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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K



|þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2009



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

For the transition period from  to

Commission file number 333-116595

LEASE EQUITY APPRECIATION FUND II, L.P.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 20-1056194                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

110 South Poplar Street, Suite
101, Wilmington Delaware 19801

(Address of principal executive offices)

(800) 819-5556

(Registrants telephone number, including area code)

Securities registered pursuant to Section 12
(b) of the Act:



|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange on Which Registered
|None                |  | Not applicable                           

Securities
registered pursuant to Section 12 (g) of the Act:

Limited Partner Units



Title of Class

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     ̈  Yes    þ  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     ̈  Yes    þ  No

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.    þ  Yes     ̈  No

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).     ̈  Yes     ̈  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

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. (Check one):



|                           |  |                      |  |                                               |  |                              
|-------------------------- |  | -------------------- |  | --------------------------------------------- |  | -----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer   ̈ |  | Non-accelerated filer   ̈                      |  | Smaller Reporting Company   þ
|                           |  |                      |  | (Do not check if a smaller reporting company) |  |                              

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

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

There is no
public market for the Registrants securities.

DOCUMENTS INCORPORATED BY REFERENCE

None









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##### Table of Contents

LEASE EQUITY APPRECIATION FUND II, L.P.

INDEX TO ANNUAL REPORT

ON FORM 10-K



|           |  |          |  |                                                                                                              |  |     
|---------- |  | -------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|           |  |          |  |                                                                                                              |  | Page
|PART I     |  |          |  |                                                                                                             
|           |  | ITEM 1:  |  | Business                                                                                                     |  | 3   
|           |  | ITEM 1A: |  | Risk Factors                                                                                                 |  | 7   
|           |  | ITEM 1B: |  | Unresolved Staff Comments                                                                                    |  | 7   
|           |  | ITEM 2:  |  | Properties                                                                                                   |  | 7   
|           |  | ITEM 3:  |  | Legal Proceedings                                                                                            |  | 7   
|           |  |         
|PART II    |  |          |  |                                                                                                             
|           |  | ITEM 5:  |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 8   
|           |  | ITEM 6:  |  | Selected Financial Data                                                                                      |  | 8   
|           |  | ITEM 7:  |  | Managements Discussion and Analysis of Financial Condition and Results of
Operation                         |  | 9   
|           |  | ITEM 7A: |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 19  
|           |  | ITEM 8:  |  | Financial Statements and Supplementary Data                                                                  |  | 21  
|           |  | ITEM 9:  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         |  | 40  
|           |  | ITEM 9A: |  | Controls and Procedures                                                                                      |  | 40  
|           |  | ITEM 9B: |  | Other Information                                                                                            |  | 41  
|           |  |         
|PART III   |  |          |  |                                                                                                             
|           |  | ITEM 10: |  | Directors and Executive Officers of the Registrant                                                           |  | 42  
|           |  | ITEM 11: |  | Executive Compensation                                                                                       |  | 45  
|           |  | ITEM 12: |  | Security Ownership of Certain Beneficial Owners and Management and Related Unit Holder
Matters               |  | 45  
|           |  | ITEM 13: |  | Certain Relationships and Related Transactions                                                               |  | 45  
|           |  | ITEM 14: |  | Principal Accountant Fees and Services                                                                       |  | 46  
|           |  |         
|PART IV    |  |          |  |                                                                                                             
|           |  | ITEM 15: |  | Exhibits, Financial Statement Schedules                                                                      |  | 47  
|           | 
|SIGNATURES |  | 49      



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information contained in this Annual Report on Form 10-K (this Report) includes forward-looking statements.
Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify
forward-looking statements by terms such as anticipate, believe, could, estimate, expects, intend, may, plan, potential, project,
should, will and would or the negative of these terms or other comparable terminology.

Forward-looking statements contained in this Report are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations
can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those
expressed in our forward-looking statements. Forward-looking statements we make in this Report are subject to various risks and uncertainties that could cause actual results to vary from our forward-looking statements, including:



| |  |  | changes in our industry, interest rates or the general economy;
| | - |  | ---------------------------------------------------------------



| |  |  | increased rates of default and/or decreased recovery rates on our investment in leases and loans;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | availability, terms and deployment of debt funding;
| | - |  | ---------------------------------------------------



| |  |  | general volatility of the debt markets;
| | - |  | ---------------------------------------



| |  |  | the timing of cash flows, if any, from our investments in leases and loans and payments for debt service;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | the degree and nature of our competition; and
| | - |  | ---------------------------------------------



| |  |  | availability and retention of qualified personnel.
| | - |  | --------------------------------------------------

We caution you not to place undue reliance on these forward-looking statements which speak only as of the date of this Report. All subsequent written and oral forward-looking statements attributable to us
or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, we undertake no obligation to update
these forward-looking statements to reflect events or circumstances after the date of this filing or to reflect the occurrence of unanticipated events.

As used herein, the terms we, us, or our refer to Lease Equity Appreciation Fund II, L.P. and subsidiary.

PART I

ITEM 1  BUSINESS

General

We
are a Delaware limited partnership formed on March 30, 2004 by our General Partner, LEAF Financial Corporation (our General Partner), which manages us. Our General Partner is a subsidiary of Resource America, Inc. (RAI).
RAI is a publicly-traded company (NASDAQ: REXI) that uses industry specific expertise, to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund management segments. Through
our offering termination date of October 13, 2006, we raised $60.0 million by selling 600,000 of our limited partner units. We commenced operations in April 2005.

We are expected to have a nine-year life, consisting of an offering period of up to two years, a five year reinvestment period and a subsequent maturity period of two years, during which our leases and
secured loans will either mature or be sold. In the event we are unable to sell our leases and secured loans during the maturity period, we expect to continue to return capital to our partners as those leases and loans mature. Substantially all of
our leases and loans mature by the end of 2014. We expect to enter our liquidation period beginning in October 2011. We will terminate on December 31, 2029, unless sooner dissolved or terminated as provided in the Limited Partnership Agreement.



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We acquire a diversified portfolio of new, used or reconditioned equipment that we lease to
third-parties. We also acquire portfolios of equipment subject to existing leases from other equipment lessors. Our financings are typically acquired from our General Partner. In addition, we may make secured loans to end users to finance their
purchase of equipment. We attempt to structure our secured loans so that, in an economic sense, there is no difference to us between a secured loan and a full payout equipment lease. We finance business-essential equipment including, but not limited
to, computers, copiers, office furniture, water filtration systems, machinery used in manufacturing and construction, medical equipment and telecommunications equipment. We focus on the small to mid-size business market, which generally includes
businesses with:



| |  |  | 500 or fewer employees;
| | - |  | -----------------------



| |  |  | $1 billion or less in total assets; or
| | - |  | --------------------------------------



| |  |  | $100 million or less in total annual sales.
| | - |  | -------------------------------------------

Our principal objective is to generate regular cash distributions to our limited partners.

Our leases consist of direct financing and operating leases as defined by accounting principles generally accepted in the United States of America (U.S. GAAP). Under the direct financing
method of accounting, interest income (the excess of the aggregate future rentals and estimated unguaranteed residuals upon expiration of the lease over the related equipment cost) is recognized over the life of the lease using the interest method.
Under the operating method, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciated on a straight-line basis over its estimated useful life. Rental income on operating
leases consists primarily of monthly periodic rentals due under the terms of the leases. Generally, during the lease terms of existing operating leases, we will not recover all of the cost and related expenses of rental equipment and, therefore, we
are prepared to remarket the equipment in future years. We discontinue the recognition of revenue for leases and loans for which payments are more than 90 days past due. These assets are classified as non-accrual.

Debt Facilities

We have
augmented the original proceeds of our offering with debt, and intend to continue to finance a significant portion of the cost of the equipment we acquire. We are not limited in the amount of debt, including financings through securitizations, we
may incur. Our ability to obtain financing will, however, depend upon our General Partners assessment of whether funds are available at rates and upon terms that are economically advantageous to us. As a result, the amount of our financings
may vary significantly from our expectations.

Borrowings outstanding under our credit facilities as of December 31, 2009
were as follows (in thousands):



|                                      |  |           |  |                |         |                   |   |                 |  |   |       
|------------------------------------- |  | --------- |  | -------------- | ------- | ----------------- | - | --------------- |  | - | ------
|                                      |  | Type      |  | FacilityAmount |         | AmountOutstanding |   | AmountAvailable
|Series 2007  Term Securitization (1) |  | Term      |  | $              | 64,200  |                   | $ | 64,200          |  | $ |      
|WestLB (1)                            |  | Revolving |  |                | 125,000 |                   |   | 87,781          |  |   | 37,219
|                                      |  |           |  |                |         |                   |   |                 |  |   |       
|                                      |  |           |  | $              | 189,200 |                   | $ | 151,981         |  | $ | 37,219
|                                      |  |           |  |                |         |                   |   |                 |  |   |       



|(1) | Availability under this loan is subject to having eligible leases or loans to pledge as collateral and compliance with the borrowing base formula.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



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In September 2007, we closed a $276.8 million term securitization (Series 2007-1
Notes). In connection with the Series 2007-1 Notes transaction, four tranches of notes were issued to investors:



|          |  |                              |       |               |                         |          |                  
|--------- |  | ---------------------------- | ----- | ------------- | ----------------------- | -------- | -----------------
|Notes     |  | Original Amount(in millions) |       | Interest Rate |                         | Maturity
|Class A-1 |  | $                            | 84.0  |               | 5.38%                   |          | September 2008(a)
|Class A-2 |  |                              | 77.0  |               | One Month LIBOR + 0.12% |          | January 2010(b)  
|Class A-3 |  |                              | 101.3 |               | One Month LIBOR + 0.20% |          | July 2012        
|Class B   |  |                              | 14.5  |               | 6.7%                    |          | March 2015       
|          |  |                              |       |               |                         |          |                  
|          |  | $                            | 276.8 |               |                         |          |                  
|          |  |                              |       |               |                         |          |                  



|(a) | Fully repaid in March 2008.
|--- | ---------------------------

|(b) | Fully repaid in February 2009.
|--- | ------------------------------

To mitigate fluctuations in interest rates on the Class A-3 notes, we entered into interest rate swap agreements. As of December 31, 2009, the interest rate swap agreements fix the interest rate on the Class A-3 notes at
5.6%. The interest rate swap agreements terminate at various dates ranging from September 2011 to August 2015.

In June 2005,
we obtained a $75.0 million credit facility with WestLB AG, New York Branch, (WestLB), which was increased to $150 million in June 2006. In June 2009, we reduced the facility amount to $125 million. This revolving line of credit is collateralized by
specific lease receivables and related equipment, with a 1% credit reserve of the outstanding line of credit. Interest on the existing borrowings is calculated at LIBOR plus 0.95% per annum. Borrowings under this facility after
February 25, 2010 would be at a rate of LIBOR plus 2.50% per annum. To mitigate fluctuations in interest rates, we entered into interest rate swap agreements, which terminate on various dates ranging from September 2011 to August 2015. As
of December 31, 2009, the interest rate swap agreements fixed the interest rate on this facility at 5.7%. Interest and principal are due as payments are received under the financings. The credit facility terminates on June 30, 2010. If
this facility is not extended, we would not be required to make full repayment at the time of renewal. Rather, we would continue to repay the principal and interest on any outstanding debt as payments are received on the underlying leases and loans
pledged as collateral; however, there would be no additional borrowings under the facility. Recourse under this facility is limited to the amount of collateral pledged. As of December 31, 2009, $96.3 million of leases and loans and $5.8 million of
restricted cash were pledged as collateral under this facility.

We are subject to certain financial covenants related to our
debt facilities. These covenants are related to such things as minimum tangible net worth, maximum leverage ratios and portfolio delinquency. The minimum tangible net worth covenants measure our equity adjusted for intangibles and amounts
due to our General Partner. The maximum leverage covenants restrict the amount we can borrow based on a ratio of our total debt compared to our net worth. The portfolio performance covenants generally provide that we would be in default if a
specified percentage of our portfolio of leases and loans was delinquent in payment beyond acceptable grace periods.

In
addition, our debt facilities include financial covenants covering affiliated entities responsible for servicing our portfolio. These covenants exist to provide the lenders with information about the financial viability of the entities that service
our portfolio. These entities include our General Partner and certain other affiliates involved in the sourcing and servicing of our portfolio. These covenants are similar in nature to our covenants and are related to such things as the
entitys minimum tangible net worth, maximum leverage ratios, managed portfolio delinquency and compliance of the debt terms of all of our General Partners managed entities. As of December 31, 2009, we, and our applicable affiliated
entities, are in compliance with all such covenants under our various debt agreements.

Available Information

We file annual, quarterly and current reports and other information with the SEC. The public may read and copy information we file with the
SEC at the SECs public reference room at 100 F Street, NE, Washington, D.C. 20549, on official business days during the hours of 10:00 am and 3:00 pm. The public may obtain information on the operations of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC maintains an internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The internet address of the SEC site is
http://www.sec.gov. Our General Partners internet address is http://www.leaf-financial.com. We make our SEC filings available free of charge on or through our General Partners internet website as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the SEC. We are not incorporating by reference in this report any material from our General Partners website.

Agreements with our General Partner

We do not directly employ any persons to manage or operate our business. These functions are provided by our General Partner and employees of our General Partner and/or its affiliates. We reimburse our General Partner and/or its affiliates
for all direct and indirect costs of services provided, including the cost of employees and benefits properly allocable to us and all other expenses necessary or appropriate for the conduct of our business. The following is a summary of fees and
costs of services charged by the General Partner or its affiliates (in thousands):



|                        |  |                         |       |      |   |       |  |   |      
|----------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                        |  | Years Ended December 31
|                        |  | 2009                    |       | 2008 |   | 2007 
|Acquisition fees        |  | $                       | 123   |      | $ | 1,866 |  | $ | 2,587
|Management fees         |  |                         | 2,921 |      |   | 3,844 |  |   | 3,680
|Administrative expenses |  |                         | 2,491 |      |   | 2,626 |  |   | 1,501



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Acquisition Fees.Our General Partner is paid a fee for assisting us in acquiring
equipment subject to existing equipment leases equal to 2% of the purchase price we pay for the equipment or portfolio of equipment subject to existing equipment financing.

Administrative Expenses.Our General Partner and its affiliates are reimbursed by us for administrative services reasonably necessary
to operate which dont exceed the General Partners cost of those fees or services.

Management Fees.Our
General Partner is paid a subordinated annual asset management fee equal to 4% or 2% of gross rental payments for operating leases or full payout leases, respectively, or a competitive fee, whichever is less. During the reinvestment period,
management fees are subordinated to the payment of distributions to our limited partners of a cumulative annual return of 8% on their capital contributions, as adjusted by distributions deemed to be a return of capital.

Distributions.Our General Partner owns a 1% general partner interest and a 1.6% limited partner interest in us. The General Partner
was paid cash distributions of $28,000 and $45,000, respectively, for its general partner and limited partner interests in us in 2009.

Additionally, our General Partner is entitled to the following fees (if applicable):



| |  |  | a subordinated commission equal to one-half of a competitive commission, up to a maximum of 3% of the contract sales price, for arranging the sale of
our equipment after the expiration of a lease. During the reinvestment period, these commissions are subordinated to the payment of distributions to our limited partners of a cumulative annual return of 8%, compounded daily, on their capital
contributions, as adjusted by distributions deemed to be a return of capital. No commissions were paid in the years ended December 31, 2009 and 2008; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a commission equal to the lesser of a competitive rate or 2% of gross rental payments derived from any re-lease of equipment, payable as we receive
rental payments from re-lease. We will not, however, pay a re-lease commission if the re-lease is with the original lessee or its affiliates. No re-lease commissions were paid in the years ended December 31, 2009 or 2008.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During our offering period, the General Partner received an organization and offering expense allowance of
3% of offering proceeds to reimburse it for expenses incurred in preparing us for registration or qualification under federal and state securities laws and subsequently offering and selling our units. This expense allowance does not cover
underwriting fees or sales commissions, but does cover reimbursement of bona fide accountable due diligence expenses of selling dealers to a maximum of one-half of 1% of offering proceeds. There were no organization and offering expenses reimbursed
to our General Partner for the years ended December 31, 2009 or 2008.

Competition

The equipment leasing business is highly fragmented and competitive. We acquire equipment from our General Partner and its affiliates. Our
General Partner and its affiliates compete with:



| |  |  | a large number of national, regional and local banks, savings banks, leasing companies and other financial institutions;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | captive finance and leasing companies affiliated with major equipment manufacturers; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | other sources of equipment lease financing, including other publicly-offered partnerships.
| | - |  | ------------------------------------------------------------------------------------------



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Many of our competitors are substantially larger and have considerably greater financial,
technical and marketing resources than we have. Competition with these entities may reduce the creditworthiness of potential lessees or borrowers to whom we have access or decrease our yields. For example, some competitors may have a lower cost of
funds and access to funding sources that are not available to us. A lower cost of funds could enable a competitor to offer leases or loans at rates which are less than ours, potentially forcing us to lower our rates or lose origination volume.

