##### Table of Contents



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, 2008
 o
    
    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.
  Delaware
    
    20-1056194(State or other jurisdiction of incorporation
    
    (I.R.S. Employer Identification No.)or organization)
 
 
 Securities registered pursuant to Section 12 (b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredNone
    
    Not applicable
 Securities registered pursuant to Section 12 (g) of the Act:
 Title of Each Class
 o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Companyþ(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



LEASE EQUITY APPRECIATION FUND II, L.P.
INDEX TO ANNUAL REPORT
ON FORM 10-K
 PagePART IITEM 1: Business
    
    
    3ITEM 1A: Risk Factors
    
    
    6ITEM 1B: Unresolved Staff Comments
    
    
    7ITEM 2: Properties
    
    
    7ITEM 3: Legal Proceedings
    
    
    7ITEM 4: Submission of Matters to a Vote of Security Holders
    
    
    7PART IIITEM 5: Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    8ITEM 6: Selected Financial Data
    
    
    8ITEM 7: Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    9ITEM 7A: Quantitative and Qualitative Disclosures about Market Risk
    
    
    20ITEM 8: Financial Statements and Supplementary Data
    
    
    20ITEM 9: Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    42ITEM 9A: Controls and Procedures
    
    
    42ITEM 9B: Other Information
    
    
    42PART IIIITEM 10: Directors and Executive Officers of the Registrant
    
    
    43ITEM 11: Executive Compensation
    
    
    46ITEM 12: Security Ownership of Certain Beneficial Owners and Management and Related Unit
Holder Matters
    
    
    46ITEM 13: Certain Relationships and Related Transactions
    
    
    46ITEM 14: Principal Accountant Fees and Services
    
    
    47PART IVITEM 15: Exhibits, Financial Statement Schedules
    
    
    48SIGNATURES
    
    
    50EX-10.7EX-10.8EX-31.1EX-31.2EX-32.1EX-32.2
  2




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PART I
 
 ITEM 1
 BUSINESS
 The following discussion contains forward-looking statements regarding events and financial trends
which may affect our future operating results and financial position. 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. Such statements are
subject to risks and uncertainties that could cause our actual results and financial position to
differ materially from those anticipated in such statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the date hereof. We
undertake no obligation to publicly release the results of any revisions to forward-looking
statements which we may make to reflect events or circumstances after the date of this Form 10-K or
to reflect the occurrence of unanticipated events, except as may be required under applicable law.
 General
   
    
    500 or fewer employees;
    
    $1 billion or less in total assets; or
    
    $100 million or less in total annual sales.
   3




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Debt Facilities
   Facility
    
    
    Amount
    
    
    AmountType
    
    
    Amount
    
    
    Outstanding
    
    
    Available(2)Series 2007  Term Securitization (1)
    
    Term
    
    $
    124,521
    
    
    $
    124,521
    
    
    $
    WestLB
    
    Revolving
    
    
    150,000
    
    
    
    130,223
    
    
    
    19,777$
    274,521
    
    
    $
    254,744
    
    
    $
    19,777
 
 (1)
    
    Availability under this loan is subject to having sufficient eligible leases or loans
to pledge as collateral and compliance with the borrowing base formula.  Original AmountNotes
    
    (in millions)
    
    
    Interest Rate
    
    MaturityClass A-1
    
    $
    84.0
    
    
    5.38%
    
    September 2008 (a)Class A-2
    
    
    77.0
    
    
    One Month LIBOR + 0.12%
    
    January 2010Class A-3
    
    
    101.3
    
    
    One Month LIBOR + 0.20%
    
    July 2010Class B
    
    
    14.5
    
    
    6.65%
    
    July 2010$
    276.8
 
 (a)
    
    Fully repaid in March 2008.   4




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Available Information
 http://www.sec.gov http://www.leaf-financial.com
 Agreements with our General Partner
  
    
    fees for acquiring our equipment of 2% of the purchase price we pay, including debt we
incur or assume in connection with the acquisition. Fees for acquiring our equipment paid
to our General Partner for the year ended December 31, 2008 were $1.9 million;
    
    a subordinated annual asset management fee of either 4% of gross rental payments on our
operating leases or 2% of gross rental payments on our full payout leases and loans. During
the five-year reinvestment period, the management fee will be subordinated to the payment
to limited partners of a cumulative annual distribution of 8% of their capital
contributions, as adjusted by distributions deemed to be a return of capital. Asset
management fees paid to our General Partner for the year ended December 31, 2008 were 
$3.8
million;
    
    reimbursement for operating and administrative expenses, subject to limitations
contained in our partnership agreement. Reimbursed administrative expenses paid to our
General Partner for the year ended December 31, 2008 were $2.6 million;
 5




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
    
    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. This commission
will be subordinated to the return to our limited partners of the purchase price of their
units plus a cumulative annual distribution, compounded daily, of 8% of their capital
contributions, as adjusted by distributions deemed to be a return of capital. No commissions
were paid for the year ended December 31, 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 year ended
December 31, 2008.




