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, 1997.

[ ]       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 800, 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:  51.




<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 were to invest in equipment which would:

     (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.  Monthly
management  fees  are  calculated  as the  greater  of 10% of the  Partnership's
Operating Cash Flow, or 1/12 of 1/2% of the Partnership's  Capital Contributions
as defined in the Limited Partnership Agreement (see Financial Statements, Notes
1 and 2). The Partnerships'  management  agreements with IMI are to co-terminate
with the dissolution of the Partnerships,  unless the Partners vote to terminate
the agreement prior to that date or at the discretion of the General Partner.

                                    TEP VIIB

The  offering  of limited  partnership  units (the  Units) of TEP VIIB 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, 1997,  TEP VIIB owned 17 trailers  which were in rental yards
owned and  maintained by an affiliate of the General  Partner as of December 31,
1997.  Revenues  collected under  short-term  rental  agreements with the rental
yards'  customers  are  credited  to the  owners  of the  related  equipment  as
received.  Direct expenses associated with the equipment are charged directly to
the  Partnership.  An  allocation  of  indirect  expenses  of  the  rental  yard
operations is charged to the Partnership monthly.


<PAGE>



                                    TEP VIIC

The  offering  of limited  partnership  units (the  Units) of TEP VIIC 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, 1997, TEP VIIC owned the following equipment: 66 trailers and
an interest in an entity which owns one commuter aircraft. The entity is jointly
owned by TEP VIIC (80%) and PLM  International  (20%). All of the  Partnership's
trailer equipment  operates in rental yards owned and maintained by an affiliate
of the General Partner.  Revenues  collected under short-term  rental agreements
with the rental  yards'  customers  are  credited  to the owners of the  related
equipment as received. Direct expenses associated with the equipment are charged
directly to the  Partnership.  An allocation of indirect  expenses of the rental
yard  operations is charged to the Partnership  monthly.  All equipment owned by
TEP VIIC was  either on lease or in rental  yards  owned  and  maintained  by an
affiliate of the General Partner as of December 31, 1997.

(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,
Transport International Pool, Xtra Leasing, and other limited partnerships which
lease the same types of equipment.

(D)   Demand

The Partnerships have investments in  transportation-related  capital equipment.
Types of  capital  equipment  owned by the  Partnerships  include  aircraft  and
trailers.  Except  for the  aircraft  leased to a  passenger  air  carrier,  the
Partnerships'  equipment is used to transport materials and commodities,  rather
than people.



<PAGE>



(1)      Commuter Aircraft/Regional Aircraft

The commuter  aircraft  market is  experiencing a revolution with the successful
entry of small regional jets into this market. Major turboprop manufacturers are
re-evaluating  their programs,  and several successful but larger models are now
being  considered for phase-out.  The original concept for regional jets was for
them to take over the  hub-and-spoke  routes served by the larger  turboprops in
North America,  but they are also finding  successful  niches in  point-to-point
routes.  The introduction of this smaller aircraft has allowed major airlines to
shift the regional  jets to marginal  routes  previously  operated by narrowbody
aircraft,  allowing the larger-capacity aircraft to be more efficiently employed
in an airline's route system.

At  December  31,  1997,  TEP VIIC had an  interest  in an entity  which  owns a
commuter  aircraft that is in the 19 seat category  operating in North  America.
The Partnership expects to sell this investment in 1998.

Trailers

(a)      Over-the-Road Dry Trailers

The United States over-the-road dry trailer market began to recover in mid-1997,
as an oversupply of equipment from 1996 subsided. The strong domestic economy, a
continuing focus on integrated  logistics  planning by American  companies,  and
numerous  service  problems on Class I railroads  contributed to the recovery in
the dry van market. In addition,  federal  regulations  requiring antilock brake
systems on all new trailers,  effective in March 1998, have helped stimulate new
trailer  production,  and the market is anticipated to remain strong in the near
future. There continues to be much consolidation of the trailer leasing industry
in North America, as the two largest lessors of dry vans now control over 60% of
the market. The reduced level of competition, coupled with anticipated continued
strong utilization, may lead to an increase in rates.

Utilization of the Partnership's dry van fleet was up 8% over last year.

(b)      Over-the-Road Refrigerated Trailers

The  temperature-controlled  over-the-road  trailer  market  recovered  in 1997;
freight levels improved and equipment oversupply was reduced as industry players
actively  retired older  trailers and  consolidated  fleets.  Most  refrigerated
carriers posted revenue growth of between 2% and 5% in 1997, and accordingly are
planning  fleet  upgrades.   In  addition,   with   refrigeration   and  trailer
technologies   changing  rapidly  and  industry  regulations  becoming  tighter,
trucking companies are managing their refrigerated fleets more effectively.

As a  result  of  these  changes  in  the  refrigerated  trailer  market,  it is
anticipated that trucking  companies will utilize short-term trailer leases more
frequently  to  supplement  their  fleets.  Such  a  trend  should  benefit  the
Partnerships,  which generally  leases its equipment on a short-term  basis from
rental  yards  owned  and  operated  by  PLM  subsidiaries.   The  Partnerships'
utilization,  especially in the second half of 1997,  was  significantly  higher
than 1996 levels.

(E)   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 U.S. Department of  Transportation's  Aircraft Capacity Act of 1990
(which  limits or eliminates  the  operation of commercial  aircraft in the U.S.
that do not meet certain noise, aging, and corrosion criteria);

     (2) 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.

As of  December  31,  1997,  the  Partnership  is in  compliance  with the above
government regulations.  Typically, costs related to extensive modifications are
passed on to the lessee of that equipment.

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,  1997,  each
Partnership owned a portfolio of  transportation  equipment as described in Part
I, Item 1. The Partnerships  will not purchase any additional  equipment but may
make  capital  repairs to the current  portfolio  of  equipment  which extend or
increase the economic life.

