**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**FORM      10-Q**

**QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934**

**OR**

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

**LEASE      EQUITY APPRECIATION FUND II, L.P.**

| Delaware                                                                          20-1056194(State                of Organization)                                                                                            (I.R.S.                Employer Identification No.) |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**LEASE      EQUITY APPRECIATION FUND II, L.P.**

**INDEX      TO QUARTERLY REPORT**

**ON      FORM 10-Q**

|                       |                                                                                                                                                                                                                                                          | **PAGE**               |
|----------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|
| **PART                I**  | **FINANCIAL                INFORMATION**                                                                                                                                                                                                                      |                   |
| ITEM                1.     | Financial                Statements                                                                                                                                                                                                                           |                   |
|                       | Consolidated                Balance Sheets - September 30, 2006 (unaudited) and December 31,                2005                                                                                                                                         | 3                      |
|                       | Consolidated                Statement of Operations Three and Nine Months Ended September 30,                2006                and                Period from April 14, 2005 (Commencement of Operations) to September                30, 2005 (unaudited)  |  4                |
|                       | Consolidated                Statement of Partners’ Capital and Comprehensive IncomeFor                the Nine Months Ended September 30, 2006                                                                                                          | 5                      |
|                       | Consolidated                Statement of Cash Flows For                the Nine Months Ended September 30, 2006 and the Period from April                14,                2005(Commencement                of Operations) to September 30, 2005 (unaudited) |   6          |
|                       | Notes                to Consolidated Financial Statements - September 30, 2006                (unaudited)                                                                                                                                                | 7-                16   |
| ITEM                2.     | Management’s                Discussion and Analysis of Financial Condition and                Results of Operations                                                                                                                                     | 17                - 23 |
| ITEM                3.     | Quantitative                and Qualitative Disclosures about Market Risk                                                                                                                                                                                     | 23                     |
| ITEM                4.     | Controls                and Procedures                                                                                                                                                                                                                        | 23                     |
|                       |                                                                                                                                                                                                                                                          |                   |
| **PART                II** | **OTHER                INFORMATION**                                                                                                                                                                                                                          |                   |
| ITEM                2.     | Unregistered                Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                    | 23                     |
| ITEM                6.     | Exhibits                                                                                                                                                                                                                                                      | 24                     |
| **SIGNATURES**             | 25                                                                                                                                                                                                                                                            |

----

**PART      I.**
**FINANCIAL      INFORMATION**

**Item      1.**
**Financial      Statements**

**LEASE      EQUITY APPRECIATION FUND II, L.P.**

**CONSOLIDATED      BALANCE SHEETS**

|                                                                                                                                     |   | **September                30,** |        | **December                31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|-------------|---------------------------------|--------|
|                                                                                                                                     |   | **2006**                         |        | **2005**                        |   |
|                                                                                                                                     |   | (unaudited)                      |        | (audited)                       |   |
| **ASSETS**                                                                                                                               |   |                             |        |                            |   |
| Cash                                                                                                                                     |   | $                                | 9,936,030   |                            | $      | 1,033,939 |   |
| Restricted                cash                                                                                                           |   |                             | 1,126,327   |                            |   | 379,120 |   |
| Accounts                receivable                                                                                                       |   |                             | 317,891     |                            |   | 52,455 |   |
| Due                from lockbox                                                                                                          |   |                             | 1,777,306   |                            |   | 669,524 |   |
| Investment                in direct financing leases and notes, net                                                                      |   |                             | 302,576,475 |                            |   | 37,921,411 |   |
| Investment                in operating leases (net of accumulated depreciation of $2,443,369                and                $244,903) |   |                             | 11,995,447  |                            |   | 4,359,371 |   |
| Fair                value of interest rate swap                                                                                          |   |                             | 1,796,176   |                            |   | 158,569 |   |
| Other                assets                                                                                                              |   |                             | 1,682,322   |                            |   | 308,277 |   |
|                                                                                                                                     |   | $                                | 331,207,974 |                            | $      | 44,882,666 |   |
|                                                                                                                                     |   |                             |        |                            |   |   |   |
| **LIABILITIES                AND PARTNERS’ CAPITAL**                                                                               |   |                             |        |                            |   |   |   |
| **Liabilities:**                                                                                                                         |   |                             |        |                            |   |   |   |
| Debt                                                                                                                                     |   | $                                | 275,550,807 |                            | $      | 34,511,800 |   |
| Accounts                payable and accrued expenses                                                                                     |   |                             | 991,170     |                            |   | 214,530 |   |
| Due                to related parties, net                                                                                               |   |                             | 1,241,864   |                            |   | 69,946 |   |
| Security                deposits                                                                                                         |   |                             | 2,460,437   |                            |   | 313,517 |   |
| Total                liabilities                                                                                                    |   |                             | 280,244,278 |                            |   | 35,109,793 |   |
| **Partners’                Capital**                                                                                          |   |                             | 50,963,696  |                            |   | 9,772,873 |   |
|                                                                                                                                     |   | $                                | 331,207,974 |                            | $      | 44,882,666 |   |

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**LEASE      EQUITY APPRECIATION FUND II, L.P.**

