Investors  will share,  on a pro rata basis,  the first  $80,000,000 in proceeds
from the liquidation of the Trust assets after payment to other creditors with a
greater payment priority.  All proceeds from the liquidation of the Trust assets
in excess of $80,000,000 up to and including  $160,000,000,  will be distributed
on a pro rata basis  between 3B  investors  and 3A  investors;  however,  the 3A
investors will receive a  collateralized  investor  premium of $13,200,000.  All
proceeds from the liquidation of the Trust assets in excess of $160,000,000 will
be  distributed  on a pro rata basis  between  3A  investors  and 3B  investors.
Recoveries,  if any, from the litigation against potentially responsible parties
will be distributed to all Investors on a pro rata basis. The Class 3A and Class
3B net asset value on the balance sheet has been  calculated  based on the above
distribution  requirements.   Cash  distributions  to  Class  3A  and  Class  3B
beneficial interests amounted to approximately $16.1 million, $163.3 million and
$32.7 million, including the Trust's 50% share of litigation distributions,  for
the years ended December 31, 2004, 2003 and 2002, respectively.

Cash  distributions  are reported net of any  distributions  that were voided or
returned to the Trust.  During the three month  period  ending June 30, 2005 the
Trust  received back $111,630 in  distributions  that were owed to the Trust but
had previously been sent to an incorrect address.

NEW ACCOUNTING PRONOUNCEMENTS

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections-a  replacement of APB Opinion No. 20 and FASB Statement No. 3." This
Statement  replaces APB Opinion No. 20,  "Accounting  Changes",  and SFAS No. 3.
"Reporting Accounting Changes in Interim Financial Statements",  and changes the
requirements  for the  accounting  for and  reporting of a change in  accounting
principle.  This  Statement  applies  to all  voluntary  changes  in  accounting
principle. It also applies to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific transition
provisions. When a pronouncement includes specific transition provisions,  those
provisions should be followed.  The provisions of SFAS No. 154 are effective for
fiscal years beginning after December 15, 2005. The adoption of SFAS No 154 will
not  have  an  impact  on  the  Trust's  consolidated  financial  statements  or
disclosures.

In  April  2005,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Interpretation No. 47, "Accounting for Conditioned Asset Retirement Obligations,
an interpretation of FASB Statement No. 143". This interpretation clarifies that
an  entity  is  required  to  recognize  a  liability  for the  fair  value of a
conditional  asset  retirement  obligation when incurred if the liability's fair
value can be reasonably  estimated.  It also clarifies when an entity would have
sufficient  information  to  reasonably  estimate  the  fair  value  of an asset
retirement  obligation.  The adoption of Interpretation  No. 47 will not have an
impact on the Trust's consolidated financial statements or disclosures.

In March 2005,  the FASB issued  Interpretation  No.  46(R)-5  ("FIN  46(R)-5").
Implicit Variable  Interests under FASB  Interpretation No. 46 (revised December
2003),  "Consolidation of Variable Interest Entities".  FIN 46(R)-5 is effective
for the first reporting period beginning after March 3, 2005;  however,  earlier
application is permitted for periods for which financial statements have not yet
been issued.  The adoption of FIN 46(R)-5 will not have an impact on the Trust's
consolidated financial statements or disclosures.

In March 2005,  the SEC  released  Staff  Accounting  Bulletin  ("SAB") No. 107,
"Share-Based Payment." SAB No. 107 provides the SEC staff position regarding the
application  of SFAS No.  123(R).  SAB No. 107  contains  interpretive  guidance
related to the  interaction  between  SFAS No.  123(R) and certain SEC rules and
regulations,  as well as provides the staff's  views  regarding the valuation of
share-based  payment  arrangements  for  public  companies.  SAB  No.  107  also
highlights  the  importance of  disclosures  made related to the  accounting for
share-based  payment  transactions.  The  adoption  of SAB 107  will not have an
impact on the Trust's consolidated financial statements or disclosures.

During December 2004, the FASB issued a revision of SFAS No. 123, Accounting for
Stock-Based  Compensation.   This  statement  superseded  APB  Opinion  No.  25,
Accounting  for  Stock  Issued  to  Employees,  and its  related  implementation
guidance.  SFAS 123R  required  companies  to expense the fair value of employee
stock  options and is effective for the first fiscal year  beginning  after June
15, 2005.  The adoption of SFAS No 123(R) will not have an impact on the Trust's
consolidated financial statements or disclosures.

In November 2004, the FASB issued Statement of Financial  Accounting  Standard (
SFAS ) No. 151, Inventory Costs-An Amendment of ARB No. 43, Chapter 4, Inventory
Pricing to clarify the accounting for abnormal amounts of idle facility expense,
freight,  handling costs,  and wasted material or spoilage that may be incurred.
Among other things,  SFAS 151 requires that these items be recognized as charges
to expense in the periods incurred and clarifies that fixed production  overhead
costs be allocated to inventory based on normal production capacity. Unallocated
overhead costs  associated  with  abnormally  low or high  production in a given
period  should be charged to expense in that  period.  SFAS 151 is  effective on
January 1, 2006 and  adoption of this  statement  will not have an impact on the
Trust's consolidated financial statements or disclosures.

                                       6
<PAGE>

In October 2004,  the FASB ratified the EITF s consensus on Issue No. 04-8,  The
Effect of  Contingently  Convertible  Debt on Diluted  Earnings per Share.  This
consensus  requires that  contingently  convertible debt  instruments,  commonly
referred to as Co-Cos,  be included in diluted earnings per share  computations,
if dilutive,  regardless  of whether the  contingent  feature has been met. This
issue is effective for periods  ending after  December 15, 2004. The adoption of
this  interpretation  will  not  have  an  impact  on the  Trust's  consolidated
financial statements or disclosures.