Competition





    
    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.




Employees







ITEM 1A  RISK FACTORS




6



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ITEM 1B  UNRESOLVED STAFF COMMENTS
  
 ITEM 2  PROPERTIES
  
 ITEM 3  LEGAL PROCEEDINGS
  
 ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  7




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PART II
 
 ITEM 5 
    
    MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
  Number of Partners as ofTitle of Class
    
    December 31, 2008Limited Partner units
    
    
    1,407General Partner interest
    
    
    1
  
 ITEM 6  SELECTED FINANCIAL DATA
  Years Ended December 31,2008
    
    2007
    
    2006
    
    2005Revenues
    
    $
    34,780
    
    
    $
    34,864
    
    
    $
    14,888
    
    
    $
    1,194Expenses
    
    
    42,180
    
    
    
    36,752
    
    
    
    14,756
    
    
    
    1,632Net (loss) income
    
    
    (7,400
    )
    
    
    (1,888
    )
    
    
    132
    
    
    
    (438
    )Distributions to partners
    
    $
    4,826
    
    
    $
    4,843
    
    
    $
    2,624
    
    
    $
    332Weighted average number of limited partner units 

outstanding during the year
    
    
    595,623
    
    
    
    599,095
    
    
    
    370,349
    
    
    
    51,053Net (loss) income per weighted average limited partner unit
    
    $
    (12.30
    )
    
    $
    (3.12
    )
    
    $
    0.35
    
    
    $
    (8.49
    )
 December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Investment in leases and loans, net
    
    $
    265,993
    
    
    $
    338,172
    
    
    $
    317,850
    
    
    $
    41,967
    
    
    $
    Total assets
    
    
    299,039
    
    
    
    372,245
    
    
    
    343,322
    
    
    
    44,569
    
    
    
    11Bank debt
    
    
    254,744
    
    
    
    324,170
    
    
    
    291,118
    
    
    
    34,512
    
    
    
    Partners capital:General partner
    
    $
    (221
    )
    
    $
    (99
    )
    
    $
    (32
    )
    
    $
    (7
    )
    
    
    1Limited partners
    
    
    29,371
    
    
    
    41,855
    
    
    
    48,708
    
    
    
    9,621
    
    
    
    Accumulated other comprehensive (loss) income
    
    
    (10,098
    )
    
    
    (4,614
    )
    
    
    1,803
    
    
    
    159
    
    
    
    Total partners capital
    
    $
    19,052
    
    
    $
    37,142
    
    
    $
    50,479
    
    
    $
    9,773
    
    
    $
    1
 8




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ITEM 7 
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
   
    
    500 or fewer employees;
    
    $1.0 billion or less in total assets; or
    
    $100.0 million or less in total annual sales.
    9




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Finance Receivables and Asset Quality
  December 31,2008
    
    2007Investment in leases and loans, net
    
    $
    265,993
    
    
    $
    338,172Number of equipment leases
    
    
    21,400
    
    
    
    13,300Number of individual end users (a)
    
    
    18,600
    
    
    
    11,600Average original equipment cost
    
    
    25.5
    
    
    
    41.4Average initial term (in months)
    
    
    55
    
    
    
    53States accounting for more than 10% of lease
and loan portfolio:California
    
    
    13
    %
    
    
    15
    %Types of equipment accounting for more than
10% of lease
and loan portfolio:Industrial equipment
    
    
    26
    %
    
    
    29
    %Medical equipment
    
    
    18
    %
    
    
    20
    %Computers
    
    
    11
    %
    
    
    16
    %Office equipment
    
    
    10
    %
    
    
    6
    %Types of businesses accounting for more than
10% of lease
and loan portfolio:Services
    
    
    44
    %
    
    
    46
    %Retail trade
    
    
    12
    %
    
    
    11
    %Manufacturing
    
    
    11
    %
    
    
    11
    %
 
 (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.   10




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As of and for the YearEnded December 31,
    
    
    Change2008
    
    
    2007
    
    
    $
    
    
    %Investment in direct financing leases and loans  before allowance
for credit losses
    
    $
    264,997
    
    
    $
    328,466
    
    
    $
    (63,469
    )
    
    
    (19
    %)Weighted
average investment in direct financing   leases and loans
before allowance for credit losses
    
    
    305,453
    
    
    
    321,991
    
    
    
    (16,538
    )
    
    
    (5
    %)Allowance for credit losses
    
    
    5,770
    
    
    
    1,960
    
    
    
    3,810
    
    
    
    194
    %Non-performing assets
    
    
    15,224
    
    
    
    9,996
    
    
    
    5,228
    
    
    
    52
    %Charge-offs, net of recoveries
    
    
    7,318
    
    
    
    5,008
    
    
    $
    2,310
    
    
    
    46
    %As a percentage of finance receivables:Allowance for credit losses
    
    
    2.18
    %
    
    
    0.60
    %Non-performing assets
    
    
    5.74
    %
    
    
    3.04
    %As a percentage of weighted average finance receivables:Charge-offs, net of recoveries
    
