BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP



                                            1996 ANNUAL REPORT
                                              March 14, 1997

Dear Investor:

         We are pleased to report another year of strong  operating  results for
the Brown- Flournoy Equity Income Fund.  While each of the properties  continued
to experience heightened competition, management was able to increase revenues.

OPERATIONS

         During 1996 and 1995, rental income increased 3% and 4%,  respectively.
These increases can be attributed to rental rate increases that were implemented
during these time periods.

         Total operating  expenses  (excluding  depreciation,  amortization  and
interest  expenses)  increased  $58,395 in 1996, a 3% increase  from 1995.  This
increase  is due  primarily  to higher  marketing  expenses  and  certain  costs
associated  with  holding  vacant  units.  In  1995,  total  operating  expenses
increased  11% over 1994,  due to higher  maintenance  and  repairs  and utility
expenses.

         Occupancy for the Fund's properties  averaged 93% during 1996, a slight
decrease from the 94% average reported in 1995.  During 1996 and 1995 the Fund's
properties  experienced  heightened  competition  from the  construction  of new
apartment communities. This additional competition placed certain strains on the
Properties'  occupancy and also limited their ability to implement  major rental
rate increases.  While the Fund's occupancy  declined 1% in 1996,  rental income
increased 3%, due largely to the  performance of the Hidden Lake, Park Place and
High  Ridge  properties.  Substantial  market  pressures  led to a 3% decline in
rental income at the Southland Station property.

         On August 27, 1996, the Fund closed  interim,  one year,  interest only
loans payable in September  1997.  These loans will serve the financial needs of
the Fund until it selects a permanent  financial  solution for the  repayment of
its debt. The terms of the interim  financing provide for interest only payments
of prime (8.25% at December 31, 1996) plus 1% in monthly  installments.  The new
loans  totaled  $20,400,000  and  provided  proceeds  sufficient  to satisfy the
repayment  of  the  existing  mortgage  loans,  as  well  as  all  costs  of the
refinancing.

CASH DISTRIBUTIONS

         In February 1997, the Fund made a fourth quarter cash  distribution  of
$5 per  investment  unit.  This  represents  a  5.6%  annualized  return  on the
remaining  capital balance of $360 per investment  unit. This  distribution  was
derived from cash generated by operations.



                                                    1

<PAGE>


BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP

OUTLOOK

         New apartment  communities  continue to be built in many markets in the
Southeastern  United  States.  In  particular,  the  markets in which the Fund's
properties  are  located  have  experienced  new   competition.   As  these  new
communities  have been built,  management's  ability to  substantially  increase
rental rates has been limited.  In addition,  the increased supply of apartments
has caused certain challenges in the leasing of the properties.  It appears that
the construction of new apartments will continue in certain markets during 1997.
Management  intends to meet these  challenges  in the upcoming  year through its
ongoing  marketing  programs and commitment to high tenant service.  The general
condition of the Fund's  properties is good,  due to the recent  painting of the
properties, allowing them to compete with the new competition.

Very truly yours,



John F. Flournoy                            John M. Prugh, President
Development General Partner                 Brown-Equity Income Properties, Inc.
                                            Administrative General Partner



                                                    2

<PAGE>


BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP

In 1996,  the High  Ridge  property,  located in Athens,  Georgia,  achieved  an
average  occupancy of 93%, a 4% decrease from 1995. This decline is attributable
to  market  pressures  brought  about  by  the  construction  of  new  apartment
communities.  In light of the decrease in occupancy, High Ridge experienced a 3%
increase in rental income due in part to an increase in corporate rentals.

Occupancy  at the  Hidden  Lake  property  averaged  97% during  1996,  a slight
increase  from  1995's  average  of 96%.  A  marginal  increase  in rents and an
increase  in the number of  corporate  rentals,  led to a 5%  increase in rental
income during 1996.

                                                    3

<PAGE>


BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP



The Park Place property, located in Spartanburg,  South Carolina,  experienced a
6% increase in rental revenue in 1996. This increased revenue is attributable to
a $25 per unit  increase  that  management  implemented  at the beginning of the
year. While occupancy experienced a decline falling to 83% immediately after the
rent increase,  it finished the year at 97%. During 1996 the occupancy  averaged
92% a slight decline from the 93% recorded in 1995.

