UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               -------------------
                                    FORM 10-K


         [X]      Annual  Report   Pursuant  to  Section  13  or  15(d)  of  the
                  Securities  Exchange  Act of 1934 For the  fiscal  year  ended
                  December 31, 1995.

         [  ]     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 0-14598
                             -----------------------


                 PLM Transportation Equipment Partners VIIB 1985
                                   Income Fund
             (Exact name of registrant as specified in its charter)


          California                                        94-2946245
  (State or other jurisdiction of                         (I.R.S. Employer
  incorporation or organization)                         Identification No.)

  One Market, Steuart Street Tower
    Suite 900, San Francisco, CA                            94105-1301
       (Address of principal                                 (Zip code)
         executive offices)


        Registrant's telephone number, including area code (415) 974-1399
                             -----------------------


         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. Yes X No ______

Aggregate Market Value of Voting Stock:  N/A

An index of exhibits filed with this Form 10-K is located at page 45.

Total number of pages:  48.



<PAGE>




                                     PART I

ITEM 1.        BUSINESS

(A)  Background

PLM  Transportation  Equipment  Partners  VIIB 1985 Income Fund (TEP VIIB or the
Partnership)  and PLM  Transportation  Equipment  Partners VIIC 1985 Income Fund
(TEP  VIIC or the  Partnership)  (together,  the  Partnerships)  are  California
limited  partnerships which were formed in October 1984, and began operations in
January  1985.  The  Partnerships   operate  under  their   respective   Limited
Partnership  Agreements  (Partnership  Agreement)  for the purpose of acquiring,
owning and leasing transportation equipment. PLM Financial Services, Inc. (FSI),
a wholly-owned subsidiary of PLM International, Inc. (PLM International), serves
as the General Partner for both TEP VIIB and TEP VIIC.

     The  Partnerships  were  formed  to engage in the  business  of owning  and
managing diversified pools of transportation  equipment.  The primary objectives
of each Partnership are to invest in equipment which will:

     (i) generate cash distributions to investors on a quarterly basis;

     (ii)maintain   substantial  residual  value  for  continued  operation  and
ultimate sale;

     (iii) provide certain federal income tax benefits, including investment tax
credits,  to the  extent  available,  in 1986 and tax  deductions  in  excess of
Partnership  income during early years which investors may use to offset taxable
income from other sources.

     (iv)to  endeavor to reduce  certain of the risks of equipment  ownership by
acquiring a diversified portfolio of varying equipment types.

     The 1986  Tax  Reform  Act  (the  Act)  substantially  altered  some of the
Partnership   objectives.   Specifically,   the  ability  of  investors  in  the
Partnership  to use tax  deductions  in excess of  Partnership  income to offset
taxable  income from other  sources was not only  limited in duration by the Act
(no offsets were allowed after 1990), but also limited to a declining percentage
that could be applied against other income beginning in 1987.
The Act also eliminated the investment tax credit.

(B)  Management of Partnership Equipment

The  Partnerships  have entered into equipment  management  agreements  with PLM
Investment  Management,  Inc.  (IMI), a wholly-owned  subsidiary of FSI, for the
management of the equipment. IMI has agreed to perform all services necessary to
manage transportation  equipment on behalf of the Partnerships and to perform or
contract  for  the  performance  of all  obligations  of the  lessor  under  the
Partnerships'  leases.  In  consideration  for its  services and pursuant to the
Partnership Agreements,  IMI is entitled to a monthly management fee. Management
fees are  calculated  as 10% of cash flow  available  for  distribution  and are
payable monthly (see Financial Statements, Notes 1 and 2).

                                    TEP VIIB

     The offering of limited partnership units (the Units) of PLM Transportation
Equipment Partners VIIB 1985 Income Fund (TEP VIIB or the Partnership) closed on
August 27,  1985  having  sold 22,276  Units.  FSI  contributed  $100 for its 1%
general partnership interest in TEP VIIB.

     As of  December  31,  1995,  TEP VIIB owned the  following  equipment:  one
commuter aircraft, 36 marine containers,  five tank cars, and 207 trailers.  The
commuter  aircraft  is jointly  owned by TEP VIIB (31%) and TEP VIIC  (69%).  At
December 31, 1995, 51% of the Partnership's trailer equipment operates in rental
yards owned and  maintained  by an  affiliate of the General  Partner.  Revenues
collected  under  PLM-affiliated  short-term  rental  agreements with the rental
yards' customers are distributed monthly to the owners of the related equipment.
Direct expenses  associated with the equipment and an allocation of other direct
expenses of the rental yard operations are billed to the  Partnership.  With the
exception of one trailer with a net book value of $6,500, all equipment owned by
TEP VIIB was on lease as of December 31, 1995.  Lessees of the  equipment in the
TEP VIIB portfolio  include,  but are not limited to: British  Aerospace,  Trans
Ocean  Container  Ltd.,  Midwest  Coast,  Dupont  SA, Q & O  Chemical  and Pines
Trailer, Ltd.

                                    TEP VIIC

     The offering of limited partnership units (the Units) of PLM Transportation
Equipment Partners VIIC 1985 Income Fund (TEP VIIC or the Partnership) closed on
December  6, 1985  having sold 33,727  Units.  FSI  contributed  $100 for its 1%
general partnership interest in TEP VIIC.

     As of December 31, 1995, TEP VIIC owned the following equipment:  36 marine
containers,  211 trailers,  and two commuter aircraft.  One commuter aircraft is
jointly owned by TEP VIIC (69%) and TEP VIIB (31%). At December 31, 1995, all of
the  Partnership's   trailer  equipment  operates  in  rental  yards  owned  and
maintained  by an  affiliate  of the  General  Partner.  The second  aircraft is
jointly owned by TEP VIIC (80%) and PLM International (20%).  Revenues collected
under  PLM-affiliated  short-term  rental  agreements  with  the  rental  yards'
customers are distributed monthly to the owners of the related equipment. Direct
expenses  associated  with the  equipment  and an  allocation  of  other  direct
expenses of the rental yard operations are billed to the Partnership. All of the
equipment owned by TEP VIIC was either operating in the rental  facilities or on
lease as of December 31, 1995.

Lessees of the equipment in the TEP VIIC portfolio include,  but are not limited
to: British Aerospace,  Horizon Air Industries,  Inc., and Trans Ocean Container
Ltd.

(C)  Competition

(1)  Operating Leases vs. Full Payout Leases

Generally, the equipment owned by the Partnerships is leased out on an operating
lease basis wherein the rents owed during the initial non-cancelable term of the
lease  are  insufficient  to  recover  the  Partnerships  purchase  price of the
equipment. The short to mid-term nature of operating leases generally commands a
higher  rental rate than longer  term,  full  payout  leases and offers  lessees
relative  flexibility in their  equipment  commitment.  In addition,  the rental
obligation  under the operating  lease need not be  capitalized  on the lessee's
balance sheet.

     The Partnerships encounter considerable  competition from lessors utilizing
full payout leases on new equipment,  i.e., leases which have terms equal to the
expected  economic  life of the  equipment.  Full payout  leases are written for
longer terms and for lower rates than the Partnerships offer. While some lessees
prefer the flexibility  offered by a shorter term operating lease, other lessees
prefer the rate advantages possible with a full payout lease. Competitors of the
Partnerships may write full payout leases at considerably lower rates, or larger
competitors  with a lower cost of capital  may offer  operating  leases at lower
rates, and as a result, the Partnerships may be at a competitive disadvantage.

(2)  Manufacturers and Equipment Lessors

The Partnerships  also compete with equipment  manufacturers who offer operating
leases and full payout  leases.  Manufacturers  may provide  ancillary  services
which the Partnerships  cannot offer, such as specialized  maintenance  services
(including possible substitution of equipment),  training, warranty services and
trade-in privileges.

     The  Partnerships  compete with many equipment  lessors,  including,  among
others,   ACF  Industries,   Inc.   (Shippers  Car  Line  Division),   Transport
International  Pool, General Electric Railcar Services  Corporation,  Greenbrier
Leasing Company,  Polaris Aircraft Leasing Corp., and other limited partnerships
which lease the same types of equipment.

(D)  Government Regulations

The use, maintenance, and ownership of equipment is regulated by federal, state,
local and/or foreign governmental authorities. Such regulations which may impose
restrictions and financial burdens on the Partnerships'  ownership and operation
of  equipment,  which  may  affect  the  Partnerships'  liquidity.   Changes  in
government regulations, industry standards, or deregulation, may also affect the
ownership,  operation and resale of the equipment.  Certain of the Partnerships'
equipment is subject to extensive  safety and  operating  regulations  which may
require the removal  from  service or extensive  modification,  at  considerable
cost, of such equipment to meet the regulations.  Such regulations  include (but
are not limited to):

     (1)      the Montreal  Protocol on Substances  that Deplete the Ozone Layer
              and the U.S.  Clean Air Act  Amendments of 1990 which call for the
              control of and eventual  replacement of substances  that have been
              found to cause or contribute  significantly  to harmful effects on
              the  stratospheric  ozone layer and which are used  extensively as
              refrigerants    in   refrigerated    marine   cargo    containers,
              over-the-road trailers, etc.;

     (2)      the  U.S.  Department  of  Transportation's   Hazardous  Materials
              Regulations  which  regulate the  classification  of and packaging
              requirements for hazardous  materials and which apply particularly
              to the Partnerships' tankcars.

(E)  Demand

The Partnerships invested in Transportation-related  capital equipment. With the
exception  of aircraft  leased to  passenger  air  carriers,  the  Partnerships'
equipment is used  primarily  for the  transport  of  materials.  The  following
describes the markets for the Partnerships' equipment:

(1)  Commuter Aircraft

In recent years,  growth in the commuter  aircraft industry has outpaced that of
larger carriers.  As larger operators have  increasingly  adopted a regional hub
concept, air traffic has grown among commuter/regional airlines providing feeder
service into these hubs. Many smaller  communities  served by 19-seat  passenger
aircraft do not  generate  sufficient  air traffic to justify the 29 to 100-seat
aircraft currently being acquired by larger operators.  Recently,  however,  the
U.S.  Federal  Aviation   Administation  (FAA)  implemented  regulatory  actions
requiring 19-seat  passenger  aircraft to come under the same operating rules as
commercial jets. These changes will significantly  impact direct operating costs
for such smaller  aircraft and will require the General  Partner to remarket the
Partnerships'  Metro  IIIs into  international  markets  not  affected  by these
regulations,  a move it has  already  undertaken  due to the higher  lease rates
achievable in these  markets.  Further,  the  industry-wide  trend toward larger
regional  aircraft  is  expected  to  have  a  negative  impact  on  demand  for
19-passenger aircraft in the short term.

(2)  Marine Containers

The container market ended 1994 with expectations that the strengthening  market
experienced  late in the year would continue into 1995. Such was not the case as
the usual  seasonal  slowdown  during the  post-Christmas  time period  extended
longer than expected and utilization did not achieve 1994 levels. While per diem
rates  increased  somewhat by  summertime,  they did not fully  recover from the
8-12% decrease experienced during the preceding two years. Aggressive pricing by
several major leasing  companies  attempting to capture  greater market share is
expected to put further pressure on refrigerated  container  utilization and per
diem  rates.  On  the  secondary  markets,  there  continues  to be  significant
increases in supply as  primarily  operators  dispose of large  numbers of older
equipment. Since the Partnerships own predominately older containers,  they will
continue to be impacted by these industry trends.

     During 1996,  major leasing  companies are expected to reduce  purchases of
new equipment in response to soft market conditions.  This anticipated reduction
in supply should lead to a strengthening in utilization and per diem rates later
in the year as demand catches up to supply.

(3)  Railcars

Nearly all the major railroads  reported  substantial  revenue  increases during
1995. As additional  industry  consolidation  is expected in 1996, these mergers
should produce further operating  efficiencies leading to continued increases in
revenues  and  profits.  Car  loadings  rose  approximately  3% during 1995 with
chemicals,  metals,  and grain  experiencing  the largest gains.  Car demand for
liquefied petroleum gas and liquid fertilizer service was also strong throughout
the year.

     The Partnerships'  fleet experienced  almost 100% utilization  during 1995.
The few cars out of service were undergoing scheduled maintenance or repair. The
General Partner believes rates are at the top of the cycle for all types of cars
owned by the  Partnerships.  With demand  continuing high, rental rates for most
types of cars owned by the Partnerships are expected to remain relatively strong
during 1996.

     On the supply side, industry experts predict  approximately  55,000 new car
builds  and  40,000  retirements  for a net gain of about 1.2% in the total U.S.
fleet during 1996.  While car builders are still busy,  orders are not coming in
as  rapidly  as in the  last  two  years.  so it is  likely  additions  will not
significantly outpace retirements this year.

(4)  Over-the-Road Dry Trailers:

The  over-the-road  dry  trailer  market  remained  strong in 1995 due to record
freight  movements  and  equipment  utilization.  The General  Partner  achieved
excellent  utilization  levels in 1995 averaging  over 85%.  Current levels show
some signs of softening  demand in  comparison to the  record-setting  levels of
1994,  when  users  encountered  up to 18 months of  backlog  for new  equipment
delivery.  While new  production is expected to decline over the next few years,
this should not  dramatically  affect  utilization  levels,  as plenty of older,
obsolete equipment needs to be retired.