**CONSOLIDATED      STATEMENT OF OPERATIONS**

**(unaudited)**

|                                                                                                                              |   | **Three                Months Ended****September                30,** |      | **Nine                Months Ended****September                30,** |   | **Period                from April 14, 2005 (commencement of operations) to****September 30,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|-----------|----------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|--------|
|                                                                                                                              |   | **2006**                                                              |      | **2005**                                                             |   | **2006**                                                                                       |   | **2005** |   |
| **Income:**                                                                                                                       |   |                                                                  |      |                                                                 |   |                                                                                           |   |   |   |
| Interest                on equipment financings                                                                              |   | $                                                                     | 2,152,664 |                                                                 | $      | 279,704                                                                                        |   | $ | 4,460,215 |   | $ | 331,449 |   |
| Rental                income                                                                                                 |   |                                                                  | 1,082,449 |                                                                 |   | 47,149                                                                                         |   |   | 2,486,641 |   |   | 47,149 |   |
| Gain                (loss) on sale of equipment and                lease dispositions, net                                        |   |                                                                  | 143,941   |                                                                 |   | (1,192                                                                                         | )      |   | 180,708 |   |   | (1,313 | ) |
| Other                                                                                                                        |   |                                                                  | 165,210   |                                                                 |   | 17,039                                                                                         |   |   | 362,100 |   |   | 19,539 |   |
|                                                                                                                              |   |                                                                  | 3,544,264 |                                                                 |   | 342,700                                                                                        |   |   | 7,489,664 |   |   | 396,824 |   |
|                                                                                                                              |   |                                                                  |      |                                                                 |   |                                                                                           |   |   |   |   |   |   |   |
| **Expenses:**                                                                                                                     |   |                                                                  |      |                                                                 |   |                                                                                           |   |   |   |   |   |   |   |
| Interest                expense                                                                                              |   |                                                                  | 1,507,729 |                                                                 |   | 144,767                                                                                        |   |   | 3,179,394 |   |   | 146,050 |   |
| Depreciation                on operating leases                                                                              |   |                                                                  | 890,221   |                                                                 |   | 37,875                                                                                         |   |   | 2,062,281 |   |   | 37,875 |   |
| Provision                for credit losses                                                                                   |   |                                                                  | 222,507   |                                                                 |   | 4,800                                                                                          |   |   | 505,410 |   |   | 10,000 |   |
| Management                fee to related party                                                                               |   |                                                                  | 287,093   |                                                                 |   | 43,484                                                                                         |   |   | 609,021 |   |   | 57,838 |   |
| Administrative                expense reimbursed                to related party                                                  |   |                                                                  | 202,870   |                                                                 |   | 106,639                                                                                        |   |   | 493,663 |   |   | 208,900 |   |
| General                and administrative expenses                                                                           |   |                                                                  | 136,723   |                                                                 |   | 70,943                                                                                         |   |   | 367,929 |   |   | 133,344 |   |
|                                                                                                                              |   |                                                                  | 3,247,143 |                                                                 |   | 408,508                                                                                        |   |   | 7,217,698 |   |   | 594,007 |   |
| Net                Income (loss)                                                                                                  |   | $                                                                     | 297,121   |                                                                 | $      | (65,808                                                                                        | )      | $ | 271,966 |   | $ | (197,183 | ) |
|                                                                                                                              |   |                                                                  |      |                                                                 |   |                                                                                           |   |   |   |   |   |   |   |
| Weighted                average number of limited partner                units outstanding during the                period  |   |                                                                  | 454,979   |                                                                 |   | 69,256                                                                                         |   |   | 293,140 |   |   | 56,866 |   |
| Net                income (loss) attributed to limited partners  per                unit                                |   | $                                                                     | 0.65      |                                                                 | $      | (0.94                                                                                          | )      | $ | 0.92 |   | $ | (3.43 | ) |

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**LEASE      EQUITY APPRECIATION FUND II, L.P.**

**CONSOLIDATED      STATEMENT OF PARTNERS’ CAPITAL **

**AND      COMPREHENSIVE INCOME**

**(unaudited)**

|                                                                                          |   | **General                Partner** |    | **Limited                Partners** |   | **Accumulated                Other Comprehensive** |   |   **Partners’                Capital** |       | **Comprehensive                Income** |   |
|-----------------------------------------------------------------------------------------------|--------|------------------------------------|---------|-------------------------------------|--------|----------------------------------------------------|--------|--------------------------------------------------------|------------|-----------------------------------------|--------|
|                                                                                          |   | **Amount**                         |    | **Units**                           |   | **Amount**                                         |   | **Income**                                             |       | **Total**                               |   | **Total** |   |
| Balance,                December 31, 2005                                                |   | $                                  | (6,705  | )                                   |   | 120,015                                            |   | $                                                      | 9,621,009  |                                    | $      | 158,569 |   | $ | 9,772,873 |   |   |   |   |
| Limited                Partners’ contributions                                          |   |                               | − |                                |   | 470,575                                            |   |                                                   | 46,943,246 |                                    |   | − |   |   | 46,943,246 |   |   |   |   |
| Offering                costs related to the sale                of Limited Partnership units |   |                               | − |                                |   | −                                            |   |                                                   | (6,203,012 | )                                       |   | − |   |   | (6,203,012 | ) |   |   |   |
| Cash                distributions paid                                                        |   |                               | (14,625 | )                                   |   | −                                            |   |                                                   | (1,444,359 | )                                       |   | − |   |   | (1,458,984 | ) |   |   |   |
| Net                income                                                                     |   |                               | 2,720   |                                |   | −                                            |   |                                                   | 269,246    |                                    |   | − |   |   | 271,966 |   | $ | 271,966 |   |
| Unrealized                gain on hedging derivative                                          |   |                               | − |                                |   | −                                            |   |                                                   | −    |                                    |   | 1,637,607 |   |   | 1,637,607 |   |   | 1,637,607 |   |
| Balance,                September 30, 2006                                               |   | $                                  | (18,610 | )                                   |   | 590,590                                            |   | $                                                      | 49,186,130 |                                    | $      | 1,796,176 |   | $ | 50,963,696 |   | $ | 1,909,573 |   |

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**LEASE      EQUITY APPRECIATION FUND II, L.P.**

