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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2011

or

For the transition period from                    to                   

Commission File Number: 000-53209

Adelphia Recovery Trust

(Exact name of registrant as specified in its charter)

919 North Market Street, 17th Floor, PO Box 8705

Wilmington, Delaware 19899

(Address of principal executive offices) (Zip Code)

302-652-4100 Attn: Dean Ziehl

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

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

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. o Yes No o

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ADELPHIA RECOVERY TRUST

FORM 10-Q

INDEX

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PART 1 - FINANCIAL INFORMATION

Item 1   Financial Statements

Adelphia Recovery Trust

Unaudited Condensed Balance Sheets

See accompanying notes to condensed financial statements.

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Adelphia Recovery Trust

Unaudited Condensed Statements of Operations

See accompanying notes to condensed financial statements.

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Adelphia Recovery Trust

Unaudited Condensed Statements of Cash Flows

See accompanying notes to condensed financial statements.

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ADELPHIA RECOVERY TRUST

Notes to Condensed Financial Statements — September 30, 2011 (Unaudited)

1                                          Background

The Adelphia Recovery Trust (the “ART”) was formed as a Delaware statutory trust pursuant to that certain First Modified Fifth Amended Joint Chapter 11 Plan of Reorganization (the “Plan”) of Adelphia Communications Corporation (“Adelphia” or “ACC”) and certain of its subsidiaries (collectively the “Debtor”). The purpose of the ART is to prosecute the various causes of action transferred to the ART pursuant to the Plan (the “Causes of Action”) and distribute to the owners (the “Holders”) of the interests in the ART (“Interests”) the net proceeds of such Causes of Action (“Distributions”), according to the relative priorities established pursuant to the Plan, subject to the retention of various amounts to fund the prosecution of those Causes of Action and operations of the ART. Pursuant to the Plan, in addition to the Causes of Action, Adelphia transferred $25 million in cash to the ART, in connection with its formation, in order to fund the initial expenses of operation.

As set forth in the Plan, the ART is administered by five trustees (the “Trustees”) who are responsible for carrying out the purposes of the ART. Quest Turnaround Advisors, L.L.C. (“Quest”) is the plan administrator (in such capacity, the “Plan Administrator”) of Adelphia. Quest and Adelphia together have agreed to provide certain administrative services to the ART. In order to facilitate the provision of such administrative services, the ART has appointed Quest as the trust administrator of the ART (in such capacity, the “Trust Administrator”).

2                                          Basis of Presentation

The accompanying interim unaudited condensed financial statements of the ART have been prepared in accordance with generally accepted accounting principles in the United States of America for interim periods (“US GAAP”) and with the instructions to Form 10-Q.  As such, they do not include all of the information and disclosures required by US GAAP for complete financial statements.  In the opinion of the Trustees, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the interim unaudited condensed financial statements have been included.  These condensed financial statements should be read in conjunction with the ART’s audited financial statements for the year ended December 31, 2010 included in its Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 4, 2011. Interim results are not necessarily indicative of the results for the complete fiscal year. The unaudited condensed balance sheet as of December 31, 2010 was derived from the audited financial statements for the year then ended.

3                                          Related Party Transactions

The Trust Administrator and Adelphia continue to provide administrative support to the ART including maintaining electronic data and paper documents used in prosecuting the Causes of Action, financial reporting and support for Distributions when they might occur

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(including maintenance of data related to the implementation of Plan provisions). These services have and will continue to be provided at no cost to the ART under the terms of various agreements between the Trust Administrator and Adelphia. The ART financial statements do not reflect any amounts for these services.

4                                          Causes of Action and Contingent Liabilities

Except as set forth below, there have been no material developments in the legal proceedings described in the ART’s Form 10-K as filed on March 4, 2011 or as updated in the ART’s Form 10-Qs filed on May 13, 2011 and July 29, 2011.