Employees

As is commonly the case with limited partnerships, we do not directly employ any of the persons responsible for our management or operations. Rather, the personnel of our General Partner and/or its affiliates manage and operate our
business. Officers of our General Partner may spend a substantial amount of time managing the business and affairs of our General Partner and its affiliates and may face a conflict regarding the allocation of their time between our business and
affairs and their other business interests. The officers of our General Partner who provide services to us are not required to work full time on our affairs. These officers may devote significant time to the affairs of our General Partners
affiliates and be compensated by these affiliates for the services rendered to them. There may be significant conflicts between us and affiliates of our General Partner regarding the availability of these officers to manage us.

ITEM 1A  RISK FACTORS

Risk factors have been omitted as permitted under rules applicable to smaller reporting companies.

ITEM 1B  UNRESOLVED STAFF COMMENTS

None.

ITEM 2  PROPERTIES

We do not own or lease any real property.

ITEM 3  LEGAL
PROCEEDINGS

We are not subject to any pending material legal proceedings.



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PART II

ITEM 5  MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our limited partner units are not publicly traded. There is no market for our limited partner units and it is unlikely that any will develop.
The following table shows the number of equity security holders, including our General Partner with respect to limited partner units it purchased.



|                 |  |                                          
|---------------- |  | -----------------------------------------
|Title of Class   |  | Number of Partners as ofDecember 31, 2009
|Limited Partners |  | 1,399                                    
|General Partner  |  | 1                                        

Total distributions paid
to limited partners for the years ended December 31, 2009, 2008 and 2007 were $2.8 million, $4.8 million and $4.8 million, respectively. These distributions were paid on a monthly basis to our limited partners at rate of approximately
4.6 % in 2009 and 8% in 2008 and 2007, of their original capital contribution to us.

ITEM 6 
SELECTED FINANCIAL DATA

The following selected financial data should be read together with our consolidated financial
statements, the notes to our consolidated financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations, each contained in Item 7 in this report. We derived the selected
consolidated financial data below from our consolidated financial statements, which have been audited by Grant Thornton LLP, an independent registered public accounting firm (in thousands, except unit and per unit data):



|                                                                             |  |                         |         |   |      |   |         |      |  |   |         |   |          |   |         |  |   |        |  
|---------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - | -------- | - | ------- |  | - | ------ | -
|                                                                             |  | Year Ended December 31, |        
|                                                                             |  | 2009                    |         |   | 2008 |   |         | 2007 |  |   | 2006    |   | 2005 (1) |  
|Revenues                                                                     |  | $                       | 21,629  |   |      | $ | 34,780  |      |  | $ | 34,864  |   |          | $ | 14,888  |  | $ | 1,194  |  
|Expenses                                                                     |  |                         | 41,043  |   |      |   | 42,180  |      |  |   | 36,752  |   |          |   | 14,756  |  |   | 1,632  |  
|                                                                             |  |                         |         |   |      |   |         |      |  |   |         |   |          |   |         |  |   |        |  
|Net (loss) income                                                            |  | $                       | (19,414 | ) |      | $ | (7,400  | )    |  | $ | (1,888  | ) |          | $ | 132     |  | $ | (438   | )
|                                                                             |  |                         |         |   |      |   |         |      |  |   |         |   |          |   |         |  |   |        |  
|Net (loss) income allocated to limited partners                              |  | $                       | (19,220 | ) |      | $ | (7,326  | )    |  | $ | (1,869  | ) |          | $ | 131     |  | $ | (434   | )
|                                                                             |  |                         |         |   |      |   |         |      |  |   |         |   |          |   |         |  |   |        |  
|Distributions to partners                                                    |  | $                       | 2,784   |   |      | $ | 4,826   |      |  | $ | 4,843   |   |          | $ | 2,624   |  | $ | 332    |  
|Weighted average number of limited partner units outstanding during the year |  |                         | 593,013 |   |      |   | 595,623 |      |  |   | 599,095 |   |          |   | 370,349 |  |   | 51,053 |  
|Net (loss) income per weighted average limited partner unit                  |  | $                       | (32.41  | ) |      | $ | (12.30  | )    |  | $ | (3.12   | ) |          | $ | 0.35    |  | $ | (8.49  | )



|                                              |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|--------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------ | -
|                                              |  | December 31, |        
|                                              |  | 2009         |         |   | 2008 |   |         | 2007 |  |   | 2006    |   |  | 2005 |        
|Investment in leases and loans, net           |  | $            | 159,015 |   |      | $ | 265,993 |      |  | $ | 338,172 |   |  | $    | 317,850 |   |  | $ | 41,967 |  
|Total assets                                  |  |              | 182,598 |   |      |   | 299,039 |      |  |   | 372,245 |   |  |      | 343,322 |   |  |   | 44,569 |  
|Bank debt                                     |  |              | 151,981 |   |      |   | 254,744 |      |  |   | 324,170 |   |  |      | 291,118 |   |  |   | 34,512 |  
|Partners (deficit) capital:                  |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|General partner                               |  | $            | (443    | ) |      | $ | (221    | )    |  | $ | (99     | ) |  | $    | (32     | ) |  | $ | (7     | )
|Limited partners                              |  |              | 7,318   |   |      |   | 29,371  |      |  |   | 41,855  |   |  |      | 48,708  |   |  |   | 9,621  |  
|Accumulated other comprehensive (loss) income |  |              | (4,421  | ) |      |   | (10,098 | )    |  |   | (4,614  | ) |  |      | 1,803   |   |  |   | 159    |  
|                                              |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Total partners capital                       |  | $            | 2,454   |   |      | $ | 19,052  |      |  | $ | 37,142  |   |  | $    | 50,479  |   |  | $ | 9,773  |  
|                                              |  |              |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  



|(1) | We deem April 14, 2005 to be the commencement of our operations and we refer to the period from that date through December 31, 2005 as the
year ended December 31, 2005.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion provides an analysis of our operating results, an overview of
our liquidity and capital resources and other items related to us. This discussion and analysis should be read in conjunction with Item 1 and the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for the year
ended December 31, 2009.

General

We are a Delaware limited partnership formed on March 30, 2004 by our General Partner, LEAF Financial Corporation (our General Partner), which manages us. Our General Partner is a
subsidiary of Resource America, Inc. (RAI). RAI is a publicly-traded company (NASDAQ: REXI) that uses industry specific expertise, to evaluate, originate, service and manage investment opportunities through its commercial finance, real
estate and financial fund management segments. Through our offering termination date of October 13, 2006, we raised $60.0 million by selling 600,000 of our limited partner units. We commenced operations in April 2005.

We are expected to have a nine-year life, consisting of an offering period of up to two years, a five year reinvestment period and a
subsequent maturity period of two years, during which our leases and secured loans will either mature or be sold. In the event we are unable to sell our leases and secured loans during the maturity period, we expect to continue to return capital to
our partners as those leases and loans mature. Substantially all of our leases and loans mature by the end of 2014. We expect to enter our liquidation period beginning in October 2011. We will terminate on December 31, 2029, unless sooner
dissolved or terminated as provided in the Limited Partnership Agreement.

We acquire a diversified portfolio of new, used or
reconditioned equipment that we lease to third parties. We also acquire portfolios of equipment subject to existing leases from other equipment lessors. Our financings are typically acquired from our General Partner. In addition, we may make secured
loans to end users to finance their purchase of equipment. We attempt to structure our secured loans so that, in an economic sense, there is no difference to us between a secured loan and a full payout equipment lease. We finance business-essential
equipment including, but not limited to, computers, copiers, office furniture, water filtration systems, machinery used in manufacturing and construction, medical equipment and telecommunications equipment. We focus on the small to mid-size business
market, which generally includes businesses with:



| |  |  | 500 or fewer employees;
| | - |  | -----------------------



| |  |  | $1.0 billion or less in total assets; or
| | - |  | ----------------------------------------



| |  |  | $100.0 million or less in total annual sales.
| | - |  | ---------------------------------------------

Our principal objective is to generate regular cash distributions to our limited partners.

Our leases consist of direct financing leases and operating leases as defined by accounting principles generally accepted in the United States of America (U.S. GAAP). Under the direct
financing method of accounting, interest income (the excess of the aggregate future rentals and estimated unguaranteed residuals upon expiration of the lease over the related equipment cost) is recognized over the life of the lease using the
interest method. Under the operating method, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciated on a straight-line basis over its estimated useful life. Rental
income on operating leases consists primarily of monthly periodic rentals due under the terms of the leases. Generally, during the lease terms of existing operating leases, we will not recover all of the cost and related expenses of rental equipment
and, therefore, we are prepared to remarket the equipment in future years. We discontinue the recognition of revenue for leases and loans for which payments are more than 90 days past due. These assets are classified as non-accrual.



9



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##### Table of Contents

Overview

We continued to be impacted by challenging economic conditions in 2009. As further discussed in the Finance Receivables and Asset Quality section below, the current economic recession in the
United States has adversely affected our operations, resulting in higher delinquencies in our portfolio of leases and loans, which may continue until the economy recovers. Additionally, as discussed in the Liquidity and Capital Resources
section below, the on-going dislocation in the debt markets has also created challenges in maintaining our existing debt facility.

Finance
Receivables and Asset Quality

Information about our portfolio of leases and loans is as follows (dollars in thousands):



|                                                                              |  |              |         |   |      |   |         |  
|----------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                              |  | December 31, |        
|                                                                              |  | 2009         |         |   | 2008 |  
|Investment in leases and loans, net                                           |  | $            | 159,015 |   |      | $ | 265,993 |  
|Number of contracts                                                           |  |              | 18,000  |   |      |   | 21,400  |  
|Number of individual end users(a)                                             |  |              | 15,700  |   |      |   | 18,600  |  
|Average original equipment cost                                               |  | $            | 27      |   |      | $ | 26      |  
|Average initial term (in months)                                              |  |              | 57      |   |      |   | 55      |  
|States accounting for more than 10% of lease and loan portfolio:              |  |              |         |   |      |   |         |  
|California                                                                    |  |              | 13      | % |      |   | 13      | %
|Types of equipment accounting for more than 10% of lease and loan portfolio:  |  |              |         |   |      |   |         |  
|Industrial equipment                                                          |  |              | 27      | % |      |   | 26      | %
|Types of businesses accounting for more than 10% of lease and loan portfolio: |  |              |         |   |      |   |         |  
|Services                                                                      |  |              | 45      | % |      |   | 44      | %



|(a) | Located in the 50 states as well as the District of Columbia and Puerto Rico. No individual end user or single piece of equipment accounted for more than 1% of our
portfolio based on original cost of the equipment.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We utilize debt facilities in addition to our equity to fund
the acquisitions of lease portfolios. As of December 31, 2009 and 2008, our outstanding debt was $152.0 million and $254.7 million, respectively.



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##### Table of Contents

The performance of our lease and loan portfolio is a measure of our General Partners
underwriting and collection standards, skills, policies and procedures and is an indication of asset quality. The table below provides information about our finance receivables including non-performing assets, which are those assets that are not
accruing income due to non-performance or impairment (dollars in thousands):



|                                                                                                    |  |                                          |         |   |        |   |         |   |  |   |         |   |  |     |   
|--------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ------ | - | ------- | - |  | - | ------- | - |  | --- | --
|                                                                                                    |  | As of and for the YearEnded December 31, |         |   | Change |  
|                                                                                                    |  | 2009                                     |         |   | 2008   |   |         | $ |  |   | %       |  
|Investment in direct financing leases and loans before allowance for credit losses                  |  | $                                        | 166,172 |   |        | $ | 264,997 |   |  | $ | (98,825 | ) |  | (37 | )%
|Weighted average investment in direct financing leases and loans before allowance for credit losses |  |                                          | 218,902 |   |        |   | 305,453 |   |  |   | (86,551 | ) |  | (28 | )%
|Allowance for credit losses                                                                         |  |                                          | 11,380  |   |        |   | 5,770   |   |  |   | 5,610   |   |  | 97  | % 
|Non-performing assets                                                                               |  |                                          | 14,994  |   |        |   | 15,224  |   |  |   | (230    | ) |  | (2  | )%
|Charge-offs, net of recoveries                                                                      |  |                                          | 12,331  |   |        |   | 7,318   |   |  | $ | 5,013   |   |  | 69  | % 
|As a percentage of finance receivables:                                                             |  |                                          |         |   |        |   |         |   |  |   |         |   |  |     |   
|Allowance for credit losses                                                                         |  |                                          | 6.85    | % |        |   | 2.18    | % |  |   |         |   |  |     |   
|Non-performing assets                                                                               |  |                                          | 9.02    | % |        |   | 5.74    | % |  |   |         |   |  |     |   
|As a percentage of weighted average finance receivables:                                            |  |                                          |         |   |        |   |         |   |  |   |         |   |  |     |   
|Charge-offs, net of recoveries                                                                      |  |                                          | 5.63    | % |        |   | 2.40    | % |  |   |         |   |  |     |   

We manage our credit risk by adhering to strict credit policies and procedures, and closely
monitoring our receivables. Our General Partner, the servicer of our leases and loans, has responded to the current economic recession by increasing the number of employees in its collection department and implementing earlier intervention
techniques in collection procedures. Our General Partner has also increased its credit standards and limited the amount of business we do with respect to certain industries, geographic locations and equipment types. Because of the current scarcity
of credit available to small and mid size businesses, we have been able to increase our credit standards without reducing the interest rate we charge on our leases and loans.

Our allowance for credit losses is our estimate of losses inherent in our commercial finance receivables. The allowance is based on factors
which include our historical loss experience on equipment finance portfolios we manage, an analysis of contractual delinquencies, current economic conditions and trends and equipment finance portfolio characteristics, adjusted for recoveries. In
evaluating historic performance, we perform a migration analysis, which estimates the likelihood that an account progresses through delinquency stages to ultimate charge-off. Our policy is to charge off to the allowance those financings which are in
default and for which management has determined the probability of collection to be remote. Substantially all of our assets are collateral for our debt and, therefore, significantly greater delinquencies than anticipated will have an adverse impact
on our cash flow and distributions to our partners.

The equipment we finance includes computers, copiers, office furniture,
water filtration systems, machinery used in manufacturing and construction, medical equipment and telecommunications equipment. We focus on financing equipment used by small to mid-sized businesses. The current economic recession in the US has made
it more difficult for some of our customers to make payments on their financings with us on a timely basis, which has adversely affected our operations in the form of higher delinquencies. These higher delinquencies may continue until the US economy
recovers. The increase in delinquencies, as well as the current economic trends, has caused us to conclude that a greater allowance for credit loss is necessary. In addition, our non-performing assets have increased due to the increase in customers
who are more than 90 days delinquent at December 31, 2009 as compared to December 31, 2008.

Our net charge-offs
increased in 2009 compared to 2008 due to the aging of our portfolio of leases and loans as well as the current economic recession as discussed above.



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##### Table of Contents

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which
have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and cost and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including the allowance for credit losses, the estimated unguaranteed residual values of leased equipment, impairment of long-lived assets and the fair
value and effectiveness of interest rate swaps. We base our estimates on historical experience, current economic conditions and on various other assumptions that we believe reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the following policies as critical to our business operations and the understanding of our results of operations.

Investments in Leases and Loans

Our investments in leases and loans consist of direct financing leases, operating leases and loans.

Direct Financing Leases.Certain of our lease transactions are accounted for as direct financing leases (as distinguished from operating leases). Such leases transfer substantially all benefits and
risks of equipment ownership to the customer. Our investment in direct financing leases consists of the sum of the total future minimum lease payments receivable plus the estimated unguaranteed residual value of leased equipment, less unearned
finance income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum contracted payments plus the estimated unguaranteed residual
value over the cost of the related equipment.

Operating Leases.Leases not meeting the criteria to be classified as
direct financing leases are deemed to be operating leases. Under the accounting for operating leases, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciated on a
straight-line basis over the equipments estimated useful life, generally up to seven years. Rental income consists primarily of monthly periodic rentals due under the terms of the leases. We recognize rental income on a straight line basis.
Generally, during the lease terms of existing operating leases, we will not recover all of the cost and related expenses of our rental equipment and, therefore, we are prepared to remarket the equipment in future years. Our policy is to review, on a
quarterly basis, the expected economic life of our rental equipment in order to determine the recoverability of its undepreciated cost. We write down our rental equipment to its estimated net realizable value when it is probable that its carrying
amount exceeds such value and the excess can be reasonably estimated; gains are only recognized upon actual sale of the rental equipment. There were no write-downs of equipment during the years ended December 31, 2009, 2008 and 2007.

Loans.Our term loans consist of the sum of the total future minimum loan payments receivable less unearned finance
income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum contracted loan payments term over the cost of the related equipment.
For all other loans, interest income is recorded at the stated rate on the accrual basis to the extent that such amounts are expected to be collected.

We discontinue the recognition of revenue for leases and loans for which payments are more than 90 days past due. Fees from delinquent payments are recognized when received and are included in other
income.



12



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##### Table of Contents

Allowance for Credit Losses

We evaluate the adequacy of the allowance for credit losses (including investments in leases and loans) based upon, among other factors,
managements historical experience on the portfolios it manages, an analysis of contractual delinquencies, economic conditions and trends and equipment finance portfolio characteristics, adjusted for expected recoveries. In evaluating historic
performance, we perform a migration analysis, which estimates the likelihood that an account progresses through delinquency stages to ultimate charge-off. Our policy is to charge off to the allowance those financings which are in default and for
which management has determined the probability of collection to be remote.