The Southland Station property achieved an average occupancy of 90% during 1996,
a slight  decrease from 1995's average of 92%. This decrease in occupancy is due
in large part to market  conditions that have affected  Warner Robins,  Georgia.
The decision by the government to defer certain military operations has led to a
reduction in the number of personnel at the Warner  Robins Air Force Base.  This
event  combined with the  completion of several new  apartment  communities  has
placed pressure on management's ability to keep the Property leased. The decline
in occupancy caused rental income to drop 3% in 1996 from 1995.


                                                    4

<PAGE>


BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP

                                       INDEPENDENT AUDITORS' REPORT



The Partners
Brown-Flournoy Equity Income Fund Limited Partnership:

We have audited the accompanying balance sheets of Brown-Flournoy  Equity Income
Fund  Limited  Partnership  as of  December  31,  1996 and 1995 and the  related
statements of operations, partners' capital (deficit) and cash flows for each of
the years in the  three-year  period ended  December 31, 1996.  These  financial
statements are the responsibility of the Fund's  management.  Our responsibility
is to express an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of Brown-Flournoy  Equity Income
Fund Limited  Partnership  as of December 31, l996 and 1995,  and the results of
its operations and its cash flows for each of the years in the three-year period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.

KPMG PEAT MARWICK LLP

Baltimore, Maryland
January 17, 1997


                                                    5

<PAGE>


BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP


                                              Balance Sheets
<TABLE>
<CAPTION>

                                                                   December 31,
                                                               1996           1995

Assets

<S>                                                       <C>             <C>         
  Investment in real estate (Note 3)                      $ 14,355,212    $ 15,200,825
  Cash and cash equivalents (Note 4)                         1,467,365       1,447,679
  Other assets
    Accounts receivable                                         19,744          22,624
    Prepaid expenses                                            70,500          65,417
    Loan fees, less accumulated amortization
      of $592,748 and $469,856, respectively                    93,761          49,459

  Total other assets                                           184,005         137,500

Total assets                                              $ 16,006,582    $ 16,786,004


Liabilities and Partners' Capital (Deficit)

  Accounts payable and accrued expenses including
    $28,941 and $27,523 due to affiliates, respectively   $    417,042    $    453,493
  Tenant security deposits                                     110,890         130,542
  Mortgage loans payable (Note 6)                           20,400,000      20,200,950

  Total liabilities                                         20,927,932      20,784,985


  Partners' Capital (Deficit) (Note 8)
    General Partners                                          (252,969)       (234,522)
    Limited Partners
      Class A - $1,000 stated value per unit;
        27,000 units outstanding                            (4,668,481)     (3,764,559)
      Class B                                                      100             100

  Total partners' capital (deficit)                         (4,921,350)     (3,998,981)

Total liabilities and partners' capital (deficit)         $ 16,006,582    $ 16,786,004
</TABLE>

See accompanying notes to financial statements

                                                                          6

<PAGE>


BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP



                                                       Statement of Operations
                                               For the years ended December 31,


<TABLE>
<CAPTION>
                                                                      1996             1995              1994



Revenues
<S>                                                              <C>               <C>               <C>          
  Rental income                                                  $   4,799,909     $   4,644,851     $   4,451,569
  Interest income                                                       61,955            67,677            49,805
  Gain on settlement of lawsuit (Note 10)                                         --     299,228                     --

                                                                     4,861,864         5,011,756         4,501,374


Expenses
  Compensation and related benefits                                    521,603           465,396           423,923
  Property taxes                                                       336,976           345,327           343,773
  Utilities                                                            289,952           255,151           233,250
  Property management fee to related party (Note 5)                    239,995           232,242           222,578
  Maintenance and repairs                                              435,767           505,152           404,083
  Advertising                                                          105,534            75,793            64,462
  Other                                                                106,700           106,308            80,845
  Administrative, including amounts to related party (Note 5)           93,005            85,768            92,422
  Interest expense (Note 6)                                          1,933,782         1,945,006         1,953,754
  Depreciation of property and equipment (Notes 2 & 7)               1,047,007         1,038,167         1,019,697
  Amortization of loan fees (Note 2)                                   122,892            74,188            74,188

