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 333-137734
 LEAF EQUIPMENT LEASING INCOME FUND III, L.P.
  Delaware
    
    20-5455968(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 
 
 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 þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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LEAF EQUIPMENT LEASING INCOME FUND III, L.P.
INDEX TO ANNUAL REPORT
ON FORM 10-K
 PagePART IITEM 1:
    
    Business
    
    
    3ITEM 1A:
    
    Risk Factors
    
    
    7ITEM 1B:
    
    Unresolved Staff Comments
    
    
    13ITEM 2:
    
    Properties
    
    
    13ITEM 3:
    
    Legal Proceedings
    
    
    13ITEM 4:
    
    Submission of Matters to a Vote of Security Holders
    
    
    13PART IIITEM 5:
    
    Market for Registrants Common Equity and Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    14ITEM 6:
    
    Selected Financial Data
    
    
    15ITEM 7:
    
    Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    16ITEM 7A:
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    26ITEM 8:
    
    Financial Statements and Supplementary Data
    
    
    26ITEM 9:
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    48ITEM 9A:
    
    Controls and Procedures
    
    
    48ITEM 9B:
    
    Other Information
    
    
    49PART IIIITEM 10:
    
    Directors and Executive Officers of the Registrant
    
    
    50ITEM 11:
    
    Executive Compensation
    
    
    52ITEM 12:
    
    Security Ownership of Certain Beneficial Owners and Management and Related Unit
Holder Matters
    
    
    52ITEM 13:
    
    Certain Relationships and Related Transactions
    
    
    52ITEM 14:
    
    Principal Accountant Fees and Services
    
    
    53PART IVITEM 15:
    
    Exhibits, Financial Statement Schedules
    
    
    54SIGNATURES
    
    
    
    
    56
 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. 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. For a discussion of the risks and
uncertainties to which we are subject, see Item 1A Risk Factors.
 General
   
    
    500 or fewer employees;
    
    $1.0 billion or less in total assets; or
    
    $100.0 million or less in total annual sales.
   3




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Debt Facilities
    Type
    
    
    Maturity Date
    
    
    Amount of Facility
    
    
    Outstanding Balance
    
    
    Available(1)WestLB, AG
    
    Revolving
    
    September 2010
    
    $
    250,000
    
    
    $
    219,620
    
    
    $
    30,380DZ Bank
    
    Revolving
    
    November 2013
    
    
    150,000
    
    
    
    138,252
    
    
    
    11,748Key Equipment Finance
    
    Term
    
    June 2013
    
    
    97,086
    
    
    
    97,086
    
    
    
    Morgan Stanley/RBS  A
    
    Term
    
    November 2009
    
    
    169,548
    
    
    
    169,548
    
    
    
    Morgan Stanley/RBS  B
    
    Term
    
    November 2009
    
    
    19,717
    
    
    
    19,717
    
    
    
    $
    686,351
    
    
    $
    644,223
    
    
    $
    42,128
 
 (1)
    
    Availability under these loans is subject to having sufficient eligible leases
or loans to pledge as collateral and compliance with the borrowing base formula.   4




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Available Information
 http://www.sec.gov http://www.leaf-financial.com
 5




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Agreements with our General Partner
  
    
    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 1/2 of 1% of offering proceeds. Organization and offering expenses reimbursed to
the General Partner for the year ended December 31, 2008 were $1.4 million;
    
    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 $10.6 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 8.5% 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 $8.4
million;
    
    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 8.5% of their capital contributions, as adjusted by
distributions deemed to be a return of capital. No commissions were paid during the year
ended December 31, 2008;
    
    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 during the year ended
December 31, 2008;
    
    reimbursement for operating and administrative expenses, subject to limitations
contained in our partnership agreement. Reimbursed administrative expenses paid to our
General Partner during the year ended December 31, 2008, were $7.0 million; and
    
    Chadwick Securities, Inc. (Chadwick), an affiliate of our General Partner, received
an underwriting fee of 3% of the offering proceeds for obtaining and managing the group of
broker-dealers who sold the units in this offering. From this fee, Chadwick reimbursed
selling broker-dealers up to 1% of the proceeds of each unit they sold for marketing
expenses. Chadwick also received sales commissions of 7% of the proceeds of each unit sold
by it. Underwriting fees paid to Chadwick for the year ended December 31, 2008 were $4.4
million. Chadwick did not directly sell any units to investors and did not retain sales
commissions through December 31, 2008.
  6




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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
  We May Not Return All of Our Limited Partners Investment or Any Rate of Return on Their Investment
  If We Do Not Generate Sufficient Cash, We Will Not Be Able to Pay Monthly or Annual Distributions
to Our Limited Partners or Reinvest a Portion of Our Net Revenues in Additional Investments During
the Reinvestment Period
  7




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Higher Than Expected Equipment Lease and Secured Loan Defaults May Result in Losses
   
    
    we may experience difficulties and delays in recovering the equipment from the
defaulting party;
    
    the equipment may be returned in poor condition; and
    
    we may be unable to enforce important contract provisions against the insolvent party,
including the contract provisions that require the equipment to be returned to us in good
condition.
  
    
    enforcing a lessees or borrowers contract obligations;
    
    recovering equipment from the defaulting party;
    
    transporting, storing, and repairing the equipment; and
    
    finding a new lessee or purchaser for the equipment.
   Poor Economic Conditions May Adversely Affect Our Ability to Build Our Portfolio
  8




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If We Are Unable to Realize the Residual Value of Our Equipment Under Our Operating Leases, We May
Incur Losses
  
    
    whether the original lessee wants to keep the equipment;
    
    the cost of comparable new equipment;
    
    whether the leased equipment is obsolete or in poor condition; and
    
    whether there is a secondary market for the type of used equipment.
 Using Leverage to Build Our Portfolio Subjects Us to the Risk That Our Revenues May Not Be
Sufficient to Cover Our Operating Costs Plus Debt Service and, Consequently, May Result in Losses
    Our Interest Rate Swap Agreements May Not Protect Us From Loss
  9




