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 JUNE 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  August  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
<TABLE>
<CAPTION>
<S>     <C>                                                                                     <C>
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.                              14

Item 4. Controls and Procedures.                                                                 15

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.                                                                       15
</TABLE>

<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

<TABLE>

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

                                                                          June 30,        December 31,
                                                                            2005             2004
                                                                        -----------       -----------
<S>                                                                     <C>               <C>
ASSETS IN LIQUIDATION AT ESTIMATED FAIR VALUE
Cash and cash equivalents                                               $ 3,650,873       $ 3,754,649
Receivables, net                                                          1,368,000         1,586,280
Other trust assets, net                                                  18,953,679        18,615,802
Restricted cash and cash equivalents                                        361,094           360,200
                                                                        -----------       -----------
      TOTAL ASSETS                                                       24,333,646        24,316,931
                                                                        -----------       -----------

             LIABILITIES IN LIQUIDATION
Accounts Payable and accrued liabilities                                    450,961           527,866
Estimated costs to complete liquidation                                   2,833,191         3,889,611
Settlement liability                                                        349,744           349,744
                                                                        -----------       -----------
      TOTAL LIABILITIES                                                   3,633,896         4,767,221
                                                                        -----------       -----------
Commitments and contingencies

      NET ASSETS IN LIQUIDATION                                         $20,699,750       $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 June 30,
2005 and $.03 per unit at December 31, 2004                              15,850,491        14,969,867
 Class "3B" Certificate,
       137,246,636 units  outstanding,  $.04 per unit at June 30,
2005 and $.03 per unit at December 31, 2004                               4,849,259         4,579,843
                                                                        -----------       -----------

      TOTAL NET ASSETS                                                  $20,699,750       $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
                                                             --------------------------------
                                                             June 30, 2005       June 30, 2004
                                                             ------------        ------------
<S>                                                          <C>                 <C>
Net Assets in liquidation, beginning April 1                 $ 19,783,328        $ 31,292,813

Interest on notes receivable and cash                              26,427              88,363
Interest on notes payable                                            --                  --
Changes in fair value of other trust assets and
liabilities                                                     1,037,741           3,791,072
Changes in fair value of estimated costs to complete
liquidation                                                      (259,376)         (1,872,213)
Distributions to holders of Class 3A and 3B beneficial
interests                                                         111,630          (5,237,149)
                                                             ------------        ------------

Net assets in liquidation, ending June 30                    $ 20,699,750        $ 28,062,886
                                                             ============        ============
</TABLE>

The  accompanying  notes are an integral  part of these  Consolidated  Financial
Statements.


                                      -2-
<PAGE>


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

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

Interest on notes receivable and cash                              58,323             218,699
Interest on notes payable                                            --                  --
Changes in fair value of other trust assets and
liabilities                                                     1,239,463           3,287,736
Changes in fair value of estimated costs to complete
liquidation                                                      (259,376)         (1,872,213)
Distributions to holders of Class 3A and 3B beneficial
interests                                                         111,630          (5,237,149)
                                                             ------------        ------------

Net assets in liquidation, ending June 30                    $ 20,699,750        $ 28,062,886
                                                             ============        ============
</TABLE>

The  accompanying  notes are an integral  part of these  Consolidated  Financial
Statements.


                                      -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 is expected to terminate after five
(5) years on January 22, 2006 unless the  Bankruptcy  Court  determines  that an
extension  of the Trust is necessary  for the purposes of the Trust.  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 June 30,  2005 and
December  31, 2004 and for the three and six month  periods  ended June 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 six  months  ended  June 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.

In addition to the assets  described  above, the Trust also holds the Litigation
Claims,  which consist of claims,  judgments and  deficiencies  related to loans
made  to  former   borrowers  of  the  Debtors.   Because  of  the   significant
uncertainties  associated  with  estimating the  probability  and timing of cash
flows  related to these  claims,  there can be no assurance  that the Trust will
realize  any  value  of such  Litigation  Claims.  However,  if  realized  these
Litigation Claims could be material to the Trust.

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 June 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,


                                      -5-
<PAGE>

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.

DISTRIBUTIONS

Under  the  terms of the  Plan,  the  Trust  makes  quarterly  distributions  to
Beneficiaries,  if able after  providing  for  certain  reserves  and  expenses.
Distributions  are  reported  net of any  distributions  returned  to the Trust.
During the three  month  period  ending June 30,  2005 the Trust  received  cash
distributions returned to the Trust.

NEW ACCOUNTING PRONOUNCEMENTS

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.