The Partnerships maintain their principal offices at One Market,  Steuart Street
Tower, Suite 800, 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 fiscal year ended December 31, 1997.












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<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:

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

Holders of limited partnership units           836                1,230
  as of December 31, 1997





TEP VIIB:

Effective January 1, 1998, the  Partnership's  remaining assets were transferred
into a liquidating trust.  Under the terms of the trust agreement,  no transfers
will be allowed except for those  transfers  relating to inheritance  issues and
pension plan distributions.

TEP VIIC:

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.

















                     (This space intentionally left blank.)


<PAGE>



ITEM 6.       SELECTED FINANCIAL DATA

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

                                     TABLE 1

                        For the years ended December 31,
<TABLE>
<CAPTION>

TEP VIIB                                        1997            1996            1995            1994             1993
---------------------------------------------------------------------------------------------------------------------------

<S>                                          <C>              <C>              <C>              <C>               <C>
Operating results:
  Total revenues                             $   869,669      $    487,226     $    732,844     $     813,152     $     861,606
  Loss on revaluation
    Of equipment                                      --                --               --                --           (65,475)
  Net gain (loss) on disposition
    of equipment                                 598,676            62,907           27,563            14,663           (15,985)
  Equity in net income of
    unconsolidated special-purpose
    entity                                            --           265,108               --                --                --
  Net income                                     588,347           238,083           29,306            88,689           139,613

At year-end:
  Total assets                               $   379,162      $    523,019     $    867,962     $   1,269,667     $   1,653,415
  Total liabilities                               22,952            37,477           26,193            61,017            58,033

Cash distributions                           $    97,172      $    394,310     $    396,187     $     475,421     $     581,068

Special distributions                        $   620,507      $    200,000     $         --     $          --     $          --

Cash distributions and special distributions
which represent a return  of capital to
limited partners

                                             $   222,526      $    352,665     $    363,212     $     382,865     $     437,040

Per weighted-average limited Partnership unit:
Net income                                   $     21.91      $      10.58     $       1.30     $        3.94     $        6.20

Cash distributions                           $      4.32      $      17.52     $      17.61     $       21.13     $       25.82

Special distributions                        $     27.58      $       8.89     $         --     $          --     $          --

Cash distributions and special
  distributions which represent a return
  of capital to limited partners             $      9.99      $      15.83     $      16.31     $       17.19     $       19.62


</TABLE>






                     (This space intentionally left blank.)


<PAGE>


<TABLE>
<CAPTION>


                                         For the years ended December 31,

TEP VIIC                                         1997              1996             1995              1994              1993
-----------------------------------------------------------------------------------------------------------------------------------

<S>                                         <C>               <C>               <C>               <C>               <C>
Operating results:
  Total revenues                            $     670,068     $     565,080     $  1,254,597      $  1,712,474      $  1,682,390
  Loss on revaluation
    of equipment                                       --                --               --                --           (11,698 )
  Net gain (loss) on disposition
    of equipment                                  431,757           133,840           84,289            68,223          (131,532 )
  Equity in net income of
    Unconsolidated special-purpose
    Entities                                       59,447           653,740               --                --                --
  Net income                                      343,294           600,944          175,174           441,222           359,895

At year-end:
  Total assets                              $     221,295     $     792,790     $  1,648,364      $  2,526,952      $  3,199,276
  Total liabilities                                16,954            20,066           22,228            28,451            46,293

Cash distributions                          $      75,660     $     654,356     $    847,539      $    995,704      $  1,049,476

Special distributions                       $     836,017     $     800,000     $    200,000      $    100,000      $    170,338

Cash distributions and special
  Distributions which represent a return
  of capital to limited partners            $     709,159     $     844,877     $    863,642      $    647,937      $    851,320

Per weighted average limited partnership
unit:

Net income                                  $        5.73     $       17.64     $       5.14      $      12.95      $      10.56

Cash distributions                          $        2.22     $       19.21     $      24.88      $      29.23      $      30.81

Special distributions                       $       24.54     $       23.48     $       5.87      $       2.94      $       5.00

Cash distributions and special
  distribution which represent a return
  of capital to limited partners            $       21.03     $       25.05     $      25.61      $      19.21      $      25.24


</TABLE>




                     (This space intentionally left blank.)



<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

As discussed in Note 6 to each of the accompanying  financial statements and (E)
below,  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.
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, 1997, 1996, or 1995.

As of December 31, 1997, the General Partner  estimated the fair market value of
each   Partnerships'   equipment   portfolio,   including   equipment  owned  by
unconsolidated  special-purpose  entities  (USPEs),  to be  approximately:  $0.1
million and $0.9 million for TEP VIIB and TEP VIIC respectively.

(D)   Government Regulations

The General  Partner  operates the  Partnership's  equipment in accordance  with
current  regulations  (see  Item 1 (E)  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 the
Partnerships' operations and sales of equipment.

(E)   Future Outlook

With  the  majority  of the  equipment  portfolio  now  liquidated,  TEP  VIIB's
remaining assets were transferred into a liquidating trust as of January 1, 1998
(see  Note 6) to each  of the  accompanying  financial  statements.  Any  excess
proceeds over expected  obligations will be distributed to the  beneficiaries in
the liquidating  trust.  For TEP VIIC, the General Partner is actively  pursuing
the sale of all of the Partnerships'  equipment with the intention of winding up
the Partnership and distributing all available cash to the Partners.


