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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2010

OR



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

For the transition period from  to

Commission file number 000-53667





LEAF EQUIPMENT FINANCE FUND 4, L.P.

(Exact Name of Registrant as Specified in Its Charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 61-1552209                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

110 South Poplar Street, Suite 101, Wilmington, Delaware 19801

(Address of principal executive offices)

(800) 819-5556

(Registrants telephone number, including area code)





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

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

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



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

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

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









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LEAF EQUIPMENT FINANCE FUND 4, L.P.

INDEX TO ANNUAL REPORT

ON FORM 10-Q



|           |  |                                                                                                       |  |     
|---------- |  | ----------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                       |  | PAGE
|PART I     |  | FINANCIAL INFORMATION                                                                                 |  |     
|ITEM 1.    |  | Financial Statements                                                                                  |  |     
|           |  | Consolidated Balance Sheets  June 30, 2010 and December 31, 2009 (Unaudited)                         |  | 3   
|           |  | Consolidated Statements of Operations 
Three and Six Months Ended June 30, 2010 and 2009 (Unaudited) |  | 4   
|           |  | Consolidated Statement of Changes in Partners Capital 
Six Months Ended June 30, 2010 (Unaudited)   |  | 5   
|           |  | Consolidated Statements of Cash Flows Six Months Ended June 30, 2010 and 2009
(Unaudited)            |  | 6   
|           |  |                                                                                                      
|           |  | Notes to Consolidated Financial Statements  June 30, 2010 (Unaudited)                                |  | 7   
|ITEM 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                 |  | 16  
|ITEM 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                                            |  | 25  
|ITEM 4.    |  | Controls and Procedures                                                                               |  | 26  
|           |  |                                                                                                      
|PART II    |  | OTHER INFORMATION                                                                                     |  |     
|ITEM 6.    |  | Exhibits                                                                                              |  | 27  
|           | 
|SIGNATURES |  | 29                                                                                                   



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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)

(Unaudited)



|                                                         |  |              |         |   |                  |   |         |  
|-------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                         |  | June 30,2010 |         |   | December 31,2009 |  
|                                                         |  |             
|ASSETS                                                   |  |              |         |   |                  |   |         |  
|Cash                                                     |  | $            | 879     |   |                  | $ | 1,621   |  
|Restricted cash                                          |  |              | 18,189  |   |                  |   | 22,851  |  
|Investment in leases and loans, net                      |  |              | 423,544 |   |                  |   | 501,174 |  
|Derivative assets at fair value                          |  |              | 183     |   |                  |   | 730     |  
|Deferred financing costs, net                            |  |              | 3,492   |   |                  |   | 3,458   |  
|Other assets                                             |  |              | 319     |   |                  |   | 393     |  
|                                                         |  |              |         |   |                  |   |         |  
|Total assets                                             |  | $            | 446,606 |   |                  | $ | 530,227 |  
|                                                         |  |              |         |   |                  |   |         |  
|LIABILITIES AND PARTNERS CAPITAL                        |  |              |         |   |                  |   |         |  
|Liabilities:                                             |  |              |         |   |                  |   |         |  
|Bank debt                                                |  | $            | 364,506 |   |                  | $ | 427,025 |  
|Accounts payable, accrued expenses and other liabilities |  |              | 2,413   |   |                  |   | 2,840   |  
|Derivative liabilities at fair value                     |  |              | 7,656   |   |                  |   | 10,458  |  
|Due to affiliates                                        |  |              | 1,058   |   |                  |   | 211     |  
|Subordinated notes payable                               |  |              | 9,355   |   |                  |   | 9,355   |  
|                                                         |  |              |         |   |                  |   |         |  
|Total liabilities                                        |  |              | 384,988 |   |                  |   | 449,889 |  
|                                                         |  |              |         |   |                  |   |         |  
|                                                         |  |             
|Commitments and contingencies                            |  |              |         |   |                  |   |         |  
|                                                         |  |             
|Partners (Deficit) Capital:                             |  |              |         |   |                  |   |         |  
|General partner                                          |  |              | (490    | ) |                  |   | (304    | )
|Limited partners                                         |  |              | 61,443  |   |                  |   | 79,933  |  
|                                                         |  |              |         |   |                  |   |         |  
|Total LEAF 4 partners capital                           |  |              | 60,953  |   |                  |   | 79,629  |  
|Noncontrolling interest                                  |  |              | 665     |   |                  |   | 709     |  
|                                                         |  |              |         |   |                  |   |         |  
|Total partners capital                                  |  |              | 61,618  |   |                  |   | 80,338  |  
|                                                         |  |              |         |   |                  |   |         |  
|Total liabilities and partners capital                  |  | $            | 446,606 |   |                  | $ | 530,227 |  
|                                                         |  |              |         |   |                  |   |         |  

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



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LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except unit and per unit data)

(Unaudited)



|                                                                               |  |                            |           |   |                          |   |         |      |  |   |           |   |  |   |         |  
|------------------------------------------------------------------------------ |  | -------------------------- | --------- | - | ------------------------ | - | ------- | ---- |  | - | --------- | - |  | - | ------- | -
|                                                                               |  | Three Months EndedJune 30, |           |   | Six Months EndedJune 30, |  
|                                                                               |  | 2010                       |           |   | 2009                     |   |         | 2010 |  |   | 2009      |  
|Revenues:                                                                      |  |                            |           |   |                          |   |         |      |  |   |           |   |  |   |         |  
|Interest on equipment financings                                               |  | $                          | 9,144     |   |                          | $ | 5,063   |      |  | $ | 19,096    |   |  | $ | 6,788   |  
|Rental income                                                                  |  |                            | 733       |   |                          |   | 340     |      |  |   | 1,489     |   |  |   | 510     |  
|Gains on sales of equipment and lease dispositions, net                        |  |                            | 146       |   |                          |   | 21      |      |  |   | 342       |   |  |   | 23      |  
|Other                                                                          |  |                            | 390       |   |                          |   | 149     |      |  |   | 772       |   |  |   | 200     |  
|                                                                               |  |                            |           |   |                          |   |         |      |  |   |           |   |  |   |         |  
|                                                                               |  |                            | 10,413    |   |                          |   | 5,573   |      |  |   | 21,699    |   |  |   | 7,521   |  
|                                                                               |  |                            |           |   |                          |   |         |      |  |   |           |   |  |   |         |  
|                                                                               |  |                            |           |  
|Expenses:                                                                      |  |                            |           |   |                          |   |         |      |  |   |           |   |  |   |         |  
|Interest expense                                                               |  |                            | 5,952     |   |                          |   | 3,197   |      |  |   | 12,154    |   |  |   | 4,260   |  
|Losses (gains) on derivative activities                                        |  |                            | 1,804     |   |                          |   | (1,926  | )    |  |   | 3,775     |   |  |   | (983    | )
|Depreciation on operating leases                                               |  |                            | 614       |   |                          |   | 293     |      |  |   | 1,250     |   |  |   | 437     |  
|Provision for credit losses                                                    |  |                            | 6,712     |   |                          |   | 2,089   |      |  |   | 12,644    |   |  |   | 3,032   |  
|General and administrative expenses                                            |  |                            | 401       |   |                          |   | 330     |      |  |   | 1,005     |   |  |   | 612     |  
|Administrative expenses reimbursed to affiliate                                |  |                            | 892       |   |                          |   | 660     |      |  |   | 1,760     |   |  |   | 1,029   |  
|Management fees to affiliate                                                   |  |                            | 1,155     |   |                          |   | 905     |      |  |   | 2,389     |   |  |   | 1,473   |  
|                                                                               |  |                            |           |   |                          |   |         |      |  |   |           |   |  |   |         |  
|                                                                               |  |                            | 17,530    |   |                          |   | 5,548   |      |  |   | 34,977    |   |  |   | 9,860   |  
|                                                                               |  |                            |           |   |                          |   |         |      |  |   |           |   |  |   |         |  
|(Loss) income before equity in losses of affiliate                             |  |                            | (7,117    | ) |                          |   | 25      |      |  |   | (13,278   | ) |  |   | (2,339  | )
|Equity in loss of affiliate                                                    |  |                            |          |   |                          |   | (1,490  | )    |  |   |          |   |  |   | (2,690  | )
|                                                                               |  |                            |           |   |                          |   |         |      |  |   |           |   |  |   |         |  
|Net loss                                                                       |  |                            | (7,117    | ) |                          |   | (1,465  | )    |  |   | (13,278   | ) |  |   | (5,029  | )
|Less: Net loss attributable to the noncontrolling interest                     |  |                            | 107       |   |                          |   | 17      |      |  |   | 44        |   |  |   | 28      |  
|                                                                               |  |                            |           |   |                          |   |         |      |  |   |           |   |  |   |         |  
|Net loss attributable to LEAF 4 partners                                       |  | $                          | (7,010    | ) |                          | $ | (1,448  | )    |  | $ | (13,234   | ) |  | $ | (5,001  | )
|                                                                               |  |                            |           |   |                          |   |         |      |  |   |           |   |  |   |         |  
|Net loss allocated to LEAF 4s limited partners                                |  | $                          | (6,940    | ) |                          | $ | (1,434  | )    |  | $ | (13,102   | ) |  | $ | (4,951  | )
|                                                                               |  |                            |           |   |                          |   |         |      |  |   |           |   |  |   |         |  
|Weighted average number of limited partner units outstanding during the period |  |                            | 1,259,864 |   |                          |   | 651,245 |      |  |   | 1,259,997 |   |  |   | 560,482 |  
|                                                                               |  |                            |           |   |                          |   |         |      |  |   |           |   |  |   |         |  
|Net loss per weighted average limited partner unit                             |  | $                          | (5.51     | ) |                          | $ | (2.20   | )    |  | $ | (10.40    | ) |  | $ | (8.83   | )
|                                                                               |  |                            |           |   |                          |   |         |      |  |   |           |   |  |   |         |  

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



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LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Consolidated Statement of Changes in Partners Capital

(In thousands, except unit data)