    
    2.40
    %
    
    
    1.56
    %
     11




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Critical Accounting Policies
   Revenue Recognition
 Accounting for Leases
 Direct Financing Leases.
 Operating Leases.
 Loans.
  12




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Allowance for Credit Losses
  Estimated Unguaranteed Residual Values of Leased Equipment
  Impairment of Long-Lived Assets
  Fair Value and Effectiveness of Interest Rate Swaps
 Amendment of Statement 133 on Derivative Instruments and Hedging Activities Accounting for Derivative Financial Instruments and Hedging Activities
 Fair Value Measurements ,
 13




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Fair Value Measurements Using
    
    LiabilitiesLevel 1
    
    Level 2
    
    Level 3
    
    At Fair ValueInterest Rate Swaps
    
    $
    
    
    
    $
    11,734
    
    
    $
    
    
    
    $
    11,734
 Results of Operations
 Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
  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
    )
    
    
    
    %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
    %Management fees to affiliate
    
    
    3,844
    
    
    
    3,680
    
    
    
    164
    
    
    
    4
    %Administrative expenses reimbursed to affiliate
    
    
    2,626
    
    
    
    1,501
    
    
    
    1,125
    
    
    
    75
    %General and administrative expenses
    
    
    2,998
    
    
    
    2,385
    
    
    
    613
    
    
    
    26
    %42,180
    
    
    
    36,752
    
    
    
    5,428
    
    
    
    15
    %Net loss
    
    $
    (7,400
    )
    
    $
    (1,888
    )
    
    $
    (5,512
    )
    
    
    (292
    %)
  
    
    an increase in interest income on equipment financings and loans. 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. This increase was offset by:
    
    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.
 14




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
    
    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 administrative expenses reimbursed to affiliate 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.
    
    an increase in general and administrative expenses, principally related to increased
legal costs associated with collection efforts. We expect the increase in legal costs
will result in future recoveries of credit losses.
  
    
    a decrease in interest expense due to a decrease in our average debt outstanding.
Weighted average borrowings for the years ended December 31, 2008 and 2007 were $299.8
million and $311.0 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.
  Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
  Increase (Decrease)2007
    
    
    2006
    
    
    $
    
    
    %Revenues:Interest on equipment financings and loans
    
    $
    24,852
    
    
    $
    9,876
    
    
    $
    14,976
    
    
    
    152
    %Rental income
    
    
    5,747
    
    
    
    3,796
    
    
    
    1,951
    
    
    
    51
    %Gains on sales of equipment and lease
dispositions, net
    
    
    1,806
    
    
    
    458
    
    
    
    1,348
    
    
    
    294
    %Other
    
    
    2,459
    
    
    
    758
    
    
    
    1,701
    
    
    
    224
    %34,864
    
    
    
    14,888
    
    
    
    19,976
    
    
    
    134
    %Expenses:Interest expense
    
    
    18,545
    
    
    
    7,256
    
    
    
    11,289
    
    
    
    156
    %Depreciation on operating leases
    
    
    4,794
    
    
    
    3,133
    
    
    
    1,661
    
    
    
    53
    %Provision for credit losses
    
    
    5,847
    
    
    
    1,029
    
    
    
    4,818
    
    
    
    468
    %Management fees to affiliate
    
    
    3,680
    
    
    
    1,592
    
    
    
    2,088
    
    
    
    131
    %Administrative expenses reimbursed to affiliate
    
    
    1,501
    
    
    
    871
    
    
    
    630
    
    
    
    72
    %General and administrative expenses
    
    
    2,385
    
    
    
    875
    
    
    
    1,510
    
    
    
    173
    %36,752
    
    
    
    14,756
    
    
    
    21,996
    
    
    
    149
    %Net (loss) income
    
    $
    (1,888
    )
    
    $
    132
    
    
    $
    (2,020
    )
    
    
    (1,530
    %)
 15




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##### Table of Contents




    
    an increase in interest income on equipment financings due to an increase in our net
investment in leases and loans. Our weighted average net investment in financing assets
increased to $319.0 million for the year ended December 31, 2007 as compared to $172.1
million for the year ended December 31, 2006, an increase of $146.9 million (85%).
This increase is principally due to our acquisition of a portfolio of leases, loans and
related assets for approximately $191.7 million, from a subsidiary of Merrill Lynch at
September 30, 2006. In addition the growth was driven by our General Partners
increased sales to us, marketing efforts supported by lines of financing, and the
purchase of a lease portfolio of $31.1 million from Pacific Capital Bank at June 30,
2007.
    
    an increase in rental income which was principally the result of an increase in our
investment in operating leases in the 2007 period compared to the 2006 period.
    
    an increase in gains on sales of equipment and lease dispositions. Gains and losses
from equipment and lease dispositions may vary significantly from period to period, and
have increased due to the size of the portfolio.
    
    an increase in other income. Other income consists primarily of late fee income.
Late fee income has increased due to the increase of the equipment financing portfolio
coupled with an increase in payment collection efforts.
  
    
    an increase in interest expense due to an increase in our average debt outstanding.
Weighted average borrowings for the year ended December 31, 2007 and 2006 were $307.6
million and $162.8 million, respectively, at an effective interest rate of 6.0% for
each year. The increase in borrowings is principally due to our acquisition of a
portfolio of leases, loans and related assets for approximately $191.7 million, from a
subsidiary of Merrill Lynch at September 30, 2006.
    
    an increase in depreciation on operating leases related to our increase in our
investment in operating leases.
    
