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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended June 30, 2009



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

For the transition period from  to

Commission file number 333-116595

LEASE EQUITY APPRECIATION FUND II, L.P.

(Exact Name of Registrant as Specified in Its Charter)



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

110 South Poplar Street, Suite 101, Wilmington Delaware 19801

(Address of principal executive offices)

(800) 819-5556

(Registrants telephone number, including area code)

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

Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, 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   ̈                      |  | Smaller Reporting Company  þ
|                           |  |                      |  | (Do not check if a smaller reporting company) |  |                             

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









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LEASE EQUITY APPRECIATION FUND II, L.P.

INDEX TO QUARTERLY REPORT

ON FORM
10-Q



|           |  |                                                                                                    |  |     
|---------- |  | -------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                    |  | PAGE
|PART I     |  | FINANCIAL INFORMATION                                                                              |  |     
|ITEM 1.    |  | Financial Statements                                                                               |  |     
|           |  | Consolidated Balance Sheets  June 30, 2009 (unaudited) and December 31, 2008                      |  | 3   
|           |  | Consolidated Statements of OperationsThree and Six Months Ended June 30, 2009 and 2008 (unaudited) |  | 4   
|           |  | Consolidated Statement of Changes in Partners CapitalSix Months Ended June 30, 2009 (unaudited)   |  | 5   
|           |  | Consolidated Statements of Cash FlowsSix Months Ended June 30, 2009 and 2008 (unaudited)           |  | 6   
|           |  | Notes to Consolidated Financial Statements  June 30, 2009 (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                                         |  | 25  
|ITEM 4.    |  | Controls and Procedures                                                                            |  | 26  
|           |  |                                                                                                   
|PART II    |  | OTHER INFORMATION                                                                                  |  |     
|ITEM 6.    |  | Exhibits                                                                                           |  | 27  
|           | 
|SIGNATURES |  | 28                                                                                                



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PART I. FINANCIAL INFORMATION



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

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

Consolidated Balance Sheets

(in thousands)



|                                      |  |              |         |   |                  |   |         |  
|------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                      |  | June 30,2009 |         |   | December 31,2008 |  
|                                      |  | (unaudited)  |         |   |                  |  
|ASSETS                                |  |              |         |   |                  |   |         |  
|Cash                                  |  | $            | 17      |   |                  | $ | 149     |  
|Restricted cash                       |  |              | 23,629  |   |                  |   | 29,234  |  
|Accounts receivable                   |  |              | 144     |   |                  |   | 133     |  
|Investment in leases and loans, net   |  |              | 217,902 |   |                  |   | 265,993 |  
|Deferred financing costs, net         |  |              | 3,095   |   |                  |   | 2,956   |  
|Other assets                          |  |              | 557     |   |                  |   | 574     |  
|                                      |  |              |         |   |                  |   |         |  
|                                      |  | $            | 245,344 |   |                  | $ | 299,039 |  
|                                      |  |              |         |   |                  |   |         |  
|LIABILITIES AND PARTNERS CAPITAL     |  |              |         |   |                  |   |         |  
|Liabilities:                          |  |              |         |   |                  |   |         |  
|Bank debt                             |  | $            | 202,844 |   |                  | $ | 254,744 |  
|Accounts payable and accrued expenses |  |              | 511     |   |                  |   | 574     |  
|Other liabilities                     |  |              | 890     |   |                  |   | 952     |  
|Derivative liabilities at fair value  |  |              | 7,771   |   |                  |   | 11,734  |  
|Due to affiliates                     |  |              | 17,987  |   |                  |   | 11,983  |  
|                                      |  |              |         |   |                  |   |         |  
|Total liabilities                     |  |              | 230,003 |   |                  |   | 279,987 |  
|                                      |  |              |         |   |                  |   |         |  
|                                      |  |             
|Commitments and contingencies         |  |              |         |   |                  |   |         |  
|                                      |  |             
|Partners Capital:                    |  |              |         |   |                  |   |         |  
|General partner                       |  |              | (291    | ) |                  |   | (221    | )
|Limited partners                      |  |              | 22,376  |   |                  |   | 29,371  |  
|Accumulated other comprehensive loss  |  |              | (6,744  | ) |                  |   | (10,098 | )
|                                      |  |              |         |   |                  |   |         |  
|Total partners capital               |  |              | 15,341  |   |                  |   | 19,052  |  
|                                      |  |              |         |   |                  |   |         |  
|                                      |  | $            | 245,344 |   |                  | $ | 299,039 |  
|                                      |  |              |         |   |                  |   |         |  

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



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

Consolidated Statements of Operations

(in thousands, except unit data)

(unaudited)



|                                                                               |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------ |  | -------------------------- | ------- | - | ------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                               |  | Three Months EndedJune 30, |         |   | Six Months EndedJune 30, |  
|                                                                               |  | 2009                       |         |   | 2008                     |   |         | 2009 |  |   | 2008    |  
|Revenues:                                                                      |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Interest on equipment financings                                               |  | $                          | 4,853   |   |                          | $ | 6,801   |      |  | $ | 10,189  |   |  | $ | 14,077  |  
|Rental income                                                                  |  |                            | 716     |   |                          |   | 1,168   |      |  |   | 1,516   |   |  |   | 2,484   |  
|Gains (losses) on sales of equipment and lease dispositions, net               |  |                            | 14      |   |                          |   | 221     |      |  |   | (150    | ) |  |   | 543     |  
|Other                                                                          |  |                            | 423     |   |                          |   | 594     |      |  |   | 861     |   |  |   | 1,237   |  
|                                                                               |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|                                                                               |  |                            | 6,006   |   |                          |   | 8,784   |      |  |   | 12,416  |   |  |   | 18,341  |  
|                                                                               |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Expenses:                                                                      |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Interest expense                                                               |  |                            | 3,119   |   |                          |   | 4,660   |      |  |   | 6,794   |   |  |   | 9,456   |  
|Depreciation on operating leases                                               |  |                            | 576     |   |                          |   | 985     |      |  |   | 1,276   |   |  |   | 2,099   |  
|Provision for credit losses                                                    |  |                            | 1,535   |   |                          |   | 2,187   |      |  |   | 4,407   |   |  |   | 3,508   |  
|General and administrative expenses                                            |  |                            | 737     |   |                          |   | 842     |      |  |   | 1,575   |   |  |   | 1,447   |  
|Administrative expenses reimbursed to affiliate                                |  |                            | 683     |   |                          |   | 763     |      |  |   | 1,376   |   |  |   | 1,206   |  
|Management fees to affiliate                                                   |  |                            | 788     |   |                          |   | 979     |      |  |   | 1,586   |   |  |   | 1,963   |  
|                                                                               |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|                                                                               |  |                            | 7,438   |   |                          |   | 10,416  |      |  |   | 17,014  |   |  |   | 19,679  |  
|                                                                               |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Net loss                                                                       |  | $                          | (1,432  | ) |                          | $ | (1,632  | )    |  |   | (4,598  | ) |  |   | (1,338  | )
|                                                                               |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Weighted average number of limited partner units outstanding during the period |  |                            | 593,050 |   |                          |   | 595,796 |      |  |   | 593,221 |   |  |   | 596,646 |  
|                                                                               |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Net loss per weighted average limited partner unit                             |  | $                          | (2.39   | ) |                          | $ | (2.71   | )    |  | $ | (7.67   | ) |  | $ | (2.22   | )
|                                                                               |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  