Causes of Action

FPL Litigation

The FPL action seeks to recover an alleged fraudulent transfer arising out of Adelphia’s repurchase of certain of its stock from FPL in January 1999 for $149.5 million.  Pursuant to the Plan, the claims asserted in the FPL Litigation were transferred to the ART.  On July 13, 2011, the Bankruptcy Court denied FPL’s motion for leave to amend its answer to add a new defense.   FPL filed an appeal of the Bankruptcy Court’s July 13, 2011 decision.  FPL’s appeal has been briefed by the parties and is awaiting decision by the District Court. At a status conference with the Bankruptcy Court, FPL advised the Bankruptcy Court of its intention to move to withdraw the reference to the Bankruptcy Court, which, if granted, would cause the action to be transferred to the District Court. On September 28, 2011, FPL filed its motion to withdraw the reference. The motion is pending before the District Court and is being briefed by the parties. The trial will be rescheduled after the District Court rules on the motion.

At this time, the ART cannot predict the outcome of the FPL Litigation or estimate the possible financial effect of this proceeding on the ART’s financial statements.

Sabres Litigation

The Sabres action involves claims for fraudulent conveyance, aiding and abetting breach of fiduciary duty, and equitable subordination or disallowance against Key Bank, N.A. (“Key Bank”), Fleet National Bank (“Fleet”), and HSBC Bank USA, N.A. (“HSBC”) (collectively, the “Sabres Banks”) arising from (i) Adelphia’s purchase of and payments on certain loans  made by the Sabres Banks to a Rigas Family partnership that owned the Buffalo Sabres hockey team and (ii) John Rigas’ purchase of the team using Adelphia financing.  HSBC has asserted counterclaims against Adelphia for “post-petition tort,” contribution and indemnification.

The District Court for the Western District of New York granted a permanent injunction against the ART’s prosecution of the fraudulent conveyance claims against the Sabres Banks and the Second Circuit affirmed that decision.  The claims against Fleet were resolved as part of the settlement with Fleet and other defendants in the Bank Litigation.

An Order and Stipulation dated October 31, 2011 establishes a schedule for briefing and argument of the Sabres Banks’ motions to dismiss the ART’s remaining claims against Key Bank and HSBC and the ART’s motions to dismiss HSBC’s counterclaims.

At this time, the ART cannot predict the outcome of the Sabres Litigation against Key Bank and HSBC or estimate the possible financial effect of this proceeding on the ART’s financial statements.  The ART also cannot predict the outcome of HSBC’s counterclaims or estimate the possible financial effect of this proceeding on the ART’s financial statements.

Contingent Liabilities

Litigation Indemnification Fund Litigation

Pursuant to the Third Modified Fourth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code for Century-TCI Debtors and Parnassos Debtors (the “JV Plan”), which became effective on July 31, 2006; the Plan, which became effective on February 13, 2007; and certain other orders entered by the Bankruptcy Court, litigation indemnification funds (each, a “LIF”) were created with funds provided by Adelphia to provide certain defendants in the Bank Litigation (see Plan) provisional and conditional reimbursement of legal fees and expenses expected to be incurred in connection with defending litigation involving certain credit facilities.

The LIF created under the JV Plan (the “JV LIF”), established in the initial amount of $10 million and held in an Adelphia account pending distributions as authorized by the ART, was created to fund certain allowable claims for indemnification arising under the Parnassos and Century-TCI prepetition credit facilities.  Subject to certain conditions, the JV

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LIF is “evergreen”, i.e. the JV Plan provides that the JV LIF will be replenished by the ART under certain conditions, such as “upon the receipt . . . of net proceeds of any Designated Litigation” after first deducting any required distribution to the government.

The LIFs created under the Main Plan (the “Main Plan LIFs”) are fixed in amounts and not subject to replenishment.  Because the JV LIF is evergreen, whereas the Main Plan LIFs are capped, the allocation of defense costs among the categories of LIFs is a matter of economic significance.

Certain entities (the “JV Claimants”) submitted formal claims that through September 30, 2011 aggregated approximately $26.9 million in excess of the $10.0 million initially deposited in the JV Litigation Indemnification Fund by Adelphia.  Thus, claims against the JV LIF totaled approximately $36.9 million and certain of the JV Claimants indicated an intention to submit additional claims in the future.  Adelphia and the ART asserted that the JV LIF claims were improper.