On  September  30,  2004,  the  Emerging  Issues Task Force ( EITF ) of the FASB
issued a final FASB Staff  Position,  FSP EITF Issue  03-1-1,  which delayed the
effective date for the  measurement and  recognition  guidance  included in EITF
Issue 03-1 which  prescribed  the criteria that should be used to determine when
an investments  is considered  impaired,  whether that  impairment is other than
temporary,  and the  measurement  of an  impairment  loss.  The adoption of this
interpretation  will not have an impact on the  Trust's  consolidated  financial
statements or disclosures.

On March 9, 2004 the SEC issued SEC Staff Accounting  Bulletin No. 105 ( SAB 105
) which  summarized  the views of the SEC staff  regarding  the  application  of
generally accepted  accounting  principles to loan commitments  accounted for as
derivative instruments.  Specifically,  SAB 105 indicated that the fair value of
loan  commitments that are required to follow  derivative  accounting under SFAS
No. 133,  should not  consider  the  expected  future cash flows  related to the
associated  servicing  of the future  loan.  Prior to SAB 105, the Trust did not
consider the expected  future cash flows related to the associated  servicing in
determining the fair value of loan commitments. The adoption of SAB 105 will not
have an impact on the Trust's consolidated financial statements or disclosures.

2. RECEIVABLES, NET

At September 30, 2005, net  receivables  consisted  solely of a judgement in the
amount of approximately  $200,000 that was the result of the William Blair notes
collateralized by real estate.  During the quarter ended September 30, 2005, the
Trust  received  payment in full of $1,137,000 in  satisfaction  of the W.H.H.C.
note, see footnote 7. At December 31, 2004, net receivables  consisted primarily
of an  approximately  $1.4  million  note  from  W.H.H.C.  and an  approximately
$231,000 note from William Blair collateralized by real estate.

The following is a summary of gross cash flows and related valuation  allowances
at:
<TABLE>
<CAPTION>

                                                        September 30,     December 31,
                                                            2005               2004
                                                         -----------      ------------
<S>                                                      <C>              <C>
Total gross future cash flows from notes receivable      $   200,000      $ 9,161,445
Collectibility discount                                         --         (7,575,165)
Present value discount                                          --               --
                                                         -----------      -----------
Net receivables                                          $   200,000      $ 1,586,280
                                                         ===========      ===========
</TABLE>


3. OTHER TRUST ASSETS, NET

The other trust assets are carried at estimated fair values which are the result
of  discounting,  at appropriate  discount rates,  the currently  estimated cash
flows projected to be realized from the collection, liquidation and disposition.
These valuations include appraisals by independent appraisers of the liquidation
value of some assets.  These values do not  represent  the full future cash flow


                                       7
<PAGE>
values  expected  from  the  sale  or  operations  of  these  assets  due to the
discounting of respective cash flows. Such assets consist  principally of income
producing  real estate and interests in real estate,  interests in  partnerships
and operating companies, and miscellaneous other assets transferred to the Trust
upon the consummation of the Plan.

Other trust assets consist of the following:
<TABLE>
<CAPTION>
                                                   September 30,      December 31,
                                                       2005               2004
                                                   ------------       ------------
<S>                                                <C>                <C>
Real estate assets and partnerships, net           $ 20,332,371       $ 15,466,014
Investments in other operating companies, net         3,801,250          4,978,604
Other assets, net                                       133,594            121,527
                                                   ------------       ------------
Future value of other trust assets                   24,267,215         20,566,145
Present value discount (various rates)               (2,639,999)        (1,950,343)
                                                   ------------       ------------
Other trust assets value                           $ 21,627,216       $ 18,615,802
                                                   ============       ============
</TABLE>

Real  estate  assets  and  partnership  interests  consist of the  following  at
September 30, 2005 and December 31, 2004:

     O    NEWLAND TFC LLC, a series of two distinct  residential  communities in
          California in which the Trust has invested along with Newland and with
          CalPERS in the Cal Land Partnership.  In each of the communities,  the
          Cal Land  Partnership is selling lots to builders.  The Trust owns 99%
          of Newland TFC, LLC.

     O    VARIOUS OTHER REAL ESTATE ASSETS including partnership interests,  raw
          land and a ground lease.

Investments in other non-public  operating  companies  consist of ownership in a
venture capital company.

Other assets consist principally of prepaid expenses.

4. ESTIMATED COSTS TO COMPLETE LIQUIDATION AND LITIGATION

The  estimated  costs to complete  liquidation  and  litigation of $2,346,552 at
September 30, 2005 and  $3,889,611 at December 31, 2004  represent the estimated
costs of operating the Trust through its termination, discounted using a present
value  factor of 6.25% at  September  30, 2005 and 5.25% at December  31,  2004.
These  costs,  which  include  personnel,  facilities,  Liquidating  Trustee and
Liquidating  Trust Board  compensation,  professional fees and litigation costs,
are estimated  based on various  assumptions  regarding the number of employees,
the use of outside professionals (including attorneys and accountants) and other
matters.  Litigation costs contain  assumptions based on what management expects
the likely  course of  actions  will be  regarding  litigating  and or  settling
certain  contingencies.   Given  that  there  is  inherent  uncertainty  in  the
estimation  process,  actual results could be materially  different.  On May 16,
2005  the  Bankruptcy  Court  granted  the  Trust's  request  for a one (1) year
extension.

5. SETTLEMENT LIABILITY

The settlement  liability at September 30, 2005 and December 31, 2004 represents
the class action's 50% portion of the remaining  settlement assets from Jalma W.
and Carole  Hunsinger and their affiliates and Harold D. and Stephanie B. Friend
and  their  affiliates  reported  in cash  and  cash  equivalents,  in  total of
approximately  $700,000.  The  liability  will  remain  on the  books  until the
proceeds are distributed to the class action investors by the Trust.