Estimated Unguaranteed Residual Values of Leased Equipment

Unguaranteed residual value represents the estimated amount to be received at lease termination from lease extensions or
ultimate disposition of the leased equipment. The estimates of residual values are based upon our General Partners history with regard to the realization of residuals, available industry data and our General Partners senior
managements experience with respect to comparable equipment. The estimated residual values are recorded as a component of investments in leases. Residual values are reviewed periodically to determine if the current estimate of the
equipments fair market value appears to be below its recorded estimate. If required, residual values are adjusted downward to reflect adjusted estimates of fair market values. Upward adjustments to residual values are not permitted.

Impairment of Long-Lived Assets

We review our long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If it is determined that estimated undiscounted
future cash flows derived from long-lived assets will not be sufficient to recover their carrying amounts, an impairment charge will be recorded if the carrying amount of the assets exceed their estimated fair values.

Fair Value and Effectiveness of Interest Rate Swaps

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the
asset or liability at the measurement date (exit price). Because our derivatives are not listed on an exchange, these instruments are valued by a third-party pricing agent using an income approach and utilizing models that use as their primary basis
readily observable market parameters. This valuation process considers factors including interest rate yield curves, time value, credit factors and volatility factors. Although we have determined that the majority of the inputs used to
value our derivatives fall within level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of
default by itself and its counterparties. However, as of December 31, 2009, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that
the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that its derivative valuations in their entirety are classified in level 2 of the fair value hierarchy.

Assets and liabilities measured at fair value on a recurring basis included the following as of December 31, 2009 (in
thousands):



|                    |  |                               |   |                          |   |        |         |  |   |   |  |   |        |  
|------------------- |  | ----------------------------- | - | ------------------------ | - | ------ | ------- |  | - | - |  | - | ------ | -
|                    |  | Fair Value Measurements Using |   | LiabilitiesAt Fair Value |  
|                    |  | Level 1                       |   | Level 2                  |   |        | Level 3 | 
|Interest Rate Swaps |  | $                             |  |                          | $ | (5,381 | )       |  | $ |  |  | $ | (5,381 | )



13



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##### Table of Contents

Results of Operations

Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008

The following summarizes our results of operations for the years ended December 31, 2009 and 2008 (dollars in thousands):



|                                                                 |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|---------------------------------------------------------------- |  | ---- | ------- | - | ------------------- | - | ------ | - |  | - | ------- | - |  | ---- | --
|                                                                 |  |      |         |   | Increase (Decrease) |  
|                                                                 |  | 2009 |         |   | 2008                |   |        | $ |  |   | %       |  
|Revenues:                                                        |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|Interest on equipment financings                                 |  | $    | 17,828  |   |                     | $ | 26,210 |   |  | $ | (8,382  | ) |  | (32  | )%
|Rental income                                                    |  |      | 2,750   |   |                     |   | 4,351  |   |  |   | (1,601  | ) |  | (37  | )%
|Losses (gains) on sales of equipment and lease dispositions, net |  |      | (626    | ) |                     |   | 1,730  |   |  |   | (2,356  | ) |  | (136 | )%
|Other                                                            |  |      | 1,677   |   |                     |   | 2,489  |   |  |   | (812    | ) |  | (33  | )%
|                                                                 |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|                                                                 |  |      | 21,629  |   |                     |   | 34,780 |   |  |   | (13,151 | ) |  | (38  | )%
|                                                                 |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|Expenses:                                                        |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|Interest expense                                                 |  |      | 12,862  |   |                     |   | 17,872 |   |  |   | (5,010  | ) |  | (28  | )%
|Depreciation on operating leases                                 |  |      | 2,193   |   |                     |   | 3,712  |   |  |   | (1,519  | ) |  | (41  | )%
|Provision for credit losses                                      |  |      | 17,941  |   |                     |   | 11,128 |   |  |   | 6,813   |   |  | 61   | % 
|General and administrative expenses                              |  |      | 2,635   |   |                     |   | 2,998  |   |  |   | (363    | ) |  | (12  | )%
|Administrative expenses reimbursed to affiliate                  |  |      | 2,491   |   |                     |   | 2,626  |   |  |   | (135    | ) |  | (5   | )%
|Management fees to affiliate                                     |  |      | 2,921   |   |                     |   | 3,844  |   |  |   | (923    | ) |  | (24  | )%
|                                                                 |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|                                                                 |  |      | 41,043  |   |                     |   | 42,180 |   |  |   | (1,137  | ) |  | (3   | )%
|                                                                 |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|Net loss                                                         |  | $    | (19,414 | ) |                     | $ | (7,400 | ) |  | $ | (12,014 | ) |  | (162 | )%
|                                                                 |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|Net loss allocated to limited partners                           |  | $    | (19,220 | ) |                     | $ | (7,326 | ) |  | $ | (11,894 | ) |  | (162 | )%
|                                                                 |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   

The decrease in total revenues was primarily attributable to the following:



| |  |  | a decrease in interest on equipment financings. Our weighted average net investment in financing assets decreased to $218.9 million for the year ended
December 31, 2009 as compared to $305.5 million for the year ended December 31, 2008, a decrease of $86.6 million (28%).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a decrease in rental income which was principally the result of a decrease in our investment in operating leases in the 2009 period compared to the
2008 period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | losses on sales of equipment. (Losses) gains on sales of equipment may vary significantly from period to period.
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | a decrease in other income, which consists primarily of late fee income.
| | - |  | ------------------------------------------------------------------------

The decrease in total expenses was primarily attributable to the following:



| |  |  | a decrease in interest expense primarily due to a decrease in debt outstanding and a decrease, in the effective interest rate. Borrowings as of
December 31, 2009 and 2008 were $152.0 million and $254.7 million, respectively, at an effective interest rate of 5.8% and 6.0%, respectively.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a decrease in depreciation on operating leases directly related to a decrease in our investment in operating leases.
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | a decrease in general and administrative expenses and administrative expenses reimbursed to affiliates due to the decrease in the size of our
portfolio, partially offset by the hiring of additional collection personnel by our General Partner to attempt to control the impact on delinquencies resulting from the economic recession in the United States, and increased legal costs associated
with collection efforts.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a decrease in management fees attributable to the decrease in our portfolio of equipment financing assets, since management fees are paid based on
lease payments received.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14



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##### Table of Contents

These decreases were partially offset by an increase in our provision for credit losses. We
provide for credit losses when losses are likely to occur based on a migration analysis of past due payments and economic conditions. Our allowance for credit losses has increased to $11.4 million as of December 31, 2009 compared to $5.8
million as of December 31, 2008 due to the impact of the economic recession in the United States on our customers ability to make payments on their leases and loans, which resulted in an increase in non-performing assets as a percentage
of finance receivables to 9.02% as of December 31, 2009 as compared to 5.74% as of December 31, 2008.

The net loss
per limited partner unit, after the net loss allocated to our General Partner, for the years ended December 31, 2009 and 2008 was $(32.41) and $(12.30), respectively, based on a weighted average number of limited partner units outstanding of
593,013 and 595,623, respectively.

Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007

The following summarizes our results of operations for the years ended December 31, 2008 and 2007 (dollars in thousands):



|                                                        |  |      |        |   |                     |   |        |   |  |   |        |   |  |   |      |   
|------------------------------------------------------- |  | ---- | ------ | - | ------------------- | - | ------ | - |  | - | ------ | - |  | - | ---- | --
|                                                        |  |      |        |   | Increase (Decrease) |  
|                                                        |  | 2008 |        |   | 2007                |   |        | $ |  |   | %      |  
|Revenues:                                               |  |      |        |   |                     |   |        |   |  |   |        |   |  |   |      |   
|Interest on equipment financings and loans              |  | $    | 26,210 |   |                     | $ | 24,852 |   |  | $ | 1,358  |   |  | $ | 5    | % 
|Rental income                                           |  |      | 4,351  |   |                     |   | 5,747  |   |  |   | (1,396 | ) |  |   | (24  | )%
|Gains on sales of equipment and lease dispositions, net |  |      | 1,730  |   |                     |   | 1,806  |   |  |   | (76    | ) |  |   | (4   | )%
|Other                                                   |  |      | 2,489  |   |                     |   | 2,459  |   |  |   | 30     |   |  |   | 1    | % 
|                                                        |  |      |        |   |                     |   |        |   |  |   |        |   |  |   |      |   
|                                                        |  |      | 34,780 |   |                     |   | 34,864 |   |  |   | (84    | ) |  |   | (24  | )%
|                                                        |  |      |        |   |                     |   |        |   |  |   |        |   |  |   |      |   
|Expenses:                                               |  |      |        |   |                     |   |        |   |  |   |        |   |  |   |      |   
|Interest expense                                        |  |      | 17,872 |   |                     |   | 18,545 |   |  |   | (673   | ) |  |   | (4   | )%
|Depreciation on operating leases                        |  |      | 3,712  |   |                     |   | 4,794  |   |  |   | (1,082 | ) |  |   | (23  | )%
|Provision for credit losses                             |  |      | 11,128 |   |                     |   | 5,847  |   |  |   | 5,281  |   |  |   | 90   | % 
|General and administrative expenses                     |  |      | 2,998  |   |                     |   | 2,385  |   |  |   | 613    |   |  |   | 26   | % 
|Administrative expenses reimbursed to affiliate         |  |      | 2,626  |   |                     |   | 1,501  |   |  |   | 1,125  |   |  |   | 75   | % 
|Management fees to affiliate                            |  |      | 3,844  |   |                     |   | 3,680  |   |  |   | 164    |   |  |   | 4    | % 
|                                                        |  |      |        |   |                     |   |        |   |  |   |        |   |  |   |      |   
|                                                        |  |      | 42,180 |   |                     |   | 36,752 |   |  |   | 5,428  |   |  |   | 15   | % 
|                                                        |  |      |        |   |                     |   |        |   |  |   |        |   |  |   |      |   
|Net loss                                                |  | $    | (7,400 | ) |                     | $ | (1,888 | ) |  | $ | (5,512 | ) |  |   | (292 | )%
|                                                        |  |      |        |   |                     |   |        |   |  |   |        |   |  |   |      |   
|Net loss allocated to limited partners                  |  | $    | (7,326 | ) |                     | $ | (1,869 | ) |  | $ | (5,438 | ) |  |   | (291 | )%
|                                                        |  |      |        |   |                     |   |        |   |  |   |        |   |  |   |      |   



15



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##### Table of Contents

The decrease in total revenues was primarily attributable to the following:



| |  |  | a decrease in rental income which was principally the result of a decrease in our investment in operating leases in the 2008 period compared to the
2007 period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in interest income on equipment financings. Our weighted average net investment in direct financing leases and loans decreased to $305.5
million for the year ended December 31, 2008 as compared to $322.0 million for the year ended December 31, 2007, a decline of $16.5 million (5%). This decrease was offset by the increased yields on leases acquired in late 2007 and 2008 due
to an increase in the rates we were able to charge as a result of the current scarcity of credit available to small and mid-size businesses.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The increase in total expenses was primarily attributable to the following:



| |  |  | an increase in our provision for credit losses. We provide for credit losses when losses are likely to occur based on a migration analysis of past due
payments and economic conditions. Our provision for credit losses has increased due to the impact of the economic recession in the United States on our customers ability to make payments on their leases and loans, resulting in an increase in
non-performing assets as a percentage of finance receivables to 5.74% as of December 31, 2008 as compared to 3.04% as of December 31, 2007.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in general and administrative expenses, principally related to increased legal costs associated with collection efforts.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in the reimbursement of expenses to affiliates due to the hiring of additional collection personnel by our General Partner to attempt to
control the impact on delinquencies resulting from the economic recession in the United States.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These
increases were partially offset by the following:



| |  |  | a decrease in interest expense due to a decrease in our debt outstanding. Borrowings as of December 31, 2008 and 2007 were $254.7 million and
$324.2 million, respectively, at an effective interest rate of 6.0% for each year.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a decrease in depreciation on operating leases directly related to our decrease in our investment in operating leases.
| | - |  | ----------------------------------------------------------------------------------------------------------------------

The net loss per limited partner unit, after the loss allocated to our General Partner for the years ended December 31, 2008 and 2007
was ($12.30) and ($3.12), respectively, based on a weighted average number of limited partner units outstanding of 595,623 and 599,095, respectively.

Liquidity and Capital Resources

General

Our major source of liquidity is obtained by the collection of lease and loan payments after payments of debt principal and interest on debt. Our primary cash requirements, in addition to normal operating
expenses, are for debt service, investment in leases and loans and distributions to partners. In addition to cash generated from operations, we plan to meet our cash requirements through borrowings under credit facilities.

The current financing environment continues to be very difficult. After extended negotiations lasting months, we renewed our debt agreement
with West LB on February 25, 2010. In summary, we incurred significant upfront fees only to have our debt capacity reduced from a limit of $150 million to $125 million and the interest rate on new borrowings increased to LIBOR plus
2.50% per annum from LIBOR plus 0.95% per annum. We did get relief from certain portfolio performance covenants and the rate of interest on the existing debt did not change.



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##### Table of Contents

The following table sets forth our sources and uses of cash for the periods indicated (in
thousands):



|                                                    |  |                         |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                    |  | Year Ended December 31, |        
|                                                    |  | 2009                    |         |   | 2008 |   |         | 2007 | 
|Net cash provided by operating activities           |  | $                       | 11,367  |   |      | $ | 15,396  |      |  | $ | 9,813   |  
|Net cash provided by (used in) investing activities |  |                         | 86,218  |   |      |   | 59,688  |      |  |   | (29,157 | )
|Net cash (used in) provided by financing activities |  |                         | (97,724 | ) |      |   | (75,194 | )    |  |   | 5,393   |  
|                                                    |  |                         |         |   |      |   |         |      |  |   |         |  
|Decrease in cash                                    |  | $                       | (139    | ) |      | $ | (110    | )    |  | $ | (13,951 | )
|                                                    |  |                         |         |   |      |   |         |      |  |   |         |  

During the year ended December 31, 2009, cash decreased by $139,000 which was primarily due to a net
debt repayment of $16.8 million (net of purchases of, and proceeds from, leases and loans) and distributions to our partners of $2.8 million, partially offset by an increase in amounts due to affiliates of $9.5 million. As a result of increased
delinquencies, the amount of borrowing availability under our leases and loans was reduced, resulting in the net debt repayment.

Partners distributions paid for the years ended December 31, 2009, 2008, and 2007 were $2.8 million, $4.8 million and $4.8 million, respectively. Prior to August 1, 2009, distributions to limited partners were 8% of invested
capital.

For the period August 2009 through February 2010, we suspended monthly distributions to our partners in order to
increase liquidity to enable us to renew our WestLB debt agreement. We resumed the payment of monthly distributions to our partners in March of 2010. Ongoing distributions are dependant on us having sufficient cash and liquidity to make such
distributions.

Borrowings

Our borrowing relationships each require the pledging of eligible leases and loans to secure amounts advanced. Borrowings outstanding under our credit facilities are as follows as of December 31,
2009 (in thousands):



|                                     |  |           |  |                |         |                   |   |                     |  |                         |        |  |   |        
|------------------------------------ |  | --------- |  | -------------- | ------- | ----------------- | - | ------------------- |  | ----------------------- | ------ |  | - | -------
|                                     |  | Type      |  | FacilityAmount |         | AmountOutstanding |   | AmountAvailable (2) |  | Amount ofCollateral (3)
|Series 2007  Term Securitization(1) |  | Term      |  | $              | 64,000  |                   | $ | 64,200              |  | $                       |       |  | $ | 84,070 
|WestLB                               |  | Revolving |  |                | 125,000 |                   |   | 87,781              |  |                         | 37,219 |  |   | 102,104
|                                     |  |           |  |                |         |                   |   |                     |  |                         |        |  |   |        
|                                     |  |           |  | $              | 189,200 |                   | $ | 151,981             |  | $                       | 37,219 |  | $ | 186,174
|                                     |  |           |  |                |         |                   |   |                     |  |                         |        |  |   |        



|(1) | The original amount borrowed at June 2007 was $276.8 million. A term note securitization is a one-time funding that pays down over time without any ability for us to
draw down additional amounts.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Availability under this credit facility is subject to having eligible leases or loans to pledge as collateral and compliance with the borrowing base formula.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Recourse under these facilities is limited to the amount of collateral pledged.
|--- | -------------------------------------------------------------------------------

In June 2005, we obtained a $75.0 million credit facility with WestLB AG, New York Branch, (WestLB), which was increased to $150 million in
June 2006. In June 2009, we reduced the facility amount to $125 million. This revolving line of credit is collateralized by specific lease receivables and related equipment, with a 1% credit reserve of the outstanding line of credit. Interest on the
existing borrowings is calculated at LIBOR plus 0.95% per annum. Borrowings under this facility after February 25, 2010 would be at a rate of LIBOR plus 2.50% per annum. To mitigate fluctuations in interest rates, we entered into
interest rate swap agreements, which terminate on various dates ranging from September 2011 to August 2015. As of December 31, 2009, the interest rate swap agreements fixed the interest rate on this facility at 5.7%. Interest and principal are
due as payments are received under the financings. The credit facility terminates on June 30, 2010. If this facility is not extended, we would not be required to make full repayment at the time of renewal. Rather, we would continue to repay the
principal and interest on any outstanding debt as payments are received on the underlying leases and loans pledged as collateral; however, there would be no additional borrowings under the facility. Recourse under this facility is limited to the
amount of collateral pledged. As of December 31, 2009, $96.3 million of leases and loans and $5.8 million of restricted cash were pledged as collateral under the facility.