On November 13, 2008, certain of the JV claimants filed, or subsequently joined in, the Motion of the Bank of Nova Scotia, Citibank N.A. and The Ad Hoc Committee of Non-Agent Secured Lenders in the Parnassos and Century-TCI Facilities for Payment of Bank Lender Post Effective Date Fee Claims and to Compel Compliance of the Plan Administrator (defined in the JV Plan as Adelphia) and the Art with the Third Modified Fourth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code and the Century TCI Stipulation (the “LIF Motion”).  Adelphia and the ART moved to disallow Bank Lender Post-Effective Date Fee Claims against the claimants.

The Bankruptcy Court heard argument of counsel on May 25, 2011, and stated that an evidentiary hearing would be required to resolve any JV LIF claims that may remain in dispute at the time of such hearing.   Since May 25, 2011, the ART has resolved the claims of certain JV LIF claimants.   The remaining claims against the JV LIF in the aggregate total approximately $15.4 million and the balance of the JV LIF as of the date of this report is approximately $2.7 million.

To the extent the Bankruptcy Court grants the LIF Motion as to any unresolved JV LIF claims, the Bankruptcy Court could require the ART to replenish the JV LIF in an amount that satisfies all unresolved claims while the dispute is still pending. Additionally, the ART may be required to replenish the JV LIF in an amount that satisfies all pending unresolved claims and returns the balance in the fund to $10.0 million. The ART has adequate liquidity to satisfy that obligation if required.

At this time, the ART cannot predict the outcome of the remaining proceedings or estimate the possible financial effect of these proceedings on the ART.

5                             Fair Value of Financial Instruments

The ART invests in FDIC insured bank certificates of deposit (“CDs”). CD investments held by the ART as of December 31, 2010 matured in the first quarter of 2011. At maturity, the ART elected to re-invest in CDs with a maturity of 90 days or less when purchased. CDs with a maturity of 90 days or less when purchased are classified as cash and cash equivalents

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and those with a maturity exceeding 90 days are classified as temporary investments.  The ART had no temporary investments as of September 30, 2011.

The fair value of the note receivable and accrued interest has been determined using unobservable inputs (i.e. Level 3, as defined in Accounting Standards Codification 820-10) and approximates $5.1 million as of September 30, 2011 and $4.5 million as of December 31, 2010. The fair value was derived by discounting to September 30, 2011 and December 31, 2010 the projected maturity value of the note including accrued interest. The projected maturity values, including interest were calculated using life expectancy tables. The discount rate is based on the yield on the notes issued by the life insurance companies underwriting the life insurance policies and various risk factors associated with the note.

The carrying values were approximately $6.5 million as of September 30, 2011 and approximately $6.2 million as of December 31, 2010. The note bears 8% simple interest and is recourse only to the proceeds of various life insurance policies on Mr. and Mrs. Leonard Tow totaling approximately $28 million.

6                                          Subsequent Events

Events subsequent to September 30, 2011 have been evaluated through November 4, 2011, the date the accompanying financial statements were issued. Other than as discussed herein, there have been no subsequent events that would be material to the financial statements of the ART, including Cause of Action settlements or judgments or Distributions or decisions concerning future Distributions.

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The ART was formed as a Delaware statutory trust pursuant to that certain First Modified Fifth Amended Joint Chapter 11 Plan of Reorganization of Adelphia and certain of its subsidiaries. The purpose of the ART is to prosecute the various Causes of Action transferred to the ART pursuant to the Plan and distribute to the owners of the Interests in the ART the net proceeds of such Causes of Action, according to the relative priorities established pursuant to the Plan, subject to the retention of various amounts to fund the prosecution of those Causes of Action and operations of the ART. Pursuant to the Plan, in addition to the Causes of Action, Adelphia transferred $25 million in cash to the ART in connection with its formation in 2007 in order to fund the initial expenses of operation.