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Cost Reimbursements and Significant Fees We Pay to Our General Partner and Its Affiliates, and
Reserves Our General Partner Establishes, Reduce Our Cash Available for Distribution to Our Limited
Partners
    Our Limited Partners Ability to Dispose of Their Investment in Us Is Limited
    
    
    an offering period of approximately 1.2 years;
    
    an additional five-year reinvestment period; and
    
    a subsequent maturity period of approximately two years, during which our leases and
secured loans will either mature or be sold and we will liquidate our other assets.
  Our Limited Partners have Very Limited Voting Rights and Ability to Control Our Business
  Our General Partner May Be Subject To Various Conflicts of Interest Arising Out of Its Relationship
to Us
  10




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Our General Partners Investment Committee is Not Independent
  
    
    which program has been seeking investments for the longest period of time;
    
    whether the program has the cash required for the investment;
    
    whether the amount of debt to be incurred with respect to the investment is acceptable
for the program;
    
    the effect the investment would have on the programs cash flow;
    
    whether the investment would further diversify, or unduly concentrate, the programs
investments in a particular lessee, class or type of equipment, location, industry, etc.;
and
    
    whether the term of the investment is within the term of the program.
   Our General Partner May Have Difficulty Managing Its Growth, Which May Divert Its Resources and
Limit Its Ability to Expand Its Operations Successfully
  Our Cash Distributions May Not Return Our Limited Partners Investment or Provide a Return on Their
Investment, and May Be Reduced or Delayed
  
    
    the demand for the equipment leases and secured loans we provide;
    
    our ability to obtain financings or leverage, including securitizations, on acceptable
terms to build our equipment portfolio;
 11




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
    
    required principal and interest payments on our debt;
    
    profitability of our operations;
    
    equipment lease and secured loan defaults;
    
    prevailing economic conditions; and
    
    government regulations.
 Our Success Is Subject to Risks Inherent in the Equipment Leasing and Finance Business, Any of
Which May Affect Our Ability to Operate Profitably
  
    
    changes in economic conditions, including fluctuations in demand for equipment,
interest rates and inflation rates;
    
    the quality of the equipment we acquire and lease or finance;
    
    the continuing strength of equipment manufacturers;
    
    the timing of our equipment purchases and our ability to forecast technological
advances;
    
    technological and economic obsolescence of the equipment we acquire;
    
    our ability to obtain financings or leverage, including securitizations, on acceptable
terms, to build our equipment portfolio;
    
    defaults by our lessees or borrowers; and
    
    increases in our expenses, including labor, tax and insurance expenses.
 Interest Rate Changes May Reduce the Value of Our Portfolio and Our Returns
   12




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Our Inability to Obtain Insurance For Certain Types of Losses Means We Must Bear the Cost of Any
Losses From the Non-Insurable Risks
  Participation With Affiliated Programs or Third-Parties in Joint Ventures May Require Us to Pay
Additional Costs or Incur Losses Because of Actions Taken By the Third-Parties
  
    
    the possibility that our co-venturer may become bankrupt or otherwise fail to meet its
financial obligations, thereby causing us to pay our co-venturers share of the joint
ventures debts, since each co-venturer generally must guarantee all of the joint ventures
debts;
    
    our co-venturer may have business or economic objectives or interests that are
inconsistent with ours and it may want to manage the joint venture in ways that do not
maximize our return;
    
    actions by a co-venturer might subject equipment leases owned by the joint venture to
liabilities greater than those we contemplate; and
    
    when more than one person owns property, there may be a stalemate on decisions,
including decisions regarding a proposed sale or other transfer of the assets.
 ITEM 1B  UNRESOLVED STAFF COMMENTS
  ITEM 2  PROPERTIES
  ITEM 3  LEGAL PROCEEDINGS
  ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  13




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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
    
    
    2,520General Partner interest
    
    
    1
   Offering proceeds
    
    $
    119,620,495Expenses:Sales commissions (1)
    
    
    8,204,994Underwriting fees (1)
    
    
    3,502,659Organization and offering expenses (2)
    
    
    3,591,165Public offering expenses
    
    
    15,298,818Net offering proceeds
    
    
    104,321,677Reserves
    
    
    1,043,217Total proceeds available for investment
    
    $
    103,278,460Use of proceeds for investment (estimated):Used in operations (3)
    
    $
    14,186,642Acquisition of lease portfolios (4)
    
    $
    87,786,692Working capital
    
    $
    1,305,126
 
 (1)
    
    Paid to an affiliate of our General Partner which was then remitted to third parties.(2)
    
    Paid to our General Partner.(3)
    
    Our General Partner and its affiliates were reimbursed $4,115,303 for operating expenses and
asset management fees of $6,080,794.(4)
    
    Included are asset acquisition fees of $13,639,828 that were paid to an affiliate of our
General Partner. 14




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ITEM 6  SELECTED FINANCIAL DATA
  Year Ended
    
    Period EndedDecember 31,
    
    December 31,2008
    
    2007Revenues
    
    $
    74,088
    
    
    $
    15,816Expenses
    
    
    94,154
    
    
    
    16,184Equity in earnings of affiliate
    
    
    1,812
    
    
    
    Minority interest
    
    
    600
    
    
    
    Net loss
    
    
    (17,654
    )
    
    
    (368
    )Distributions to partners
    
    $
    9,205
    
    
    $
    2,304Weighted average number of limited partner units outstanding during the period
    
    
    1,114,102
    
    
    
    384,672Net loss per weighted average limited partner unit
    
    $
    (15.69
    )
    
    $
    (0.95
    )December 31,2008
    
    2007Investment in leases and loans, net
    
    $
    682,458
    
    
    $
    499,704Total assets
    
    
    738,422
    
    
    
    536,442Bank debt
    
    
    644,223
    
    
    
    467,625Partners capital:General partner
    
    
    (295
    )
    
    
    (26
    )Limited partners
    
    
    74,914
    
    
    
    61,879Accumulated other comprehensive loss
    
    
    (18,563
    )
    
    
    (6,803
    )Total partners capital
    
    $
    56,056
    
    
    $
    55,050
 15




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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.
    16




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Finance Receivables and Asset Quality
  December 31,2008
    