                                      -6-
<PAGE>

In December 2003, the American  Institute of Certified Public Accountants issued
Statement of Position  03-3, ( SOP 03-3 ) Accounting  for Certain  Loans of Debt
Securities Acquired in a Transfer.  SOP 03-3 requires acquired loans,  including
debt  securities,  to be  recorded  at the  amount  of the  purchaser  s initial
investment and prohibits carrying over valuation  allowances from the seller for
those individually-evaluated loans that have evidence of deterioration in credit
quality since origination,  and it is probable all contractual cash flows on the
loan will be unable to be  collected.  SOP 03-3 also  requires the excess of all
undiscounted  cash  flows  expected  to be  collected  at  acquisition  over the
purchaser  s  initial  investment  to be  recognized  as  interest  income  on a
level-yield basis over the life of the loan. The guidance is effective for loans
acquired in fiscal years  beginning after December 15, 2004 and will not have an
impact on consolidated financial statements or disclosures.

In  December  2003,  President  Bush  signed  the  Medicare  Prescription  Drug,
Improvement  and  Modernization  Act  of  2003  (  Modernization  Act  ),  which
introduces a prescription drug benefit under Medicare into law. On May 19, 2004,
FASB  issued  FASB Staff  Position  FAS No.  106-2,  Accounting  and  Disclosure
Requirements  Related  to  the  Medicare  Prescription  Drug,   Improvement  and
Modernization  Act of 2003 ( FSP FAS No.  106-2  ) which  provides  guidance  on
accounting for the effects of the new Medicare  prescription drug legislation by
employers whose  prescription  drug benefits are  actuarially  equivalent to the
drug  benefit  under  Medicare  Part D.  This Act will not have an impact on the
Trust's consolidated financial statements or disclosures.

2. RECEIVABLES, NET

At June 30, 2005, net receivables  consisted  primarily of an approximately $1.1
million note from W.H.H.C. and an approximately $231,000 note from William Blair
collateralized by real estate.  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>

                                                         June 30,      December 31,
                                                          2005           2004
                                                       -----------    -----------
<S>                                                    <C>            <C>
Total gross future cash flows from notes receivable    $ 9,152,187    $ 9,161,445
Collectibility discount                                 (7,784,187)    (7,575,165)
Present value discount                                        --             --
                                                       -----------    -----------
Net receivables                                        $ 1,368,000    $ 1,586,280
                                                       ===========    ===========
</TABLE>


All of the debtors are in default on their contractual obligations to the Trust.
The Trust has established collectibility discounts on these receivables, however
the Trust is  aggressively  pursuing  collection of these debts by various means
including,  but not limited to, foreclosure and litigation,  and recoveries from
these actions, if any, could be material.

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
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.


                                      -7-
<PAGE>

Other trust assets consist of the following:

                                                    June 30,      December 31,
                                                      2005            2004
                                                  ------------    ------------
Real estate assets and partnerships, net          $ 17,983,899    $ 15,466,014
Investments in other operating companies, net        3,104,000       4,978,604
Other assets, net                                      120,280         121,527
                                                  ------------    ------------
Future value of other trust assets                  21,208,179      20,566,145
Present value discount (various rates)              (2,254,500)     (1,950,343)
                                                  ------------    ------------
Other trust assets value                          $ 18,953,679    $ 18,615,802
                                                  ============    ============

Real estate assets and  partnership  interests  consist of the following at June
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 $2,833,190 at June
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 June 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 June 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.  The settlement  liability relates to assets reported in cash
and cash equivalents of approximately  $700,000. The liability will remain until
the proceeds are distributed to the class action investors by the Trust.

6. CHANGES IN OTHER TRUST ASSETS

During the three  months  ended June 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  $1.0 million  increase in other
trust assets.  Included in actual  operating  results are sales of approximately
$18,000 for the sale of the Port Perry lots and various  Westside  Property  and
various other parcels.


                                      -8-
<PAGE>

During the three  months  ended June 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  $3.8 million  increase in other
trust assets.  Included in actual  operating  results are sales of approximately
$4.9  million for the sale of various  Westside  lots,  Bloomington  building 3,
Prescott Country Club lot and various other assets.

During the six months ended June 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  $1.2 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 six months ended June 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  $3.3 million  increase in other trust assets.
Included in actual operating results are sales of approximately $5.3 million for
the sale of various Westside lots, Bloomington building 3, 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 June 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).

