REDWOOD EQUIPMENT LEASING INCOME FUND L.P.
                                                 1997 ANNUAL REPORT

                                                  March 15, 1998

Dear Investor:

         This  annual  report for  Redwood  Equipment  Leasing  Income Fund L.P.
contains financial results for the years ended December 31, 1997, 1996 and 1995.
The Partnership began revenue producing operations as of April 1, 1990. To date,
the Partnership has acquired equipment subject to leases totaling $11,964,830.

CASH DISTRIBUTIONS

         The  Partnership  made a cash  distribution  on  February  9,  1998  to
Unitholders of $.30 per Unit,  representing a 5% annualized distribution rate on
original capital. Distributions during 1997 totaled $8.00 per Unit, representing
a 32% distribution  rate on original capital.  Since inception,  the Partnership
has made total  distributions of $9,624,938 to Unitholders,  representing 95.96%
of gross offering proceeds.

OPERATIONS

         During 1997, direct finance lease revenue declined approximately 33% as
compared to 1996. This decrease  resulted from scheduled lease  terminations and
an expected  decline in the portion of the lease  payment  recognized as revenue
(versus a return of principal) for existing leases. The Partnership recognized a
net gain of $47,441 on the sale of leased equipment during the year.

ACQUISITIONS

         During 1997, the Partnership made no equipment lease acquisitions.  The
Partnership  was not able to  identify  new lease  transactions  which it deemed
acceptable from a risk and credit standpoint.

OUTLOOK

         The  Partnership  was  organized  in  October  1989  with  an  expected
Investment  Period of five to seven years during which the  Partnership has been
committed  to  investment  in  new  equipment   leases.   Offering  proceeds  of
$10,029,500  were raised and the Partnership  began operations on April 1, 1990.
The Partnership  reached the end of the Investment  Period in 1997,  entered the
Liquidation  Phase  (period  during  which  the  Partnership's   existing  lease
portfolio matures), and is now distributing the remaining funds (net of reserves
of  approximately  $136,000) to investors.  Future  quarterly  dividends will be
dependent on funds generated from  operations,  principal  payments and proceeds
from lease sales.

Very truly yours,

      /s/ John M. Prugh

John M. Prugh, President
Redwood Leasing, Inc.
General Partner
                                      -1-
<PAGE>
                                           INDEPENDENT AUDITORS' REPORT



The Partners
Redwood Equipment Leasing Income Fund L.P.:

We have audited the  accompanying  balance sheets of Redwood  Equipment  Leasing
Income Fund L.P.  (the  "Partnership")  as of December 31, 1997 and 1996 and the
related  statements of operations,  partners' capital and cash flows for each of
the years in the  three-year  period ended  December 31, 1997.  These  financial
statements  are  the  responsibility  of  the  Partnership'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 Redwood  Equipment  Leasing
Income  Fund L.P.  as of  December  31,  1997 and 1996,  and the  results of its
operations  and its cash  flows for each of the years in the  three-year  period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.


                                                     KPMG PEAT MARWICK LLP

Baltimore, Maryland
January 23, 1998
                                      -2-
<PAGE>
REDWOOD EQUIPMENT LEASING INCOME FUND L.P.

Balance Sheets
<TABLE>
<CAPTION>

                                                            December 31,

                                                            1997            1996


Assets

<S>                                                         <C>             <C>
 Cash and cash equivalents                                  $  258,532      $2,772,471
 Lease payments receivable                                     289,845          33,098
 Deposit                                                            --          10,000
 Investment in direct finance leases, net (Note 4)             721,954       1,631,824

  Total assets                                              $1,270,331      $4,447,393


Liabilities and Partners' Capital

 Accounts payable and accrued expenses                      $   16,765      $   18,656
 Amounts due to affiliates                                       9,859          12,403
 Advance rentals                                                 7,938          40,634

  Total liabilities                                             34,562          71,693


 Partners' Capital (Note 6)
  General Partner                                             (118,752)        (85,305)
  Assignor Limited Partner:
   Assignment of limited partnership interests - $25 stated
    value per unit, 401,180 units outstanding                1,354,060       4,460,235
   Limited partnership interests - $25 stated value per
    unit, 40 units outstanding                                     261             570
  Special Limited Partners                                         200             200

  Total partners' capital                                    1,235,769       4,375,700

  Total liabilities and partners' capital                   $1,270,331      $4,447,393

</TABLE>




See accompanying notes to financial statements

                                      -3-
<PAGE>

REDWOOD EQUIPMENT LEASING INCOME FUND L.P.