**CONSOLIDATED      STATEMENT OF CASH FLOWS**

**(unaudited)**

|                                                                                                                   |   | **Nine                Months Ended****September                30,** |         | **Period                from****April                14, 2005 (commencement of operations) to September                30,** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                   |   | **2006**                                                             |         | **2005**                                                                                                                     |   |
| **Cash                flows from operating activities:**                                                               |   |                                                                 |         |                                                                                                                         |   |   |   |
| Net                income (loss)                                                                                       |   | $                                                                    | 271,966      |                                                                                                                         | $      | (197,183 | ) |
| Adjustments                to reconcile net income (loss) to net cash provided by operating                activities: |   |                                                                 |         |                                                                                                                         |   |   |   |
| (Gain)                loss on sale of equipment and lease dispositions net                                             |   |                                                                 | (180,708     | )                                                                                                                            |   | 1,313 |   |
| Depreciation                                                                                                           |   |                                                                 | 2,062,281    |                                                                                                                         |   | 37,875 |   |
| Provision                for credit losses                                                                             |   |                                                                 | 505,410      |                                                                                                                         |   | 10,000 |   |
| Amortization                of deferred financing costs                                                                |   |                                                                 | 45,900       |                                                                                                                         |   | 12,893 |   |
| Changes                in operating assets and liabilities:                                                            |   |                                                                 |         |                                                                                                                         |   |   |   |
| Accounts                receivable                                                                                     |   |                                                                 | (265,436     | )                                                                                                                            |   | (46,642 | ) |
| Due                from lockbox                                                                                        |   |                                                                 | (1,107,782   | )                                                                                                                            |   | (230,669 | ) |
| Other                assets                                                                                            |   |                                                                 | (1,163,326   | )                                                                                                                            |   | − |   |
| Accounts                payable and accrued expenses                                                                   |   |                                                                 | 776,640      |                                                                                                                         |   | 190,444 |   |
| Due                to related parties, net                                                                             |   |                                                                 | 1,171,918    |                                                                                                                         |   | 222,772 |   |
| Net                cash provided by operating activities                                                               |   |                                                                 | 2,116,863    |                                                                                                                         |   | 803 |   |
|                                                                                                                   |   |                                                                 |         |                                                                                                                         |   |   |   |
| **Cash                flows from investing activities:**                                                               |   |                                                                 |         |                                                                                                                         |   |   |   |
| Investment                in direct financing leases and notes                                                         |   |                                                                 | (114,409,254 | )                                                                                                                            |   | (26,743,941 | ) |
| Investment                in equipment under operating leases                                                          |   |                                                                 | (9,698,357   | )                                                                                                                            |   | (1,973,824 | ) |
| Proceeds                from direct financing leases, net of earned income                                             |   |                                                                 | 22,472,711   |                                                                                                                         |   | 991,690 |   |
| Security                deposits, net                                                                                  |   |                                                                 | 2,146,920    |                                                                                                                         |   | − |   |
| Net                cash used in investing activities                                                                   |   |                                                                 | (99,487,980  | )                                                                                                                            |   | (27,726,075 | ) |
|                                                                                                                   |   |                                                                 |         |                                                                                                                         |   |   |   |
| **Cash                flows from financing activities:**                                                               |   |                                                                 |         |                                                                                                                         |   |   |   |
| Increase                in restricted cash                                                                             |   |                                                                 | (747,207     | )                                                                                                                            |   | (351,552 | ) |
| Increase                in deferred financing costs                                                                    |   |                                                                 | (256,619     | )                                                                                                                            |   | (361,016 | ) |
| Proceeds                from debt                                                                                      |   |                                                                 | 83,605,876   |                                                                                                                         |   | 23,899,341 |   |
| Repayment                of debt                                                                                       |   |                                                                 | (15,610,092  | )                                                                                                                            |   | (273,302 | ) |
| Limited                Partners’ capital contributions                                                           |   |                                                                 | 46,943,246   |                                                                                                                         |   | 8,400,027 |   |
| Payment                of offering costs incurred for the sale of partnership                units                     |   |                                                                 | (6,203,012   | )                                                                                                                            |   | (1,113,818 | ) |
| Partners’** **distributions                                                                                 |   |                                                                 | (1,458,984   | )                                                                                                                            |   | (158,597 | ) |
| Redemption                of initial limited partners                                                                  |   |                                                                 | −      |                                                                                                                         |   | (1 | ) |
| Net                cash provided by financing activities                                                               |   |                                                                 | 106,273,208  |                                                                                                                         |   | 30,041,082 |   |
|                                                                                                                   |   |                                                                 |         |                                                                                                                         |   |   |   |
| Increase                in cash                                                                                   |   |                                                                 | 8,902,091    |                                                                                                                         |   | 2,315,810 |   |
| Cash,                beginning of period                                                                          |   |                                                                 | 1,033,939    |                                                                                                                         |   | 1,001 |   |
| Cash,                end of period                                                                                |   | $                                                                    | 9,936,030    |                                                                                                                         | $      | 2,316,811 |   |

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**LEASE      EQUITY APPRECIATION FUND II, L.P.**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER      30, 2006**

**NOTE      1 **
**-**
**      ORGANIZATION AND NATURE OF BUSINESS**

**NOTE      2 − SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**Basis      of Presentation**

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**LEASE      EQUITY APPRECIATION FUND II, L.P.**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**

**SEPTEMBER      30, 2006**

**NOTE      2 − SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES −(Continued)**

**Classification      **

**Use      of Estimates**

**Concentration      of Credit Risk**

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**LEASE      EQUITY APPRECIATION FUND II, L.P.**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**

**SEPTEMBER      30, 2006**

**NOTE      2 − SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES −(Continued)**

**Revenue      Recognition**

*Direct      Financing Leases. *

*Operating      Leases. *

*Notes      Receivable.*

**Income      Taxes**

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**LEASE      EQUITY APPRECIATION FUND II, L.P.**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**

**SEPTEMBER      30, 2006**

**NOTE      2 − SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES −(Continued)**

**Supplemental      Disclosure of Cash Flow Information**

|                                                                                                    |   | **2006** |        | **2005** |   |
|---------------------------------------------------------------------------------------------------------|--------|----------|-------------|----------|--------|
| **Cash                  paid for:**                                                                     |   |     |        |     |   |
| Interest                                                                                                |   | $        | 2,933,047   |     | $      | 91,150 |   |
| **Non-cash                  activities:**                                                               |   |     |        |     |   |   |   |
| Purchase                  of financing assets from Merrill Lynch Equipment Finance                      |   | $        | 173,043,223 |     | $      | − |   |
| Revolving                  line of credit Merrill Lynch Commercial Finance                  Corporation |   | $        | 173,043,223 |     | $      | − |   |