    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 growth
in size of the portfolio as well as the worsening of general economic conditions.
    
    an increase in management fees attributable to increased payments received on leases
(since management fees are paid based on lease payments received).
    
    an increase in administrative expenses reimbursed to affiliate due to the increase
in our portfolio of equipment financing assets.
    
    an increase in general and administrative expenses related to increased legal costs
associated with collection efforts.
  16




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Liquidity and Capital Resources
 General
   Years Ended December 31,2008
    
    
    2007
    
    
    2006Net cash provided by operating activities
    
    $
    15,396
    
    
    $
    9,813
    
    
    $
    3,656Net cash provided by (used in) investing activities
    
    
    59,688
    
    
    
    (29,157
    )
    
    
    (106,543
    )Net cash (used in) provided by financing activities
    
    
    (75,194
    )
    
    
    5,393
    
    
    
    116,063(Decrease) increase in cash
    
    $
    (110
    )
    
    $
    (13,951
    )
    
    $
    13,176
   Borrowings
  Facility
    
    
    Amount
    
    
    Amount
    
    
    Amount ofType
    
    
    Amount
    
    
    Outstanding
    
    
    Available(2)
    
    
    Collateral(3)Series 2007  Term Securitization (1)
    
    Term
    
    $
    124,521
    
    
    $
    124,521
    
    
    $
    
    
    
    $
    148,578WestLB
    
    Revolving
    
    
    150,000
    
    
    
    130,223
    
    
    
    19,777
    
    
    
    140,851$
    274,521
    
    
    $
    254,744
    
    
    $
    19,777
    
    
    $
    289,429
 
 (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 loan is subject to having sufficient 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.  17




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18




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Contractual Obligations and Commercial Commitments
  Payments Due by PeriodLessTotal
    
    
    than 1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 yearsBank debt
    
    $
    254,744
    
    
    $
    95,680
    
    
    $
    119,515
    
    
    $
    36,571
    
    
    $
    2,978
   Legal Proceedings
  Recently Issued Accounting Pronouncements
 , Disclosures about Derivative Instruments and Hedging
Activities, an amendment of SFAS 133 (SFAS 161).
 19




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##### Table of Contents



ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Interest ratesInterest rates fall
    
    
    
    
    
    rise 100 basis100 basis points
    
    Unchanged
    
    pointsHedging instrumentsFair value
    
    $
    (15,518
    )
    
    $
    (11,734
    )
    
    $
    (8,550
    )Change in fair value
    
    $
    (3,784
    )
    
    $
    
    
    
    $
    3,184Change as a percent of fair value
    
    
    (32
    %)
    
    
    
    
    
    
    27
    %
  
 ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 20




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 21




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
 December 31,2008
    
    
    2007ASSETSCash
    
    $
    149
    
    
    $
    259Restricted cash
    
    
    29,234
    
    
    
    29,442Accounts receivable
    
    
    133
    
    
    
    310Investment in leases and loans, net
    
    
    265,993
    
    
    
    338,172Deferred financing costs, net
    
    
    2,956
    
    
    
    2,803Other assets
    
    
    574
    
    
    
    1,259$
    299,039
    
    
    $
    372,245LIABILITIES AND PARTNERS CAPITALLiabilities:Bank debt
    
    $
    254,744
    
    
    $
    324,170Accounts payable and accrued expenses
    
    
    574
    
    
    
    819Other liabilities
    
    
    952
    
    
    
    437Derivative liabilities at fair value
    
    
    11,734
    
    
    
    6,623Due to affiliates
    
    
    11,983
    
    
    
    3,054Total liabilities
    
    
    279,987
    
    
    
    335,103Commitments and contingenciesPartners Capital:General partner
    
    
    (221
    )
    
    
    (99
    )Limited partners
    
    
    29,371
    
    
    
    41,855Accumulated other comprehensive loss
    
    
    (10,098
    )
    
    
    (4,614
    )Total partners capital
    
    
    19,052
    
    
    
    37,142$
    299,039
    
    
    $
    372,245
  22




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except unit data)
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Revenues:Interest on equipment financings and loans
    
    $
    26,210
    
    
    $
    24,852
    
    
    $
    9,876Rental income
    
    
    4,351
    
    
    
    5,747
    
    
    
    3,796Gains on sales of equipment and lease dispositions, net
    
    
    1,730
    
    
    
