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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q



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

For the quarterly period ended March 31, 2010

OR



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

For the transition period from  to

Commission file number 333-116595





LEASE EQUITY APPRECIATION FUND II, L.P.

(Exact name of registrant as specified in its charter)







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

110 South Poplar Street, Suite 101, Wilmington Delaware 19801

(Address of principal executive offices)

(800) 819-5556

(Registrants telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).     ̈  Yes     ̈  No



Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
one):



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

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

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

DOCUMENTS INCORPORATED BY REFERENCE

None









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LEASE EQUITY APPRECIATION FUND II, L.P.

INDEX TO ANNUAL REPORT

ON FORM 10-K



|           |  |                                                                                                        |  |     
|---------- |  | ------------------------------------------------------------------------------------------------------ |  | ----
|           |  |                                                                                                        |  | PAGE
|PART I     |  | FINANCIAL INFORMATION                                                                                  |  |     
|ITEM 1.    |  | Financial Statements                                                                                   |  |     
|           |  | Consolidated Balance Sheets  March 31, 2010 and December 31, 2009 (Unaudited)                         |  | 3   
|           |  | Consolidated Statements of Operations  Three Months Ended March 31, 2010 and 2009 (Unaudited)         |  | 4   
|           |  | Consolidated Statement of Changes in Partners Capital  Three Months Ended March 31, 2010 (Unaudited) |  | 5   
|           |  | Consolidated Statements of Cash Flows  Three Months Ended March 31, 2010 and 2009 (Unaudited)         |  | 6   
|           |  | Notes to Consolidated Financial Statements  March 31, 2010 (Unaudited)                                |  | 7   
|ITEM 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                  |  | 16  
|ITEM 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                                             |  | 23  
|ITEM 4.    |  | Controls and Procedures                                                                                |  | 24  
|           |  |                                                                                                       
|PART II    |  | OTHER INFORMATION                                                                                      |  |     
|ITEM 6.    |  | Exhibits                                                                                               |  | 25  
|           | 
|SIGNATURES |  | 27                                                                                                    



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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LEAF EQUIPMENT LEASING INCOME FUND II, L.P. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)

(Unaudited)



|                                        |  |               |         |   |                  |   |         |  
|--------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                        |  | March 31,2010 |         |   | December 31,2009 |  
|ASSETS                                  |  |               |         |   |                  |   |         |  
|Cash                                    |  | $             | 45      |   |                  | $ | 10      |  
|Restricted cash                         |  |               | 20,165  |   |                  |   | 20,378  |  
|Accounts receivable                     |  |               | 70      |   |                  |   | 77      |  
|Investment in leases and loans, net     |  |               | 144,106 |   |                  |   | 159,015 |  
|Deferred financing costs, net           |  |               | 2,221   |   |                  |   | 2,517   |  
|Other assets                            |  |               | 393     |   |                  |   | 601     |  
|                                        |  |               |         |   |                  |   |         |  
|Total assets                            |  | $             | 167,000 |   |                  | $ | 182,598 |  
|                                        |  |               |         |   |                  |   |         |  
|                                        |  |              
|LIABILITIES AND PARTNERS CAPITAL       |  |               |         |   |                  |   |         |  
|Liabilities:                            |  |               |         |   |                  |   |         |  
|Bank debt                               |  | $             | 137,883 |   |                  | $ | 151,981 |  
|Note payable - related party            |  |               | 8,038   |   |                  |   |        |  
|Accounts payable and accrued expenses   |  |               | 633     |   |                  |   | 488     |  
|Other liabilities                       |  |               | 474     |   |                  |   | 830     |  
|Derivative liabilities at fair value    |  |               | 4,528   |   |                  |   | 5,381   |  
|Due to affiliates                       |  |               | 16,432  |   |                  |   | 21,464  |  
|                                        |  |               |         |   |                  |   |         |  
|Total liabilities                       |  |               | 167,988 |   |                  |   | 180,144 |  
|                                        |  |               |         |   |                  |   |         |  
|                                        |  |              
|Commitments and contingencies           |  |               |         |   |                  |   |         |  
|                                        |  |              
|Partners (Deficit) Capital:            |  |               |         |   |                  |   |         |  
|General partner                         |  |               | (487    | ) |                  |   | (443    | )
|Limited partners                        |  |               | 3,036   |   |                  |   | 7,318   |  
|Accumulated other comprehensive loss    |  |               | (3,537  | ) |                  |   | (4,421  | )
|                                        |  |               |         |   |                  |   |         |  
|Total partners (deficit) capital       |  |               | (988    | ) |                  |   | 2,454   |  
|                                        |  |               |         |   |                  |   |         |  
|Total liabilities and partners' capital |  | $             | 167,000 |   |                  | $ | 182,598 |  
|                                        |  |               |         |   |                  |   |         |  

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



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LEAF EQUIPMENT LEASING INCOME FUND II, L.P. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except unit and per unit data)

(Unaudited)



|                                                                               |  |                             |         |   |      |   |         |  
|------------------------------------------------------------------------------ |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                               |  | Three Months EndedMarch 31, |        
|                                                                               |  | 2010                        |         |   | 2009 |  
|Revenues:                                                                      |  |                             |         |   |      |   |         |  
|Interest on equipment financings                                               |  | $                           | 3,076   |   |      | $ | 5,336   |  
|Rental income                                                                  |  |                             | 517     |   |      |   | 800     |  
|Losses on sales of equipment and lease dispositions, net                       |  |                             | (700    | ) |      |   | (164    | )
|Other                                                                          |  |                             | 422     |   |      |   | 438     |  
|                                                                               |  |                             |         |   |      |   |         |  
|                                                                               |  |                             | 3,315   |   |      |   | 6,410   |  
|                                                                               |  |                             |         |   |      |   |         |  
|                                                                               |  |                            
|Expenses:                                                                      |  |                             |         |   |      |   |         |  
|Interest expense                                                               |  |                             | 2,714   |   |      |   | 3,675   |  
|Interest expense- related party                                                |  |                             | 38      |   |      |   |        |  
|Depreciation on operating leases                                               |  |                             | 402     |   |      |   | 700     |  
|Provision for credit losses                                                    |  |                             | 2,459   |   |      |   | 2,872   |  
|General and administrative expenses                                            |  |                             | 608     |   |      |   | 838     |  
|Administrative expenses reimbursed to affiliate                                |  |                             | 490     |   |      |   | 693     |  
|Management fees to affiliate                                                   |  |                             | 562     |   |      |   | 798     |  
|                                                                               |  |                             |         |   |      |   |         |  
|                                                                               |  |                             | 7,273   |   |      |   | 9,576   |  
|                                                                               |  |                             |         |   |      |   |         |  
|Net loss                                                                       |  | $                           | (3,958  | ) |      | $ | (3,166  | )
|                                                                               |  |                             |         |   |      |   |         |  
|Net loss allocated to limited partners                                         |  | $                           | (3,918  | ) |      | $ | (3,134  | )
|                                                                               |  |                             |         |   |      |   |         |  
|Weighted average number of limited partner units outstanding during the period |  |                             | 592,808 |   |      |   | 593,394 |  
|                                                                               |  |                             |         |   |      |   |         |  
|Net loss per weighted average limited partner unit                             |  | $                           | (6.61   | ) |      | $ | (5.28   | )
|                                                                               |  |                             |         |   |      |   |         |  

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



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LEAF EQUIPMENT LEASING INCOME FUND II, L.P. AND SUBSIDIARIES

Consolidated Statement of Changes in Partners Capital

(In thousands, except unit data)