**Transfers      of Financial Assets**

*Accounting      for Transfers and Servicing of Financial Assets and Extinguishments of      Liabilities,*

**Fair      Value of Financial Instruments**

**NOTE      3 - RESTRICTED CASH**

**NOTE      4 − DUE FROM LOCKBOX**

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**LEASE      EQUITY APPRECIATION FUND II, L.P.**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**

**SEPTEMBER      30, 2006**

**NOTE      5 **
**-**
**      INVESTMENT IN LEASES AND NOTES**

|                                         |   | **September                30,** |        | **December                31,** |   |
|----------------------------------------------|--------|----------------------------------|-------------|---------------------------------|--------|
|                                         |   | **2006**                         |        | **2005**                        |   |
| Direct                financing leases       |   | $                                | 262,589,188 |                            | $      | 34,730,134 |   |
| Notes                receivable              |   |                             | 41,107,287  |                            |   | 3,321,277 |   |
|                                         |   |                             | 303,696,475 |                            |   | 38,051,411 |   |
| Allowance                for possible losses |   |                             | (1,120,000  | )                               |   | (130,000 | ) |
|                                         |   | $                                | 302,576,475 |                            | $      | 37,921,411 |   |

|                                                      |   | **September                30,** |        | **December                31,** |   |
|-----------------------------------------------------------|--------|----------------------------------|-------------|---------------------------------|--------|
|                                                      |   | **2006**                         |        | **2005**                        |   |
| Total                future minimum lease payments        |   | $                                | 290,118,904 |                            | $      | 37,102,220 |   |
| Unearned                rental income                     |   |                             | (34,042,314 | )                               |   | (4,197,963 | ) |
| Residuals,                net of unearned residual income |   |                             | 6,512,598   |                            |   | 1,825,877 |   |
|                                                      |   | $                                | 262,589,188 |                            | $      | 34,730,134 |   |

|                                                                                                     |   | **Nine                Months Ended****September                30, 2006** |      | **Period                Ended****September                30, 2005** |   |
|----------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|-----------|----------------------------------------------------------------------|--------|
| Allowance                for possible losses, beginning of period                                        |   | $                                                                         | 130,000   |                                                                 | $      | − |   |
| Provision                for credit losses                                                               |   |                                                                      | 505,410   |                                                                 |   | 10,000 |   |
| Allowance                for possible losses, in connection with acquisition (see Note                7) |   |                                                                      | 920,000   |                                                                 |   | − |   |
| Net                write offs                                                                            |   |                                                                      | (435,410  | )                                                                    |   | − |   |
| Allowance                for possible losses, end of period                                              |   | $                                                                         | 1,120,000 |                                                                 | $      | 10,000 |   |

| **Years                Ending****September                30, 2006** |   | **Direct****Financing                Leases** |        | **Notes** |   | **Operating                Leases** |   | **Total** |       |
|----------------------------------------------------------------------|--------|-----------------------------------------------|-------------|-----------|--------|-------------------------------------|--------|-----------|------------|
| 2007                                                            |   | $                                             | 102,421,365 |      | $      | 14,344,482                          |   | $         | 4,713,372  |   | $ | 121,479,219 |   |
| 2008                                                            |   |                                          | 83,023,817  |      |   | 6,357,720                           |   |      | 3,632,567  |   |   | 93,014,104 |   |
| 2009                                                            |   |                                          | 56,703,369  |      |   | 6,171,442                           |   |      | 1,789,332  |   |   | 64,664,143 |   |
| 2010                                                            |   |                                          | 31,768,218  |      |   | 5,831,628                           |   |      | 953,195    |   |   | 38,553,041 |   |
| 2011                                                            |   |                                          | 10,304,588  |      |   | 4,138,891                           |   |      | 133,404    |   |   | 14,576,883 |   |
| Thereafter                                                           |   |                                          | 5,897,547   |      |   | 4,263,124                           |   |      | 16,141     |   |   | 10,176,812 |   |
|                                                                 |   | $                                             | 290,118,904 |      | $      | 41,107,287                          |   | $         | 11,238,011 |   | $ | 342,464,202 |   |

----

**LEASE      EQUITY APPRECIATION FUND II, L.P.**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**

**SEPTEMBER      30, 2006**

**NOTE      6 − OTHER ASSETS**

**NOTE        7 − EQUIPMENT FINANCE PORTFOLIO ACQUISTION**

| Total                    future minimum lease and note payments        |   | $      | 212,805,000 |   |
|------------------------------------------------------------------------|--------|--------|-------------|--------|
| Unearned                    rental income                              |   |   | (24,612,000 | )      |
| Residuals,                    net of unearned residual income          |   |   | 2,069,000   |   |
| Allowance                    for bad debt                              |   |   | (920,000    | )      |
| Net                    investment in direct financing leases and notes |   |   | 189,342,000 |   |
| Equipment                    under operating leases                    |   |   | 351,000     |   |
| Other                    assets acquired, net:                         |   |   |        |   |
| Due                    from lockbox                                    |   |   | 1,108,000   |   |
| Property                    taxes receivable                           |   |   | 1,040,000   |   |
| Security                    deposits, cash account                     |   |   | 1,513,000   |   |
| Security                    deposits, net of receivables               |   |   | (1,652,000  | )      |
|                                                                   |   |   | 2,009,000   |   |
| Net                    assets acquired                                 |   |   | 191,702,000 |   |
| Less:                    Debt incurred                                 |   |   | 173,043,000 |   |
| Net                    cash paid at closing                            |   | $      | 18,659,000  |   |