Adelphia and certain of its subsidiaries filed for Chapter 11 bankruptcy protection in June 2002. During the bankruptcy, on July 31, 2006 the assets of Adelphia were sold for a combination of cash and stock in Time Warner Cable, Inc. (“TWC”). In late 2006, representatives of various groups of creditors reached agreement on the allocation and distribution of the cash, TWC stock, other proceeds from the sale of estate assets and relative priorities to any Distributions arising from the Causes of Action contributed to the ART. This agreement was embodied in the Plan, which was confirmed in January 2007 and became effective on February 13, 2007 (the “Effective Date”). Under the Plan, the creditors

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and equity holders of Adelphia and certain of its subsidiaries received one or more of the following: cash, TWC stock, rights to future Distributions up to payment in full and the Interests.

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

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

Distributions

Pursuant to the Plan and the Declaration, Distributions to Holders are net of any costs and expenses incurred by the ART in connection with administering, litigating or otherwise resolving the various Causes of Action. Such costs and expenses may also include fees and expenses of the Trustees, premiums for directors and officers insurance, and other insurance and fees and expenses of attorneys and consultants. Distributions will be made only from assets of the ART and only to the extent that the ART has sufficient assets (over amounts retained for contingent liabilities and future costs and expenses, among other things) to make such payments in accordance with the Plan and the Declaration. No Distribution is required to be made to any Holder unless such Holder is to receive in such Distribution at least $25.00 or unless such Distribution is the final Distribution to such Holder pursuant to the Plan and the Declaration.

Distributions will be made at the sole discretion of the Trustees in accordance with the provisions of the Plan and the Declaration. On December 21, 2010 the ART made a Distribution of $215 million in cash payable to Holders of Interests in the Trust in accordance with the waterfall priority established in the Plan. It is not possible to determine at this time if there will be future Distributions to the Holders of Interests in the Trust. No other Distributions have occurred or are currently planned. As of September 30, 2011, the number of Interests outstanding in each series eligible to receive a Distribution is as follows:

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

A schedule summarizing the Distribution priority waterfall as of September 30, 2011 is set forth below:

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ART Distribution Waterfall Chart (1)

September 30, 2011

(1) Capitalized terms used but not otherwise defined have the respective meaning given to them under the Plan. Remaining aggregate distributions and ART distribution percentages are as of September 30, 2011.

(2) Pursuant to the terms of the Plan, certain series of Interests are entitled to post-Effective Date dividends on certain amounts due to the corresponding class of claims. For purposes of calculating the reference amount on which post-Effective Date dividends accrue, the distribution of the true-up Holdback is treated as if it occurred on the Effective Date.  Remaining aggregate distributions have been reduced as a result of the $215 million cash distribution to certain CVV Holders as of December 21, 2010 as well as distributions

made by Adelphia for excess reserves and for refunds of reserves established for Settlement Party Fee Claims.

(3) Unless otherwise stated, post-Effective Date dividends accrue at a rate of 8.9% per annum.

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Results of Operations

The ART operates pursuant to the Plan and the Declaration. The ART was formed as a Delaware statutory trust to prosecute various claims originally owned by Adelphia and, if any of the prosecutions are successful or are settled in a manner which provides economic benefit to the ART, to distribute excess proceeds over amounts retained to fund the prosecution of the Causes of Action and operations of the ART, to the Holders. The Trustees will retain enough cash in reserve to administer the ART and fund the prosecution of the Causes of Action.

Due to the nature of the ART’s operations both revenue and operating expenses may fluctuate between and among reporting periods caused by activities and results related to the Causes of Action.

Third Quarter 2011 vs Third Quarter 2010

Total revenues consisting solely of interest decreased to approximately $116,000 in the third quarter of 2011 from approximately $165,000 in the third quarter of 2010. The decrease of approximately $49,000 was caused by a reduction in average invested cash balances and a decrease in investment yields. There were no court approved settlements or related revenues for either the third quarter of 2011 or for the third quarter of 2010.