<PAGE>



(F)   Result of operations - Year To Year Summary

(1)  Comparison  of the  Partnerships'  Operating  Results  for the Years  Ended
December 31, 1997 and 1996

TEP VIIB:

(a)      Owned Equipment Operations

Lease  revenues less direct  expenses  (defined as repairs and  maintenance  and
asset specific  insurance  expenses) on owned  equipment  decreased for the year
ended  December 31, 1997 when compared to the same period in 1996. The following
table presents lease revenues less direct expenses by owned equipment type:

<TABLE>
<CAPTION>

                                                                             For the Years Ended
                                                                                 December 31,

                                                                           1997                1996
                                                                      -----------------------------------
<S>                                                                     <C>                  <C>
Trailers                                                                $   184,578          $  241,016
Marine containers                                                             5,914              18,303
Railcar equipment                                                             3,519              28,972

</TABLE>

Trailers:  Trailer lease revenues and direct expenses were $248,193 and $63,615,
respectively,  for the year ended  December 31,  1997,  compared to $362,500 and
$121,484,  respectively,  during the same period of 1996. The number of trailers
owned by the  Partnership  has been declining over the past twelve months due to
sales and  dispositions.  The result of this declining fleet has been a decrease
in trailer net contribution.

Marine  containers:  Marine  container  lease revenues and direct  expenses were
$6,002 and $88, respectively,  for the year ended December 31, 1997, compared to
$18,417 and $114, respectively,  during the same period of 1996. The decrease in
marine  containers net contribution  resulted from the sale of the Partnership's
remaining marine containers during 1997.

Railcar  equipment:  Railcar lease revenues and direct  expenses were $3,750 and
$231,  respectively,  for year ended December 31, 1997,  compared to $30,000 and
$1,028,  respectively,  during the same period of 1996. The decrease in railcars
net contribution resulted from the sale of the Partnership's  remaining railcars
during the first quarter of 1997.

(b) Indirect Expenses Related to Owned Equipment Operations

Total  indirect  expenses  of $217,388  for the year ended  December  31,  1997,
decreased from $391,625 for the same period in 1996.  Significant  variances are
explained as follows:

(i) a $154,901 decrease in depreciation expenses from 1996 levels reflecting the
sale of certain assets during 1997 and 1996.

(ii) a $42,708 decrease in general and administrative  expenses from 1996 levels
was  due  to  decreased   accounting  and  data  processing   costs,  and  lower
administrative  costs  associated with the short-term  rental  facilities due to
decreased volume of trailers operating in these facilities.

(iii) a $19,827  increase in bad debt expense was  primarily  due to the General
Partner's  evaluation of the  collectibility  of trade  receivables from trailer
rental yard lessees.

(c) Net Gain on Disposition of Equipment

For the year  ended  December  31,  1997,  the  Partnership  realized  a gain of
$598,676 on disposition of railcars, marine containers,  and trailers,  compared
to the same  period in 1996 when the  Partnership  realized a gain of $62,907 on
the sale or disposition of marine containers and trailers.



<PAGE>



(d) Equity in Net Income of the Unconsolidated Special-Purpose Entity

Equity in the net income of unconsolidated  special-purpose  entity was $265,108
for the year ended December 31, 1996, and  represents the  Partnership  share of
income  ($28,408)  generated  from the  investment  in an entity  which owned an
aircraft,  accounted  for  under  the  equity  method  and the  gain  ($236,700)
resulting from the sale by this entity of this aircraft  during 1996 (see Note 4
to the financial statements).

(e) Net Income

As a result of the foregoing,  the  Partnership's net income of $588,347 for the
year  ended  December  31,  1997,  increased  from  $238,083  for the year ended
December 31, 1996.  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 1997 is not  necessarily  indicative  of future  periods.  For the year ended
December 31, 1997, the Partnership distributed $710,502 to the limited partners,
or $31.90 per weighted-average limited partnership unit which included a special
distribution from asset sales of $27.58 per unit.

The  Partnership's  performance  during 1997 is not  necessarily  indicative  of
future periods.

TEP VIIC:

(a)      Owned Equipment Operations

Lease  revenues less direct  expenses  (defined as repairs and  maintenance  and
asset specific  insurance  expenses) on owned  equipment  decreased for the year
ended  December 31, 1997 when compared to the same period in 1996. The following
table presents lease revenues less direct expenses by owned equipment type:

<TABLE>
<CAPTION>

                                                                             For the Years Ended
                                                                                 December 31,

                                                                           1997                1996
                                                                      -----------------------------------
<S>                                                                     <C>                 <C>
Trailers                                                                $  152,424          $  284,335
Marine containers                                                            6,086              14,125

</TABLE>

Trailers:  Trailer lease revenues and direct expenses were $214,395 and $61,971,
respectively,  for the year ended  December 31,  1997,  compared to $392,542 and
$108,207,  respectively,  during  the same  period  during  1996.  The number of
trailers owned by the Partnership has been declining over the past twelve months
due to sales and  dispositions.  The result of this  declining  fleet has been a
decrease in trailer net contribution.

Marine  containers:  Marine  container  lease revenues and direct  expenses were
$6,294 and $208,  respectively,  for the twelve  months ended 1997,  compared to
$14,332 and $207,  respectively during the same period during 1996. The decrease
in marine  containers net  contribution  resulted from the sale of the remaining
Partnership's marine containers during 1997.

(b) Indirect Expenses Related to Owned Equipment Operations

Total  indirect  expenses  of $324,042  for the year ended  December  31,  1997,
decreased from $509,462 for the same period in 1996.  Significant  variances are
explained as follows:

(i) a $110,177 decrease in depreciation expenses from 1996 levels reflecting the
sale of certain assets during 1997 and 1996.

(ii) a $67,702  decrease in the general and  administrative  expenses  from 1996
levels  due to  decreased  accounting  and  data  processing  costs,  and  lower
administrative  costs  associated with the short-term  rental  facilities due to
decreased volume of trailers operating in these facilities.

(iii) a $13,121  decrease in  management  fees due to lower  levels of operating
cash flow during the comparable periods primarily due to equipment dispositions.
Monthly   management   fees  are  calculated  as  the  greater  of  10%  of  the
Partnership's  Operating Cash Flow, or 1/12 of 1/2% of the Partnership's Capital
Contributions as defined in the Limited Partnership Agreement.