(Unaudited)



|                                                                          |  |                      |       |   |                  |           |   |                        |   |         |                         |  |   |                       |   |  |                            |     |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------- |  | -------------------- | ----- | - | ---------------- | --------- | - | ---------------------- | - | ------- | ----------------------- |  | - | --------------------- | - |  | -------------------------- | --- | - |  | - | ------- | - |  | - | ------- | -
|                                                                          |  | GeneralPartnerAmount |       |   | Limited Partners |           |   | LEAF 4PartnersCapital |   |         | Non-ControllingInterest |  |   | TotalPartnersCapital |   |  | ComprehensiveIncome
(Loss) |    
|                                                                          |  |                      | Units |   |                  | Amount    |   |                        |   |         |                        
|Balance, January 1, 2010                                                  |  | $                    | (304  | ) |                  | 1,260,364 |   |                        | $ | 79,933  |                         |  | $ | 79,629                |   |  | $                          | 709 |   |  | $ | 80,338  |   |  |   |         |  
|Return of offering costs related to the sale of limited partnership units |  |                      |      |   |                  |          |   |                        |   | 9       |                         |  |   | 9                     |   |  |                            |    |   |  |   | 9       |   |  |   |         |  
|Cash distributions                                                        |  |                      | (54   | ) |                  |          |   |                        |   | (5,355  | )                       |  |   | (5,409                | ) |  |                            |    |   |  |   | (5,409  | ) |  |   |         |  
|Redemption of limited partnership units                                   |  |                      |      |   |                  | (500      | ) |                        |   | (42     | )                       |  |   | (42                   | ) |  |                            |    |   |  |   | (42     | ) |  |   |         |  
|Comprehensive loss:                                                       |  |                      |       |   |                  |           |   |                        |   |         |                         |  |   |                       |   |  |                            |     |   |  |   |         |   |  |   |         |  
|Net loss                                                                  |  |                      | (132  | ) |                  |          |   |                        |   | (13,102 | )                       |  |   | (13,234               | ) |  |                            | (44 | ) |  |   | (13,278 | ) |  | $ | (13,278 | )
|Comprehensive loss attributable to noncontrolling interest                |  |                      |      |   |                  |          |   |                        |   |        |                         |  |   |                      |   |  |                            |    |   |  |   |        |   |  |   | 44      |  
|                                                                          |  |                      |       |   |                  |           |   |                        |   |         |                         |  |   |                       |   |  |                            |     |   |  |   |         |   |  |   |         |  
|Comprehensive loss attributable to LEAF 4                                 |  |                      |      |   |                  |          |   |                        |   |        |                         |  |   |                      |   |  |                            |    |   |  |   |        |   |  | $ | (13,234 | )
|                                                                          |  |                      |       |   |                  |           |   |                        |   |         |                         |  |   |                       |   |  |                            |     |   |  |   |         |   |  |   |         |  
|Balance, June 30, 2010                                                    |  | $                    | (490  | ) |                  | 1,259,864 |   |                        | $ | 61,443  |                         |  | $ | 60,953                |   |  | $                          | 665 |   |  | $ | 61,618  |   |  |   |         |  
|                                                                          |  |                      |       |   |                  |           |   |                        |   |         |                         |  |   |                       |   |  |                            |     |   |  |   |         |   |  |   |         |  

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



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LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                                |  |                          |          |   |      |   |          |  
|------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                |  | Six Months EndedJune 30, |         
|                                                                                |  | 2010                     |          |   | 2009 |  
|Cash flows from operating activities:                                           |  |                          |          |   |      |   |          |  
|Net loss attributable to LEAF 4                                                 |  | $                        | (13,234  | ) |      | $ | (5,001   | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                          |          |   |      |   |          |  
|Gains on sales of equipment and lease dispositions, net                         |  |                          | (342     | ) |      |   | (23      | )
|Amortization of deferred financing costs                                        |  |                          | 3,932    |   |      |   | 1,013    |  
|Depreciation on operating leases                                                |  |                          | 1,250    |   |      |   | 437      |  
|Provision for credit losses                                                     |  |                          | 12,644   |   |      |   | 3,032    |  
|Equity in losses in affiliate                                                   |  |                          |         |   |      |   | 2,690    |  
|Net loss attributable to the noncontrolling interest                            |  |                          | (44      | ) |      |   | (28      | )
|Unrealized gains on derivative hedging activities                               |  |                          | (591     | ) |      |   | (1,081   | )
|Changes in operating assets and liabilities, net of effect of acquisitions:     |  |                          |          |   |      |   |          |  
|Other assets                                                                    |  |                          | 74       |   |      |   | (13      | )
|Accounts payable, accrued expenses, other liabilities and other assets          |  |                          | (427     | ) |      |   | 291      |  
|Due to affiliates                                                               |  |                          | 857      |   |      |   | (959     | )
|                                                                                |  |                          |          |   |      |   |          |  
|Net cash provided by operating activities                                       |  |                          | 4,119    |   |      |   | 358      |  
|                                                                                |  |                          |          |   |      |   |          |  
|                                                                                |  |                         
|Cash flows from investing activities:                                           |  |                          |          |   |      |   |          |  
|Purchases of leases and loans                                                   |  |                          | (12,150  | ) |      |   | (104,174 | )
|Proceeds from leases and loans                                                  |  |                          | 75,598   |   |      |   | 25,809   |  
|Security deposits collected, net of returns                                     |  |                          | (2,157   | ) |      |   | (592     | )
|Investment in LEAF Funds JV1                                                    |  |                          |         |   |      |   | (980     | )
|Issuance of membership interest in LEAF Funds JV2 to noncontrolling interest    |  |                          |         |   |      |   | 382      |  
|Investment in LEAF Commercial Finance Fund (see Note 3), net of cash required   |  |                          |         |   |      |   | (7,649   | )
|Investment in RCF (see Note 2)                                                  |  |                          |         |   |      |   | (4,500   | )
|                                                                                |  |                          |          |   |      |   |          |  
|Net cash provided by (used in) investing activities                             |  |                          | 61,291   |   |      |   | (91,704  | )
|                                                                                |  |                          |          |   |      |   |          |  
|                                                                                |  |                         
|Cash flows from financing activities:                                           |  |                          |          |   |      |   |          |  
|Borrowings of bank debt                                                         |  |                          | 104,917  |   |      |   | 82,989   |  
|Repayment of bank debt                                                          |  |                          | (167,806 | ) |      |   | (22,673  | )
|Decrease (increase) in restricted cash                                          |  |                          | 4,662    |   |      |   | (3,445   | )
|Increase in deferred financing costs                                            |  |                          | (635     | ) |      |   | (1,561   | )
|Termination of financial derivatives                                            |  |                          | (1,839   | ) |      |   | (80      | )
|Limited partners' capital contributions                                         |  |                          |         |   |      |   | 37,551   |  
|Offering costs incurred for the sale of partnership units                       |  |                          |         |   |      |   | (4,531   | )
|Cash distributions to partners                                                  |  |                          | (5,409   | ) |      |   | (2,123   | )
|Redemption of limited partnership units                                         |  |                          | (42      | ) |      |   | (9       | )
|                                                                                |  |                          |          |   |      |   |          |  
|Net cash (used in) provided by financing activities                             |  |                          | (66,152  | ) |      |   | 86,118   |  
|                                                                                |  |                          |          |   |      |   |          |  
|                                                                                |  |                         
|Decrease in cash                                                                |  |                          | (742     | ) |      |   | (5,228   | )
|Cash, beginning of period                                                       |  |                          | 1,621    |   |      |   | 6,736    |  
|                                                                                |  |                          |          |   |      |   |          |  
|Cash, end of period                                                             |  | $                        | 879      |   |      | $ | 1,508    |  
|                                                                                |  |                          |          |   |      |   |          |  

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



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LEAF EQUIPMENT FINANCE FUND 4, L.P. AND SUBSIDIARIES

Notes To Consolidated Financial Statements

June 30, 2010

(Unaudited)

NOTE 1
 ORGANIZATION AND NATURE OF BUSINESS

LEAF Equipment Finance Fund 4, L.P. (the Fund), a Delaware limited
partnership, was formed on January 25, 2008 by its general partner, LEAF Asset Management, LLC (the General Partner), which manages the Fund. The General Partner is a Delaware limited liability company and a subsidiary of Resource
America, Inc. (RAI). RAI is a publicly traded company (NASDAQ: REXI) that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund
management segments. Through its offering termination date of October 30, 2009, the Fund raised $125.7 million by selling 1.2 million of its limited partner units. It commenced operations in September 2008.

The Fund is expected to have a nine-year life, consisting of an offering period of up to two years, a five-year reinvestment period and a
subsequent maturity period of two years, during which the Funds leases and secured loans will either mature or be sold. In the event the Fund is unable to sell its leases and loans during the maturity period, the Fund expects to continue to
return capital to its partners as those leases and loans mature. Substantially all of the Funds leases and loans mature by the end of 2015. The Fund expects to enter its maturity period beginning in October 2014. The Fund will terminate on
December 31, 2032, unless sooner dissolved or terminated as provided in the Limited Partnership Agreement.

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

In addition to its 1% general partnership interest, the General Partner has also invested $1.0 million for a 0.85% limited partnership
interest in the Fund.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Fund and its wholly owned subsidiary, LEAF 4A SPE, LLC. Effective
March 1, 2009, the consolidated financial statements also include LEAF Funds Joint Venture 2, LLC (LEAF Funds JV2), in which the Fund acquired and maintains a 98% interest. Effective June 30, 2009, the consolidated financial
statements also include Resource Capital Funding, LLC (RCF) in which the Fund acquired a 100% interest. Effective August 31, 2009, the consolidated financial statements include LEAF Funding, LLC (LEAF Funds JV1) in which
the Fund holds an approximate 96% interest. All intercompany accounts and transactions have been eliminated in consolidation.

The Fund reflects the participation of LEAF Equipment Leasing Income Fund III, L.P. (LEAF III) in the net assets and in the
income or losses of LEAF Funds JV1 and LEAF Funds JV2 as noncontrolling interests in the consolidated balance sheets and statements of operations. Noncontrolling interest adjusts the Funds consolidated operating results to reflect only the
Funds share of the earnings or losses of LEAF Funds JV1 and LEAF Funds JV2.

The accompanying unaudited financial
statements reflect all adjustments that are, in the opinion of management, of a normal and recurring nature and necessary for a fair statement of the Funds financial position as of June 30, 2010, and the results of its operations and cash
flows for the periods presented. The results of operations for the six months ended June 30, 2010 are not necessarily indicative of results of the Funds operations for the 2010 fiscal year. The Fund has evaluated subsequent events through
the date the financial statements were issued. The financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and note disclosures normally
included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to those rules and regulations. These interim financial statements
should be read in conjunction with the Funds financial statements and notes thereto presented in the Funds Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC on April 2, 2010.

Significant Accounting Policies

Investments in Commercial Finance Assets

The Funds investments in commercial finance assets consist of direct financing leases, operating leases, loans and future payment
card receivables.



7



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

Unguaranteed residual value represents the estimated amount to be received at lease termination from lease extensions or ultimate
disposition of the leased equipment. The estimates of residual values are based upon the General Partners history with regard to the realization of residuals, available industry data and the General Partners senior managements
experience with respect to comparable equipment. The estimated residual values are recorded as a component of investments in leases. Residual values are reviewed periodically to determine if the current estimate of the equipments fair market
value appears to be below its recorded estimate. If required, residual values are adjusted downward to reflect adjusted estimates of fair market values. Upward adjustments to residual values are not permitted.