(Unaudited)



|                                             |                      |                  |       |   |        |         |                            |                                            |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|-------------------------------------------- | -------------------- | ---------------- | ----- | - | ------ | ------- | -------------------------- | ------------------------------------------ | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                             |                      |                  |       |   |        |         |                            | AccumulatedOtherComprehensiveIncome (Loss) |        |   |  |   |        |   | 
|                                             | GeneralPartnerAmount |                  |       |   |        |         |                            | TotalPartnersCapital                      |        |   |  |  
|                                             |                      | Limited Partners |       |   |        |         | ComprehensiveIncome
(Loss) |                                           
|                                             |                      |                  | Units |   | Amount |         |                            |                                            |       
|Balance, January 1, 2010                     |                      | $                | (443  | ) |        | 592,810 |                            | $                                          | 7,318  |   |  | $ | (4,421 | ) |  | $ | 2,454  |   |  |   |        |  
|Cash distributions                           |                      |                  | (4    | ) |        |        |                            |                                            | (364   | ) |  |   |       |   |  |   | (368   | ) |  |   |        |  
|Net loss                                     |                      |                  | (40   | ) |        |        |                            |                                            | (3,918 | ) |  |   |       |   |  |   | (3,958 | ) |  | $ | (3,958 | )
|Unrealized gains on financial derivatives    |                      |                  |      |   |        |        |                            |                                            |       |   |  |   | 979    |   |  |   | 979    |   |  |   | 979    |  
|Amortization of gain on financial derivative |                      |                  |      |   |        |        |                            |                                            |       |   |  |   | (95    | ) |  |   | (95    | ) |  |   | (95    | )
|                                             |                      |                  |       |   |        |         |                            |                                            |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Balance, March 31, 2010                      |                      | $                | (487  | ) |        | 592,810 |                            | $                                          | 3,036  |   |  | $ | (3,537 | ) |  | $ | (988   | ) |  | $ | (3,074 | )
|                                             |                      |                  |       |   |        |         |                            |                                            |        |   |  |   |        |   |  |   |        |   |  |   |        |  

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



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LEAF EQUIPMENT LEASING INCOME FUND II, L.P. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                                          |  |                             |         |   |      |   |         |  
|----------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                          |  | Three Months EndedMarch 31, |        
|                                                                                          |  | 2010                        |         |   | 2009 |  
|Cash flows from operating activities:                                                     |  |                             |         |   |      |   |         |  
|Net loss                                                                                  |  | $                           | (3,958  | ) |      | $ | (3,166  | )
|Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |  |                             |         |   |      |   |         |  
|Losses on sales of equipment and lease dispositions, net                                  |  |                             | 700     |   |      |   | 164     |  
|Depreciation on operating leases                                                          |  |                             | 402     |   |      |   | 700     |  
|Provision for credit losses                                                               |  |                             | 2,459   |   |      |   | 2,872   |  
|Amortization of deferred financing costs                                                  |  |                             | 576     |   |      |   | 170     |  
|Amortization of gain on financial derivative                                              |  |                             | (95     | ) |      |   | (96     | )
|Changes in operating assets and liabilities                                               |  |                             |         |   |      |   |         |  
|Accounts receivable                                                                       |  |                             | 7       |   |      |   | 26      |  
|Other assets                                                                              |  |                             | 334     |   |      |   | 56      |  
|Accounts payable and accrued expenses and other liabilities                               |  |                             | (173    | ) |      |   | 198     |  
|Due to affiliates, net                                                                    |  |                             | (5,032  | ) |      |   | 3,133   |  
|                                                                                          |  |                             |         |   |      |   |         |  
|Net cash (used in ) provided by operating activities                                      |  |                             | (4,780  | ) |      |   | 4,057   |  
|                                                                                          |  |                             |         |   |      |   |         |  
|                                                                                          |  |                            
|Cash flows from investing activities:                                                     |  |                             |         |   |      |   |         |  
|Purchases of leases and loans                                                             |  |                             | (7,690  | ) |      |   | (6,986  | )
|Proceeds from leases and loans                                                            |  |                             | 19,084  |   |      |   | 25,207  |  
|Security deposits collected, net of returns                                               |  |                             | (46     | ) |      |   | (85     | )
|                                                                                          |  |                             |         |   |      |   |         |  
|Net cash provided by investing activities                                                 |  |                             | 11,348  |   |      |   | 18,136  |  
|                                                                                          |  |                             |         |   |      |   |         |  
|                                                                                          |  |                            
|Cash flows from financing activities:                                                     |  |                             |         |   |      |   |         |  
|Borrowings of bank debt                                                                   |  |                             | 6,735   |   |      |   | 6,656   |  
|Repayment of bank debt                                                                    |  |                             | (20,833 | ) |      |   | (30,341 | )
|Borrowings- note payable- related party                                                   |  |                             | 8,000   |   |      |   |        |  
|Decrease in restricted cash                                                               |  |                             | 213     |   |      |   | 3,674   |  
|Increase in deferred financing costs                                                      |  |                             | (280    | ) |      |   | (751    | )
|Cash distributions to partners                                                            |  |                             | (368    | ) |      |   | (1,182  | )
|Redemption of limited partner units                                                       |  |                             |        |   |      |   | (52     | )
|                                                                                          |  |                             |         |   |      |   |         |  
|Net cash used in financing activities                                                     |  |                             | (6,533  | ) |      |   | (21,996 | )
|                                                                                          |  |                             |         |   |      |   |         |  
|                                                                                          |  |                            
|Increase in cash                                                                          |  |                             | 35      |   |      |   | 197     |  
|Cash, beginning of year                                                                   |  |                             | 10      |   |      |   | 149     |  
|                                                                                          |  |                             |         |   |      |   |         |  
|Cash, end of period                                                                       |  | $                           | 45      |   |      | $ | 346     |  
|                                                                                          |  |                             |         |   |      |   |         |  

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



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

Notes To Consolidated Financial Statements

March 31, 2010

(Unaudited)

NOTE 1
 ORGANIZATION AND NATURE OF BUSINESS

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

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

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

As of
March 31, 2010, in addition to its 1% general partnership interest, the General Partner also had invested $874,000 for a 1.6% limited partnership interest in the Fund.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

The accompanying unaudited financial statements
reflect all adjustments that are, in the opinion of management, of a normal and recurring nature and necessary for a fair statement of the Funds financial position as of March 31, 2010, and the results of its operations and cash flows for
the periods presented. The results of operations for the three months ended March 31, 2010 are not necessarily indicative of results of the Funds operations for the 2010 fiscal year. The Fund has evaluated subsequent events through the
date the financial statements were issued. The financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and note disclosures normally included
in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to those rules and regulations. These interim financial statements should be
read in conjunction with the Funds financial statements and notes thereto presented in the Funds Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC on April 2, 2010.

Significant Accounting Policies

Investments in Leases and Loans

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

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

Unguaranteed residual value represents the estimated amount to be received at lease termination from lease extensions or ultimate
disposition of the leased equipment. The estimates of residual values are based upon the General Partners history with regard to the realization of residuals, available industry data and the General Partners senior managements
experience with respect to



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comparable equipment. The estimated residual values are recorded as a component of investments in leases. Residual values are reviewed periodically to determine if the current estimate of the
equipments fair market value appears to be below its recorded estimate. If required, residual values are adjusted downward to reflect adjusted estimates of fair market values. Upward adjustments to residual values are not permitted.