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



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

Consolidated Statement of Changes in Partners Capital

For the Six Months Ended June 30, 2009

(in thousands, except unit data)

(unaudited)



|                                               |  |                 |      |   |                  |         |   |                                 |   |        |                 |  |   |               |   |  |               |        |   |  |   |        |  
|---------------------------------------------- |  | --------------- | ---- | - | ---------------- | ------- | - | ------------------------------- | - | ------ | --------------- |  | - | ------------- | - |  | ------------- | ------ | - |  | - | ------ | -
|                                               |  | General Partner |      |   | Limited Partners |         |   | Accumulated Other Comprehensive |   |        | Total Partners |  |   | Comprehensive |  
|                                               |  | Amount          |      |   | Units            |         |   | Amount                          |   |        | Income (Loss)   |  |   | Capital       |   |  | Income (Loss) |       
|Balance, January 1, 2009                       |  | $               | (221 | ) |                  | 593,694 |   |                                 | $ | 29,371 |                 |  | $ | (10,098       | ) |  | $             | 19,052 |   |  |   |        |  
|Cash distributions                             |  |                 | (24  | ) |                  |        |   |                                 |   | (2,366 | )               |  |   |              |   |  |               | (2,390 | ) |  |   |        |  
|Redemptions of limited partner units           |  |                 |     |   |                  | (885    | ) |                                 |   | (77    | )               |  |   |              |   |  |               | (77    | ) |  |   |        |  
|Net loss                                       |  |                 | (46  | ) |                  |        |   |                                 |   | (4,552 | )               |  |   |              |   |  |               | (4,598 | ) |  | $ | (4,598 | )
|Unrealized gains on financial derivatives      |  |                 |     |   |                  |        |   |                                 |   |       |                 |  |   | 3,545         |   |  |               | 3,545  |   |  |   | 3,545  |  
|Amortization of gains on financial derivatives |  |                 |     |   |                  |        |   |                                 |   |       |                 |  |   | (191          | ) |  |               | (191   | ) |  |   | (191   | )
|                                               |  |                 |      |   |                  |         |   |                                 |   |        |                 |  |   |               |   |  |               |        |   |  |   |        |  
|Balance, June 30, 2009                         |  | $               | (291 | ) |                  | 592,809 |   |                                 | $ | 22,376 |                 |  | $ | (6,744        | ) |  | $             | 15,341 |   |  | $ | (1,244 | )
|                                               |  |                 |      |   |                  |         |   |                                 |   |        |                 |  |   |               |   |  |               |        |   |  |   |        |  

The accompanying notes are an integral part of this consolidated financial statement.



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

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)



|                                                                                |  |                          |         |   |      |   |         |  
|------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                |  | Six Months EndedJune 30, |        
|                                                                                |  | 2009                     |         |   | 2008 |  
|Cash flows from operating activities:                                           |  |                          |         |   |      |   |         |  
|Net loss                                                                        |  | $                        | (4,598  | ) |      | $ | (1,338  | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                          |         |   |      |   |         |  
|Losses (gains) on sales of equipment and lease dispositions, net                |  |                          | 150     |   |      |   | (543    | )
|Depreciation                                                                    |  |                          | 1,276   |   |      |   | 2,099   |  
|Provision for credit losses                                                     |  |                          | 4,407   |   |      |   | 3,508   |  
|Amortization of deferred financing costs                                        |  |                          | 612     |   |      |   | 304     |  
|Amortization of gains on financial derivative                                   |  |                          | (191    | ) |      |   | (191    | )
|Changes in operating assets and liabilities:                                    |  |                          |         |   |      |   |         |  
|Accounts receivable                                                             |  |                          | (11     | ) |      |   | (4      | )
|Other assets                                                                    |  |                          | (402    | ) |      |   | 481     |  
|Accounts payable and accrued expenses and other liabilities                     |  |                          | (125    | ) |      |   | 255     |  
|Due to affiliates, net                                                          |  |                          | 6,004   |   |      |   | 5,059   |  
|                                                                                |  |                          |         |   |      |   |         |  
|Net cash provided by operating activities                                       |  |                          | 7,122   |   |      |   | 9,630   |  
|                                                                                |  |                          |         |   |      |   |         |  
|Cash flows from investing activities:                                           |  |                          |         |   |      |   |         |  
|Purchases of leases and loans                                                   |  |                          | (6,566  | ) |      |   | (51,240 | )
|Proceeds from leases and loans                                                  |  |                          | 48,988  |   |      |   | 64,038  |  
|Proceeds from sale of leases to third parties                                   |  |                          |        |   |      |   | 5,560   |  
|Security deposits returned, net of collected                                    |  |                          | (163    | ) |      |   | 888     |  
|                                                                                |  |                          |         |   |      |   |         |  
|Net cash provided by investing activities                                       |  |                          | 42,259  |   |      |   | 19,246  |  
|                                                                                |  |                          |         |   |      |   |         |  
|Cash flows from financing activities:                                           |  |                          |         |   |      |   |         |  
|Borrowings of bank debt                                                         |  |                          | 6,656   |   |      |   | 50,834  |  
|Repayment of bank debt                                                          |  |                          | (58,556 | ) |      |   | (75,075 | )
|Decrease (increase) in restricted cash                                          |  |                          | 5,605   |   |      |   | (1,033  | )
|Increase in deferred financing costs                                            |  |                          | (751    | ) |      |   | (760    | )
|Redemption of Limited Partners capital                                         |  |                          | (77     | ) |      |   | (250    | )
|Cash distributions to partners                                                  |  |                          | (2,390  | ) |      |   | (2,386  | )
|                                                                                |  |                          |         |   |      |   |         |  
|Net cash used in financing activities                                           |  |                          | (49,513 | ) |      |   | (28,670 | )
|                                                                                |  |                          |         |   |      |   |         |  
|(Decrease) increase in cash                                                     |  |                          | (132    | ) |      |   | 206     |  
|Cash, beginning of period                                                       |  |                          | 149     |   |      |   | 259     |  
|                                                                                |  |                          |         |   |      |   |         |  
|Cash, end of period                                                             |  | $                        | 17      |   |      | $ | 465     |  
|                                                                                |  |                          |         |   |      |   |         |  

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

June 30, 2009

(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 is a majority owned indirect 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. The Fund received its minimum subscription proceeds and it broke escrow on April 14, 2005. On October 13, 2006, the Fund reached its maximum subscription of 600,000 limited partnership units ($59.9 million).