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##### Table of Contents

We are subject to certain financial covenants related to our debt facilities. These
covenants are related to such things as minimum tangible net worth, maximum leverage ratios and portfolio delinquency. The minimum tangible net worth covenants measure our equity adjusted for intangibles and amounts due to our General Partner.
The maximum leverage covenants restrict the amount we can borrow based on a ratio of our total debt compared to our net worth. The portfolio performance covenants generally provide that we would be in default if a specified percentage of our
portfolio of leases and loans was delinquent in payment beyond acceptable grace periods.

In addition, our debt facilities
include financial covenants covering affiliated entities responsible for servicing our portfolio. These covenants exist to provide the lenders with information about the financial viability of the entities that service our portfolio. These entities
include our General Partner and certain other affiliates involved in the sourcing and servicing of our portfolio. These covenants are similar in nature to our covenants and are related to such things as the entitys minimum tangible net worth,
maximum leverage ratios, managed portfolio delinquency and compliance of the debt terms of all of our General Partners managed entities. As of December 31, 2009, we, and our applicable affiliated entities, are in compliance with all such
covenants under our various debt agreements.

If we do not meet the requirements of the covenants in the future, a default
could occur that would have an adverse effect on our operations and could force us to liquidate all or a portion of our portfolio securing our debt facilities. If required, a sale of a portfolio could be at prices lower than its carrying value,
which could result in losses and reduce our income and distributions to our partners.

We use debt to acquire leases and
loans. Repayment of our debt is based on the payments we receive from our customers. If a lease or loan becomes delinquent we must repay our lender, even though our customer has not paid us. Higher-than-expected lease and loan defaults will reduce
our liquidity.

Our liquidity has been and could be further adversely affected by higher than expected equipment lease
defaults, which results in a loss of revenues. These losses may adversely affect our ability to make distributions to our partners and, if the level of defaults is sufficiently large, may result in our inability to fully recover our investment in
the underlying equipment. In evaluating our allowance for losses on uncollectible leases, we consider our contractual delinquencies, economic conditions and trends, lease portfolio characteristics and our General Partners managements
prior experience with similar lease assets. At December 31, 2009, our credit evaluation indicated a need for an allowance for credit losses of $11.4 million. As our lease portfolio ages, and if the economy in the United States deteriorates even
further or the recession continues for a substantial period of time, we anticipate the need to increase our allowance for credit losses.

The current tightening of the credit markets has and may continue to adversely affect our liquidity, particularly our ability to obtain or renew debt financing needed to execute our investment strategies.
Specifically, we rely on both revolving and term debt facilities to fund our acquisitions of equipment financings. If our banks do not renew a revolving facility upon maturity, the debt facility would convert to a term facility and we would not be
able to borrow additional amounts under the line of credit. A term debt facility is a loan that is contractually repaid over a period of time. If we are unable to obtain new debt or renew existing facilities that will allow us to invest the
repayments of existing leases and loans into new investments, the volume of our leases and loans will be reduced.

To date, we
have been successful in obtaining new debt financing and either extending or refinancing our credit facilities prior to their maturities; however, there can be no assurance that we will be able to continue to do so, as such activities are dependent
on many factors beyond our control, including general economic and credit conditions. We continue to seek additional sources of financing, including expanded bank financing that will enable us to originate investments and generate income while
preserving capital. We expect that future financings may be at higher interest rates with lower leverage. As a result, our profitability may be negatively impacted if we are unable to increase our lease and loan rates to offset increases in
borrowing rates.



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Contractual Obligations and Commercial Commitments

The following table sets forth our obligations and commitments as of December 31, 2009 (in thousands):



|          |  |       |         |                        |   |           |  |           |        |               |   |        |  |   |    
|--------- |  | ----- | ------- | ---------------------- | - | --------- |  | --------- | ------ | ------------- | - | ------ |  | - | ---
|          |  |       |         | Payments Due by Period
|          |  | Total |         | Less than 1Year        |   | 1-3 Years |  | 4-5 Years |        | After 5 years
|Bank debt |  | $     | 151,981 |                        | $ | 66,375    |  | $         | 69,323 |               | $ | 15,834 |  | $ | 449
|          |  |       |         |                        |   |           |  |           |        |               |   |        |  |   |    

To mitigate interest rate risk on the variable rate
debt, we employ a hedging strategy using derivative financial instruments such as interest rate swaps, which fix the interest rates. Not included in the above table are estimated interest payments calculated at rates in effect at December 31,
2009: less than 1 year: $6.9 million; 1-3 years $6.1 million; 4-5 years $2.1 million; and after 5 years $291,000. The fair value of the swap liability as of December 31, 2009 is $5.4 million.

The above table does not include expected payments related to the Repurchase Liability (defined below) as of December 31, 2009. In
connection with a sale of leases and loans to a third party, we agreed to repurchase delinquent leases up to maximum of 7.5% of total proceeds received from the sale (the Repurchase Liability). Our maximum exposure under the Repurchase
Liability at December 31, 2009 was $39,000.

Legal Proceedings

We are a party to various routine legal proceedings arising in the ordinary course of our business. Our General Partner believes that none of
these actions, individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.

Recently Issued Accounting Pronouncements

See Note 2 in the Notes to Consolidated Financial Statements for a
description of certain new accounting pronouncements that will or may affect our consolidated financial statements.

ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market
risk is the risk of losses arising from changes in values of financial instruments. We are exposed to market risks associated with changes in interest rates and our earnings may fluctuate with changes in interest rates. The lease assets we originate
are almost entirely fixed-rate. Accordingly, we seek to finance these assets with fixed interest rate debt. At December 31, 2009, our outstanding debt totaled $152.0 million which consisted of variable rate debt. To mitigate interest rate risk
on the variable rate debt, we employ a hedging strategy using derivative financial instruments such as interest rate swaps, which fixes the interest rates at 5.7% and 5.8% for the WestLB and Series 2007-term securitization, debt facilities,
respectively. At December 31, 2009, the notional amounts of the 21 interest rate swaps were $239.0 million. The interest rate swap agreements terminate on various dates ranging from September 2011 to August 2015.

The following sensitivity analysis table shows, at December 31, 2009, the estimated impact on the fair value of our interest
rate-sensitive investments and liabilities of changes in interest rates, assuming rates instantaneously fall 100 basis points and rise 100 basis points (dollars in thousands):



|                                  |  |                                     |        |   |           |   |        |                                    |  |   |        |   
|--------------------------------- |  | ----------------------------------- | ------ | - | --------- | - | ------ | ---------------------------------- |  | - | ------ | --
|                                  |  | Interest rates fall100 basis points |        |   | Unchanged |   |        | Interest ratesrise 100 basispoints | 
|Hedging instruments               |  |                                     |        |   |           |   |        |                                    |  |   |        |   
|Fair value                        |  | $                                   | (7,046 | ) |           | $ | (5,381 | )                                  |  | $ | (4,087 | ) 
|Change in fair value              |  | $                                   | (1,665 | ) |           | $ |        |                                    |  | $ | 1,294  |   
|Change as a percent of fair value |  |                                     | 31     | % |           |   |        |                                    |  |   | (24    | )%



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It is important to note that the impact of changing interest rates on fair value can change
significantly when interest rates change beyond 100 basis points from current levels. Therefore, the volatility in the fair value of our assets could increase significantly when interest rates change beyond 100 basis points from current levels. In
addition, other factors impact the fair value of our interest rate-sensitive investments and hedging instruments, such as the shape of the yield curve, market expectations as to future interest rate changes and other market conditions. Accordingly,
in the event of changes in actual interest rates, the change in the fair value of our assets would likely differ from that shown above and such difference might be material and adverse to our partners.



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ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Partners

Lease Equity Appreciation Fund II, L.P. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Lease Equity Appreciation Fund II, L.P. and subsidiaries (the
Fund), as of December 31, 2009 and 2008 and the related consolidated statements of operations, changes in partners capital and cash flows for each of the three years in the period ended December 31, 2009. These financial
statements are the responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lease Equity Appreciation Fund II, L.P. and subsidiaries as of
December 31, 2009 and 2008 and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the
United States of America.

/s/ GRANT THORNTON LLP

Philadelphia, Pennsylvania

March 31, 2010



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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)



|                                      |  |              |         |   |      |   |         |  
|------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                      |  | December 31, |        
|                                      |  | 2009         |         |   | 2008 |  
|ASSETS                                |  |              |         |   |      |   |         |  
|Cash                                  |  | $            | 10      |   |      | $ | 149     |  
|Restricted cash                       |  |              | 20,378  |   |      |   | 29,234  |  
|Accounts receivable                   |  |              | 77      |   |      |   | 133     |  
|Investments in leases and loans, net  |  |              | 159,015 |   |      |   | 265,993 |  
|Deferred financing costs, net         |  |              | 2,517   |   |      |   | 2,956   |  
|Other assets                          |  |              | 601     |   |      |   | 574     |  
|                                      |  |              |         |   |      |   |         |  
|Total assets                          |  | $            | 182,598 |   |      | $ | 299,039 |  
|                                      |  |              |         |   |      |   |         |  
|LIABILITIES AND PARTNERS CAPITAL     |  |              |         |   |      |   |         |  
|Liabilities:                          |  |              |         |   |      |   |         |  
|Bank debt                             |  | $            | 151,981 |   |      | $ | 254,744 |  
|Accounts payable and accrued expenses |  |              | 488     |   |      |   | 574     |  
|Other liabilities                     |  |              | 830     |   |      |   | 952     |  
|Derivative liabilities at fair value  |  |              | 5,381   |   |      |   | 11,734  |  
|Due to affiliates                     |  |              | 21,464  |   |      |   | 11,983  |  
|                                      |  |              |         |   |      |   |         |  
|Total liabilities                     |  |              | 180,144 |   |      |   | 279,987 |  
|                                      |  |              |         |   |      |   |         |  
|                                      |  |             
|Commitments and contingencies         |  |              |         |   |      |   |         |  
|                                      |  |             
|Partners (Deficit) Capital:          |  |              |         |   |      |   |         |  
|General partner                       |  |              | (443    | ) |      |   | (221    | )
|Limited partners                      |  |              | 7,318   |   |      |   | 29,371  |  
|Accumulated other comprehensive loss  |  |              | (4,421  | ) |      |   | (10,098 | )
|                                      |  |              |         |   |      |   |         |  
|Total partners capital               |  |              | 2,454   |   |      |   | 19,052  |  
|                                      |  |              |         |   |      |   |         |  
|                                      |  | $            | 182,598 |   |      | $ | 299,039 |  
|                                      |  |              |         |   |      |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.



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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except unit and per unit data)



|                                                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                             |  | Year Ended December 31, |        
|                                                                             |  | 2009                    |         |   | 2008 |   |         | 2007 | 
|Revenues:                                                                    |  |                         |         |   |      |   |         |      |  |   |         |  
|Interest on equipment financings                                             |  | $                       | 17,828  |   |      | $ | 26,210  |      |  | $ | 24,852  |  
|Rental income                                                                |  |                         | 2,750   |   |      |   | 4,351   |      |  |   | 5,747   |  
|(Losses) gains on sales of equipment and lease dispositions, net             |  |                         | (626    | ) |      |   | 1,730   |      |  |   | 1,806   |  
|Other                                                                        |  |                         | 1,677   |   |      |   | 2,489   |      |  |   | 2,459   |  
|                                                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|                                                                             |  |                         | 21,629  |   |      |   | 34,780  |      |  |   | 34,864  |  
|                                                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Expenses:                                                                    |  |                         |         |   |      |   |         |      |  |   |         |  
|Interest expense                                                             |  |                         | 12,862  |   |      |   | 17,872  |      |  |   | 18,545  |  
|Depreciation on operating leases                                             |  |                         | 2,193   |   |      |   | 3,712   |      |  |   | 4,794   |  
|Provision for credit losses                                                  |  |                         | 17,941  |   |      |   | 11,128  |      |  |   | 5,847   |  
|General and administrative expenses                                          |  |                         | 2,635   |   |      |   | 2,998   |      |  |   | 2,385   |  
|Administrative expenses reimbursed to affiliate                              |  |                         | 2,491   |   |      |   | 2,626   |      |  |   | 1,501   |  
|Management fees to affiliate                                                 |  |                         | 2,921   |   |      |   | 3,844   |      |  |   | 3,680   |  
|                                                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|                                                                             |  |                         | 41,043  |   |      |   | 42,180  |      |  |   | 36,752  |  
|                                                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Net loss                                                                     |  | $                       | (19,414 | ) |      | $ | (7,400  | )    |  | $ | (1,888  | )
|                                                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Net loss allocated to limited partners                                       |  | $                       | (19,220 | ) |      | $ | (7,326  | )    |  | $ | (1,869  | )
|                                                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Weighted average number of limited partner units outstanding during the year |  |                         | 593,013 |   |      |   | 595,623 |      |  |   | 599,095 |  
|                                                                             |  |                         |         |   |      |   |         |      |  |   |         |  
|Net loss per weighted average limited partner unit                           |  | $                       | (32.41  | ) |      | $ | (12.30  | )    |  | $ | (3.12   | )
|                                                                             |  |                         |         |   |      |   |         |      |  |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.



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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Consolidated Statements of Changes in Partners Capital

(in thousands, except unit data)



|                                             |  |                      |      |   |                  |         |   |                                            |   |         |                       |  |   |                            |   |  |   |         |   |  |   |         |  
|-------------------------------------------- |  | -------------------- | ---- | - | ---------------- | ------- | - | ------------------------------------------ | - | ------- | --------------------- |  | - | -------------------------- | - |  | - | ------- | - |  | - | ------- | -
|                                             |  | GeneralPartnerAmount |      |   | Limited Partners |         |   | AccumulatedOtherComprehensiveIncome (Loss) |   |         | TotalPartnersCapital |  |   | ComprehensiveIncome
(Loss) |  
|                                             |  | Units                |      |   | Amount           |         |   |                                            |  
|Balance, January 1, 2007                     |  | $                    | (32  | ) |                  | 600,000 |   |                                            | $ | 48,708  |                       |  | $ | 1,803                      |   |  | $ | 50,479  |   |  |   |         |  
|Cash distributions paid                      |  |                      | (48  | ) |                  |        |   |                                            |   | (4,795  | )                     |  |   |                           |   |  |   | (4,843  | ) |  |   |         |  
|Redemption of limited partner units          |  |                      |     |   |                  | (2,055  | ) |                                            |   | (189    | )                     |  |   |                           |   |  |   | (189    | ) |  |   |         |  
|Net loss                                     |  |                      | (19  | ) |                  |        |   |                                            |   | (1,869  | )                     |  |   |                           |   |  |   | (1,888  | ) |  | $ | (1,888  | )
|Unrealized losses on financial derivatives   |  |                      |     |   |                  |        |   |                                            |   |        |                       |  |   | (6,194                     | ) |  |   | (6,194  | ) |  |   | (6,194  | )
|Amortization of gain on financial derivative |  |                      |     |   |                  |        |   |                                            |   |        |                       |  |   | (223                       | ) |  |   | (223    | ) |  |   | (223    | )
|                                             |  |                      |      |   |                  |         |   |                                            |   |         |                       |  |   |                            |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2007                   |  |                      | (99  | ) |                  | 597,945 |   |                                            |   | 41,855  |                       |  |   | (4,614                     | ) |  |   | 37,142  |   |  | $ | (8,305  | )
|                                             |  |                      |      |   |                  |         |   |                                            |   |         |                       |  |   |                            |   |  |   |         |   |  |   |         |  
|Cash distributions paid                      |  |                      | (48  | ) |                  |        |   |                                            |   | (4,778  | )                     |  |   |                           |   |  |   | (4,826  | ) |  |   |         |  
|Redemption of limited partner units          |  |                      |     |   |                  | (4,251  | ) |                                            |   | (380    | )                     |  |   |                           |   |  |   | (380    | ) |  |   |         |  
|Net loss                                     |  |                      | (74  | ) |                  |        |   |                                            |   | (7,326  | )                     |  |   |                           |   |  |   | (7,400  | ) |  | $ | (7,400  | )
|Unrealized losses on financial derivatives   |  |                      |     |   |                  |        |   |                                            |   |        |                       |  |   | (5,102                     | ) |  |   | (5,102  | ) |  |   | (5,102  | )
|Amortization of gain on financial derivative |  |                      |     |   |                  |        |   |                                            |   |        |                       |  |   | (382                       | ) |  |   | (382    | ) |  |   | (382    | )
|                                             |  |                      |      |   |                  |         |   |                                            |   |         |                       |  |   |                            |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2008                   |  |                      | (221 | ) |                  | 593,694 |   |                                            |   | 29,371  |                       |  |   | (10,098                    | ) |  |   | 19,052  |   |  | $ | (12,884 | )
|                                             |  |                      |      |   |                  |         |   |                                            |   |         |                       |  |   |                            |   |  |   |         |   |  |   |         |  
|Cash distributions paid                      |  |                      | (28  | ) |                  |        |   |                                            |   | (2,756  | )                     |  |   |                           |   |  |   | (2,784  | ) |  |   |         |  
|Redemption of limited partner units          |  |                      |     |   |                  | (885    | ) |                                            |   | (77     | )                     |  |   |                           |   |  |   | (77     | ) |  |   |         |  
|Net loss                                     |  |                      | (194 | ) |                  |        |   |                                            |   | (19,220 | )                     |  |   |                           |   |  |   | (19,414 | ) |  | $ | (19,414 | )
|Unrealized gains on financial derivatives    |  |                      |     |   |                  |        |   |                                            |   |        |                       |  |   | 6,059                      |   |  |   | 6,059   |   |  |   | 6,059   |  
|Amortization of gain on financial derivative |  |                      |     |   |                  |        |   |                                            |   |        |                       |  |   | (382                       | ) |  |   | (382    | ) |  |   | (382    | )
|                                             |  |                      |      |   |                  |         |   |                                            |   |         |                       |  |   |                            |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2009                   |  | $                    | (443 | ) |                  | 592,809 |   |                                            | $ | 7,318   |                       |  | $ | (4,421                     | ) |  | $ | 2,454   |   |  | $ | (13,737 | )
|                                             |  |                      |      |   |                  |         |   |                                            |   |         |                       |  |   |                            |   |  |   |         |   |  |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.