Statements of Operations
For the years ended December 31,
<TABLE>
<CAPTION>
                                                  1997        1996        1995

Revenues
<S>                                               <C>         <C>         <C>
 Direct finance lease revenue                     $122,354    $183,177    $213,254
 Interest income                                    37,756     133,270     149,421
 Net gain from sale of leased equipment (Note 4)    47,441      36,091     155,569

                                                   207,551     352,538     518,244


Expenses
 Administrative expenses including
  amounts to related party                          62,990      62,348      65,552
 Management fees to advisor (Note 3)                14,950      13,034      16,754
 Professional fees                                  14,170      16,450      16,208
 Amortization of acquisition and
  organization costs                                11,256      13,862      15,141

                                                   103,366     105,694     113,655


Net earnings                                      $104,185    $246,844    $404,589


Net earnings per unit of assignee
 limited partnership interest - basic (Note 6)    $   0.26    $   0.60    $   0.99

</TABLE>


See accompanying notes to financial statements

                                      -4-
<PAGE>
REDWOOD EQUIPMENT LEASING INCOME FUND L.P.

Statements of Partners' Capital
For the years ended December 31,
<TABLE>
<CAPTION>

                              Assignor Limited Partner

                              Assignment
                              of Limited    Limited          Special
                              Partnership   Partnership      Limited     General
                              Interests     Interests       Partners     Partner       Total


<S>                           <C>           <C>           <C>          <C>         <C>
Balance at December 31, 1994  $  5,426,614  $        667  $       200  $  (65,582) $  5,361,899

Net earnings                       396,458            39                    8,092       404,589

Distributions to partners         (802,360)          (80)                 (16,376)     (818,816)


Balance at December 31, 1995     5,020,712           626          200     (73,866)    4,947,672

Net earnings                       241,883            24                    4,937       246,844

Distributions to partners         (802,360)          (80)                 (16,376)     (818,816)


Balance at December 31, 1996     4,460,235           570          200     (85,305)    4,375,700

Net earnings                       103,133            10                    1,042       104,185

Distributions to partners       (3,209,308)         (319)                 (34,489)   (3,244,116)


Balance at December 31, 1997  $  1,354,060  $        261  $       200  $ (118,752) $  1,235,769

</TABLE>



See accompanying notes to financial statements

                                       -5-
<PAGE>
REDWOOD EQUIPMENT LEASING INCOME FUND L.P.

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

                                                       1997            1996          1995


Cash flows from operating activities
<S>                                                   <C>             <C>           <C>
Net earnings                                          $    104,185    $  246,844    $  404,589
 Adjustments to reconcile net earnings to net
  cash provided by operating activities
   Amortization of acquisition and
    organization costs                                       11,256        13,862        15,141
   Net gain from sale of leased equipment                   (47,441)      (36,091)     (155,569)
   Changes in assets and liabilities
    (Increase) decrease in lease payments receivable         (2,864)       35,565         7,624
    Decrease in deposit                                      10,000            --            --
    Increase (decrease) in accounts payable and
     accrued expenses                                        (1,891)        1,843        (7,161)
    Increase (decrease) in amounts due to affiliates         (2,544)       (3,507)        2,769
    Increase (decrease) in advance rentals                  (32,696)       22,113        (5,292)

Net cash provided by operating activities                    38,005       280,629       262,101

Cash flows from investing activities
 Acquisition of direct finance leases                            --            --      (543,914)
 Principal received on direct finance leases                603,672       710,824       692,800
 Termination of direct finance leases                        88,500        99,137       263,334

Net cash provided by (used in) investing activities         692,172       809,961       412,220

Cash flows from financing activities-
 distributions to partners                               (3,244,116)     (818,816)     (818,816)


Net increase (decrease) in cash and cash equivalents     (2,513,939)      271,774      (144,495)

Cash and cash equivalents
 Beginning of period                                      2,772,471     2,500,697     2,645,192

 End of period                                         $    258,532    $2,772,471    $2,500,697



</TABLE>


See accompanying notes to financial statements

                                      -6-
<PAGE>
                   REDWOOD EQUIPMENT LEASING INCOME FUND L.P.