    
    2007Investment in leases and loans, net
    
    $
    682,458
    
    
    $
    499,704Number of equipment leases
    
    
    60,000
    
    
    
    56,000Number of individual end users (a)
    
    
    48,000
    
    
    
    43,000Average original equipment cost
    
    $
    16.8
    
    
    $
    9.9Average initial term (in months)
    
    
    43
    
    
    
    42States accounting for more than 10% of lease
and loan portfolio:California
    
    
    16
    %
    
    
    16
    %Types of equipment accounting for more than 10% of lease
and loan portfolio:Industrial equipment
    
    
    30
    %
    
    
    43
    %Medical equipment
    
    
    12
    %
    
    
    7
    %Restaurant equipment
    
    
    10
    %
    
    
    4
    %Office equipment
    
    
    9
    %
    
    
    13
    %Water purification
    
    
    7
    %
    
    
    14
    %Types of businesses accounting for more than 10% of lease
and loan portfolio:Services
    
    
    41
    %
    
    
    35
    %Retail trade
    
    
    17
    %
    
    
    11
    %Transportation/Communication/Energy
    
    
    10
    %
    
    
    12
    %Manufacturing
    
    
    9
    %
    
    
    12
    %
 
 (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.   17




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As of and for
    
    As of and forthe Year
    
    the PeriodEnded
    
    EndedDecember 31,
    

December 31,
    
    Change2008
    
    2007
    
    $
    
    %Investment in leases and loans before allowance
for credit losses
    
    $
    681,673
    
    
    $
    494,646
    
    
    $
    187,027
    
    
    
    38
    %Weighted average investment in leases and loans
before allowance for credit losses
    
    
    664,380
    
    
    
    232,827
    
    
    
    431,553
    
    
    
    185
    %Allowance for credit losses
    
    
    10,374
    
    
    
    1,300
    
    
    
    9,074
    
    
    
    698
    %Non-performing assets
    
    
    19,871
    
    
    
    6,504
    
    
    
    13,367
    
    
    
    206
    %Charge-offs, net of recoveries
    
    $
    16,980
    
    
    $
    128
    
    
    $
    16,852
    
    
    
    13,166
    %As a percentage of finance receivables:Allowance for credit losses
    
    
    1.52
    %
    
    
    0.26
    %Non-performing assets
    
    
    2.92
    %
    
    
    1.31
    %As a percentage of weighted average finance receivables:Charge-offs, net of recoveries
    
    
    2.56
    %
    
    
    0.05
    %
     18




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Critical Accounting Policies
   Revenue Recognition
 Accounting for Leases
 Direct Financing Leases.
 Operating Leases.
 Loans.
  19




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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,
 20




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##### 



Fair Value Measurements Using
    
    LiabilitiesLevel 1
    
    Level 2
    
    Level 3
    
    At Fair ValueLiabilitiesInterest Rate Caps
    
    $
    
    
    
    $
    (6
    )
    
    $
    
    
    
    $
    (6
    )Interest Rate Swaps
    
    $
    
    
    
    $
    (21,145
    )
    
    $
    
    
    
    $
    (21,145
    )
 Results of Operations
  Year Ended December 31, 2008 compared to the Period Ended December 31, 2007
  Increase (Decrease)2008
    
    
    2007
    
    
    $
    
    
    %Revenues:Interest on equipment financings and loans
    
    $
    61,632
    
    
    $
    13,079
    
    
    $
    48,553
    
    
    
    371
    %Rental income
    
    
    3,001
    
    
    
    793
    
    
    
    2,208
    
    
    
    278
    %Gains on sales of equipment and lease dispositions, net
    
    
    4,394
    
    
    
    643
    
    
    
    3,751
    
    
    
    583
    %Other
    
    
    5,061
    
    
    
    1,301
    
    
    
    3,760
    
    
    
    289
    %74,088
    
    
    
    15,816
    
    
    
    58,272
    
    
    
    368
    %Expenses:Interest expense
    
    
    44,943
    
    
    
    10,949
    
    
    
    33,994
    
    
    
    310
    %Depreciation on operating leases
    
    
    2,484
    
    
    
    646
    
    
    
    1,838
    
    
    
    285
    %Provision for credit losses
    
    
    26,054
    
    
    
    1,428
    
    
    
    24,626
    
    
    
    1,725
    %Management fees to affiliate
    
    
    8,364
    
    
    
    1,992
    
    
    
    6,372
    
    
    
    320
    %Administrative expense reimbursed to affiliate
    
    
    7,019
    
    
    
    743
    
    
    
    6,276
    
    
    
    845
    %General and administrative expenses
    
    
    3,804
    
    
    
    426
    
    
    
    3,378
    
    
    
    793
    %Unrealized loss on derivative hedging activities
    
    
    1,486
    
    
    
    
    
    
    
    1,486
    
    
    
    94,154
    
    
    
    16,184
    
    
    

77,970
    
    
    
    482
    %(20,066
    )
    
    
    (368
    )
    
    
    (19,698
    )
    
    
    5,353
    %Equity in earnings of affiliate
    
    
    1,812
    
    
    
    
    
    
    
    1,812
    
    
    
    Minority interest
    
    
    600
    
    
    
    
    
    
    
    600
    
    
    
    Net loss
    
    $
    (17,654
    )
    
    $
    (368
    )
    
    $
    (17,286
    )
    
    
    4,697
    %
  21




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
    
    an increase in interest income on equipment financings. Our weighted average net
investment in financing assets increased to $664.4 million for the year ended December
31, 2008 as compared to $232.8 million for the period ended December 31, 2007, an
increase of $431.6 million (185%). This growth was driven by our General Partners
increased sales to us, including the sale of the LEAF Funding, LLC portfolio, and
marketing efforts supported by lines of financing. The increase in interest income on
equipment financings is also due to increased yields on leases acquired in late 2007
and 2008.
    
    an increase in rental income which was principally the result of an increase in our
investment in operating leases in the 2008 period compared to the 2007 period.
    
    an increase in gains on sales of equipment. Gains and losses on sales of equipment
may vary significantly from period to period. Included in gains for the year ended
December 31, 2008 is a gain of $1.5 million related to the sale of a pool of leases to
an unrelated third party.
    
    an increase in other income, which 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 due to our increase in average debt outstanding. Weighted
average borrowings for the year ended December 31, 2008 and the period ended December
31, 2007 were $635.4 million and $214.5 million, respectively, at an effective interest
rate of 6.9% and 5.1%, respectively.
    