    1,806
    
    
    
    458Other
    
    
    2,489
    
    
    
    2,459
    
    
    
    75834,780
    
    
    
    34,864
    
    
    
    14,888Expenses:Interest expense
    
    
    17,872
    
    
    
    18,545
    
    
    
    7,256Depreciation on operating leases
    
    
    3,712
    
    
    
    4,794
    
    
    
    3,133Provision for credit losses
    
    
    11,128
    
    
    
    5,847
    
    
    
    1,029Management fees to affiliate
    
    
    3,844
    
    
    
    3,680
    
    
    
    1,592Administrative expenses reimbursed to affiliate
    
    
    2,626
    
    
    
    1,501
    
    
    
    871General and administrative expenses
    
    
    2,998
    
    
    
    2,385
    
    
    
    87542,180
    
    
    
    36,752
    
    
    
    14,756Net (loss) income
    
    $
    (7,400
    )
    
    $
    (1,888
    )
    
    $
    132Weighted average number of limited partner units outstanding during the year
    
    
    595,623
    
    
    
    599,095
    
    
    
    370,349Net (loss) income per weighted average limited partner unit
    
    $
    (12.30
    )
    
    $
    (3.12
    )
    
    $
    0.35
  23




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Consolidated Statements of Changes In Partners Capital
For The Years Ended December 31, 2008, 2007 and 2006
(in thousands, except unit data)
 AccumulatedGeneral
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalPartner
    
    
    Limited Partners
    
    
    Comprehensive
    
    
    Partners
    
    
    ComprehensiveAmount
    
    
    Units
    
    
    Amount
    
    
    Income (Loss)
    
    
    Capital
    
    
    Income (Loss)Balance, December 31, 2005
    
    $
    (7
    )
    
    
    120,000
    
    
    $
    9,621
    
    
    $
    159
    
    
    $
    9,773Limited partners contributions
    
    
    
    
    
    
    480,000
    
    
    
    47,884
    
    
    
    
    
    
    
    47,884Offering costs related to the sale of
limited partner units
    
    
    
    
    
    
    
    
    
    
    (6,330
    )
    
    
    
    
    
    
    (6,330
    )Cash distributions paid
    
    
    (26
    )
    
    
    
    
    
    
    (2,598
    )
    
    
    
    
    
    
    (2,624
    )Net income
    
    
    1
    
    
    
    
    
    
    
    131
    
    
    
    
    
    
    
    132
    
    
    $
    132Unrealized gains on financial derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,644
    
    
    
    1,644
    
    
    
    1,644Balance, December 31, 2006
    
    
    (32
    )
    
    
    600,000
    
    
    
    48,708
    
    
    
    1,803
    
    
    
    50,479
    
    
    $
    1,776Cash 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
    )
  24




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Cash flows from operating activities:Net (loss) income
    
    $
    (7,400
    )
    
    $
    (1,888
    )
    
    $
    132Adjustments to reconcile net (loss) income to net cash provided by
operating
activities:Gains on sales of equipment and lease dispositions, net
    
    
    (1,730
    )
    
    
    (1,806
    )
    
    
    (458
    )Depreciation
    
    
    3,712
    
    
    
    4,794
    
    
    
    3,133Provision for credit losses
    
    
    11,128
    
    
    
    5,847
    
    
    
    1,029Amortization of deferred financing costs
    
    
    617
    
    
    
    323
    
    
    
    71Amortization of gain on financial derivative
    
    
    (382
    )
    
    
    (223
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    177
    
    
    
    179
    
    
    
    (423
    )Other assets
    
    
    685
    
    
    
    2
    
    
    
    (1,269
    )Accounts payable and accrued expenses and other liabilities
    
    
    (349
    )
    
    
    175
    
    
    
    867Due to affiliates, net
    
    
    8,938
    
    
    
    2,410
    
    
    
    574Net cash provided by operating activities
    
    
    15,396
    
    
    
    9,813
    
    
    
    3,656Cash flows from investing activities:Purchases of leases and loans
    
    
    (99,638
    )
    
    
    (150,709
    )
    
    
    (159,610
    )Proceeds from leases and loans
    
    
    124,905
    
    
    
    121,778
    
    
    
    51,051Proceeds from sale of leases to third parties
    
    
    35,551
    
    
    
    
    
    
    
    Security deposits returned, net of collections
    
    
    (1,130
    )
    
    
    (226
    )
    
    
    2,016Net cash provided by (used in) investing activities
    
    
    59,688
    
    
    
    (29,157
    )
    
    
    (106,543
    )Cash flows from financing activities:Borrowings of bank debt
    
    
    71,247
    
    
    
    155,229
    
    
    
    124,689Repayment of bank debt
    
    
    (140,673
    )
    
    
    (122,177
    )
    
    
    (41,126
    )Decrease (increase) in restricted cash
    
    
    208
    
    
    
    (22,302
    )
    
    
    (6,091
    )Increase in deferred financing costs
    
    
    (770
    )
    