(iv) a  $5,580  increase  in bad  debt  expense  due  to the  General  Partner's
evaluation of the  collectibility  of trade receivables from trailer rental yard
lessees.

(c)      Net Gain on Disposition of Equipment

For the year  ended  December  31,  1997,  the  Partnership  realized  a gain of
$431,757 on disposition of trailers and marine containers,  compared to the same
period in 1996, when the Partnership  realized a gain of $133,840 on the sale or
disposition of trailers and marine containers.

(d)      Equity in Net Income of Unconsolidated Special-Purpose Entity

Equity in net income of unconsolidated special-purpose entity of $59,447 for the
year ended  December  31, 1997,  represents  the  Partnership's  share of income
generated  from the interest in an entity which owns an aircraft,  accounted for
under the equity method (see Note 4 to the financial  statements).  In 1996, the
Partnership liquidated its 69% interest in an entity which owned an aircraft for
a gain of $535,821.

(e) Interest and Other Income

Interest and other income  decreased to $17,622 for the year ended  December 31,
1997,  from  $24,366  compared to the same  period in 1996.  This  decrease  was
primarily due to lower average cash balances in 1997.

(f)      Net Income

As a result of the foregoing, the Partnership's net income decreased to $343,294
for the year ended December 31, 1997,  from $600,944 in the same period in 1996.
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 1997 is not
necessarily  indicative of future periods. For the year ended December 31, 1997,
the  Partnership  distributed  $902,560 to the Limited  Partners,  or $26.76 per
weighted average Limited Partnership Unit which included a special  distribution
from asset sales of $24.54 per unit.

The  Partnership's  performance  during 1997 is not  necessarily  indicative  of
future periods.

(2)  Comparison  of the  Partnerships'  Operating  Results  for the Years  Ended
December 31, 1996 and 1995

TEP VIIB:

(a)      Owned Equipment Operations

Lease  revenues less direct  expenses  (defined as repairs and  maintenance  and
asset specific  insurance  expenses) on owned  equipment  decreased for the year
ended  December 31, 1996 when compared to the same period in 1995. The following
table presents lease revenues less direct expenses by owned equipment type:

<TABLE>
<CAPTION>

                                                                             For the Years Ended
                                                                                 December 31,

                                                                           1996                1995
                                                                      -----------------------------------
<S>                                                                     <C>                  <C>
Trailers                                                                $   241,016          $  365,141
Railcar equipment                                                            28,972              21,414
Marine containers                                                            18,303              22,452

</TABLE>

Trailers: Trailer lease revenues and direct expenses were $362,500 and $121,484,
respectively,  for the year ended  December 31,  1996,  compared to $525,408 and
$160,267,  respectively,  during the same  period of 1995.  The  decrease in net
contribution was due to lower  utilization of trailers in the short-term  rental
facilities  for the twelve  months ended  December 31, 1996 when compared to the
same period of 1995, and the disposition of trailers in 1995 and 1996.

Railcar  equipment:  Railcar lease revenues and direct expenses were $30,000 and
$1,028, respectively,  for year ended December 31, 1996, compared to $28,049 and
$6,635, respectively, during the same period of 1995. Although the railcar fleet
remained  the same size for both years,  the  increase  in railcar  contribution
resulted from running repairs  required on certain  railcars in the fleet during
1995 which were not needed during 1996.

Marine  containers:  Marine  container  lease revenues and direct  expenses were
$18,417 and $114,  respectively,  for the year ended December 31, 1996, compared
to $22,703 and $251, respectively, during the same period of 1995. The number of
marine  containers  owned by the  Partnership  has been  declining over the past
twelve months due to sales and dispositions.  The result of this declining fleet
has been a decrease in marine container net contribution.

(b) Indirect Expenses Related to Owned Equipment Operations

Total  indirect  expenses  of $391,625  for the year ended  December  31,  1996,
decreased from $485,781 for the same period in 1995.  Significant  variances are
explained as follows:

(i) a $36,165  decrease in bad debt  expense  was due to the  General  Partner's
evaluation of the  collectibility  of trade receivables from trailer rental yard
lessees.

(ii) a $29,847 decrease in general and administrative  expenses from 1995 levels
was due to decreased  accounting costs and administrative  costs associated with
the short-term rental facilities.

(iii) a $24,599  decrease in depreciation  expenses from 1995 levels  reflecting
the sale of certain assets during 1996 and 1995.

(iv) a $3,545  decrease in management  fee from 1995 levels 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.

(c) Net Gain on Disposition of Equipment

For the year ended December 31, 1996, the Partnership realized a gain of $62,907
on the sale or  disposition of marine  containers and trailers,  compared to the
same period in 1995 when the Partnership  realized a gain of $27,563 on the sale
or disposition of trailers and marine containers.

(d) Interest and Other Income

Interest and other income  decreased to $13,402 for the year ended  December 31,
1996 from $32,119 for the same period of 1995.  This  decrease was primarily due
to income earned from an early lease termination penalty on four railcars in the
third  quarter  of 1995,  and lower  interest  income  earned  due to lower cash
balances available for investments when compared to the same period of 1995.

(e) Equity in Net Income of the Unconsolidated Special-Purpose Entity

Equity in net income of unconsolidated  special-purpose  entity was $265,108 for
the year ended December 31, 1996, and represents the Partnership share of income
($28,408)  generated from the partnership  investment in an entity which owns an
aircraft,  accounted  for  under  the  equity  method  and the  gain  ($236,700)
resulting from the sale by this entity of this aircraft  during 1996 (see Note 4
to the financial statements).