Operating Leases. Leases not meeting the criteria to be classified as direct financing leases are deemed to be operating leases.
Under the accounting for operating leases, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciated on a straight-line basis over the equipments estimated useful
life, generally up to seven years. Rental income consists primarily of monthly periodic rental payments due under the terms of the leases. The Fund recognizes rental income on a straight line basis.

Generally, during the lease terms of existing operating leases, the Fund will not recover all of the cost and related expenses of its
rental equipment and, therefore, it is prepared to remarket the equipment in future years. The Funds policy is to review, on a quarterly basis, the expected economic life of its rental equipment in order to determine the recoverability of its
undepreciated cost. The Fund writes down its rental equipment to its estimated net realizable value when it is probable that its carrying amount exceeds such value and the excess can be reasonably estimated; gains are only recognized upon actual
sale of the rental equipment. There were no write-downs of equipment during the three and six months ended June 30, 2010 and 2009.

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

Future Payment Card Receivables. The future payment card receivables in this portfolio have risk characteristics that are
different than those in other portfolios purchased by the Fund. Interest from future payment card receivables is recorded under the effective interest method. Under this method, an effective interest rate (IRR) is applied to the cost
basis of the future credit card receivable. The IRR that is calculated when the future credit card receivable is originated remains constant and is the basis for subsequent impairment testing and income recognition.

Allowance for Credit Losses.The Fund evaluates the adequacy of the allowance for credit losses (including investments in leases,
loans and future payment card receivables) based upon, among other factors, managements historical experience on the portfolios it manages, an analysis of contractual delinquencies, economic conditions and trends and equipment finance
portfolio characteristics, adjusted for expected recoveries. In evaluating historic performance, the Fund performs a migration analysis, which estimates the likelihood that an account progresses through delinquency stages to ultimate charge-off.
After an account becomes 180 or more days past due, it is generally written-off less an estimated recovery amount and referred to our internal recovery group consisting of a team of credit specialists and collectors. The group utilizes several
resources in an attempt to maximize recoveries on charged-off accounts including: 1) initiating litigation against the end user customer and any personal guarantor, 2) referring the account to an outside law firm or collection agency and/or 3)
repossessing and remarketing the equipment through third parties. The Funds policy is to charge off to the allowance those financings which are in default and for which management has determined the probability of collection to be remote.

The Fund discontinues the recognition of revenue for leases and loans for which payments are more than 90 days past due. For
future payment card receivables, the Fund discontinues revenue recognition when no payments have been received for 60 days. If the amount and timing of the future cash collections are not reasonably estimable, the Fund accounts for the future credit
card receivable on the cost recovery method. Under the cost recovery method of accounting, no income is recognized until the basis of the future payment card receivable has been fully recovered. As of June 30, 2010 and December 31, 2009,
the Fund had $18.3 million and $21.3 million respectively, of leases and loans on non-accrual status. The amount of future payment card receivables on non-accrual totaled $484,000 and $2.0 million as of June 30, 2010 and December 31, 2009,
respectively. The allowance for credit losses related to future payment card receivables on non-accrual was $112,000 and $1.2 million as of June 30, 2010 and December 31, 2009, respectively. At June 30, 2010, the Fund determined that
the amount and timing of future cash collections on the remaining



8



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##### Table of Contents

$484,000 of credit card payment receivables was not reasonably estimable. Accordingly, the Fund will recognize revenue on these receivables using the cost recovery method. Fees from delinquent
payments are recognized when received and are included in other income.

Recent Accounting Standards

Newly Adopted Accounting Principles  The Fund adopted the following accounting guidance during the first six months ended
June 30, 2010:

Subsequent Events.In February 2010, the Financial Accounting Standards Board (FASB)
issued guidance which removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised
as a result of either a correction of error or retrospective application of U.S. GAAP. This guidance was effective upon issuance.The adoption of this guidance did not have a material effect on the Funds consolidated financial position
or consolidated results of operations.

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

NOTE 3  SUPPLEMENTAL CASH FLOW INFORMATION

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



|                                   |  |                            |       |                          |   |       |  |      |        |  |   |      
|---------------------------------- |  | -------------------------- | ----- | ------------------------ | - | ----- |  | ---- | ------ |  | - | -----
|                                   |  | Three Months EndedJune 30, |       | Six Months EndedJune 30,
|                                   |  | 2010                       |       | 2009                     |   | 2010  |  | 2009
|Cash paid for:                     |  |                            |       |                          |   |       |  |      |        |  |   |      
|Interest                           |  | $                          | 5,973 |                          | $ | 2,262 |  | $    | 13,098 |  | $ | 2,862
|                                   |  |                            |       |                          |   |       |  |      |        |  |   |      
|Non-cash investing activities:     |  |                            |       |                          |   |       |  |      |        |  |   |      
|Increase in participation in loans |  | $                          | 4,121 |                          | $ |      |  | $    | 4,121  |  | $ |     
|                                   |  |                            |       |                          |   |       |  |      |        |  |   |      

NOTE 4  INVESTMENT IN COMMERCIAL FINANCE ASSETS

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



|                                |  |          |         |   |              |   |         |  
|------------------------------- |  | -------- | ------- | - | ------------ | - | ------- | -
|                                |  | June 30, |         |   | December 31, |  
|                                |  | 2010     |         |   | 2009         |  
|Direct financing leases (a)     |  | $        | 139,987 |   |              | $ | 170,083 |  
|Loans (b)                       |  |          | 291,515 |   |              |   | 338,177 |  
|Operating leases                |  |          | 5,298   |   |              |   | 6,562   |  
|Future payment card receivables |  |          | 484     |   |              |   | 1,986   |  
|                                |  |          |         |   |              |   |         |  
|                                |  |          | 437,284 |   |              |   | 516,808 |  
|Allowance for credit losses     |  |          | (13,740 | ) |              |   | (15,634 | )
|                                |  |          |         |   |              |   |         |  
|                                |  | $        | 423,544 |   |              | $ | 501,174 |  
|                                |  |          |         |   |              |   |         |  



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

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



9



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##### Table of Contents

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



|                                               |  |              |         |   |                  |   |         |        |  |   |         |   |  |   |         |  
|---------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | ------ |  | - | ------- | - |  | - | ------- | -
|                                               |  | June 30,2010 |         |   | December 31,2009 |  
|                                               |  | Leases       |         |   | Loans            |   |         | Leases |  |   | Loans   |  
|Total future minimum lease payments            |  | $            | 154,563 |   |                  | $ | 338,428 |        |  | $ | 191,038 |   |  | $ | 399,842 |  
|Unearned income                                |  |              | (16,136 | ) |                  |   | (40,791 | )      |  |   | (21,797 | ) |  |   | (53,967 | )
|Residuals, net of unearned residual income (a) |  |              | 3,290   |   |                  |   |        |        |  |   | 3,252   |   |  |   |        |  
|Security deposits                              |  |              | (1,730  | ) |                  |   | (6,122  | )      |  |   | (2,410  | ) |  |   | (7,698  | )
|                                               |  |              |         |   |                  |   |         |        |  |   |         |   |  |   |         |  
|                                               |  | $            | 139,987 |   |                  | $ | 291,515 |        |  | $ | 170,083 |   |  | $ | 338,177 |  
|                                               |  |              |         |   |                  |   |         |        |  |   |         |   |  |   |         |  



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

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



|                         |  |              |        |   |                  |   |        |  
|------------------------ |  | ------------ | ------ | - | ---------------- | - | ------ | -
|                         |  | June 30,2010 |        |   | December 31,2009 |  
|Equipment                |  | $            | 8,822  |   |                  | $ | 9,105  |  
|Accumulated depreciation |  |              | (3,524 | ) |                  |   | (2,543 | )
|                         |  |              |        |   |                  |   |        |  
|                         |  | $            | 5,298  |   |                  | $ | 6,562  |  
|                         |  |              |        |   |                  |   |        |  

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



|                                                 |  |                            |        |   |                          |   |       |      |  |   |         |   |  |   |       |  
|------------------------------------------------ |  | -------------------------- | ------ | - | ------------------------ | - | ----- | ---- |  | - | ------- | - |  | - | ----- | -
|                                                 |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                                 |  | 2010                       |        |   | 2009                     |   |       | 2010 |  |   | 2009    |  
|Allowance for credit losses, beginning of period |  | $                          | 13,920 |   |                          |   | 1,302 |      |  | $ | 15,634  |   |  |   | 570   |  
|Provision for credit losses                      |  |                            | 6,712  |   |                          |   | 2,089 |      |  |   | 12,644  |   |  |   | 3,032 |  
|Charge-offs                                      |  |                            | (7,138 | ) |                          |   | (249  | )    |  |   | (14,881 | ) |  |   | (460  | )
|Recoveries                                       |  |                            | 246    |   |                          |   | 83    |      |  |   | 343     |   |  |   | 83    |  
|                                                 |  |                            |        |   |                          |   |       |      |  |   |         |   |  |   |       |  
|Allowance for credit losses, end of period       |  | $                          | 13,740 |   |                          | $ | 3,225 |      |  | $ | 13,740  |   |  | $ | 3,225 |  
|                                                 |  |                            |        |   |                          |   |       |      |  |   |         |   |  |   |       |  

NOTE 5  DEFERRED FINANCING COSTS

As of both June 30, 2010 and December 31, 2009, deferred financing costs include $3.5 million, of unamortized deferred
financing costs which are being amortized over the terms of the estimated useful life of the related debt. Accumulated amortization as of June 30, 2010 and December 31, 2009 was $1.9 million, and $1.3 million, respectively. Estimated
amortization expense of the Funds existing deferred financing costs for the years ending June 30, is as follows (in thousands):



|           |  |   |      
|---------- |  | - | -----
|2011       |  | $ | 1,311
|2012       |  |   | 971  
|2013       |  |   | 592  
|2014       |  |   | 398  
|2015       |  |   | 169  
|Thereafter |  |   | 51   
|           |  |   |      
|           |  | $ | 3,492
|           |  |   |      