6. CHANGES IN OTHER TRUST ASSETS

During the three months ended September 30, 2005, the valuation of certain other
trust  assets  were  adjusted  based on current and pending  sales  offers,  new
information   received  by  management  and  actual  operating  results.   These
adjustments  aggregately  total an  approximate  $3.1 million  increase in other
trust assets.  Included in actual  operating  results are sales of approximately
$29,000 for the sale of the Show Low Country Club lot.

                                       8
<PAGE>

During the three months ended September 30, 2004, the valuation of certain other
trust  assets  were  adjusted  based on current and pending  sales  offers,  new
information   received  by  management  and  actual  operating  results.   These
adjustments  aggregately  total an approximate  $960,000 increase in other trust
assets.  Included in actual operating  results are sales of  approximately  $5.8
million  for the sale of  various  Westside  lots,  Bloomington  building  4 and
various other assets.

During the nine months ended  September 30, 2005, the valuation of certain other
trust  assets  were  adjusted  based on current and pending  sales  offers,  new
information   received  by  management  and  actual  operating  results.   These
adjustments  aggregately  total an  approximate  $1.8 million  increase in other
trust assets.  Included in actual  operating  results are sales of approximately
$1.1 million for the sale of the Port Perry lots and various  Westside  Property
and various other Arizona parcels.

During the nine months ended  September 30, 2004, the valuation of certain other
trust  assets  were  adjusted  based on current and pending  sales  offers,  new
information   received  by  management  and  actual  operating  results.   These
adjustments  aggregately  total an  approximate  $4.2 million  increase in other
trust assets.  Included in actual  operating  results are sales of approximately
$11.1 million for the sale of various Westside lots,  Bloomington building 3 and
4, Prescott Country Club lot and various other assets.

7. COMMITMENTS AND CONTINGENCIES

Contingent Liabilities

The Trust is involved in various legal proceedings.  A number of creditors filed
proofs of claims in the Debtors'  bankruptcy  proceedings.  As of September  30,
2005 all of the disputed  proof of claims have been  resolved and either paid in
full (if any amount was due) or fully reserved for (if disputed).

In October 2005 the Trust was served with a lawsuit where the plaintiffs, Harbor
Pointe,   LLC,  alleged  breach  of  contract,   fraudulent   misrepresentation,
fraudulent  inducement,  and suppression in regards to the purchase of a certain
piece of property for approximately $3.8 million in the Stillwaters  development
located near Dadeville,  AL. The Trust is one of multiple defendants who include
the sales broker,  surveyor and other parties involved in the sales transaction.
The dispute arises out of the fact that various documents allegedly given to the
plaintiff appear to be incorrect as to the description of property easements and
said  easement  corrections  allegedly  would  have a  negative  impact on value
according to the plaintiff.  The Trust alleges among other things that the final
title report,  the governing  document in the sale,  clearly  stated the correct
easements  and the  buyer  was  aware  of said  easements  before  closings  and
therefore  is not  liable  for  any  perceived  reduction  in  value  due to the
easements  being  incorrectly  stated  in other  non-binding  documents.  Harbor
Pointe,  LLC is  claiming  damages  for lost  profits,  invested  monies,  legal
exposure  to  its  customers  and  punitive  damages.  The  Trust  has  received
confirmation  from its insurance  carrier that the insurance company will assume
the legal defense of this case, subject to a $100,000 deductible.  The Trust has
accrued a $100,000  liability for this lawsuit in the accompanying  consolidated
financial statements although the Trust believes the lawsuit to be frivolous and
without merit.


Contingent Assets

In an effort to avoid repaying $4 million dollars in debt to the Trust,  William
Blair has  engaged in a number of legal  maneuvers.  In 2001,  the Trust filed a
Notice of  Trustee's  Sale on the  collateral  securing  repayment on one of the
Notes (the "DESERT  DIAMOND  NOTE").  The Trust  separately  filed a lawsuit and
obtained a judgment  against  Mr.  Blair  individually  as a co-maker  under the
Desert Diamond Note. That debt has been reduced to judgment in an amount of $1.4
million  dollars,  plus  interest at 19% until paid in full.  With regard to Mr.
Blair's  second  obligation  (the  "CAMPBELL  NOTE") the Superior  Court entered


                                       9
<PAGE>
judgment on March 19, 2003 against both Mr. Blair and his trust in the amount of
$1,418,329.82 with interest at the rate of 18% from August 13, 2001, until paid.
In July 2004 Mr. Blair filed for personal bankruptcy protection, and turned over
certain assets to the Chapter 7 trustee for  liquidation.  Through the judgments
under the Desert  Diamond  and  Campbell  Notes,  the Trust  holds  secured  and
unsecured  claims in the  Blair  bankruptcy  case.  The  Trust  has  reached  an
agreement with the Chapter 7 trustee  whereby the Trust is to receive (i) 50% of
the net proceeds  from asset sales after  secured  creditors  have been paid and
(ii) distributions  based on the Trust's pro-rata share as an unsecured creditor
of any remaining proceeds after administrative costs. The Trust has not included
the value of these estimated proceeds in the accompanying consolidated financial
statements due to the uncertainty of the asset's sales values. In addition there
exists a remaining action against Fidelity Title (the "TITLE COMPANY") the Title
Company  hired  by Mr.  Blair  to  transfer  title to  portions  of the  Trust's
collateral under the Desert Diamond Note to third parties without lien releases.
The Bankruptcy Court granted the Title Company's Motion for  Reconsideration and
reversed its prior ruling. The effect is that the Bankruptcy Court has upheld an
alleged  contract  modification  disallowed  by a different  judge in an earlier
litigation.  If the Bankruptcy  Court's ruling was upheld upon appeal, the Trust
would be required to release its liens on the remaining real property collateral
for a release price of $12,500/lot (a total of $275,000 for the remaining lots).
The  Bankruptcy  Court also  awarded the Title  Company an amount of $44,000 for
fees and costs.  The Trust  appealed both rulings made by the  Bankruptcy  Court
relating  to the  Title  Company  matters  and a stay  was  issued  pending  the
resolution of the appeal. The District Court heard oral arguments  regarding the
appeal in March,  2005.  The court  upheld  the  Bankruptcy  Court's  ruling and
therefore the Trust has included the estimated  value of this note receivable at
the lot release price less awarded and estimated  attorney's  fees ($200,000) in
the receivables, net portion of the accompanying consolidated financial.