(f) Net Income

As a result of the foregoing,  the  Partnership's net income of $238,083 for the
year ended December 31, 1996, increased from $29,306 for the year ended December
31,  1995.  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
1996 is not  necessarily  indicative  of  future  periods.  For the  year  ended
December 31, 1996, the Partnership distributed $588,367 to the Limited Partners,
or $26.41 per weighted average Limited Partnership Unit which included a special
distribution from asset sales of $8.89 per unit.

The  Partnership's  performance  during 1996 is not  necessarily  indicative  of
future periods.

TEP VIIC:

(a)      Owned Equipment Operations

Lease  revenues less direct  expenses  (defined as repairs and  maintenance  and
asset specific  insurance  expenses) on owned  equipment  decreased for the year
ended  December 31, 1996 when compared to the same period in 1995. The following
table presents lease revenues less direct expenses by owned equipment type:

<TABLE>
<CAPTION>

                                                                             For the Years Ended
                                                                                 December 31,

                                                                           1996                1995
                                                                      -----------------------------------
<S>                                                                     <C>                 <C>
Trailers                                                                $  284,335          $  484,019
Marine containers                                                           14,125              29,350

</TABLE>

Trailers: Trailer lease revenues and direct expenses were $392,542 and $108,207,
respectively,  for the year ended  December 31,  1996,  compared to $707,321 and
$223,302,  respectively  during the same period during 1995. The decrease in net
contribution was due to lower  utilization of trailers in the short-term  rental
facilities in 1996 when compared to 1995, and the  disposition of 14 trailers in
1995 and 40 trailers during 1996.

Marine  containers:  Marine  container  lease revenues and direct  expenses were
$14,332 and $207,  respectively,  for the twelve months ended 1996,  compared to
$29,819 and $469, respectively during the same period during 1995. The number of
marine  containers  owned by the  Partnership  has been  declining over the past
twelve months due to sales and dispositions.  The result of this declining fleet
has been a decrease in marine container net contribution.

(b) Indirect Expenses Related to Owned Equipment Operations

Total  indirect  expenses  of $509,462  for the year ended  December  31,  1996,
decreased from $643,725 for the same period in 1995.  Significant  variances are
explained as follows:

(i) a $63,135  decrease  in the general and  administrative  expenses  from 1995
levels due to decreased  accounting  costs and  administrative  costs associated
with the  short-term  rental  facilities  due to  decreased  volume of  trailers
operating in these facilities.

(ii) a $47,340 decrease in depreciation expenses from 1995 levels reflecting the
sale of certain assets during 1996 and 1995.

(iii) a  $33,259  decrease  in bad debt  expense  due to the  General  Partner's
evaluation of the  collectibility  of trade receivables from trailer rental yard
lessees.

(iv) a $9,471 increase in management fees due to higher levels of operating cash
flow during the comparable  periods.  Monthly  management fees are calculated as
the greater of 10% of the Partnership's  Operating Cash Flow, or 1/12 of 1/2% of
the Partnership's  Capital  Contributions as defined in the Limited  Partnership
Agreement.

(c)      Net Gain on Disposition of Equipment

For the year  ended  December  31,  1996,  the  Partnership  realized  a gain of
$133,840 on the sale or disposition of trailers and marine containers,  compared
to the same period in 1995, when the  Partnership  realized a gain of $84,289 on
the sale or disposition of trailers and marine containers.

(d)      Equity in Net Income of Unconsolidated Special-Purpose Entities

Equity in net income of unconsolidated  special-purpose entities of $653,740 for
the year ended  December 31, 1996,  represents the  Partnership  share of income
($117,919)  generated  from the  partnership  investment  in entities  which own
aircraft,  accounted  for  under  the  equity  method  and the  gain  ($535,821)
resulting  from the sale by this entity of the aircraft  during 1996 (see Note 4
to the financial statements).

(e)  Interest and Other Income

Interest and other income  decreased to $24,366 for the year ended  December 31,
1996,  from  $35,376  compared to the same  period of 1995.  This  decrease  was
primarily due to lower interest rate earned on cash investments in 1996.

(f)      Net Income

As a result of the foregoing the  Partnership's net income increased to $600,944
for the year ended December 31, 1996,  from $175,174 in the same period in 1995.
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 1996 is not
necessarily  indicative of future periods. For the year ended December 31, 1996,
the Partnership  distributed  $1,439,812 to the Limited Partners,  or $42.69 per
weighted average Limited Partnership Unit which included a special  distribution
from asset sales of $23.48 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,  1996.  The  Partnership's
performance during 1996 is not necessarily indicative of future periods.

Inflation

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

Forward Looking Information

Except for historical  information contained herein, the discussion in this Form
10-K contains  forward-looking  statements that involve risks and uncertainties,
such as statements of the Partnership's  plans,  objectives,  expectations,  and
intentions.  The cautionary  statements made in this Form 10-K should be read as
being applicable to all related forward-looking  statements wherever they appear
in this Form 10-K. The Partnership's actual results could differ materially from
those discussed here.

Year 2000 Compliance

The General  Partner is currently  addressing  the Year 2000  computer  software
issue.  The General Partner is creating a timetable for carrying out any program
modifications that may be required. The General Partner does not anticipate that
the cost of these modifications allocable to the Partnership will be material.

Accounting Pronouncements

In  June  1997,  the  Financial   Accounting  Standards  Board  issued  two  new
statements:  SFAS No. 130,  "Reporting  Comprehensive  Income,"  which  requires
enterprises to report,  by major  component and in total,  all changes in equity
from  nonowner  sources;  and SFAS No. 131,  "Disclosures  about  Segments of an
Enterprise  and  Related  Information,"  which  establishes  annual and  interim
reporting  standards for a public  Partnership's  operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the  Partnership's  fiscal year ended December
31, 1998, with earlier  application  permitted.  The effect of adoption of these
statements  will  be  limited  to the  form  and  content  of the  Partnership's
disclosures and will not impact the  Partnership's  results of operations,  cash
flow, or financial position.