Total operating expenses for the ART decreased to approximately $2.6 million in the third quarter of 2011 from approximately $8.0 million in the third quarter of 2010. The cost decrease of approximately $5.4 million was caused by a decrease in professional litigation costs of $5.3 million, general and administrative costs of $68,096 and professional administrative costs of $37,503.

Professional litigation costs decreased by approximately $5.3 million in the third quarter of 2011 compared to the third quarter of 2010 due to decreased professional expenses of $7.2 million related to the Bank Cause of Action which was settled in the fourth quarter of 2010. The decrease was partially offset by increased costs of $1.4 million for the FPL Cause of Action and $0.5 million for other Causes of Action as these legal activities accelerated.

General and administrative costs decreased by approximately $68,000 in the third quarter of 2011 when compared to the third quarter of 2010. The ART experienced decreased costs of approximately $82,000 in the third quarter of 2011 for Trustee expenses, bank fees, insurance premiums and audit costs but had offsetting increased costs of approximately $14,000 for tax and SEC filing costs between the same comparable periods.

Professional administrative costs decreased by approximately $38,000 in the third quarter of 2011 compared to the third quarter of 2010. The decreased costs in the third quarter of 2011 relate to legal support costs incurred by the ART to manage trust operations, administrative requirements, Cause of Action oversight and regulatory compliance.

As a result of the decrease in total revenues of approximately $49,000 and the decrease in total operating expenses of approximately $5.4 million in the third quarter of 2011 compared to the third quarter of 2010, the net loss of approximately $2.5 million for the quarter ended September 30, 2011 was approximately $5.3 million lower than the net loss for the quarter ended September 30, 2010.

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Nine months ended  September 30, 2011 versus the nine months ended September 30, 2010

Total revenues consisting solely of interest decreased to approximately $382,000 for the nine months ended September 30, 2011 from approximately $475,000 for the nine months ended September 30, 2010. The decrease of approximately $93,000 was caused by a decrease in the average invested cash balance and a decrease in investment yields during the nine months ended September 30, 2011 compared to the nine month period ended September 30, 2010.  There were no settlements or related revenues for the nine months ended September 30, 2011 or for the nine months ended September 30, 2010.

Total operating expenses for the ART decreased to approximately $8.1 million for the nine months ended September 30, 2011 compared to approximately $24.5 million for the nine months ended September 30, 2010. The decrease of approximately $16.4 million was caused by decreased professional litigation expenses of approximately $16.3 million and general and administrative costs of $198,840 offset by an increase in professional administrative costs of approximately $121,705 between the same comparable periods.

Professional litigation costs decreased approximately $16.3 million for the nine months ended September 30, 2011 when compared to the nine months ended September 30, 2010. There were decreased costs for the Bank Cause of Action totaling approximately $21.5 million which was settled in the fourth quarter of 2010 and offsetting increased costs of approximately $3.4 million for the FPL Cause of Action and $1.8 million for other Causes of Action for the nine months ended September 30, 2011 when compared to the nine months ended September 30, 2010. The changes in costs were caused by changes in activity levels related to the various Causes of Action.

General and administrative costs decreased approximately $199,000 for the nine months ended September 30, 2011 when compared to the nine months ended September 30, 2010. The ART experienced decreased costs of approximately $259,000 for the nine months ended September 30, 2011 for  bank fees, insurance premiums, Trustee and audit  costs but had offsetting increased costs of approximately $60,000 for SEC and tax filing costs and Trustee additional service compensation.

Professional administrative costs increased approximately $122,000 for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. The increased costs relate primarily to increased costs for the ART regulatory compliance and Cause of Action oversight.

As a result of the decrease in total revenues of approximately $93,000 and the decrease in total operating expenses of approximately $16.4 million for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010, the net loss of approximately $7.8 million for the nine months ended September 30, 2011 was approximately $16.3 million lower than the net loss for the nine months ended September 30, 2010.