     The General  Partner  continues to transfer  trailers with  expiring  lease
terms to the short-term trailer rental facilities  operated by PLM Rental,  Inc.
The General  Partner  believes the strong  performance  of units in these rental
facilities reflects the demand for short-term leases mentioned above and expects
this trend to continue as long as the current shortage of trailers exists.

(5)  Over-the-Road Refrigerated Trailers:

After a record year in 1994, demand for refrigerated  trailers softened in 1995.
This softened  demand  affected  overall  performance in 1995.  Adverse  weather
conditions  reduced  the  volume  of  fresh  fruit  and  produce  available,  so
refrigerated  equipment operators focused on hauling generic freight,  adding to
the   dry   freight   market   while    reducing    capacity   and   demand   in
temperature-controlled markets.

     Heavy  consolidation in the trucking  industry induced carriers to work off
excess equipment inventory from 1994 levels.  However,  inventory is expected to
return to more normal  levels in 1996 and  continue  throughout  the rest of the
decade, as excess capacity is retired, newer refrigeration  technology standards
become more defined, and environmentally-damaging refrigerants are phased out of
service.

ITEM 2.       PROPERTIES

The  Partnerships  neither own nor lease any properties other than the equipment
they  have  purchased  for  lease to  others.  As of  December  31,  1995,  each
Partnership owned a portfolio of  transportation  equipment as described in Part
I, Item 1. It is not contemplated that any more equipment will be acquired.

     The Partnerships  maintain their principal  offices at One Market,  Steuart
Street  Tower,  Suite 900,  San  Francisco,  California  94105-1301.  All office
facilities are provided by FSI without reimbursement by the Partnerships.

ITEM 3.       LEGAL PROCEEDINGS

None.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Partnerships' Limited Partners during
the fourth quarter of its fiscal year ended December 31, 1995.





<PAGE>


                                     PART II

ITEM 5.       MARKET FOR THE PARTNERSHIPS' EQUITY AND RELATED UNITHOLDER MATTERS

Pursuant to the terms of the  Partnership  Agreements,  the  General  Partner is
entitled  to a 1%  interest  in the  profits,  losses and  distributions  of the
Partnerships.  The General  Partner also is entitled to a special  allocation of
any net  profit  or gains  from sale of each  Partnership's  assets  during  the
liquidation  phase in an amount equal to the excess of the net losses previously
allocated  to the General  Partner  over the capital  contributions  made by the
General  Partner.  FSI is the sole holder of such  interests.  Ownership  of the
remaining  99%  interest  in the  profits  and losses and  distributions  of the
respective Partnerships is represented as follows:
<TABLE>
<CAPTION>

                                                                         TEP VIIB            TEP VIIC
                                                                        -------------------------------

  <S>                                                                         <C>              <C>  
  Holders of Limited Partnership Units
    as of December 31, 1995                                                   833              1,223



</TABLE>

There are several  secondary  exchanges which may purchase  limited  partnership
units.  Secondary  markets  are  characterized  as having few buyers for limited
partnership  interests  and,  therefore,  generally  are  viewed as  inefficient
vehicles for the sale of partnership  units. There is no public market for these
Limited Partnership Units and none is likely to develop.  Moreover,  the Limited
Partnership Units are subject to substantial restrictions on transferability.


<PAGE>


ITEM 6.       SELECTED FINANCIAL DATA

Tables 1, below, lists selected financial data for the respective Partnerships.
<TABLE>

                                                      TABLE 1
                                         For the years ended December 31,

<CAPTION>

  TEP VIIB                                1995              1994             1993              1992             1991
  -------------------------------------------------------------------------------------------------------------------------

  <S>                                 <C>              <C>               <C>              <C>               <C>         
  Operating results:
    Total revenues                    $    732,844     $     813,152     $    861,606     $     915,874     $    762,968
    Loss on revaluation
      of equipment                              --                --          (65,475)          (35,000)         (40,000)
    Gain (loss) on disposition
      of equipment                          27,563            14,663          (15,985)            2,562           20,633
    Net income                              29,306            88,689          139,613           189,710           27,699

  At year-end:
    Total assets                      $    891,678     $   1,269,667     $  1,653,415     $   2,155,868     $  2,931,754
    Total liabilities                       49,909            61,017           58,033           119,031          130,446

  Cash distributions                  $    396,187     $     475,421     $    581,068     $     954,181     $    408,440

  Per limited partnership unit:
  Net income                          $       1.30     $        3.94     $       6.20     $        8.43     $       1.23

  Cash distributions                  $      17.61     $       21.13     $      25.82     $       42.41     $      18.15

  TEP VIIC

  Operating results:
    Total revenues                    $  1,254,597     $   1,712,474     $  1,682,390     $   1,822,559     $  1,626,359
    Loss on revaluation
      of equipment                              --                --          (11,698)               --               --
    Gain (loss) on disposition
      of equipment                          84,289            68,223         (131,532)           (9,970)          16,716
    Net income                             175,174           441,222          359,895           366,686          180,548

  At year-end:
    Total assets                      $  1,666,451     $   2,526,952     $  3,199,276     $   4,154,778     $  4,968,661
    Total liabilities                       40,315            28,451           46,293           141,876          168,911

  Cash distributions                  $  1,047,539     $   1,095,704     $  1,219,814     $   1,153,534     $  1,089,484

  Per limited partnership unit:
  Net income                          $       5.14     $       12.95     $      10.56     $       10.76     $       5.30

  Cash distributions                  $      30.75     $       32.17     $      35.81     $       33.86     $      31.98


</TABLE>


<PAGE>


ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS

Liquidity and Capital Resources

(A)  Sources

The Partnerships'  primary source of liquidity is operating cash flow.  Proceeds
realized from the sale or disposal of equipment are generally distributed to the
partners.  The  Partnerships'  original  source of capital was proceeds from its
initial public offering of limited partnership units.

(B)  Asset Sales

Equipment sales and dispositions prior to the Partnerships'  planned liquidation
phase generally  result from either the exercise by lessees of fair market value
purchase  options  provided for in certain leases,  or the payment of stipulated
loss values on equipment lost or disposed during the time it is subject to lease
agreements.  Such  disposal of equipment is  unpredictable  and results from the
wear, tear, and general risk of normal  operations.  As discussed in note 5, the
Partnerships  have  entered  the  portfolio  liquidation  phase as of the  third
quarter  of 1995.  The  General  Partner is  actively  marketing  the  remaining
equipment portfolio with the intent of maximizing sale proceeds.

(C)  Market Values

In March 1995, the Financial  Accounting Standards Board (FASB) issued Statement
No. 121,  "Accounting  for the  Impairment of Long-Lived  Assets and  Long-Lived
Assets to be Disposed  Of" (SFAS 121).  This  standard  is  effective  for years
beginning after December 15, 1995. The Partnership adopted SFAS 121 during 1995,
the effect of which was not  material as the method  previously  employed by the
Partnership  was  consistent  with SFAS 121. In  accordance  with SFAS 121,  the
General Partner  reviews the carrying value of its equipment  portfolio at least
annually in relation to expected  future  market  conditions  for the purpose of
assessing  recoverability  of the recorded  amounts.  If projected  future lease
revenue plus residual  values are less than the carrying value of the equipment,
a loss on  revaluation  is recorded.  No  adjustments  to reflect  impairment of
individual  equipment  carrying values were required for the year ended December
31, 1995.

As of December 31, 1995, the General Partner  estimated the fair market value of
each  Partnerships'  equipment  portfolio to be approximately:  $1.8 million and
$3.4 million for TEP VIIB and TEP VIIC respectively.

(D)  Government Regulations

The General  Partner  operates the  Partnerships'  equipment in accordance  with
current  regulations  (see  Item 1 (D)  Government  Regulations).  However,  the
continuing  implementation  of  new  or  modified  regulations  by  some  of the
authorities   mentioned   previously,   or  others,  may  adversely  affect  the
Partnerships'  ability to continue to own or operate equipment in its portfolio.
These  on-going  changes in the  regulatory  environment,  both in the U.S.  and
internationally,  cannot be predicted  with any  certainty and thus preclude the
General  Partner  from  accurately  determining  the  impact of such  changes on
Partnership operations, purchases and sales of equipment.

(E)  Future outlook

Pursuant to the original  operating  plan, the  Partnerships  entered into their
liquidation  phase during 1995 and the General Partner is actively  pursuing the
sale of all of the Partnerships'  equipment with the intention of winding up the
Partnerships and distributing all available cash to the Partners.


<PAGE>


(F)  Result of operations - Year To Year Summary

Comparison of the  Partnerships'  Operating Results for the Years Ended December
31, 1995 and 1994

TEP VIIB:

(A)  Revenues

Total revenues for the years ended December 31, 1995 and 1994, were $732,844 and
$813,152,  respectively. The decrease in 1995 revenue was attributable primarily
to lower lease revenues, and lower interest and other income.

(1)  Lease revenue decreased to $673,162 in 1995 from $786,981 in 1994.

The following table lists lease revenues earned by equipment type:


                                              For the year ended December 31,
                                                  1995               1994
                                              ---------------------------------
  Trailers                                     $  525,408         $  631,161
  Aircraft                                         97,002             99,081
  Rail equipment                                   28,049             32,660
  Marine containers                                22,703             24,079
                                              =================================
                                               $  673,162         $  786,981
                                              =================================

Significant revenue component changes resulted primarily from:

     (a) Trailer revenues decreased due to off lease time on trailers previously
operating on fixed-term leases  transitioning to the  PLM-affiliated  short-term
rental  facilities  during 1995, and the  disposition  of eight trailers  during
1995;

     (b) Railcar  revenues  decreased  due to the  re-lease of some  railcars at
lower rates than  currently  available in the market for the types of cars owned
by the Partnership.

(2) Interest and other income increased to $32,119 in 1995 from $11,508 in 1994.
The increase in 1995 was primarily  attributable  to income earned from an early
lease  termination  penalty on four railcars in the second  quarter of 1995, and
higher average interest rates during 1995.

(B)  Expenses

The Partnership's  total expenses for the years ended December 31, 1995 and 1994
were  $703,538  and  $724,463,   respectively.  The  decrease  was  attributable
primarily to decreases in depreciation  expense,  repairs and  maintenance,  and
general and administrative expenses, partially offset by an increase in bad debt
expense.

(1) Direct operating  expenses (defined as repairs and maintenance and insurance
expense)  decreased to $175,075 in 1995 from  $191,026 in 1994.  The decrease in
repairs and  maintenance is primarily  attributed to a decrease in the number of
trailers   coming  off  term  leases  and  requiring   refurbishment   prior  to
transitioning into the short-term rental facilities  operated by an affiliate of
the General Partner, and the disposition of trailers during 1995.

(2) Indirect  Operating  Expenses (defined as depreciation  expense,  management
fees to affiliate,  bad debt expense,  and general and administrative  expenses)
decreased  to  $528,463  in 1995 from  $533,437  in 1994.  The  decrease  is due
primarily to:

     (a)  a  decrease  of  $15,462  in  depreciation   expense   resulting  from
disposition of trailers and marine containers during 1995;

     (b) a decrease of $5,421 in general and  administrative  expenses primarily
due to the decreased overall fleet size and decreased  indirect costs associated
with trailers in the PLM-affiliated short-term rental facilities;

     (c) an increase of $17,328 in bad debt expense due to the General Partner's
evaluation of the collectability of certain of the Partnership's  trade accounts
receivable;

(3) Gain from  disposition of equipment of $27,563 was realized from the sale or
disposition  of eight  trailers and 15 marine  containers in 1995. In 1994,  the
Partnership  realized a gain of $14,663  from the sale or  disposition  of eight
trailer and 24 marine containers.

(C)  Net Income

As a result of all of the foregoing,  net income for the year ended December 31,
1995,  decreased to $29,306  from $88,689 for the year ended  December 31, 1994.
The  Partnership's  ability to operate or liquidate assets,  secure leases,  and
re-lease those assets whose leases expire during the duration of the Partnership
is subject to many factors,  and the  Partnership's  performance  in 1995 is not
necessarily indicative of future periods. In 1995, TEP VIIB distributed $392,225
to the Limited Partners, or $17.61 per Unit.

TEP VIIC:

(A)  Revenues

Total revenues for the years ended December 31, 1995 and 1994,  were  $1,254,597
and  $1,712,474,  respectively.  The decrease in 1995  revenue was  attributable
primarily  to a decrease in lease  revenues  partially  offset by an increase in
interest and other income, and an increase in gain on disposition of equipment.

(1) Lease  revenue  decreased in 1995 to $1,134,932 as compared to $1,616,995 in
1994.