    
    (2,557
    )
    
    
    (339
    )Proceeds from termination of financial derivatives
    
    
    
    
    
    
    2,232
    
    
    
    Limited Partners capital contributions
    
    
    
    
    
    
    
    
    
    
    47,884Payment of offering costs incurred for the sale of limited partner units
    
    
    
    
    
    
    
    
    
    
    (6,330
    )Cash distributions to partners
    
    
    (4,826
    )
    
    
    (4,843
    )
    
    
    (2,624
    )Redemption of limited partner units
    
    
    (380
    )
    
    
    (189
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (75,194
    )
    
    
    5,393
    
    
    
    116,063(Decrease) increase in cash
    
    
    (110
    )
    
    
    (13,951
    )
    
    
    13,176Cash, beginning of year
    
    
    259
    
    
    
    14,210
    
    
    
    1,034Cash, end of year
    
    $
    149
    
    
    $
    259
    
    
    $
    14,210
  25




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008
 NOTE 1  ORGANIZATION AND NATURE OF BUSINESS
     NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Reclassifications
  
    
    Security Deposits and Investment in Operating Leases, Net have been reclassified to
be included with Investments in Leases and Loans, Net;
    
    Due from Lockbox has been reclassified to be included in Restricted Cash; and
    
    Deferred Financing Costs, Net, have been reported separately from Other Assets.
  26




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 2
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)
 Use of Estimates
      27




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 2
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)
 Restricted Cash
  Concentration of Credit Risk
   Revenue Recognition
 Accounting for Leases
 Direct Financing Leases.
 Operating Leases.
 28




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 2
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)
 Revenue Recognition (Continued)
 Loans.
  Transfers of Financial Assets
 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
 Accounting
for Servicing of Financial Assets  An Amendment of FASB Statement 140
 29




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 2
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)
 Derivative Instruments
 Accounting for
Derivative Instruments and Hedging Activities,
 Income Taxes
  Comprehensive Income (Loss)
  Allocation of Partnership Income, Loss and Cash Distributions
   Net Income (Loss) per Limited Partner Unit
  30




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 2
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)
 Newly Adopted Accounting Principles
 Fair Value Measurements , Accounting for Leases ,
 , The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of SFAS 115
 , Disclosures by Public
Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest
Entities Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
 Accounting Standards Not Yet Adopted
 , Disclosures about Derivative Instruments and Hedging
Activities, an amendment of SFAS 133 (SFAS 161).
 31




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 3  SUPPLEMENTAL CASH FLOW INFORMATION
  Years Ended December 31,2008
    
    
    2007
    
    
    2006Cash paid for:Interest
    
    $
    17,079
    
    
    $
    17,874
    
    
    $
    6,686Non-cash activities:Purchase of financing assets from Merrill Lynch Equipment Finance
    
    $
    
    
    
    $
    
    
    
    $
    173,043Borrowings
under revolving line of credit Merrill Lynch Commercial
    
    $
    
    
    
    $
    
    
    
    $
    (173,043
    )Finance CorporationBorrowings 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
  December 31,2008
    
    
    2007Direct
financing leases (a)
    
    $
    212,536
    
    
    $
    264,625Loans (b)
    
    
    52,461
    
    
    
    63,841Operating leases
    
    
    6,766
    
    
    
    11,666271,763
    
    
    
    340,132Allowance for credit losses
    
    
    (5,770
    )
    
    
    (1,960
    )$
    265,993
    
    
    $
    338,172
 
 (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%. 32




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 4
 INVESTMENT IN LEASES AND LOANS  (Continued)
  December 31,2008
    
    
    2007Leases
    
    
    Loans
    
    
    Leases
    
    
    LoansTotal future minimum lease payments
    
    $
    239,564
    
    
    $
    63,641
    
    
    $
    301,449
    
    
    $
    77,844Unearned income
    
    
    (24,274
    )
    
    
    (10,373
    )
    
    
    (35,846
    )
    
    
    (13,420
    )Residuals,
net of unearned residual income (a).
    
    
    657
    
    
    
    
    
    
    
    3,380
    
    
    
    Security
deposits (b)
    
    
    (3,411
    )
    
    
    (807
    )
    
    
    (4,358
    )
    
    
    (583
    )$
    212,536
    
    
    $
    52,461
    
    
    $
    264,625
    
    
    $
    63,841
 
 (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.  December 31,2008
    
    
    2007Equipment
    
    $
    15,683
    
    
    $
    19,549Accumulated depreciation
    
    
    (8,832
    )
    
    
    (7,855
    )Security deposits
    
    
    (85
    )
    
    
    (28
    )$
    6,766
    
    
    $
    11,666
  Years Ended December 31,2008
    
    
    2007
    
    
    2006Allowance for credit losses, beginning of year
    
    $
    1,960
    
    
    $
    1,121
    
    
    $
    130Provision for credit losses
    
    
    11,128
    
    
    
    5,847
    
    
    