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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)



|                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                |  | Year Ended December 31, |         
|                                                                                |  | 2009                    |          |   | 2008 |   |          | 2007 | 
|Cash flows from operating activities:                                           |  |                         |          |   |      |   |          |      |  |   |          |  
|Net loss                                                                        |  | $                       | (19,414  | ) |      | $ | (7,400   | )    |  | $ | (1,888   | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                         |          |   |      |   |          |      |  |   |          |  
|Losses (gains) on sales of equipment and lease dispositions, net                |  |                         | 626      |   |      |   | (1,730   | )    |  |   | (1,806   | )
|Depreciation on operating leases                                                |  |                         | 2,193    |   |      |   | 3,712    |      |  |   | 4,794    |  
|Provision for credit losses                                                     |  |                         | 17,941   |   |      |   | 11,128   |      |  |   | 5,847    |  
|Amortization of deferred financing costs                                        |  |                         | 1,395    |   |      |   | 617      |      |  |   | 323      |  
|Amortization of gain on financial derivative                                    |  |                         | (382     | ) |      |   | (382     | )    |  |   | (223     | )
|Changes in operating assets and liabilities:                                    |  |                         |          |   |      |   |          |      |  |   |          |  
|Accounts receivable                                                             |  |                         | 56       |   |      |   | 177      |      |  |   | 179      |  
|Other assets                                                                    |  |                         | (321     | ) |      |   | 685      |      |  |   | 2        |  
|Accounts payable and accrued expenses and other liabilities                     |  |                         | (208     | ) |      |   | (349     | )    |  |   | 175      |  
|Due to affiliates, net                                                          |  |                         | 9,481    |   |      |   | 8,938    |      |  |   | 2,410    |  
|                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                       |  |                         | 11,367   |   |      |   | 15,396   |      |  |   | 9,813    |  
|                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash flows from investing activities:                                           |  |                         |          |   |      |   |          |      |  |   |          |  
|Purchases of leases and loans                                                   |  |                         | (7,696   | ) |      |   | (99,638  | )    |  |   | (150,709 | )
|Proceeds from leases and loans                                                  |  |                         | 93,613   |   |      |   | 124,905  |      |  |   | 121,778  |  
|Proceeds from sale of leases to third parties                                   |  |                         |         |   |      |   | 35,551   |      |  |   |         |  
|Security deposits (returned) collected, net                                     |  |                         | 301      |   |      |   | (1,130   | )    |  |   | (226     | )
|                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) investing activities                             |  |                         | 86,218   |   |      |   | 59,688   |      |  |   | (29,157  | )
|                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash flows from financing activities:                                           |  |                         |          |   |      |   |          |      |  |   |          |  
|Borrowings of bank debt                                                         |  |                         | 6,656    |   |      |   | 71,247   |      |  |   | 155,229  |  
|Repayments of bank debt                                                         |  |                         | (109,419 | ) |      |   | (140,673 | )    |  |   | (122,177 | )
|Decrease (increase) in restricted cash                                          |  |                         | 8,856    |   |      |   | 208      |      |  |   | (22,302  | )
|Increase in deferred financing costs                                            |  |                         | (956     | ) |      |   | (770     | )    |  |   | (2,557   | )
|Proceeds from termination of financial derivatives                              |  |                         |         |   |      |   |         |      |  |   | 2,232    |  
|Cash distributions to partners                                                  |  |                         | (2,784   | ) |      |   | (4,826   | )    |  |   | (4,843   | )
|Redemption of limited partner units                                             |  |                         | (77      | ) |      |   | (380     | )    |  |   | (189     | )
|                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash (used in) provided by financing activities                             |  |                         | (97,724  | ) |      |   | (75,194  | )    |  |   | 5,393    |  
|                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|Decrease in cash                                                                |  |                         | (139     | ) |      |   | (110     | )    |  |   | (13,951  | )
|Cash, beginning of year                                                         |  |                         | 149      |   |      |   | 259      |      |  |   | 14,210   |  
|                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash, end of year                                                               |  | $                       | 10       |   |      | $ | 149      |      |  | $ | 259      |  
|                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



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##### Table of Contents

LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements

December 31, 2009

NOTE 1  ORGANIZATION AND NATURE OF BUSINESS

Lease Equity Appreciation Fund II, L.P. (the Fund) is a Delaware limited partnership formed on March 30,
2004 by its General Partner, LEAF Financial Corporation (the General Partner). The General Partner manages the Fund. The General Partner is a subsidiary of Resource America, Inc. (RAI). RAI is a publicly-traded company
(NASDAQ: REXI) that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund management segments. Through its offering termination date of
October 13, 2006, the Fund raised $60.0 million by selling 600,000 of its limited partner units. It commenced operations in April 2005.

The Fund is expected to have a nine-year life, consisting of an offering period of up to two years, a five-year reinvestment period and a subsequent maturity period of two years, during which the
Funds leases and secured loans will either mature or be sold. In the event the Fund is unable to sell its leases and secured loans during the maturity period, the Fund is expected to continue to return capital to its partners as those leases
and loans mature. Substantially all of the Funds leases and loans mature by the end of 2014. The Fund expects to enter its liquidation period beginning in October 2011. The Fund will terminate on December 31, 2029, unless sooner dissolved
or terminated as provided in the Limited Partnership Agreement.

The Fund acquires diversified portfolios of equipment to
finance to end users throughout the United States as well as the District of Columbia and Puerto Rico. The Fund also acquires existing portfolios of equipment subject to existing financings from other equipment finance companies, primarily an
affiliate of its General Partner. The primary objective of the Fund is to generate regular cash distributions to its partners from its equipment finance portfolio over the life of the Fund.

As of December 31, 2009, in addition to its 1% general partnership interest, the General Partner also had invested $874,000 for a 1.6%
limited partnership interest in the Fund.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The
consolidated financial statements include the accounts of the Fund and its wholly-owned subsidiary, LEAF Fund II, LLC. All intercompany accounts and transactions have been eliminated in consolidation

Use of Estimates

Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the allowance
for credit losses, the estimated unguaranteed residual values of leased equipment, impairment of long-lived assets and the fair value and effectiveness of interest rate swaps. The Fund bases its estimates on historical experience and on various
other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates.



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##### Table of Contents

LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements  (Continued)

December 31, 2009



NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)



Restricted Cash

Restricted cash includes cash being held in reserve by the Funds lenders. Restricted cash also includes approximately $235,000 of customer payments deposited into a lockbox shared with the General
Partner and other entities serviced by the Funds General Partner. The lockbox is in the name of U.S. Bank NA as trustee under an inter-creditor agreement amongst the Funds General Partner, the other entities and their respective lenders.
These amounts, which are recorded as restricted cash on the consolidated balance sheets, represent customer payments received by the lockbox, applied to the respective customers accounts, but not transferred to the Funds bank account.

Concentration of Credit Risk

Financial instruments which potentially subject the Fund to concentrations of credit risk consist of excess cash. The Fund deposits its excess cash in high-quality financial institutions. As of
December 31, 2009, the Fund had deposits at three banks totaling $20.4 million of which $20.1 million was over the insurance limit of the Federal Deposit Insurance Corporation. No losses have been experienced on such deposits.

As of December 31, 2009 and 2008, 13% of the Funds leases and loans were located in California.

Investments in Leases and Loans

The Funds investments in leases and loans consist of direct financing leases, operating leases and loans.

Direct Financing Leases.Certain of the Funds lease transactions are accounted for as direct financing leases (as distinguished from operating leases). Such leases transfer substantially all benefits and risks of equipment
ownership to the customer. The Funds investment in direct financing leases consists of the sum of the total future minimum lease payments receivable plus the estimated unguaranteed residual value of leased equipment, less unearned finance
income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective interest method, represents the excess of the total future minimum lease payments plus the estimated unguaranteed residual value over the
cost of the related equipment.

Unguaranteed residual value represents the estimated amount to be received at lease
termination from lease extensions or ultimate disposition of the leased equipment. The estimates of residual values are based upon the General Partners history with regard to the realization of residuals, available industry data and the
General Partners senior managements experience with respect to comparable equipment. The estimated residual values are recorded as a component of investments in leases. Residual values are reviewed periodically to determine if the
current estimate of the equipments fair market value appears to be below its recorded estimate. If required, residual values are adjusted downward to reflect adjusted estimates of fair market values. Upward adjustments to residual values are
not permitted.

Operating Leases.Leases not meeting the criteria to be classified as direct financing leases are
deemed to be operating leases. Under the accounting for operating leases, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciated on a straight-line basis over the
equipments estimated useful life, generally up to seven years. Rental income consists primarily of monthly periodic rental payments due under the terms of the leases. The Fund recognizes rental income on a straight line basis. Generally,
during the lease terms of existing operating leases, the Fund will not recover all of the cost and related expenses of its rental equipment and, therefore, it is prepared to remarket the equipment in future years. The Funds policy is to
review, on a quarterly basis, the expected economic life of its rental equipment in order to determine the recoverability of its undepreciated cost. The Fund writes down its rental equipment to its estimated



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##### Table of Contents

LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements  (Continued)

December 31, 2009



NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

Investments in Leases and Loans  (Continued)



net realizable value when it is probable that its carrying amount exceeds such value and the excess can be reasonably estimated; gains are only recognized upon actual sale of the rental
equipment. There were no write-downs of equipment during the years ended December 31, 2009, 2008 and 2007.

Loans.
For term loans, the investment in loans consists of the sum of the total future minimum loan payments receivable less unearned finance income. Unearned finance income, which is recognized as revenue over the term of the financing by the effective
interest method, represents the excess of the total future minimum contracted loan payments over the cost of the related equipment. For all other loans, interest income is recorded at the stated rate on the accrual basis to the extent that such
amounts are expected to be collected.

Allowance for credit losses.The Fund evaluates the adequacy of the allowance
for credit losses (including investments in leases and loans) based upon, among other factors, managements historical experience on the portfolios it manages, an analysis of contractual delinquencies, economic conditions and trends, and
equipment finance portfolio characteristics, adjusted for expected recoveries. In evaluating historic performance, the Fund performs a migration analysis, which estimates the likelihood that an account progresses through delinquency stages to
ultimate charge-off. The Funds policy is to charge off to the allowance those financings which are in default and for which management has determined the probability of collection to be remote.

The Fund discontinues the recognition of revenue for leases and loans for which payments are more than 90 days past due. As of
December 31, 2009 and 2008, the Fund had $15.0 million and $15.2 million, respectively, of leases and loans on non-accrual status. Fees from delinquent payments are recognized when received and are included in other income.

Transfers of Financial Assets

In connection with establishing its credit facilities with its banks, the Fund formed bankruptcy remote special purpose entities through which the financings are arranged. The Funds transfers of assets to the special purpose entities
do not qualify for sales accounting treatment due to certain call provisions that the Fund maintains. Accordingly, assets and related debt of the special purpose entities are included in the Funds consolidated balance sheets. The Funds
leases and restricted cash are assigned as collateral for these borrowings and there is no further recourse to the general credit of the Fund. Collateral in excess of these borrowings represents the Funds maximum loss exposure.

The Fund may sell leases to third parties. Leases are accounted for as sold when control of the lease is surrendered. Control over the
leases are deemed surrendered when (1) the leases have been isolated from the Fund, (2) the buyer has the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the leases and (3) the
Fund does not maintain effective control over the leases through either (a) an agreement that entitles and obligates the Fund to repurchase or redeem the leases before maturity, or (b) the ability to unilaterally cause the buyer to return
specific leases. In connection with these sales, the Funds General Partner, the servicer of the leases prior to the sale, may continue to service the leases for the third party in exchange for adequate compensation as defined under
U.S. GAAP. The Fund accrues liabilities for obligations associated with leases and loans sold which the Fund may be required to repurchase due to breaches of representations and warranties and early payment defaults. The Fund periodically
evaluates the estimates used in calculating expected losses and adjustments are reported in earnings. To obtain fair values, the Fund generally estimates fair value based on the present value of future cash flows estimated using
managements best estimates of key assumptions,



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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements  (Continued)

December 31, 2009



NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

Transfers of Financial Assets  (Continued)



including credit losses and discount rates commensurate with the risks involved. As these estimates are influenced by factors outside the Funds control and as uncertainty is inherent in
these estimates, actual amounts charged off could differ from amounts recorded. The provision for repurchases is recorded as a component of gain on sales of leases and loans.

Derivative Instruments

The Funds policies permit it to enter into
derivative contracts, including interest rate swaps, to add stability to its financing costs and to manage its exposure to interest rate movements or other identified risks. The Fund has designed these transactions as cash flow hedges. The contracts
or hedge instruments are evaluated at inception and at subsequent balance sheet dates to determine if they continue to qualify for hedge accounting. The Fund recognizes all derivatives on the consolidated balance sheet at fair value. The Fund
records changes in the estimated fair value of the derivative in other comprehensive income (loss) to the extent that it is effective. Any ineffective portion of a derivatives change in fair value will be immediately recognized in earnings.

Interest rate swaps are recorded at fair value based on a value determined by a third-party pricing agent using an income
approach and utilizing models that use as their primary basis readily observable market parameters. This valuation process considers factors including interest rate yield curves, time value, credit factors and volatility factors. There can be
no assurance that the Funds hedging strategies or techniques will be effective, that profitability will not be adversely affected during any period of change in interest rates or that the costs of hedging will not exceed the benefits.

Income Taxes

Federal and state income tax laws provide that the income or losses of the Fund are reportable by the Partners on their individual income tax returns. Accordingly, no provision for such taxes has been made in the accompanying financial
statements.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss) and all other changes in the equity of a business during a period from transactions and other events and circumstances from non-owner sources. These
changes, other than net income, are referred to as other comprehensive income (loss) and for the Fund only include unrealized changes in the fair value of hedging derivatives.

Subsequent Events

The Fund
has evaluated subsequent events and determined that except for AMENDMENT No. 14 TO SECURED LOAN AGREEMENT between the General Partner and West LB dated February 25, 2010 as discussed in Note 6, that there have not been any
events that have occurred that would require adjustments to or disclosure in the audited consolidated financial statements.

Allocation of
Partnership Income, Loss and Cash Distributions

Cash distributions, if any, are made monthly as follows: 99% to the
limited partners and 1% to the General Partner until the limited partners have received an amount equal to their unpaid cumulative return (8%) of their adjusted capital contribution.



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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements  (Continued)

December 31, 2009



NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

Allocation of Partnership Income, Loss and Cash Distributions  (Continued)



Net income for any fiscal period during the reinvestment period (the period commencing
October 13, 2006 and ending October 13, 2011) is allocated 99% to the limited partners and 1% to the General Partner. Income during the liquidation period, as defined in the Partnership Agreements, will be allocated first to the Partners
in proportion to and to the extent of the deficit balances, if any, in their respective capital accounts. Thereafter, net income will be allocated 99% to the limited partners and 1% to the General Partner.

Net Income (Loss) per Limited Partner Unit

Net income (loss) per limited partner unit is computed by dividing net loss allocated to the Funds Limited Partners by the weighted average number of limited partner units outstanding during the
period. The weighted average number of limited partner units outstanding during the period is computed based on the number of limited partner units issued during the period weighted for the days outstanding during the period.

Recent Accounting Standards

In June 2009, the FASB identified the FASB Accounting Standards Codification, or ASC, as the authoritative source of U.S. GAAP other than guidance put forth by the U.S. Securities and Exchange Commission. All other accounting literature not
included in the ASC will be considered non-authoritative. The Fund adopted this standard during the quarter ended September 30, 2009 and revised its disclosures accordingly for references to U.S. GAAP.