    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. Our provision for credit losses
has increased due to the growth in size of the portfolio as well as 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 2.92% as of December 31, 2008 as compared to
1.31% as of December 31, 2007.
    
    an increase in management fees attributable to the increase in our portfolio of
equipment financing assets, since management fees are paid based on lease payments
received.
    
    an increase in administrative expenses reimbursed to affiliate due to significant
growth in net assets as a result of the acquisition of LEAF Funding, LLC in April 2008.
    
    an increase in general and administrative expenses due to significant growth in net
assets as a result of the acquisition of LEAF Funding, LLC in April 2008.
    
    an increase in unrealized loss on derivative hedging activities. The lease assets
we originate are almost entirely fixed-rate, while the funds borrowed through our
credit facilities are obtained on a floating-rate basis. To mitigate interest rate
risk on the variable rate debt, we employ a hedging strategy using derivative financial
instruments such as interest rate swaps, to fix the rate on our debt. Under U.S. GAAP,
we are required to recognize all derivatives on the balance sheet at fair value, and to
the extent the derivative is effective, the change in fair value is recorded directly
to equity. Certain of our hedges entered into in the fourth quarter of 2008 do not
qualify for hedge accounting. Therefore, any change in the fair value of these
derivative instruments is recognized immediately in gain (loss) on derivatives and
hedging activities. These losses are based on the value of the derivative contracts at
December 31, 2008 in a volatile market that is changing daily, and will not necessarily
reflect the cash amount to be paid at settlement. We expect that certain hedges that
we will enter into in the future also will not qualify for hedge accounting. This will
create volatility in our results of operations, as the market value of our derivative
financial instruments changes over time, and this volatility may adversely impact our
results of operations and financial condition.
 22




---



##### 



Liquidity and Capital Resources
   Year Ended
    
    
    Period EndedDecember 31,
    
    
    December 31,2008
    
    
    2007Net cash provided by operating activities
    
    $
    7,172
    
    
    $
    7,808Net cash provided by (used in) investing activities
    
    
    126,563
    
    
    
    (501,135
    )Net cash (used in) provided by financing activities
    
    
    (136,082
    )
    
    
    498,909(Decrease) increase in cash
    
    $
    (2,347
    )
    
    $
    5,582
    Borrowings
  Maximum Facility
    
    
    Amount
    
    
    Amount
    


Amount ofType
    
    
    
    Maturity

    
    
    Amount
    
    
    Outstanding
    
    
    Available(1)
    


Collateral(2)WestLB
    
    Revolving
    
    
    
    September 2010
    
    
    $
    250,000
    
    
    $
    219,620
    
    
    $
    30,380
    

$
239,824DZ Bank
    

    Revolving
    
    
    
    November 2013
    
    
    
    150,000
    
    
    
    138,252
    
    
    
    11,748
    


154,924Key Equipment Finance
    

    Term
    
    
    
    June 2013
    
    
    
    97,086
    
    
    
    97,086
    
    
    
    
    


110,667Morgan Stanley/RBS
    

    Term
    
    
    
    November 2009
    
    
    
    189,265
    
    
    
    189,265
    
    
    
    
    


206,164$
    686,351
    
    
    $
    644,223
    
    
    $
    42,128
    

$
711,579
 
 (1)
    
    Availability under these loans is subject to having sufficient eligible leases
or loans to pledge as collateral and compliance with the borrowing base formula.(2)
    
    Recourse under these facilities is limited to the amount of
collateral pledged. 23




---



##### 



24




---



##### 



Contractual Obligations and Commercial Commitments
  Payments Due by PeriodLess than
    
    
    1  3
    
    
    4  5
    
    
    After 5Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    YearsBank debt
    
    $
    644,223
    
    
    $
    350,558
    
    
    $
    215,547
    
    
    $
    71,523
    
    
    $
    6,595
   Legal Proceedings
  Accounting Standards Not Yet Adopted
 Noncontrolling Interests in Consolidated
Financial Statements
 Disclosures about Derivative Instruments and Hedging
Activities, an amendment of SFAS 133
 25




---



##### 



ITEM 7A   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Interest rates
    
    
    
    
    
    Interest ratesfall 100 basis
    
    
    
    
    
    rise 100 basispoints
    
    Unchanged
    
    pointsHedging instrumentsFair value
    
    $
    (30,404
    )
    
    $
    (21,151
    )
    
    $
    (13,643
    )Change in fair value
    
    $
    (9,253
    )
    
    
    
    
    
    $
    7,508Change as a percent of fair value
    
    
    (44
    %)
    
    
    
    
    
    
    35
    %
  ITEM
8   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 26




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 27




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
 December 31,2008
    
    
    2007ASSETSCash
    
    $
    3,236
    
    
    $
    5,583Restricted cash
    
    
    42,595
    
    
    
    28,825Accounts receivable
    
    
    335
    
    
    
    197Investment in leases and loans, net
    
    
    682,458
    
    
    
    499,704Deferred financing costs, net
    
    
    9,418
    
    
    
    1,947Other assets
    
    
    380
    
    
    
    186$
    738,422
    
    
    $
    536,442LIABILITIES AND PARTNERS CAPITALLiabilities:Bank debt
    
    $
    644,223
    
    
    $
    467,625Accounts payable and accrued expenses
    
    
    2,664
    
    
    
    5,709Other liabilities
    
    
    1,275
    
    
    
    1,016Derivative liabilities at fair value
    
    
    21,145
    
    
    
    6,803Due to affiliates
    
    
    2,593
    
    
    
    239Minority interest
    
    
    10,466
    
    
    
    Total liabilities
    
    
    682,366
    
    
    
    481,392Commitments and contingenciesPartners Capital:General partner
    
    
    (295
    )
    