The Trust held a note receivable in an outstanding  amount of approximately $1.8
million dollars from W.H.H.C.  Through this note the Trust began  foreclosing on
approximately 70 acres of real property located in Maricopa County, Arizona with
an estimated value of $2.8 million as payment on the outstanding note. A lawsuit
had been filed in the  Superior  Court to foreclose on the mortgage and obtain a
judgment  against the real property.  The  defendants  had filed  counter-claims
against  the Trust  asserting  that the Trust had  wrongfully  filed lis pendens
against the subject  property.  If such  counter-claims  had been successful the
result would have been a potential  liability  for the Trust equal to triple the
damages  incurred.  Subsequently,  both the  defendants  and the Trust had filed
motions for summary judgment and cross-motions for summary judgment against each
other.  The Maricopa County  Superior Court  ("SUPERIOR  COURT")  conducted oral
arguments  on all the pending  motions in  February  2005.  The Trust  reached a
settlement with W.H.H.C.  that resulted in a final payoff of the loan for $1.137
million.  The Trust filed the  settlement  agreement  with the  Superior  Court.
During  September 2005, the court approved the settlement and the Trust received
the settlements funds.

Because of the  significant  uncertainty  associated with the valuation of these
contingent  assets,  it is likely that the  amounts  ultimately  realized  could
differ  from  the  amounts  that  are  actually  reflected  in the  accompanying
consolidated financial statements and the differences could be material.

8.  CASH RECEIPTS AND DISBURSEMENTS

For the nine months ended  September 30, 2005 and 2004,  the Trust  received net
cash proceeds from sales of assets,  note receivable  collections and operations
of approximately $2.8 million and $5.7 million  respectively,  consisting of the
following:
<TABLE>
<CAPTION>
                                                     Three Months Ended               Nine Months Ended
                                                 ----------------------------------------------------------
                                               September 30,   September 30,   September 30,   September 30,
                                                    2005            2004            2005             2004
                                                 ----------      ----------      ----------      ----------
<S>                                              <C>             <C>             <C>             <C>
Principal and interest  received from notes      $1,168,000      $  525,772      $1,168,000      $  947,328
receivable
Cash flows from other trust assets                  492,173       8,403,947       1,679,468       4,759,702
                                                 ----------      ----------      ----------      ----------
Total                                            $1,660,173      $8,929,719      $2,847,468      $5,707,030
                                                 ==========      ==========      ==========      ==========
</TABLE>

                                       10
<PAGE>
Conversely,  for the same  respective  periods,  the Trust  paid out to  various
creditors approximately $1.5 million and $6.2 millon respectively, as follows:
<TABLE>
<CAPTION>
                                    Three Months Ended                 Nine Months Ended
                              -----------------------------------------------------------------
                              September 30,    September 30,     September 30,     September 30,
                                  2005              2004              2005             2004
                              -----------       -----------       -----------       -----------
<S>                           <C>               <C>               <C>               <C>
Trust operations              $  (246,294)      $  (948,517)      $(1,648,995)      $(1,831,585)
Receipts/(Distributions)             --             (10,486)          111,630        (5,237,149)
                              -----------       -----------       -----------       -----------
Total                         $  (246,294)      $  (959,003)      $(1,537,365)      $(7,068,734)
                              ===========       ===========       ===========       ===========
</TABLE>

9. SUBSEQUENT EVENTS

On October 16, 2005 the Trust  completed the sale of its interest in Cornerstone
and  Venture  Funds for a gross sales price of  approximately  $4 million  which
netted the Trust approximately $3.8 million after commissions and fees.

On November 7, 2005 the Bankrupcty Court ruled in favor of the Trust's motion to
no longer be required to file regulatory reports with the SEC effective November
30, 2005. The Trust may now notify the SEC of the  bankruptcy  court's ruling or
may take such  action as may be  appropriate.  As part of the  Bankruptcy  Court
order,  the  Trust  will  now  mail  quarterly  newsletters  to  investors  as a
substitute for filing the regulatory reports with the SEC.

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

The selected  historical  financial data presented  below for the three and nine
months  ended  September  30,  2005 and 2004 are derived  from our  consolidated
financial statements.  The selected financial data should be read in conjunction
with the consolidated financial statements and related notes included in Item 1.
<TABLE>
<CAPTION>

                                                          Three Months Ended                     Nine months Ended
                                                     ------------------------------       -------------------------------
                                                    September 30,     September 30,       September 30,      September 30,
                                                         2005              2004               2005               2004
                                                     ------------      ------------       ------------       ------------
<S>                                                  <C>               <C>                <C>                <C>
Net Assets in liquidation, beginning                 $ 20,699,750      $ 28,062,886       $ 19,549,710       $ 31,665,813

Interest on notes receivable and cash                      30,490            88,954             88,813            307,653
Interest on notes payable                                    --                --                 --                 --
Changes in fair value of other trust assets
and liabilities                                         3,135,850           962,832          4,375,313          4,250,568
Changes in fair value of estimated costs to
complete liquidation                                       52,623              --             (206,753)        (1,872,213)
Receipts/(Distributions) to holders of Class
3A and 3B beneficial interests                               --             (10,486)           111,630         (5,247,635)
                                                     ------------      ------------       ------------       ------------
Net assets in liquidation, ending                    $ 23,918,713      $ 29,104,186       $ 23,918,713       $ 29,104,186
                                                     ============      ============       ============       ============
</TABLE>

Certain statements under the headings  "Management's  Discussion and Analysis of
Financial Condition and Results of Operation," "Business," and elsewhere in this
report constitute  "forward-looking  statements" within the meaning of the rules
and regulations promulgated by the Securities and Exchange Commission.