The following table lists lease revenues earned by equipment type:
<TABLE>
<CAPTION>

                                                       For the year ended
                                                          December 31,
                                                   1995                 1994
                                              -------------------------------------

  <S>                                          <C>                  <C>         
  Trailers                                     $    707,321         $  1,073,039
  Aircraft                                          397,791              514,617
  Marine containers                                  29,820               29,339
                                              =====================================
                                               $  1,134,932         $  1,616,995
                                              =====================================
</TABLE>

Significant revenue component changes resulted primarily from:

     (a) Trailer revenues  decreased  $365,718 due to off lease time on trailers
previously  operating on fixed-term leases  transitioning to the  PLM-affiliated
short-term  rental  facilities  during 1995, and a decline in utilization in the
PLM-affiliated short-term rental facilities during 1995 and the dispositon of 14
trailers in 1995;

     (b) Aircraft revenue  decreased  $116,826 due to a reduced release rate for
one lease.

(2) Interest and other income increased to $35,376 in 1995 from $27,256 in 1994.
The increase in 1995 was primarily  attributable  to higher  interest  income in
1995 due to higher cash balance  invested and higher  average  interest rates in
1995.

(B)  Expenses

The Partnership's  total expenses for the years ended December 31, 1995 and 1994
were  $1,079,423 and  $1,271,252,  respectively.  The decrease was  attributable
primarily  to  decreases in general and  administrative  expenses,  depreciation
expense, repairs and maintenance expense, bad debt expense, and management fees.

(1) Direct operating  expenses (defined as repairs and maintenance  expenses and
insurance  expense)  decreased  to $237,074 in 1995 from  $278,977 in 1994.  The
decrease is primarily  attributed to a decrease in the number of trailers coming
off term leases and  requiring  refurbishment  prior to  transitioning  into the
PLM-affiliated short-term rental facilities.

(2) Indirect  Operating  Expenses (defined as depreciation  expense,  management
fees to affiliate,  bad debt expense,  and general and administrative  expenses)
decreased  to  $842,349  in 1995 from  $992,275  in 1994.  The  decrease  is due
primarily to:

     (a) a decrease of $52,851 in general and administrative  expenses primarily
due to the decreased overall fleet size and decreased  indirect costs associated
with trailers in the PLM-affiliated short-term rental facilities.

     (b) a decrease of $46,198 in depreciation expense due to the disposition of
trailers and marine containers during 1995;

     (c)  a  decrease   of  $25,830  in  bad  debt   expense   due  to  improved
collectability of trade accounts receivable;

     (d) a decrease of $25,047 in  management  fees to affiliate  due to a lower
level of operating cash flow associated with lower lease revenue on trailers and
lower utilization and rates on marine containers. Management fees are calculated
monthly as the greater of 10% of the Partnership's  operating cash flow, or 1/12
of  1/2%  of  the  Partnership's  Gross  Proceeds  as  defined  in  the  Limited
Partnership Agreement;

(3) Gain from  disposition of equipment of $84,289 was realized from the sale or
disposition of 17 marine  containers  and 14 trailers  during 1995. In 1994, the
Partnership realized a gain of $68,223 on the sale or disposition of 18 trailers
and 21 marine containers.

(C)  Net Income

As a result of all the  foregoing,  net income for the year ended  December  31,
1995,  decreased to $175,174 from $441,222 for the year ended December 31, 1994.
The  Partnership's  ability to operate or liquidate assets,  secure leases,  and
re-lease   those  assets  whose  leases  expired  during  the  duration  of  the
Partnership  is subject to many factors,  and the  Partnership's  performance in
1995 is not  necessarily  indicative  of  future  periods.  In  1995,  TEP  VIIC
distributed $1,037,064 to the Limited Partners, or $30.75 per Unit.

     All of the equipment owned by TEP VIIC was either  operating in the trailer
rental  facilities  or on lease  as of  December  31,  1995.  The  Partnership's
performance during 1995 is not necessarily indicative of future periods.

Comparison of the  Partnerships'  Operating Results for the Years Ended December
31, 1994 and 1993

TEP VIIB:

(A)  Revenues

Total revenues for the years ended December 31, 1994 and 1993, were $813,152 and
$861,606,  respectively. The decrease in 1994 revenue was attributable primarily
to lower lease revenues, offset by higher interest and other income.


<PAGE>



(1)  Lease revenue decreased to $786,981 in 1994 from $869,831 in 1993.

The following table lists lease revenues earned by equipment type:


                                              For the year ended December 31,
                                                  1994               1993
                                              ---------------------------------
  Trailers                                     $  631,161         $  689,611
  Aircraft                                         99,081             99,081
  Rail equipment                                   32,660             41,025
  Marine containers                                24,079             40,114
                                              =================================
                                               $  786,981         $  869,831
                                              =================================

Significant revenue component changes resulted primarily from:

     (a) Trailer  revenues  decreased due to the  transition  period of trailers
operating  on  fixed-term  leases  to  the   PLM-affiliated   short-term  rental
facilities during 1994, and the disposition of trailers during 1994;

     (b) Marine containers  revenue decreased due to lower utilization and rates
on the marine  container  fleet,  and to the  disposition  of marine  containers
during 1994;

     (c) Railcar revenues  decreased due to the transition period to new lessees
which  resulted in off lease time in the first and second  quarter of 1994,  and
one tankcar which went off-lease during 1994.

(2) Interest and other income  increased to $11,508 in 1994 from $7,760 in 1993.
The increase in 1994 was primarily attributable to higher average interest rates
during 1994.

(B)  Expenses

The Partnership's  total expenses for the years ended December 31, 1994 and 1993
were  $724,463  and  $721,993,   respectively.  The  decrease  was  attributable
primarily to decreases in losses on revaluation of equipment,  and  depreciation
expense,  partially offset by an increase in repairs and maintenance and general
and administrative expenses.

(1) Direct operating  expenses (defined as repairs and maintenance and insurance
expense)  increased to $191,026 in 1994 from  $140,674 in 1993.  The increase in
repairs and maintenance is primarily  attributed to an increase in the number of
trailers   coming  off  term  leases  and  requiring   refurbishment   prior  to
transitioning into the short-term rental facilities  operated by an affiliate of
the General Partner.

(2) Indirect  Operating  Expenses (defined as depreciation  expense,  management
fees to affiliate,  bad debt expense,  and general and administrative  expenses)
increased  to  $533,437  in 1994 from  $515,844  in 1993.  The  increase  is due
primarily to:

     (a) an increase of $23,753 in general and administrative expenses primarily
due to the  increased  overall  fleet size in the rental  facility and increased
indirect costs associated with trailers in the PLM-affiliated  short-term rental
facilities;

     (b) an increase of $9,583 in bad debt expense due to the General  Partner's
evaluation of the collectability of the Partnership's trade accounts receivable;

     (c)  a  decrease  of  $14,076  in  depreciation   expense   resulting  from
disposition of trailers and marine containers during 1994;

     (d) a decrease of $1,667 in  management  fees to  affiliate  due to a lower
level of operating cash flow  associated  with lower lease revenue on fixed-term
trailers, and lower utilization rates on marine containers.  Management fees are
calculated  monthly as the greater of 10% of the  Partnership's  operating  cash
flow,  or 1/12 of 1/2% of the  Partnership's  Gross  Proceeds  as defined in the
Limited Partnership Agreement.

(3) Gain from  disposition of equipment of $14,663 was realized from the sale or
disposition  of eight  trailers and 24 marine  containers in 1994. In 1993,  the
Partnership  realized a loss of $15,985  from the sale of 17  autocarriers,  six
trailers and the disposition of 13 marine containers.

(4) Loss on revaluation of equipment in 1993, was the result of the  Partnership
reducing the carrying  value of 11 trailers,  which were  classified as held for
sale at that  time,  by  $65,475  to their  estimated  net  realizable  value of
$77,000.  With the exception of one trailer,  which was subsequently sold during
the third  quarter of 1994,  these  trailers were  subsequently  sold during the
fourth  quarter  of 1993.  There  were no losses  on  revaluation  of  equipment
required in 1994.

(C)  Net Income

As a result of all of the foregoing,  net income for the year ended December 31,
1994, decreased to $88,689, from $139,613, for the year ended December 31, 1993.
The  Partnership's  ability to operate or liquidate assets,  secure leases,  and
re-lease those assets whose lease expire during the duration of the  Partnership
is subject to many factors,  and the  Partnership's  performance  in 1994 is not
necessarily indicative of future periods. In 1994, TEP VIIB distributed $470,667
to the Limited Partners, or $21.13 per Unit.

TEP VIIC:

(A)  Revenues

Total revenues for the years ended December 31, 1994 and 1993,  were  $1,712,474
and  $1,682,390,  respectively.  The decrease in 1994  revenue was  attributable
primarily to a decrease in lease revenues and lower interest and other income.

(1) Lease  revenue  decreased in 1994 to $1,616,995 as compared to $1,775,449 in
1993.

The following table lists lease revenues earned by equipment type:
<TABLE>
<CAPTION>

                                                       For the year ended
                                                          December 31,
                                                   1994                 1993
                                              -------------------------------------

  <S>                                          <C>                  <C>         
  Trailers                                     $  1,073,039         $  1,207,383
  Aircraft                                          514,617              514,617
  Marine containers                                  29,339               53,449
                                              =====================================
                                               $  1,616,995         $  1,775,449
                                              =====================================
</TABLE>

Significant revenue component changes resulted primarily from:

     (a) Trailer revenues  decreased due to dispositon of trailers in 1994 and a
decrease  in  revenue  generated  by  the  Partnership's  trailer  equipment  in
fixed-term  leases,  which were  transitioning  into  PLM-affiliated  short-term
rental facilities during 1994;

     (b) Marine container  revenues decreased due to the lower utilization rates
earned  on  the  marine  container  fleet,  and  to the  disposition  of  marine
containers during 1994.

(2) Interest and other income decreased to $27,256 in 1994 from $38,473 in 1993.
The decrease in 1994 was  primarily  attributable  to the  collection in 1993 of
$24,000 from the settlement of legal proceedings with a former lessee, offset by
higher interest income in 1994 due to higher average interest rates in 1994.

(B)  Expenses

The Partnership's  total expenses for the years ended December 31, 1994 and 1993
were  $1,271,252 and  $1,322,495,  respectively.  The decrease was  attributable
primarily to decrease in loss on disposition of equipment, depreciation expense,
management  fees,  and bad debt  expense,  offset by an  increase in repairs and
maintenance expense and general and administrative expenses.

(1) Direct operating  expenses (defined as repairs and maintenance  expenses and
insurance  expense)  increased  to $278,977 in 1994 from  $251,332 in 1993.  The
increase is primarily attributed to an increase in the number of trailers coming
off term leases and  requiring  refurbishment  prior to  transitioning  into the
PLM-affiliated short-term rental facilities.

(2) Indirect  Operating  Expenses (defined as depreciation  expense,  management
fees to affiliate,  bad debt expense,  and general and administrative  expenses)
decreased  to  $992,275 in 1994 from  $1,059,465  in 1993.  The  decrease is due
primarily to:

     (a) a decrease of $69,940 in depreciation expense due to the disposition of
equipment from the Partnership's equipment portfolio during 1994 and 1993;

     (b) a decrease of $12,594 in  management  fees to affiliate  due to a lower
level of operating cash flow  associated  with lower lease revenue on fixed-term
trailers, lower utilization and rates on marine containers.  Management fees are
calculated  monthly as the greater of 10% of the  Partnership's  operating  cash
flow,  or 1/12 of 1/2% of the  Partnership's  Gross  Proceeds  as defined in the
Limited Partnership Agreement;

     (c) a decrease of $9,548 in bad debt  expense due to the General  Partner's
evaluation of the collectability of trade accounts receivable;

     (d) an increase of $24,892 in general and administrative expenses primarily
due to the  increased  overall  fleet size in the rental  facility and increased
indirect costs associated with trailers in the PLM-affiliated  short-term rental
facilities.

(3) Gain from  disposition of equipment of $68,223 was realized from the sale or
disposition  of 18 trailers and 21 marine  containers  during 1994. In 1993, the
Partnership  realized  a loss  of  $131,532  on  the  disposition  of 11  marine
containers and the sale of 26 trailers.

(4) Loss on revaluation of equipment in 1993, was the result of the  Partnership
reducing the carrying value of two trailers,  which were  classified as held for
sale at that  time,  by  $11,698  to their  estimated  net  realizable  value of
$14,000.  These  trailers were  subsequently  sold during the fourth  quarter of
1993. There were no losses on revaluation of equipment required in 1994.

(C)  Net Income

As a result of all the  foregoing,  net income for the year ended  December  31,
1994,  increased to $441,222 from $359,895 for the year ended December 31, 1993.
The  Partnership's  ability to operate or liquidate assets,  secure leases,  and
re-lease   those  assets  whose  leases  expired  during  the  duration  of  the
Partnership  is subject to many factors,  and the  Partnership's  performance in
1994 is not  necessarily  indicative  of  future  periods.  In  1994,  TEP  VIIC
distributed $1,084,747 to the Limited Partners, or $32.17 per Unit.

     All of the equipment owned by TEP VIIC was either  operating in the trailer
rental  facilities  or on lease  as of  December  31,  1994.  The  Partnership's
performance during 1994 is not necessarily indicative of future periods.