    
    (26
    )Limited partners
    
    
    74,914
    
    
    
    61,879Accumulated other comprehensive loss
    
    
    (18,563
    )
    
    
    (6,803
    )Total partners capital
    
    
    56,056
    
    
    
    55,050$
    738,422
    
    
    $
    536,442
  28




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except unit data)
 Year Ended
    
    
    Period EndedDecember
    
    
    December 31,31, 2008
    
    
    2007Revenues:Interest on equipment financings and loans
    
    $
    61,632
    
    
    $
    13,079Rental income
    
    
    3,001
    
    
    
    793Gains on sales of equipment and lease dispositions, net
    
    
    4,394
    
    
    
    643Other
    
    
    5,061
    
    
    
    1,30174,088
    
    
    
    15,816Expenses:Interest expense
    
    
    44,943
    
    
    
    10,949Depreciation on operating leases
    
    
    2,484
    
    
    
    646Provision for credit losses
    
    
    26,054
    
    
    
    1,428Management fees to affiliate
    
    
    8,364
    
    
    
    1,992Administrative expenses reimbursed to affiliate
    
    
    7,019
    
    
    
    743General and administrative expenses
    
    
    3,804
    
    
    
    426Unrealized loss on derivative hedging activities
    
    
    1,486
    
    
    
    94,154
    
    
    
    16,184(20,066
    )
    
    
    (368
    )Equity in earnings of affiliate
    
    
    1,812
    
    
    
    Minority interest
    
    
    600
    
    
    
    Net loss
    
    $
    (17,654
    )
    
    $
    (368
    )Weighted average number of limited partner units outstanding during the period
    
    
    1,114,102
    
    
    
    384,672Net loss per weighted average limited partner unit
    
    $
    (15.69
    )
    
    $
    (0.95
    )
  29




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Consolidated Statements of Partners Capital
and Comprehensive Loss
For the Year Ended December 31, 2008 and the
Period Ended December 31, 2007
(in thousands, except unit data)
 AccumulatedGeneral
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalPartner
    
    
    Limited Partners
    
    
    Comprehensive
    
    
    Partners
    
    
    ComprehensiveAmount
    
    
    Units
    
    
    Amount
    
    
    Loss
    
    
    Capital
    
    
    LossBalance, March 13, 2007
    
    $
    1
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1Limited Partners contributions
    
    
    
    
    
    
    742,272
    
    
    
    74,009
    
    
    
    
    
    
    
    74,009Offering costs related to the sale of
Limited Partnership units
    
    
    
    
    
    
    
    
    
    
    (9,485
    )
    
    
    
    
    
    
    (9,485
    )Cash distributions paid
    
    
    (23
    )
    
    
    
    
    
    
    (2,281
    )
    
    
    
    
    
    
    (2,304
    )Net loss
    
    
    (4
    )
    
    
    
    
    
    
    (364
    )
    
    
    
    
    
    
    (368
    )
    
    $
    (368
    )Unrealized losses on financial derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,803
    )
    
    
    (6,803
    )
    
    
    (6,803
    )Balance, December 31, 2007
    
    
    (26
    )
    
    
    742,272
    
    
    
    61,879
    
    
    
    (6,803
    )
    
    
    55,050
    
    
    $
    (7,171
    )Limited Partners contributions
    
    
    
    
    
    
    457,733
    
    
    
    45,612
    
    
    
    
    
    
    
    45,612Offering costs related to the sale of
Limited Partnership units
    
    
    
    
    
    
    
    
    
    
    (5,814
    )
    
    
    
    
    
    
    (5,814
    )Cash distributions paid
    
    
    (92
    )
    
    
    
    
    
    
    (9,113
    )
    
    
    
    
    
    
    (9,205
    )Redemption of Limited Partnership units
    
    
    
    
    
    
    (1,937
    )
    
    
    (173
    )
    
    
    
    
    
    
    (173
    )Net loss
    
    
    (177
    )
    
    
    
    
    
    
    (17,477
    )
    
    
    
    
    
    
    (17,654
    )
    
    $
    (17,654
    )Unrealized losses on financial derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,989
    )
    
    
    (11,989
    )
    
    
    (11,989
    )Amortization of loss on financial
derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    229
    
    
    
    229
    
    
    
    229Balance, December 31, 2008
    
    $
    (295
    )
    
    
    1,198,068
    
    
    $
    74,914
    
    
    $
    (18,563
    )
    
    $
    56,056
    
    
    $
    (29,414
    )
  30




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
 Year Ended
    
    
    Period EndedDecember
    
    
    December 31,31, 2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (17,654
    )
    
    $
    (368
    )Adjustments to reconcile net loss to net cash provided by operating activities:Gains on sales of equipment and lease dispositions, net
    
    
    (4,394
    )
    
    
    (643
    )Equity in earnings of affiliate
    
    
    (1,812
    )
    
    
    Depreciation
    
    
    2,484
    
    
    
    646Provision for credit losses
    
    
    26,054
    
    
    
    1,428Amortization of deferred financing costs
    
    
    2,894
    
    
    
    164Amortization of gain on financial derivative
    
    
    229
    
    
    
    Amortization of interest rate caps
    
    
    8
    
    
    
    Loss on derivative hedging activities
    
    
    1,486
    
    
    
    Minority interest
    
    
    (600
    )
    
    
    Changes in operating assets and liabilities, net of effect of acquisitions:Accounts receivable
    
    
    (138
    )
    
    
    (197
    )Other assets
    
    
    (168
    )
    
    
    (186
    )Accounts payable and accrued expenses and other liabilities
    
    
    (2,913
    )
    
    
    6,725Due to affiliates, net
    
    
    1,696
    
    
    
    239Net cash provided by operating activities
    
    
    7,172
    
    
    
    7,808Cash flows from investing activities:Purchases of leases and loans
    
    
    (207,562
    )
    
    
    (580,156
    )Proceeds from leases and loans
    
    
    312,641
    
    
    
    77,740Proceeds from sale of leases and loans to third parties
    
    
    30,735
    
    
    