This report contains a number of forward-looking  statements,  which reflect the
Trust's  current views with respect to future events and financial  performance.
Such   forward-looking   statements  are  based  on  management's   beliefs  and
assumptions  regarding  information  that is currently  available,  and are made
pursuant to the "safe harbor"  provisions of the federal  securities laws. These
forward-looking  statements are subject to certain risks and uncertainties.  The
Trust's  actual  performance  and results  could  differ  materially  from those

                                       11
<PAGE>

expressed in the forward-looking  statements due to risks and uncertainties that
could materially impact the Trust in an adverse fashion and are only predictions
of future results, and there can be no assurance that the Trust's actual results
will not  materially  differ  from those  anticipated  in these  forward-looking
statements.  In this report,  the words  "anticipates",  "believes",  "expects",
"intends",   "plans",   "may",   "future",   and  similar  expressions  identify
forward-looking statements. Readers are cautioned not to place undue reliance on
the forward-looking statements contained herein, which speak only as of the date
hereof.  The Trust has no  obligation  to  publicly  update or revise any of the
forward-looking  statements to reflect  events or  circumstances  that may arise
after the date hereof.


            FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO

                    THE THREE MONTHS ENDED SEPTEMBER 30, 2004


The  estimated  fair value of the  Trust's net assets in  liquidation  increased
approximately  $3.2  million for the three months  ended  September  30, 2005 as
compared to an  approximately  $1.0 million  increase for the three months ended
September  30, 2004.  Factors which  contributed  to the net increase of the net
asset value of the Trust's net assets for the three months ended  September  30,
2005 include (i)  interest  income from cash  investments  which  increased  net
assets by approximately  $30,000,  (ii) a increase in the value of certain other
trust assets which increased net assets by approximately $3.1 million, and (iii)
a decrease in the  estimated  costs to  liquidate  which  decrease net assets by
approximately $53,000.  Factors which contributed to the net increase of the net
asset value of the Trust's net assets for the three months ended  September  30,
2004 include (i) interest  income from notes  receivables  which  increased  net
assets by approximately  $89,000, (ii) an increase in the value of certain other
trust assets which  increased net assets by  approximately  $963,000,  and (iii)
distributions to class 3A and 3B which decreased net assets by $10,500.

Interest income from notes  receivable and cash decreased in 2005 as compared to
2004  because of principal  payments  received and notes  receivable  sold.  The
changes in fair value of other trust  assets in 2005 as compared to 2004 changed
because  of the  changes  in the  fair  market  value  of  assets  and  sales or
operations of these assets.

            FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO

                    THE NINE MONTHS ENDED SEPTEMBER 30, 2004


The  estimated  fair value of the  Trust's net assets in  liquidation  increased
approximately  $4.4  million for the nine  months  ended  September  30, 2005 as
compared to an  approximately  $2.6  million  decrease for the nine months ended
September  30, 2004.  Factors which  contributed  to the net increase of the net
asset value of the Trust's net assets for the nine months  ended  September  30,
2005 include (i)  interest  income from cash  investments  which  increased  net
assets by approximately  $88,000,  (ii) a increase in the value of certain other
trust assets which increased net assets by approximately $4.4 million,  (iii) an
increase  in the  estimated  costs to  liquidate  which  decrease  net assets by
approximately  $206,000  and (iv)  distributions  returned  to the  Trust  which
increased net assets by $112,000.  Factors which contributed to the net decrease
of the net asset  value of the  Trust's  net  assets for the nine  months  ended
September  30, 2004 include (i)  interest  income from notes  receivables  which
increased net assets by approximately $307,000, (ii) an increase in the value of
certain  other  trust  assets  which  increased  net  assets  by   approximately
$4,250,000, (iii) an increase in the estimated costs to liquidate which decrease
net assets by approximately $1,872,000 and (iv) distributions to class 3A and 3B
which decreased net assets by $5,248,000.

Interest income from notes  receivable and cash decreased in 2005 as compared to
2004  because of principal  payments  received and notes  receivable  sold.  The
changes in fair value of other trust  assets in 2005 as compared to 2004 changed
because  of the  changes  in the  fair  market  value  of  assets  and  sales or
operations of these assets.


                                       12
<PAGE>

Non-cash trust assets at September 30, 2005 and December 31, 2004 were comprised
of the following:

NON-CASH ASSETS IN LIQUIDATION
  AT ESTIMATED FAIR VALUE               September 30,    December 31,
                                            2005             2004
                                        -----------      -----------

Receivables, net                        $   200,000      $ 1,586,280
Other trust assets, net                  21,627,216       18,615,802
                                        -----------      -----------
TOTAL NON-CASH ASSETS                   $21,827,216      $20,202,082
                                        ===========      ===========


The fair  value of the  Trust  Assets  is  reassessed  at  least  quarterly  and
adjustments  to estimated  fair values are reflected in the period in which they
become known. For each asset, estimates of income, expenses and net cash flow on
a quarterly basis through the expected final disposition date are prepared.  The
individual  asset cash flow  estimates are developed  based upon factors,  which
include appraisals by independent  appraisers,  physical inspection of the asset
or the  collateral  underlying  the  related  loans,  local  market  conditions,
contractual  payments and discussions with the relevant  borrower.  At September
30, 2005 and December 31, 2004, the projected monthly cash flows were discounted
at various rates, as appropriate,  to reflect the Trust Assets at estimated fair
market value.