Geographic Information

The Partnerships operates their equipment in international markets. As such, the
Partnerships  are  exposed  to a variety  of  currency,  political,  credit  and
economic risks. Currency risks are at a minimum because all invoicing,  with the
exception  of a small number of railcars  operating  in Canada,  is conducted in
U.S. dollars.  Political risks are minimized  generally through the avoidance of
operations  in  countries  that  do  not  have  a  stable  judicial  system  and
established  commercial  business laws.  Credit  support  strategies for lessees
range from letters of credit supported by U.S. banks to cash deposits.  Although
these credit support mechanisms generally allow the Partnerships to maintain its
lease yield,  there are risks associated with  slow-to-respond  judicial systems
when legal  remedies  are  required to secure  payment or  repossess  equipment.
Economic risks are inherent in all international markets and the General Partner
strive to minimize this risk with market analysis prior to committing  equipment
to a particular  geographic area. Refer to the notes to the Financial statements
for  information  on the  revenues,  income  and  assets in  various  geographic
regions.


<PAGE>


Trends

Inflation  and  changing  prices did not  materially  impact  the  Partnerships'
revenues or net income during the reported periods.

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The  financial   statements  and  financial  statement  schedules  for  the
Partnerships  are listed on the Index to Financial  Statements  included in Item
14(a) of this Annual Report.

ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE
 
     None.


<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP

      As of the date of this Annual Report, the directors and executive officers
of PLM  International  (and key executive  officers of its  subsidiaries) are as
follows:
<TABLE>
<CAPTION>

Name                                   Age                 Position
-------------------------------------- ------------------- -------------------------------------------------------

<S>                                    <C>                 <C>                                                   
J. Alec Merriam                        60                  Director, Chairman of the Board, PLM International,
                                                           Inc.; Director, PLM Financial Services, Inc.

Allen V. Hirsch                        42                  Director, Vice Chairman of the Board, Executive Vice
                                                           President of PLM International, Inc.; Director and
                                                           President, PLM Financial Services, Inc.; President,
                                                           PLM Securities Corp., and PLM Transportation
                                                           Equipment Corporation.

Walter E. Hoadley                      79                  Director, PLM International, Inc.

Robert L. Pagel                        59                  Director, Chairman of the Executive Committee, PLM
                                                           International, Inc.; Director, PLM Financial
                                                           Services, Inc.

Harold R. Somerset                     61                  Director, PLM International, Inc.

Robert N. Tidball                      57                  Director, President and Chief Executive Officer, PLM
                                                           International, Inc.

J. Michael Allgood                     47                  Vice President and Chief Financial Officer, PLM
                                                           International, Inc. and PLM Financial Services, Inc.

Stephen M. Bess                        49                  President, PLM Investment Management, Inc.; Vice
                                                           President, PLM Financial Services, Inc.

David J. Davis                         39                  Vice President and Corporate Controller, PLM
                                                           International and PLM Financial Services, Inc.

Frank Diodati                          41                  President, PLM Railcar Management Services Canada
                                                           Limited.

Douglas P. Goodrich                    49                  Senior Vice President, PLM International; Senior Vice
                                                           President PLM Transportation Equipment Corporation;
                                                           President PLM Railcar Management Services, Inc.

Steven O. Layne                        41                  Vice President, PLM Transportation Equipment
                                                           Corporation.

Stephen Peary                          47                  Senior Vice President, General Counsel and Secretary,
                                                           PLM International, Inc.; Vice President, General
                                                           Counsel and Secretary, PLM Financial Services, Inc.,
                                                           PLM Investment Management, Inc., PLM Transportation
                                                           Equipment Corporation; Vice President, PLM
                                                           Securities, Corp.

Thomas L. Wilmore                      53                  Vice President, PLM Transportation Equipment
                                                           Corporation; Vice President, PLM Railcar Management
                                                           Services, Inc.
</TABLE>

     J. Alec  Merriam was  appointed  Chairman of the Board of  Directors of PLM
International  in September  1990,  having served as a director  since  February
1988. In October 1988 he became a member of the Executive Committee of the Board
of Directors of PLM  International.  From 1972 to 1988 Mr. Merriam was Executive
Vice President and Chief Financial  Officer of Crowley Maritime  Corporation,  a
San Francisco area-based company engaged in maritime shipping and transportation
services.  Previously,  he  was  Chairman  of the  Board  and  Treasurer  of LOA
Corporation of Omaha,  Nebraska and served in various  financial  positions with
Northern Natural Gas Company, also of Omaha.

     Allen V.  Hirsch  became  Vice  Chairman of the Board and a Director of PLM
International  in  April  1989.  He  is  an  Executive  Vice  President  of  PLM
International  and  President of PLM  Securities  Corp.  Mr.  Hirsch  became the
President of PLM Financial  Services,  Inc. in January 1986 and President of PLM
Investment  Management,  Inc. and PLM  Transportation  Equipment  Corporation in
August 1985, having served as a Vice President of PLM Financial  Services,  Inc.
and Senior Vice President of PLM Transportation  Equipment Corporation beginning
in  August  1984,  and  as a Vice  President  of  PLM  Transportation  Equipment
Corporation beginning in July 1982 and of PLM Securities Corp. from July 1982 to
October 1, 1987. He joined PLM, Inc. in July 1981, as Assistant to the Chairman.
Prior to joining PLM, Inc.,  Mr. Hirsch was a Research  Associate at the Harvard
Business  School.  From January 1977 through  September  1978,  Mr. Hirsch was a
consultant with the Booz, Allen and Hamilton Transportation Consulting Division,
leaving   that   employment   to  obtain  his   master's   degree  in   business
administration.

     Dr. Hoadley joined PLM International's Board of Directors and its Executive
Committee in September, 1989. He served as a Director of PLM, Inc. from November
1982 to June 1984 and PLM  Companies,  Inc. from October 1985 to February  1988.
Dr.  Hoadley has been a Senior  Research  Fellow at the Hoover  Institute  since
1981.  He was  Executive  Vice  President  and Chief  Economist  for the Bank of
America  from  1968  to  1981  and  Chairman  of the  Federal  Reserve  Bank  of
Philadelphia  from  1962 to 1966.  Dr.  Hoadley  has  served  as a  Director  of
Transcisco Industries, Inc. from February 1988 through August 1995.

     Robert L. Pagel was appointed  Chairman of the  Executive  Committee of the
Board of Directors of PLM  International  in September 1990,  having served as a
director  since  February  1988.  In  October  1988 he  became a  member  of the
Executive  Committee of the Board of Directors of PLM  International.  From June
1990 to April 1991 Mr. Pagel was President and Co-Chief Executive Officer of The
Diana Corporation,  a holding company traded on the New York Stock Exchange.  He
is the former President and Chief Executive Officer of FanFair Corporation which
specializes  in sports fans' gift shops.  He previously  served as President and
Chief  Executive  Officer of Super Sky  International,  Inc., a publicly  traded
company,  located in Mequon,  Wisconsin,  engaged in the manufacture of skylight
systems.  He was formerly Chairman and Chief Executive Officer of Blunt, Ellis &
Loewi,  Inc., a  Milwaukee-based  investment firm. Mr. Pagel retired from Blunt,
Ellis & Loewi in 1985  after a career  spanning  20 years in all  phases  of the
brokerage  and financial  industries.  Mr. Pagel has also served on the Board of
Governors of the Midwest Stock Exchange.

     Harold  R.   Somerset  was  elected  to  the  Board  of  Directors  of  PLM
International  in July 1994.  From February 1988 to December 1993, Mr.  Somerset
was  President  and Chief  Executive  Officer of  California  &  Hawaiian  Sugar
Corporation,  (C&H) a recently-acquired  subsidiary of Alexander & Baldwin, Inc.
Mr.  Somerset joined C&H in 1984 as Executive Vice President and Chief Operating
Officer, having served on its Board of Directors since 1978, a position in which
he continues to serve.  Between 1972 and 1984,  Mr.  Somerset  served in various
capacities with Alexander & Baldwin,  Inc., a publicly-held land and agriculture
company headquartered in Honolulu,  Hawaii, including Executive Vice President -
Agricultures,  Vice President,  General Counsel and Secretary.  In addition to a
law degree from Harvard Law School,  Mr.  Somerset  also holds  degrees in civil
engineering from the Rensselaer  Polytechnic Institute and in marine engineering
from the U.S. Naval Academy. Mr. Somerset also serves on the Boards of Directors
for various other  companies  and  organizations,  including  Longs Drug Stores,
Inc., a publicly-held company headquartered in Maryland.

     Robert N. Tidball was appointed  President and Chief  Executive  Officer of
PLM  International  in  March  1989.  At the  time  of his  appointment,  he was
Executive Vice President of PLM International.  Mr. Tidball became a director of
PLM International in April, 1989 and a member of the Executive  Committee of the
Board of  Directors of PLM  International  in September  1990.  Mr.  Tidball was
elected President of PLM Railcar Management Services,  Inc. in January 1986. Mr.
Tidball was Executive Vice President of Hunter Keith, Inc., a  Minneapolis-based
investment banking firm, from March 1984 to January 1986. Prior to Hunter Keith,
Inc., he was Vice President,  a General Manager and a Director of North American
Car  Corporation,  and a Director  of the  American  Railcar  Institute  and the
Railway Supply Association.

     J. Michael Allgood was appointed Vice President and Chief Financial Officer
of PLM  International  in October 1992.  Between July 1991 and October 1992, Mr.
Allgood was a consultant  to various  private and public  sector  companies  and
institutions  specializing  in financial  operational  systems  development.  In
October 1987, Mr. Allgood  co-founded  Electra  Aviation Limited and its holding
company,  Aviation  Holdings  Plc of London  where he served as Chief  Financial
Officer until July 1991.  Between June 1981 and October 1987, Mr. Allgood served
as a First Vice President with American Express Bank, Ltd. In February 1978, Mr.
Allgood  founded  and until June 1981,  served as a director  of Trade  Projects
International/Philadelphia  Overseas  Finance  Company,  a  joint  venture  with
Philadelphia National Bank. From March 1975 to February 1978, Mr. Allgood served
in various capacities with Citibank, N.A.

     Stephen M. Bess was appointed President of PLM Investment Management,  Inc.
in August  1989,  having  served  as Senior  Vice  President  of PLM  Investment
Management,  Inc. beginning in February 1984 and as Corporate  Controller of PLM
Financial Services, Inc. beginning in October 1983. Mr. Bess served as Corporate
Controller  of PLM,  Inc.,  beginning  in  December  1982.  Mr.  Bess  was  Vice
President-Controller  of Trans Ocean Leasing  Corporation,  a container  leasing
company, from November 1978 to November 1982, and Group Finance Manager with the
Field Operations  Group of Memorex Corp., a manufacturer of computer  peripheral
equipment, from October 1975 to November 1978.

     David  J.  Davis  was  appointed  Vice  President  and  Controller  of  PLM
International  in January 1994.  From March 1993 through January 1994, Mr. Davis
was engaged as a consultant for various firms,  including PLM. Prior to that Mr.
Davis was Chief Financial Officer of LB Credit Corporation in San Francisco from
July  1991 to March  1993.  From  April  1989 to May  1991,  Mr.  Davis was Vice
President and Controller for ITEL Containers International Corporation which was
located  in San  Francisco.  Between  May 1978 and April  1989,  Mr.  Davis held
various positions with Transamerica Leasing Inc., in New York, including that of
Assistant Controller for their rail leasing division.

     Frank Diodati was appointed  President of PLM Railcar  Management  Services
Canada  Limited in 1986.  Previously,  Mr.  Diodati was Manager of Marketing and
Sales for G.E. Railcar Services Canada Limited.

     Douglas  P.   Goodrich  was   appointed   Senior  Vice   President  of  PLM
International  in March  1994.  Mr.  Goodrich  has also  served as  Senior  Vice
President of PLM  Transportation  Equipment  Corporation since July 1989, and as
President of PLM Railcar Management  Services,  Inc. since September 1992 having
been a Senior Vice President since June 1987. Mr. Goodrich was an Executive Vice
President of G.I.C.  Financial  Services  Corporation,  a subsidiary of Guardian
Industries Corp. of Chicago, Illinois from December 1980 to September 1985.

     Steven O. Layne was appointed Vice President,  PLM Transportation Equipment
Corporation's  Air Group in November  1992.  Mr.  Layne was its Vice  President,
Commuter and Corporate  Aircraft  beginning in July 1990.  Prior to joining PLM,
Mr.  Layne  was  the  Director,   Commercial   Marketing  for  Bromon   Aircraft
Corporation,  a joint venture of General Electric Corporation and the Government
Development  Bank of Puerto Rico.  Mr. Layne is a major in the United States Air
Force Reserves and senior pilot with 13 years of accumulated service.

     Stephen Peary became Vice President,  Secretary, and General Counsel of PLM
International  in February  1988 and Senior Vice  President  in March 1994.  Mr.
Peary was Assistant General Counsel of PLM Financial Services,  Inc. from August
1987  through  January  1988.  Previously,  Mr. Peary was engaged in the private
practice of law in San  Francisco.  Mr. Peary is a graduate of the University of
Illinois,  Georgetown  University Law Center, and Boston University  (Masters of
Taxation Program).