    Security deposits collected, net of returns
    
    
    2,006
    
    
    
    1,281Acquisition of LEAF Funding, LLC (see Note 4)
    
    
    (22,890
    )
    
    
    Sale of partial interest in LEAF Funding, LLC
    
    
    11,633
    
    
    
    Net cash provided by (used in) investing activities
    
    
    126,563
    
    
    
    (501,135
    )Cash flows from financing activities:Borrowings of bank debt
    
    
    182,906
    
    
    
    564,779Repayment of bank debt
    
    
    (347,966
    )
    
    
    (97,154
    )Decrease (increase) in restricted cash
    
    
    8,388
    
    
    
    (28,825
    )Increase in deferred financing costs
    
    
    (4,436
    )
    
    
    (2,111
    )Acquisition of financial derivative
    
    
    (76
    )
    
    
    Payment on termination of financial derivative
    
    
    (5,318
    )
    
    
    Limited Partners capital contributions
    
    
    45,612
    
    
    
    74,009Redemption of Limited Partners capital
    
    
    (173
    )
    
    
    Payment of offering costs incurred for the sale of partnership units
    
    
    (5,814
    )
    
    
    (9,485
    )Cash distributions to partners
    
    
    (9,205
    )
    
    
    (2,304
    )Net cash (used in) provided by financing activities
    
    
    (136,082
    )
    
    
    498,909(Decrease) increase in cash
    
    
    (2,347
    )
    
    
    5,582Cash, beginning of period
    
    
    5,583
    
    
    
    1Cash, end of year
    
    $
    3,236
    
    
    $
    5,583
  31




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, 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
     32




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)
 Reclassifications
  
    
    Security Deposits 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.
  Use of Estimates
     33




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)
 Use of Estimates (Continued)
  Restricted Cash
  Concentration of Credit Risk
   Revenue Recognition
 Accounting for Leases
 Direct Financing Leases.
 Operating Leases.
 34




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, 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
 35




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, 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 Loss Per Limited Partner Unit
  36




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, 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
 Noncontrolling Interests in Consolidated
Financial Statements
 Disclosures about Derivative Instruments and Hedging
Activities, an amendment of SFAS 133
 37




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 3  SUPPLEMENTAL CASH FLOW INFORMATION
  Year Ended
    
    
    Period EndedDecember 31, 2008
    
    
    December 31, 2007Cash paid for:Interest
    
    $
    41,874
    
    
    $
    9,447Non-cash activities:Borrowings under Key Equipment Finance loan agreement
    
    $
    131,425
    
    
    $
    Repayment of National City line of credit
    
    $
    (131,425
    )
    
    $
    Borrowings under DZ Bank credit facility
    
    $
    127,896
    
    
    $Repayment of Merrill Lynch credit facility
    
    $
    (101,443
    )
    
    $
    Acquisition of leases
    
    $
    (25,896
    )
    
    $
    Payment of DZ bank debt issuance costs
    
    $
    (557
    )
    
    $
    
  NOTE 4  ACQUISITION OF INTEREST IN POOL OF LEASE ASSETS
   Determining Whether a Nonmonetary
Transaction Involves Receipt of Productive Assets of a Business
 38




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 4  ACQUISITION OF INTEREST IN POOL OF LEASE ASSETS  (Continued)
  AmountRestricted cash
    
    $
    22,158Investment in leases and loans, net
    
    
    319,051Debt
    
    
    (315,205
    )Derivative liability
    
    
    (6,523
    )Due to affiliate
    
    
    (650
    )Other assets, net
    
    
    4,059$
    22,890
  NOTE 5  INVESTMENT IN LEASES AND LOANS
  December 31,2008
    
    
    2007Direct financing leases (a)
    
    $
    402,505
    
    
    $
    411,929Loans (b)
    
    
    279,168
    
    
    
    82,717Operating leases
    
    
    11,159
    
    
    
    6,358692,832
    
    
    
    501,004Allowance for credit losses
    
    
    (10,374
    )
    
    
    (1,300
    )$
    682,458
    
    
    $
    499,704
 
 (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%.
 39




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 5  INVESTMENT IN LEASES AND LOANS  (Continued)
  December 31,2008
    
    
    2007Leases
    
    
    Loans
    
    
    Leases
    
    
    LoansTotal future minimum lease payments
    
    $
    455,309
    
    
    $
    345,350
    
    
    $
    463,369
    
    
    $
    101,559Unearned income
    
    
    (55,212
    )
    
    
    (54,548
    )
    
    
    (56,879
    )
    
    
    (17,806
    )Residuals, net of unearned residual income(a)
    
    
    9,104
    
    
    
    
    
    
    
    6,708
    
    
    
    Security deposits(b)
    
    
    (6,696
    )
    
    
    (11,634
    )
    
    
    (1,269
    )
    
    
    (1,036
    )$
    402,505
    
    
    $
    279,168
    
    
    $
    411,929
    
    
    $
    82,717
 
 (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
    
    $
    14,483
    
    
    $
    7,113Accumulated Depreciation
    
    
    (3,221
    )
    
    
    (653
    )Security deposits
    
    
    (103
    )
    
    
    (102
    )$
    11,159
    
    
    $
    6,358
  Year Ended
    
    
    Period EndedDecember
31, 2008
    
    
    December 31, 2007Allowance for credit losses, beginning of period
    
    $
    1,300
    
    
    $
    Provision for credit losses
    
    
    26,054
    
    
    
    1,428Charge-offs
    
    
    (17,997
    )
    
    
    (128
    )Recoveries
    
    
    1,017
    
    
    
    Allowance for credit losses, end of period
    
    $
    10,374
    
    
    $
    1,300
 40




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 5  INVESTMENT IN LEASES AND LOANS (Continued)
  DirectFinancing Leases
    
    
    Loans
    
    

Operating Leases (a)
    
    
    Total2009
    
    $
    191,383
    
    
    $
    112,480
    
    
    $
    4,594
    
    
    $
    308,4572010
    
    
    133,139
    
    
    
    92,145
    
    
    
    3,497
    
    
    
    228,7812011
    
    
    80,141
    
    
    
    69,615
    
    
    