The  Trust's  consolidated  financial  statements,  which have been  prepared in
accordance with accounting principles generally accepted in the United States of
America and in  accordance  with the  liquidating  basis of  accounting.  During
preparation of these consolidated financial statements, the Trust is required to
make  estimates and  assumptions  that affect the reported  amounts of assets at
estimated fair value,  liquidation  liabilities,  resolution of disputed claims,
estimates  of  liquidating  costs to be  incurred,  resolution  of  current  and
potential  litigation and the fair value of and related disclosure of contingent
assets and liabilities. On an on-going basis the Trust evaluates and updates its
estimates and  assumptions.  The Trust bases its estimates  and  assumptions  on
historical  experience and on various other  assumptions that the Trust believes
are  reasonable  under the  circumstances.  The results for the basis for making
judgments  about the fair values of assets and  liquidation  liabilities are not
readily  apparent  from other  sources.  Actual  results  may differ  from these
estimates under different assumptions or conditions.

     The Trust believes the following  critical  accounting  policies affect the
Trust's more  significant  estimates and assumptions  used in the preparation of
our consolidated  financial  statements,  which have been prepared in accordance
with the liquidation basis of accounting:

     o    Receivables  are  recorded  at  fair  value,   which   represents  our
          discounted   expected  future  cash  flows  calculated  based  on  the
          following factors:  receivable payment history,  financial performance
          of debtor, and underlying collateral of the Trust.

     o    Other  assets  consist  of  real  estate  partnerships,  interests  in
          operating  companies  and other assets and are recorded at fair value,
          which  represents  discounted  expected  future cash  flows,  based on
          estimates  and  assumptions  regarding  timing  of  sales,  timing  of
          payments, projected cash flows and appropriate discount factors.

     o    Payables,  accrued liabilities and notes payable are recorded based on
          expected  cash  outflows  which  require   estimates  and  assumptions
          relating to the timing of the payments and discount factors.

     o    Estimated costs to complete  liquidation and litigation  represent the
          estimated costs of operating the Trust to its termination,  discounted
          using a 6.25%  present value factor at September 30, 2005 and 5.25% at
          December 31, 2004.

                                       13
<PAGE>

     o    The costs  include  personnel,  facilities,  Liquidating  Trustee  and
          Liquidating Trust Board compensation, professional fees and litigation
          costs, and are estimated based on assumptions  regarding the number of
          employees, use of outside professionals, and timing of cash flows.

     o    Contingent Assets,  Litigation Settlements and related liabilities are
          recorded at the Trust's  estimated  future cash flows which  require a
          significant   amount   of   estimates   and   assumptions    regarding
          collectibility,  probable  outcomes,  timing of cash flows and various
          other factors.

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections-a  replacement of APB Opinion No. 20 and FASB Statement No. 3." This
Statement  replaces APB Opinion No. 20,  "Accounting  Changes",  and SFAS No. 3.
"Reporting Accounting Changes in Interim Financial Statements",  and changes the
requirements  for the  accounting  for and  reporting of a change in  accounting
principle.  This  Statement  applies  to all  voluntary  changes  in  accounting
principle. It also applies to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific transition
provisions. When a pronouncement includes specific transition provisions,  those
provisions should be followed.  The provisions of SFAS No. 154 are effective for
fiscal years beginning after December 15, 2005. The adoption of SFAS No 154 will
not  have  an  impact  on  the  Trust's  consolidated  financial  statements  or
disclosures.

In  April  2005,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Interpretation No. 47, "Accounting for Conditioned Asset Retirement Obligations,
an interpretation of FASB Statement No. 143". This interpretation clarifies that
an  entity  is  required  to  recognize  a  liability  for the  fair  value of a
conditional  asset  retirement  obligation when incurred if the liability's fair
value can be reasonably  estimated.  It also clarifies when an entity would have
sufficient  information  to  reasonably  estimate  the  fair  value  of an asset
retirement  obligation.  The adoption of Interpretation  No. 47 will not have an
impact on the Trust's consolidated financial statements or disclosures.

In March 2005,  the FASB issued  Interpretation  No.  46(R)-5  ("FIN  46(R)-5").
Implicit Variable  Interests under FASB  Interpretation No. 46 (revised December
2003),  "Consolidation of Variable Interest Entities".  FIN 46(R)-5 is effective
for the first reporting period beginning after March 3, 2005;  however,  earlier
application is permitted for periods for which financial statements have not yet
been issued.  The adoption of FIN 46(R)-5 will not have an impact on the Trust's
consolidated financial statements or disclosures.

In March 2005,  the SEC  released  Staff  Accounting  Bulletin  ("SAB") No. 107,
"Share-Based Payment." SAB No. 107 provides the SEC staff position regarding the
application  of SFAS No.  123(R).  SAB No. 107  contains  interpretive  guidance
related to the  interaction  between  SFAS No.  123(R) and certain SEC rules and
regulations,  as well as provides the staff's  views  regarding the valuation of
share-based  payment  arrangements  for  public  companies.  SAB  No.  107  also
highlights  the  importance of  disclosures  made related to the  accounting for
share-based  payment  transactions.  The  adoption  of SAB 107  will not have an
impact on the Trust's consolidated financial statements or disclosures.

During December 2004, the FASB issued a revision of SFAS No. 123, Accounting for
Stock-Based  Compensation.   This  statement  superseded  APB  Opinion  No.  25,
Accounting  for  Stock  Issued  to  Employees,  and its  related  implementation
guidance.  SFAS 123R  required  companies  to expense the fair value of employee
stock  options and is effective for the first fiscal year  beginning  after June
15, 2005.  The adoption of SFAS No 123(R) will not have an impact on the Trust's
consolidated financial statements or disclosures.