     Thomas L. Wilmore was appointed Vice  President - Rail, PLM  Transportation
Equipment Corporation, in March 1994 and has served as Vice President, Marketing
for PLM Railcar Management Services,  Inc. since May 1988. Prior to joining PLM,
Mr. Wilmore was Assistant Vice President  Regional Manager for MNC Leasing Corp.
in Towson, Maryland from February 1987 to April 1988. From July 1985 to February
1987,  he was  President  and Co-Owner of Guardian  Industries  Corp.,  Chicago,
Illinois and between  December 1980 and July 1985,  Mr. Wilmore was an Executive
Vice President for its subsidiary,  G.I.C.  Financial Services Corporation.  Mr.
Wilmore  also served as Vice  President  of Sales for Gould  Financial  Services
located in Rolling Meadows, Illinois from June 1978 to December 1980.

     The  directors  of the General  Partner are elected for a one-year  term or
until  their  successors  are  elected  and  qualified.   There  are  no  family
relationships  between  any  director  or any  executive  officer of the General
Partner.

ITEM 11.  EXECUTIVE COMPENSATION

The Partnerships  have no directors,  officers,  or employees.  The Partnerships
have no pension, profit sharing,  retirement,  or similar benefit plan in effect
as of December 31, 1994.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      (a)     Security Ownership of Certain Beneficial Owners

     At December  31,  1994,  no  investor  is known by the  General  Partner to
     beneficially own more than 5% of the Units of either TEP VIIB or TEP VIIC.

      (b)     Security Ownership of Management

     Neither the General  Partner and its affiliates nor any officer or director
     of the General  Partner and its  affiliates  beneficially  own any Units of
     either TEP VIIB or TEP VIIC.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      (a)     Transactions with Management and Others.

     During 1995, management fees to IMI were incurred in the amounts of $55,690
     and  $87,968  for  TEP  VIIB  and  TEP  VIIC,  respectively.  During  1994,
     administrative  services  performed  on  behalf  of the  Partnerships  were
     reimbursed  to FSI  and its  affiliates  in the  amounts  of  $130,286  and
     $191,353 by TEP VIIB and TEP VIIC, respectively.

      (b)     Certain Business Relationships

      None.

      (c)     In debtedness of Management

      None.

      (d)     Transactions with Promoters

      None.


<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

     (a) 1.   Financial Statements

     The  financial  statements  listed in the  accompanying  Index to Financial
     Statements are filed as part of this Annual Report.

     (b) Reports on Form 8-K

     None.

     (c) Exhibits

       4.Limited  Partnership  Agreement of each  Partnership.  Incorporated  by
         reference to the Partnership's Registration Statement on Form S-1 (Reg.
         No.  2-93640)  which became  effective with the Securities and Exchange
         Commission on January 7, 1985.

     10. Equipment   Management  Agreement  between  each  Partnership  and  PLM
         Investment   Management,   Inc.   Incorporated   by  reference  to  the
         Registration  Statement  on Form S-1 (Reg.  No.  2-93640)  which became
         effective  with the  Securities  and Exchange  Commission on January 7,
         1985.

     24. Powers of Attorney.



<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the  Partnership  has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.

     The  Partnership  has no  directors or  officers.  The General  Partner has
signed on behalf of the Partnership by duly authorized officers.

Dated:  March 26, 1996               PLM Transportation Equipment Partners VIIB
                                     1985 Income Fund
                                     Partnership


                                     By:      PLM Financial Services, Inc.
                                              General Partner



                                     By:      *_______________________
                                               Allen V. Hirsch
                                               President



                                     By:      /s/David J. Davis
                                              ------------------------
                                              David J. Davis
                                              Vice President and
                                              Corporate Controller




* Stephen Peary,  by signing his name hereto,  does sign this document on behalf
of the persons  indicated  above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.

                                              /s/ Stephen Peary
                                              -----------------------
                                              Stephen Peary
                                              Attorney-in-Fact




<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the  Partnership  has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.

     The  Partnership  has no  directors or  officers.  The General  Partner has
signed on behalf of the Partnership by duly authorized officers.

Dated:  March 26, 1996            PLM Transportation Equipment Partners VIIC
                                  1985 Income Fund
                                  Partnership


                                  By:      PLM Financial Services, Inc.
                                           General Partner



                                  By:      *_______________________
                                            Allen V. Hirsch
                                            President



                                  By:      /s/ David J. Davis
                                           ------------------------
                                           David J. Davis
                                           Vice President and
                                           Corporate Controller



* Stephen Peary,  by signing his name hereto,  does sign this document on behalf
of the persons  indicated  above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.

                                           /s/ Stephen Peary
                                           -----------------------
                                           Stephen Peary
                                           Attorney-in-Fact



<PAGE>


Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following  directors of the Partnerships'  Managing
General Partner on the dates indicated.


Name                                       Capacity                  Date



*_____________________________
Allen V. Hirsch                            Director-FSI        March 26, 1996


*_____________________________
J. Alec Merriam                            Director-FSI        March 26, 1996


*_____________________________
Robert L. Pagel                            Director-FSI        March 26, 1996



* Stephen Peary,  by signing his name hereto,  does sign this document on behalf
of the persons  indicated  above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.


/s/ Stephen Peary
-----------------------
Stephen Peary
Attorney-in-Fact


<PAGE>


           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND
                             (A Limited Partnership)

                          INDEX TO FINANCIAL STATEMENTS

                                  (Item 14(a))


TEP VIIB                                                             Page

Report of Independent Auditors                                        25

Balance sheets at December 31, 1995 and 1994                          26

Statements of income for the years ended December 31, 1995,
     1994, and 1993                                                   27

Statements of changes in partners' capital for the years
     ended December 31, 1995, 1994, and 1993                          28

Statements of cash flows for the years ended December 31, 1995,
     1994, and 1993                                                   29

Notes to financial statements                                        30-34

All other  financial  statement  schedules  have been  omitted  as the  required
information  is not pertinent to the  Registrant or is not material,  or because
the  information  required  is included in the  financial  statements  and notes
thereto.





<PAGE>


           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND
                             (A Limited Partnership)

                          INDEX TO FINANCIAL STATEMENTS

                                  (Item 14(a))



TEP VIIC                                                             Page

Report of Independent Auditors                                        35

Balance sheets at December 31, 1995 and 1994                          36

Statements of income for the years ended December 31, 1995,
     1994, and 1993                                                   37

Statements of changes in partners' capital for the years ended
     December 31, 1995, 1994, and 1993                                38

Statements of cash flows for the years ended December 31, 1995,
     1994, and 1993                                                   39

Notes to financial statements                                        40-44

All other  financial  statement  schedules  have been  omitted  as the  required
information  is not pertinent to the  Registrant or is not material,  or because
the  information  required  is included in the  financial  statements  and notes
thereto.



<PAGE>


                         REPORT OF INDEPENDENT AUDITORS




The Partners
PLM Transportation Equipment Partners VIIB 1985 Income Fund:


We  have  audited  the  financial  statements  of PLM  Transportation  Equipment
Partners  VIIB  1985  Income  Fund as listed in the  accompanying  index.  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.

The Partnership  completed its 10th year of operations  during 1995, and entered
the  liquidation  phase of the  Partnership.  The  General  Partner is  actively
pursuing the sale of all of the  Partnership's  equipment  with the intention of
winding up the Partnership and  distributing all available cash to the Partners.
Management's plans in regard to this matter are more fully described in note 5.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of PLM Transportation  Equipment
Partners VIIB 1985 Income Fund as of December 31, 1995, and 1994 and the results
of its  operations  and its cash  flows for each of the years in the  three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.


/s/ KPMG PEAT MARWICK LLP
SAN FRANCISCO, CALIFORNIA
March 26, 1996



<PAGE>



           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND
                             (A Limited Partnership)

                                 BALANCE SHEETS
                                  December 31,

<TABLE>

                                                       ASSETS

<CAPTION>

                                                                                   1995                 1994
                                                                             --------------------------------------

  <S>                                                                         <C>                  <C>          
  Transportation equipment on operating leases held for sale, at cost         $   4,881,455        $   5,228,048
  Less accumulated depreciation                                                  (4,430,159)          (4,449,835)
                                                                             --------------------------------------
    Net equipment                                                                   451,296              778,213

  Cash and cash equivalents                                                         293,808              358,864
  Restricted cash                                                                     8,126                7,600
  Accounts receivable, net of allowance for doubtful accounts of
    $22,056 in 1995 and $1,942 in 1994                                              135,320              121,704
  Prepaid insurance                                                                   3,128                3,286
                                                                             --------------------------------------

  Total assets                                                                $     891,678        $   1,269,667
                                                                             ======================================

                                         LIABILITIES AND PARTNERS' CAPITAL

  Liabilities:
    Due to affiliates                                                         $       4,641        $       3,987
    Accounts payable                                                                 21,292               32,478
    Prepaid deposits and engine reserves                                             23,976               24,552
                                                                             --------------------------------------
      Total liabilities                                                              49,909               61,017

  Partners' capital (deficit):
    Limited Partners (22,276 units)                                                 931,401            1,294,613
    General Partner                                                                 (89,632)             (85,963)
                                                                             --------------------------------------
      Total partners' capital                                                       841,769            1,208,650
                                                                             --------------------------------------

  Total liabilities and partners' capital                                     $     891,678        $   1,269,667
                                                                             ======================================

</TABLE>


                       See accompanying notes to financial
                                  statements.


<PAGE>



           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND
                             (A Limited Partnership)

                              STATEMENTS OF INCOME
                        For the years ended December 31,
<TABLE>
<CAPTION>


                                                                   1995             1994            1993
                                                               -----------------------------------------------
  <S>                                                           <C>              <C>             <C>       
  Revenues:
    Lease revenue                                               $  673,162       $  786,981      $  869,831
    Interest and other income                                       32,119           11,508           7,760
    Gain (loss) from disposition of equipment                       27,563           14,663         (15,985)
                                                               -----------------------------------------------
      Total revenues                                               732,844          813,152         861,606

  Expenses:
    Depreciation                                                   278,129          293,591         307,667
    Management fees to affiliate                                    55,690           57,109          58,776
    Insurance expense                                                8,406            7,735           7,385
    Bad debt expense                                                35,082           17,754           8,171
    Repairs and maintenance                                        166,669          183,291         133,289
    General and administrative expenses
      to affiliates                                                130,286          127,227          86,899
    Other general and administrative expenses                       29,276           37,756          54,331
    Loss on revaluation of equipment                                    --               --          65,475
                                                               -----------------------------------------------
      Total expenses                                               703,538          724,463         721,993
                                                               -----------------------------------------------

      Net income                                                $   29,306       $   88,689      $  139,613
                                                               ===============================================

  Partners' share of net income:

    Limited Partners - 99%                                      $   29,013       $   87,802      $  138,217
    General Partner -   1%                                             293              887           1,396
                                                               ===============================================
      Total                                                     $   29,306       $   88,689      $  139,613
                                                               ===============================================

  Net income per Limited Partnership
    Unit (22,276 units)                                         $     1.30       $     3.94      $     6.20
                                                               ===============================================

  Cash distributions                                            $  396,187       $  475,421      $  581,068
                                                               ===============================================

  Cash distributions per Limited
    Partnership Unit                                            $    17.61       $    21.13      $    25.82
                                                               ===============================================
</TABLE>

                       See accompanying notes to financial
                                  statements.


<PAGE>



           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND
                             (A Limited Partnership)

                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
              For the years ended December 31, 1995, 1994, and 1993

<TABLE>
<CAPTION>


                                                       Limited           General
                                                      Partners           Partner             Total
                                                   -----------------------------------------------------

  <S>                                               <C>                 <C>              <C>          
  Partners' capital (deficit)
    at December 31, 1992                            $  2,114,518        $  (77,681)      $   2,036,837

  Net income                                             138,217             1,396             139,613

  Cash distributions                                    (575,257)           (5,811)           (581,068)
                                                   -----------------------------------------------------

  Partners' capital (deficit)
    at December 31, 1993                               1,677,478           (82,096)          1,595,382

  Net income                                              87,802               887              88,689

  Cash distributions                                    (470,667)           (4,754)           (475,421)
                                                   -----------------------------------------------------

  Partners' capital (deficit)
    at December 31, 1994                            $  1,294,613        $  (85,963)      $   1,208,650

  Net income                                              29,013               293              29,306

  Cash distributions                                    (392,225)           (3,962)           (396,187)
                                                   -----------------------------------------------------

  Partners' capital (deficit)
    at December 31, 1995                            $    931,401        $  (89,632)      $     841,769
                                                   =====================================================

</TABLE>


                       See accompanying notes to financial
                                  statements.