    1,785
    
    
    
    151,5412012
    
    
    39,109
    
    
    
    41,854
    
    
    
    401
    
    
    
    81,3642013
    
    
    10,619
    
    
    
    17,409
    
    
    
    58
    
    
    
    28,086Thereafter
    
    
    918
    
    
    
    11,847
    
    
    
    21
    
    
    
    12,786$
    455,309
    
    
    $
    345,350
    
    
    $
    10,356
    
    
    $
    811,015
 
 (a)
    
    Operating lease amounts as shown are net of the residual value, if any, at the
end of the lease term. NOTE 6  SALES OF LEASES AND LOANS
    41




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 7  DEFERRED FINANCING COSTS
  2009
    
    $
    7,1712010
    
    
    5722011
    
    
    5722012
    
    
    5722013
    
    
    459Thereafter
    
    
    72$
    9,418
 NOTE 8  BANK DEBT
  December 31, 2008Interest rate perInterest rate per
    
    
    annum adjusted for
    
    
    December 31, 2007Type
    
    
    Maturity Date
    
    
    Amount of Facility
    
    
    Outstanding Balance
    
    
    Available (2)
    
    
    annum per agreement
    
    
    swaps (6)
    
    
    Outstanding BalanceWestLB, AG (1)
    
    Revolving
    
    September 2010
    
    $
    250,000
    
    
    $
    219,620
    
    
    $
    30,380
    
    
    One monthLIBOR + 0.95%
    
    
    5.4
    %
    
    $
    165,390DZ Bank (1)
    
    Revolving
    
    November 2013
    
    
    150,000
    
    
    
    138,252
    
    
    
    11,748
    
    
    
    (3
    )
    
    
    4.5
    %
    
    
    Merrill Lynch Bank (1)
    
    Term
    
    November 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145,035Key Equipment Finance(1)
    
    Term
    
    June 2013
    
    
    97,086
    
    
    
    97,086
    
    
    
    
    
    
    
    One monthCommercial Paper + 1.55
    %
    
    
    5.2
    %
    
    
    Morgan Stanley/RBS  A(1)
    
    Term
    
    November 2009
    
    
    169,548
    
    
    
    169,548
    
    
    
    
    
    
    
    (4
    )
    
    
    8.4
    %
    
    
    Morgan Stanley/RBS  B(1)
    
    Term
    
    November 2009
    
    
    19,717
    
    
    
    19,717
    
    
    
    
    
    
    
    (5
    )
    
    
    21.9
    %
    
    
    National City
    
    Term
    
    May 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157,200$
    686,351
    
    
    $
    644,223
    
    
    $
    42,128
    
    
    
    
    
    
    
    
    
    
    $
    467,625
 
 (1)
    
    Collateralized by specific leases and loans and related equipment. As of December 31, 2008,
$674 million of leases and loans and $38 million of restricted cash were pledged as collateral
under the Funds credit facilities.(2)
    
    Availability under these loans is subject to having sufficient eligible leases or loans to
pledge as collateral and compliance with the borrowing base formula.(3)
    
    Interest on each borrowing is calculated at the commercial paper rate for the lender at the
time of such borrowing plus 1.75% per annum(4)
    
    The A loan has varying rates of interest as follows: (i) through the maturity date  the rate
is one month LIBOR plus 4.0%; and (ii) from and after maturity date or during any event of
default, the rate is one month LIBOR plus 5.00%(5)
    
    The class B loan has varying rates of interest as follows: (i) through the maturity date 
the rate is one month LIBOR plus 17.5%; and (ii) from and after maturity date or during any
event of default, the rate is one month LIBOR plus 20.0%(6)
    
    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. This rate reflects the weighted average fixed rate. 42




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 8  DEBT  (Continued)
       Debt repayments
  2009
    
    $
    350,5582010
    
    
    127,7222011
    
    
    87,8252012
    
    
    52,7672013
    
    
    18,756Thereafter
    
    
    6,595$
    644,223
 43




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 9  DERIVATIVE INSTRUMENTS
      NOTE 10  FAIR VALUE MEASUREMENT
   44




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, 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 ValueLiabilitiesInterest Rate Caps
    
    $
    
    
    
    $
    (6
    )
    
    $
    
    
    
    $
    (6
    )Interest Rate Swaps
    
    $
    
    
    
    $
    (21,145
    )
    
    $
    
    
    
    $
    (21,145
    )
 45




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 11  CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES
         46




---



##### 



LEAF
EQUIPMENT LEASING INCOME FUND III, L.P. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
December 31, 2008  (Continued)
 NOTE 11  CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH AFFILIATES  (Continued)
  Year Ended
    
    Period EndedDecember 31,
    
    December 31,2008
    
    2007Acquisition fees
    
    $
    10,613
    
    
    $
    11,107Management fees
    
    
    8,364
    
    
    
    1,992Administrative expenses
    
    
    7,019
    
    
    
    743Organization and offering expense allowance
    
    
    1,371
    
    
    
    2,220Underwriting fees
    
    
    4,443
    
    
    
    7,265
  NOTE 12  COMMITMENTS AND CONTINGENCIES
  NOTE 13  SUBSEQUENT EVENT
  47




---



##### 



ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 NONE.
 ITEM 9A  CONTROLS AND PROCEDURES
 Disclosure Controls
   Managements Report on Internal Control over Financial Reporting
    Changes in Internal Control over Financial Reporting
  48




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 LEAF Equipment Leasing Income Fund III, L.P. and Subsidiaries
 Internal
ControlIntegrated Framework
   Internal Control-Integrated Framework
  /s/ GRANT THORNTON LLP
 ITEM 9B  OTHER INFORMATION
 NONE
 49




---



##### 



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, Director and SecretaryJonathan Z. Cohen
    