                                                                     5,233,213         5,128,498         4,912,975

Net loss (Note 7)                                               $     (371,349)   $     (116,742)   $     (411,601)


Net loss per unit of Class A Limited
  Partnership Interest (Note 8)                                 $       (13.48)   $        (4.24)   $       (14.94)

See accompanying notes to financial statements
</TABLE>

                                                                  7

<PAGE>


BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP



                    Statements of Partners' Capital (Deficit)
                        For the years ended December 31,

<TABLE>
<CAPTION>

                                                               Class A              Class B
                                            General            Limited               Limited
                                           Partners           Partners              Partners            Total



<S>                                     <C>                <C>                 <C>                 <C>             
Balance at December 31, 1993            $      (196,405)   $    (1,096,782)    $           100     $    (1,293,087)

Net loss                                         (8,232)          (403,369)                        --     (411,601)

Distributions to partners

  Operations                                    (11,020)          (540,000)                        --     (551,020)

  Financing proceeds                                      --      (800,000)                        --     (800,000)

Balance at December 31, 1994                   (215,657)        (2,840,151)                100          (3,055,708)

Net loss                                         (2,334)          (114,408)                        --     (116,742)

Distributions to partners                       (16,531)          (810,000)                        --     (826,531)

Balance at December 31, 1995            $      (234,522)   $    (3,764,559)    $           100     $    (3,998,981)

Net loss                                         (7,427)          (363,922)                        --     (371,349)

Distributions to partners                       (11,020)          (540,000)                        --     (551,020)

Balance at December 31, 1996            $      (252,969)   $    (4,668,481)    $           100     $    (4,921,350)
</TABLE>

See accompanying notes to financial statements

                                                                  8

<PAGE>


BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP


                            Statements of Cash Flows
                        For the years ended December 31,
<TABLE>
<CAPTION>
                                                              1996                  1995                 1994


Cash flows from operating activities
<S>                                                     <C>                  <C>                   <C>              
  Net loss                                              $       (371,349)    $       (116,742)     $       (411,601)
  Adjustments to reconcile net loss to net
    cash provided by operating activities
      Depreciation of property and equipment                  1,047,007            1,038,167             1,019,697
      Amortization of loan fees                                 122,892               74,188                74,188
      Gain on settlement of lawsuit                                         --       (299,228)                        --
      Changes in assets and liabilities
        Decrease (increase) in accounts receivable                2,880               24,334                (18,285)
        (Increase) decrease in prepaid expenses                   (5,083)              1,065                (18,372)
        (Decrease) increase in accounts payable
          and accrued expenses                                   (36,451)              6,063                (23,668)
        (Decrease) increase in tenant security deposits          (19,652)              6,926                 1,815

Net cash provided by operating activities                       740,244              734,773               623,774

Cash flows from investing activities
  Additions to investment in real estate                        (201,392)             (88,700)              (54,100)
  Settlement proceeds                                                       --        16,000               283,228

Net cash (used in) provided by investing activities             (201,394)             (72,700)             229,128

Cash flows from financing activities
  Decrease in mortgage loans payable                             (90,080)            (125,936)              (29,647)
  Proceeds from mortgage refinancing                         20,400,000                          --                    --
  Repayment of mortgage loans                                (20,110,870)                        --                    --
  Financing costs                                               (167,194)                        --                    --
  Distributions to partners                                     (551,020)            (826,531)           (1,351,020)

Net cash used in financing activities                           (519,164)            (952,467)           (1,380,667)


Net increase (decrease) in cash and cash equivalents             19,686              (290,394)             (527,765)

Cash and cash equivalents
  Beginning of period                                         1,447,679            1,738,073             2,265,838

  End of period                                         $     1,467,365      $     1,447,679       $     1,738,073
</TABLE>

See accompanying notes to financial statements

                                                                  9

<PAGE>


BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP

                                             Notes to Financial Statements
                                                   December 31, 1996


(1)    Organization


Brown-Flournoy Equity Income Fund Limited Partnership (the "Fund") is a Delaware
       limited  partnership  formed on June 25, 1986 to develop and operate four
       residential  apartment  communities  in Georgia and South  Carolina.  The
       capital  raised  from the  admission  of  investors  enabled  the Fund to
       acquire the properties and  improvements and complete  construction.  The
       properties are:

         o    Southland Station, a 160-unit apartment community in
                    Warner Robins, Ga.
         o    Park Place, a 184-unit apartment community in Spartanburg, S.C.
         o    Hidden Lake - Phase Two, a 160-unit apartment community in 
                    Union City, Ga.
         o    High Ridge, a 160-unit apartment community in Athens, Ga.