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Financial Condition and Cash Flows: Liquidity

The ART’s sources of liquidity are from (a) the $25 million transferred to the ART by Adelphia pursuant to the Plan on the Effective Date, (b) the successful resolution of Causes of Action and (c) earnings on invested cash balances. Receipts from these sources are used to pay professional and operating expenses of the ART and to fund Distributions to the Holders after reserving cash required to pay future professional and operating expenses of the ART. The Trustees regularly evaluate the future financial needs of the ART.  The Trustees will retain sufficient cash to administer the ART and fund the prosecution of the Causes of Action.

Based upon cash and cash equivalent balances as of September 30, 2011 totaling approximately $77.1 million along with expected expenses and other potential disbursements, the ART expects to meet its obligations as they come due during the next twelve months. Due to the uncertain nature of future revenues and expenses beyond twelve months, it is not possible to be certain that cash will be available to cover all the future financial needs of the ART. Incurring debt, creating contingent obligation agreements and seeking methods to reduce legal professional and administrative costs are all strategies that could be undertaken to address liquidity issues should they arise. These strategies could impact the ART’s ability to maximize recoveries from settlements.

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

Cash and cash equivalent balances at September 30, 2011 of approximately $77.1 million are $55.2 million higher than as of December 31, 2010. This increase is due to cash and cash equivalents provided from investing activities of $64.8 million offset by the use of cash and cash equivalents for operating activities of $9.6 million.

All of the ART’s 6 month CDs held as of December 31, 2010 matured in the first quarter of 2011. The value of the CDs including accrued interest at December 31, 2010 was $64.8 million. The ART invested the proceeds in CDs with a 3 month or shorter maturity, a U.S. Treasury and government agency securities money market fund and a deposit account. All of those investments are considered cash equivalents as of September 30, 2011.

The $9.6 million use of cash for operating activities included a net loss for the nine months ended September 30, 2011 of approximately $7.8 million, a decrease in accrued expenses of approximately $0.8 million. The decrease of $0.8 million in accrued expenses is due to the timing of vendor payments. Other operating activities include the accrual of interest on a note receivable of approximately $0.3 million and the payment for prepaid assets of $0.8 million net of amortization during the nine months ended September 30, 2011.

As of September 30, 2011, the ART has a total of $77.1 million of cash and cash equivalents which include investments in three-month or shorter FDIC fully-insured bank CDs in the amount of $61.0 million, a U.S. Treasury and government agency securities

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money market fund in the amount of $12.3 million and deposit accounts in the amount of $3.8 million. The ART considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. As such, the three-month CDs have been classified as cash equivalents as of September 30, 2011. All investments during the quarter were fully compliant with the ART investment policy.

As discussed further in Note 4 to the unaudited condensed financial statements, there is an ongoing dispute regarding the Litigation Indemnification Fund created under the Third Modified Fourth Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code for Century-TCI Debtors and Parnassos Debtors (the”JV LIF”).  To date, Century-TCI and Parnassos lenders (the “JV Lenders”) have submitted formal claims of approximately $26.9 million in aggregate (“JV LIF Claims”) in excess of the $10.0 million initially deposited in the JV LIF (or approximately $36.9 million in total) and have indicated an intention to submit additional claims in the future.

As of the date of this report the ART has resolved the claims of certain JV LIF claimants and approximately $15.4 million in total claims remain in dispute and the JV LIF cash balance approximates $2.7 million. If the Bankruptcy Court finds in favor of the JV Lenders in that dispute, the Bankruptcy Court could determine that the JV LIF must be replenished by the amount of the disputed JV LIF Claims while the dispute is still pending. Additionally, the ART may be required to replenish the JV LIF in an amount that satisfies all pending unresolved claims and returns the balance in the fund to $10.0 million. The ART has adequate liquidity to pay such obligation, if required.

Debt and Other Long-term Obligations

The ART has no debt, capital or operating lease or other long-term obligations and has no current plans to incur such obligations.