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NOTE 6  BANK DEBT

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



|                           |  |           |  |                   |  |                        |         |               |                                    |                        |  |                                             |   |  |                          |  |   |   |  |   |        
|-------------------------- |  | --------- |  | ----------------- |  | ---------------------- | ------- | ------------- | ---------------------------------- | ---------------------- |  | ------------------------------------------- | - |  | ------------------------ |  | - | - |  | - | -------
|                           |  | Type      |  | Maturity Date     |  | June 30, 2010          |         |               | December 31,2009OutstandingBalance
|                           |  |           |  | Amount ofFacility |  | OutstandingBalance (1) |         | Available (2) |                                    | Interest rate perannum |  | Interest rateper
annumadjusted forswaps (3) |   | 
|Wells Fargo (6)            |  | Revolving |  | February 2012     |  | $                      | 75,000  |               | $                                  | 70,199                 |  | $                                           |  |  | Three month LIBOR + 4.1% |  | 5 | % |  | $ | 74,991 
|Morgan Stanley             |  | Term      |  | (4)               |  |                        | 125,733 |               |                                    | 125,733                |  |                                             |  |  | One month LIBOR + 3.%    |  | 8 | % |  |   | 150,366
|Morgan Stanley/RBS         |  | Term      |  | (5)               |  |                        |        |               |                                    |                       |  |                                             |  |  | One month LIBOR +        |  | 0 | % |  |   | 101,668
|UniCredit (6)              |  | Revolving |  | March 30,2011     |  |                        | 100,000 |               |                                    | 91,545                 |  |                                             |   |  | Comm. paper + 2.5%       |  | 5 | % |  |   | 100,000
|2010-1 Term Securitization |  | Term      |  | (5)               |  |                        | 77,029  |               |                                    | 77,029                 |  |                                             |  |  | 5.00%                    |  | 5 | % |  |   |       
|                           |  |           |  |                   |  |                        |         |               |                                    |                        |  |                                             |   |  |                          |  |   |   |  |   |        
|                           |  |           |  |                   |  | $                      | 377,762 |               | $                                  | 364,506                |  | $                                           |  |  |                          |  |   |   |  | $ | 427,025
|                           |  |           |  |                   |  |                        |         |               |                                    |                        |  |                                             |   |  |                          |  |   |   |  |   |        



|(1) | Collateralized by specific leases and loans and related equipment. As of June 30, 2010, $389.5 million of leases and loans and $16.0 million of restricted cash
were pledged as collateral under the Funds credit facilities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Availability under these debt facilities is subject to having eligible leases or loans (as defined in the respective agreements) to pledge as collateral, compliance
with covenants and the borrowing base formula.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | To mitigate fluctuations in interest rates, the Fund entered into interest rate swap and cap agreements. The interest rate swap agreements terminate on various dates
and fix the London Interbank Offered Rate (LIBOR) component of the interest rate.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | The Morgan Stanley term loan matured on August 4, 2010. Morgan Stanley has various options under the loan agreement such as allowing repayment as payments are
received on the underlying leases or loans or selling the pledged leases in a commercially reasonable manner. The Fund is engaged in discussions to extend the maturity of the term loan beyond August 4, 2010. If the Fund does not obtain such
extension, management expects that any borrowings outstanding as of such date will continue to be repaid as payments are received on the underlying leases and loans pledged as collateral.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | The Morgan Stanley/RBS facility was paid off on May 18, 2010 with the proceeds from the 2010-1 Term Securitization in which 3 tranches of notes were issued that
mature on October 23, 2016 and September 23, 2018, respectively. The notes totaled $92.7 million and bear interest at a stated rate of 5% but were issued at an original discount of approximately $6.5 million for an effective interest rate
of approximately 10.0% per annum.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | It is anticipated that the Wells Fargo and UniCredit facilities will be paid off on August 17, 2010 with the proceeds from the 2010-3 Term Securitization in which 5
tranches of notes will be issued that mature on June 20, 2016 and February 20, 2022, respectively. The notes total $171.4 million and bear interest at stated rates ranging from 3.5% to 5.5%.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Upon maturity or in the event of a default, the Funds lenders have various remedies under their individual loan agreement such as
allowing repayment of the outstanding loan balance as payments are received on the underlying leases and loans or selling those pledged leases and loans in a commercially reasonable manner. While it is rare for lenders to take such a drastic action
as selling a performing portfolio, to satisfy outstanding amounts at maturity, such action could be at prices lower than the Funds carrying value, which could result in losses and reduce the Funds income and distributions to our
partners.

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

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

As of June 30, 2010, the Fund had incurred multiple breaches under the covenants noted above regarding the Funds debt
facilities and covenant breaches relating to the affiliate that originates and services the Funds leases and loans. The Fund has requested waivers from Morgan Stanley, Wells Fargo and UniCredit with respect to these breaches. Due to these
breaches, these lenders



11



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have various remedies under their loan agreements such as allowing repayment of the outstanding balance as payments are received on the underlying leases and loans or selling the pledged
leases and loans in a commercially reasonable manner. Although the Fund expects to obtain waivers or to amend the covenants in its loan agreement with these lenders, there can be no assurance that such waivers or amendments will be executed. If
waivers or amendments are not obtained, it is likely that the affiliate that services the Funds leases and loans would not be in compliance with the same covenants at June 30, 2010. In addition, these breaches could create defaults under
the Funds other debt facilities and those lenders have remedies similar to that of Morgan Stanley, Wells Fargo and UniCredit.

A default could occur that would have an adverse effect on its operations and could force it to liquidate all or a portion of its
portfolio securing its debt facilities. If required, a sale of a portfolio, or any portion thereof, could be at prices lower than its carrying value, which could result in losses and reduce the Funds income and distributions to its partners.
The lenders recourse under these facilities is limited to leases and loans and restricted cash pledged as collateral.

Debt Repayments: Estimated annual principal payments on the Funds aggregate borrowings (assuming that the lenders noted
above waive the aforementioned covenant breaches) over the next five years ended June 30 and thereafter, are as follows (in thousands):



|           |  |   |        
|---------- |  | - | -------
|2011       |  | $ | 179,777
|2012       |  |   | 78,916 
|2013       |  |   | 53,011 
|2014       |  |   | 28,084 
|2015       |  |   | 13,251 
|Thereafter |  |   | 11,467 
|           |  |   |        
|           |  | $ | 364,506
|           |  |   |        

NOTE 7  SUBORDINATED NOTES PAYABLE

LEAF Commercial Finance Fund LLC (LCFF), a subsidiary of the Fund has $9.4 million of 8.25% secured promissory notes (the
Notes) outstanding, which are recourse to LCFF only. The Notes have a six-year term, are recourse to LCFF and require interest only payments until their maturity in February 2015. The Notes are subordinated to the Morgan Stanley bank
debt. LCFF may call or redeem the Notes, in whole or in part, at any time during the interest only period.

NOTE 8  DERIVATIVE
INSTRUMENTS

Since the Funds assets are structured on a fixed-rate basis, and funds borrowed through warehouse
facilities are obtained on a floating-rate basis, the Fund is exposed to interest rate risk if interest rates rise, because it 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 and
caps. The Fund has elected not to apply hedge accounting; therefore, 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 exclusively 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



12



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NOTE 8  DERIVATIVE INSTRUMENTS (continued)



certain of its derivative counterparties that incorporate 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, 2010, the Fund has not posted any collateral related to these agreements. If the Fund
had breached any of these provisions at June 30, 2010, it could be required to settle its obligations under the agreements at their termination value of $7.8 million.

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.

At June 30, 2010, the Fund had 41 interest rate swap agreements that terminate on various dates ranging from July 2011 to November
2020, and 11 interest rate cap agreements that terminate on various dates ranging from June 2011 to February 2016. The following tables present the fair value of the Funds derivative financial instruments as well as their classification on the
consolidated balance sheet as of June 30, 2010 and on the consolidated statement of operations for the three and six months ended June 30, 2010 and 2009 (in thousands):

Fair Value of Derivative Instruments



|                                                   |  |                |         |                        |                                      |            |   |        |  
|-------------------------------------------------- |  | -------------- | ------- | ---------------------- | ------------------------------------ | ---------- | - | ------ | -
|                                                   |  | NotionalAmount |         | Balance Sheet Location |                                      | Fair Value |  
|Derivatives not designated as hedging instruments: |  |                |         |                        |                                      |            |   |        |  
|                                                   |  |                |        
|Interest rate cap contracts                        |  | $              | 59,061  |                        | Derivative assets at fair value      |            | $ | 183    |  
|Interest rate swap contracts                       |  |                | 178,205 |                        | Derivative liabilities at fair value |            |   | (7,656 | )
|                                                   |  |                |         |                        |                                      |            |   |        |  
|                                                   |  | $              | 237,266 |                        |                                      |            |   |        |  
|                                                   |  |                |         |                        |                                      |            |   |        |  

The Effect of Derivative Instruments on the Consolidated Statements of Operations:



|                                                   |  |                |         |                                  |                                         |                            |   |                           |      |  |      |       |  |      |        |   |  |   |    
|-------------------------------------------------- |  | -------------- | ------- | -------------------------------- | --------------------------------------- | -------------------------- | - | ------------------------- | ---- |  | ---- | ----- |  | ---- | ------ | - |  | - | ---
|                                                   |  |                |         |                                  |                                         | Three Months
EndedJune 30, |   | Six Months 
EndedJune 30,
|                                                   |  | NotionalAmount |         | Statement of Operations Location |                                         | 2010                       |   |                           | 2009 |  | 2010 |       |  | 2009
|Derivatives not designated as hedging instruments: |  |                |         |                                  |                                         |                            |   |                           |      |  |      |       |  |      |        |   |  |   |    
|                                                   |  |                |         |                                  |                                         |                           
|Interest rate cap contracts                        |  | $              | 59,061  |                                  | (Losses) gains on derivative activities |                            | $ | (167                      | )    |  | $    | 1,331 |  | $    | (373   | ) |  | $ | 727
|Interest rate swap contracts                       |  |                | 178,205 |                                  | (Losses) gains on derivative activities |                            |   | (1,637                    | )    |  |      | 595   |  |      | (3,402 | ) |  |   | 256
|                                                   |  |                |         |                                  |                                         |                            |   |                           |      |  |      |       |  |      |        |   |  |   |    
|                                                   |  | $              | 237,266 |                                  |                                         |                            | $ | (1,804                    | )    |  | $    | 1,926 |  | $    | (3,775 | ) |  | $ | 983
|                                                   |  |                |         |                                  |                                         |                            |   |                           |      |  |      |       |  |      |        |   |  |   |    

NOTE 9  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 commercial finance assets. They are comprised of a large number of transactions with commercial customers in different businesses, and may be secured by liens on various types of
equipment and may be guaranteed by third parties and cross-collateralized. Any difference between the carrying value and fair value of each transaction would be affected by a potential buyers assessment of the transactions credit
quality, collateral value, guarantees, payment history, yield, term, documents and other legal matters, and other subjective considerations. Value received in a fair market sale of a transaction would be based on the terms of the sale, the
Funds and the buyers views of economic and industry conditions, the Funds and the buyers tax considerations, and other factors.