The    General  Partners  are   Brown-Equity   Income   Properties,   Inc.,  the
       Administrative  General  Partner,  and John F. Flournoy,  the Development
       General  Partner.  The Class B Limited  Partners are John F. Flournoy and
       Realty  Associates  1986  Limited   Partnership,   an  affiliate  of  the
       Administrative  General Partner.  The Fund will terminate on December 31,
       2036,  unless sooner  terminated  under the provisions of the Partnership
       Agreement.


       (2) Summary of Significant Accounting Policies


           (a)  Method of Accounting


       The accompanying  financial  statements have been prepared on the accrual
           basis of  accounting.  The Fund  reports  its  operating  results for
           income tax purposes on the accrual  basis.  No  provision  for income
           taxes is made because any  liability  for income taxes is that of the
           individual partners and not that of the Fund.


                (b)        Cash Equivalents


           The Fund  considers  all  highly  liquid  investments  with  original
           maturities of three months or less to be cash equivalents.


                (c)        Depreciation


           Depreciation   of  property  and  equipment  is  computed  using  the
           straight-line  method  over  the  useful  lives of the  property  and
           equipment as follows:
             Buildings                                       25 years
             Furniture, fixtures and equipment               10 years


                                                          10

<PAGE>


BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP


                                       Notes to Financial Statements (continued)

(2)          Summary of Significant Accounting Policies (continued)


       (d) Deferred Costs


Costs      associated with marketing of the Class A limited partnership units to
           the public were offset against the related partners' capital.


           Loan fees  incurred  to  obtain  the  original  mortgage  loans  were
           capitalized  and were  amortized  on a basis  that  approximates  the
           interest  method over the 7-year  loan  terms.  These fees were fully
           amortized  in 1996.  Loan fees  incurred  to obtain the new  mortgage
           loans (Note 6) have been capitalized and are being amortized over the
           1-year loan terms.


           (e)  Use of Estimates


       Management of the Fund has made a number  of  estimates  and  assumptions
           relating  to  the  reporting  of  assets,  liabilities,  revenue  and
           expenses to prepare these  financial  statements  in conformity  with
           generally accepted accounting principles. Actual results could differ
           from those estimates.


           (f)  Fair Value of Financial Instruments


       The fair value of financial  instruments  is  determined  by reference to
           various  market  data and other  valuation  considerations.  The fair
           value of financial instruments approximate their recorded values.


           (g)  Impairment of Long-Lived Assets


           In accordance  with Statement of Financial  Accounting  Standards No.
           121,  "Accounting  for the  Impairment of  Long-Lived  Assets and for
           Long-Lived  Assets to Be Disposed  Of," the Fund  records  impairment
           losses on  long-lived  assets  used in  operations  when  events  and
           circumstances  indicate that the individual assets might be impaired,
           based on fair value, and the undiscounted  cash flows estimated to be
           generated by those assets are less than the carrying amounts of those
           assets.  During 1996 no events or  circumstances  indicated  that the
           assets  of  the  Fund  were  impaired.  Prior  to  1996,  the  Fund's
           investment in real estate was carried at the lower of net  realizable
           value or cost,  net of  accumulated  depreciation,  on an  individual
           property basis.




                                                          11

<PAGE>


BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP


                                       Notes to Financial Statements (continued)

           (3)      Investment in Real Estate


           Investment in real estate, is summarized as follows at December 31:
<TABLE>
<CAPTION>

                                                                   1996               1995


<S>                                                           <C>                 <C>          
         Land                                                 $    1,205,950      $   1,205,950
         Buildings                                                20,417,743         20,417,743
         Furniture, fixtures and equipment                         2,403,666          2,202,272

                                                                  24,027,359         23,825,965
         Less: Accumulated depreciation                            9,672,147          8,625,140

