A physical model is constructed for the stratified two-phase flow pattern with annular, laminar film condensation superimposed and the equivalent mathematical model is analyzed. Utilizing the principle of conservation of mass, energy, and momentum, an equation is derived which gives the slope of the vapor-bulk liquid interface along the tube. By varying the flow rate, inclination of the tube, tube radius, and film temperature difference, the effect of these variables on the flow level is illustrated in a typical example. A special case of this equation, namely, that describing the vapor-liquid interface when the rate of condensation is zero, is compared with several recent empirical horizontal tube holdup correlations and with flow-level data of Gazley for stratified air-water flow.