----

**LEASE        EQUITY APPRECIATION FUND II, L.P.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**

**SEPTEMBER        30, 2006**

**NOTE 8      **
**-**
**      DEBT**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | **September                30, 2006** |        | **December                31, 2005** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|-------------|--------------------------------------|--------|
| WestLB                AG, New York Branch revolving line of credit, with an aggregate borrowing                limit of $150 million collateralized by specific leases and notes                receivables and related equipment, with a 1% credit reserve of the                outstanding line of credit. Interest on this facility is calculated                at                LIBOR plus .95% per annum. To mitigate fluctuations in interest rates                the                Fund has entered into interest rate swap agreements. As of September                30,                2006, the interest rate swap agreements terminate on various dates                ranging                from December 2010 to September 2013. As of September 30, 2006, the                interest rate swap agreements fix the interest rate on the outstanding                balance at 6.07% on a weighted average basis. Interest and principal                are                due monthly. The line of credit is renewable for one year periods                in 2007                and 2008. The terms of the Funds’ credit facility with WestLB includes                financial covenants related to the Fund’s net worth and leverage used. As                of September 30, 2006, the Fund is in compliance with all such                covenants |   | $                                     | 102,507,584 |                                 | $      | 34,511,800 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                  |        |                                 |   |   |   |
| Merrill                Lynch Commercial Finance Corporation revolving line of credit, with                an aggregate borrowing limit of $200 million collateralized by specific                leases and notes receivables and related equipment. Interest on this                facility is calculated at LIBOR plus .95% per annum. To mitigate                fluctuations in interest rates the Fund has entered into an interest                rate                swap agreement. As of September 30, 2006, the interest rate swap                agreement                fixes the interest rate on the outstanding balance at 5.36% and                terminates in June 2013. Interest and principal are due monthly.                The line                of credit expires in February 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                  | 173,043,223 |                                 |   | − |   |
| Total                outstanding debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | $                                     | 275,550,807 |                                 | $      | 34,511,800 |   |

| 2007       |   | $      | 84,327,717  |   |
|------------|--------|--------|-------------|--------|
| 2008       |   |   | 77,290,150  |   |
| 2009       |   |   | 56,051,594  |   |
| 2010       |   |   | 34,641,760  |   |
| 2011       |   |   | 13,963,180  |   |
| Thereafter |   |   | 9,276,406   |   |
|       |   | $      | 275,550,807 |   |

**NOTE 9        − DERIVATIVE INSTRUMENTS**

----

**LEASE        EQUITY APPRECIATION FUND II, L.P.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**

**SEPTEMBER        30, 2006**

**(unaudited)**

**NOTE        9 − DERIVATIVE INSTRUMENTS − (Continued)**

**NOTE        10 − TRANSACTIONS WITH AFFILIATES**

----

**LEASE        EQUITY APPRECIATION FUND II, L.P.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**

**SEPTEMBER        30, 2006**

**(unaudited)**

**NOTE        10 − TRANSACTIONS WITH AFFILIATES − (Continued)**

|                                                             |   | **Three                Months Ended****September                30,** |    | **Nine                Months Ended** |   | **Period                Ended****September                30,** |   |
|------------------------------------------------------------------|--------|-----------------------------------------------------------------------|---------|--------------------------------------|--------|-----------------------------------------------------------------|--------|
|                                                             |   | **2006**                                                              |    | **2005**                             |   | **2006**                                                        |   | **2005** |   |
| Acquisition                fees                                  |   | $                                                                     | 546,359 |                                 | $      | 121,097                                                         |   | $ | 1,899,520 |   | $ | 534,879 |   |
| Asset                management fees                             |   | $                                                                     | 287,093 |                                 | $      | 43,484                                                          |   | $ | 609,021 |   | $ | 57,838 |   |
| Organization                and offering expense allowance  |   | $                                                                     | 882,947 |                                 | $      | 125,103                                                         |   | $ | 1,643,014 |   | $ | 293,995 |   |
| Reimbursed                administrative expenses           |   | $                                                                     | 202,870 |                                 | $      | 106,639                                                         |   | $ | 493,663 |   | $ | 208,900 |   |
| Underwriting                fees                            |   | $                                                                     | 756,812 |                                 | $      | 107,231                                                         |   | $ | 1,376,703 |   | $ | 251,319 |   |

**NOTE      11 **
**-**
**      ALLOCATION OF PARTNERSHIP INCOME, LOSS AND CASH      DISTRIBUTIONS**

**NOTE      12 − COMPREHENSIVE INCOME **

----

**LEASE        EQUITY APPRECIATION FUND II, L.P.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)**

**SEPTEMBER        30, 2006**

**(unaudited)**

**NOTE      13 − NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT**

----

**ITEM      2.**
**MANAGEMENT’S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION **
**AND      RESULTS OF OPERATIONS (unaudited)**

**When      used in this Form 10-Q, the words “believes” “anticipates,” “expects” and      similar expressions are intended to identify forward-looking statements. Such      statements are subject to certain risks and uncertainties more particularly      described in Item 1A, under the caption “Risks Inherent in Our Business,” in our      annual report on Form 10-K for fiscal 2005. These risks and uncertainties could      cause actual results to differ materially. 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-Q or to reflect the occurrence      of      unanticipated events.**

**OVERVIEW**

| ·   | 500                or fewer employees; |
|--------------------|----------------------------------------|