<PAGE>



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.












                     (This space intentionally left blank.)


<PAGE>



                                    PART III

 ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF PLM INTERNATIONAL
              AND PLM FINANCIAL SERVICES, INC.

As of the date of this annual  report,  the directors and executive  officers of
PLM  International  (and key executive  officers of its subsidiaries) and of PLM
Financial Services, Inc. are as follows:

<TABLE>
<CAPTION>

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

<S>                                      <C>                   <C>
Robert N. Tidball                        59                    Chairman of the Board, Director, President,
                                                               and Chief Executive Officer, PLM International, Inc.;
                                                               Director, PLM Financial Services, Inc.;
                                                               Vice President, PLM Railcar Management Services, Inc.;
                                                               President, PLM Worldwide Management Services Ltd.

Randall L.-W. Caudill                    50                    Director, PLM International, Inc.

Douglas P. Goodrich                      51                    Director and Senior Vice President, PLM International;
                                                               Director and President, PLM Financial Services, Inc.;
                                                               President, PLM Transportation Equipment Corporation;
                                                               President, PLM Railcar Management Services, Inc.

Harold R. Somerset                       63                    Director, PLM International, Inc.

Robert L. Witt                           57                    Director, PLM International, Inc.

J. Michael Allgood                       49                    Vice President and Chief Financial Officer,
                                                               PLM International, Inc. and PLM Financial Services, Inc.

Stephen M. Bess                          51                    President, PLM Investment Management, Inc. and
                                                               PLM Securities Corp.; Vice President and Director,
                                                               PLM Financial Services, Inc.

Richard K Brock                          35                    Vice President and Corporate Controller,
                                                               PLM International, Inc. and PLM Financial Services, Inc.

Frank Diodati                            43                    President, PLM Railcar Management Services Canada Limited

Steven O. Layne                          43                    Vice President, PLM Transportation Equipment Corporation;
                                                               Vice President, PLM Worldwide Management Services Ltd.

Susan C. Santo                           35                    Vice President, Secretary, and General Counsel,
                                                               PLM International, Inc. and PLM Financial Services, Inc.

Thomas L. Wilmore                        55                    Vice President, PLM Transportation Equipment Corporation;
                                                               Vice President, PLM Railcar Management Services, Inc.

</TABLE>

Robert N.  Tidball  was  appointed  Chairman  of the  Board in  August  1997 and
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. Mr. Tidball
was  appointed  Director of PLM  Financial  Services,  Inc. in July 1997 and was
elected President of PLM Worldwide Management Services Limited in February 1998.
He has served as an officer of PLM Railcar Management Services,  Inc. since June
1987.  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, he was Vice President,  General Manager,  and Director of
North American Car Corporation and a director of the American Railcar  Institute
and the Railway Supply Association.

Randall L.-W.  Caudill was elected to the Board of Directors in September  1997.
He is  President  of  Dunsford  Hill  Capital  Partners,  a San  Francisco-based
financial consulting firm serving emerging growth companies in the United States
and  abroad,  as well as a senior  advisor  to the  investment  banking  firm of
Prudential  Securities,  where he has been employed since 1987. Mr. Caudill also
serves as a director of VaxGen, Inc. and SBE, Inc.

Douglas  P.  Goodrich  was  elected  to the  Board of  Directors  in July  1996,
appointed  Senior  Vice  President  of PLM  International  in  March  1994,  and
appointed Director and President of PLM Financial  Services,  Inc. in June 1996.
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  Corporation  of
Chicago, Illinois, from December 1980 to September 1985.

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 Sugar),
a recently acquired subsidiary of Alexander & Baldwin,  Inc. Mr. Somerset joined
C&H Sugar 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 of
Agriculture and 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 US 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.

Robert L. Witt was elected to the Board of Directors  in June 1997.  Since 1993,
Mr. Witt has been a principal with WWS  Associates,  a consulting and investment
group specializing in start-up situations and private  organizations about to go
public.  Prior to that, he was Chief Executive Officer and Chairman of the Board
of Hexcel  Corporation,  an international  advanced materials company with sales
primarily in the aerospace,  transportation, and general industrial markets. Mr.
Witt also serves on the boards of  directors  for various  other  companies  and
organizations.

J. Michael Allgood was appointed Vice President and Chief  Financial  Officer of
PLM International in October 1992 and Vice President and Chief Financial Officer
of PLM Financial Services,  Inc. in December 1992. Between July 1991 and October
1992,  Mr.  Allgood  was a  consultant  to  various  private  and  public-sector
companies  and  institutions   specializing  in  financial   operations  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 Director of PLM Financial  Services,  Inc. in July
1997.  Mr. Bess was appointed  President of PLM  Securities  Corporation in June
1996 and 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  Corporation,  a manufacturer  of computer  peripheral  equipment,  from
October 1975 to November 1978.

Richard K Brock was appointed  Vice  President  and Corporate  Controller of PLM
International and PLM Financial Services, Inc. in June 1997, having served as an
accounting  manager  beginning in September 1991 and as Director of Planning and
General  Accounting  beginning  in  February  1994.  Mr.  Brock  was a  division
controller of Learning Tree International,  a technical education company,  from
February 1988 through July 1991.

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.

Steven O. Layne was appointed  Vice  President of PLM  Transportation  Equipment
Corporation's  Air Group in November  1992, and was appointed Vice President and
Director of PLM Worldwide  Management  Services  Limited in September  1995. Mr.
Layne was its Vice President,  Commuter and Corporate Aircraft beginning in July
1990.  Prior to joining PLM, Mr. Layne was Director of 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 a senior pilot with 13 years of accumulated
service.