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 June 30, 2009, in addition to its
1% general partnership interest, LEAF Financial Corporation invested $874,000 for a 1.6% limited partnership interest in the Fund. The Fund is managed by the General Partner.

The consolidated financial statements and notes thereto as of June 30, 2009 and for the three and six months ended June 30, 2009 and 2008 are
unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange Commission. However, in the opinion of management, these interim financial statements include all the necessary adjustments to fairly present the results of the interim
periods presented. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Funds Annual Report on Form 10-K for the year ended December 31,
2008. The results of operations for the six months ended June 30, 2009 may not necessarily be indicative of the results of operations for the full year ending December 31, 2009.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of
Presentation

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

Newly Adopted Accounting
Principles

In March 2008, the Fund adopted Statement of Financial Accounting Standards (SFAS) 161, Disclosures
about Derivative Instruments and Hedging Activities, an amendment of SFAS 133 (SFAS 161). This new standard requires enhanced disclosures for derivative instruments, including those used in hedging activities, which the Fund
has included in Note 5. The adoption of SFAS 161 had no impact on the Funds consolidated financial statements.



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

Notes To Consolidated Financial Statements  (Continued)

June 30, 2009

(unaudited)

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



Newly Adopted Accounting Principles  (Continued)

In April 2009, the FASB issued SFAS 165, Subsequent Events, which establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements are issued or available to be issued. The Fund adopted SFAS 165 for the quarter ended June 30, 2009.

In April 2009, the FASB issued FASB Staff Position FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments
(FSP FAS 107-1 and APB 28-1), which amend SFAS 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in interim as well as in annual financial
statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting to require those disclosures in summarized financial information at interim reporting periods. The adoption of FSP FAS 107-1 and APB
28-1 had no impact on the Funds financial position or results of operations.

NOTE 3  INVESTMENT IN LEASES AND LOANS

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



|                            |  |              |         |   |                  |   |         |  
|--------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                            |  | June 30,2009 |         |   | December 31,2008 |  
|Direct financing leases     |  | $            | 175,704 |   |                  | $ | 212,536 |  
|Loans                       |  |              | 43,720  |   |                  |   | 52,461  |  
|Operating leases            |  |              | 5,648   |   |                  |   | 6,766   |  
|                            |  |              |         |   |                  |   |         |  
|                            |  |              | 225,072 |   |                  |   | 271,763 |  
|Allowance for credit losses |  |              | (7,170  | ) |                  |   | (5,770  | )
|                            |  |              |         |   |                  |   |         |  
|                            |  | $            | 217,902 |   |                  | $ | 265,993 |  
|                            |  |              |         |   |                  |   |         |  

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



|                                           |  |               |         |   |                   |   |        |        |  |   |         |   |  |   |         |  
|------------------------------------------ |  | ------------- | ------- | - | ----------------- | - | ------ | ------ |  | - | ------- | - |  | - | ------- | -
|                                           |  | June 30, 2009 |         |   | December 31, 2008 |  
|                                           |  | Leases        |         |   | Loans             |   |        | Leases |  |   | Loans   |  
|Total future minimum payments              |  | $             | 195,890 |   |                   | $ | 52,262 |        |  | $ | 238,338 |   |  | $ | 63,272  |  
|Unearned income                            |  |               | (24,089 | ) |                   |   | (8,390 | )      |  |   | (29,722 | ) |  |   | (10,206 | )
|Residuals, net of unearned residual income |  |               | 5,794   |   |                   |   |       |        |  |   | 6,105   |   |  |   |        |  
|Security deposits                          |  |               | (1,891  | ) |                   |   | (152   | )      |  |   | (2,185  | ) |  |   | (605    | )
|                                           |  |               |         |   |                   |   |        |        |  |   |         |   |  |   |         |  
|                                           |  | $             | 175,704 |   |                   | $ | 43,720 |        |  | $ | 212,536 |   |  | $ | 52,461  |  
|                                           |  |               |         |   |                   |   |        |        |  |   |         |   |  |   |         |  



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

Notes To Consolidated Financial Statements  (Continued)

June 30, 2009

(unaudited)

NOTE 3  INVESTMENT IN LEASES AND LOANS  (Continued)



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



|                         |  |              |        |   |                  |   |        |  
|------------------------ |  | ------------ | ------ | - | ---------------- | - | ------ | -
|                         |  | June 30,2009 |        |   | December 31,2008 |  
|Equipment                |  | $            | 14,270 |   |                  | $ | 15,683 |  
|Accumulated Depreciation |  |              | (8,568 | ) |                  |   | (8,832 | )
|Security deposits        |  |              | (54    | ) |                  |   | (85    | )
|                         |  |              |        |   |                  |   |        |  
|                         |  | $            | 5,648  |   |                  | $ | 6,766  |  
|                         |  |              |        |   |                  |   |        |  

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



|                                                 |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------ |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                 |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                                 |  | 2009                       |        |   | 2008                     |   |        | 2009 |  |   | 2008   |  
|Allowance for credit losses, beginning of period |  | $                          | 6,730  |   |                          | $ | 1,710  |      |  | $ | 5,770  |   |  | $ | 1,960  |  
|Provision for credit losses                      |  |                            | 1,535  |   |                          |   | 2,187  |      |  |   | 4,407  |   |  |   | 3,508  |  
|Charge-offs                                      |  |                            | (1,240 | ) |                          |   | (2,566 | )    |  |   | (3,233 | ) |  |   | (3,966 | )
|Recoveries                                       |  |                            | 145    |   |                          |   | 379    |      |  |   | 226    |   |  |   | 208    |  
|                                                 |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Allowance for credit losses, end of period       |  | $                          | 7,170  |   |                          | $ | 1,710  |      |  | $ | 7,170  |   |  | $ | 1,710  |  
|                                                 |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  

The Fund discontinues the recognition of revenue for leases and loans for which payments are more
than 90 days past due (non-accrual). As of June 30, 2009 and December 31, 2008, the Fund had $21.2 million and $15.2 million, respectively, of leases and loans on non-accrual status.