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
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 stands as issued, 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 has appealed  both rulings  made by the  Bankruptcy  Court
relating to the Title  Company  matters  and a stay has been issued  pending the
resolution of the appeal. The District Court heard oral arguments  regarding the
appeal in March, 2005 and the Trust is now awaiting the judges ruling. The Trust
has  included the  estimated  value of this note  receivable  at the lot release
price less awarded attorney's fees ($231,000) in the receivables, net portion of
the accompanying consolidated financial


                                      -9-
<PAGE>

The Trust holds a note receivable in an outstanding amount of approximately $1.8
million dollars from W.H.H.C.  Through this note the Trust has begun 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 has been filed in the  Superior  Court to  foreclose on the mortgage and
obtain  a  judgment  against  the  real  property.  The  defendants  have  filed
counter-claims  against the Trust asserting that the Trust has wrongfully  filed
lis pendens against the subject property.  If such counter-claims are successful
the result is a  potential  liability  for the Trust equal to triple the damages
incurred. Subsequently, both the defendants and the Trust have 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 has reached a settlement
with W.H.H.C. that results in a final payoff of the loan for $1.137 million. The
Trust has filed the settlement  agreement with the Superior Court and awaits the
court's approval. The Trust has recorded the estimated value of this note at the
settlement  amount of $1.137  million  in the  receivables,  net  portion of the
accompanying consolidated financial statements.

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 six months  ended June 30, 2005 and 2004,  the Trust  received  net cash
proceeds from sales of assets,  note  receivable  collections  and operations of
approximately  $1.2 million and $5.7  million  respectively,  consisting  of the
following:

                                                   Six Months Ended
                                           ------------------------------
                                           June 30, 2005     June 30, 2004
                                           -------------     -------------
Principal  and  interest  received           $      --        $  947,328
from notes receivable
Cash flows from other trust assets            1,187,294        4,759,702
                                             ----------       ----------
Total                                        $1,187,294       $5,707,030
                                             ==========       ==========


Conversely,  for the same  respective  periods,  the Trust  paid out to  various
creditors approximately $1.3 million and $6.2 million respectively, as follows:

                               Six Months Ended
                       ------------------------------
                       June 30, 2005     June 30, 2004
                       -------------     -------------
Trust operations       $(1,402,701)       $(1,831,585)
Distributions              111,630         (5,237,149)
                       -----------        -----------
Total                  $(1,291,071)       $(7,068,734)
                       ===========        ===========


                                      -10-
<PAGE>


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 six
months ended June 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                      Six Months Ended
                                               --------------------------------        -----------------------------
                                               June 30, 2005      June 30, 2004        June 30, 2005   June 30, 2004
                                               -------------      -------------        -------------   -------------
<S>                                            <C>                 <C>                 <C>             <C>
Net Assets in liquidation, beginning           $ 19,783,328        $ 31,292,813        $ 19,549,710    $ 31,665,813

Interest on notes receivable and cash                26,427              88,363              58,323         218,699
Interest on notes payable                              --                  --                  --              --
Changes in fair value of other trust assets
and liabilities                                   1,037,741           3,791,072           1,239,463       3,287,736
Changes in fair value of estimated costs to
complete liquidation                               (259,376)         (1,872,213)           (259,376)     (1,872,213)
Distributions to holders of Class 3A and 3B
beneficial interests                                111,630          (5,237,149)            111,630      (5,237,149)
                                               ------------        ------------        ------------    ------------
Net assets in liquidation, ending              $ 20,699,750        $ 28,062,886        $ 20,699,750    $ 28,062,886
                                               ============        ============        ============    ============
</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
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 JUNE 30, 2005 COMPARED TO

                      THE THREE MONTHS ENDED JUNE 30, 2004


The  estimated  fair value of the  Trust's net assets in  liquidation  increased
approximately  $916,000  for the three months ended June 30, 2005 as compared to
an approximately  $3,230,000  decrease for the three months ended June 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 June 30, 2005 include (i) interest
income  from cash  investments  which  increased  net  assets  by  approximately
$26,000,  (ii) an increase  in the value of certain  other  trust  assets  which
increased  net assets by  approximately  $1,038,000,  (iii) an  increase  in the
estimated costs to liquidate which decrease net assets by approximately $259,000


                                      -11-
<PAGE>

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 three  months  ended June 30, 2004 include (i)
interest   income  from  notes   receivables   which  increased  net  assets  by
approximately  $88,000,  (ii) an  increase  in the value of certain  other trust
assets which increased net assets by approximately $3,791,000, (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 $5,237,000.

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.

               FOR THE SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO

                       THE SIX MONTHS ENDED JUNE 30, 2004


The  estimated  fair value of the  Trust's net assets in  liquidation  increased
approximately  $1,150,000  for the six months ended June 30, 2005 as compared to
an  approximately  $3,603,000  decrease  for the six months ended June 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 June 30, 2005 include (i) interest
income  from cash  investments  which  increased  net  assets  by  approximately
$58,000,  (ii) an increase  in the value of certain  other  trust  assets  which
increased  net assets by  approximately  $1,239,000,  (iii) an  increase  in the
estimated costs to liquidate which decrease net assets by approximately $259,000
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 three  months  ended June 30, 2004 include (i)
interest   income  from  notes   receivables   which  increased  net  assets  by
approximately  $219,000,  (ii) an increase  in the value of certain  other trust
assets which increased net assets by approximately $3,288,000, (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 $5,237,000.