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

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

----

**Our      Lease Portfolio **

**Direct      Financing Leases and Notes**

|                                 |   | **September                30, 2006** |    |           |   | **December                31, 2005** |   |
|--------------------------------------|--------|---------------------------------------|---------|----------------|--------|--------------------------------------|--------|
| **Type                of Equipment** |   | **Net                Investment**     |    | **Percentage** |   | **Type                of Equipment** |   | **Net                Investment** |   | **Percentage** |   |
| Computers                            |   | $                                     | 78,377  |           |   | 25.8                                 | %      |   | Computers |   | $ | 13,030 |   |   | 34.2 | % |
| Medical                Equipment     |   |                                  | 68,183  |           |   | 22.5                                 |   |   | Medical                Equipment |   |   | 6,823 |   |   | 17.9 |   |
| Industrial                Equipment  |   |                                  | 54,117  |           |   | 17.8                                 |   |   | Industrial                Equipment |   |   | 6,113 |   |   | 16.1 |   |
| Garment                Care          |   |                                  | 19,544  |           |   | 6.4                                  |   |   | Office                Equipment |   |   | 2,801 |   |   | 7.4 |   |
| Office                Equipment      |   |                                  | 18,530  |           |   | 6.1                                  |   |   | Software |   |   | 2,547 |   |   | 6.7 |   |
| Software                             |   |                                  | 14,157  |           |   | 4.7                                  |   |   | Building                systems |   |   | 1,886 |   |   | 5.0 |   |
| Restaurant                Equipment  |   |                                  | 13,710  |           |   | 4.5                                  |   |   | Garment                Care |   |   | 1,556 |   |   | 3.9 |   |
| Communications                       |   |                                  | 10,384  |           |   | 3.4                                  |   |   | Restaurant                Equipment |   |   | 1,476 |   |   | 4.1 |   |
| Building                Systems      |   |                                  | 9,903   |           |   | 3.3                                  |   |   | Communications |   |   | 984 |   |   | 2.6 |   |
| Other                                |   |                                  | 16,791  |           |   | 5.5                                  |   |   | Agriculture |   |   | 815 |   |   | 2.1 |   |
|                                 |   | $                                     | 303,696 |           |   | ___100.0                             | %      |   |   |   | $ | 38,051 |   |   | 100.0 | % |

**Operating      Leases**

|                                 |   | **September                30 2006** |   |           |   | **December                31, 2005** |   |
|--------------------------------------|--------|--------------------------------------|--------|----------------|--------|--------------------------------------|--------|
| **Type                of Equipment** |   | **Net                Investment**    |   | **Percentage** |   | **Type                of Equipment** |   | **Net                Investment** |   | **Percentage** |   |
| Computers                            |   | $                                    | 3,646  |           |   | 30.4                                 | %      |   | Communications |   | $ | 1,248 |   |   | 28.6 | % |
| Industrial                Equipment  |   |                                 | 3,275  |           |   | 27.2                                 |   |   | Office                Equipment |   |   | 1,111 |   |   | 25.5 |   |
| Communications                       |   |                                 | 2,494  |           |   | 20.8                                 |   |   | Industrial                Equipment |   |   | 1,070 |   |   | 24.5 |   |
| Office                Equipment      |   |                                 | 2,045  |           |   | 17.1                                 |   |   | Computers |   |   | 646 |   |   | 14.8 |   |
| Medical                Equipment     |   |                                 | 256    |           |   | 2.1                                  |   |   | Medical                Equipment |   |   | 255 |   |   | 5.9 |   |
| Building                Systems      |   |                                 | 125    |           |   | 1.0                                  |   |   | Building                Systems |   |   | 29 |   |   | 0.7 |   |
| Garment                Care          |   |                                 | 69     |           |   | 0.6                                  |   |   |   |   | $ | 4,359 |   |   | 100.0 | % |
| Agriculture                          |   |                                 | 54     |           |   | 0.5                                  |   |   |   |   |   |   |   |   |   |   |
| Software                             |   |                                 | 31     |           |   | 0.3                                  |   |   |   |   |   |   |   |   |   |   |
|                                 |   | $                                    | 11,995 |           |   | 100.0                                | %      |   |   |   |   |   |   |   |   |   |

----

**Direct      Financing Leases and Notes**

|                                                                              |   | **September                30, 2006** |    |           |   | **December                31, 2005** |   |
|-----------------------------------------------------------------------------------|--------|---------------------------------------|---------|----------------|--------|--------------------------------------|--------|
| **Type                of Business**                                               |   | **Net                Investment**     |    | **Percentage** |   | **Type                of Business**  |   | **Net                Investment** |   | **Percentage** |   |
| Services                                                                          |   | $                                     | 168,033 |           |   | 55.3                                 | %      |   | Services |   | $ | 21,489 |   |   | 56.4 | % |
| Retail                Trade                                                       |   |                                  | 40,377  |           |   | 13.3                                 |   |   | Retail                Trade |   |   | 4,563 |   |   | 12.0 |   |
| Manufacturing                                                                     |   |                                  | 30,269  |           |   | 10.0                                 |   |   | Manufacturing |   |   | 2,913 |   |   | 7.7 |   |
| Agriculture/Forestry/Fishing                                                      |   |                                  | 10,353  |           |   | 3.4                                  |   |   | Wholesale                Trade |   |   | 2,096 |   |   | 5.5 |   |
| Wholesale                Trade                                                    |   |                                  | 10,310  |           |   | 3.4                                  |   |   | Finance/Insurance/Real                Estate |   |   | 1,464 |   |   | 3.8 |   |
| Transportation/Communication/                    Energy  |   |                                  | 9,976   |           |   | 3.3                                  |   |   | Transportation/Communication/                    Energy |   |   | 1,436 |   |   | 3.8 |   |
| Finance/Insurance/Real                Estate                                 |   |                                  | 9,301   |           |   | 3.1                                  |   |   | Construction |   |   | 1,223 |   |   | 3.2 |   |
| Construction                                                                      |   |                                  | 9,235   |           |   | 3.0                                  |   |   | Public                Administration |   |   | 916 |   |   | 2.4 |   |
| Public                Administration                                              |   |                                  | 1,909   |           |   | 0.6                                  |   |   | Agriculture/Forestry/Fishing |   |   | 868 |   |   | 2.3 |   |
| Other                                                                             |   |                                  | 13,933  |           |   | 4.6                                  |   |   | Other |   |   | 1,083 |   |   | 2.9 |   |
|                                                                              |   | $                                     | 303,696 |           |   | 100.0                                | %      |   |   |   | $ | 38,051 |   |   | 100.0 | % |