                          Notes to Financial Statements
                                December 31, 1997

(1)    Organization

       Redwood  Equipment  Leasing  Income Fund L.P.  (the  "Partnership")  is a
       Delaware  limited  partnership  formed in  October  1989 to engage in the
       business  of  owning  and  leasing  equipment.  The  Partnership  offered
       assignee  units  of  limited  partnership   interests  (the  "Units")  to
       investors  (the  "Investors").  The General  Partner is Redwood  Leasing,
       Inc., a Maryland  corporation and an affiliate of Armata  Financial Corp.
       ("Armata"), the Partnership's selling agent. The assignor limited partner
       is Redwood  Leasing  Holding  Company,  Inc., an affiliate of the General
       Partner.  The special  limited  partners  are Maryland  National  Leasing
       Services Corporation ("MNLSC") and Realty Associates Limited Partnership,
       another affiliate of the General Partner.  The  Partnership's  management
       agent is First Union Commercial Corporation,  successor to Signet Leasing
       and Financial Corporation ("Signet").

(2)    Summary of Significant Accounting Policies

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

       Costs  associated  with the  marketing  of the Units to the  public  were
       offset against the related partners'  capital.  Costs associated with the
       organization of the Partnership  were capitalized and were amortized on a
       straight-line basis over a period of five years, ending in 1995.

       The  Partnership  considers  all  short-term  investments  with  original
       maturities  of three  months or less as cash  equivalents.  Cash and cash
       equivalents  consist  entirely of cash,  money market  accounts and other
       liquid short term investments and are stated at cost, which  approximates
       market value at December 31, 1997 and 1996.

       For direct  finance  leases,  the excess  rental  receivables,  including
       estimated  residual  values,  over the cost of the equipment are deferred
       and credited to earnings on a contractual basis that approximates a level
       yield on the net investment  over the base lease terms.  The  Partnership
       records the estimated residual value of leased equipment at the inception
       of a lease,  based upon  management's  evaluation  of the market value of
       such equipment at the expiration of the base lease term. The  Partnership
       and Signet  review the fair value of the  receivable  and residual  value
       components of all current leases and make appropriate  adjustments  where
       deemed necessary.

       Acquisition  costs incurred in obtaining the leases are  capitalized  and
       amortized over the lease terms.
                                      -7-
<PAGE>

                                    REDWOOD EQUIPMENT LEASING INCOME FUND L.P.

                                     Notes to Financial Statements (continued)


(2)    Summary of Significant Accounting Policies (continued)

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

       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 value.

(3)    Related Party Transactions

       The General Partner earned an asset management fee of $19,250 in 1997 and
       $24,564 in 1996 and 1995 and received or was due reimbursement of $29,710
       $28,154,   and   $37,508   for  certain   costs   incurred   relating  to
       administrative  services for the Partnership for the years ended December
       31, 1997, 1996 and 1995, respectively.

       As the  management  agent,  Signet is entitled to an equipment  and lease
       management fee equal to 1.5% of gross lease rental  payments as well as a
       fee for services  provided in acquiring and  disposing of leased  assets.
       For the years ended  December  31,  1997,  1996 and 1995,  Signet  earned
       $14,950,  $13,034,  and $16,754 in equipment  lease and management  fees,
       respectively. In addition, Signet earned $8,159 in lease acquisition fees
       during 1995.

       Commencing  in  1994,  the   Partnership   also  began   acquiring  lease
       transactions from Chesapeake  Industrial Leasing Co., Inc.  (Chesapeake).
       Under the terms of the Partnership's agreement,  Chesapeake earned $2,669
       during 1995 for providing new leases to the Partnership.