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.

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

<TABLE>
<CAPTION>
NON-CASH ASSETS IN LIQUIDATION AT ESTIMATED FAIR VALUE      June 30, 2005       December 31, 2004
                                                           ----------------     -----------------
<S>                                                        <C>                  <C>
Receivables, net                                           $     1,368,000      $       1,586,280
Other trust assets, net                                         18,953,679             18,615,802
                                                           ----------------     -----------------
TOTAL NON-CASH ASSETS                                      $    20,321,679      $      20,202,082
                                                           ================     =================
</TABLE>

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 June 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


                                      -12-
<PAGE>

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 June 30,  2005  and  5.25% at
         December 31, 2004.

         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.

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.


                                      -13-
<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.

In December 2003, the American  Institute of Certified Public Accountants issued
Statement of Position  03-3, ( SOP 03-3 ) Accounting  for Certain  Loans of Debt
Securities Acquired in a Transfer.  SOP 03-3 requires acquired loans,  including
debt  securities,  to be  recorded  at the  amount  of the  purchaser  s initial
investment and prohibits carrying over valuation  allowances from the seller for
those individually-evaluated loans that have evidence of deterioration in credit
quality since origination,  and it is probable all contractual cash flows on the
loan will be unable to be  collected.  SOP 03-3 also  requires the excess of all
undiscounted  cash  flows  expected  to be  collected  at  acquisition  over the
purchaser  s  initial  investment  to be  recognized  as  interest  income  on a
level-yield basis over the life of the loan. The guidance is effective for loans
acquired in fiscal years  beginning after December 15, 2004 and will not have an
impact on consolidated financial statements or disclosures.

In  December  2003,  President  Bush  signed  the  Medicare  Prescription  Drug,
Improvement  and  Modernization  Act  of  2003  (  Modernization  Act  ),  which
introduces a prescription drug benefit under Medicare into law. On May 19, 2004,
FASB  issued  FASB Staff  Position  FAS No.  106-2,  Accounting  and  Disclosure
Requirements  Related  to  the  Medicare  Prescription  Drug,   Improvement  and
Modernization  Act of 2003 ( FSP FAS No.  106-2  ) which  provides  guidance  on
accounting for the effects of the new Medicare  prescription drug legislation by
employers whose  prescription  drug benefits are  actuarially  equivalent to the
drug  benefit  under  Medicare  Part D.  This Act will not have an impact on the
Trust's consolidated financial statements or disclosures.

As of June 30, 2004, the aggregate  amounts of our  contractual  obligations and
commitments with definitive  payment terms that will require cash outlays in the
future is $17,935 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 would not 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.


                                      -14-
<PAGE>

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 June 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
(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 stands as issued, 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 has appealed  both rulings  made by the  Bankruptcy  Court
relating to the Title  Company  matters  and a stay has been issued  pending the
resolution of the appeal. The District Court heard oral arguments  regarding the
appeal in March, 2005 and the Trust is now awaiting the judges ruling. The Trust
has  included the  estimated  value of this note  receivable  at the lot release
price less awarded attorney's fees ($231,000) in the receivables, net portion of
the accompanying consolidated financial statements.

W.H.H.C

The Trust holds a note receivable in an outstanding amount of approximately $1.8
million dollars from W.H.H.C.  Through this note the Trust has begun 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 has been filed in the  Superior  Court to  foreclose on the mortgage and
obtain  a  judgment  against  the  real  property.  The  defendants  have  filed
counter-claims  against the Trust asserting that the Trust has wrongfully  filed
lis pendens against the subject property.  If such counter-claims are successful
the result is a  potential  liability  for the Trust equal to triple the damages


                                      -15-
<PAGE>

incurred. Subsequently, both the defendants and the Trust have 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 has reached a  settlement
with W.H.H.C. that results in a final payoff of the loan for $1.137 million. The
Trust has filed the settlement  agreement with the Superior Court and awaits the
court's approval. The Trust has recorded the estimated value of this note at the
settlement  amount of $1.137  million  in the  receivables,  net  portion of the
accompanying consolidated financial statements.

Disputed Proofs of Claims

A number  of  creditors  filed  proofs  of  claims  in the  Debtors'  bankruptcy
proceedings.  As of June 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).


                                      -16-
<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: August 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: August 12, 2005

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

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

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

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

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

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

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


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