In November 2004, the FASB issued Statement of Financial  Accounting  Standard (
SFAS ) No. 151, Inventory Costs-An Amendment of ARB No. 43, Chapter 4, Inventory
Pricing to clarify the accounting for abnormal amounts of idle facility expense,
freight,  handling costs,  and wasted material or spoilage that may be incurred.
Among other things,  SFAS 151 requires that these items be recognized as charges
to expense in the periods incurred and clarifies that fixed production  overhead
costs be allocated to inventory based on normal production capacity. Unallocated
overhead costs  associated  with  abnormally  low or high  production in a given
period  should be charged to expense in that  period.  SFAS 151 is  effective on
January 1, 2006 and  adoption of this  statement  will not have an impact on the
Trust's consolidated financial statements or disclosures.

In October 2004,  the FASB ratified the EITF s consensus on Issue No. 04-8,  The
Effect of  Contingently  Convertible  Debt on Diluted  Earnings per Share.  This
consensus  requires that  contingently  convertible debt  instruments,  commonly
referred to as Co-Cos,  be included in diluted earnings per share  computations,
if dilutive,  regardless  of whether the  contingent  feature has been met. This
issue is effective for periods  ending after  December 15, 2004. The adoption of
this  interpretation  will  not  have  an  impact  on the  Trust's  consolidated
financial statements or disclosures.

On  September  30,  2004,  the  Emerging  Issues Task Force ( EITF ) of the FASB
issued a final FASB Staff  Position,  FSP EITF Issue  03-1-1,  which delayed the
effective date for the  measurement and  recognition  guidance  included in EITF
Issue 03-1 which  prescribed  the criteria that should be used to determine when
an investments  is considered  impaired,  whether that  impairment is other than
temporary,  and the  measurement  of an  impairment  loss.  The adoption of this
interpretation  will not have an impact on the  Trust's  consolidated  financial
statements or disclosures.

On March 9, 2004 the SEC issued SEC Staff Accounting  Bulletin No. 105 ( SAB 105
) which  summarized  the views of the SEC staff  regarding  the  application  of
generally accepted  accounting  principles to loan commitments  accounted for as
derivative instruments.  Specifically,  SAB 105 indicated that the fair value of
loan  commitments that are required to follow  derivative  accounting under SFAS
No. 133,  should not  consider  the  expected  future cash flows  related to the
associated  servicing  of the future  loan.  Prior to SAB 105, the Trust did not
consider the expected  future cash flows related to the associated  servicing in
determining the fair value of loan commitments. The adoption of SAB 105 will not
have an impact on the Trust's consolidated financial statements or disclosures.

                                       14
<PAGE>

As of September 30, 2005, the aggregate  amounts of our contractual  obligations
and commitments with definitive  payment terms that will require cash outlays in
the future is $11,503 for the next 1 year.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Trusts principal exposure to risk relates to interest rate risk, credit risk
and market  risk  associated  with the types of assets  being  sold.  An adverse
change in  interest  rates could have a material  adverse  impact on the Trust's
operations or net assets.  Adverse changes in credit or market risk could have a
material adverse affect on the Trust's  operations and net assets. The Trust has
attempted  to minimize  this risk by  discounting  the Trust Assets based on the
asset's  exposure to credit or market  risk and  historical  experiences  of the
asset.

Item 4. Controls and Procedures.

Based on their  evaluation,  as of the end of the  period  covered  by this Form
10-Q, the Trust's  Liquidating Trustee (the Trust's principal executive officer)
and  Assistant  to the  Liquidating  Trustee (the  Trust's  principal  financial
officer) have concluded that they have reasonable assurance of the effectiveness
of the Trust's disclosure  controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934).

In connection with this evaluation, the Liquidating Trustee and the Assistant to
the Liquidating  Trustee identified no change in internal control over financial
reporting that occurred during the Trust's  quarterly period ended September 30,
2005, and that has materially  affected,  or is reasonably  likely to materially
affect, the Trust's internal control over financial reporting.


                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

William Blair

In an effort to avoid repaying $4 million dollars in debt to the Trust,  William
Blair has  engaged in a number of legal  maneuvers.  In 2001,  the Trust filed a
Notice of  Trustee's  Sale on the  collateral  securing  repayment on one of the
Notes (the "DESERT  DIAMOND  NOTE").  The Trust  separately  filed a lawsuit and
obtained a judgment  against  Mr.  Blair  individually  as a co-maker  under the
Desert Diamond Note. That debt has been reduced to judgment in an amount of $1.4
million  dollars,  plus  interest at 19% until paid in full.  With regard to Mr.
Blair's  second  obligation  (the  "CAMPBELL  NOTE") the Superior  Court entered
judgment on March 19, 2003 against both Mr. Blair and his trust in the amount of
$1,418,329.82 with interest at the rate of 18% from August 13, 2001, until paid.
In July 2004 Mr. Blair filed for personal bankruptcy protection, and turned over
certain assets to the Chapter 7 trustee for  liquidation.  Through the judgments
under the Desert  Diamond  and  Campbell  Notes,  the Trust  holds  secured  and
unsecured  claims in the  Blair  bankruptcy  case.  The  Trust  has  reached  an
agreement with the Chapter 7 trustee  whereby the Trust is to receive (i) 50% of
the net proceeds  from asset sales after  secured  creditors  have been paid and