9



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##### Table of Contents

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

Notes To Consolidated Financial Statements  (Continued)

June 30, 2009

(unaudited)

NOTE 4  BANK DEBT



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



|                                |  |           |  |               |  |                |         |                   |   |                     |  |                                            |        |  |                                    |   |  |   |        
|------------------------------- |  | --------- |  | ------------- |  | -------------- | ------- | ----------------- | - | ------------------- |  | ------------------------------------------ | ------ |  | ---------------------------------- | - |  | - | -------
|                                |  | Type      |  | Maturity Date |  | FacilityAmount |         | AmountOutstanding |   | AmountAvailable (1) |  | Interestrate perannumadjustedfor swaps (2) |        |  | December 31,2008OutstandingBalance
|Term Securitization  Class A-2 |  | Term      |  | January 2010  |  | $              |        |                   | $ |                    |  | $                                          |       |  |                                   |   |  | $ | 8,671  
|Term Securitization  Class A-3 |  | Term      |  | July 2012     |  |                | 75,393  |                   |   | 75,393              |  |                                            |       |  | 5.6                                | % |  |   | 101,320
|Term Securitization  Class B   |  | Term      |  | March 2015    |  |                | 14,530  |                   |   | 14,530              |  |                                            |       |  | 6.7                                | % |  |   | 14,530 
|WestLB                          |  | Revolving |  | (3)           |  |                | 125,000 |                   |   | 112,921             |  |                                            | 12,079 |  | 5.7                                | % |  |   | 130,223
|                                |  |           |  |               |  |                |         |                   |   |                     |  |                                            |        |  |                                    |   |  |   |        
|                                |  |           |  |               |  | $              | 214,923 |                   | $ | 202,844             |  | $                                          | 12,079 |  |                                    |   |  | $ | 254,744
|                                |  |           |  |               |  |                |         |                   |   |                     |  |                                            |        |  |                                    |   |  |   |        



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



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



|(3) | This facility matures on August 31, 2009. The Fund is currently negotiating a renewal which is expected to extend the maturity to June 2010 and, if extended, could be renewable
for an additional one year period. If the WestLB facility is not extended at the time of maturity, the Fund would not be required to make full repayment at that time. Rather, the Fund would repay the outstanding debt as payments are received on the
underlying leases and loans pledged as collateral.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In June 2009, the Fund agreed to reduce the WestLB facility amount from
$150 million to $125 million. This facility, which was to mature in June 2009, has been extended until August 31, 2009 while the Fund negotiates the terms of the one-year renewal. The Fund expects that as part of the renewal terms, it will
agree to reduce its leverage, pay a higher interest rate on any new borrowings subsequent to June 30, 2009 and pay an amendment fee. The interest rate is expected to remain unchanged for the Funds existing borrowings under the debt
facility, which are calculated at LIBOR plus 0.95% per annum. New borrowings under the facility are expected to be at a rate of LIBOR plus 2.50% per annum. As of June 30, 2009, interest rate swap agreements fix the interest rate on
this facility at 5.7% on a weighted average basis. Interest and principal are due as payments are received under the leases and loans.

As
of June 30, 2009, $215.7 million of leases and loans and $22.5 million of restricted cash were pledged as collateral under the Funds credit facilities. Recourse under these facilities is limited to the amount of collateral pledged.

As of June 30, 2009, the Fund is in compliance with all covenants under its various debt agreements.

Debt repayments

Annual principal payments on the
Funds aggregate borrowings over the next five years ended June 30 and thereafter, are as follows (in thousands):



|           |  |   |        
|---------- |  | - | -------
|2010       |  | $ | 84,041 
|2011       |  |   | 56,338 
|2012       |  |   | 35,134 
|2013       |  |   | 17,722 
|2014       |  |   | 8,013  
|Thereafter |  |   | 1,596  
|           |  |   |        
|           |  | $ | 202,844
|           |  |   |        



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##### Table of Contents

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

Notes To Consolidated Financial Statements  (Continued)

June 30, 2009

(unaudited)

NOTE 5  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 June 30, 2009, the fair value of derivatives in a net liability
position, which excludes any adjustment for nonperformance risk, related to these agreements was $8.3 million. As of June 30, 2009, the Fund has not posted any collateral related to these agreements. If the Fund had breached any of these
provisions at June 30, 2009, it could have been required to settle its obligations under the agreements at their termination value of $8.3 million.

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

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



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##### Table of Contents

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

Notes To Consolidated Financial Statements  (Continued)

June 30, 2009

(unaudited)

NOTE 5  DERIVATIVE INSTRUMENTS  (Continued)



At June 30, 2009, the Fund has 21 interest rate swaps which terminate on various dates ranging
from September 2011 to August 2015. The following tables present the fair value of the Funds derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of June 30, 2009:



|                                                                 |  |                |         |                        |                                      |            |   |        |  
|---------------------------------------------------------------- |  | -------------- | ------- | ---------------------- | ------------------------------------ | ---------- | - | ------ | -
|                                                                 |  | NotionalAmount |         | Balance Sheet Location |                                      | Fair Value |  
|Derivatives designated as hedging instruments under SFAS 133     |  |                |         |                        |                                      |            |   |        |  
|Interest rate swap contracts                                     |  | $              | 187,558 |                        | Derivative liabilities at fair value |            | $ | (8,203 | )
|Derivatives not designated as hedging instruments under SFAS 133 |  |                |         |                        | Derivative liabilities at fair value |            | $ | 432    |  



|                                                                         |  |                                                                          |       |                                                                                            |   |               |  |                  |  |   |                |   |  |   |        |  
|------------------------------------------------------------------------ |  | ------------------------------------------------------------------------ | ----- | ------------------------------------------------------------------------------------------ | - | ------------- |  | ---------------- |  | - | -------------- | - |  | - | ------ | -
|Derivatives Designated as Cash Flow Hedging Relationships under SFAS 133 |  | Amount of Gain orLoss Recognized inOCI on Derivatives(Effective Portion) |       | Location and Amount of LossReclassified from Accumulated OCIinto Income(Effective Portion) |  
|                                                                         |  | ThreeMonthsEnded                                                         |       | SixMonthsEnded                                                                             |   |               |  | ThreeMonthsEnded |  |   | SixMonthsEnded |  
|                                                                         |  | June 30, 2009                                                            |       |                                                                                            |   | June 30, 2009 | 
|Interest Rate Products                                                   |  | $                                                                        | 3,980 |                                                                                            | $ | 8,372         |  | Interestexpense  |  | $ | (2,237         | ) |  | $ | (4,827 | )



|                                                                 |  |                                 |               |                  |     |   |                |   |    
|---------------------------------------------------------------- |  | ------------------------------- | ------------- | ---------------- | --- | - | -------------- | - | ---
|                                                                 |  | Statement ofOperations Location |               | ThreeMonthsEnded |     |   | SixMonthsEnded
|                                                                 |  |                                 | June 30, 2009
|Derivatives not designated as hedging instruments under SFAS 133 |  | Interest expense                |               | $                | (15 | ) |                | $ | 433

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 will amortize the gain to interest expense over the remaining term of the terminated swap agreements. For the three and six months ended June 30, 2009, $191,000 was recognized into
interest expense. As of June 30, 2009, the unamortized balance of $1.5 million is included in Accumulated Other Comprehensive Loss.