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



13



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

Assets and liabilities measured at fair value on a recurring basis include the following as of June 30, 2010 (in thousands):



|                                         |  |                               |   |         |   |         |         |  |                                    |   |  |   |         |  
|---------------------------------------- |  | ----------------------------- | - | ------- | - | ------- | ------- |  | ---------------------------------- | - |  | - | ------- | -
|                                         |  | Fair Value Measurements Using |   |         |  
|                                         |  | Level 1                       |   | Level 2 |   |         | Level 3 |  | Assets (Liabilities)At 
Fair Value |  
|Interest rate caps at June 30, 2010      |  | $                             |  |         | $ | 183     |         |  | $                                  |  |  | $ | 183     |  
|Interest rate swaps at June 30, 2010     |  | $                             |  |         | $ | (7,656  | )       |  | $                                  |  |  | $ | (7,656  | )
|Interest rate caps at December 31, 2009  |  | $                             |  |         | $ | 730     |         |  | $                                  |  |  | $ | 730     |  
|Interest rate swaps at December 31, 2009 |  | $                             |  |         | $ | (10,458 | )       |  | $                                  |  |  | $ | (10,458 | )

NOTE 10  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,
|                                            |  | 2010                       |       | 2009                     |   | 2010  |  | 2009
|Acquisition fees                            |  | $                          | 102   |                          | $ | 553   |  | $    | 241   |  | $ | 1,457
|Management fees                             |  | $                          | 1,155 |                          | $ | 905   |  | $    | 2,389 |  | $ | 1,473
|Administrative expenses                     |  | $                          | 892   |                          | $ | 660   |  | $    | 1,760 |  | $ | 1,029
|Organization and offering expense allowance |  | $                          |      |                          | $ | 647   |  | $    |      |  | $ | 1,131
|Underwriting fees                           |  | $                          |      |                          | $ | 2,099 |  | $    |      |  | $ | 3,684

Acquisition Fees.An affiliate of the General Partner is paid a fee for assisting the Fund in acquiring equipment subject to existing equipment leases equal to up 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% of gross rental payments for operating leases or 2% for full payout leases 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 8.5% of their capital contributions, as adjusted by distributions deemed to be a return of capital.

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



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Organization and Offering Expense Allowance and Underwriting Fees. The Fund paid the
General Partner and Chadwick Securities, Inc. (Chadwick), a wholly owned subsidiary of RAI, an organization and offering expense allowance based on a sliding scale of the offering proceeds raised. This amount includes reimbursement to
Chadwick to use for the selling dealers bona fide accountable due diligence expenses of up to 0.5% of the proceeds of each unit sold by them. These charges were recorded by the Fund as offering costs related to the sale of partnership units.

Chadwick was paid an underwriting fee of 3% of the offering proceeds for obtaining and managing the group of selling
broker-dealers who sold the units in the offering. Chadwick also received sales commissions of 7% of the proceeds of each unit that they sold. Chadwick did not sell any units and did not retain sales commissions through June 30, 2010.

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

NOTE 11  COMMITMENTS AND CONTINGENCIES

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



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##### Table of Contents

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

When used in this Form 10-Q, the words believes anticipates,
expects and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties more particularly described in other documents filed with Securities and Exchange
Commission. These risks and uncertainties could cause actual results to differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to
publicly release the results of any revisions to forward-looking statements which we may make to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.

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

As used herein, the terms we, us, or our refer to Lease Equipment Leasing Income Fund 4 L.P. and
Subsidiaries.

General

We are a Delaware limited partnership formed on January 25, 2008 by our general partner, LEAF Asset Management, LLC (the
General Partner), which manages us. Our General Partner is a Delaware limited liability company and a subsidiary of Resource America, Inc. (RAI). RAI is a publicly-traded company (NASDAQ: REXI) that uses industry specific
expertise to evaluate, originate, service and manage investment opportunities through its commercial finance, real estate and financial fund management segments. Our offering period began on August 12, 2008. Through our offering termination
date of October 30, 2009, we raised $125.7 million by selling 1.2 million of our limited partner units. We commenced operations in September 2008.

We are expected to have a nine-year life, consisting of an offering period of up to two years, a five year reinvestment period and a
subsequent maturity period of two years, during which our leases and secured loans will either mature or be sold. In the event we are unable to sell our leases and loans assets during the maturity period, we expect to continue to return capital to
our partners as those leases and loans mature. Substantially all of our leases and loans mature by the end of 2015. We expect to enter our maturity period beginning in October 2014. We will terminate on December 31, 2032, unless sooner
dissolved or terminated as provided in the Limited Partnership Agreement.

We acquire a diversified portfolio of new, used or
reconditioned equipment that we lease to third parties. We also acquire portfolios of equipment subject to existing leases from other equipment lessors. Our financings are typically acquired from LEAF Financial Corporation (LEAF
Financial), an affiliate of our General Partner and a subsidiary of RAI. 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 also invest in equipment, leases and secured loans through joint venture arrangements with our General Partners affiliated investment programs. We finance
business-essential equipment including, but not limited to, computers, copiers, office furniture, water filtration systems, machinery used in



16



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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
(U.S. GAAP). Under the direct financing method of accounting, interest income (the excess of the aggregate future rentals and estimated unguaranteed residuals upon expiration of the lease over the related equipment cost) is recognized
over the life of the lease using the interest method. Under the operating method, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciated on a straight-line basis over
its estimated useful life. Rental income on operating leases consists primarily of monthly periodic rentals due under the terms of the leases. Generally, during the lease terms of existing operating leases, we will not recover all of the cost and
related expenses of rental equipment and, therefore, we are prepared to remarket the equipment in future years. We discontinue the recognition of revenue for leases and loans for which payments are more than 90 days past due, or in case of future
payment card receivables, when no payments have been received in 60 days. These assets are classified as non-accrual.

Overview

Since our commencement in September 2008, the United States has continued to suffer through the worst economic recession
in over 75 years. The ongoing economic slowdown has impacted, and will continue to impact, our performance. While the recession began before we were launched, its magnitude and duration have been severe and the consequences broadly felt. In
particular, the recession led to a credit crisis that impacted us directly (through the amount and terms of credit available to us) and indirectly (through the impact on the small and mid-sized businesses that make up our lease and loan
borrowers).

Banks became reluctant to lend, and when they did it became more expensive to borrow. This happened very quickly
and severely. In fact, shortly after our launch, we were able to obtain a new credit facility and we were hopeful that we would be able to continue to do so. However, availability and terms got much worse  not better. Interest rates increased;
fees were imposed and/or increased; the lengths of extensions were shortened and the amount that lenders would advance as a percentage of the leases being financed was significantly decreased.

As we sought new debt facilities and its existing facilities matured or needed modifications, we had to accept these new terms and our
costs increased. Most significantly, we have not been able to maintain debt at the same levels. The additional investment requirement reduced the amount of assets that we could purchase, and accordingly reduced our cash flow. The lenders
higher fees and costs also had to be paid from funds that were then unavailable to re-invest in new leases. Because we have less debt, over time, we will pay its lenders less interest expense but current cash flow is negatively impacted. As we saw
these conditions fail to improve, we recognized that we would not be able to obtain enough financing on favorable terms to operate at our proposed size, and we closed to new investments approximately 10 months ahead of schedule.

The combination of higher interest rates, lower levels of available credit, increased fees, losses that are slightly higher than
originally projected and the inability to use excess cash flow to pay for some of these costs created a perfect storm that is making it difficult to execute the business plan. We have worked to minimize the effects of these conditions.
We sought new forms of capital, and were able to arrange debt for us at a time when lenders were not generally providing new facilities. In late May of this year, we were able to arrange a term securitization of approximately $93 million of our
assets that will eliminate the need for that financing to be extended or refinanced.

All of these events have come in the
early stages of our life cycle. With sufficient cash and debt facilities, we can continue to acquire leases and benefit from the resulting cash flows in the future. We can continue to acquire leases until we enter our maturity phase in October 2014,
at which time we will be prohibited, under the partnership agreement from acquiring new leases.

To date, limited partners
have received distributions which average 8.5% per annum of their original amount invested. However, we cannot, at this time, continue to support the full distribution and it will be lowered to 4.0%, effective with the August 2010 distribution.
The July distribution was made at the 8.5% level. Also, our General Partner will not earn additional management fees for future services.

As we seek new financing arrangements, opportunistically sell leases and undertake other ways to improve our performance, we hope to be
able to increase the distribution and re-invest in leases and loans.



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##### Table of Contents

We continued to be impacted by market uncertainties in the second quarter of 2010 as further
discussed in Finance Receivables and Asset Quality and in Liquidity and Capital Resources.

Finance
Receivables and Asset Quality

Information about our portfolio of commercial finance assets is as follows (dollars in thousands):



|                                                                              |  |              |         |   |                  |   |         |  
|----------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                                              |  | June 30,2010 |         |   | December 31,2009 |  
|Investment in leases and loans, net                                           |  | $            | 423,544 |   |                  | $ | 501,174 |  
|                                                                              |  |             
|Number of contracts                                                           |  |              | 13,300  |   |                  |   | 14,000  |  
|Number of individual end users(a)                                             |  |              | 11,800  |   |                  |   | 12,800  |  
|Average original equipment cost                                               |  | $            | 62.3    |   |                  | $ | 60.6    |  
|Average initial term (in months)                                              |  |              | 57      |   |                  |   | 60      |  
|                                                                              |  |             
|States accounting for more than 10% of lease and loan portfolio:              |  |              |         |   |                  |   |         |  
|California                                                                    |  |              | 14      | % |                  |   | 14      | %
|                                                                              |  |             
|Types of equipment accounting for more than 10% of lease and loan portfolio:  |  |              |         |   |                  |   |         |  
|Industrial equipment                                                          |  |              | 41      | % |                  |   | 20      | %
|Medical equipment                                                             |  |              | 14      | % |                  |   | 20      | %
|Restaurant equipment                                                          |  |              | 0       | % |                  |   | 11      | %
|                                                                              |  |             
|Types of businesses accounting for more than 10% of lease and loan portfolio: |  |              |         |   |                  |   |         |  
|Services                                                                      |  |              | 39      | % |                  |   | 46      | %
|Retail trade                                                                  |  |              | 12      | % |                  |   | 18      | %
|Finance/Insurance/Real Estate                                                 |  |              | 13      | % |                  |   | 0       | %



|(a) | Located in the 50 states as well as the District of Columbia and Puerto Rico. No other individual end user or single piece of equipment accounted for more than 10% of
our portfolio based on the origination amount.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We utilize debt, in addition to our equity, to fund the
acquisitions of lease and loan portfolios. Our leases and loans are generally assigned as collateral for borrowings as discussed in the Liquidity and Capital Resources section below. As of June 30, 2010 and December 31, 2009,
our outstanding debt was $364.5 million and $427.0 million, respectively.