    1,028Allowance for credit losses in connection with
acquisition (see Note 7)
    
    
    
    
    
    
    
    
    
    
    920Charge-offs
    
    
    (8,435
    )
    
    
    (6,108
    )
    
    
    (1,180
    )Recoveries
    
    
    1,117
    
    
    
    1,100
    
    
    
    223Allowance for credit losses, end of year
    
    $
    5,770
    
    
    $
    1,960
    
    
    $
    1,121
 33




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 4
 INVESTMENT IN LEASES AND LOANS  (Continued)
  DirectFinancing
    
    
    
    
    
    
    OperatingLeases
    
    
    Loans
    
    
    Leases(a)
    
    
    Total2009
    
    $
    100,905
    
    
    $
    19,998
    
    
    $
    2,611
    
    
    $
    123,5142010
    
    
    68,264
    
    
    
    16,374
    
    
    
    1,554
    
    
    
    86,1922011
    
    
    40,703
    
    
    
    13,243
    
    
    
    601
    
    
    
    54,5472012
    
    
    19,980
    
    
    
    8,912
    
    
    
    163
    
    
    
    29,0552013
    
    
    7,480
    
    
    
    4,020
    
    
    
    20
    
    
    
    11,520Thereafter
    
    
    2,232
    
    
    
    1,094
    
    
    
    10
    
    
    
    3,336$
    239,564
    
    
    $
    63,641
    
    
    $
    4,959
    
    
    $
    308,164
 
 (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
    34




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 6
 DEFERRED FINANCING COSTS
  2009
    
    $
    6272010
    
    
    6272011
    
    
    6272012
    
    
    5812013
    
    
    462Thereafter
    
    
    32$
    2,956
 NOTE 7
 EQUIPMENT FINANCE PORTFOLIO ACQUISTION
  35




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##### Table of Contents



LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 8
 BANK DEBT
  December 31,2008
    
    
    2007In September 2007,
the Fund closed a
$276.8 million term
securitization
(Series 2007-1
Notes). In
connection with the
Series 2007-1
transaction, four
tranches of notes
were issued to
investors in the form
of $84 million Class
A-1 notes, $77
million Class A-2
notes, $101.3 million
Class A-3 notes and
$14.5 million Class B
notes. Interest rates
and maturities on the
four tranches are as
follows: Class A-1
5.38%, was fully
repaid in March 2008;
Class A-2 one month
LIBOR plus 0.12%,
maturing in January
2010; Class A-3 one
month LIBOR plus
0.20%, maturing in
July 2010 and Class B
6.65%, maturing in
July 2010. To
mitigate fluctuations
in interest rates on
Class A-2 and Class
A-3 notes the Fund
has entered into
interest rate swap
agreements. The
interest rate swap
agreements terminate
at various dates
ranging from March
2009 to July 2012
(see Note 9). As of
December 31, 2008,
the interest rate
swap agreements fix
the interest rate on
Class A-2 and Class
A-3 notes at 5.38%
and 5.43%,
respectively, on a
weighted average
basis
    
    $
    124,521
    
    
    $
    214,653WestLB AG, New York
Branch revolving line
of credit, with an
aggregate borrowing
limit of $150 million
collateralized by
specific leases and
loans and related
equipment, with a 1%
credit reserve of the
outstanding line of
credit. Interest on
this facility is
calculated at LIBOR
plus 0.95% per annum.
To mitigate
fluctuations in
interest rates the
Fund has entered into
interest rate swap
agreements. The
interest rate swap
agreements terminate
on various dates
ranging from July
2013 to August 2015.
As of December 31,
2008 the interest
rate swap agreements
fix the interest rate
on the outstanding
balance at 5.71% on a
weighted average
basis. Interest and
principal are due
monthly. The line of
credit is renewable
for a one year period
in June 2009. If the
Funds WestLB
facility is not
extended at the time
of renewal, the Fund
would not be required
to make full
repayment at the time
of renewal. Rather
the Fund would
continue to repay the
outstanding debt
under the original
terms.
    
    
    130,223
    
    
    
    109,517Total outstanding debt
    
    $
    254,744
    
    
    $
    324,170
   36




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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 8
 BANK DEBT (Continued)
    Debt repayments.
 2009
    
    $
    95,6802010
    
    
    72,5732011
    
    
    46,9422012
    
    
    25,6612013
    
    
    10,910Thereafter
    
    
    2,978$
    254,744
 NOTE 9  DERIVATIVE INSTRUMENTS
  37




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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 9
 DERIVATIVE INSTRUMENTS  (Continued)
     (
 NOTE 10  FAIR VALUE MEASUREMENT
   38




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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 10  FAIR VALUE MEASUREMENT  (Continued)
  
    
    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.
   Fair Value Measurements Using
    
    LiabilitiesLevel 1
    
    Level 2
    
    Level 3
    
    At Fair ValueInterest Rate Swaps
    
    $
    
    
    
    $
    11,734
    
    
    $
    
    
    