<PAGE>



           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND
                             (A Limited Partnership)

                            STATEMENTS OF CASH FLOWS
                        for the years ended December 31,

<TABLE>
<CAPTION>

                                                                    1995             1994              1993
                                                               -------------------------------------------------
  <S>                                                           <C>              <C>               <C>        
  Operating activities:
  Net income                                                    $    29,306      $    88,689       $   139,613
    Adjustments to reconcile net
        income to net cash provided by
          operating activities:
      Loss on revaluation of equipment                                   --               --            65,475
      (Gain) loss from disposition of
          equipment                                                 (27,563)         (14,663)           15,985
      Depreciation                                                  278,129          293,591           307,667
      Changes in operating assets
          and liabilities:
        Restricted cash                                                (526)             (93)           45,672
        Accounts receivable, net                                    (13,616)           7,178            (3,498)
        Prepaid insurance                                               158            2,183            (1,952)
        Due to affiliates                                               654           (8,502)          (25,097)
        Accounts payable                                            (11,186)          11,264            10,263
        Prepaid deposits and engine
          reserves                                                     (576)             222           (46,164)
                                                               -------------------------------------------------
  Net cash provided by operating
    activities                                                      254,780          379,869           507,964
                                                               -------------------------------------------------

  Investing activities:
    Capitalized equipment repairs                                       (45)            (877)           (4,409)
    Proceeds from disposition of
     equipment                                                       76,396           69,114            97,195
                                                               -------------------------------------------------
  Cash flows provided by investing
    activities                                                       76,351           68,237            92,786
                                                               -------------------------------------------------

  Cash flows used in financing activities:
    Cash distributions paid to partners                            (396,187)        (475,421)         (581,068)
                                                               -------------------------------------------------

  Net (decrease) increase in cash
    and cash equivalents                                            (65,056)         (27,315)           19,682

  Cash and cash equivalents at
    beginning of year                                               358,864          386,179           366,497
                                                               -------------------------------------------------

  Cash and cash equivalents at
    end of year                                                 $   293,808      $   358,864       $   386,179
                                                               =================================================

</TABLE>

                       See accompanying notes to financial
                                  statements.



<PAGE>


           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995


1.   Basis of Presentation

     Organization

     PLM  Transportation  Equipment Partners VIIB 1985 Income Fund, a California
     limited  partnership (the  Partnership) was formed on October 19, 1984. The
     Partnership  engages in the  business of owning and leasing  transportation
     equipment.  The  Partnership  commenced  significant  operations in August,
     1985. PLM Financial Services,  Inc. (FSI) is the General Partner.  FSI is a
     wholly-owned subsidiary of PLM International, Inc.
     (PLM International) and manages the affairs of the Partnership.

         The  net  income  (loss)  and  distributions  of  the  Partnership  are
     allocated 99% to the Limited  Partners and 1% to the General  Partner.  The
     General  Partner is entitled to an  incentive  fee equal to 15% of "Surplus
     Distributions" as defined in the Partnership  Agreement remaining after the
     Limited Partners have received a certain minimum rate of return.

         These  financial  statements have been prepared on the accrual basis of
     accounting in accordance  with generally  accepted  accounting  principles.
     This requires  management to make estimates and assumptions that affect the
     reported  amounts of assets and  liabilities  and disclosures of contingent
     assets and  liabilities  at the date of the  financial  statements  and the
     reported  amounts of revenues and  expenses  during the  reporting  period.
     Actual results could differ from those estimates.

     Operations

     The equipment of the Partnership is managed,  under a continuing  Equipment
     Management  Agreement,   by  PLM  Investment  Management,   Inc.  (IMI),  a
     wholly-owned  subsidiary  of FSI.  IMI  receives an annual  management  fee
     payable  monthly from the  Partnership for managing the equipment (see Note
     2).  FSI,  in  conjunction  with  its  subsidiaries,   syndicates  investor
     programs,  sells  transportation  equipment to investor  programs and third
     parties,  manages pools of  transportation  equipment under agreements with
     the investor programs,  and is a general partner of other affilated limited
     partnerships.

     Accounting for Leases

     The Partnership's leasing operations generally consist of operating leases.
     Under  the  operating  lease  method of  accounting,  the  leased  asset is
     recorded at cost and  depreciated  over its estimated  useful life.  Rental
     payments  are recorded as revenue  over the lease term.  Lease  origination
     costs are capitalized and amortized over the term of the lease.

     Translation of Foreign Currency Transactions

     The Partnership is a domestic partnership, however, a limited number of the
     Partnership's  transactions  are  denominated  in a foreign  currency.  The
     Partnership's  asset  and  liability  accounts  denominated  in  a  foreign
     currency were  translated  into U.S.  dollars at the rates in effect at the
     balance  sheet  dates,  and revenue and expense  items were  translated  at
     average  rates  during the year.  Gains or losses  resulting  from  foreign
     currency transactions are included in the results of operations and are not
     material.

     Depreciation

     Depreciation  is computed on the 200%  declining  balance method based upon
     estimated  useful  lives  of 15  years  for rail  equipment,  12 years  for
     aircraft,  trailers,  and marine containers,  and 8 years for tractors. The
     depreciation  method  changes to  straight  line when  annual  depreciation
     expense using the straight line method exceeds that  calculated by the 200%
     declining balance method.  Major  expenditures which are expected to extend
     the useful  lives or reduce  future  operating  expenses of  equipment  are
     capitalized.


<PAGE>


           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995


1.   Basis of Presentation (continued):

     Transportation Equipment

     In March 1995,  the  Financial  Accounting  Standards  Board (FASB)  issued
     Statement No. 121,  "Accounting for the Impairment of Long-Lived Assets and
     Long-Lived Assets to be Disposed Of" (SFAS 121). This standard is effective
     for years beginning  after December 15, 1995. The Partnership  adopted SFAS
     121  during  1995,  the  effect of which  was not  material  as the  method
     previously  employed by the  Partnership  was consistent  with SFAS 121. In
     accordance with SFAS 121, the General Partner reviews the carrying value of
     its equipment  portfolio at least  annually in relation to expected  future
     market  conditions  for the  purpose  of  assessing  recoverability  of the
     recorded  amounts.  If projected  future lease revenue plus residual values
     are less than the carrying value of the equipment, a loss on revaluation is
     recorded.  No  adjustments  to reflect  impairment of individual  equipment
     carrying values were required for the year ended December 31, 1995.

     Repairs and Maintenance

     Maintenance costs are usually the obligation of the lessee. If they are not
     covered by the lessee they are charged against  operations as incurred.  To
     meet the  maintenance  obligations  of  certain  aircraft  engines,  escrow
     accounts are prefunded by the lessees.  Such prefunded amounts are included
     in the balance sheet as restricted cash and engine reserves.

     Net Income (Loss) and Distributions per Limited Partnership Unit

     Net income  (loss) per Limited  Partnership  Unit is computed  based on the
     number of Limited  Partnership Units outstanding  during the period (22,276
     for 1995,  1994, and 1993).  The General Partner is allocated a 1% share of
     the net income (loss).

         Cash  distributions  are  recorded  when paid.  Cash  distributions  to
     investors in excess of net income are  considered  to represent a return of
     capital on a GAAP (Generally  Accepted  Accounting  Principles) basis. Cash
     distributions  to Limited Partners of $363,212,  $382,865,  and $437,040 in
     1995, 1994, and 1993, respectively, were deemed to be a return of capital.

     Cash and Cash Equivalents

     The  Partnership  considers  highly  liquid  investments  that are  readily
     convertible  to known  amounts of cash with  original  maturities  of three
     months or less as cash  equivalents for the purposes of this  presentation.
     Lessee security  deposits and required reserves held by the Partnership are
     considered restricted cash.

2.   Transactions with General Partner and Affiliates

     As an officer of FSI contributed $100 of the Partnership's initial capital.
     Under the Equipment Management Agreement, IMI receives an annual management
     fee  payable  monthly  equal  to the  greater  of 10% of the  Partnership's
     "operating  cash  flow",  or  1/12  of  1/2%  of the  Partnership's  "gross
     proceeds"  as  defined in the  Partnership  Agreement.  Management  fees of
     $4,641 was payable to IMI as of December 31, 1995 and 1994.

         As of December 31, 1995, 51% of the Partnership's trailer equipment has
     been  transferred  into rental  facilities  operated by an affiliate of the
     General Partner. Revenues collected under short-term rental agreements with
     the rental facilities'  customers are distributed  monthly to owners of the
     related  equipment.  Direct  expenses  associated with the equipment and an
     allocation of indirect expenses of rental facility operations are billed to
     the Partnership.


<PAGE>


           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995

2.   Transactions with General Partner and Affiliates (continued)

         The  Partnership   reimbursed  FSI  and  its  affiliates  $130,286  for
     administrative and other services performed on behalf of the Partnership in
     1995 ($127,227 in 1994 and $86,899 in 1993).  At December 31, 1995,  $4,641
     was due toFSI and its affiliates ($3,989 at December 31, 1994).

3.   Equipment

     The components of equipment are as follows:

<TABLE>
<CAPTION>

                                                    1995                 1994
                                              --------------------------------------

    <S>                                        <C>                  <C>          
    Trailers                                   $   3,543,334        $   3,849,499
    Aircraft                                         908,733              908,733
    Marine containers                                110,739              151,167
    Rail equipment                                   318,649              318,649
                                              --------------------------------------
                                                   4,881,455            5,228,048
  Less accumulated depreciation                   (4,430,159)          (4,449,835)
                                              --------------------------------------
                                              ======================================
  Net equipment                                $     451,296        $     778,213
                                              ======================================
</TABLE>

     At December  31, 1995 the  Partnership  owned a 31%  interest in a commuter
     aircraft (with the remainder owned by an affiliated partnership), 36 marine
     containers, 207 trailers, and five tank cars.

         Revenues are earned by placing the equipment under operating leases and
     are billed monthly or quarterly.

         Rents for all  equipment  are based on a fixed  operating  lease amount
     with the exception of marine  containers and certain  trailers,  which earn
     revenue based on  utilization.  The  Partnership's  marine  containers  are
     leased to an operator of  utilization-type  pools which  include  equipment
     owned by unaffiliated  parties.  In such instances revenues received by the
     Partnership  consist of a specified  percentage of lease revenues generated
     by leasing the pooled  equipment to sub-lessees,  after  deducting  certain
     direct operating expenses of the pooled equipment.

         During 1995,  the  Partnership  sold eight  trailers and disposed of 15
     marine  containers.  During 1994, the  Partnership  sold eight trailers and
     disposed of 24 marine containers.

         With the exception of one trailer,  all of the  equipment  owned by the
     Partnership  is  either  operating  in  PLM-affiliated   short-term  rental
     facilities  or on lease as of December  31,  1995.  The  carrying  value of
     equipment off lease was $6,500 at December 31, 1995.  With the exception of
     one tank car, all equipment  owned by TEP VIIB was either  operating in the
     trailer  rental  facilities or on lease at December 31, 1994.  The carrying
     value of equipment off lease was $16,750 at December 31, 1994.

         All leases are being accounted for as operating leases.  Future minimum
     rentals receivable under non-cancelable  leases at December 31, 1995 during
     each of the next five  years are  approximately  $205,000  - 1996;  $30,000
     -1997;  $30,000 - 1998;  $10,000 - 1999;  and $-0-  thereafter.  Contingent
     rentals  based upon  utilization  amounted  to $22,703 in 1995,  $24,079 in
     1994, and $40,114 in 1993.

         The lessees  accounting  for 10% or more of the total  revenues  during
     1995, 1994, and 1993 were Kanakakee, Beaverville and Southern Railroad (18%
     in 1995, 22% in 1994, and 20% in 1993), and British Aerospace, Inc. (14% in
     1995, 13% in 1994, and 11% in 1993).



<PAGE>


           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995


3.   Equipment (continued)

     The  Partnership  owns  certain  equipment  which is  leased  and  operated
     internationally.  All leases relating to this equipment were denominated in
     U.S. dollars.

         The Partnership leases its aircraft,  railcars, and trailers to lessees
     domiciled in one geographic  region:  North America.  The marine containers
     are  leased  to  lessees  in  different  regions  who  operate  the  marine
     containers  worldwide.  The tables below set forth  geographic  information
     about the  Partnership's  equipment grouped by domicile of the lessee as of
     and for the years ended December 31, 1995, 1994, and 1993:
<TABLE>
<CAPTION>

        Revenues:                                 Region                 1995               1994              1993
                                                                    -----------------------------------------------------

        <S>                                       <C>                <C>                <C>               <C>         
          Marine containers                       Various            $     22,703       $     24,079      $     40,114
          Railcars                                North America            28,049             32,660            41,025
          Trailers                                North America           525,408            631,161           689,611
          Aircraft                                North America            97,002             99,081            99,081
                                                                    -----------------------------------------------------
        Total revenues                                               $    673,162       $    786,981      $    869,831
                                                                    =====================================================
</TABLE>

         The  following  table  sets  forth   identifiable   net  income  (loss)
information by equipment type by region:
<TABLE>
<CAPTION>

        Net Income (loss):                        Region                 1995               1994              1993
                                                                    -----------------------------------------------------

          <S>                                     <C>                <C>                <C>               <C>         
          Marine containers                       Various            $     20,256       $     30,898      $     32,174
          Railcars                                North America            19,633              8,526            13,010
          Trailers                                North America            34,400             (4,803)          191,799
          Aircraft                                North America            38,373             46,201            40,538
                                                                    -----------------------------------------------------
        Total identifiable net income (loss)                              112,662             80,822           277,521
        Administrative and other net income (loss)                        (83,356)             7,867          (137,908)
                                                                    -----------------------------------------------------
        Total net income (loss)                                      $     29,306       $     88,689      $    139,613
                                                                    =====================================================
</TABLE>

         The net book value of these assets at December 31, 1995, 1994, and 1993
are as follows:
<TABLE>
<CAPTION>

                                                  Region                 1995               1994              1993
                                                                    -----------------------------------------------------

          <S>                                     <C>                <C>                <C>               <C>         
          Marine containers                       Various            $     11,863       $     24,639      $     48,333
          Railcars                                North America            68,748             83,748            98,748
          Trailers                                North America           275,979            525,708           790,966
          Aircraft                                North America            94,706            144,118           187,331
                                                                    -----------------------------------------------------
        Total equipment                                              $    451,296       $    778,213      $  1,125,378
                                                                    =====================================================
</TABLE>

4.    Income Taxes

     The  Partnership  is not  subject to income  taxes as any income or loss is
     included in the tax returns of the  individual  Partners.  Accordingly,  no
     provision   for  income  taxes  has  been  made  in  the  accounts  of  the
     Partnership.