Accounting Standards Issued But Not Yet Effective

The FASB has issued the following accounting standards which are not yet effective for the Fund as of December 31, 2009:

Transfers of Financial Assets and Interests in VIEsIn December 2009, the FASB issued new guidance for improving financial reporting for enterprises involved with VIEs regarding power to direct the
activities of a VIE as well as obligations to absorb the losses. This guidance is effective for interim and annual periods beginning after November 15, 2009. The Fund has evaluated the potential impact of adopting this statement and
does not believe it will have an impact on its consolidated financial statements.

Fair Value of Liabilities.In August
2009, the FASB clarified techniques for valuing a liability in circumstances where a quoted price for an identical liability is not available. The provisions of this guidance are effective for the Fund beginning January 1, 2010.



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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements  (Continued)

December 31, 2009



NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

Recent Accounting Standards  (Continued)



Consolidations. In June 2009, the FASB issued guidance which requires a
qualitative approach to identifying a controlling financial interest in an entity, and an ongoing assessment of whether an entity is a variable interest entity, or VIE, and whether an interest in a VIE makes the holder the primary beneficiary of the
VIE and, thus, is required to consolidate the VIE in its financial statements. This guidance is effective for the Fund beginning January 1, 2010. The Fund has evaluated the potential impact of adopting this statement and does not believe it
will have an impact on its consolidated financial statements.

Newly Adopted Accounting Principles  The Fund
adopted the following accounting standards during year ended December 31, 2009:

Disclosures about Derivative
Instruments and Hedging Activities. On January 1, 2009, the Fund adopted amended guidance issued by the FASB relating to disclosures about derivative instruments and hedging activities. This amended guidance requires enhanced disclosures
for derivative instruments, including those used in hedging activities, which the Fund has included in Note 8. The adoption of the amended guidance had no impact on the Funds consolidated financial position or results of operations.

Subsequent Events. In April 2009, the FASB issued guidance relating to subsequent events and established general
standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. The Fund adopted this guidance during the quarter ended June 30, 2009.



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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements  (Continued)

December 31, 2009



NOTE 3  SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosure of cash flow information is as follows (in thousands):



|                                                     |  |                         |        |      |   |        |  |   |          |  
|---------------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | -------- | -
|                                                     |  | Year Ended December 31, |       
|                                                     |  | 2009                    |        | 2008 |   | 2007   | 
|Cash paid for:                                       |  |                         |        |      |   |        |  |   |          |  
|Interest                                             |  | $                       | 12,314 |      | $ | 17,079 |  | $ | 17,874   |  
|                                                     |  |                         |        |      |   |        |  |   |          |  
|Non-cash activities:                                 |  |                         |        |      |   |        |  |   |          |  
|Borrowings under 2007-1 Term Securitization          |  | $                       |       |      | $ |       |  | $ | (267,237 | )
|                                                     |  |                         |        |      |   |        |  |   |          |  
|Repayment of Merrill Lynch and WestLB line of credit |  | $                       |       |      | $ |       |  | $ | 267,237  |  
|                                                     |  |                         |        |      |   |        |  |   |          |  

NOTE 4  INVESTMENT IN LEASES AND LOANS

The Funds investment in leases and loans, net, consists of the following (in thousands):



|                            |  |              |         |   |      |   |         |  
|--------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                            |  | December 31, |        
|                            |  | 2009         |         |   | 2008 |  
|Direct financing leases(a)  |  | $            | 131,020 |   |      | $ | 212,536 |  
|Loans(b)                    |  |              | 35,152  |   |      |   | 52,461  |  
|Operating leases            |  |              | 4,223   |   |      |   | 6,766   |  
|                            |  |              |         |   |      |   |         |  
|                            |  |              | 170,395 |   |      |   | 271,763 |  
|Allowance for credit losses |  |              | (11,380 | ) |      |   | (5,770  | )
|                            |  |              |         |   |      |   |         |  
|                            |  | $            | 159,015 |   |      | $ | 265,993 |  
|                            |  |              |         |   |      |   |         |  



|(a) | The Funds direct financing leases are for initial lease terms generally ranging from 24 to 84 months.
|--- | ------------------------------------------------------------------------------------------------------



|(b) | The interest rates on loans generally range from 7% to 13%.
|--- | -----------------------------------------------------------



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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements  (Continued)

December 31, 2009



NOTE 4  INVESTMENT IN LEASES AND LOANS  (Continued)



The components of direct financing leases and loans are as follows (in thousands):



|                                              |  |              |         |   |       |   |        |        |  |   |         |   |  |   |         |  
|--------------------------------------------- |  | ------------ | ------- | - | ----- | - | ------ | ------ |  | - | ------- | - |  | - | ------- | -
|                                              |  | December 31, |        
|                                              |  | 2009         |         |   | 2008  |  
|                                              |  | Leases       |         |   | Loans |   |        | Leases |  |   | Loans   |  
|Total future minimum lease payments           |  | $            | 145,109 |   |       | $ | 41,426 |        |  | $ | 238,338 |   |  | $ | 63,272  |  
|Unearned income                               |  |              | (16,900 | ) |       |   | (6,116 | )      |  |   | (29,722 | ) |  |   | (10,206 | )
|Residuals, net of unearned residual income(a) |  |              | 4,289   |   |       |   |       |        |  |   | 6,105   |   |  |   |        |  
|Security deposits(b)                          |  |              | (1,478  | ) |       |   | (158   | )      |  |   | (2,185  | ) |  |   | (605    | )
|                                              |  |              |         |   |       |   |        |        |  |   |         |   |  |   |         |  
|                                              |  | $            | 131,020 |   |       | $ | 35,152 |        |  | $ | 212,536 |   |  | $ | 52,461  |  
|                                              |  |              |         |   |       |   |        |        |  |   |         |   |  |   |         |  



|(a) | Unguaranteed residuals for direct financing leases represent the estimated amounts recoverable at lease termination from lease extensions or disposition of the
equipment.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Included in security deposits are security deposits on leases as well as amounts held back from customers.
|--- | ----------------------------------------------------------------------------------------------------------

The Funds investment in operating leases, net, consists of the following (in thousands):



|                         |  |              |        |   |      |   |        |  
|------------------------ |  | ------------ | ------ | - | ---- | - | ------ | -
|                         |  | December 31, |       
|                         |  | 2009         |        |   | 2008 |  
|Equipment                |  | $            | 12,061 |   |      | $ | 15,683 |  
|Accumulated depreciation |  |              | (7,738 | ) |      |   | (8,832 | )
|Security deposits        |  |              | (100   | ) |      |   | (85    | )
|                         |  |              |        |   |      |   |        |  
|                         |  | $            | 4,223  |   |      | $ | 6,766  |  
|                         |  |              |        |   |      |   |        |  

The following is a summary of the Funds allowance for credit losses (in thousands):



|                                               |  |                         |         |   |      |   |        |      |  |   |        |  
|---------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                               |  | Year Ended December 31, |        
|                                               |  | 2009                    |         |   | 2008 |   |        | 2007 | 
|Allowance for credit losses, beginning of year |  | $                       | 5,770   |   |      | $ | 1,960  |      |  | $ | 1,121  |  
|Provision for credit losses                    |  |                         | 17,941  |   |      |   | 11,128 |      |  |   | 5,847  |  
|Charge-offs                                    |  |                         | (13,230 | ) |      |   | (8,435 | )    |  |   | (6,108 | )
|Recoveries                                     |  |                         | 899     |   |      |   | 1,117  |      |  |   | 1,100  |  
|                                               |  |                         |         |   |      |   |        |      |  |   |        |  
|Allowance for credit losses, end of year       |  | $                       | 11,380  |   |      | $ | 5,770  |      |  | $ | 1,960  |  
|                                               |  |                         |         |   |      |   |        |      |  |   |        |  



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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements  (Continued)

December 31, 2009



NOTE 4  INVESTMENT IN LEASES AND LOANS  (Continued)



At December 31, 2009, the future minimum lease and loan payments and related rental
payments scheduled to be received on non-cancelable direct financing leases, loans and operating leases for each of the five succeeding annual periods ending December 31 and thereafter, are as follows (in thousands):



|           |  |                       |         |       |   |                     |  |       |       |  |   |        
|---------- |  | --------------------- | ------- | ----- | - | ------------------- |  | ----- | ----- |  | - | -------
|           |  | DirectFinancingLeases |         | Loans |   | OperatingLeases (a) |  | Total
|2010       |  | $                     | 69,335  |       | $ | 15,617              |  | $     | 1,763 |  | $ | 86,715 
|2011       |  |                       | 42,222  |       |   | 11,525              |  |       | 753   |  |   | 54,500 
|2012       |  |                       | 21,403  |       |   | 7,942               |  |       | 96    |  |   | 29,441 
|2013       |  |                       | 8,479   |       |   | 3,887               |  |       | 12    |  |   | 12,378 
|2014       |  |                       | 3,244   |       |   | 1,510               |  |       | 10    |  |   | 4,764  
|Thereafter |  |                       | 426     |       |   | 945                 |  |       |      |  |   | 1,371  
|           |  |                       |         |       |   |                     |  |       |       |  |   |        
|           |  | $                     | 145,109 |       | $ | 41,426              |  | $     | 2,634 |  | $ | 189,169
|           |  |                       |         |       |   |                     |  |       |       |  |   |        



|(a) | Operating lease amounts as shown are net of the residual value, if any, at the end of the lease term.
|--- | -----------------------------------------------------------------------------------------------------

NOTE 5  SALES OF LEASES AND LOANS

During the year ended December 31, 2008, the Fund sold leases and loans to third parties. For the year ended December 31, 2008, the Fund received total net proceeds of $35.5 million on sales of
leases and loans and recorded gains totaling $561,000 which is included in gains on sales of equipment and lease dispositions, net, on the consolidated statements of operations.

In connection with one sale completed during the year ended December 31, 2008, the Fund agreed to repurchase delinquent leases, subject
to a cap, as defined in the sale agreement (the Repurchase Liability). The maximum amount of delinquent leases that the Fund would have to buy under the Repurchase Liability is $2.3 million based on total proceeds received of $30.5
million. With the exception of the Repurchase Liability, the third parties have limited recourse to the Fund for failure of the debtors to pay when due. As of December 31, 2008, the Fund had purchased $601,000 under the Repurchase Liability
obligation. The Funds remaining purchase obligation under the Repurchase Liability as of December 31, 2009 is $39,000.

The Fund is exposed to potential future loss under the Repurchase Liability to the extent leases it repurchases become uncollectible. The Fund estimated this potential loss using the following key assumptions: weighted average life of the
portfolio, expected rate of delinquent leases subject to repurchase and the discount rate. The cash flows were estimated based on managements estimate of the loss curve based on historical experience with other portfolios it manages. Based on
these assumptions, the fair value of the loss under the Repurchase Liability was estimated at $348,000, which was recorded as a liability.



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##### Table of Contents

LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements  (Continued)

December 31, 2009



NOTE 6  DEFERRED FINANCING COSTS

As of December 31, 2009 and 2008, deferred financing costs include $2.5 million and $3.0 million, respectively, of unamortized deferred
financing costs which are being amortized over the terms of the estimated useful life of the related debt. Accumulated amortization as of December 31, 2009 and 2008 was $2.4 million, and $977,000, respectively. Estimated amortization expense of
the Funds existing deferred financing costs for the years ending December 31 is as follows (in thousands):



|     |  |   |      
|---- |  | - | -----
|2010 |  | $ | 1,093
|2011 |  |   | 722  
|2012 |  |   | 501  
|2013 |  |   | 201  
|2014 |  |   |     
|     |  |   |      
|     |  | $ | 2,517
|     |  |   |      

NOTE 7  BANK DEBT

The Funds bank debt consists of the following (in thousands):



|                                |  |           |  |              |  |                   |         |                   |   |                     |  |                                    |        |                                             |                        |  |                                    |   |  |   |        
|------------------------------- |  | --------- |  | ------------ |  | ----------------- | ------- | ----------------- | - | ------------------- |  | ---------------------------------- | ------ | ------------------------------------------- | ---------------------- |  | ---------------------------------- | - |  | - | -------
|                                |  |           |  |              |  | December 31, 2009 |         |                   |   |                     |  |                                    |       
|                                |  | Type      |  | MaturityDate |  | FacilityAmount    |         | AmountOutstanding |   | AmountAvailable (1) |  | Interestrate perannum peragreement |        | Interest rateper annumadjustedfor swaps (2) |                        |  | December 31,2008OutstandingBalance
|Term Securitization  Class A-2 |  | Term      |  | January 2010 |  | $                 |        |                   | $ |                    |  | $                                  |       |                                             | One monthLIBOR + 0.12% |  |                                   |   |  | $ | 8,671  
|Term Securitization  Class A-3 |  | Term      |  | July 2012    |  |                   | 49,670  |                   |   | 49,670              |  |                                    |       |                                             | One monthLIBOR +0.20%  |  | 5.6                                | % |  |   | 101,320
|Term Securitization  Class B   |  | Term      |  | March 2015   |  |                   | 14,530  |                   |   | 14,530              |  |                                    |       |                                             | 6.7%                   |  | 6.7                                | % |  |   | 14,530 
|WestLB                          |  | Revolving |  | (3)          |  |                   | 125,000 |                   |   | 87,781              |  |                                    | 37,219 |                                             | (3)                    |  | 5.7                                | % |  |   | 130,223
|                                |  |           |  |              |  |                   |         |                   |   |                     |  |                                    |        |                                             |                        |  |                                    |   |  |   |        
|                                |  |           |  |              |  | $                 | 189,200 |                   | $ | 151,981             |  | $                                  | 37,219 |                                             |                        |  |                                    |   |  | $ | 254,744
|                                |  |           |  |              |  |                   |         |                   |   |                     |  |                                    |        |                                             |                        |  |                                    |   |  |   |        



|(1) | Availability under this credit facility is subject to having eligible leases or loans (as defined in the respective agreements) to pledge as collateral and compliance
with the borrowing base formula.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | To mitigate fluctuations in interest rates, the Fund entered into interest rate swap agreements. The interest rate swap agreements terminate on various dates and fix
the interest rate.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | In June 2005, we obtained a $75.0 million credit facility with WestLB AG, New York Branch, (WestLB), which was increased to $150 million in June 2006. In June 2009, we
reduced the facility amount to $125 million. This revolving line of credit is collateralized by specific lease receivables and related equipment, with a 1% credit reserve of the outstanding line of credit. Interest on the existing borrowings is
calculated at LIBOR plus 0.95% per annum. Borrowings under this facility after February 25, 2010 would be at a rate of LIBOR plus 2.50% per annum. To mitigate fluctuations in interest rates, we entered into interest rate swap
agreements, which terminate on various dates ranging from September 2011 to August 2015. As of December 31, 2009, the interest rate swap agreements fixed the interest rate on this facility at 5.7%. The credit facility terminates on
June 30, 2010. If this facility is not extended, we would not be required to make full repayment at the time of renewal. Rather, we would continue to repay the principal and interest on any outstanding debt as payments are received on the
underlying leases and loans pledged as collateral; however, there would be no additional borrowings under the facility. Recourse under this facility is limited to the amount of collateral pledged. As of December 31, 2009, $96.3 million of leases and
loans and $5.8 million of restricted cash were pledged as collateral under this facility.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements  (Continued)

December 31, 2009



NOTE 7  BANK DEBT  (Continued)



The Fund is subject to certain financial covenants related to its debt
facilities. These covenants are related to such things as minimum tangible net worth, maximum leverage ratios and portfolio delinquency. The minimum tangible net worth covenants measure its equity adjusted for intangibles and amounts due
to the Funds General Partner. The maximum leverage covenants restrict the amount the Fund can borrow based on a ratio of its total debt compared to its net worth. The portfolio performance covenants generally provide that the Fund would be in
default if a specified percentage of its portfolio of leases and loans was delinquent in payment beyond acceptable grace periods.

In addition, the Funds debt facilities include financial covenants covering affiliated entities responsible for servicing its portfolio. These covenants exist to provide the lenders with information about the financial viability of
the entities that service its portfolio. These entities include the Funds General Partner and certain other affiliates involved in the sourcing and servicing of its portfolio. These covenants are similar in nature to the Funds covenants
and are related to such things as the entitys minimum tangible net worth, maximum leverage ratios, managed portfolio delinquency and compliance of the debt terms of all of the Funds General Partners managed entities. As of
December 31, 2009, the Fund, and its applicable affiliated entities, are in compliance with all such covenants under its various debt agreements.