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The performance of our commercial finance assets 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 commercial finance assets 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 |  
|                                                                                                    |  | 2010                                       |         |   | 2009                                        |   |         | Change |  |  
|                                                                                                    |  |                                            |         | $ |                                             | % |         |       
|Investment in leases and loans before allowance for credit losses                                   |  | $                                          | 437,284 |   |                                             | $ | 376,109 |        |  | $ | 61,175  |  | 16   | % |  | $ | 516,808 |  
|Less: allowance for credit losses                                                                   |  |                                            | 13,740  |   |                                             |   | 3,225   |        |  |   | 10,515  |  | 326  | % |  |   | 15,634  |  
|                                                                                                    |  |                                            |         |   |                                             |   |         |        |  |   |         |  |      |   |  |   |         |  
|Investment in leases and loans, net                                                                 |  |                                            | 423,544 |   |                                             |   | 372,884 |        |  |   | 50,660  |  | 14   | % |  |   | 501,174 |  
|                                                                                                    |  |                                            |         |   |                                             |   |         |        |  |   |         |  |      |   |  |   |         |  
|Weighted average investment in direct financing leases and loans before allowance for credit losses |  | $                                          | 368,694 |   |                                             | $ | 181,509 |        |  |   | 187,185 |  | 103  | % |  | $ | 286,900 |  
|Non-performing assets                                                                               |  | $                                          | 18,309  |   |                                             | $ | 9,493   |        |  |   | 8,816   |  | 93   | % |  | $ | 21,329  |  
|Charge-offs, net of recoveries                                                                      |  | $                                          | 14,538  |   |                                             | $ | 377     |        |  |   | 14,161  |  | 3756 | % |  | $ | 4,043   |  
|As a percentage of finance receivables:                                                             |  |                                            |         |   |                                             |   |         |        |  |   |         |  |      |   |  |   |         |  
|Allowance for credit losses                                                                         |  |                                            | 3.14    | % |                                             |   | 0.86    | %      |  |   |         |  |      |   |  |   | 3.03    | %
|Non-performing assets                                                                               |  |                                            | 4.19    | % |                                             |   | 2.52    | %      |  |   |         |  |      |   |  |   | 4.13    | %
|As a percentage of weighted average finance receivables:                                            |  |                                            |         |   |                                             |   |         |        |  |   |         |  |      |   |  |   |         |  
|Charge-offs, net of recoveries                                                                      |  |                                            | 3.94    | % |                                             |   | 0.21    | %      |  |   |         |  |      |   |  |   | 1.41    | %

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, responded to the current economic recession in part, by implementing early intervention
techniques in collection procedures. Our General Partner has also increased its credit standards and limited the amount of business we do with respect to certain industries, geographic locations and equipment types. Because of the current scarcity
of credit available to small and mid size businesses, we have been able to increase our credit standards without reducing the interest rate we charge on our leases and loans.

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

The equipment we finance includes computers,
copiers, office furniture, water filtration systems, machinery used in manufacturing and construction, medical equipment and telecommunications equipment. We focus on financing equipment used by small to mid-sized businesses. The current economic
recession in the U.S. has made it more difficult for some of our customers to make payments on their financings with us on a timely basis, which has adversely affected our operations in the form of higher delinquencies. These higher delinquencies
may continue until the U.S. 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.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and cost and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including the allowance for credit losses, the estimated unguaranteed residual values of leased equipment, impairment of long-lived assets and the fair
value of interest rate swaps and caps. 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.



19



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For a discussion of our critical accounting policies and estimates, see the discussion in
our annual report on Form 10-K for the year ended December 31, 2009 under Managements Discussion and Analysis of Financial Condition and Results of Operations  Critical Accounting Policies and Estimates. There have been
no material changes to those policies through June 30, 2010.

Results of Operations

The following summarizes our results of operations for the three and six months ended June 30, 2010 compared to three months ended
June 30, 2009 (dollars in thousands):

Three Months Ended June 30, 2010 compared to the Three Months Ended June 30, 2009



|                                                           |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|---------------------------------------------------------- |  | ---- | ------ | - | ------------------- | - | ------ | - |  | - | ------ | - |  | ---- | --
|                                                           |  |      |        |   | Increase (Decrease) |  
|                                                           |  | 2010 |        |   | 2009                |   |        | $ |  |   | %      |  
|Revenues:                                                  |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|Interest on equipment financings                           |  | $    | 9,144  |   |                     | $ | 5,063  |   |  | $ | 4,081  |   |  | 81   | % 
|Rental income                                              |  |      | 733    |   |                     |   | 340    |   |  |   | 393    |   |  | 116  | % 
|Gains on sales of equipment and lease dispositions, net    |  |      | 146    |   |                     |   | 21     |   |  |   | 125    |   |  | 595  | % 
|Other                                                      |  |      | 390    |   |                     |   | 149    |   |  |   | 241    |   |  | 162  | % 
|                                                           |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|                                                           |  |      | 10,413 |   |                     |   | 5,573  |   |  |   | 4,840  |   |  | 87   | % 
|                                                           |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|                                                           |  |      |        |  
|Expenses:                                                  |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|Interest expense                                           |  |      | 5,952  |   |                     |   | 3,197  |   |  |   | 2,755  |   |  | 86   | % 
|Losses (gains) on derivative activities                    |  |      | 1,804  |   |                     |   | (1,926 | ) |  |   | 3,730  |   |  | (194 | )%
|Depreciation on operating leases                           |  |      | 614    |   |                     |   | 293    |   |  |   | 321    |   |  | 110  | % 
|Provision for credit losses                                |  |      | 6,712  |   |                     |   | 2,089  |   |  |   | 4,623  |   |  | 221  | % 
|General and administrative expenses                        |  |      | 401    |   |                     |   | 330    |   |  |   | 71     |   |  | 22   | % 
|Administrative expenses reimbursed to affiliate            |  |      | 892    |   |                     |   | 660    |   |  |   | 232    |   |  | 35   | % 
|Management fees to affiliate                               |  |      | 1,155  |   |                     |   | 905    |   |  |   | 250    |   |  | 28   | % 
|                                                           |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|                                                           |  |      | 17,530 |   |                     |   | 5,548  |   |  |   | 11,982 |   |  | 216  | % 
|                                                           |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|(Loss) income before equity in losses of affiliate         |  |      | (7,117 | ) |                     |   | 25     |   |  |   | (7,142 | ) |  |      |   
|Equity in loss of affiliate                                |  |      |       |   |                     |   | (1,490 | ) |  |   | 1,490  |   |  |      |   
|                                                           |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|Net loss                                                   |  |      | (7,117 | ) |                     |   | (1,465 | ) |  |   | (5,652 | ) |  |      |   
|Less: Net loss attributable to the noncontrolling interest |  |      | 107    |   |                     |   | 17     |   |  |   | 90     |   |  |      |   
|                                                           |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|Net loss attributable to LEAF 4 partners                   |  | $    | (7,010 | ) |                     | $ | (1,448 | ) |  | $ | (5,562 | ) |  |      |   
|                                                           |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   
|Net loss allocated to LEAF 4s limited partners            |  | $    | (6,940 | ) |                     | $ | (1,434 | ) |  | $ | (5,506 | ) |  |      |   
|                                                           |  |      |        |   |                     |   |        |   |  |   |        |   |  |      |   

In second quarter of 2010 we realized the full year effect of the growth in our portfolio. Our
investments in commercial finance assets increased to $423.5 million as of June 30, 2010 as compared to $372.9 million as of June 30, 2009. We expect to acquire additional commercial finance assets through the use of credit facilities. Our
General Partner expects revenue derived from these additional leases and loans to exceed the interest expense incurred by the debt incurred to obtain these financings.

The increase in total revenues was attributable to the following:



| |  |  | An increase in interest income on equipment financings. Our weighted average net investment in financing assets increased to $448.1 million for the
year ended June 30, 2010 as compared to $437.9 million for the period ended June 30, 2009, an increase of $10.2 million (2.3%). This growth was driven by our acquisitions of portfolios of leases and loans and consolidation of LEAF Funding,
LLC.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | An increase in gains on sales of equipment. Gains and losses on sales of equipment may vary significantly from period to period.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase in other income, which consists primarily of late fee income. Late fee income has increased due to the increase of the equipment financing
portfolio coupled with an increase in payment collection efforts.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20



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##### Table of Contents

The increase in total expenses was a result of the following:



| |  |  | An increase in interest due to an increase in our outstanding debt. Average borrowings for the three months ended June 30, 2010 and June 30,
2009 were $384.1 million and $216.6 million, respectively, at an effective interest rate of 8.2% and 5.5%, respectively.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase in depreciation on operating leases related to our increase in our investment in operating leases.
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | An increase in our provision for credit losses. Our provision for credit losses has increased due to the growth in size of the portfolio as well as the
impact of the economic recession in the United States on our customers ability to make payments on their leases and loans.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | An increase in administrative expenses reimbursed to affiliate due to significant growth in net assets as a result of the acquisition of portfolios of
leases and loans.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase in general and administrative expenses due to significant growth in net assets as a result of the acquisition of portfolios of leases and
loans.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Losses on derivative hedging activities include cash payments or receipts relating to our hedging activities and the changes in the fair value of our
derivative financial instruments. For the three months ended June 30, 2010, net cash payments were $1.9 million and the change in fair value resulted in a non-cash gain of $70,000. These gains (losses) will be based on the value of the
derivative contracts at the respective balance sheet date and in a volatile market that is changing daily, may not necessarily reflect the cash amount to be paid at settlement. These gains (losses) will create volatility in our results of
operations, as the market value of our derivative financial instruments changes over time, and this volatility may adversely impact our results of operations and financial condition.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The net loss per limited partner unit, after the net loss allocated to our General Partner, for the three months ended June 30, 2010
and 2009 was $(5.51) and $(2.20), respectively, based on a weighted average number of limited partner units outstanding of 1,259,864 and 651,245, respectively.