Operating Leases.Leases not meeting the criteria to be classified as direct financing leases are deemed to be
operating leases. Under the accounting for operating leases, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciated on a straight-line basis over the equipments
estimated useful life, generally up to seven years. Rental income consists primarily of monthly periodic rental payments due under the terms of the leases. The Fund recognizes rental income on a straight line basis. Generally, during the lease terms
of existing operating leases, the Fund will not recover all of the cost and related expenses of its rental equipment and, therefore, it is prepared to remarket the equipment in future years. The Funds policy is to review, on a quarterly basis,
the expected economic life of its rental equipment in order to determine the recoverability of its undepreciated cost. The Fund writes down its rental equipment to its estimated net realizable value when it is probable that its carrying amount
exceeds such value and the excess can be reasonably estimated; gains are only recognized upon actual sale of the rental equipment. There were no write-downs of equipment during the three months ended March 31, 2010, and 2009.

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

Allowance for credit losses.The Fund evaluates the adequacy of the allowance for credit losses (including investments in leases
and loans) based upon, among other factors, managements historical experience on the portfolios it manages, an analysis of contractual delinquencies, economic conditions and trends, and equipment finance portfolio characteristics, adjusted for
expected recoveries. In evaluating historic performance, the Fund performs a migration analysis, which estimates the likelihood that an account progresses through delinquency stages to ultimate charge-off. After an account becomes 180 or more days
past due, it is generally fully reserved less an estimated recovery amount and referred to our internal recovery group consisting of a team of credit specialists and collectors. The group utilizes several resources in an attempt to maximize
recoveries on charged-off accounts including:1) initiating litigation against the end user customer and any personal guarantor, 2) referring the account to an outside law firm or collection agency and/or 3) repossessing and remarketing the equipment
through third parties. The Funds policy is to charge off to the allowance those financings which are in default and for which management has determined the probability of collection to be remote. The Fund discontinues the recognition of
revenue for leases and loans for which payments are more than 90 days past due. As of March 31, 2010 and December 31, 2009, the Fund had $6.2 million and $15.0 million, respectively, of leases and loans on non-accrual status. Fees from
delinquent payments are recognized when received and are included in other income.

Derivative Instruments

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

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

Recent Accounting Standards

Newly
Adopted Accounting Principles

The Fund adopted the following accounting standards during the quarter ended March 31,
2010:

Subsequent Events. In February 2010, the FASB issued guidance which removes the requirement for an SEC filer to
disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either a correction of error or retrospective
application of U.S. GAAP. This guidance was effective upon issuance.



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Fair Value Measurements. In January 2010, the FASB issued guidance that requires new
disclosures and clarifies some existing disclosure requirements about fair value measurements. The new pronouncement requires a reporting entity: (1) to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2
fair value measurements and describe the reasons for the transfers; and (2) to present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable
inputs. In addition, it clarifies the requirements of the following existing disclosures: (1) for purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the
appropriate classes of assets and liabilities, and (2) a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The new
guidance is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of this guidance did not have a material effect on the Funds consolidated financial position or consolidated results of
operations.

NOTE 3  SUPPLEMENTAL CASH FLOW INFORMATION

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



|               |  |                              |       |      |   |      
|-------------- |  | ---------------------------- | ----- | ---- | - | -----
|               |  | Three Months Ended March 31,
|               |  | 2010                         |       | 2009
|Cash paid for: |  |                              |       |      |   |      
|Interest       |  | $                            | 2,145 |      | $ | 3,650
|               |  |                              |       |      |   |      

NOTE 4  INVESTMENT IN LEASES AND LOANS

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



|                            |  |               |         |   |                  |   |         |  
|--------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                            |  | March 31,2010 |         |   | December 31,2009 |  
|Direct financing leases (a) |  | $             | 108,199 |   |                  | $ | 131,020 |  
|Loans (b)                   |  |               | 36,482  |   |                  |   | 35,152  |  
|Operating leases            |  |               | 3,625   |   |                  |   | 4,223   |  
|                            |  |               |         |   |                  |   |         |  
|                            |  |               | 148,306 |   |                  |   | 170,395 |  
|Allowance for credit losses |  |               | (4,200  | ) |                  |   | (11,380 | )
|                            |  |               |         |   |                  |   |         |  
|                            |  | $             | 144,106 |   |                  | $ | 159,015 |  
|                            |  |               |         |   |                  |   |         |  



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

|(b) | The interest rates on loans generally range from 7% to 14%.
|--- | -----------------------------------------------------------

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



|                                               |  |               |         |   |                  |   |        |        |  |   |         |   |  |   |        |  
|---------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------ | ------ |  | - | ------- | - |  | - | ------ | -
|                                               |  | March 31,2010 |         |   | December 31,2009 |  
|                                               |  | Leases        |         |   | Loans            |   |        | Leases |  |   | Loans   |  
|Total future minimum lease payments            |  | $             | 119,071 |   |                  | $ | 42,573 |        |  | $ | 145,109 |   |  | $ | 41,426 |  
|Unearned income                                |  |               | (13,691 | ) |                  |   | (5,939 | )      |  |   | (16,900 | ) |  |   | (6,116 | )
|Residuals, net of unearned residual income (a) |  |               | 4,149   |   |                  |   |       |        |  |   | 4,289   |   |  |   |       |  
|Security deposits (b)                          |  |               | (1,330  | ) |                  |   | (152   | )      |  |   | (1,478  | ) |  |   | (158   | )
|                                               |  |               |         |   |                  |   |        |        |  |   |         |   |  |   |        |  
|                                               |  | $             | 108,199 |   |                  | $ | 36,482 |        |  | $ | 131,020 |   |  | $ | 35,152 |  
|                                               |  |               |         |   |                  |   |        |        |  |   |         |   |  |   |        |  



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

|(b) | Included in security deposits are amounts held for maintenance of leased equipment.
|--- | -----------------------------------------------------------------------------------



9



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##### Table of Contents

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



|                         |  |               |        |   |                  |   |        |  
|------------------------ |  | ------------- | ------ | - | ---------------- | - | ------ | -
|                         |  | March 31,2010 |        |   | December 31,2009 |  
|Equipment                |  | $             | 10,661 |   |                  | $ | 12,061 |  
|Accumulated depreciation |  |               | (7,017 | ) |                  |   | (7,738 | )
|Security deposits        |  |               | (19    | ) |                  |   | (100   | )
|                         |  |               |        |   |                  |   |        |  
|                         |  | $             | 3,625  |   |                  | $ | 4,223  |  
|                         |  |               |        |   |                  |   |        |  

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



|                                                 |  |                              |        |   |      |   |        |  
|------------------------------------------------ |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                                 |  | Three Months Ended March 31, |       
|                                                 |  | 2010                         |        |   | 2009 |  
|Allowance for credit losses, beginning of period |  | $                            | 11,380 |   |      | $ | 5,770  |  
|Provision for credit losses                      |  |                              | 2,459  |   |      |   | 2,872  |  
|Charge-offs                                      |  |                              | (9,710 | ) |      |   | (1,993 | )
|Recoveries                                       |  |                              | 71     |   |      |   | 81     |  
|                                                 |  |                              |        |   |      |   |        |  
|Allowance for credit losses, end of period       |  | $                            | 4,200  |   |      | $ | 6,730  |  
|                                                 |  |                              |        |   |      |   |        |  

NOTE 5  DEFERRED FINANCING COSTS

As of March 31, 2010 and December 31, 2009, deferred financing costs include $ 2.2 million and $2.5 million, respectively,
of unamortized deferred financing costs which are being amortized over the terms of the estimated useful life of the related debt. Accumulated amortization as of March 31, 2010 and December 31, 2009 was $ 3.0 million, and $2.4
million, respectively. Estimated amortization expense of the Funds existing deferred financing costs for the years ending March 31 is as follows (in thousands):

Deferred Financing Costs



|     |  |   |      
|---- |  | - | -----
|2011 |  | $ | 969  
|2012 |  |   | 581  
|2013 |  |   | 441  
|2014 |  |   | 230  
|     |  |   |      
|     |  | $ | 2,221
|     |  |   |      