**Operating      Leases**

|                                                        |   | **September                30, 2006** |   |           |   | **December                31, 2005** |   |
|-------------------------------------------------------------|--------|---------------------------------------|--------|----------------|--------|--------------------------------------|--------|
| **Type                of Business**                         |   | **Net                Investment**     |   | **Percentage** |   | **Type                of Business**  |   | **Net                Investment** |   | **Percentage** |   |
| Services                                                    |   | $                                     | 5,257  |           |   | 43.9                                 | %      |   | Services |   | $ | 1,664 |   |   | 38.1 | % |
| Construction                                                |   |                                  | 2,642  |           |   | 22.0                                 |   |   | Construction |   |   | 977 |   |   | 22.4 |   |
| Manufacturing                                               |   |                                  | 1,032  |           |   | 8.6                                  |   |   | Manufacturing |   |   | 683 |   |   | 15.7 |   |
| Retail                Trade                                 |   |                                  | 844    |           |   | 7.0                                  |   |   | Mining |   |   | 281 |   |   | 6.5 |   |
| Public                Administration                        |   |                                  | 609    |           |   | 5.1                                  |   |   | Finance/Insurance/Real                Estate |   |   | 264 |   |   | 6.1 |   |
| Finance/Insurance/Real                Estate                |   |                                  | 492    |           |   | 4.1                                  |   |   | Retail                Trade |   |   | 215 |   |   | 4.9 |   |
| Wholesale                Trade                              |   |                                  | 415    |           |   | 3.5                                  |   |   | Wholesale                Trade |   |   | 105 |   |   | 2.4 |   |
| Transportation/Communication/    Energy |   |                                  | 362    |           |   | 3.0                                  |   |   | Public                Administration |   |   | 92 |   |   | 2.1 |   |
| Agriculture                                                 |   |                                  | 254    |           |   | 2.1                                  |   |   | Transportation/Communication/                    Energy |   |   | 78 |   |   | 1.8 |   |
| Other                                                       |   |                                  | 88     |           |   | 0.7                                  |   |   |   |   | $ | 4,359 |   |   | 100.0 | % |
|                                                        |   | $                                     | 11,995 |           |   | 100.00                               | %      |   |   |   |   |   |   |   |   |   |

----

**Results      of Operations **

*Three      Months Ended September 30, 2006 Compared to the Three Months Ended September      30,      2005*

| ·   | Interest                income on equipment financings increased to $2,152,664 for                the three months ended September 30, 2006 as compared to                $279,704 for                the three months September 30, 2005 an increase of $1,872,960 (669.6%).                Our average net investments in financing assets increased to $118,265,040                for the three months ended September 30, 2006 as compared to $16,857,690                for the three months ended September 30, 2005, an increase of $101,407,350                (602.0%). |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Rental                income increased to $1,082,449 for                the three months ended September 30, 2006 as compared to                $47,149 for                the three months ended September 30, 2005, an increase of $1,035,300                (2,159.8%). This increase is directly related to our increase in                operating                leases. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Gain                on sale of equipment increased to $143,941 for                the three months ended September 30, 2006 as compared to a loss of                $1,192                for the three months ended September 30, 2005, an increase of $145,133                (12,175.6%). Gains and losses on sales of equipment may vary significantly                from period to period. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Other                income increased to $165,210 for the three months ended September                30, 2006                as compared to $17,039 for the three months ended September 30, 2005,                an                increase of $148,171 (869.6%). Other income consists primarily of                late fee                income. Late fee income has increased due to the increase and aging                of the                equipment financing portfolio coupled with an increase in payment                collection efforts. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

** **

| ·   | Interest                expense increased to $1,507,729 for the three months ended September                30,                2006 as compared to $144,767 for the three months ended September                30,                2005, an increase of $1,362,962 (941.5%) due to our increase in average                debt outstanding. Interest expense will increase significantly in                future                periods in proportion to the expected increase in revenues due to                a full                period of interest expense on the new Merrill Lynch credit                facility. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Depreciation                on operating leases increased to $890,221 for the three months ended                September 30, 2006 as compared to $37,875 for the three months ended                September 30, 2005, an increase of $852,346                (2,250.4%). |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Our                provision for credit losses increased to $222,507 for                the three months ended September 30, 2006 as compared to $4,800 for                the                three months ended September 30, 2005, an increase of $217,707 (4,535.6%).                The increase in our provision for credit losses is principally a                result of                the increase in our portfolio of equipment financings. We provide                an                adequate provision for credit losses that are likely to occur based                on the                size of our portfolio, a migration analysis of past due payments                and                economic conditions. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Management                fees increased to $287,093 for                the three months ended September 30, 2006 as compared to $43,484                for the                three months ended September 30, 2005, an increase of $243,609 (560.2%).                This increase is directly attributable to the increase in our portfolio                of                equipment financing assets. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Administrative                expenses reimbursed to related party increased to $202,870 for the                three                months ended September 30, 2006 as compared to $106,639 for the three                months ended September 30, 2005, an increase of $96,231 (90.2%).                This                increase is due to the increase in our portfolio of equipment financing                assets. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | General                and administrative expenses increased to $136,723 for the three months                ended September 30, 2006 as compared to $70,943 for the three months                ended                September 30, 2005, an increase of $65,780 (92.7%). This increase                is                principally related to increased legal costs associated with collection                efforts. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Nine      Months Ended September 30, 2006 Compared to the Nine Months Ended September      30,      2005*

| ·   | Interest                income on equipment financings increased to $4,460,215 for                the nine months ended September 30, 2006 as compared to                $331,449 for                the period ended September 30, 2005 an increase of $4,128,766 (1,245.7%).                Our average net investments in financing assets increased to $87,745,687                for the nine months ended September 30, 2006 as compared to $10,658,699                for the nine months ended September 30, 2005, an increase of $77,086,988                (723.0%). |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Rental                income increased to $2,486,641 for                the nine months ended September 30, 2006 as compared to                $47,149 for                the period ended September 30 2005, an increase of $2,439,492                (5,174.0%). |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Gain                on sale of equipment increased to $180,708 for                the nine months ended September 30, 2006 as compared to a loss of                $1,313                for the period ended September 30 2005, an increase of $182,021                (13,863.0%). Gain on sale of equipment may vary significantly from                period                to period. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Other                income increased to $362,100 for the nine months ended September                30, 2006                as compared to $19,539 for the period ended September 30 2005, an                increase                of $342,561 (1,753.2%). Other income consists primarily of late fee                income. Late fee income has increased due to the increase and aging                of our                equipment financing portfolio coupled with an increase in payment                collection efforts. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