Six Months Ended June 30, 2010 compared to the Six Months Ended June 30, 2009



|                                                           |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|---------------------------------------------------------- |  | ---- | ------- | - | ------------------- | - | ------ | - |  | - | ------- | - |  | ---- | --
|                                                           |  |      |         |   | Increase (Decrease) |  
|                                                           |  | 2010 |         |   | 2009                |   |        | $ |  |   | %       |  
|Revenues:                                                  |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|Interest on equipment financings                           |  | $    | 19,096  |   |                     | $ | 6,788  |   |  | $ | 12,308  |   |  | 181  | % 
|Rental income                                              |  |      | 1,489   |   |                     |   | 510    |   |  |   | 979     |   |  | 192  | % 
|Gains on sales of equipment and lease dispositions, net    |  |      | 342     |   |                     |   | 23     |   |  |   | 319     |   |  |     |   
|Other                                                      |  |      | 772     |   |                     |   | 200    |   |  |   | 572     |   |  | 286  | % 
|                                                           |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|                                                           |  |      | 21,699  |   |                     |   | 7,521  |   |  |   | 14,178  |   |  | 189  | % 
|                                                           |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|Expenses:                                                  |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|Interest expense                                           |  |      | 12,154  |   |                     |   | 4,260  |   |  |   | 7,894   |   |  | 185  | % 
|Losses (gains) on derivative activities                    |  |      | 3,775   |   |                     |   | (983   | ) |  |   | 4,758   |   |  | (484 | )%
|Depreciation on operating leases                           |  |      | 1,250   |   |                     |   | 437    |   |  |   | 813     |   |  | 186  | % 
|Provision for credit losses                                |  |      | 12,644  |   |                     |   | 3,032  |   |  |   | 9,612   |   |  | 317  | % 
|General and administrative expenses                        |  |      | 1,005   |   |                     |   | 612    |   |  |   | 393     |   |  | 64   | % 
|Administrative expenses reimbursed to affiliate            |  |      | 1,760   |   |                     |   | 1,029  |   |  |   | 731     |   |  | 71   | % 
|Management fees to affiliate                               |  |      | 2,389   |   |                     |   | 1,473  |   |  |   | 916     |   |  | 62   | % 
|                                                           |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|                                                           |  |      | 34,977  |   |                     |   | 9,860  |   |  |   | 25,117  |   |  | 255  | % 
|                                                           |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|Loss before equity in losses of affiliate                  |  |      | (13,278 | ) |                     |   | (2,339 | ) |  |   | (10,939 | ) |  |      |   
|Equity in loss of affiliate                                |  |      |        |   |                     |   | (2,690 | ) |  |   | 2,690   |   |  |      |   
|                                                           |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|Net loss                                                   |  |      | (13,278 | ) |                     |   | (5,029 | ) |  |   | (8,249  | ) |  |      |   
|Less: Net loss attributable to the noncontrolling interest |  |      | 44      |   |                     |   | 28     |   |  |   | 16      |   |  |      |   
|                                                           |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|Net loss attributable to LEAF 4 partners                   |  | $    | (13,234 | ) |                     | $ | (5,001 | ) |  | $ | (8,233  | ) |  |      |   
|                                                           |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   
|Net loss allocated to LEAF 4's limited partners            |  | $    | (13,102 | ) |                     | $ | (4,951 | ) |  | $ | (8,151  | ) |  |      |   
|                                                           |  |      |         |   |                     |   |        |   |  |   |         |   |  |      |   



21



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##### Table of Contents

In second quarter of 2010 we realized the full year effect of the growth in our portfolio.
Our investments in commercial finance assets increased to $423.5 million as of June 30, 2010 as compared to $372.9 million as of June 30, 2009. We expect to acquire additional commercial finance assets through the use of credit facilities.
Our General Partner expects revenue derived from these additional leases and loans to exceed the interest expense incurred by the debt incurred to obtain these financings.

The increase in total revenues was attributable to the following:



| |  |  | An increase in interest income on equipment financings. Our weighted average net investment in financing assets increased to $368.7 million for the
year ended June 30, 2010 as compared to $181.5 million for the period ended June 30, 2009, an increase of $187.2 million (103%). This growth was driven by our acquisitions of portfolios of leases and loans.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | An increase in gains on sales of equipment. Gains and losses on sales of equipment may vary significantly from period to period.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase in other income, which consists primarily of late fee income. Late fee income has increased due to the increase of the equipment financing
portfolio coupled with an increase in payment collection efforts.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The increase in total expenses was a
result of the following:



| |  |  | An increase in interest due to an increase in our outstanding debt. Average borrowings for the six months ended June 30, 2010 and June 30,
2009 were $399.1 million and $234.8 million, respectively, at an effective interest rate of 8.3% and 5.6%, respectively.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase in depreciation on operating leases related to our increase in our investment in operating leases.
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | An increase in our provision for credit losses. Our provision for credit losses has increased due to the growth in size of the portfolio as well as the
impact of the economic recession in the United States on our customers ability to make payments on their leases and loans.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | An increase in administrative expenses reimbursed to affiliate due to significant growth in net assets as a result of the acquisition of portfolios of
leases and loans.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase in general and administrative expenses due to significant growth in net assets as a result of the acquisition of portfolios of leases and
loans.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Losses on derivative hedging activities include cash payments or receipts relating to our hedging activities and the changes in the fair value of our
derivative financial instruments. For the six months ended June 30, 2010, net cash payments were $4.5 million and the change in fair value resulted in a non-cash gain of $730,000. These gains (losses) will be based on the value of the
derivative contracts at the respective balance sheet date and in a volatile market that is changing daily, may not necessarily reflect the cash amount to be paid at settlement. These gains (losses) will create volatility in our results of
operations, as the market value of our derivative financial instruments changes over time, and this volatility may adversely impact our results of operations and financial condition.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The net loss per limited partner unit, after the net loss allocated to our General Partner, for the six months ended June 30, 2010
and 2009 was $(10.40) and $(8.83 ), respectively, based on a weighted average number of limited partner units outstanding of 1,259,997 and 560,482, respectively.

Liquidity and Capital Resources

Our primary cash requirements, in addition to normal operating expenses, are for debt service, investment in leases and loans and
distributions to partners. During the life of the partnership, we depend upon cash generated from operations, and the excess cash derived from the collection of lease payments after debt service to meet our liquidity needs.

Our ongoing liquidity is affected by our ability to leverage our portfolio through the use of debt facilities. Our ability to obtain or
refinance debt financing to execute our investment strategies has been impacted by the continued tightening of the credit markets. Specifically, we rely on both revolving and term debt facilities to fund our acquisitions of equipment financings. If
we are unable to obtain or refinance 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. As a result, our cash flows available for future
distributions to our partners would be reduced.

We continue to seek and maintain sources of financing, including expanded
bank financing which will enable us to originate investments and generate income while preserving capital. To the extent the credit markets available to us are or become adversely affected by the current weaknesses in the national economy, our
ability to obtain debt to help build our portfolio on terms we deem



22



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##### Table of Contents

acceptable may be reduced or delayed and our cost of borrowings may increase. As a result, our cash flows available for future distributions to our partners would be reduced.

Upon maturity under our current borrowing arrangements, our lenders have various remedies under their individual loan agreement such as
allowing repayment of the outstanding loan balance as payments are received on the underlying leases and loans or selling those pledged leases and loans in a commercially reasonable manner. While it is rare for lenders to take such a drastic action
as selling a performing portfolio, to satisfy outstanding amounts at maturity, such action could be at prices lower than our carrying value, which could result in losses and reduce our income and distributions to our partners.

We anticipate that the lease and loan rates we charge to our customers will also increase to compensate for our increase in borrowing
costs. However, our profitability may be negatively impacted if we are unable to increase our lease and loan rates and our borrowing costs increase.

Repayment of our debt is based on payments we receive from our customers. When a lease or loan becomes delinquent we may repay our lender
in order for us to maintain compliance with our debt facilities.

Our liquidity and compliance with the covenants under our
debt facilities could also be affected by higher than expected payment defaults on our commercial finance assets. These payment defaults would result in a loss of anticipated revenues. These losses may adversely affect our ability to make
distributions to 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 addition, if we do not meet the requirements of the debt covenants, a default
could occur that would have an adverse effect on our operations, payment of partners distributions and could force us to liquidate all or a portion of our portfolio securing our debt facilities. If required, a sale of a portfolio, or any
portion thereof, could be at prices lower than its carrying value, which could result in losses and reduce our income and distributions to our partners. Covenant violations could also lead to changes in debt terms that would adversely impact our
cash flow.

Changes in interest rates will affect the market value of our portfolio and our ability to obtain financing. In
general, the market value of an equipment lease will change in inverse relation to an interest rate change where the lease has a fixed rate of return. Accordingly, in a period of rising interest rates, the market value of our equipment leases will
decrease. A decrease in the market value of our portfolio will adversely affect our ability to obtain financing against our portfolio or to liquidate it.

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



|                                                    |  |                  |         |   |      |   |         |  
|--------------------------------------------------- |  | ---------------- | ------- | - | ---- | - | ------- | -
|                                                    |  | Six Months Ended |        
|                                                    |  | June 30,         |        
|                                                    |  | 2010             |         |   | 2009 |  
|Net cash provided by operating activities           |  | $                | 4,119   |   |      | $ | 358     |  
|Net cash provided by (used in) investing activities |  |                  | 61,291  |   |      |   | (91,704 | )
|Net cash (used in) provided by financing activities |  |                  | (66,152 | ) |      |   | 86,118  |  
|                                                    |  |                  |         |   |      |   |         |  
|Decrease in cash                                    |  | $                | (742    | ) |      | $ | (5,228  | )
|                                                    |  |                  |         |   |      |   |         |  

Partners distributions paid for the six months ended June 30, 2010 and June 30, 2009 were
$5.4 million and $2.1 million, respectively. Distributions to limited partners were paid at a rate of 8.5% per annum of invested capital. However, there can be no assurance we will continue to make distributions at this rate. Cumulative partner
distributions paid from our inception to June 30, 2010 were approximately $12.0 million.

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

Cash decreased by $742,000 primarily due to net debt repayments of $62.9 million and
distributions to partners of $5.4 million which was partially offset by net proceeds from commercial finance assets of $61.3 million.



23



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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 debt facilities as of June 30, 2010 were as follows (in thousands):



|                           |  |           |  |          |  |                   |         |                   |   |                     |  |                         |   |  |   |        
|-------------------------- |  | --------- |  | -------- |  | ----------------- | ------- | ----------------- | - | ------------------- |  | ----------------------- | - |  | - | -------
|                           |  | Type      |  | Maturity |  | Amount ofFacility |         | AmountOutstanding |   | AmountAvailable (1) |  | Amount ofCollateral (2)
|Wells Fargo                |  | Revolving |  | (5)      |  | $                 | 75,000  |                   | $ | 70,199              |  | $                       |  |  | $ | 86,449 
|Morgan Stanley             |  | Term      |  | (3)      |  |                   | 125,733 |                   |   | 125,733             |  |                         |  |  |   | 132,269
|UniCredit                  |  | Revolving |  | (5)      |  |                   | 100,000 |                   |   | 91,545              |  |                         |  |  |   | 101,006
|2010-1 Term Securitization |  | Term      |  | (4)      |  |                   | 77,029  |                   |   | 77,029              |  |                         |  |  |   | 85,763 
|                           |  |           |  |          |  |                   |         |                   |   |                     |  |                         |   |  |   |        
|                           |  |           |  |          |  | $                 | 377,762 |                   | $ | 364,506             |  | $                       |  |  | $ | 405,487
|                           |  |           |  |          |  |                   |         |                   |   |                     |  |                         |   |  |   |        



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

|(2) | Recourse under these facilities is limited to the amount of collateral pledged.
|--- | -------------------------------------------------------------------------------

|(3) | The Morgan Stanley term loan matured on August 4, 2010. Morgan Stanley has various options under the loan agreement such as allowing repayment as payments are
received on the underlying leases or loans or selling the pledged leases in a commercially reasonable manner. We are engaged in discussions to extend the maturity of the term loan beyond August 4, 2010. If we do not obtain such extension,
management expects that any borrowings outstanding as of such date will continue to be repaid as payments are received on the underlying leases and loans pledged as collateral.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | The Morgan Stanley/RBS facility was paid off on May 18, 2010 with the proceeds from the 2010-1 Term Securitization in which 3 tranches of notes were issued that
mature on October 23, 2016 and September 23, 2018, respectively. The notes totaled $92.7 million and bear interest at a stated rate of 5% but were issued at an original discount of approximately $6.5 million for an effective interest\ rate
of approximately 10% per annum.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | It is anticipated that the Wells Fargo and UniCredit facilities will be paid off on August 17, 2010 with the proceeds from the 2010-3 Term Securitization in which 5
tranches of notes will be issued that mature on June 20, 2016 and February 20, 2022, respectively. The notes total $171.4 million and bear interest at stated rates ranging from 3.5% to 5.5%. See NOTE 6 to the financial statements for the existing
terms of the Wells Fargo and UniCredit facilities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have a non-recourse term loan with Morgan Stanley Bank.
Interest is calculated at LIBOR plus 3.00% and principal payments are due monthly.