Debt repayments

Annual principal payments on the Funds aggregate borrowings over the next five years
ended December 31 and thereafter, are as follows (in thousands):



|           |  |   |        
|---------- |  | - | -------
|2010       |  | $ | 66,375 
|2011       |  |   | 44,104 
|2012       |  |   | 25,219 
|2013       |  |   | 11,495 
|2014       |  |   | 4,339  
|Thereafter |  |   | 449    
|           |  |   |        
|           |  | $ | 151,981
|           |  |   |        



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##### Table of Contents

LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements  (Continued)

December 31, 2009



NOTE 8  DERIVATIVE INSTRUMENTS

The majority of the Funds assets and liabilities are financial contracts with fixed and variable rates. Any mismatch between the
repricing and maturity characteristics of the Funds assets and liabilities exposes it to interest rate risk when interest rates fluctuate. For example, the Funds assets are structured on a fixed-rate basis, but since funds borrowed
through bank debt are obtained on a floating-rate basis, the Fund is exposed to a certain degree of risk if interest rates rise which in turn will increase the Funds borrowing costs. In addition, when the Fund acquires assets, it bases its
pricing in part on the spread it expects to achieve between the interest rate it charges its customers and the effective interest cost the Fund will pay when it funds those loans. Increases in interest rates that increase the Funds permanent
funding costs between the time the assets are originated and the time they are funded could narrow, eliminate or even reverse this spread. To manage interest rate risk, the Fund employs a hedging strategy using derivative financial instruments such
as interest rate swaps. For derivatives designated and qualifying as cash flow hedges, the effective portion of changes in fair value of those derivatives are recorded in accumulated other comprehensive loss and are subsequently reclassified into
earnings when the hedged forecasted interest payments are recognized in earnings. For derivatives that are undesignated, changes in the fair value of those derivatives are recorded directly to earnings as they occur. The Fund does not use derivative
financial instruments for trading or speculative purposes. The Fund manages the credit risk of possible counterparty default in these derivative transactions by dealing primarily with counterparties with investment grade ratings. The Fund has
agreements with certain of its derivative counterparties that contain a provision where if the Fund defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the
lender, then the Fund could also be declared in default on its derivative obligations. The Fund has agreements with certain of its derivative counterparties that incorporates the loan covenant provisions of the Funds indebtedness with a
lender affiliate of the derivative counterparty. Failure to comply with the loan covenant provisions would result in the Fund being in default on any derivative instrument obligations covered by the agreement. As of December 31, 2009, the fair
value of derivatives in a net liability position, which excludes any adjustment for nonperformance risk, related to these agreements was $5.7 million. As of December 31, 2009, the Fund has not posted any collateral related to these agreements.
If the Fund had breached any of these provisions at December 31, 2009, it could have been required to settle its obligations under the agreements at their termination value of $5.7 million.

Before entering into a derivative transaction for hedging purposes, the Fund determines whether a high degree of initial effectiveness
exists between the change in the value of the hedged forecasted transactions and the change in the value of the derivative from a movement in interest rates. High effectiveness means that the change in the value of the derivative is expected to
provide a high degree of offset against changes in the value of the hedged forecasted transactions caused by changes in interest rate risk. The Fund measures the effectiveness of each cash flow hedge throughout the hedge period. Any hedge
ineffectiveness on cash flow hedging relationships, as defined by U.S. GAAP, is recognized in the consolidated statements of operations.

There can be no assurance that the Funds hedging strategies or techniques will be effective, that profitability will not be adversely affected during any period of change in interest rates or that
the costs of hedging will not exceed the benefits.



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##### Table of Contents

LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements  (Continued)

December 31, 2009



NOTE 8  DERIVATIVE INSTRUMENTS  (Continued)



At December 31, 2009, the Fund has 21 interest rate swaps which terminate on
various dates ranging from September 2011 to August 2015. The following tables present the fair value of the Funds derivative financial instruments as well as their classification on the consolidated balance sheet as of December 31, 2009
and on the consolidated statement of operations for the years ended December 31, 2009, 2008 and 2007 (in thousands):



|                                                  |  |                |         |                        |                                      |            |   |        |  
|------------------------------------------------- |  | -------------- | ------- | ---------------------- | ------------------------------------ | ---------- | - | ------ | -
|                                                  |  | NotionalAmount |         | Balance Sheet Location |                                      | Fair Value |  
|Derivatives designated as hedging instruments     |  |                |         |                        |                                      |            |   |        |  
|Interest rate swap contracts                      |  | $              | 134,755 |                        | Derivative liabilities at fair value |            | $ | (5,689 | )
|                                                  |  |                |        
|Derivatives not designated as hedging instruments |  |                | 104,254 |                        | Derivative liabilities at fair value |            | $ | 308    |  



|                       |  |                                                                          |       |                                                                                             |   |                         |  |   |       |      |                 |  |      |        |   |      |   |        |   |  |   |      |  
|---------------------- |  | ------------------------------------------------------------------------ | ----- | ------------------------------------------------------------------------------------------- | - | ----------------------- |  | - | ----- | ---- | --------------- |  | ---- | ------ | - | ---- | - | ------ | - |  | - | ---- | -
|                       |  | Amount of Gain orLoss Recognized inOCI on Derivatives(Effective Portion) |       | Location and Amount of LossReclassified from Accumulated OCIinto Income (Effective Portion) |  
|                       |  | Year Ended December 31,                                                  |       |                                                                                             |   | Year Ended December 31, | 
|                       |  | 2009                                                                     |       | 2008                                                                                        |   | 2007                    |  |   |       | 2009 |                 |  | 2008 |        |   | 2007 |  
|Interest rate products |  | $                                                                        | 2,959 |                                                                                             | $ | 11,482                  |  | $ | 7,024 |      | Interestexpense |  | $    | (8,637 | ) |      | $ | (5,998 | ) |  | $ | (607 | )

The Fund terminated
interest rate swap agreements with WestLB and Merrill Lynch with total underlying notional amounts of $298.8 million in connection with the term securitization. The Fund terminated these agreements simultaneously with the 2007 term securitization
resulting in a gain of $2.3 million which was recorded in other comprehensive income at September 30, 2007. The Fund is amortizing the gain to interest expense over the remaining term of the terminated swap agreements. For the years ended
December 31, 2009, 2008 and 2007 $382,000, $382,000 and $223,000, respectively, was recognized into interest expense. As of December 31, 2009, the unamortized balance of $1.3 million is included in accumulated other comprehensive loss.

For the years ended December 31, 2009 and 2008, the Fund recognzied no gain or loss for hedge ineffectiveness. Assuming
market rates remain constant with the rates as of December 31, 2009, $4.2 million of the $5.7 million in accumulated other comprehensive loss is expected to be charged to earnings over the next 12 months.

For cash, receivables and payables, the carrying amounts approximate fair values because of the short term maturity of these instruments.
The carrying value of debt approximates fair market value since interest rates approximate current market rates.

It is not
practicable for the Fund to estimate the fair value of the Funds leases and loans. They are comprised of a large number of transactions with commercial customers in different businesses, and may be secured by liens on various types of
equipment and may be guaranteed by third parties and cross-collateralized. Any difference between the carrying value and fair value of each transaction would be affected by a potential buyers assessment of the transactions credit
quality, collateral value, guarantees, payment history, yield, term, documents and other legal matters, and other subjective considerations. Value received in a fair market sale of a transaction would be based on the terms of the sale, the
Funds and the buyers views of economic and industry conditions, the Funds and the buyers tax considerations, and other factors.



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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements  (Continued)

December 31, 2009



NOTE 9  FAIR VALUE MEASUREMENT



| |  |  | Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
in the principal or most advantageous market for the asset or liability at the measurement date (exit price). U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level
3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 1  Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the
measurement date.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2  Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities in
active markets or quoted prices for identical assets or liabilities in inactive markets.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  Unobservable inputs that reflect the entitys own assumptions about the assumptions that market participants would use in
the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Fund employs a hedging strategy to manage exposure to the effects of changes in market interest rates. All derivatives are recorded on the consolidated balance sheets at their fair value as either
assets or liabilities. Because the Funds derivatives are not listed on an exchange, these instruments are valued by a third-party pricing agent using an income approach and utilizing models that use as their primary basis readily observable
market parameters. This valuation process considers factors including interest rate yield curves, time value, credit factors and volatility factors. Although the Fund has determined that the majority of the inputs used to value its
derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by
itself and its counterparties. However, the Fund has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are
not significant to the overall valuation of its derivatives. As a result, the Fund has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Assets and (liabilities) measured at fair value on a recurring basis included the following (in thousands):



|                                         |  |                               |   |                          |   |         |         |  |   |   |  |   |         |  
|---------------------------------------- |  | ----------------------------- | - | ------------------------ | - | ------- | ------- |  | - | - |  | - | ------- | -
|Liabilities:                             |  | Fair Value Measurements Using |   | LiabilitiesAt Fair Value |  
|                                         |  | Level 1                       |   | Level 2                  |   |         | Level 3 | 
|Interest rate swaps at December 31, 2009 |  | $                             |  |                          | $ | (5,381  | )       |  | $ |  |  | $ | (5,381  | )
|Interest rate swaps at December 31, 2008 |  |                               |  |                          |   | (11,734 | )       |  |   |  |  |   | (11,734 | )



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##### Table of Contents

LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements  (Continued)

December 31, 2009



NOTE 10  CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES

The Fund relies on the General Partner and its affiliates to manage the Funds operations and pays the General Partner or its affiliates
fees to manage the Fund. The following is a summary of fees and costs of services and materials charged by the General Partner or its affiliates (in thousands):



|                        |  |                         |       |      |   |       |  |   |      
|----------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                        |  | Years Ended December 31
|                        |  | 2009                    |       | 2008 |   | 2007 
|Acquisition fees        |  | $                       | 123   |      | $ | 1,866 |  | $ | 2,587
|Management fees         |  |                         | 2,921 |      |   | 3,844 |  |   | 3,680
|Administrative expenses |  |                         | 2,491 |      |   | 2,626 |  |   | 1,501

Acquisition Fees.The General Partner is paid a fee for assisting the Fund in acquiring equipment subject to existing equipment leases equal to 2% of the purchase price the Fund pays for the equipment or portfolio of equipment subject to existing equipment
financing.

Management Fees. The General Partner is paid a subordinated annual asset management fee equal to 4% or 2%
of gross rental payments for operating leases or full payout leases, respectively, or a competitive fee, whichever is less. During the Funds five-year investment period, the management fees will be subordinated to the payment to the
Funds limited partners of a cumulative annual distribution of 8.0% of their capital contributions, as adjusted by distributions deemed to be a return of capital.

Administrative Expenses.The General Partner and its affiliates are reimbursed by the Fund for administrative services reasonably necessary to operate which dont exceed the General
Partners cost of those fees or services.

Due to Affiliates.Due to affiliates includes amounts due to the
General Partner related to acquiring and managing portfolios of equipment from its General Partner, management fees and reimbursed expenses.

NOTE 11  COMMITMENTS AND CONTINGENCIES

The Fund is party to various legal proceeding arising out of the
ordinary course of its business. Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the Funds financial condition or results of operations.

ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A  CONTROLS AND PROCEDURES

Disclosure Controls

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports
under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and
communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our
management recognized that any controls and procedures,



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##### Table of Contents



ITEM 9A  CONTROLS AND PROCEDURES  (Continued)



no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision of our General
Partners chief executive officer and chief financial officer, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our
General Partners chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective.

Managements Report on Internal Control over Financial Reporting

Our General Partners management is
responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

Our General Partners management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control  Integrated
Framework. Based upon this assessment, our General Partners management concluded that, as of December 31, 2009, our internal control over financial reporting is effective.

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial
reporting. Managements report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only managements report in this annual
report.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the three months ended December 31, 2009
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B  OTHER INFORMATION

None.



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PART III

ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Our General Partner manages our activities. Although our limited partners have limited voting rights under our partnership agreement, they do not directly or indirectly participate in our management or
operations or have actual or apparent authority to enter into contracts on our behalf or to otherwise bind us. Our General Partner will be liable, as General Partner, for all of our debts to the extent not paid, except to the extent that
indebtedness or other obligations incurred by it are specifically with recourse only to our assets. Whenever possible, our General Partner intends to make any of our indebtedness or other obligations with recourse only to our assets.

As is commonly the case with limited partnerships, we do not directly employ any of the persons responsible for our management or operation.
Rather, our General Partners personnel manage and operate our business. Officers of our General Partner may spend a substantial amount of time managing the business and affairs of our General Partner and its affiliates and may face a conflict
regarding the allocation of their time between our business and affairs and their other business interests.

The following
table sets forth information with respect to the directors and executive officers of our General Partner.



|                        |  |     |  |                                                               
|----------------------- |  | --- |  | --------------------------------------------------------------
|Name                    |  | Age |  | Position                                                      
|Crit S. DeMent          |  | 57  |  | Chairman of the Board of Directors and Chief Executive Officer
|Miles Herman            |  | 50  |  | President, Chief Operating Officer and Director               
|Jonathan Z. Cohen       |  | 39  |  | Director                                                      
|Alan D. Schreiber, M.D. |  | 68  |  | Director                                                      
|Linda Richardson        |  | 62  |  | Director                                                      
|Jeffrey F. Brotman      |  | 46  |  | Director                                                      
|Robert K. Moskovitz     |  | 53  |  | Chief Financial Officer                                       
|David H. English        |  | 59  |  | Executive Vice President and Chief Investment Officer         
|Daniel G. Courtney      |  | 47  |  | Executive Vice President  Investment Programs                
|Robert Hunter           |  | 45  |  | Executive Vice President and Chief Marketing Officer          

Crit S. DeMent has been Chairman of the Board of Directors and Chief Executive Officer of LEAF Financial since November 2001. Mr. DeMent also serves as Chairman of the Board of Directors and Chief Executive Officer of LEAF Asset
Management since it was formed in August 2006, Chairman of the Board of Directors and Chief Executive Officer of LEAF Funding since March 2003, a Senior Vice President of Resource America since 2005 and Senior Vice President  Equipment Leasing
of Resource Capital Corp. since March 2005. Before that, he was President of Fidelity Leasing, Inc. and its successor, the Technology Finance Group of Citi-Capital Vendor Finance from 1998 to 2001. Mr. DeMent was Vice President of Marketing for
Tokai Financial Services from 1987 through 1996. Mr. DeMent serves on the Executive Committee of the Board of Directors of the Equipment Leasing and Finance Association.

Miles Hermanhas been President, Chief Operating Officer, and a Director of LEAF Financial since January 2002. Mr. Herman also serves as President, Chief Operating Officer and as a Director of
LEAF Asset Management since 2006. Mr. Herman has served as a Director of LEAF Funding since January 2004. He was a Senior Vice President of LEAF Funding from 2004 until 2009 and an Executive Vice President from 2009 until the present.
Mr. Herman held various senior operational offices with Fidelity Leasing, Inc. and its successor from 1998 to 2001, ending as Senior Vice President. From 1990 to 1998, he held various operational, marketing, program management, business
development and sales positions with Tokai Financial, most recently as Director of Capital Markets. Before that, he served as Vice President, Operations and Sales at LSI Leasing Services, Inc. from 1989 to 1990, and as a manager of operations at
Master Lease Corporation from 1984 to 1989. Mr. Herman holds a Bachelor of Science degree from Villanova University.



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Jonathan Z. Cohenhas been a Director of LEAF Financial Corporation since January 2002, and a
Director of LEAF Asset Management since it was formed in August 2006. Mr. Cohen also serves, or has served, in the following positions with Resource America: a Director since 2002, President since 2003, Chief Executive Officer since 2004,
Chief Operating Officer from 2002 to 2004, Executive Vice President from 2001 to 2003, and Senior Vice President from 1999 to 2001. In addition, Mr. Cohen serves as Chief Executive Officer, President and a Director of Resource Capital Corp. (a
publicly-traded real estate investment trust) since its formation in 2005. Mr. Cohen also serves as Vice Chairman of the Managing Board of Atlas Pipeline Partners GP, LLC since its formation in 1999, Vice Chairman and a Director of Atlas
America, Inc. since its formation in 2000, Vice Chairman of Atlas Pipeline Holdings GP, LLC since its formation in 2006 and Vice Chairman of Atlas Energy Resources, LLC (a publicly-traded energy company) since its formation in 2006.

Alan D. Schreiber, M.D.has been a Director of LEAF Financial since April 2003. Dr. Schreiber has been a Professor of Medicine since 1984
and the Assistant Dean for Research since 1994, at the University of Pennsylvania School of Medicine. In addition, Dr. Schreiber has been Scientific Founder and Chairman of the Scientific Advisory Board of InKine Pharmaceutical Co. Inc. for
five years. Before that, he had been Scientific Founder and Chief Scientific Officer at CorBec Pharmaceutical Co., Inc. for four years, and Founder and Scientific Chairman of ZaBeCor Pharmaceutical Co., LLC for one year. Dr. Schreiber was also
a member of the Resource America, Inc. Board of Directors from December 1994 to April 2003.

Linda Richardsonhas been a
Director of LEAF Financial since August 2002. Ms. Richardson has also been the President and Chief Executive Officer of The Richardson Group, a sales consulting company, since 1978 and a faculty member of the Wharton School, University of
Pennsylvania since 1988.

Jeffrey F. Brotman has been a Director of LEAF Financial since April 2008. Mr. Brotman has also been
Executive Vice President of Resource America since June 2007. Mr. Brotman was a co-founder of Ledgewood, P.C. (a Philadelphia-based law firm) and was affiliated with the firm from 1992 until June 2007, serving as its managing partner from 1995
until March 2006. Mr. Brotman is also a non-active Certified Public Accountant and an Adjunct Professor at the University of Pennsylvania Law School. Mr. Brotman was Chairman of the Board of Directors of TRM Corporation (a publicly-traded
consumer services company) from September 2006 until September 2008 and was its President and Chief Executive Officer from March 2006 through June 2007.