Susan C. Santo  became Vice  President,  Secretary,  and General  Counsel of PLM
International and PLM Financial Services,  Inc. in November 1997. She has worked
as an  attorney  for PLM  International  since  1990 and  served  as its  Senior
Attorney since 1994.  Previously,  Ms. Santo was engaged in the private practice
of law in San  Francisco.  Ms. Santo  received her J.D.  from the  University of
California, Hastings College of the Law.

Thomas L.  Wilmore was  appointed  Vice  President,  Rail of PLM  Transportation
Equipment  Corporation  in March  1994,  and has  served  as Vice  President  of
Marketing for PLM Railcar  Management  Services,  Inc. since May 1988.  Prior to
joining PLM, Mr. Wilmore was Assistant  Vice President and Regional  Manager for
MNC Leasing  Corporation  in Towson,  Maryland from February 1987 to April 1988.
From July 1985 to  February  1987,  he was  President  and  co-owner of Guardian
Industries  Corporation,  Chicago,  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 PLM  International,  Inc. are elected for a three-year term and
the directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified.  No family relationships exist
between  any  director or  executive  officer of PLM  International  Inc. or PLM
Financial Services, Inc..

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, 1997.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a)   Security Ownership of Certain Beneficial Owners

At  December  31,  1997,  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.



<PAGE>



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

(a)   Transactions with Management and Others.

During 1997,  management fees to IMI were incurred in the amounts of $55,690 and
$84,318 for TEP VIIB and TEP VIIC,  respectively.  During  1997,  administrative
services  performed on behalf of the Partnerships were reimbursed to FSI and its
affiliates  in the  amounts  of  $36,724  and  $56,594 by TEP VIIB and TEP VIIC,
respectively.

During 1997,  the  unconsolidated  special-purpose  entities  (USPE) in TEP VIIC
incurred  management  fees to IMI in the  amount  of $8,678  and  administrative
services in the amount of $2,213.

(b)   Certain Business Relationships

None.

(c)   Indebtedness of Management

None.

(d)   Transactions with Promoters

None.

                                     PART IV

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

(a)   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.

     25.  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 27, 1998           PLM Transportation Equipment Partners VIIB
                                 1985 Income Fund
                                 Partnership


                                 By:      PLM Financial Services, Inc.
                                          General Partner



                                 By:      /s/ Douglas P. Goodrich
                                          ---------------------------
                                          Douglas P. Goodrich
                                          President & Director



                                 By:      /s/ Richard K Brock
                                          ---------------------------
                                          Richard K Brock
                                          Vice President and
                                          Corporate Controller




<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 27, 1998           PLM Transportation Equipment Partners VIIC
                                 1985 Income Fund
                                 Partnership


                                 By:      PLM Financial Services, Inc.
                                          General Partner



                                 By:      /s/ Douglas P. Goodrich
                                          ----------------------------
                                          Douglas P. Goodrich
                                          President and Director



                                 By:      /s/ Richard K Brock
                                          ----------------------------
                                          Richard K Brock
                                          Vice President and
                                          Corporate Controller






<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



*_____________________________
Robert N. Tidball                    Director-FSI            March 27, 1998



*_____________________________
Douglas P. Goodrich                  Director-FSI            March 27 1998



*_____________________________
Stephen M. Bess                      Director-FSI            March 27, 1998




* Susan C. Santo, by signing her 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/ Susan C. Santo
----------------------------
Susan C. Santo
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, 1997 and 1996                             26

Statements of income for the years ended December 31, 1997,
     1996, and 1995                                                      27

Statements of changes in partners' capital for the years
     ended December 31, 1997, 1996, and 1995                             28

Statements of cash flows for the years ended December 31, 1997,
     1996, and 1995                                                      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, 1997 and 1996                             36

Statements of income for the years ended December 31, 1997,
     1996, and 1995                                                      37

Statements of changes in partners' capital for the years
     ended December 31, 1997, 1996, and 1995                             38

Statements of cash flows for the years ended December 31, 1997,
     1996, and 1995                                                      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 tenth 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 6.

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, 1997 and 1996, and the results
of its  operations  and its cash  flows for each of the years in the  three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.

/S/ KPMG PEAT MARWICK LLP
------------------------------------

SAN FRANCISCO, CALIFORNIA
March 24, 1998



<PAGE>




           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND
                            (A Limited Partnership)
                                 BALANCE SHEETS
                                  December 31,

<TABLE>
<CAPTION>



                                                                               1997                    1996
                                                                            ---------------------------------------

<S>                                                                          <C>                  <C>
Assets

Equipment held for operating leases, at cost                                 $       304,133      $    3,550,990
Less accumulated depreciation                                                       (304,133)         (3,427,418)
                                                                            ---------------------------------------
    Net equipment                                                                         --             123,572

Cash and cash equivalents                                                            358,630             269,628
Accounts receivable, net of allowance for doubtful accounts of
      $3,965 in 1997 and $5,082 in 1996                                               20,038             127,105
Prepaid insurance                                                                        494               2,714
                                                                            ---------------------------------------

      Total assets                                                           $       379,162      $      523,019
                                                                            =======================================

Liabilities and partners' capital

Liabilities:
Accounts payable                                                             $        18,311      $       32,221
Due to affiliates                                                                      4,641               4,641
Lessee deposits and engine reserves                                                       --                 615
                                                                            ---------------------------------------
  Total liabilities                                                                   22,952              37,477

Partners' capital (deficit):
Limited partners (22,276 units)                                                      356,210             578,736
General Partner                                                                           --             (93,194)
                                                                            ---------------------------------------
  Total partners' capital                                                            356,210             485,542
                                                                            ---------------------------------------

      Total liabilities and partners' capital                                $       379,162      $      523,019
                                                                            =======================================

</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>


                                                                    1997            1996             1995
                                                                ----------------------------------------------