                                                              $   14,355,212      $  15,200,825
</TABLE>


(4)    Cash and Cash Equivalents


Cash   and cash  equivalents  consist of the  following,  stated at cost,  which
       approximates market value at December 31:
<TABLE>
<CAPTION>
                                                                    1996               1995

<S>                                                             <C>                <C>         
         Cash and money market                                  $    532,655       $    428,716
         Certificates of deposit with interest rates
             ranging from 5.00% to 5.60% in 1996
             and 4.25% to 5.90% in 1995.                             934,710          1,018,963

                                                                $  1,467,365       $  1,447,679
</TABLE>


Restricted cash represents  amount  retained from tenant  security  deposits and
       totaled   $110,890   and   $130,542  at  December   31,  1996  and  1995,
       respectively.


       (5) Related Party Transactions


       The Administrative General Partner received $52,795,  $41,644 and $41,314
       in  1996,  1995  and  1994,  respectively,  for  reimbursement  of  costs
       associated with  administering  the Fund,  including  clerical  services,
       investor  communication  services,  and reports and filings to regulatory
       authorities.


       Flournoy  Properties,  Inc.,  an  affiliate  of the  Development  General
       Partner,  is the managing agent for the properties and earned  management
       fees of  $239,995,  $232,242 and  $222,578  representing  5% of the gross
       monthly  operating  revenues from the  properties  during 1996,  1995 and
       1994, respectively.




                                                          12

<PAGE>


BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP


                                       Notes to Financial Statements (continued)

       (6)                                           Mortgage Loans Payable


       The Fund's General  Partners  secured first  mortgage  loans  aggregating
       $20.8  million  on  August  30,  1989  which  were  secured  by the land,
       apartment  units  and  all  other  improvements  to  the  four  apartment
       properties.  These  loans  were for an  original  term of 7 years with an
       interest  rate  of  9.6%.  Interest  only  was  payable  monthly  through
       September 1994, and thereafter  monthly  payments were based on a 30-year
       amortization schedule with a balloon payment due at the end of the 7-year
       term.


       The mortgage  loans  matured on September  1, 1996.  The Fund  refinanced
       these loans with  Columbus  Bank and Trust.  The terms of the  commitment
       provide  for  interest   only  payments  of  prime  plus  1%  in  monthly
       installments  and a term of one year.  The new loans totaled  $20,400,000
       and  provided  proceeds  sufficient  to satisfy the  repayment of the old
       mortgage loans, and all costs of the refinancing. The Fund is required to
       pay a  commitment  fee of one  point  payable  in  advance  in  quarterly
       installments. The Fund intends to repay these balances with proceeds from
       mortgage   refinancing  or  other  capital   transactions.   Interest  of
       $1,932,975,  $1,945,936  and  $1,953,991  was paid during the years ended
       December 31, 1996, 1995 and 1994, respectively.


       (7) Losses for Federal Income Tax Purposes


       The Fund's  losses for federal  income tax purposes in each of the last 3
       years  ended  December  31  differs  from the net  losses  for  financial
       reporting  purposes due to differences  in the Fund's  computation of tax
       depreciation  and in 1995,  different  treatment  of the  additional  net
       settlement  proceeds  (Note 10). For federal  income tax  purposes,  real
       property (other than land) and personal  property,  are being depreciated
       over 27 1/2 and 7 years,  respectively,  using the  Modified  Accelerated
       Cost Recovery  System,  and the additional net settlement  proceeds (Note
       10) are being  treated as a reduction  to the  adjusted  tax basis of the
       Southland Station property.
       The tax losses for 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>

                                                               1996              1995             1994

<S>                                                        <C>              <C>               <C>          
          Losses for financial reporting purposes          $   (371,349)    $   (116,742)     $   (411,601)

          Financial reporting depreciation in
            excess of tax depreciation                          247,403          268,686           167,515

          Additional net settlement proceeds (Note 10)              --          (299,228)              --


          Losses for income tax purposes                   $   (123,946)    $   (147,284)     $   (244,086)

</TABLE>



                                                          13

<PAGE>


BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP


                                       Notes to Financial Statements (continued)

(8)       Partners' Capital (Deficit)


The Partnership Agreement provides, among other provisions, for the following:


       (a) The Fund will  consist of the General  Partners,  the Class A Limited
           Partners and the Class B Limited Partners.