    
    38
    
    
    DirectorSteven J. Kessler
    
    
    66
    
    
    DirectorRobert K. Moskovitz
    
    
    52
    
    
    Chief Financial Officer, Treasurer, and Assistant SecretaryDavid H. English
    
    
    58
    
    
    Executive Vice President and Chief Investment OfficerDaniel G. Courtney
    
    
    46
    
    
    Executive Vice President  Investment ProgramsTonya L. Zweier
    
    
    38
    
    
    Chief Accounting Officer
 Crit S. DeMent
 Miles Herman
 Jonathan Z. Cohen
 50




---



##### 



Steven J. Kessler
 Robert K. Moskovitz
 David H. English
 Daniel G. Courtney
 Tonya L. Zweier
 51




---



##### 



Code of Business Conduct and Ethics
  ITEM 11  EXECUTIVE COMPENSATION
  ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNIT HOLDER
MATTERS
 (a)
    
    We had approximately 2,520 limited partners as of December 31, 2008.(b)
    
    In 2006, 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 11,568 of our limited partner units. These purchases of limited partner
units by our 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
     52




---



##### 



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.
  53




---



##### 



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 (1)3.2
    
    Amended and Restated Agreement of Limited Partnership of LEAF Equipment Leasing Income Fund III,
L.P. (1)4.1
    
    Forms of letters sent to limited partners confirming their investment (1)10.1
    
    Origination and Servicing Agreement among LEAF Equipment Leasing Income Fund III, L.P., LEAF
Financial Corporation and LEAF Funding Inc., dated February 12, 2007 (1)10.2
    
    Receivables Loan and Security Agreement, dated as of November 21, 2008, among LEAF III C SPE,
LLC, LEAF Funding, Inc., LEAF Financial Corporation, LEAF Equipment Leasing Income Fund III,
L.P., Autobahn Funding Company LLC, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am
Main, U.S. Bank, National Association, and Lyon Financial Services, Inc. (d/b/a U.S. Bank
Portfolio Services)10.3
    
    Seventh Amendment to the Receivables Loan and Security Agreement dated as of November 13, 2008,
among LEAF Capital Funding III, LLC, LEAF Financial Corporation, Morgan Stanley Bank, Morgan
Stanley Asset Funding Inc., The Royal Bank of Scotland PLC, U.S. Bank National Association, and
Lyon Financial Services, Inc. (d/b/a U.S. Bank Portfolio Services)10.4
    
    Secured Loan Agreement dated as of June 19, 2007 among LEAF Fund III, LLC, LEAF Funding, Inc.,
LEAF Equipment Leasing Income Fund III, L.P., LEAF Financial Corporation, U.S. Bank National
Association, and WestLB AG, New York Branch (2)10.5
    
    Amendment No. 1 to Secured Loan Agreement dated as of September 24, 2007, among WestLB AG, New
York Branch, U.S. Bank National Association, LEAF Equipment Leasing Income Fund III, L.P., LEAF
Financial Corporation, LEAF Funding, Inc., and LEAF Fund III, LLC (3)10.6
    
    Amendment No. 2 to Secured Loan Agreement dated as of December 21, 2007 among WestLB AG, New York
Branch, U.S. Bank National Association, LEAF Equipment Leasing Income Fund III, L.P., LEAF
Financial Corporation, LEAF Funding, Inc., and LEAF Fund III, LLC (3)10.7
    
    Amendment No. 4 to Secured Loan Agreement dated as of June 1, 2008, among WestLB AG, New York
Branch, U.S. Bank National Association, LEAF Equipment Leasing Income Fund III, L.P., LEAF
Financial Corporation, LEAF Funding, Inc., and LEAF Fund III, LLC (5)10.8
    
    Amendment No. 5 to Secured Loan Agreement dated as of March 6, 2009, among WestLB AG, New York
Branch, U.S. Bank National Association, LEAF Equipment Leasing Income Fund III, L.P., LEAF
Financial Corporation, LEAF Funding, Inc., and LEAF Fund III, LLC10.9
    
    Loan and Security Agreement among LEAF III B SPE, LLC, U.S. Bank National Association and Key
Equipment Finance Inc., dated as of May 30, 2008 (5)10.10
    
    Membership Interest Purchase Agreement dated as of April 22, 2008 between LEAF Funding, Inc. and
LEAF Equipment Leasing Income Fund III, L.P. (4)31.1
    
    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
 54




---



##### 



(1)
    
    Filed previously as an exhibit to our Registration Statement on Form S-1 filed on October 2,
2006 and by this reference incorporated herein.(2)
    
    Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2007 and by this reference incorporated herein.(3)
    
    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.(4)
    
    Filed previously as an exhibit to our Current Report on Form 8-K dated as of April 28, 2008
and by this reference incorporated herein.(5)
    
    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. 55




---



##### 



SIGNATURES
  LEAF EQUIPMENT LEASING INCOME FUND III, L.P.
A Delaware Limited PartnershipBy:
    LEAF Asset Management, LLC, its General PartnerBy:
    /s/ CRIT S. DEMENTMarch 16, 2009
    
    Crit 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 16, 2009/s/ Miles Herman

Miles Herman
    
    President, Chief Operating
Officer and Director of the
General Partner
    
    March 16, 2009/s/ Robert K. Moskovitz

Robert K. Moskovitz
    
    Chief Financial Officer and
Treasurer of the General
Partner
    
    March 16, 2009/s/ Tonya L. Zweier

Tonya L. Zweier
    
    Chief Accounting Officer of the
General Partner
    
    March 16, 2009/s/ Jonathan Z. Cohen

Jonathan Z. Cohen
    
    Director of the General Partner
    
    March 16, 2009/s/ Steven J. Kessler

Steven J. Kessler
    
    Director of the General Partner
    
    March 16, 2009
 56




---



##### 



LEAF EQUIPMENT LEASING INCOME FUND III, L.P.
Schedule II  Valuation and Qualifying Accounts
(in thousands)
 Additions Charged
    
    Amounts Written OffBalance at
    
    to Costs and
    
    Against the
    
    Balance at End ofBeginning of Year
    
    Expenses
    
    Allowance
    
    YearAllowance for credit losses:December 31, 2008
    
    $
    1,300
    
    
    $
    26,054
    
    
    $
    (16,480
    )
    
    $
    10,374December 31, 2007
    
    $
    
    
    
    $
    1,428
    
    
    $
    (128
    )
    
    $
    1,300
 57