Assuming market rates remain constant with the rates as of June 30, 2009, $5.7 million of the $8.2 million in accumulated other comprehensive loss is expected to be charged to earnings over the next 12 months.



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##### Table of Contents

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

Notes To Consolidated Financial Statements  (Continued)

June 30, 2009

(unaudited)

NOTE 6  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 loans. They comprise 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 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.



13



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##### Table of Contents

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

Notes To Consolidated Financial Statements  (Continued)

June 30, 2009

(unaudited)

NOTE 6  FAIR VALUE MEASUREMENT  (Continued)



Assets and liabilities measured at fair value on a recurring basis include the following as of
June 30, 2009 (in thousands):



|                    |  |                               |   |             |   |        |         |  |               |   |  |   |        |  
|------------------- |  | ----------------------------- | - | ----------- | - | ------ | ------- |  | ------------- | - |  | - | ------ | -
|                    |  | Fair Value Measurements Using |   | Liabilities |  
|                    |  | Level 1                       |   | Level 2     |   |        | Level 3 |  | At Fair Value |  
|Interest Rate Swaps |  | $                             |  |             | $ | (7,771 | )       |  | $             |  |  | $ | (7,771 | )

NOTE 7  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 EndedJune 30, |     | Six Months EndedJune 30,
|                        |  | 2009                       |     | 2008                     |   | 2009 |  | 2008
|Acquisition fees        |  | $                          |    |                          | $ | 396  |  | $    | 123   |  | $ | 903  
|Management fees         |  |                            | 788 |                          |   | 979  |  |      | 1,586 |  |   | 1,963
|Administrative expenses |  |                            | 683 |                          |   | 763  |  |      | 1,376 |  |   | 1,206

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 Fees. The General Partner and its affiliates are reimbursed by the Fund for certain costs of services and materials used by or for the Fund except those items covered by the above-mentioned fees.

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 8  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 Liability). The Funds maximum remaining Repurchase Liability at June 30, 2009 is $191,000. The Fund has recorded a liability of $412,000 to reflect the estimate of losses it expects to incur
on assets repurchased. This liability is included in Other Liabilities on the Consolidated Balance Sheets.



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##### Table of Contents

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

Notes To Consolidated Financial Statements  (Continued)

June 30, 2009

(unaudited)



NOTE 9  SUBSEQUENT EVENTS

As of August 1, 2009, the Fund has temporarily suspended payment of future management fees and distributions to its General Partner, and the Fund has suspended the redemption of its units so as to increase its
liquidity as a result of the expected WestLB amendment discussed in Note 4. As communicated to the Funds limited partners in August 2009, the Fund has also temporarily suspended monthly distributions to its limited partners. It is likely that
distributions will be suspended through the remainder of 2009, after which the Fund anticipates that cash flow may again be able to support distributions. However, there can be no assurance the Fund will resume making distributions in the future.

The Fund has evaluated subsequent events through August 14, 2009, the date which these financial statements were issued and filed
with the SEC, and determined that there have not been any other events that have occurred that would require adjustments to or disclosure in the unaudited consolidated financial statements.



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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.

Overview

We are a Delaware limited partnership
formed on March 30, 2004 by our General Partner, LEAF Financial Corporation (our General Partner). Our General Partner is a majority owned indirect 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. We received our minimum subscription
proceeds and we broke escrow on April 14, 2005. On October 13, 2006, we reached our maximum subscription of 600,000 limited partner units for ($59.9 million).

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 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. When a lease or loan is 90 days or more delinquent, the lease or loan is classified as being on non-accrual and we do not recognize interest income on that lease or loan until the lease or loan becomes less than 90 days delinquent.

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 as a result of higher delinquencies and it may continue to do so until the economy recovers.



16



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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):



|                                                                                      |  |              |         |   |                  |   |         |  
|------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                      |  | June 30,2009 |         |   | December 31,2008 |  
|Investment in leases and loans, net                                                   |  | $            | 217,902 |   |                  | $ | 265,993 |  
|Number of contracts                                                                   |  |              | 20,000  |   |                  |   | 21,400  |  
|Number of individual end users(a)                                                     |  |              | 17,300  |   |                  |   | 18,600  |  
|Average original equipment cost                                                       |  | $            | 26.6    |   |                  | $ | 25.5    |  
|Average initial term (in months)                                                      |  |              | 56      |   |                  |   | 55      |  
|States accounting for more than 10% of lease and loan portfolio:                      |  |              |         |   |                  |   |         |  
|California                                                                            |  |              | 13      | % |                  |   | 13      | %
|Types of equipment accounting for 10% or more of commercial finance assets portfolio: |  |              |         |   |                  |   |         |  
|Industrial equipment                                                                  |  |              | 27      | % |                  |   | 26      | %
|Medical equipment                                                                     |  |              | 18      | % |                  |   | 18      | %
|Office equipment                                                                      |  |              | 10      | % |                  |   | 10      | %
|Types of equipment accounting for 10% or more of commercial finance assets portfolio: |  |              |         |   |                  |   |         |  
|Services                                                                              |  |              | 45      | % |                  |   | 44      | %
|Retail Trade                                                                          |  |              | 13      | % |                  |   | 12      | %
|Manufacturing                                                                         |  |              | 11      | % |                  |   | 11      | %



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

As of June 30, 2009, the average original equipment cost increased as compared to
December 31, 2008 as a result of an increase in the average original equipment cost of leases acquired from our General Partner in 2009.

We utilize debt in addition to our equity to fund the acquisitions of lease portfolios. As of June 30, 2009 and December 31, 2008, our outstanding debt was $202.8 million and $254.7 million, respectively.