         As  of  December  31,  1995,   there  were  temporary   differences  of
     approximately $1,166,353 between the financial statement carrying values of
     assets and  liabilities and the federal income tax bases of such assets and
     liabilities, principally due to differences in depreciation methods.


<PAGE>


           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995


5.   Liquidation and special distributions

     During the first quarter of 1995, the  Partnership  completed its 10th year
     of  operations.  As  originally  anticipated  by the General  Partner,  the
     Partnership  will be liquidated  in an orderly  manner in its 11th and 12th
     years of operation. The General Partner is actively marketing the remaining
     equipment  portfolio with the intent of maximizing  sale proceeds.  As sale
     proceeds are received the General Partner intends to periodicially  declare
     special  distributions  to  distribute  the sale  proceeds to the partners.
     During the liquidation phase of the Partnership the equipment will continue
     to be leased under  operating  leases until sold.  Operating cash flows, to
     the  extent  they  exceed  Partnership   expenses,   will  continue  to  be
     distributed  on a quarterly  basis to partners.  The amounts  reflected for
     assets and liabilities of the Partnership have not been adjusted to reflect
     liquidation  values. The equipment portfolio continues to be carried at the
     lower of depreciated cost or fair value less cost to dispose.  Although the
     General  Partner   estimates  that  there  will  be   distributions   after
     liquidation  of assets and  liabilities,  the amounts  cannot be accurately
     determined  prior  to  actual  liquidation  of the  equipment.  Any  excess
     proceeds over expected  Partnership  obligations will be distributed to the
     Partners  throughout the liquidation  period.  Upon final liquidation,  the
     Partnership will be dissolved.


<PAGE>


                         REPORT OF INDEPENDENT AUDITORS


The Partners
PLM Transportation Equipment Partners VIIC 1985 Income Fund:


We  have  audited  the  financial  statements  of PLM  Transportation  Equipment
Partners  VIIC  1985  Income  Fund as listed in the  accompanying  index.  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.

The Partnership  completed its 10th year of operations  during 1995, and entered
the  liquidation  phase of the  Partnership.  The  General  Partner is  actively
pursuing the sale of all of the  Partnership's  equipment  with the intention of
winding up the Partnership and  distributing all available cash to the Partners.
Management's plans in regard to this matter are more fully described in note 5.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of PLM Transportation  Equipment
Partners VIIC 1985 Income Fund as of December 31, 1995, and 1994 and the results
of its  operations  and its cash  flows for each of the years in the three  year
period ended December 31, 1995 in conformity with generally accepted  accounting
principles.


/S/ KPMG PEAT MARWICK LLP
SAN FRANCISCO, CALIFORNIA
March 26, 1996





<PAGE>



           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND
                             (A Limited Partnership)

                                 BALANCE SHEETS
                                  December 31,

<TABLE>
<CAPTION>

                                                       ASSETS

                                                                                   1995                 1994
                                                                             --------------------------------------

  <S>                                                                         <C>                  <C>          
  Transportation equipment on operating leases held for sale, at cost         $   9,069,165        $   9,697,693
  Less accumulated depreciation                                                  (8,120,555)          (8,156,512)
                                                                             --------------------------------------
    Net equipment                                                                   948,610            1,541,181

  Cash and cash equivalents                                                         551,094              799,068
  Restricted cash                                                                    18,087               17,359
  Accounts receivable less allowance for doubtful accounts of
    $6,649 in 1995 and $26,568 in 1994                                              143,225              152,340
  Due from affiliates                                                                    --               12,085
  Prepaid insurance                                                                   5,435                4,919
                                                                             --------------------------------------

  Total assets                                                                $   1,666,451        $   2,526,952
                                                                             ======================================

                                         LIABILITIES AND PARTNERS' CAPITAL

  Liabilities:
    Due to affiliates                                                         $       7,026        $          --
    Accounts payable                                                                 15,202               11,161
    Prepaid deposits and engine reserves                                             18,087               17,290
                                                                             --------------------------------------
      Total liabilities                                                              40,315               28,451

  Partners' capital (deficit):
    Limited Partners (33,727 units)                                               1,758,377            2,622,019
    General Partner                                                                (132,241)            (123,518)
                                                                             --------------------------------------
      Total partners' capital                                                     1,626,136            2,498,501
                                                                             --------------------------------------

  Total liabilities and partners' capital                                     $   1,666,451        $   2,526,952
                                                                             ======================================
</TABLE>


                       See accompanying notes to financial
                                  statements.


<PAGE>



           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND
                             (A Limited Partnership)

                              STATEMENTS OF INCOME
                        For the years ended December 31,

<TABLE>
<CAPTION>


                                                                    1995              1994              1993
                                                               ----------------------------------------------------
  <S>                                                           <C>               <C>               <C>         
  Revenues:
    Lease revenue                                               $  1,134,932      $  1,616,995      $  1,775,449
    Interest and other income                                         35,376            27,256            38,473
    Gain (loss) from disposition of equipment                         84,289            68,223          (131,532)
                                                               ----------------------------------------------------
      Total revenues                                               1,254,597         1,712,474         1,682,390

  Expenses:
    Depreciation                                                     511,267           557,465           627,405
    Management fees to affiliate                                      87,968           113,015           125,609
    Insurance expense                                                 11,783            13,143            14,513
    Bad debt expense                                                  17,200            43,030            52,578
    Repairs and maintenance                                          225,291           265,834           236,819
    General and administrative expenses
      to affiliates                                                  187,498           231,353           187,820
    Other general and administrative expenses                         38,416            47,412            66,053
    Loss on revaluation of equipment                                      --                --            11,698
                                                               ----------------------------------------------------
      Total expenses                                               1,079,423         1,271,252         1,322,495
                                                               ----------------------------------------------------

      Net income                                                $    175,174      $    441,222      $    359,895
                                                               ====================================================

  Partners' share of net income:

    Limited Partners - 99%                                      $    173,422      $    436,810      $    356,296
    General Partner -   1%                                             1,752             4,412             3,599
                                                               ====================================================
      Total                                                     $    175,174      $    441,222      $    359,895
                                                               ====================================================

  Net income per Limited Partnership
    Unit (33,727 units)                                         $       5.14      $      12.95      $      10.56
                                                               ====================================================

  Cash distributions                                            $    847,539      $    995,704      $  1,049,476
                                                               ====================================================

  Cash distributions per Limited
    Partnership Unit                                            $      24.88      $      29.23      $      30.81
                                                               ====================================================

  Special cash distributions                                    $    200,000      $    100,000      $    170,338
                                                               ====================================================

  Special cash distributions per
    Limited Partnership Unit                                    $       5.87      $       2.94      $       5.00
                                                               ====================================================

  Total cash distributions per
    Limited Partnership Unit                                    $      30.75      $      32.17      $      35.81
                                                               ====================================================
</TABLE>

                       See accompanying notes to financial
                                  statements.


<PAGE>



           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND
                             (A Limited Partnership)

                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
              For the years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>



                                                       Limited             General
                                                       Partners            Partners            Total
                                                   --------------------------------------------------------

  <S>                                               <C>                  <C>               <C>          
  Partners' capital (deficit)
    at December 31, 1992                            $   4,121,276        $  (108,374)      $   4,012,902

  Net income                                              356,296              3,599             359,895

  Cash distributions                                   (1,207,616)           (12,198)         (1,219,814)
                                                   --------------------------------------------------------

  Partners' capital (deficit)
    at December 31, 1993                                3,269,956           (116,973)          3,152,983

  Net income                                              436,810              4,412             441,222

  Cash distributions                                   (1,084,747)           (10,957)         (1,095,704)
                                                   --------------------------------------------------------

  Partners' capital (deficit)
    at December 31, 1994                                2,622,019           (123,518)          2,498,501

  Net income                                              173,422              1,752             175,174

  Cash distributions                                   (1,037,064)           (10,475)         (1,047,539)
                                                   --------------------------------------------------------

  Partners' capital (deficit)
    at December 31, 1995                            $   1,758,377        $  (132,241)      $   1,626,136
                                                   ========================================================

</TABLE>


                       See accompanying notes to financial
                                  statements.


<PAGE>



           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND
                             (A Limited Partnership)

                            STATEMENTS OF CASH FLOWS
                        for the years ended December 31,
<TABLE>
<CAPTION>


                                                                     1995               1994               1993
                                                               -------------------------------------------------------
  <S>                                                           <C>                <C>                <C>          
  Operating activities:
  Net income                                                    $     175,174      $     441,222      $     359,895
    Adjustments to reconcile net
        income to net cash provided by
          operating activities:
      Loss on revaluation of equipment                                     --                 --             11,698
      (Gain) loss from disposition of
          equipment                                                   (84,289)           (68,223)           131,532
      Depreciation                                                    511,267            557,465            627,405
      Changes in operating assets
          and liabilities:
        Restricted cash                                                  (728)              (710)           103,740
        Accounts receivable, net                                        9,115             66,762            (51,486)
        Prepaid insurance                                                (516)             4,076             (3,407)
        Due from affiliates                                            12,085)            (5,092)                --
        Due to affiliates                                               7,026)                --             18,022
        Accounts payable                                                4,041            (17,315)            22,468
        Prepaid deposits and engine
          reserves                                                        797               (527)          (116,084)
                                                               -------------------------------------------------------
  Net cash provided by operating
        activities                                                    633,972            977,658          1,103,783
                                                               -------------------------------------------------------

  Investing activities:
    Capitalized equipment repairs                                        (191)                --             (5,482)
    Proceeds from disposition of
      equipment                                                       165,784            156,817            324,507
                                                               -------------------------------------------------------
  Cash flows provided by investing
    activities                                                        165,593            156,817            319,025
                                                               -------------------------------------------------------

  Financing activities:
    Cash distributions paid to partners                            (1,047,539)        (1,095,704)        (1,219,814)
                                                               -------------------------------------------------------

  Net (decrease) increase in cash
    and cash equivalents                                             (247,974)            38,771            202,994

  Cash and cash equivalents at
    beginning of year                                                 799,068            760,297            557,303
                                                               -------------------------------------------------------

  Cash and cash equivalents at
    end of year                                                 $     551,094      $     799,068      $     760,297
                                                               =======================================================
</TABLE>


                       See accompanying notes to financial
                                  statements.


<PAGE>



           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995


1.   Basis of Presentation

     Organization

     PLM  Transportation  Equipment Partners VIIC 1985 Income Fund, a California
     limited  partnership  (the  Partnership)  was formed on October 19, 1984 to
     engage in the business of owning and leasing transportation  equipment. The
     Partnership  commenced  significant  operations in May, 1985. PLM Financial
     Services,  Inc.  (FSI)  is  the  General  Partner.  FSI  is a  wholly-owned
     subsidiary of PLM International,  Inc. (PLM  International) and manages the
     affairs of the Partnership.

         The  net  income  (loss)  and  distributions  of  the  Partnership  are
     allocated 99% to the Limited  Partners and 1% to the General  Partner.  The
     General  Partner is entitled to an  incentive  fee equal to 15% of "Surplus
     Distributions" as defined in the Partnership  Agreement remaining after the
     Limited Partners have received a certain minimum rate of return.

         These  financial  statements have been prepared on the accrual basis of
     accounting in accordance  with generally  accepted  accounting  principles.
     This requires  management to make estimates and assumptions that affect the
     reported  amounts of assets and  liabilities  and disclosures of contingent
     assets and  liabilities  at the date of the  financial  statements  and the
     reported  amounts of revenues and  expenses  during the  reporting  period.
     Actual results could differ from those estimates.

     Operations

     The equipment of the Partnership is managed,  under a continuing  Equipment
     Management  Agreement,   by  PLM  Investment  Management,   Inc.  (IMI),  a
     wholly-owned  subsidiary  of FSI.  IMI  receives an annual  management  fee
     payable  monthly from the  Partnership for managing the equipment (see Note
     2).  FSI,  in  conjunction  with  its  subsidiaries,   syndicates  investor
     programs,  sells  transportation  equipment to investor  programs and third
     parties,  manages pools of  transportation  equipment under agreements with
     the investor programs, and is a general partner of other affiliated limited
     partnerships.