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NOTE 6  BANK DEBT

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



|                                    |  |           |  |               |  |                 |         |                   |   |                 |  |                                      |        |                                           |                         |  |                                     |   |  |   |        
|----------------------------------- |  | --------- |  | ------------- |  | --------------- | ------- | ----------------- | - | --------------- |  | ------------------------------------ | ------ | ----------------------------------------- | ----------------------- |  | ----------------------------------- | - |  | - | -------
|                                    |  |           |  |               |  | March 31, 2010  |         |                   |   |                 |  |                                      |       
|                                    |  | Type      |  | Maturity Date |  | Facility Amount |         | AmountOutstanding |   | AmountAvailable |  | Interest rate per annum peragreement |        | Interest rateper annumadjusted forSwap(2) |                         |  | December 31,2009 OutstandingBalance
|WestLB, AG (1)                      |  | Revolving |  | June 2010     |  | $               | 125,000 |                   | $ | 83,923          |  | $                                    | 41,077 |                                           | (3)                     |  | 5.8                                 | % |  | $ | 87,781 
|Term Securitization - Class A-3 (4) |  | Term      |  | July 2012     |  |                 | 39,431  |                   |   | 39,431          |  |                                      |       |                                           | One month LIBOR + 0.20% |  | 5.6                                 | % |  |   | 49,671 
|Term Securitization - Class B (4)   |  | Term      |  | March 2015    |  |                 | 14,529  |                   |   | 14,529          |  |                                      |       |                                           | 6.7%                    |  | 6.7                                 | % |  |   | 14,529 
|                                    |  |           |  |               |  |                 |         |                   |   |                 |  |                                      |        |                                           |                         |  |                                     |   |  |   |        
|                                    |  |           |  |               |  | $               | 178,960 |                   | $ | 137,883         |  | $                                    | 41,077 |                                           |                         |  |                                     |   |  | $ | 151,981
|                                    |  |           |  |               |  |                 |         |                   |   |                 |  |                                      |        |                                           |                         |  |                                     |   |  |   |        



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

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

|(3) | This revolving line of credit is collateralized by specific lease receivables and related equipment, with a 1% credit reserve of the outstanding line of credit.
Interest on borrowings prior to March 2009 are calculated at LIBOR plus 1.20% per annum. Borrowings under this facility after March 2009 are a rate of London Interbank Offered Rate (LIBOR) plus 2.50% per annum. To mitigate
fluctuations in interest rates, the Fund entered into interest rate swap agreements, which terminate on various dates ranging from September 2011 to August 2015. As of March 31, 2010, the interest rate swap agreements fixed the interest rate on
this facility at 5.8 %. The credit facility terminates on June 30, 2010. If this facility is not extended, we would not be required to make full repayment at the time of renewal. Rather, we would continue to repay the principal and interest on
any outstanding debt as payments are received on the underlying leases and loans pledged as collateral; however, there would be no additional borrowings under the facility. Recourse under this facility is limited to the amount of collateral pledged.
As of March 31, 2010, $91.2 million of leases and loans and $5.5 million of restricted cash were pledged as collateral under this facility.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | As of March 31, 2010, $55.9 million of leases and loans and $ 13.9 million of restricted cash were pledged as collateral under this facility
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

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

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

As of March 31, 2010, the Fund was in compliance with all the covenants under its debt facilities. However, the Funds
affiliate responsible for servicing the Funds portfolio incurred a breach of the minimum net worth covenant under the terms of the WestLB credit facility.

The Fund has requested waiver from WestLB with respect to this breach. Due to this breach, WestLB has various remedies under their loan
agreement such as allowing repayment of the outstanding balance as payments are received on the underlying leases and loans or selling the pledged leases and loans in a commercially reasonable manner. Although the Fund expects to obtain a
waiver or to amend the covenant in the loan agreement with WestLB, there can be no assurance that such waiver or amendment will be executed. If waiver or amendment is not obtained, it is likely that the Funds affiliate would not be in
compliance with the same covenant at June 30, 2010. In addition, this breach could create defaults under the Funds other debt facilities and those lenders have remedies similar to that of WestLB.



11



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##### Table of Contents

Debt repayments

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



|           |  |   |        
|---------- |  | - | -------
|2011       |  | $ | 63,797 
|2012       |  |   | 40,217 
|2013       |  |   | 22,292 
|2014       |  |   | 7,548  
|2015       |  |   | 3,572  
|Thereafter |  |   | 457    
|           |  |   |        
|           |  | $ | 137,883
|           |  |   |        

NOTE 7  DERIVATIVE INSTRUMENTS

The majority of the Funds assets and liabilities are financial contracts with fixed and variable rates. Any mismatch between the
repricing and maturity characteristics of the Funds assets and liabilities exposes it to interest rate risk when interest rates fluctuate. For example, the Funds assets are structured on a fixed-rate basis, but since funds borrowed
through bank debt are obtained on a floating-rate basis, the Fund is exposed to a certain degree of risk if interest rates rise which in turn will increase the Funds borrowing costs. In addition, when the Fund acquires assets, it bases its
pricing in part on the spread it expects to achieve between the interest rate it charges its customers and the effective interest cost the Fund will pay when it funds those loans. Increases in interest rates that increase the Funds permanent
funding costs between the time the assets are originated and the time they are funded could narrow, eliminate or even reverse this spread.

To manage interest rate risk, the Fund employs a hedging strategy using derivative financial instruments such as interest rate swaps. For
derivatives designated and qualifying as cash flow hedges, the effective portion of changes in fair value of those derivatives are recorded in accumulated other comprehensive loss and are subsequently reclassified into earnings when the hedged
forecasted interest payments are recognized in earnings. For derivatives that are undesignated, changes in the fair value of those derivatives are recorded directly to earnings as they occur. The Fund does not use derivative financial instruments
for trading or speculative purposes. The Fund manages the credit risk of possible counterparty default in these derivative transactions by dealing primarily with counterparties with investment grade ratings. The Fund has agreements with certain of
its derivative counterparties that contain a provision where if the Fund defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Fund could also be
declared in default on its derivative obligations. The Fund has agreements with certain of its derivative counterparties that incorporates the loan covenant provisions of the Funds indebtedness with a lender affiliate of the derivative
counterparty. Failure to comply with the loan covenant provisions would result in the Fund being in default on any derivative instrument obligations covered by the agreement. As of March 31, 2010, the fair value of derivatives in a net
liability position, which excludes any adjustment for nonperformance risk, related to these agreements was $4.7 million. As of March 31, 2010, the Fund has not posted any collateral related to these agreements. If the Fund had breached any of
these provisions at March 31, 2010, it could have been required to settle its obligations under the agreements at their termination value of $4.7 million.