17



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##### Table of Contents

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



|                                                                                                    |  |                                            |         |   |                                         |   |         |        |  |   |         |   |  |     |    |  |   |         |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------------------------ | ------- | - | --------------------------------------- | - | ------- | ------ |  | - | ------- | - |  | --- | -- |  | - | ------- | -
|                                                                                                    |  | As of and for theSix Months Ended June 30, |         |   | As of and for theYear
EndedDecember 31, |  
|                                                                                                    |  | 2009                                       |         |   | 2008                                    |   |         | Change |  |   | 2008    |  
|                                                                                                    |  |                                            |         | $ |                                         |   | %       |        | 
|Investment in direct financing leases and loans before allowance for credit losses                  |  | $                                          | 219,424 |   |                                         | $ | 313,021 |        |  | $ | (93,597 | ) |  | (30 | )% |  | $ | 264,997 |  
|Weighted average investment in direct financing leases and loans before allowance for credit losses |  |                                            | 243,266 |   |                                         |   | 322,862 |        |  |   | (79,596 | ) |  | (25 | )% |  |   | 305,453 |  
|Allowance for credit losses                                                                         |  |                                            | 7,170   |   |                                         |   | 1,710   |        |  |   | 5,460   |   |  | 319 | %  |  |   | 5,770   |  
|Non-performing assets                                                                               |  |                                            | 21,218  |   |                                         |   | 11,183  |        |  |   | 10,035  |   |  | 90  | %  |  |   | 15,224  |  
|Charge-offs, net of recoveries                                                                      |  | $                                          | 3,007   |   |                                         | $ | 3,758   |        |  | $ | (751    | ) |  | (20 | )% |  | $ | 7,318   |  
|As a percentage of finance receivables:                                                             |  |                                            |         |   |                                         |   |         |        |  |   |         |   |  |     |    |  |   |         |  
|Allowance for credit losses                                                                         |  |                                            | 3.27    | % |                                         |   | 0.55    | %      |  |   |         |   |  |     |    |  |   | 2.18    | %
|Non-performing assets                                                                               |  |                                            | 9.67    | % |                                         |   | 3.57    | %      |  |   |         |   |  |     |    |  |   | 5.74    | %
|As a percentage of weighted average finance receivables:                                            |  |                                            |         |   |                                         |   |         |        |  |   |         |   |  |     |    |  |   |         |  
|Charge-offs, net of recoveries                                                                      |  |                                            | 1.24    | % |                                         |   | 1.16    | %      |  |   |         |   |  |     |    |  |   | 2.40    | %

We manage our credit risk by adhering to strict credit policies and procedures, and closely
monitoring our receivables. Our General Partner, the servicer of our leases and loans, has responded to the current economic recession by increasing the number of employees in its collection department and it has implemented 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 rates 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 current economic recession in the United States has adversely affected our operations as a result of higher delinquencies and it may continue to do
so until the 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 ninety days delinquent at June 30, 2009, compared to June 30, 2008.



18



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##### Table of Contents

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-size businesses, and our General Partner anticipates that the recession will make it more
difficult for some of our customers to make payments on their financings with us on a timely basis, which could result in higher delinquencies.

Our net charge-offs increased in the six months ended June 30, 2009 compared to 2008 due to the aging of our portfolio of leases and loans as well as the current economic recession as discussed above.

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 costs and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including estimated
unguaranteed residual values of leased equipment, the allowance for credit losses, impairment of long-lived assets, the accrued repurchase liability and for 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 2008 under Managements Discussion and Analysis of Financial Condition and Results of Operations  Critical
Accounting Policies and Estimates.

Results of Operations

Three Months Ended June 30, 2009 compared to the Three Months Ended June 30, 2008

The following summarizes our
results of operations for the three months ended June 30, 2009 and 2008 (dollars in thousands):



|                                                        |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   
|------------------------------------------------------- |  | ---- | ------ | - | ------------------- | - | ------ | - |  | - | ------ | - |  | --- | --
|                                                        |  |      |        |   | Increase (Decrease) |  
|                                                        |  | 2009 |        |   | 2008                |   |        | $ |  |   | %      |  
|Revenues:                                               |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   
|Interest on equipment financings                        |  | $    | 4,853  |   |                     | $ | 6,801  |   |  | $ | (1,948 | ) |  | (29 | )%
|Rental income                                           |  |      | 716    |   |                     |   | 1,168  |   |  |   | (452   | ) |  | (39 | )%
|Gains on sales of equipment and lease dispositions, net |  |      | 14     |   |                     |   | 221    |   |  |   | (207   | ) |  | (94 | )%
|Other                                                   |  |      | 423    |   |                     |   | 594    |   |  |   | (171   | ) |  | (29 | )%
|                                                        |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   
|                                                        |  |      | 6,006  |   |                     |   | 8,784  |   |  |   | (2,778 | ) |  | (32 | )%
|                                                        |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   
|Expenses:                                               |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   
|Interest expense                                        |  |      | 3,119  |   |                     |   | 4,660  |   |  |   | (1,541 | ) |  | (33 | )%
|Depreciation on operating leases                        |  |      | 576    |   |                     |   | 985    |   |  |   | (409   | ) |  | (42 | )%
|Provision for credit losses                             |  |      | 1,535  |   |                     |   | 2,187  |   |  |   | (652   | ) |  | (30 | )%
|General and administrative expenses                     |  |      | 737    |   |                     |   | 842    |   |  |   | (105   | ) |  | (12 | )%
|Administrative expenses reimbursed to affiliate         |  |      | 683    |   |                     |   | 763    |   |  |   | (80    | ) |  | (10 | )%
|Management fees to affiliate                            |  |      | 788    |   |                     |   | 979    |   |  |   | (191   | ) |  | (20 | )%
|                                                        |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   
|                                                        |  |      | 7,438  |   |                     | $ | 10,416 |   |  |   | (2,978 | ) |  | (29 | )%
|                                                        |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   
|Net loss                                                |  | $    | (1,432 | ) |                     | $ | (1,632 | ) |  | $ | 200    |   |  | 12  | % 
|                                                        |  |      |        |   |                     |   |        |   |  |   |        |   |  |     |   



19



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##### Table of Contents

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 $231.6 million for the three months ended
June 30, 2009 as compared to $323.5 million for the three months ended June 30, 2008, a decrease of $91.9 million (28%).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | a decrease in gains on sales of equipment. Gains on sales of equipment may vary significantly from period to period.
| | - |  | --------------------------------------------------------------------------------------------------------------------



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

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



| |  |  | a decrease in interest expense due to a decrease in average debt outstanding, partially offset by an increase in interest cost. Weighted average borrowings for the
three months ended June 30, 2009 and 2008 were $218.1 million and $318.3 million, respectively, at an effective interest rate of 6.5% and 5.9%, respectively.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | a decrease in our provision for credit losses. We provide for credit losses when losses are likely to occur based on a migration analysis of past due payments and
economic conditions. Our allowance for credit losses has increased to $7.2 million as of June 30, 2009 compared to $1.7 million as of June 30, 2008 due to the impact of the economic recession in the United States on our customers
ability to make payments on their leases and loans, which resulted in an increase in non-performing assets as a percentage of finance receivables to 9.67% as of June 30, 2009 as compared to 5.74% as of December 31, 2008 and 3.57% as of
June 30, 2008.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

The net loss per limited partner unit, after the net loss allocated to our General Partner for the three
months ended June 30, 2009 and 2008 was $(2.39) and $(2.71), respectively, based on a weighted average number of limited partner units outstanding of 593,050 and 595,796, respectively.