The board of directors of our General Partner has not adopted specific minimum qualifications for service on the board, but rather seeks a mixture of skills that are relevant to our business. The
following presents a brief summary of the attributes of each director that led to the conclusion that such person should serve as a director:

Mr. DeMent has lengthy and extensive experience in the equipment leasing and finance industry.

Mr. Herman has lengthy and extensive experience in the equipment leasing and finance industry.

Mr. Cohen has extensive financial and operational experience, including as the chief executive officer of our general partners publicly traded parent company.

Dr. Schreiber has significant experience as the founder of several companies similar to the types of entities to whom we market our
equipment leasing business.

Ms. Richardson has lengthy and extensive business and operational experience as the founder
and chief executive officer of a company.

Mr. Brotman has significant experience in finance, as an attorney, and as the
chief executive officer of a public company.



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Robert K. Moskovitzhas been Chief Financial Officer of LEAF Financial since February 2004, Treasurer
of LEAF Financial from September 2004 until April 2009, and Assistant Secretary of LEAF Financial since June 2007. Mr. Moskovitz also serves as Chief Financial Officer and Assistant Secretary of LEAF Asset Management since it was formed in
August 2006, and Chief Financial Officer and a Director of LEAF Funding since May 2004. He has over twenty years of experience as the Chief Financial Officer of both publicly and privately owned companies. From 2002 to 2004, Mr. Moskovitz was
an independent consultant on performance management initiatives, primarily to the financial services industry. From 2001 to 2002 he was Executive Vice President and Chief Financial Officer of ImpactRx, Inc., which provides advanced sales and
marketing intelligence to pharmaceutical companies. From 1983 to 2001 Mr. Moskovitz held senior executive level financial positions with several high growth public and privately held companies. He began his professional career with
Deloitte & Touche (formerly Touche Ross & Co). Mr. Moskovitz is a Certified Public Accountant and holds a B.S. degree in Business Administration from Drexel University.

David H. Englishhas been an Executive Vice President and Chief Investment Officer of LEAF Financial since April 2003 and Assistant Secretary of LEAF
Financial since June 2007. Mr. English also serves as Executive Vice President and Chief Investment Officer of LEAF Asset Management since it was formed in August 2006, and as President and a Director of LEAF Funding since May 2003. From 1996
until joining LEAF Financial, Mr. English was the Senior Vice President-Risk Management for Citi-Capital Vendor Finances Technology Finance Group, and its predecessor, Fidelity Leasing, Inc., where he held a similar position. From 1991 to
1996 Mr. English held various credit and operational management positions with Tokai Financial Services, Inc., including Director of Credit for the small ticket leasing division. Mr. English served in credit management positions with the
Commercial Finance Division of General Electric Capital Corporation from 1990 to 1991 and with Equitable Life Leasing Corporation from 1985 through 1990. Mr. English began his career with Household Finance Corporation in 1974. Mr. English
is a 1975 graduate of the University of Pittsburgh with a B.S. degree in Mathematics.

Daniel G. Courtneyhas been Executive Vice
President  Investment Programs of LEAF Financial and LEAF Asset Management since January 2008. Mr. Courtney was Senior Vice President - Investment Programs of LEAF Asset Management since it was formed in August 2006 until January 2008 and
served as Senior Vice President  Investment Programs of LEAF Financial since October 2005 until January 2008. Mr. Courtney also is registered with Chadwick Securities, an affiliate of our general partner. Mr. Courtney was Senior Vice
President with ATEL Capital Group, a San Francisco-based sponsor of leasing limited partnerships from October 2003 to October 2005. From 1984 to 2003, Mr. Courtney served in sales and marketing management roles for various financial services
firms and fund sponsors of real estate and equipment leasing programs. Mr. Courtney is a General Securities Principal, holds various FINRA securities licenses and received a B.S. degree in Business Administration from Southeast Missouri State
University. Mr. Courtney is a member of the Investment Program Association (IPA) and serves as Chairman of the education committee. He is also a member of the Association of Investment Management Sales Executives (AIMSE) and has completed its
Investment Management program at The Wharton School at the University of Pennsylvania.

Robert J. Hunterhas been Executive Vice
President and Chief Marketing Officer of LEAF Financial since February 2007. From June 2001 until joining LEAF Financial, Mr. Hunter was Senior Vice President with Citicorp Vendor Finance, which is part of Citicapital, a business
unit of Citigroup. From October 1998 to June 2001, Mr. Hunter was Senior Vice President of Sales and Marketing for Fidelity Leasing prior to Citicorps acquisition of Fidelity Leasing in 2001. From 1988 to 1998,
Mr. Hunter held several sales and senior management positions with Master Lease Corporation and subsequently Tokai Financial Services. Mr. Hunter also has been an active member of the Equipment Leasing and Finance Associations and
served as Chairman of the Small Ticket Business Council as well as a member of the Industry Future Council and Financial Accounting Committee.

Code of Business Conduct and Ethics

Because we do not directly employ any persons, we rely on a Code of
Business Conduct and Ethics adopted by Resource America, Inc. that applies to the principal executive officer and principal financial officer of our General Partner, as well as to persons performing services for us generally. You may obtain a copy
of this code of ethics by a request to our General Partner at LEAF Financial Corporation, One Commerce Square, 2005 Market Street, 15th Floor, Philadelphia, Pennsylvania 19103.



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ITEM 11  EXECUTIVE COMPENSATION

We do not have, and do not expect to have, any employees as discussed in Item 10  Directors and Executive Officers of the
Registrant. Instead, our management and day-to-day activities are provided by the employees of our General Partner and its affiliates. No officer or director of our General Partner will receive any direct remuneration from us. Those persons
will receive compensation solely from our General Partner or its affiliates other than us.

ITEM 12 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNIT HOLDER MATTERS



| | (a) | We had 1,399 limited partners as of December 31, 2009.
| | --- | ------------------------------------------------------



| | (b) | In 2004, our General Partner contributed $1,000 to our capital as our General Partner and received its General Partner interest in us. As of December 31, 2009, our
General Partner owned 9,399 of our limited partner units. These purchases of limited partner units by the Funds General Partner and its affiliates were at a price discounted by the 7% sales commission which was paid by most of our other
limited partners.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | We know of no arrangements that would, at any date subsequent to the date of this report, result in a change in control of us.
| | --- | ------------------------------------------------------------------------------------------------------------------------------

ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We do not directly employ any persons to manage or operate our business. These functions are provided by our General Partner and employees of
our General Partner and/or its affiliates. We reimburse our General Partner and/or its affiliates for all direct and indirect costs of services provided, including the cost of employees and benefits properly allocable to us and all other expenses
necessary or appropriate for the conduct of our business. The following is a summary of fees and costs of services charged by the General Partner or its affiliates (in thousands):



|                        |  |                         |       |      |   |       |  |   |      
|----------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                        |  | Years Ended December 31
|                        |  | 2009                    |       | 2008 |   | 2007 
|Acquisition fees        |  | $                       | 123   |      | $ | 1,866 |  | $ | 2,587
|Management fees         |  |                         | 2,921 |      |   | 3,844 |  |   | 3,680
|Administrative expenses |  |                         | 2,491 |      |   | 2,626 |  |   | 1,501

Acquisition Fees.Our General Partner is paid a fee for assisting us in acquiring equipment subject to existing equipment leases equal to 2% of the purchase price we pay for the equipment or portfolio of equipment subject to existing equipment financing.

Administrative Expenses.Our General Partner and its affiliates are reimbursed by us for administrative services
reasonably necessary to operate which dont exceed the General Partners cost of those fees or services.

Management Fees.Our General Partner is paid a subordinated annual asset management fee equal to 4% or 2% of gross rental payments for operating leases or full payout leases, respectively, or a competitive fee, whichever is less.
During the reinvestment period, management fees are subordinated to the payment of distributions to our limited partners of a cumulative annual return of 8% on their capital contributions, as adjusted by distributions deemed to be a return of
capital.

Distributions.Our General Partner owns a 1% general partner interest and a 1.6% limited partner interest in
us. The General Partner was paid cash distributions of $28,000 and $45,000, respectively, for its general partner and limited partner interests in us in 2009.

Additionally, our General Partner is entitled to the following fees (if applicable):



| |  |  | a subordinated commission equal to one-half of a competitive commission, up to a maximum of 3% of the contract sales price, for arranging the
sale of our equipment after the expiration of a lease. During the reinvestment period, these commissions are subordinated to the payment of distributions to our limited partners of a cumulative annual return of 8%, compounded daily, on their capital
contributions, as adjusted by distributions deemed to be a return of capital. No commissions were paid in the years ended December 31, 2009 and 2008; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a commission equal to the lesser of a competitive rate or 2% of gross rental payments derived from any re-lease of equipment, payable as we
receive rental payments from re-lease. We will not, however, pay a re-lease commission if the re-lease is with the original lessee or its affiliates. No re-lease commissions were paid in the years ended December 31, 2009 or 2008.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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During our offering period, the General Partner received an organization and offering
expense allowance of 3% of offering proceeds to reimburse it for expenses incurred in preparing us for registration or qualification under federal and state securities laws and subsequently offering and selling our units. This expense allowance does
not cover underwriting fees or sales commissions, but does cover reimbursement of bona fide accountable due diligence expenses of selling dealers to a maximum of one-half of 1% of offering proceeds. There were no organization and offering expenses
reimbursed to our General Partner for the years ended December 31, 2009 or 2008.

Because we are not listed on any national
securities exchange or inter-dealer quotation system, we have elected to use the Nasdaq National Stock Markets definition of independent director in evaluating whether any of our General Partners directors are independent.
Under this definition, the board of directors of our General Partner has determined that Linda Richardson is an independent Director of our General Partner.

ITEM 14  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees.The aggregate fees billed by our independent auditors, Grant Thornton, LLP were $151,000 and $151,454 in the years ending December 31, 2009 and 2008, respectively.

Audit-Related Fees.We did not incur fees in 2009 for other services not included above.

Tax Fees.We did not incur fees in 2009 for other services not included above.

All Other Fees.We did not incur fees in 2009 for other services not included above.

Procedures for Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor.

Our General Partners Board of Directors reviews and approves in advance any audit and any permissible non-audit engagement or
relationship between us and our independent auditors.



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PART IV

ITEM 15  EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Annual Report on Form 10-K:



| | 1. | Financial Statements
| | -- | --------------------

The
financial statements required by this Item are set forth in Item 8  Financial Statements and Supplementary Data.



| | 2. | Financial Statement Schedules
| | -- | -----------------------------

No schedules are required to be presented in this report under Regulation S-X promulgated by the SEC.



| | 3. | Exhibits
| | -- | --------



|            |  |                                                                                                                                                                                                                                                                                                                                              
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                  
|            | 
|3.1         |  | Certificate of Limited Partnership for Lease Equity Appreciation Fund II, L.P. (1)                                                                                                                                                                                                                                                           
|            | 
|3.2         |  | Amended Certificate of Limited Partnership for Lease Equity Appreciation Fund II, L.P.(2)                                                                                                                                                                                                                                                    
|            | 
|3.3         |  | Amended and Restated Agreement of Limited Partnership for Lease Equity Appreciation Fund II, L.P. (4)                                                                                                                                                                                                                                        
|            | 
|4.1         |  | Forms of letters sent to limited partners confirming their investment (1)                                                                                                                                                                                                                                                                    
|            | 
|10.1        |  | Origination & Servicing Agreement among LEAF Financial Corporation, Lease Equity Appreciation Fund II, L.P. and LEAF Funding, Inc. dated April 15, 2005 (3)                                                                                                                                                                                  
|            | 
|10.2        |  | Secured Loan Agreement dated as of June 1, 2005 with LEAF Fund II, LLC as Borrower, LEAF Funding, Inc. as Originator, Lease Equity Appreciation Fund II, L.P. as Seller, LEAF
Financial Corporation as Servicer, U.S. Bank National Association, as Collateral Agent and Securities Intermediary and WestLB AG, New York Branch as Lender (3)
|            | 
|10.3        |  | First Amendment to WestLB AG, New York Branch, Secured Loan Agreement (5)                                                                                                                                                                                                                                                                    
|            | 
|10.4        |  | Second Amendment to WestLB AG, New York Branch, Secured Loan Agreement (6)                                                                                                                                                                                                                                                                   
|            | 
|10.5        |  | Third Amendment to WestLB AG, New York Branch, Secured Loan Agreement (7)                                                                                                                                                                                                                                                                    
|            | 
|10.6        |  | Fifth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (8)                                                                                                                                                                                                                                                                    
|            | 
|10.7        |  | Sixth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (9)                                                                                                                                                                                                                                                                    
|            | 
|10.8        |  | Indenture among LEAF II Receivables Funding, LLC as issuer, and U.S. Bank National Association as trustee and custodian (9)                                                                                                                                                                                                                  
|            | 
|10.9        |  | Seventh Amendment to WestLB AG, New York Branch, Secured Loan Agreement (10)                                                                                                                                                                                                                                                                 
|            | 
|10.10       |  | Eighth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (10)                                                                                                                                                                                                                                                                  
|            | 
|10.11       |  | Ninth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (11)                                                                                                                                                                                                                                                                   
|            | 
|10.12       |  | Tenth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (11)                                                                                                                                                                                                                                                                   
|            | 
|10.13       |  | Eleventh Amendment to WestLB AG, New York Branch, Secured Loan Agreement (11)                                                                                                                                                                                                                                                                
|            | 
|10.14       |  | Twelfth Amendment to WestLB AG, New York Branch, Secured Loan Agreement                                                                                                                                                                                                                                                                      
|            | 
|10.15       |  | Thirteenth Amendment to WestLB AG, New York Branch, Secured Loan Agreement                                                                                                                                                                                                                                                                   
|            | 
|10.16       |  | Fourteenth Amendment to West LB AG, New York Branch, Secured Loan Agreement                                                                                                                                                                                                                                                                  
|            | 
|31.1        |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                           
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                           
|            | 
|32.1        |  | Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                            
|            | 
|32.2        |  | Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                            



|(1) | Filed previously on June 17, 2004 as an exhibit to our Registration Statement and by this reference incorporated herein.
|--- | ------------------------------------------------------------------------------------------------------------------------



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|(2) | Filed previously on September 7, 2004 in Pre-Effective Amendment No. 1 as an exhibit to our Registration Statement and by this reference incorporated herein.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Filed previously as an exhibit to our Form 10-Q for the quarter ended June 30, 2005 and by this reference incorporated herein.
|--- | ------------------------------------------------------------------------------------------------------------------------------



|(4) | Filed previously on December 27, 2005 as Appendix A Post-Effective Amendment No. 1 to our Registration Statement and by this reference incorporated herein.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Filed previously as an exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and by this reference incorporated herein.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 and by this reference incorporated herein.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2007 and by this reference incorporated herein.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 and by this reference incorporated herein.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2008 and by this reference incorporated herein.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------



|(10) | Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 and by this reference incorporated herein.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------



|(11) | Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 and by this reference incorporated herein.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------



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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.



|               |  |                                         |  |                                     
|-------------- |  | --------------------------------------- |  | ------------------------------------
|               |  | LEASE EQUITY APPRECIATION FUND II, L.P.
|               |  | Delaware Limited Partnership           
|               |  |                                        
|               |  | By:                                     |  | LEAF Financial Corporation          
|               |  |                                        
|March 31, 2010 |  | By:                                     |  | /s/ CRIT S. DEMENT                  
|               |  |                                         |  | CRIT S. DEMENT                      
|               |  |                                         |  | Chairman and Chief Executive Officer

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.



|                                                    |  |                                                                                                        |  |               
|--------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | --------------
|/s/ Crit S. DeMent CRIT S. DEMENT                   |  | Chairman of the Board and Chief Executive Officer of the General Partner (Principal Executive Officer) |  | March 31, 2010
|                                                    |  |                                                                                                       
|/s/ Miles Herman MILES HERMAN                       |  | President, Chief Operating Officer and Director of the General Partner                                 |  | March 31, 2010
|                                                    |  |                                                                                                       
|/s/ Robert K. Moskovitz ROBERT K. MOSKOVITZ         |  | Chief Financial Officer (Principal Accounting and Financial Officer)                                   |  | March 31, 2010
|                                                    |  |                                                                                                       
|/s/ Jonathan Z. Cohen JONATHAN Z. COHEN             |  | Director of the General Partner                                                                        |  | March 31, 2010
|                                                    |  |                                                                                                       
|/s/ Alan D. Schreiber, M.D. ALAN D. SCHREIBER, M.D. |  | Director of the General Partner                                                                        |  | March 31, 2010
|                                                    |  |                                                                                                       
|/s/ Linda Richardson LINDA RICHARDSON               |  | Director of the General Partner                                                                        |  | March 31, 2010
|                                                    |  |                                                                                                       
|/s/ Jeffrey F. Brotman JEFFREY F. BROTMAN           |  | Director of the General Partner                                                                        |  | March 31, 2010



49