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



12



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##### Table of Contents

At March 31, 2010, the Fund has 23 interest rate swaps which terminate on various dates
ranging from September 2011 to August 2015. The following tables present the fair value of the Funds derivative financial instruments as well as their classification on the consolidated balance sheet as of March 31, 2010 and on the
consolidated statement of operations for the three months ended March 31, 2010 and 2009 (in thousands):



|                                                  |  |                 |         |                        |                                      |           |   |        |  
|------------------------------------------------- |  | --------------- | ------- | ---------------------- | ------------------------------------ | --------- | - | ------ | -
|                                                  |  | Notional Amount |         | Balance Sheet Location |                                      | FairValue |  
|                                                  |  |                 |        
|Derivatives designated as hedging instruments     |  |                 |         |                        |                                      |           |   |        |  
|                                                  |  |                 |        
|Interest rate swap contracts                      |  | $               | 115,512 |                        | Derivative liabilities at fair value |           | $ | (4,710 | )
|                                                  |  |                 |        
|Derivatives not designated as hedging instruments |  | $               | 82,276  |                        | Derivative liabilities at fair value |           | $ | 182    |  
|                                                  |  |                 |         |                        |                                      |           |   |        |  
|                                                  |  |                 |        
|                                                  |  |                 |         |                        |                                      |           | $ | 4,528  |  
|                                                  |  |                 |         |                        |                                      |           |   |        |  



|                                                         |  |                                                                    |     |                                                                                              |   |                    |  |                  |  |   |        |   |  |   |        |  
|-------------------------------------------------------- |  | ------------------------------------------------------------------ | --- | -------------------------------------------------------------------------------------------- | - | ------------------ |  | ---------------- |  | - | ------ | - |  | - | ------ | -
|                                                         |  | Amount of Gain Recognized in OCI onDerivatives (Effective Portion) |     | Location and Amount of Loss Reclassifiedfrom Accumulated OCI 
into Income (EffectivePortion) |  
|                                                         |  | Three Months Ended                                                 |     |                                                                                              |   | Three Months Ended | 
|                                                         |  | March 31,                                                          |     |                                                                                              |   | March 31,          | 
|                                                         |  | 2010                                                               |     | 2009                                                                                         |   |                    |  | 2010             |  |   | 2009   |  
|                                                         |  |                                                                    |     |                                                                                              |  
|Derivatives designated as cash flowhedging relationships |  |                                                                    |     |                                                                                              |   |                    |  |                  |  |   |        |   |  |   |        |  
|                                                         |  |                                                                    |     |                                                                                              |  
|Interest rate products                                   |  | $                                                                  | 552 |                                                                                              | $ | 844                |  | Interest expense |  | $ | (1,435 | ) |  | $ | (2,590 | )

The Fund terminated
interest rate swap agreements with WestLB and Merrill Lynch with total underlying notional amounts of $298.8 million in connection with the term securitization. The Fund terminated these agreements simultaneously with the 2007 term securitization
resulting in a gain of $2.3 million which was recorded in other comprehensive income at September 30, 2007. The Fund is amortizing the gain to interest expense over the remaining term of the terminated swap agreements. For the three months
ended March 31, 2010 and 2009 $ 95,000 and $96,000, respectively, was recognized into interest expense. As of December 31, 2009, the unamortized balance of $ 1.2 million is included in accumulated other comprehensive loss.

For the three months ended March 31, 2010 and 2009, the Fund recognized no gain or loss for hedge ineffectiveness. Assuming market
rates remain constant with the rates as of March 31, 2010, $3.6 million of the $4.7 million in accumulated other comprehensive loss is expected to be charged to earnings over the next 12 months.

NOTE 8  FAIR VALUE MEASUREMENT

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

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

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



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



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##### Table of Contents

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



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

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

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



|                                         |  |                               |   |         |   |        |         |  |                          |   |  |   |        |  
|---------------------------------------- |  | ----------------------------- | - | ------- | - | ------ | ------- |  | ------------------------ | - |  | - | ------ | -
|                                         |  | Fair Value Measurements Using |   |         |  
|                                         |  | Level 1                       |   | Level 2 |   |        | Level 3 |  | Liabilities At FairValue |  
|Interest rate swaps at March 31, 2010    |  | $                             |  |         | $ | (4,528 | )       |  | $                        |  |  | $ | (4,528 | )
|Interest rate swaps at December 31, 2009 |  |                               |  |         |   | (5,381 | )       |  |                          |  |  |   | (5,381 | )

NOTE 9  CERTAIN RELATIONSHIPS AND
TRANSACTIONS WITH AFFILIATES

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



|                        |  |                             |     |      |   |    
|----------------------- |  | --------------------------- | --- | ---- | - | ---
|                        |  | Three Months EndedMarch 31,
|                        |  | 2010                        |     | 2009
|Acquisition fees        |  | $                           | 151 |      | $ | 123
|Management fees         |  |                             | 562 |      |   | 798
|Administrative expenses |  |                             | 490 |      |   | 693

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

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

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

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

Note Payable- related party. The Fund borrowed $8.0 million from Resource Capital Corporation (RCC). RCC is an
affiliate of the Fund through common management with RAI. The note bears interest at 12% per annum. Principal is payable monthly at one-sixtieth of one percent and interest payable quarterly. Any unpaid principal is due on March 3, 2011.



14



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##### Table of Contents

NOTE 10  COMMITMENTS AND CONTINGENCIES

In connection with a sale of leases and loans to a third party, the Fund agreed to repurchase delinquent leases up to a maximum of 7.5% of
total proceeds received from the sale (Repurchase Commitment). The Funds initial maximum Repurchase Commitment was $2.3 million and the Repurchase Commitment at March 31, 2010 and 2009 was $0 and $725,000, respectively. As of
March 31, 2010 and 2009, the Fund has recorded a liability of $77,000 and $461,000, respectively, to reflect the estimate of losses it expects to incur on lease and loan repurchases under this arrangement. This liability is included in
Other Liabilities on the Consolidated Balance Sheets.

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



15



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##### Table of Contents

ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

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 other documents filed with Securities and Exchange
Commission. 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.

The following discussion provides an analysis of our operating results, an overview of our liquidity and capital resources and other
items related to us. The following discussion and analysis should be read in conjunction with (i) the accompanying interim financial statements and related notes and (ii) Our consolidated financial statements, related notes, and
managements discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2009.

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

General

We are a Delaware limited partnership formed on March 30, 2004 by our General Partner, LEAF Financial Corporation (our General
Partner), which manages us. Our General Partner is a subsidiary of Resource America, Inc. (RAI). RAI is a publicly-traded company (NASDAQ: REXI) that uses industry specific expertise, to evaluate, originate, service and manage
investment opportunities through its commercial finance, real estate and financial fund management segments. Through our offering termination date of October 13, 2006, we raised $60 million by selling 600,000 of our limited partner units. We
commenced operations in April 2005.

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

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



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



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



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

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

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



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##### Table of Contents

Overview

We continued to be impacted by market uncertainties in the first quarter of 2010. As further discussed in the Finance Receivables
and Asset Quality section below, the current economic recession in the United States has adversely affected our operations, resulting in higher delinquencies in our portfolio of leases and loans, which may continue until the economy recovers.
Additionally, as discussed in the Liquidity and Capital Resources section below, the on-going dislocation in the debt markets has also created challenges in maintaining our existing debt facility.



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##### Table of Contents

Finance Receivables and Asset Quality

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

Information about Lease Portfolio



|                                                                              |  |               |         |   |                  |   |         |  
|----------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                              |  | March 31,2010 |         |   | December 31,2009 |  
|Investment in leases and loans, net                                           |  | $             | 144,106 |   |                  | $ | 159,015 |  
|                                                                              |  |              
|Number of contracts                                                           |  |               | 17,700  |   |                  |   | 18,000  |  
|Number of individual end users(a)                                             |  |               | 15,458  |   |                  |   | 15,700  |  
|Average original equipment cost                                               |  | $             | 27      |   |                  | $ | 27      |  
|Average initial term (in months)                                              |  |               | 58      |   |                  |   | 57      |  
|                                                                              |  |              
|States accounting for more than 10% of lease and loan portfolio:              |  |               |         |   |                  |   |         |  
|California                                                                    |  |               | 13      | % |                  |   | 13      | %
|                                                                              |  |              
|Types of equipment accounting for more than 10% of lease and loan portfolio:  |  |               |         |   |                  |   |         |  
|Industrial equipment                                                          |  |               | 27      | % |                  |   | 27      | %
|Medical equipment                                                             |  |               | 19      | % |                  |   | 18      | %
|Office equipment                                                              |  |               | 11      | % |                  |   | 11      | %
|                                                                              |  |              
|Types of businesses accounting for more than 10% of lease and loan portfolio: |  |               |         |   |                  |   |         |  
|Services                                                                      |  |               | 45      | % |                  |   | 45      | %
|Retail trade                                                                  |  |               | 13      | % |                  |   | 13      | %
|Manufacturing                                                                 |  |               | 12      | % |                  |   | 12      | %



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

We utilize debt facilities in addition to our equity to fund
the acquisitions of lease portfolios. As of March 31, 2010 and December 31, 2009, our outstanding debt was $137.9 million and $152.0 million, respectively.