20



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##### Table of Contents

Six Months Ended June 30, 2009 compared to the Six Months Ended June 30, 2008

The following summarizes our results of operations for the six months ended June 30, 2009 and 2008 (dollars in thousands):



|                                                                 |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|---------------------------------------------------------------- |  | ---- | ------ | - | ------------------- | - | ------ | - |  | - | ------ | - |  | ---- | --
|                                                                 |  |      |        |   | Increase (Decrease) |  
|                                                                 |  | 2009 |        |   | 2008                |   |        | $ |  |   | %      |  
|Revenues:                                                        |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|Interest on equipment financings                                 |  | $    | 10,189 |   |                     | $ | 14,077 |   |  | $ | (3,888 | ) |  | (28  | )%
|Rental income                                                    |  |      | 1,516  |   |                     |   | 2,484  |   |  |   | (968   | ) |  | (39  | )%
|(Losses) gains on sales of equipment and lease dispositions, net |  |      | (150   | ) |                     |   | 543    |   |  |   | (693   | ) |  | (128 | )%
|Other                                                            |  |      | 861    |   |                     |   | 1,237  |   |  |   | (376   | ) |  | (30  | )%
|                                                                 |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|                                                                 |  |      | 12,416 |   |                     |   | 18,341 |   |  |   | (5,925 | ) |  | (32  | )%
|                                                                 |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|Expenses:                                                        |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|Interest expense                                                 |  |      | 6,794  |   |                     |   | 9,456  |   |  |   | (2,662 | ) |  | (28  | )%
|Depreciation on operating leases                                 |  |      | 1,276  |   |                     |   | 2,099  |   |  |   | (823   | ) |  | (39  | )%
|Provision for credit losses                                      |  |      | 4,407  |   |                     |   | 3,508  |   |  |   | 899    |   |  | 26   | % 
|General and administrative expenses                              |  |      | 1,575  |   |                     |   | 1,447  |   |  |   | 128    |   |  | 9    | % 
|Administrative expenses reimbursed to affiliate                  |  |      | 1,376  |   |                     |   | 1,206  |   |  |   | 170    |   |  | 14   | % 
|Management fees to affiliate                                     |  |      | 1,586  |   |                     |   | 1,963  |   |  |   | (377   | ) |  | (19  | )%
|                                                                 |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|                                                                 |  |      | 17,014 |   |                     | $ | 19,679 |   |  |   | (2,665 | ) |  | (14  | )%
|                                                                 |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|Net loss                                                         |  | $    | (4,598 | ) |                     | $ | (1,338 | ) |  | $ | (3,260 | ) |  | (244 | )%
|                                                                 |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   

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 $243.3 million for the six months ended
June 30, 2009 as compared to $322.9 million for the six months ended June 30, 2008, a decrease of $79.6 million (25%).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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

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



| |  |  | a decrease in interest expense due to a decrease in average debt outstanding, partially offset by an increase in interest cost. Weighted average borrowings for the
six months ended June 30, 2009 and 2008 were $230.6 million and $317.7 million, respectively, at an effective interest rate of 6.3% 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 management fees attributable to the decrease in our portfolio of equipment financing assets, since management fees are paid based on lease payments
received.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

These decreases were partially offset by:



| |  |  | an increase in our provision for credit losses. We provide for credit losses when losses are likely to occur based on a migration analysis of past due payments and
economic conditions. Our allowance for credit losses has increased to $7.2 million as of June 30, 2009 compared to $1.7 million as of June 30, 2008 due to the impact of the economic recession in the United States on our customers
ability to make payments on their leases and loans, which resulted in an increase in non-performing assets as a percentage of finance receivables to 9.67% as of June 30, 2009 as compared to 5.74% as of December 31, 2008 and 3.57% as of
June 30, 2008.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in general and administrative expenses, principally related to increased legal costs associated with collection efforts. We expect the increase in legal
costs will result in future recoveries of credit losses.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

The net loss per limited partner
unit, after the net loss income allocated to our General Partner for the six months ended June 30, 2009 and 2008 was $(7.67) and $(2.22), respectively, based on a weighted average number of limited partner units outstanding of 593,221 and
596,646, respectively.

Liquidity and Capital Resources

Our major sources of liquidity are obtained by the collection of lease 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 from credit facilities.

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



|                                          |  |                          |         |   |      |   |         |  
|----------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                          |  | Six Months EndedJune 30, |        
|                                          |  | 2009                     |         |   | 2008 |  
|Net cash provided by operating activities |  | $                        | 7,122   |   |      | $ | 9,630   |  
|Net cash provided by investing activities |  |                          | 42,259  |   |      |   | 19,246  |  
|Net cash used in financing activities     |  |                          | (49,513 | ) |      |   | (28,670 | )
|                                          |  |                          |         |   |      |   |         |  
|(Decrease) increase in cash               |  | $                        | (132    | ) |      | $ | 206     |  
|                                          |  |                          |         |   |      |   |         |  

Partners distributions paid for each of the six months ended June 30, 2009 and 2008
were $2.4 million. Distributions to limited partners were 8.0% of invested capital.

Cash decreased by $132,000 which was primarily due to
a net debt repayment of $(51.9) million (net of purchases of and proceeds from leases and loans of $42.4 million) and distributions to our partners of $2.4 million, partially offset by an increase in amounts due to affiliates $6.0 million. As a
result of increased delinquencies, the amount of eligible leases and loans to pledge as collateral was reduced, resulting in a net debt repayment in 2009.



22



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##### Table of Contents

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 June 30, 2009 (in thousands):



|                                   |  |           |  |               |  |                |         |                   |   |                 |  |   |       
|---------------------------------- |  | --------- |  | ------------- |  | -------------- | ------- | ----------------- | - | --------------- |  | - | ------
|                                   |  | Type      |  | Maturity Date |  | FacilityAmount |         | AmountOutstanding |   | AmountAvailable
|Term Securitization  Class A-3(1) |  | Term      |  | July 2012     |  | $              | 75,393  |                   | $ | 75,393          |  | $ |      
|Term Securitization  Class B(1)   |  | Term      |  | March 2015    |  |                | 14,530  |                   |   | 14,530          |  | $ |      
|WestLB(2)                          |  | Revolving |  | (3)           |  |                | 125,000 |                   |   | 112,921         |  |   | 12,079
|                                   |  |           |  |               |  |                |         |                   |   |                 |  |   |       
|                                   |  |           |  |               |  | $              | 214,923 |                   | $ | 202,844         |  | $ | 12,079
|                                   |  |           |  |               |  |                |         |                   |   |                 |  |   |       



|(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 sufficient eligible leases or loans (as defined by the agreement) to pledge as collateral and compliance with the
borrowing base formula.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | This facility matures on August 31, 2009. We are currently negotiating a renewal which is expected to extend the maturity to June 2010. If extended, in June 2010 the facility
is renewable for a one year period. If the WestLB facility is not extended at the time of maturity, we would not be required to make full repayment at that time. Rather, we would repay the outstanding debt as payments are received on the underlying
leases and loans pledged as collateral.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recourse under these facilities is limited to the amount of collateral pledged. As
of June 30, 2009, $215.7 million of leases and loans and $22.5 million of restricted cash were pledged as collateral under the Funds credit facilities.