** **

| ·   | Interest                expense increased to $3,179,394 for the nine months ended September                30,                2006 as compared to $146,050 for the period ended September 30 2005,                an                increase of $3,033,344 (2,076.9%) due to the increase in average                debt                outstanding. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Depreciation                on operating leases increased to $2,062,281 for the nine months ended                September 30, 2006 as compared to $37,875 for the period ended September                30 2005, an increase of $2,024,406                (5,345.0%). |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our                provision for credit losses increased to $505,410 for                the nine months ended September 30, 2006 as compared to $10,000 for                the                period ended September 30 2005, an increase of $495,410 (4,954.1%).                The                increase in our provision for credit losses is principally a result                of the                increase in our portfolio of equipment financings. We attempt to                provide                an adequate provision for credit losses that are likely to occur                based on                the size of our portfolio, a migration analysis of past due payments                and                economic conditions. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Management                fees increased to $609,021 for                the nine months ended September 30, 2006 as compared to $57,838 for                the                period ended September 30 2005, an increase of $551,183 (953.0%).                This                increase is directly attributable to the increase in our portfolio                of                equipment financing assets. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Administrative                expenses reimbursed to related party increased to $493,663 for the                nine                months ended September 30, 2006 as compared to $208,900 for the period                ended September 30 2005, an increase of $284,763 (136.3%). This increase                is due to the increase in our portfolio of equipment financing                assets. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | General                and administrative expenses increased to $367,929 for the nine months                ended September 30, 2006 as compared to $133,344 for the period ended                September 30 2005, an increase of $234,585 (175.9%).  This increase                is principally related to increase in legal costs associated with                collection efforts. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Liquidity      and Capital Resources**

|                                                       |   | **Nine                  Months Ended****September                  30, 2006** |        | **Period                  Ended****September                  30, 2005** |   |
|------------------------------------------------------------|--------|-------------------------------------------------------------------------------|-------------|--------------------------------------------------------------------------|--------|
| Net                  cash provided by operating activities |   | $                                                                             | 2,116,863   |                                                                     | $      | 803 |   |
| Net                  cash used in investing activities     |   |                                                                          | (99,487,980 | )                                                                        |   | (27,726,075 | ) |
| Net                  cash provided by financing activities |   |                                                                          | 106,273,208 |                                                                     |   | 30,041,082 |   |
| Increase                  in cash                          |   | $                                                                             | 8,902,091   |                                                                     | $      | 2,315,810 |   |

----

**ITEM      3.**
**QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK **

**ITEM      4.**
**CONTROLS      AND PROCEDURES**

----

**PART      II - OTHER INFORMATION**

**ITEM      **
**2.**
**UNREGISTERED      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

| Offering                proceeds                        |   | $      | 58,922,691 |   |
|--------------------------------------------------------------|--------|--------|------------|--------|
| Expenses:                                                    |   |   |       |   |
| Sales                commissions (1)                    |   | $      | 4,001,306  |   |
| Underwriting                fees (1)                    |   |   | 1,735,410  |   |
| Organization                and offering expenses (2)   |   |   | 2,062,282  |   |
| Public                offering expenses                 |   |   | 7,798,998  |   |
|                                                         |   |   |       |   |
| Net                offering proceeds                    |   |   | 51,123,693 |   |
| Reserves                                                |   |   | 511,237    |   |
| Total                proceeds available for investment  |   | $      | 50,612,456 |   |
|                                                         |   |   |       |   |
| Use                of proceeds for investment (estimated):   |   |   |       |   |
| Used                in operations (3)                   |   |   | 2,141,246  |   |
| Acquisition                of lease portfolios (4)      |   |   | 42,229,689 |   |
| Working                capital                          |   |   | 6,241,927  |   |

----

| (1) | Paid                to an affiliate of the general partner which is then remitted to                third                parties.                      |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Paid                to the general partner.                                                                                                            |
| (3) | The                general partner was reimbursed $833,589 for operating expenses and                asset                management fees of $749,022. |
| (4) | Included                are asset acquisition fees of $2,769,643 that were paid to our general                partner.                                 |

**ITEM      6.**
**EXHIBITS**

| Exhibit                No. |   | Description                                                                                                                                                                                                                |
|----------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.6                       |   | Assignment,                Assumption and Amendment Agreement among LEAF Equity Appreciation                Fund II,                L.P. and Merrill Lynch Equipment Finance LLC, dated September 29,                2006. |
| 31.1                       |   | Rule                13a-14(a)/Rule 15d-14(a) Certification of Chief Executive                Officer.                                                                                                                      |
| 31.2                       |   | Rule                13a-14(a)/Rule 15d-14(a) Certification of Chief Financial                Officer.                                                                                                                      |
| 32.1                       |   | Certification                of Chief Executive Officer pursuant to Section 1350 of Chapter 63                of Title                18 of the United States Code.                                                        |
| 32.2                       |   | Certification                of Chief Financial Officer pursuant to Section 1350 of Chapter 63                of Title                18 of the United States Code.                                                        |

----

**SIGNATURES**

|                             | **LEASE                EQUITY APPRECIATION FUND II, L.P.**                 |
|----------------------------------|----------------------------------------------------------------------------|
|                             | A                Delaware Limited Partnership                              |
|                             | By:                LEAF Financial Corporation, its General Partner         |
|                             |                                                                       |
| November                14, 2006 | /s/                Crit DeMent                                        |
|                             | CRIT                DEMENT                                                 |
|                             | Chairman                and Chief Executive Officer of the General Partner |
|                             |                                                                       |
| November                14, 2006 | /s/                Robert K. Moskovitz                                |
|                             | ROBERT                K. MOSKOVITZ                                         |
|                             | Chief                Financial Officer, Treasurer of the General Partner   |
|                             |                                                                       |

----