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

Portfolio Performance



|                                                                                                    |  |                                               |         |   |                                             |   |         |        |  |   |          |   |  |     |    |  |   |         |  
|--------------------------------------------------------------------------------------------------- |  | --------------------------------------------- | ------- | - | ------------------------------------------- | - | ------- | ------ |  | - | -------- | - |  | --- | -- |  | - | ------- | -
|                                                                                                    |  | As of and for theThree Months Ended
March 31, |         |   | As of and for theYear
EndedDecember 31,2009 |  
|                                                                                                    |  |                                               |         |   |                                             |   |         | Change |  |  
|                                                                                                    |  | 2010                                          |         |   | 2009                                        |   |         | Amount |  |   | %        |   | 
|Investment in leases and loans before allowance for credit losses                                   |  | $                                             | 148,306 |   |                                             | $ | 250,851 |        |  | $ | (102,545 | ) |  | (41 | )% |  | $ | 170,395 |  
|Less: allowance for credit losses                                                                   |  |                                               | 4,200   |   |                                             |   | 6,730   |        |  |   | (2,530   | ) |  | (38 | )% |  |   | 11,380  |  
|Investment in leases and loans, net                                                                 |  | $                                             | 144,106 |   |                                             | $ | 244,121 |        |  | $ | (100,015 | ) |  | (41 | )% |  | $ | 159,015 |  
|Weighted average investment in direct financing leases and loans before allowance for credit losses |  | $                                             | 157,346 |   |                                             | $ | 255,084 |        |  | $ | (97,738  | ) |  | (38 | )% |  | $ | 218,902 |  
|Non-performing assets                                                                               |  |                                               | 6,156   |   |                                             |   | 18,990  |        |  |   | (12,834  | ) |  | (68 | )% |  |   | 14,994  |  
|Charge-offs, net of recoveries                                                                      |  |                                               | 9,639   |   |                                             |   | 1,912   |        |  |   | 7,727    |   |  | 404 | %  |  |   | 12,331  |  
|As a percentage of finance receivables:                                                             |  |                                               |         |   |                                             |   |         |        |  |   |          |   |  |     |    |  |   |         |  
|Allowance for credit losses                                                                         |  |                                               | 2.83    | % |                                             |   | 2.68    | %      |  |   |          |   |  |     |    |  |   | 6.68    | %
|Non-performing assets                                                                               |  |                                               | 4.15    | % |                                             |   | 7.57    | %      |  |   |          |   |  |     |    |  |   | 8.80    | %
|As a percentage of weighted average finance receivables:                                            |  |                                               |         |   |                                             |   |         |        |  |   |          |   |  |     |    |  |   |         |  
|Charge-offs, net of recoveries                                                                      |  |                                               | 6.13    | % |                                             |   | 0.75    | %      |  |   |          |   |  |     |    |  |   | 5.63    | %



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##### Table of Contents

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

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

The equipment we finance includes computers,
copiers, office furniture, water filtration systems, machinery used in manufacturing and construction, medical equipment and telecommunications equipment. We focus on financing equipment used by small to mid-sized businesses. The current economic
recession in the US has made it more difficult for some of our customers to make payments on their financings with us on a timely basis, which has adversely affected our operations in the form of higher delinquencies. These higher delinquencies may
continue until the US economy recovers. The increase in delinquencies, as well as the current economic trends, has caused us to conclude that a greater allowance for credit loss is necessary. In addition, our non-performing assets have increased due
to the increase in customers who are more than 90 days delinquent at March 31, 2010 as compared to March 31, 2009.

Our net charge-offs increased in three months ended March 31, 2010 compared to 2009 due to the aging of our portfolio of leases and
loans as well as the current economic recession as discussed above.

Critical Accounting Policies

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

For a complete discussion of our critical accounting policies and estimates, see our annual report on Form 10-K for fiscal 2009 under
Managements Discussion and Analysis of Financial Condition and Results of Operations  Critical Accounting Policies and Estimates.



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##### Table of Contents

Results of Operations

Three Months Ended March 31, 2010 Compared to the Three Months Ended March 31, 2009



|                                                         |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   
|-------------------------------------------------------- |  | ---- | ------ | - | ------------------- | - | ------ | - |  | - | ------ | - |  | --- | --
|                                                         |  |      |        |   | Increase (Decrease) |  
|                                                         |  | 2010 |        |   | 2009                |   |        | $ |  |   | %      |  
|Revenues:                                                |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   
|Interest on equipment financings                         |  | $    | 3,076  |   |                     | $ | 5,336  |   |  | $ | (2,260 | ) |  | (42 | )%
|Rental income                                            |  |      | 517    |   |                     |   | 800    |   |  |   | (283   | ) |  | (35 | )%
|Losses on sales of equipment and lease dispositions, net |  |      | (700   | ) |                     |   | (164   | ) |  |   | (536   | ) |  | 327 | % 
|Other                                                    |  |      | 422    |   |                     |   | 438    |   |  |   | (16    | ) |  | (4  | )%
|                                                         |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   
|                                                         |  |      | 3,315  |   |                     |   | 6,410  |   |  |   | (3,095 | ) |  | (48 | )%
|                                                         |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   
|                                                         |  |      |        |  
|Expenses:                                                |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   
|Interest expense                                         |  |      | 2,714  |   |                     |   | 3,675  |   |  |   | (961   | ) |  | (26 | )%
|Interest expense- related party                          |  |      | 38     |   |                     |   |       |   |  |   | 38     |   |  |     |   
|Depreciation on operating leases                         |  |      | 402    |   |                     |   | 700    |   |  |   | (298   | ) |  | (43 | )%
|Provision for credit losses                              |  |      | 2,459  |   |                     |   | 2,872  |   |  |   | (413   | ) |  | (14 | )%
|General and administrative expenses                      |  |      | 608    |   |                     |   | 838    |   |  |   | (230   | ) |  | (27 | )%
|Administrative expenses reimbursed to affiliate          |  |      | 490    |   |                     |   | 693    |   |  |   | (203   | ) |  | (29 | )%
|Management fees to affiliate                             |  |      | 562    |   |                     |   | 798    |   |  |   | (236   | ) |  | (30 | )%
|                                                         |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   
|                                                         |  |      | 7,273  |   |                     |   | 9,576  |   |  |   | (2,303 | ) |  | (24 | )%
|                                                         |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   
|Net loss                                                 |  | $    | (3,958 | ) |                     | $ | (3,166 | ) |  | $ | (792   | ) |  | 25  | % 
|                                                         |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   
|Net loss allocated to limited partners                   |  | $    | (3,918 | ) |                     | $ | (3,134 | ) |  | $ | (784   | ) |  | 25  | % 
|                                                         |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   

As discussed in more specific detail below, the overall reductions in both revenues and expenses
were caused by the significant decrease in the size of the leases and loans portfolio as well as the significant reduction in debt in the first quarter of 2010 as compared to the first quarter of 2009.