In June 2009, we agreed to reduce the WestLB facility amount from $150 million to $125 million. This facility, which was to mature in June 2009, has been extended until August 31, 2009 while we negotiate the
terms of the one-year renewal. We expect that as part of the renewal terms, we will agree to reduce our leverage, pay a higher interest rate on any new borrowings subsequent to June 30, 2009 and pay an amendment fee. The interest rate remains
unchanged for our existing borrowings under the debt facility, which are calculated at LIBOR plus 0.95% per annum. New borrowings under the facility are expected to be at a rate of LIBOR plus 2.50% per annum. As of June 30, 2009,
interest rate swap agreements fix the interest rate on this facility at 5.7% on a weighted average basis. Interest and principal are due as payments are received under the leases and loans. If extended, the facility is renewable for an additional
one year period in June 2010. If the WestLB facility is not extended at the time of renewal, pursuant to the loan agreement we would not be required to make full repayment at the time of renewal. Rather, we would continue to repay the outstanding
debt as payments under the leases and loans pledged as collateral are received.

As of August 1, 2009, we have temporarily suspended
payment of future management fees and distributions to our General Partner, and we have suspended the redemption of our units so as to increase our liquidity as a result of the expected WestLB amendment. As communicated to our limited partners in
August 2009, we have also temporarily suspended monthly distributions to our limited partners. It is likely that distributions will be suspended through the remainder of 2009, after which we anticipate that cash flow may again be able to support
distributions. However, there can be no assurance we will resume making distributions in the future.

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 certain percentage of our portfolio of leases and loans are delinquent beyond specified 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 the covenants discussed above that are applicable to us, and are related to
such things as the entitys minimum tangible net worth,



23



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##### Table of Contents

maximum leverage ratios, managed portfolio delinquency and compliance of the debt terms of all of our General Partners managed entities.

As of June 30, 2009, we were in compliance with all such covenants under our various debt agreements. If we do not meet the requirements of the
covenants in the future, a default could occur that would have an adverse effect on our operations and could force us to liquidate our portfolio. 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.

The current tightening of the credit markets has and may continue to
adversely affect our liquidity, particularly our ability to obtain 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 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 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, which depends on many factors beyond our control, including general economic and credit conditions. We continue to seek additional sources of financing, including expanded bank financing and use of joint
venture strategies 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.

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.

As discussed above, 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 also 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 June 30, 2009, our credit evaluation indicated a need for an allowance for credit losses of $7.2 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.

Contractual Obligations
and Commercial Commitments

The following table sets forth our obligations and commitments as of June 30, 2009 (in thousands):



|             |  |       |         |                        |   |            |  |            |        |              |   |        |  |   |      
|------------ |  | ----- | ------- | ---------------------- | - | ---------- |  | ---------- | ------ | ------------ | - | ------ |  | - | -----
|             |  |       |         | Payments Due by Period
|             |  | Total |         | Less than1 Year        |   | 1  3Years |  | 4  5Years |        | After 5Years
|Bank debt(1) |  | $     | 202,844 |                        | $ | 84,041     |  | $          | 91,472 |              | $ | 25,735 |  | $ | 1,596



|(1) | 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 weighted average interest rates. Not included in the table above are estimated interest payments calculated at rates in effect at June 30, 2009: Less than 1 year: $9.2 million; 1-3 years: $8.8 million; 4-5 years: $3.0
million; and after 5 years: $486,000. The fair value of the swap liability as of June 30, 2009 is $8.8 million.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
above table does not include expected payments related to the Repurchase Liability (defined below) as of June 30, 2009. In connection with a sale of leases and loans to a third party, we agreed to repurchase delinquent leases up to maximum of
7.5% of total proceeds received from the sale (the Repurchase Liability). Our maximum remaining Repurchase Liability at June 30, 2009 is $191,000.



24



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##### Table of Contents

Legal Proceedings

We are a party to various routine legal proceedings arising out of 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 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 purchase are almost entirely fixed-rate. Accordingly, we seek to finance these assets with fixed interest rate debt. At
June 30, 2009, our outstanding bank debt totaled $202.8 million which consisted of variable rate debt. To mitigate interest rate risk on the variable rate bank debt, we employ a hedging strategy using derivative financial instruments such as
interest rate swaps, which fixes the weighted average interest rates at 5.7% for both the WestLB, and Series 2007-term securitization debt facilities. At June 30, 2009, the notional amounts of the 21 interest rate swaps were $187.6 million. The
interest rate swap agreements terminate on various dates ranging from September 2011 to August 2015.

The following sensitivity analysis
table shows, at June 30, 2009, the estimated impact on the fair value of our interest rate-sensitive investments and liabilities of changes in interest rates, assuming rates instantaneously fall 100 basis points and rise 100 basis points
(dollars in thousands):



|                                  |  |                                    |         |   |           |   |                                    |  |   |        |   
|--------------------------------- |  | ---------------------------------- | ------- | - | --------- | - | ---------------------------------- |  | - | ------ | --
|                                  |  | Interest ratesfall 100 basispoints |         |   | Unchanged |   | Interest ratesrise 100 basispoints | 
|Hedging instruments               |  |                                    |         |   |           |   |                                    |  |   |        |   
|Fair value                        |  | $                                  | (10,445 | ) |           | $ | (7,771)                            |  | $ | (5,752 | ) 
|Change in fair value              |  | $                                  | (2,675  | ) |           |   |                                    |  | $ | 2,019  |   
|Change as a percent of fair value |  |                                    | 34      | % |           |   |                                    |  |   | (26    | )%

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 June 30, 2009 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

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. (3)                                            
|            | 
|4.1         |  | Forms of letters sent to limited partners confirming their investment (1)                                                                        
|            | 
|10.1        |  | Seventh Amendment to WestLB AG, New York Branch, Secured Loan Agreement                                                                          
|            | 
|10.2        |  | Eighth Amendment to WestLB AG, New York Branch, Secured Loan Agreement                                                                           
|            | 
|31.1        |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|            | 
|32.1        |  | Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|            | 
|32.2        |  | Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



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



|(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 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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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
|                |  |  | 
|                |  |  |  | By:                                    |  | LEAF Financial Corporation its General Partner
|                |  | 
|August 14, 2009 |  |  |  | /s/ Crit DeMent                       
|                |  |  |  | CRIT DEMENT                           
|                |  |  |  | Chairman and Chief Executive Officer  
|                |  | 
|August 14, 2009 |  |  |  | /s/ Robert K. Moskovitz               
|                |  |  |  | ROBERT K. MOSKOVITZ                   
|                |  |  |  | Chief Financial Officer               
|                |  | 
|August 14, 2009 |  |  |  | /s/ Tonya L. Zweier                   
|                |  |  |  | TONYA L. ZWEIER                       
|                |  |  |  | Chief Accounting Officer              



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