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<PAGE>

(ii) distributions  based on the Trust's pro-rata share as an unsecured creditor
of any remaining proceeds after administrative costs. The Trust has not included
the value of these estimated proceeds in the accompanying consolidated financial
statements due to the uncertainty of the asset's sales values. In addition there
exists a remaining action against Fidelity Title (the "TITLE COMPANY") the Title
Company  hired  by Mr.  Blair  to  transfer  title to  portions  of the  Trust's
collateral under the Desert Diamond Note to third parties without lien releases.
The Bankruptcy Court granted the Title Company's Motion for  Reconsideration and
reversed its prior ruling. The effect is that the Bankruptcy Court has upheld an
alleged  contract  modification  disallowed  by a different  judge in an earlier
litigation.  If the Bankruptcy  Court's  ruling was upheld on appeal,  the Trust
would be required to release its liens on the remaining real property collateral
for a release price of $12,500/lot (a total of $275,000 for the remaining lots).
The  Bankruptcy  Court also  awarded the Title  Company an amount of $44,000 for
fees and costs.  The Trust  appealed both rulings made by the  Bankruptcy  Court
relating  to the  Title  Company  matters  and a stay  was  issued  pending  the
resolution of the appeal. The District Court heard oral arguments  regarding the
appeal in March,  2005.  The court  upheld  the  Bankruptcy  Court's  ruling and
therefore the Trust has included the estimated  value of this note receivable at
the lot release price less awarded and estimated  attorney's  fees ($200,000) in
the receivables, net portion of the accompanying consolidated financial.

W.H.H.C

The Trust held a note receivable in an outstanding  amount of approximately $1.8
million dollars from W.H.H.C.  Through this note the Trust began  foreclosing on
approximately 70 acres of real property located in Maricopa County, Arizona with
an estimated value of $2.8 million as payment on the outstanding note. A lawsuit
had been filed in the  Superior  Court to foreclose on the mortgage and obtain a
judgment  against the real property.  The  defendants  had filed  counter-claims
against  the Trust  asserting  that the Trust had  wrongfully  filed lis pendens
against the subject  property.  If such  counter-claims  had been successful the
result would have been a potential  liability  for the Trust equal to triple the
damages  incurred.  Subsequently,  both the  defendants  and the Trust had filed
motions for summary judgment and cross-motions for summary judgment against each
other.  The Maricopa County  Superior Court  ("SUPERIOR  COURT")  conducted oral
arguments  on all the pending  motions in  February  2005.  The Trust  reached a
settlement with W.H.H.C.  that resulted in a final payoff of the loan for $1.137
million.  The Trust filed the  settlement  agreement  with the  Superior  Court.
During  September 2005, the court approved the settlement and the Trust received
the settlements funds.

Disputed Proofs of Claims

A number  of  creditors  filed  proofs  of  claims  in the  Debtors'  bankruptcy
proceedings. As of September 30, 2005 all of these claims have been resolved and
either paid in full (if any amount was due) or fully reserved for (if disputed).

Harbor Pointe, LLC

In October 2005 the Trust was served with a lawsuit where the plaintiffs, Harbor
Pointe,   LLC,  alleged  breach  of  contract,   fraudulent   misrepresentation,
fraudulent  inducement,  and suppression in regards to the purchase of a certain
piece of property for approximately $3.8 million in the Stillwaters  development
located  near  Dadeville,  AL. The dispute  arises out of the fact that  various
documents  allegedly  given to the  plaintiff  appear to be  incorrect as to the
description of property easements and said easement corrections  allegedly would
have a negative  impact on value  according to the plaintiff.  The Trust alleges
among other things that the final title report,  the  governing  document in the
sale,  clearly  stated  the  correct  easements  and the buyer was aware of said
easements  before  closings  and  therefore  is not  liable  for  any  perceived
reduction  in value  due to the  easements  being  incorrectly  stated  in other
non-binding documents.  Harbor Pointe, LLC is claiming damages for lost profits,
invested monies, legal exposure to its customers and punitive damages. The Trust
has received  confirmation from its insurance carrier that the insurance company
will assume the legal  defense of this case,  subject to a $100,000  deductible.
The Trust has accrued a $100,000  liability for this lawsuit in the accompanying
consolidated  financial statements although the Trust believes the lawsuit to be
frivolous and without merit.


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<PAGE>


                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned thereunto duly authorized.

                              BFA LIQUIDATION TRUST


                                 By:      /s/ Clifton R. Jessup, Jr.
                                    ---------------------------------------
                                    Clifton R. Jessup, Jr., Liquidating Trustee
                                 Date: November 12, 2005


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

                                 By:      /s/ Clifton R. Jessup, Jr.
                                    ---------------------------------------
                                    Clifton R. Jessup, Jr., Liquidating Trustee
                                 Date: November 12, 2005

                                 By:      /s/ Mark A. Roberts
                                    ---------------------------------------
                                    Mark A. Roberts, Assistant to
                                      the Liquidating Trustee
                                 Date: November 12, 2005

                                 By:      /s/ Erik R. Anspach
                                    ---------------------------------------
                                    Erik R. Anspach, Controller
                                 Date: November 12, 2005

                                 By:      /s/ Paul D. Carlson
                                    ---------------------------------------
                                    Paul D. Carlson, Liquidating Trust Board
                                 Date: November 12, 2005

                                 By:      /s/ Stephen L. Culp
                                    ---------------------------------------
                                    Stephen L. Culp, Liquidating Trust Board
                                 Date: November 12, 2005

                                 By:      /s/ John V. Prince
                                    ---------------------------------------
                                    John V. Prince, Liquidating Trust Board
                                 Date: November 12, 2005

                                 By:      /s/ Shirley C. Weast
                                    ---------------------------------------
                                    Shirley C. Weast, Liquidating Trust Board
                                 Date: November 12, 2005

                                 By:      /s/ Mark E. Winkleman
                                    ---------------------------------------
                                    Mark E. Winkleman, Liquidating Trust Board
                                 Date: November 12, 2005


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