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



| |  |  | a decrease in interest on equipment financings. Our weighted average net investment in financing assets decreased to $157.4 million for the three
months ended March 31, 2010 as compared to $255.1 million for the three months ended March 31, 2009, a decrease of $ 97.7 million (38.3%).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a decrease in rental income which was principally the result of a decrease in our investment in operating leases in the 2010 period compared to the
2009 period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in losses on sales of equipment. Gains or losses on sales of equipment may vary significantly from period to period.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------

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



| |  |  | a decrease in interest expense primarily due to a decrease in debt outstanding and a decrease, in the effective interest rate. Borrowings as of
March 31, 2010 and 2009 were $ 137.9 million and $231.1 million, respectively, at an effective interest rate of 7.6% and 6.0%, respectively.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | a decrease in the provision for credit losses. The decrease is encouraging but the economic impact of the recession in the United States continues to
negatively impact our customers ability to make timely payments on their lease or loan.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a decrease in general and administrative expenses and administrative expenses reimbursed to affiliates due to the decrease in the size of our
portfolio, partially offset by increased legal costs associated with collection efforts.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We provide for
credit losses when losses are likely to occur based on a migration analysis of past due payments and economic conditions. Our allowance for credit losses has decreased to $4.2 million as of March 31, 2010 compared to $6.7 million as of
March 31, 2009, which resulted in a decrease in non-performing assets as a percentage of finance receivables to 4.15% as of March 31, 2010 as compared to 7.57% as of March 31, 2010.



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##### Table of Contents

The net loss per limited partner unit, after the net loss allocated to our General Partner,
for the three months ended March 31, 2010 and 2009 was $(6.61) and $(5.28), respectively, based on a weighted average number of limited partner units outstanding of 592,808 and 593,394, respectively.

Liquidity and Capital Resources

General

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

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

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



|                                                     |  |                             |        |   |      |   |         |  
|---------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------- | -
|                                                     |  | Three Months EndedMarch 31, |       
|                                                     |  | 2010                        |        |   | 2009 |  
|Net cash (used in ) provided by operating activities |  | $                           | (4,780 | ) |      | $ | 4,057   |  
|Net cash provided by investing activities            |  |                             | 11,348 |   |      |   | 18,136  |  
|Net cash used in financing activities                |  |                             | (6,533 | ) |      |   | (21,996 | )
|                                                     |  |                             |        |   |      |   |         |  
|                                                     |  |                            
|Increase in cash                                     |  | $                           | 35     |   |      | $ | 197     |  
|                                                     |  |                             |        |   |      |   |         |  

During the three months ended March 31, 2010, cash increased by $ 35,000 which was primarily due to a
net debt repayment of $2.7 million (net of purchases of, and proceeds from, leases and loans) and distributions to our partners of $368,000, partially offset by an increase in borrowings on note payable from related party of $ 8.0 million and a
decrease in amounts due to affiliates of $5.0 million. As a result of increased delinquencies, the amount of borrowing availability under our leases and loans was reduced, resulting in the net debt repayment.

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

Partners distributions paid for the three months ended March 31, 2010, and 2009 were $368,000, and $1.2 million,
respectively. Prior to August 1, 2009, distributions to limited partners were paid at a rate of 8% per annum of invested capital. Cumulative partner distributions paid from our inception to March 31, 2010 were approximately
$15.7 million.

Future cash distributions are dependent on our performance and are impacted by a number of factors which
include: our ability to obtain and maintain debt financing on acceptable terms to build and maintain our equipment finance portfolio; lease and loan defaults by our customers; and prevailing economic conditions. Due to the prolonged economic
recession we continue to see a scarcity of available debt on terms beneficial to the partnership and higher than expected and loan defaults resulting in poorer fund performance than projected.

Borrowings

Our
borrowing relationships each require the pledging of eligible leases and loans to secure amounts advanced. Borrowings outstanding under our credit facilities are as follows as of March 31, 2010 (in thousands):



|                                    |  |           |  |                |         |                   |   |                     |  |                         |        |  |   |        
|----------------------------------- |  | --------- |  | -------------- | ------- | ----------------- | - | ------------------- |  | ----------------------- | ------ |  | - | -------
|                                    |  | Type      |  | FacilityAmount |         | AmountOutstanding |   | AmountAvailable (2) |  | Amount ofCollateral (3)
|Series 2007-Term Securitization (1) |  | Term      |  | $              | 53,960  |                   | $ | 53,960              |  | $                       |       |  | $ | 69,717 
|WestLB                              |  | Revolving |  |                | 125,000 |                   |   | 83,923              |  |                         | 41,077 |  |   | 96,692 
|                                    |  |           |  |                |         |                   |   |                     |  |                         |        |  |   |        
|                                    |  |           |  | $              | 178,960 |                   | $ | 137,883             |  | $                       | 41,077 |  | $ | 166,409
|                                    |  |           |  |                |         |                   |   |                     |  |                         |        |  |   |        



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

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

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



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This revolving line of credit is collateralized by specific lease receivables and related
equipment, with a 1% credit reserve of the outstanding line of credit. Interest on the borrowings prior to March 2009 are calculated at LIBOR plus 1.20% per annum. Borrowings under this facility after March 2009 are at a rate of LIBOR plus
2.50% per annum. To mitigate fluctuations in interest rates, we entered into interest rate swap agreements, which terminate on various dates ranging from September 2011 to August 2015. As of March 31, 2010, the interest rate swap
agreements fixed the interest rate on this facility at 5.7%. Interest and principal are due as payments are received under the financings. The credit facility terminates on June 30, 2010. If this facility is not extended, we would not be
required to make full repayment at the time of renewal. Rather, we would continue to repay the principal and interest on any outstanding debt as payments are received on the underlying leases and loans pledged as collateral; however, there would be
no additional borrowings under the facility. Recourse under this facility is limited to the amount of collateral pledged. As of March 31, 2010, $91.2 million of leases and loans and $5.5 million of restricted cash were pledged as collateral
under the facility.

In March 2010, we borrowed $8.0 million from Resource Capital Corporation (RCC), a related
entity of ours through common management with RAI. The note bears interest at 12% per annum. Principal is payable monthly at one-sixtieth of one percent and interest payable quarterly. Any unpaid principal is due on March 3, 2011. These funds
were used as part of our ongoing efforts to reduce debt owed to WestLB, to reduce the balance owed to our general partner and to purchase more leases and loans in an effort to improve our operating results.

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

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

As of March 31,
2010, we were in compliance with all the covenants under our debt facilities. However, our affiliate responsible for servicing our portfolio incurred a breach of the minimum net worth covenant.

We have requested waiver from WestLB with respect to this breach. Due to this breach, WestLB has various remedies under our loan
agreement such as allowing repayment of the outstanding balance as payments are received on the underlying leases and loans or selling the pledged leases and loans in a commercially reasonable manner. Although we expect to obtain a waiver or to
amend the covenant in our loan agreement with WestLB, there can be no assurance that such waiver or amendment will be executed. If waiver or amendment is not obtained, it is likely that the Funds affiliate would not be in compliance with
the same covenant at June 30, 2010. In addition, this breach could create defaults under our other debt facilities and those lenders have remedies similar to that of WestLB.

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

Liquidity Summary

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

Our liquidity has been and could be further adversely affected by higher than expected equipment lease defaults, which results in a loss
of revenues. These losses may adversely affect our ability to make distributions to our partners and, if the level of defaults is sufficiently large, may result in our inability to fully recover our investment in the underlying equipment. In
evaluating our allowance for losses on uncollectible leases, we consider our contractual delinquencies, economic conditions and trends, lease portfolio characteristics and our General Partners managements prior experience with similar
lease assets. At March 31, 2010, our credit evaluation indicated a need for an allowance for credit losses of $4.2 million. As our lease portfolio ages, and if the economy in the United States deteriorates even further or the recession
continues for a substantial period of time, we anticipate the need to increase our allowance for credit losses.