     Accounting for Leases

     The Partnership's leasing operations generally consist of operating leases.
     Under  the  operating  lease  method of  accounting,  the  leased  asset is
     recorded at cost and  depreciated  over its estimated  useful life.  Rental
     payments  are recorded as revenue  over the lease term.  Lease  origination
     costs are capitalized and amortized over the term of the lease.

     Translation of Foreign Currency Transactions

     The Partnership is a domestic partnership, however, a limited number of the
     Partnership's  transactions  are  denominated  in a foreign  currency.  The
     Partnership's  asset  and  liability  accounts  denominated  in  a  foreign
     currency were  translated  into U.S.  dollars at the rates in effect at the
     balance  sheet  dates,  and revenue and expense  items were  translated  at
     average  rates  during the year.  Gains or losses  resulting  from  foreign
     currency transactions are included in the results of operations and are not
     material.

     Depreciation

     Depreciation is computed on the 200% declining  balance method,  converting
     to the  straight-line  method  during  the second  half of the  equipments'
     estimated  useful lives,  based upon estimated useful lives of 12 years for
     aircraft,  trailers,  and marine containers,  and 8 years for tractors. The
     depreciation  method  changes to  straight  line when  annual  depreciation
     expense using the straight line method exceeds that  calculated by the 200%
     declining balance method. Major expenditures

<PAGE>


           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995


1.   Basis of Presentation (continued)

     Depreciation (continued)

     which are  expected to extend the useful lives or reduce  future  operating
     expenses of equipment are capitalized.

     Transportation Equipment

     In March 1995,  the  Financial  Accounting  Standards  Board (FASB)  issued
     Statement No. 121,  "Accounting for the Impairment of Long-Lived Assets and
     Long-Lived Assets to be Disposed Of" (SFAS 121). This standard is effective
     for years beginning  after December 15, 1995. The Partnership  adopted SFAS
     121  during  1995,  the  effect of which  was not  material  as the  method
     previously  employed by the  Partnership  was consistent  with SFAS 121. In
     accordance with SFAS 121, the General Partner reviews the carrying value of
     its equipment  portfolio at least  annually in relation to expected  future
     market  conditions  for the  purpose  of  assessing  recoverability  of the
     recorded  amounts.  If projected  future lease revenue plus residual values
     are less than the carrying value of the equipment, a loss on revaluation is
     recorded.  No  adjustments  to reflect  impairment of individual  equipment
     carrying values were required for the year ended December 31, 1995.

     Repairs and Maintenance

     Maintenance costs are usually the obligation of the lessee. If they are not
     covered by the lessee they are charged against  operations as incurred.  To
     meet the  maintenance  obligations  of  certain  aircraft  engines,  escrow
     accounts are prefunded by the lessees.  Such prefunded amounts are included
     in the balance sheet as restricted cash and engine reserves.

     Net Income (Loss) and Distributions per Limited Partnership Unit

     Net income  (loss) per Limited  Partnership  Unit is computed  based on the
     number of Limited  Partnership Units outstanding  during the period (33,727
     for 1995,  1994, and 1993).  The General Partner is allocated a 1% share of
     the net income (loss).

         Cash  distributions  are  recorded  when paid.  Cash  distributions  to
     investors in excess of net income are  considered  to represent a return of
     capital on a GAAP (Generally  Accepted  Accounting  Principles) basis. Cash
     distributions  to Limited  Partners of  $863,642,  $647,937 and $851,320 in
     1995, 1994, and 1993, respectively, were deemed to be a return of capital.

     Cash and Cash Equivalents

     The  Partnership  considers  highly  liquid  investments  that are  readily
     convertible  to known  amounts of cash with  original  maturities  of three
     months or less as cash  equivalents for the purposes of this  presentation.
     Lessee security  deposits and required reserves held by the Partnership are
     considered restricted cash.

2.   General Partner and Transactions with Affiliates

     An  officer  of FSI  contributed  $100  of the  Partnership's  initial  net
     capital.  Under the Equipment Management Agreement,  IMI receives an annual
     management  fee  payable  monthly  equal  to  the  greater  of  10%  of the
     Partnership's  "operating  cash  flow",  or 1/12 of 1/2% the  Partnership's
     "gross proceeds" as defined in the Partnership  Agreement.  Management fees
     of $7,026 and $12,739 were payable to IMI as of December 31, 1995 and 1994,
     respectively.



<PAGE>


           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995

2.   General Partner and Transactions with Affiliates (continued)

         As of December 31, 1995, all of the Partnership's trailer equipment has
     been  transferred  into rental  facilities  operated by an affiliate of the
     General Partner. Revenues collected under short-term rental agreements with
     the rental facilities'  customers are distributed  monthly to the owners of
     the related equipment. Direct expenses associated with the equipment and an
     allocation of indirect expenses of rental facility operations are billed to
     the Partnership.

         The  Partnership   reimbursed  FSI  and  its  affiliates  $187,498  for
     administrative and other services performed on behalf of the Partnership in
     1995 ($231,353 in 1994, $187,820 in 1993). At December 31, 1995, $7,026 was
     due to FSI and  affiliates  ($12,085  was due  from FSI and  affiliates  at
     December 31, 1994).

3.   Equipment

     The components of equipment are as follows:

<TABLE>
<CAPTION>

                                                    1995                 1994
                                              --------------------------------------

    <S>                                        <C>                  <C>          
    Trailers                                   $   4,833,449        $   5,362,929
    Aircraft                                       4,009,950            4,009,950
    Marine containers                                225,766              324,814
                                              --------------------------------------
                                                   9,069,165            9,697,693
  Less accumulated depreciation                   (8,120,555)          (8,156,512)
                                              --------------------------------------
                                              ======================================
  Net equipment                                $     948,610        $   1,541,181
                                              ======================================

</TABLE>

         At December  31, 1995 the  Partnership  owned a 69% interest and an 80%
     interest in two commuter aircraft respectively (with the remainder owned by
     affiliated entities), 211 trailers, and 36 marine containers.  Revenues are
     earned by  placing  the  equipment  under  operating  leases and are billed
     monthly  or  quarterly.  Rents  for  all  equipment  are  based  on a fixed
     operating  lease  amount  with the  exception  of  marine  containers.  The
     Partnership's   marine   containers   are   leased  to  the   operator   of
     utilization-type  pools  which  include  equipment  owned  by  unaffiliated
     parties. In such instances, revenues received by the Partnership consist of
     a specified  percentage of lease  revenues  generated by leasing the pooled
     equipment to sub-lessees, after deducting certain direct operating expenses
     of the pooled equipment.

         All of the equipment owned by the  Partnership was either  operating in
     the PLM-affiliated  short-term rental facilities or on lease as of December
     31, 1995.

         During 1995, the Partnership sold 14 trailers and disposed of 17 marine
     containers.  During 1994, the Partnership  sold 18 trailers and disposed of
     21 marine containers.

         All leases are being accounted for as operating leases.  Future minimum
     rentals under non-cancelable leases at December 31, 1995 during each of the
     next five years are approximately $314,000 - 1996; $174,000 - 1997; $29,000
     - 1998;  $-0- -1999;  and $-0-  thereafter.  Contingent  rentals based upon
     utilization  amounted to $29,819 in 1995,  $29,339 in 1994,  and $55,675 in
     1993.

         The lessees  accounting  for 10% or more of the total  revenues  during
     1995, 1994, and 1993 were Horizon Air Industries, Inc. (15% in 1995, 18% in
     1994, and 16% in 1993),  and British  Aerospace,  Inc. (20% in 1995, 14% in
     1994, and 12% in 1993).



<PAGE>


           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995


3.   Equipment (continued)

         The  Partnership  owns certain  equipment  which is leased and operated
     internationally.  All leases relating to this equipment were denominated in
     U.S. dollars.

         The Partnership  leases its aircraft and trailers to lessees  domiciled
     in one geographic region:  North America.  The marine containers are leased
     to  lessees  in  different   regions  who  operate  the  marine  containers
     worldwide.  The tables  below set forth  geographic  information  about the
     Partnership's equipment grouped by domicile of the lessee as of and for the
     years ended December 31, 1995, 1994, and 1993:
<TABLE>
<CAPTION>

        Revenues:                                 Region                 1995               1994              1993
                                                                    -----------------------------------------------------

          <S>                                     <C>                <C>                <C>               <C>         
          Marine containers                       Various            $     29,819       $     29,339      $     53,449
          Trailers                                North America           707,321          1,073,039         1,207,383
          Aircraft                                North America           397,792            514,617           514,617
                                                                    -----------------------------------------------------
        Total revenues                                               $  1,134,932       $  1,616,995      $  1,775,449
                                                                    =====================================================
</TABLE>

         The following table sets forth  identifiable  income (loss) information
by equipment type by region :
<TABLE>
<CAPTION>

        Net income (loss):                        Region                 1995               1994              1993
                                                                    -----------------------------------------------------

          <S>                                     <C>                <C>                <C>               <C>         
          Marine containers                       Various            $     34,123       $     19,854      $     14,951
          Trailers                                North America            90,872             99,024           467,739
          Aircraft                                North America           155,032            245,315           243,980
                                                                    -----------------------------------------------------
        Total identifiable net income                                     280,027            364,193           726,670
        Administrative and other net income (loss)                       (104,853)            77,029          (366,775)
                                                                    -----------------------------------------------------
        Total net income                                             $    175,174       $    441,222      $    359,895
                                                                    =====================================================
</TABLE>

         The net book value of these assets at December 31, 1995, 1994, and 1993
are as follows :
<TABLE>
<CAPTION>

                                                  Region                 1995               1994              1993
                                                                    -----------------------------------------------------

          <S>                                     <C>                <C>                <C>               <C>         
          Marine containers                       International      $     24,219       $     53,026      $     92,412
          Trailers                                North America           498,434            839,959         1,218,196
          Aircraft                                North America           425,957            648,196           876,632
                                                                    -----------------------------------------------------
        Total equipment                                              $    948,610       $  1,541,181      $  2,187,240
                                                                    =====================================================
</TABLE>

4.   Income Taxes

     The  Partnership  is not  subject to income  taxes as any income or loss is
     included in the tax returns of the  individual  Partners.  Accordingly,  no
     provision for income taxes has been made in the financial statements of the
     Partnership.

         At December 31, 1995, there were temporary differences of approximately
     $1,508,724  between the financial  statement  carrying values of assets and
     liabilities   and  the  federal   income  tax  bases  of  such  assets  and
     liabilities.


<PAGE>


           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1995


5.   Liquidation and special distributions

     During the first quarter of 1995, the  Partnership  completed its 10th year
     of  operations.  As  originally  anticipated  by the General  Partner,  the
     Partnership  will be liquidated  in an orderly  manner in its 11th and 12th
     years of operation. The General Partner is actively marketing the remaining
     equipment  portfolio with the intent of maximizing  sale proceeds.  As sale
     proceeds are received the General Partner intends to periodicially  declare
     special  distributions  to  distribute  the sale  proceeds to the partners.
     During the liquidation phase of the Partnership the equipment will continue
     to be leased under  operating  leases until sold.  Operating cash flows, to
     the  extent  they  exceed  Partnership   expenses,   will  continue  to  be
     distributed  on a quarterly  basis to partners.  The amounts  reflected for
     assets and liabilities of the Partnership have not been adjusted to reflect
     liquidation  values. The equipment portfolio continues to be carried at the
     lower of depreciated cost or fair value less cost to dispose.  Although the
     General  Partner   estimates  that  there  will  be   distributions   after
     liquidation  of assets and  liabilities,  the amounts  cannot be accurately
     determined  prior  to  actual  liquidation  of the  equipment.  Any  excess
     proceeds over expected  Partnership  obligations will be distributed to the
     Partners  throughout the liquidation  period.  Upon final liquidation,  the
     Partnership will be dissolved.

     In 1995, 1994, and 1993, the General Partner paid special  distributions of
     $5.87,  $2.94, and $5.00 per Limited  Partnership  Unit. The Partnership is
     not permitted to reinvest proceeds from sales or liquidations of equipment.
     These  proceeds,   in  excess  of  operational   cash   requirements,   are
     periodically   paid  out  to  limited  partners  in  the  form  of  special
     distributions.  The sales  and  liquidations  occur  becasue  of  equipment
     destructions,  the  determination  by the  General  Partner  that it is the
     appropriate  time to maximize  the return on an asset  through sale of that
     asset, and, in some leases,  the ability of the lessee to exercise purchase
     options.



<PAGE>


           PLM TRANSPORTATION EQUIPMENT PARTNERS VII 1985 INCOME FUND

                             (A Limited Partnership)

                                INDEX OF EXHIBITS



   Exhibit                                                            Page

    4.       Limited Partnership Agreement of each Partnership.         *

   10.       Management Agreement between each Partnership and          *
             PLM Investment Management, Inc.

   24.       Powers of Attorney                                       46-48




                       * Incorporated by reference.  See page 19 of this report.