Upon maturity or in the event of a
default, the Funds lenders have various remedies under their individual loan agreement such as allowing repayment of the outstanding loan balance as payments are received on the underlying leases and loans or selling those pledged leases and
loans in a commercially reasonable manner. While it is rare for lenders to take such a drastic action as selling a performing portfolio, to satisfy outstanding amounts at maturity, such action could be at prices lower than our carrying value, which
could result in losses and reduce our income and distributions to our partners.

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 us and our General Partner. The maximum leverage covenants restrict the amount that we can borrow based on a ratio of our total debt compared to our net worth. The portfolio performance covenants generally provide that
we would be in default if a specified percentage of our portfolio of leases and loans was delinquent in payment beyond acceptable grace periods.

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

As of June 30, 2010, we had incurred multiple breaches
under the covenants noted above regarding our debt facilities and covenant breaches relating to the affiliate that services our leases and loans. We have requested waivers from Morgan Stanley, Wells Fargo and UniCredit with respect to these
breaches. Due to these breaches, these lenders have various remedies under their loan agreements such as allowing repayment of the outstanding balance as payments are received on the underlying leases and loans or selling the pledged leases and
loans in a commercially reasonable manner. Although we expect to obtain waivers or to amend the covenants in our loan agreements with these lenders, there can be no assurance that such waivers or amendments will be executed. If waivers or amendments
are not obtained, it is likely that the affiliate that services our leases and loans would not be in compliance with the same covenants at June 30, 2010. In addition, these breaches could create defaults under our other debt facilities and
those lenders have remedies similar to that of Morgan Stanley, Wells Fargo and UniCredit.



24



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##### Table of Contents

A default could occur that would have an adverse effect on our operations and could force us
to liquidate all or a portion of our portfolio securing our debt facilities. If required, a sale of a portfolio, or any portion thereof, could be at prices lower than its carrying value, which could result in losses and reduce our income and
distributions to our partners. The lenders recourse under these facilities is limited to leases and loans and restricted cash pledged as collateral.

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 results of operations.

ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of losses arising from changes in values of financial instruments. We are exposed to market risks
associated with changes in interest rates and our earnings may fluctuate with changes in interest rates. The lease assets we purchase are almost entirely fixed-rate. Accordingly, we seek to finance these assets with fixed interest rate debt. At
June 30, 2010, our outstanding bank debt totaled $364.5 million which consists of variable rate debt and fix 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 and caps, which fixes the interest rates as follows: Wells Fargo Foothill LLC (5.2%), Morgan Stanley (8.2%), HVB (5.0%), 2010-1 Term Securitization (5.0%). At June 30, 2010, the notional amount of the 41
interest rate swaps was $178.2 million. The interest rate swap agreements terminate on various dates ranging from July 2011 to November 2020. At June 30, 2010, the notional amount of the 11 interest rate caps was $59.1 million. The
interest rate cap agreements terminate on various dates ranging from June 2011 to February 2016.

The following sensitivity
analysis table shows, at June 30, 2010, the estimated impact on the fair value of our interest rate-sensitive investments and liabilities of changes in interest rates, assuming rates instantaneously fall 100 basis points and rise 100 basis
points (dollars in thousands):



|                                  |  |                                    |         |   |           |   |        |                                    |  |   |        |   
|--------------------------------- |  | ---------------------------------- | ------- | - | --------- | - | ------ | ---------------------------------- |  | - | ------ | --
|                                  |  | Interest ratesfall 100 basispoints |         |   | Unchanged |   |        | Interest ratesrise 100 basispoints | 
|Hedging instruments               |  |                                    |         |   |           |   |        |                                    |  |   |        |   
|Fair value                        |  | $                                  | (10,725 | ) |           | $ | (7,473 | )                                  |  | $ | (4,734 | ) 
|Change in fair value              |  | $                                  | (3,252  | ) |           |   |       |                                    |  | $ | 2,739  |   
|Change as a percent of fair value |  |                                    | 44      | % |           |   |       |                                    |  |   | (37    | )%

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.



25



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##### Table of Contents

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 at the reasonable assurance level discussed above.

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, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



26



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##### Table of Contents

ITEM 6  EXHIBITS



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 
|3.1         |  | Certificate of Limited Partnership (1)                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|3.2         |  | Amended and Restated Agreement of Limited Partnership (2)                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|4.1         |  | Forms of letters sent to limited partners confirming their investment (1)                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|10.1        |  | Form of Origination and Servicing Agreement Among LEAF Financial Corporation, LEAF Equipment Finance Fund 4, LP and LEAF Funding, Inc. (1)                                                                                                                                                                                                                                                                                                                     
|            | 
|10.2        |  | Receivables Loan and Security Agreement, dated as of October 31, 2006, among Resource Capital Funding II, LLC, as the Borrower, and LEAF Financial Corporation, as the Servicer, and
Morgan Stanley Bank, as a Lender and Collateral Agent, and U.S. Bank National Association, as the Custodian and the Lenders Bank and Lyon Financial Services, Inc. (d/b/a U.S. Bank Portfolio Services), as the Backup Servicer, as amended through
November 13, 2008 (3)
|            | 
|10.3        |  | Forbearance and Reservation of Rights, dated as of May 14, 2009, by and among Resource Capital Funding II, LLC, LEAF Financial Corporation, Morgan Stanley Bank, NA, and Morgan
Stanley Capital Services Inc. (5)                                                                                                                                                                                                                                              
|            | 
|10.4        |  | Indenture by and between LEAF Commercial Finance Fund, LLC and U.S. Bank National Association (3)                                                                                                                                                                                                                                                                                                                                                              
|            | 
|10.5        |  | Loan and Security Agreement by and among LEAF 4A SPE, LLC, LEAF Equipment Finance Fund 4, L.P., LEAF Funding, Inc., LEAF Financial Corporation, the lenders party thereto, and Wells
Fargo Foothill, LLC dated as of February 9, 2009 (4)                                                                                                                                                                                                                      
|            | 
|10.6        |  | Seventh Amendment to the Receivables Loan and Security Agreement and Waiver, dated as of July 14, 2009, with Morgan Stanley Bank, N.A., as lender and as collateral agent
(6)                                                                                                                                                                                                                                                                                  
|            | 
|10.7        |  | Receivables Loan and Security Agreement, dated as of March 31, 2006, among Resource Capital Funding, LLC, LEAF Financial Corporation, Black Forest Funding Corporation, Bayerische
Hypo- Und Vereinsbank AG, U.S. Bank National Association, and Lyon Financial Services, Inc. (d/b/a U.S. Bank Portfolio Services), as amended through the Seventh Amendment (the HVB Agreement) (6)                                                                        
|            | 
|10.8        |  | Eight Amendment Agreement to the HVB Agreement (6)                                                                                                                                                                                                                                                                                                                                                                                                             
|            | 
|10.9        |  | Ninth Amendment Agreement to the HVB Agreement (6)                                                                                                                                                                                                                                                                                                                                                                                                             
|            | 
|10.10       |  | Eight Amendment to Receivable Loan and Security Agreement and Waiver dated December 22, 2009 among Resource Capital Funding II, LLC, LEAF Financial Corporation, Morgan Stanley
Bank , N.A, Lyon Financial; Services, Inc, U.S. Bank National Association, Morgan Stanley Capital Services, Inc and Morgan Stanley Asset Funding Inc. (7)                                                                                                                      
|            | 
|10.11       |  | Ninth Amendment to Receivable Loan and Security Agreement and Waiver dated April 21, 2010 among Resource Capital Funding II, LLC, LEAF Financial Corporation, Morgan Stanley Bank ,
N.A, Lyon Financial; Services, Inc, U.S. Bank National Association, Morgan Stanley Capital Services, Inc and Morgan Stanley Asset Funding Inc. (8)                                                                                                                         
|            | 
|10.12       |  | Eleventh Amendment Agreement to the UniCredit Agreement (formerly HVB) dated April 30, 2010 (8)                                                                                                                                                                                                                                                                                                                                                                
|            | 
|10.13       |  | Indenture between LEAF Receivables Funding 2, LLC and U.S. Bank National Association dated as of May 1, 2010                                                                                                                                                                                                                                                                                                                                                   
|            | 
|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                                                                                                                                                                                                                                                                                                              



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|(1) | Filed previously as an exhibit to our Registration Statement on Form S-1 filed on March 24, 2008 and by this reference incorporated herein.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Filed previously as an exhibit to Form 8-K on May 8, 2009 and by this reference incorporated herein.
|--- | ----------------------------------------------------------------------------------------------------

|(3) | Filed previously on May 12, 2009 in Post-Effective Amendment No. 1 as an exhibit to our Registration Statement and by this reference incorporated herein.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2008 and by this reference incorporated herein.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 and by this reference incorporated herein.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 and by this reference incorporated herein.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Filed previously as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2009 and by this reference incorporated herein.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 and by this reference incorporated herein.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements 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.



|                |  |  |  |                                                                     |  |                                                    
|--------------- |  |  |  | ------------------------------------------------------------------- |  | ---------------------------------------------------
|                |  |  |  | LEAF EQUIPMENT FINANCE FUND 4, L.P. 
A Delaware Limited Partnership
|                |  |  |  | By:                                                                 |  | LEAF Asset Management, LLC, its General
Partner    
|                |  |  | 
|August 16, 2010 |  |  |  | By:                                                                 |  | /S/    CRIT S.
DEMENT                              
|                |  |  |  |                                                                     |  | Crit S. Dement
Chairman and Chief Executive Officer
|                |  |  | 
|August 16, 2010 |  |  |  | By:                                                                 |  | /S/    ROBERT K.
MOSKOVITZ                         
|                |  |  |  |                                                                     |  | Robert K. Moskovitz
Chief Financial Officer