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

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



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Contractual Obligations and Commercial Commitments

The following table sets forth our obligations and commitments as of March 31, 2010 (in thousands):



|          |  |       |         |                        |   |            |  |            |        |              |   |        |  |   |    
|--------- |  | ----- | ------- | ---------------------- | - | ---------- |  | ---------- | ------ | ------------ | - | ------ |  | - | ---
|          |  |       |         | Payments Due by Period
|          |  | Total |         | Less than1 Year        |   | 1  3Years |  | 4  5Years |        | After 5Years
|Bank debt |  | $     | 137,883 |                        | $ | 63,797     |  | $          | 62,509 |              | $ | 11,120 |  | $ | 457

To mitigate interest
rate risk on the variable rate debt, we employ a hedging strategy using derivative financial instruments such as interest rate swaps, which fix the interest rates. Not included in the above table are estimated interest payments calculated at rates
in effect at March 31, 2010: less than 1 year: $6.2 million; 1-3 years $5.4 million; 4-5 years $1.7 million; and after 5 years $240,000. The fair value of the swap liability as of March 31, 2010 is $4.5 million.

Legal Proceedings

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

ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of losses arising from changes in values of financial instruments. We are exposed to market risks
associated with changes in interest rates and our earnings may fluctuate with changes in interest rates. The lease assets we originate are almost entirely fixed-rate. Accordingly, we seek to finance these assets with fixed interest rate debt. At
March 31, 2010, our outstanding debt totaled $137.9 million which consisted of variable rate debt. To mitigate interest rate risk on the variable rate debt, we employ a hedging strategy using derivative financial instruments such as interest
rate swaps, which fixes the interest rates at 5.8% and 5.6% for the WestLB and Series 2007-term securitization, debt facilities, respectively. At March 31, 2010, the notional amounts of the 21 interest rate swaps were $197.8 million. The
interest rate swap agreements terminate on various dates ranging from September 2011 to August 2015.

The following
sensitivity analysis table shows, at March 31, 2010, the estimated impact on the fair value of our interest rate-sensitive investments and liabilities of changes in interest rates, assuming rates instantaneously fall 100 basis points and rise
100 basis points (dollars in thousands):



|                                  |  |                                    |        |    |           |   |        |                                    |  |   |        |  
|--------------------------------- |  | ---------------------------------- | ------ | -- | --------- | - | ------ | ---------------------------------- |  | - | ------ | -
|                                  |  | Interest ratesfall 100 basispoints |        |    | Unchanged |   |        | Interest ratesrise 100 basispoints | 
|Hedging instruments               |  |                                    |        |    |           |   |        |                                    |  |   |        |  
|Fair value                        |  | $                                  | (5,797 | )  |           | $ | (4,528 | )                                  |  | $ | (3,492 | )
|Change in fair value              |  |                                    | (1,269 | )  |           |   |       |                                    |  |   | 1,036  |  
|Change as a percent of fair value |  |                                    | (28    | )% |           |   |       |                                    |  |   | 23     | %

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



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ITEM 4  CONTROLS AND PROCEDURES

Disclosure Controls

We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized
and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to
allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

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

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the three months ended March 31, 2010 that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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ITEM 6  EXHIBITS



|            |  |                                                                                                                                                                                                                                                                                                                                              
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                  
|            | 
|3.1         |  | Certificate of Limited Partnership for Lease Equity Appreciation Fund II, L.P. (1)                                                                                                                                                                                                                                                           
|            | 
|3.2         |  | Amended Certificate of Limited Partnership for Lease Equity Appreciation Fund II, L.P.(2)                                                                                                                                                                                                                                                    
|            | 
|3.3         |  | Amended and Restated Agreement of Limited Partnership for Lease Equity Appreciation Fund II, L.P. (4)                                                                                                                                                                                                                                        
|            | 
|4.1         |  | Forms of letters sent to limited partners confirming their investment (1)                                                                                                                                                                                                                                                                    
|            | 
|10.1        |  | Origination & Servicing Agreement among LEAF Financial Corporation, Lease Equity Appreciation Fund II, L.P. and LEAF Funding, Inc. dated April 15, 2005 (3)                                                                                                                                                                                  
|            | 
|10.2        |  | Secured Loan Agreement dated as of June 1, 2005 with LEAF Fund II, LLC as Borrower, LEAF Funding, Inc. as Originator, Lease Equity Appreciation Fund II, L.P. as Seller, LEAF
Financial Corporation as Servicer, U.S. Bank National Association, as Collateral Agent and Securities Intermediary and WestLB AG, New York Branch as Lender (3)
|            | 
|10.3        |  | First Amendment to WestLB AG, New York Branch, Secured Loan Agreement (5)                                                                                                                                                                                                                                                                    
|            | 
|10.4        |  | Second Amendment to WestLB AG, New York Branch, Secured Loan Agreement (6)                                                                                                                                                                                                                                                                   
|            | 
|10.5        |  | Third Amendment to WestLB AG, New York Branch, Secured Loan Agreement (7)                                                                                                                                                                                                                                                                    
|            | 
|10.6        |  | Fifth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (8)                                                                                                                                                                                                                                                                    
|            | 
|10.7        |  | Sixth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (9)                                                                                                                                                                                                                                                                    
|            | 
|10.8        |  | Indenture among LEAF II Receivables Funding, LLC as issuer, and U.S. Bank National Association as trustee and custodian (9)                                                                                                                                                                                                                  
|            | 
|10.9        |  | Seventh Amendment to WestLB AG, New York Branch, Secured Loan Agreement (10)                                                                                                                                                                                                                                                                 
|            | 
|10.10       |  | Eighth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (10)                                                                                                                                                                                                                                                                  
|            | 
|10.11       |  | Ninth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (11)                                                                                                                                                                                                                                                                   
|            | 
|10.12       |  | Tenth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (11)                                                                                                                                                                                                                                                                   
|            | 
|10.13       |  | Eleventh Amendment to WestLB AG, New York Branch, Secured Loan Agreement (11)                                                                                                                                                                                                                                                                
|            | 
|10.14       |  | Twelfth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (12)                                                                                                                                                                                                                                                                 
|            | 
|10.15       |  | Thirteenth Amendment to WestLB AG, New York Branch, Secured Loan Agreement (12)                                                                                                                                                                                                                                                              
|            | 
|10.16       |  | Fourteenth Amendment to West LB AG, New York Branch, Secured Loan Agreement (12)                                                                                                                                                                                                                                                             
|            | 
|31.1        |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                           
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                           
|            | 
|32.1        |  | Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                            
|            | 
|32.2        |  | Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                            



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

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

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

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



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

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

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

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

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

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

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

|(12) | Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2009 and by this reference incorporated herein.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.



|             |  |                                         |  |                                     
|------------ |  | --------------------------------------- |  | ------------------------------------
|             |  | LEASE EQUITY APPRECIATION FUND II, L.P.
|             |  | Delaware Limited Partnership           
|             |  |                                        
|             |  | By:                                     |  | LEAF Financial Corporation          
|             |  |                                        
|May 21, 2010 |  | By:                                     |  | /s/ CRIT S. DEMENT                  
|             |  |                                         |  | CRIT S. DEMENT                      
|             |  |                                         |  | Chairman and Chief Executive Officer
|             |  |                                        
|May 21, 2010 |  | By:                                     |  | /s/ ROBERT K. MOSKOVITZ             
|             |  |                                         |  | ROBERT K. MOSKOVITZ                 
|             |  |                                         |  | Chief Financial Officer             



27