    $
    11,734
 39




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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 11  CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES
         40




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LEASE EQUITY APPRECIATION FUND II, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 11  CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES (Continued)
  Years Ended December 312008
    
    2007
    
    2006Acquisition fees
    
    $
    1,866
    
    
    $
    2,587
    
    
    $
    2,648Management fees
    
    
    3,844
    
    
    
    3,680
    
    
    
    1,592Reimbursed Administrative expenses
    
    
    2,626
    
    
    
    1,501
    
    
    
    871Organization and offering expenses
    
    
    
    
    
    
    
    
    
    
    1,676Underwriting fees
    
    
    
    
    
    
    
    
    
    
    1,405
  NOTE 12  COMMITMENTS AND CONTINGENCIES
  NOTE 13  SUBSEQUENT EVENT
  41




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##### Table of Contents



ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A  CONTROLS AND PROCEDURES
 Disclosure Controls
   Managements Report on Internal Control over Financial Reporting
    Changes in Internal Control over Financial Reporting
  
 ITEM 9B  OTHER INFORMATION
  42




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##### Table of Contents



PART III
 
 ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    Name
    
    Age
    
    PositionCrit S. DeMent
    
    56
    
    Chairman of the Board of Directors and Chief Executive OfficerMiles Herman
    
    49
    
    President, Chief Operating Officer, Secretary and DirectorJonathan Z. Cohen
    
    38
    
    DirectorAlan D. Schreiber, M.D.
    
    67
    
    DirectorLinda Richardson
    
    61
    
    DirectorJeffrey F. Brotman
    
    45
    
    DirectorRobert K. Moskovitz
    
    52
    
    Chief Financial Officer and TreasurerDavid H. English
    
    58
    
    Executive Vice President and Chief Investment OfficerDaniel G. Courtney
    
    46
    
    Executive Vice President  Investment ProgramsRobert Hunter
    
    44
    
    Executive Vice President and Chief Marketing OfficerTonya L. Zweier
    
    38
    
    Chief Accounting Officer
 Crit S. DeMent
 Miles Herman
 43




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##### Table of Contents



Jonathan Z. Cohen
 Alan D. Schreiber, M.D.
 Linda Richardson
 Jeffrey F. Brotman
 Robert K. Moskovitz
 David H. English
 44




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##### Table of Contents



Daniel G. Courtney
 Robert J. Hunter
 Tonya L. Zweier
 Code of Business Conduct and Ethics
  45




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##### Table of Contents



ITEM 11  EXECUTIVE COMPENSATION
  
 ITEM 12 
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNIT HOLDER
MATTERS
 (a)
    
    We had approximately 1,407 limited partners as of December 31, 2008.(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, 2008, 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
       46




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ITEM 14  PRINCIPAL ACCOUNTANT FEES AND SERVICES
 Audit Fees.
 Audit-Related Fees.
 Tax Fees.
 All Other Fees.
 Procedures for Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditor.
  47




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##### Table of Contents



PART IV
 
 ITEM 15  EXHIBITS, FINANCIAL STATEMENT SCHEDULES
  1. Financial Statements
  2. Financial Statement Schedules
  3. Exhibits
 Exhibit No.
    
    Description3.1
    
    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 (110.2
    
    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 Agreement10.8
    
    Indenture among LEAF II Receivables Funding, LLC as issuer, and U.S. Bank National Association as
trustee and custodian31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    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 200232.2
    
    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.(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. 48




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##### Table of Contents



(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. 49




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##### Table of Contents



SIGNATURES
  LEASE EQUITY APPRECIATION FUND II, L.P.Delaware Limited PartnershipBy: LEAF Financial CorporationMarch 26, 2009
    
    By: /s/ CRIT S. DEMENTCRIT S. DEMENTChairman and Chief Executive Officer
  /s/ Crit S. DeMent

CRIT S. DEMENT
    
    Chairman of the Board and Chief Executive
Officer of the General Partner
    
    March 26, 2009/s/ Miles Herman

MILES HERMAN
    
    President, Chief Operating Officer and
Director of the General Partner
    
    March 26, 2009/s/ Robert K. Moskovitz

ROBERT K. MOSKOVITZ
    
    Chief Financial Officer and Treasurer of the
General Partner
    
    March 26, 2009/s/ Tonya L. Zweier

TONYA L. ZWEIER
    
    Chief Accounting Officer of the General Partner
    
    March 26, 2009/s/ Jonathan Z. Cohen

JONATHAN Z. COHEN
    
    Director of the General Partner
    
    March 26, 2009/s/ Alan D. Schreiber, M.D.

ALAN D. SCHREIBER, M.D.
    
    Director of the General Partner
    
    March 26, 2009/s/ Linda Richardson

LINDA RICHARDSON
    
    Director of the General Partner
    
    March 26, 2009/s/ Jeffrey F. Brotman

JEFFREY F. BROTMAN
    
    Director of the General Partner
    
    March 26, 2009
 50