Cautionary Statement Regarding Risks and Uncertainties That May Affect Future Results

This report on Form 10-Q contains forward-looking statements about the business, financial condition and prospects of the ART. The actual results of the ART could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties, including, without limitation, the number of and proceeds from litigations and/or settlements which are successful, delays in obtaining proceeds, the amount of funding required for the litigations and other operating expenses, economic conditions, changes in tax and other governmental rules and regulations applicable to the ART, and other risks identified and described in the Form 10-K filed with the SEC on March 4, 2011. These risks and uncertainties are beyond the ability of the ART to control, and in many cases, the ART cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. When used in this report the words “believes,” “estimates,” “plans,” “expects,” and “anticipates” and similar expressions as they relate to the ART or its management are intended to identify forward-looking statements.

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The ART invests cash in either FDIC insured deposit accounts, FDIC insured bank CDs or a money market fund invested in short-term U.S. Treasury and government agency securities including repurchase agreements collateralized fully by U.S. Treasury and government agency securities. The CDs have 3 month or less maturity terms and as of September 30, 2011 the money market fund has a 45 day weighted average maturity for the underlying securities. Interest income from these investments is subject to interest rate fluctuations.

Evaluation of Disclosure Controls and Procedures

The ART maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that such information is accumulated and communicated to ART Trustees and the Trust Administrator as appropriate, to allow timely decisions regarding required financial disclosure.

The Trustees and the Trust Administrator have completed an evaluation of the effectiveness of the design and operation of disclosure controls and procedures as of September 30, 2011. Based on their evaluation, the Trustees and the Trust Administrator concluded that as of September 30, 2011, the ART’s disclosure controls and procedures were effective.

Limitations on the Effectiveness of Controls

The Trustees and the Trust Administrator do not expect that the ART’s disclosure controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the ART have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2011, there were no changes in the ART’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the ART’s internal control over financial reporting.

PART II

Item 1                                        Legal Proceedings

Except as set forth below, there have been no material developments in the legal proceedings described in the ART’s Form 10-K as filed on March 4, 2011 or as updated in the ART’s Form 10-Qs filed on May 13, 2011 and July 29, 2011.

Causes of Action

FPL Litigation

The FPL action seeks to recover an alleged fraudulent transfer arising out of Adelphia’s repurchase of certain of its stock from FPL in January 1999 for $149.5 million.  Pursuant to the Plan, the claims asserted in the FPL Litigation were transferred to the ART.  On July 13, 2011, the Bankruptcy Court denied FPL’s motion for leave to amend its answer to add a new defense.   FPL filed an appeal of the Bankruptcy Court’s July 13, 2011 decision.  FPL’s appeal has been briefed by the parties and is awaiting decision by the District Court. At a status conference with the Bankruptcy Court, FPL advised the Bankruptcy Court of its intention to move to withdraw the reference to the Bankruptcy Court which, if granted, would cause the action to be transferred to the District Court. On September 28, 2011, FPL filed its motion to withdraw the reference. The motion is pending before the District Court and is being briefed by the parties. The trial will be rescheduled after the District Court rules on the motion.

At this time, the ART cannot predict the outcome of the FPL Litigation or estimate the possible financial effect of this proceeding on the ART’s financial statements.

Sabres Litigation

The Sabres action involves claims for fraudulent conveyance, aiding and abetting breach of fiduciary duty, and equitable subordination or disallowance against Key Bank, N.A. (“Key Bank”), Fleet National Bank (“Fleet”), and HSBC Bank USA, N.A. (“HSBC”) (collectively, the “Sabres Banks”) arising from (i) Adelphia’s purchase of and payments on certain loans made by the Sabres Banks to a Rigas Family partnership that owned the Buffalo Sabres hockey team and (ii) John Rigas’ purchase of the team using Adelphia financing.  HSBC has asserted counterclaims against Adelphia for “post-petition tort,” contribution and indemnification.

The District Court for the Western District of New York granted a permanent injunction against the ART’s prosecution of the fraudulent conveyance claims against the Sabres Banks and the Second Circuit affirmed that decision.  The claims against Fleet were resolved as part of the settlement with Fleet and other defendants in the Bank Litigation.

An Order and Stipulation dated October 31, 2011 establishes a schedule for briefing and argument of the Sabres Banks’ motions to dismiss the ART’s remaining claims against Key Bank and HSBC and the ART’s motions to dismiss HSBC’s counterclaims.