(4)    Leases

       Investment in direct finance leases with initial terms ranging from 34 to
       82 months, at December 31, 1997 and 1996, includes the following:
<TABLE>
<CAPTION>
                                                                        1997                         1996

<S>                                                                 <C>                         <C>
              Lease payments receivable                             $   541,715                 $ 1,259,277
              Estimated residual values                                 262,916                     542,237
              Acquisition fees, net                                       7,260                      18,516
              Unearned income                                           (67,381)                      (165,650)
              Reserve for residual value loss                           (22,556)                      (22,556)

                                                                    $   721,954                 $ 1,631,824

</TABLE>
                                      -8-
<PAGE>
                                    REDWOOD EQUIPMENT LEASING INCOME FUND L.P.

                                     Notes to Financial Statements (continued)


(4)    Leases (continued)

       In 1995,  the  Partnership  acquired  three new  investments in equipment
       under direct finance leases,  including acquisition fees, two from Signet
       for  $416,245  and one from  Chesapeake  for  $127,669.  The terms of the
       leases range from 36 to 56 months with total monthly  payments of $10,519
       due in advance. The equipment under lease consists of computer equipment,
       office furniture and restaurant equipment.

       In 1997, four lease schedules from two lessees expired and another lessee
       purchased a portion of its equipment  prior to the end of its lease.  The
       Partnership  sold the equipment from two lease schedules for $88,500 to a
       lessee  and  recorded  a net gain  from the sale of leased  equipment  of
       $29,556.  In the other  transactions,  the Partnership sold the equipment
       under lease for  $253,883 and recorded a net gain from the sale of leased
       equipment  of $17,885.  The  proceeds  from these sales were  received in
       January 1998.

       During 1996, one lease expired and another lessee  purchased a portion of
       its equipment  prior to the end of its lease.  The  Partnership  received
       $69,621 and recorded a gain of $6,575 from these transactions.

       During 1995, five lease schedules from two lessees expired.  In the first
       transaction,  the Partnership  sold the equipment to a lessee for $30,000
       and used $43,752 of its existing reserves. No additional gain or loss was
       recorded on this sale. In the  remaining  transactions,  the  Partnership
       sold the equipment  from four lease  schedules to the lessee for $148,800
       and recorded a gain of $38,035.  Sale  proceeds of $33,000 from the final
       transaction was received by the  Partnership  during the first quarter of
       1996.

       In  May  1996  and  June  1995,  pursuant  to  the  Chapter  11  Plan  of
       Reorganization for Financial News Network (FNN), the Partnership received
       and recorded $29,516 and $117,534,  respectively, as a net gain from sale
       of leased equipment from Data Broadcasting Corporation (successor to FNN)
       as final settlement of the  Partnership's  Class 2 claim against FNN. The
       Partnership had written off all receivables  relating to this transaction
       in 1990.

       Revenues  from lessees which  individually  provided more than 10% of the
       revenues  accounted  for  approximately  85% of the direct  finance lease
       revenues for the year ended December 31, 1997 (four lessees). At December
       31, 1997,  amounts from these lessees  comprised of 84% of the investment
       in direct finance lease balance and 100% of the lease payments receivable
       balance.

       All current  leases in the  Partnership's  portfolio  are  classified  as
       direct finance leases.

                                      -9-
<PAGE>

                                    REDWOOD EQUIPMENT LEASING INCOME FUND L.P.

                                     Notes to Financial Statements (continued)


(4)    Leases (continued)

       Lease payments for future years are as follows:

                   1998                                   $    388,748
                   1999                                        138,342
                   2000                                         14,625

                   Total                                  $    541,715


(5)    Earnings for Federal Income Tax Purposes

       The  Partnership's  earnings for federal  income tax purposes for each of
       the years in the  three-year  period ended  December 31, 1997 differ from
       the net earnings for financial  reporting  purposes due to differences in
       accounting  for  leases,  the  use of  accelerated  depreciation  for tax
       purposes and the timing of investment loss  deductions.  A reconciliation
       of net earnings for financial  reporting  purposes to earnings for income
       tax purposes is as follows:

<TABLE>
<CAPTION>
                                                                   1997           1996           1995

<S>                                                             <C>            <C>            <C>
         Net earnings for financial reporting purposes          $ 104,185      $ 246,844      $ 404,589

         Excess lease revenue in converting direct finance
           leases to operating leases                             532,363        658,494        657,890

         Excess lease revenue (losses) from lease
           terminations                                           136,070         37,811        (14,928)

         Tax depreciation on direct finance leases
           converted to operating leases                         (274,108)      (515,724)      (852,146)

         Acquisition fee amortization relating to direct
           finance leases converted to operating leases               --             --            (374)

         Advance rentals                                           (5,292)        21,868         (5,291)

         Reserve for investment loss not currently
           deductible for tax purposes                                --             --          (2,530)

         Earnings for income tax purposes                       $ 493,218      $ 449,293      $ 187,210

</TABLE>

(6)    Partners' Capital

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

       (a) The Partnership consists of the General Partner, the assignee limited
           partners, the assignor limited partner and special limited partners.

                                      -10-
<PAGE>


                                    REDWOOD EQUIPMENT LEASING INCOME FUND L.P.

                                     Notes to Financial Statements (continued)

(6)    Partners' Capital (continued)

       (b) Distributions   to  the  Partners   relating  to  operations  of  the
           Partnership  are  based on  distributable  cash,  as  defined  in the
           Partnership Agreement.  Assignee limited partners received 98% of net
           cash flow and the General Partner  received 2%. Beginning in 1997 the
           Partnership  entered  into the  liquidation  phase at which  time the
           assignee   limited   partners  receive  99%  of  net  cash  flow  and
           liquidating  proceeds  and  the  General  Partner  receives  1%.  Net
           earnings per Unit  disclosed on the Statements of Operations is based
           upon 401,180 Units.

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

           o  99% to assignee  limited  partners  and 1% to the General  Partner
              until each  assignee  limited  partner has  recovered his original
              capital contribution in full and received a cumulative, compounded
              daily annual return of 12% of his adjusted  capital balance to the
              extent that such return has not been provided  from  distributable
              cash and net disposition proceeds.

           o  To the General  Partner until the General  Partner has received an
              amount equal to its original capital contribution.

           o  Any  remainder  will be  distributed  90% to the assignee  limited
              partners,  1% to the General Partner and 9% to the special limited
              partners.

       (d) The assignee limited partners may elect to become substitute  limited
           partners, as defined in the Partnership  Agreement.  Assignee limited
           partners who elect to become substitute limited partners will receive
           one limited partnership  interest for each Unit they convert and will
           not be able to  reexchange  their  limited  partnership  interest for
           Units.

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

(7)    Distributions to Investors

       Distributions  of cash to  investors  during 1997 totaled  $3,244,116  of
       which 98.9% was allocated to assignee  limited  partnership  unitholders.
       During 1996 and 1995 distributions of cash totaled $818,816 in each year,
       of which 98% was allocated to assignee limited  partnership unit holders.
       These  distributions  were  derived  from net cash  provided by operating
       activities, principal payments on direct finance leases and certain other
       investing activities.

(8)    Subsequent Event (unaudited)

       In  February  1998  the  Partnership  made a cash  distribution  totaling
       $122,401 of which 99% was allocated to assignee  limited  partners.  This
       distribution  was derived from net cash provided by operating  activities
       plus  cash  available  from  certain  investing  activities.  Holders  of
       assignee limited  partnership  interests  received cash  distributions of
       $.30 per $25 Unit.

                                      -11-
<PAGE>


Directors and Executive Officers
 


Redwood Leasing, Inc.
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 Partnership's Annual
Report on Form 10-K for 1997 as filed
with the Securities and Exchange Com
mission is available to partners without
charge on request by writing to:

           Investor Relations
           Redwood Leasing, 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
<TABLE>
<CAPTION>

<S>                                          <C>
Please submit changes in name, address,      For further information or questions
investment representative and distribution   regarding your investment, please call
instructions to Investor Relations at the    Denise Shaduk, Investment Coordinator,
at the above address                         at (410) 727-4083.
</TABLE>
                                      -12-