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font-size: 10pt;">&#160;</td></tr></table></div></div> 2817000 5431000 9193000 18804000 2308000 3089000 8252000 12293000 126446000 207391000 <div><div style="text-align: left; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">Basis of Presentation</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">The consolidated financial statements include the accounts of the Fund and its wholly owned subsidiary LEAF Receivables Funding 4, LLC. The consolidated financial statements also include LEAF Funds Joint Venture 2, LLC ("LEAF Funds JV2") and its subsidiaries LEAF Commercial Finance Fund, LLC (LCFF) and LEAF Receivables Funding 6, LLC, as well as LEAF Funding, LLC ("LEAF Funds JV1") and its wholly owned subsidiaries LEAF Capital Funding III, LLC and LEAF Receivables Funding II, LLC. The Fund maintains a 98%, and 96% ownership interest in LEAF Funds JV2 and LEAF Funds JV1, respectively. 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font-weight: bold; margin-right: 0pt;">December 31,</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; width: 1%; font-family: times new roman; font-size: 10pt; font-weight: bold;">&#160;</td></tr><tr><td valign="bottom" style="padding-bottom: 2px; width: 42%; font-family: times new roman; font-size: 10pt;">&#160; </td><td valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt; font-weight: bold;">&#160;</td><td colspan="6" valign="bottom" style="border-bottom: black 2px solid; width: 22%;"><div style="text-align: center; text-indent: 0pt; display: block; font-family: times new roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">2012</div></td><td nowrap="nowrap" valign="bottom" style="text-align: left; padding-bottom: 2px; width: 1%; font-family: times new roman; font-size: 10pt; font-weight: bold;">&#160;</td><td valign="bottom" style="padding-bottom: 2px; width: 1%; font-family: times new roman; 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margin-right: 0pt;">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 in accordance with the Partnership Agreement. 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The consolidated financial statements also include LEAF Funds Joint Venture 2, LLC ("LEAF Funds JV2") and its subsidiaries LEAF Commercial Finance Fund, LLC (LCFF) and LEAF Receivables Funding 6, LLC, as well as LEAF Funding, LLC ("LEAF Funds JV1") and its wholly owned subsidiaries LEAF Capital Funding III, LLC and LEAF Receivables Funding II, LLC. The Fund maintains a 98%, and 96% ownership interest in LEAF Funds JV2 and LEAF Funds JV1, respectively. 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Significant estimates include the allowance for credit losses and the estimated unguaranteed residual values of leased equipment, among others. The Fund bases its estimates on historical experience and on various other assumptions that it believes are 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. 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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.</div><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;"><font style="font-style: italic; display: inline;">Operating Leases.</font> Leases not meeting the criteria to be classified as direct financing leases are deemed to be operating leases. 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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.</div><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;"><font style="font-style: italic; display: inline;">Allowance for Credit Losses. </font>The Fund evaluates the adequacy of the allowance for credit losses (including investments in leases and loans) based upon, among other factors, management's historical experience on the portfolios it manages, an analysis of contractual delinquencies, economic conditions and trends and equipment finance portfolio characteristics, adjusted for expected recoveries.&#160;&#160;In evaluating historic performance of the Fund's leases and loans, the Fund performs a migration analysis, which estimates the likelihood that an account progresses through delinquency stages to ultimate charge-off unless individually reviewed for impairment.&#160;&#160;In an individual review for impairment the Fund considers the loans performance, probability of repayment, and general and local economic conditions when assessing whether impairment is necessary.</div><div style="text-align: left; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Income is not recognized on leases and loans when a default on payment exists for a period of 90 days or more. 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The Notes were issued to private investors and require interest only payments until their maturity in February 2015. LCFF may call or redeem the Notes, in whole or in part, at any time during the interest only period.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;"><font style="font-style: italic; display: inline;">Covenants</font>:&#160;&#160;The Notes are subject to various covenants as set forth in their indenture, including an interest coverage ratio test, which LCFF was not in compliance with as of September 30, 2012.&#160;&#160;LCFF notified the Trustee of this breach in April 2012.&#160;&#160;As a result, the noteholders have the right to declare an event of default, which to date has not occurred.&#160;&#160;If the noteholders would declare an event of default they have various rights and remedies available to them including (1) the right to declare all amounts currently outstanding under the Notes as immediately due and payable; (2) the right to take immediate possession of the assets of LCFF; and (3) the right to sell or otherwise dispose of the assets of LCFF in their current condition.&#160;&#160;If the noteholders choose to repossess and sell LCFF's assets, such a sale of a portfolio could be at prices lower than its carrying value, which could result in losses to the Fund. At September 30, 2012, LCFF had approximately $50.1 million in commercial finance assets, of which $34.1 million had been pledged as collateral on the 2011-1 Term Securitization.</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Notwithstanding the foregoing, LCFF is not, nor has been, delinquent on any payments of interest owed to the noteholders.</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">&#160;</div></div></div> <div><div style="text-align: left; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">NOTE 5 &#8211; DEFERRED FINANCING COSTS</div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;">&#160;</div><div style="text-align: justify; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;"><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">As of September 30, 2012 and December 31, 2011, deferred financing costs include $1.6 million and $2.6 million, respectively, of unamortized deferred financing costs which are being amortized over the terms of the estimated life of the related debt. Accumulated amortization as of September 30, 2012 and December 31, 2011 was $4.2 million, and $3.1 million, respectively.</div><div style="text-align: left; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">&#160;</div></div></div> Unguaranteed residuals for direct financing leases represent the estimated amounts recoverable at lease termination from lease extensions or disposition of the equipment. The outstanding balances are presented net of unamortized original issue discount of $3.9 million and $7.0 million as of September 30, 2012 and December 31, 2011, respectively. These borrowings are collateralized by specific leases and loans and restricted cash. As of September 30, 2012, $94.0 million of leases and loans and $10.6 million of restricted cash were pledged as collateral under the Fund's term securitizations. Recourse under these securitizations is limited to the amount of collateral pledged. Included in this category are approximately $19.9 million and $24.8 million as of September 30, 2012 and December 31, 2011, respectively, of certain loans which are contractually current but are on the cost recovery method due to continued uncertainty as to collectability of future payments due. The Fund's direct financing leases are for initial lease terms generally ranging from 24 to 120 months. The interest rates on loans generally range from 7% to 16%. Balances in this age category are collectively evaluated for impairment.