At this time, the ART cannot predict the outcome of the Sabres Litigation against Key Bank and HSBC or estimate the possible financial effect of this proceeding on the ART’s financial statements.  The ART also cannot predict the outcome of HSBC’s counterclaims or estimate the possible financial effect of this proceeding on the ART’s financial statements.

Contingent Liabilities

Litigation Indemnification Fund Litigation

Pursuant to the Third Modified Fourth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code for Century-TCI Debtors and Parnassos Debtors (the “JV Plan”), which became effective on July 31, 2006; the Plan, which became effective on February 13, 2007; and certain other orders entered by the Bankruptcy Court, litigation indemnification funds (each, a “LIF”) were created with funds provided by Adelphia to provide certain defendants in the Bank Litigation (see Plan) provisional and conditional reimbursement of legal fees and expenses expected to be incurred in connection with defending litigation involving certain credit facilities.

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The LIF created under the JV Plan (the “JV LIF”), established in the initial amount of $10 million and held in an Adelphia account pending distributions as authorized by the ART, was created to fund certain allowable claims for indemnification arising under the Parnassos and Century-TCI prepetition credit facilities.  Subject to certain conditions, the JV LIF is “evergreen”, i.e. the JV Plan provides that the JV LIF will be replenished by the ART under certain conditions, such as “upon the receipt . . . of net proceeds of any Designated Litigation” after first deducting any required distribution to the government.

The LIFs created under the Main Plan (the “Main Plan LIFs”) are fixed in amounts and not subject to replenishment.  Because the JV LIF is evergreen, whereas the Main Plan LIFs are capped, the allocation of defense costs among the categories of LIFs is a matter of economic significance.

Certain entities (the “JV Claimants”) submitted formal claims that through September 30, 2011 aggregated approximately $26.9 million in excess of the $10.0 million initially deposited in the JV Litigation Indemnification Fund by Adelphia.  Thus, claims against the JV LIF totaled approximately $36.9 million and certain of the JV Claimants indicated an intention to submit additional claims in the future.  Adelphia and the ART asserted that the JV LIF claims were improper.

On November 13, 2008, certain of the JV claimants filed, or subsequently joined in, the Motion of the Bank of Nova Scotia, Citibank N.A. and The Ad Hoc Committee of Non-Agent Secured Lenders in the Parnassos and Century-TCI Facilities for Payment of Bank Lender Post Effective Date Fee Claims and to Compel Compliance of the Plan Administrator (defined in the JV Plan as Adelphia) and the Art with the Third Modified Fourth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code and the Century TCI Stipulation (the “LIF Motion”).  Adelphia and the ART moved to disallow Bank Lender Post-Effective Date Fee Claims against the claimants.

The Bankruptcy Court heard argument of counsel on May 25, 2011, and stated that an evidentiary hearing would be required to resolve any JV LIF claims that may remain in dispute at the time of such hearing.   Since May 25, 2011, the ART has resolved the claims of certain JV LIF claimants.   The remaining claims against the JV LIF in the aggregate total approximately $15.4 million and the balance of the JV LIF as of the date of this report is approximately $2.7 million.

To the extent the Bankruptcy Court grants the LIF Motion as to any unresolved JV LIF claims, the Bankruptcy Court could require the ART to replenish the JV LIF in an amount that satisfies all unresolved claims while the dispute is still pending. Additionally, the ART may be required to replenish the JV LIF in an amount that satisfies all pending unresolved claims and returns the balance in the fund to $10.0 million. The ART has adequate liquidity to satisfy that obligation if required.

At this time, the ART cannot predict the outcome of the remaining proceedings or estimate the possible financial effect of these proceedings on the ART.

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Item 1A.                                                   Risk Factors

As of the date of this filing there have been no material changes from the risk factors previously disclosed in our “Risk Factors” in the ART’s Form 10-K for the year ended December 31, 2010 as filed with the SEC on March 4, 2011.

Item 6     Exhibits

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

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