           (b)  Distributions  to the  Partners  relating to  operations  of the
           properties  will  be  based  on net  cash  flow,  as  defined  in the
           Partnership  Agreement.  Investors  will receive 98% of net cash flow
           and the General  Partners  will each receive 1%. Profit and loss from
           operations  will be allocated in the same  proportions.  Net loss per
           Class A Limited  Partnership  interest as disclosed on the Statements
           of Operations is based upon 27,000 units outstanding.


           (c) Net  proceeds  of  sale or  operational  stage  financing  of the
           properties will be distributed as follows:


           To pay  any  deferred  fees  payable  to  the  General  Partners  and
affiliates.


                To Class A Limited  Partners until each Class A Limited  Partner
                has  recovered  his original  capital  contribution  in full and
                received a  cumulative,  noncompounded  annual return of 7.5% of
                his capital  contribution to the extent that such return has not
                been provided from prior distributions of net cash flow.


                Any  remainder  will be  distributed  80% to the Class A Limited
                Partners,  1% to each of the  General  Partners,  14% to John F.
                Flournoy in his  capacity  as Class B Limited  Partner and 4% to
                Realty Associates 1986 Limited Partnership.


                (d) Restrictions exist regarding transferability or disposition
                     of partnership interests.


           (9)  Distributions to Partners


           Distributions of cash to partners during 1996, 1995 and 1994 are 
               summarized as follows:
<TABLE>
<CAPTION>
                              1996          1995         1994

         To Class A Limited Partners from
<S>                        <C>          <C>          <C>        
     Operations            $  540,000   $  540,000   $  540,000
     Settlement proceeds         --        270,000         --
     Financing proceeds          --           --        800,000

To General Partners from
     Operations                11,020       11,020       11,020
     Settlement proceeds                      5,51         --
                           $  826,531   $1,351,020   $  551,020

</TABLE>

                                                          14

<PAGE>


BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP

              (9)     Distributions to Partners (continued)


              Each Class A Limited  Partner  received a distribution  of $20 per
       unit from operations in 1996, 1995 and 1994, $10 per unit from settlement
       proceeds  in 1995  and  approximately  $29.63  per  unit  from  financing
       proceeds in 1994.


       (10)     Settlement Proceeds


       During  the  fourth  quarter of 1994,  the Fund  settled  an  outstanding
       lawsuit with the manufacturer of defective  polybutylene piping which was
       utilized at the Southland  Station  property.  The lawsuit sought damages
       resulting   from   numerous   plumbing   leaks  at  the  property   since
       construction.  The settlement included the cost to re-plumb the property,
       as well as additional net settlement proceeds to the Fund of $299,228.  A
       special  distribution of these proceeds was made in the second quarter of
       1995.


       (11)     Subsequent Event


       In February 1997 the Fund made a cash distribution  totaling $137,755, of
       which 98% was allocated to Class A Limited  Partners.  This  distribution
       was derived from net cash provided by operating activities.  Each Class A
       Limited Partner received a cash distribution of $5.00 per unit.


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<PAGE>


BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP

       Directors and Executive Officers

       John F. Flournoy

       Development General Partner
       Brown-Equity Income Properties,
       Inc.

       Administrative General Partner
       John M. Prugh
       President and Director
       Peter E. Bancroft
       Vice President and Director
       Terry F. Hall
       Secretary
       Timothy M. Gisriel
       Treasurer

                                                    Form 10-K
       A copy of the Fund's Annual
       Report on Form
       10-K for 1996 as filed with the
       Securities and Exchange Commis
       sion is available to partners with
       out charge on request by writing
       to:
       Investor Relations
       Brown-Equity Income Properties,
       Inc.
       225 East Redwood Street
       Baltimore, Maryland 21202
                                                    Auditors
       KPMG Peat Marwick LLP
       111 South Calvert Street
       Baltimore, Maryland 21202
                                                  Legal Counsel
       Piper & Marbury
       1100 Charles Center South
       36 South Charles Street
       Baltimore, Maryland 21201


                                               Further Information


       Please submit changes in name,  address,  investment  representative  and
       distribution instructions to Investor Relations at the above
       address.


       For further  information or ques tions regarding your investment,  please
       call Denise Shaduk, Invest ment Coordinator, at (410) 727-
       4083.

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