<S>                                                              <C>              <C>               <C>
Revenue


Lease revenue                                                    $  257,945       $   410,917       $   673,162
Interest and other income                                            13,048            13,402            32,119
Net gain on disposition of equipment                                598,676            62,907            27,563
                                                               ---------------------------------------------------
  Total revenues                                                    869,669           487,226           732,844

Expenses

Depreciation                                                         49,217           204,118           278,129
Management fees to affiliate                                         55,690            52,145            55,690
Repairs and maintenance                                              59,752           120,060           159,069
Insurance expense                                                     5,961             4,566             8,406
General and administrative expenses to affiliates                    36,724            77,237           130,286
Other general and administrative expenses                            55,234            57,208            36,876
Provision for (recovery of) bad debts                                18,744            (1,083)           35,082
                                                               ---------------------------------------------------
  Total expenses                                                    281,322           514,251           703,538
                                                               ---------------------------------------------------

Equity in net income of unconsolidated
    Special-purpose entity                                               --           265,108                --

      Net income                                                 $  588,347       $   238,083       $    29,306
                                                               ===================================================

Partners' share of net income:

Limited partners                                                 $  487,976       $   235,702       $    29,013
General Partner                                                     100,371             2,381               293

      Total                                                      $  588,347       $   238,083       $    29,306
                                                               ===================================================

Net income per limited partnership unit (22,276 units)           $    21.91       $     10.58       $      1.30
                                                               ===================================================

Cash distributions                                               $   97,172       $   394,310       $   396,187
                                                               ===================================================

Cash distributions per limited partnership unit                  $     4.32       $     17.52       $     17.61
                                                               ===================================================

Special cash distributions                                       $  620,507       $   200,000       $        --
                                                               ===================================================

Special cash distributions per limited partnership unit          $    27.58       $      8.89       $        --
                                                               ===================================================

Total cash distributions                                         $  717,679       $   594,310       $   396,187
                                                               ===================================================

Total cash distributions per limited partnership unit            $    31.90       $     26.41       $     17.61
                                                               ===================================================

</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, 1997, 1996, and 1995

<TABLE>
<CAPTION>



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

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

Net income                                                        29,013                293                29,306

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

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

Net income                                                       235,702              2,381               238,083

Cash distribution                                               (390,367)            (3,943 )            (394,310)

Special distribution                                            (198,000)            (2,000 )            (200,000)
                                                          ----------------------------------------------------------

  Partners' capital (deficit) at December 31, 1996               578,736            (93,194 )             485,542

Net income                                                       487,976            100,371               588,347

Cash distribution                                                (96,200)              (972 )             (97,172)

Special distribution                                            (614,302)            (6,205 )            (620,507)
                                                          ----------------------------------------------------------

  Partners' capital at December 31, 1997                    $    356,210         $       --         $     356,210
                                                          ==========================================================

</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>



                                                                        1997             1996             1995
                                                                   ------------------------------------------------

<S>                                                                 <C>                <C>               <C>
Operating activities

Net income                                                          $    588,347       $   238,083       $    29,306
Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
  Depreciation                                                            49,217           204,118           278,129
  Net gain from disposition of  equipment                               (598,676)          (62,907)          (27,563)
  Equity in net income of unconsolidated
      special-purpose entity                                                  --          (265,108)               --
  Changes in operating assets and liabilities:
    Restricted cash                                                           --                --              (526)
    Accounts receivable, net                                             107,067             8,215           (13,616)
    Prepaid insurance                                                      2,220               414               158
    Accounts payable                                                     (13,910)           10,929           (11,186)
    Due to affiliates                                                         --                --               654
    Lessee deposits and engine reserves                                     (615)              355              (576)
                                                                   ----------------------------------------------------
      Net cash provided by operating activities                          133,650           134,099           254,780

Investing activities
Capitalized equipment repairs                                                 --                --               (45)
Proceeds from disposition of equipment                                   673,031            91,807            76,396
Liquidation distributions from unconsolidated
    special-purpose entity                                                    --           303,144                --
Distributions from unconsolidated
    special-purpose entity                                                    --            41,080                --
                                                                   ----------------------------------------------------
      Net cash provided by investing activities                          673,031           436,031            76,351
                                                                   ----------------------------------------------------

Financing activities
Cash distributions paid to limited partners                             (710,502)         (588,367)         (392,225)
Cash distributions paid to General Partner                                (7,177)           (5,943)           (3,962)
                                                                   ----------------------------------------------------
      Net cash used in financing activities                             (717,679)         (594,310)         (396,187)
                                                                   ----------------------------------------------------

Net increase (decrease) in cash and cash equivalents                      89,002           (24,180)          (65,056)
Cash and cash equivalents at beginning of year                           269,628           293,808           358,864
                                                                   ----------------------------------------------------
Cash and cash equivalents at end of year                            $    358,630       $   269,628       $   293,808
                                                                   ====================================================
</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, 1997


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  or  PLM
     International) and manages the affairs of the Partnership.

     The net income (loss) and  distributions  of the  Partnership are generally
     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,  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.

     Depreciation

     Depreciation is computed on the double declining  balance method based upon
     estimated  useful  lives  of 15  years  for rail  equipment,  12 years  for
     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  that are  expected to extend the  equipment's
     useful life or reduce equipment  operating  expenses are amortized over the
     estimated remaining life of the equipment.


<PAGE>



           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1997


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. 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, 1997, 1996, or 1995.

     Investments in Unconsolidated Special-Purpose Entities (USPE's)

     Until the third  quarter of 1996,  the  Partnership  had an  interest in an
     unconsolidated special-purpose entity which owned transportation equipment.
     This interest was accounted for using the equity method.

     The  Partnership's  investment  in  unconsolidated  special-purpose  entity
     included  acquisition and lease negotiation fees paid by the Partnership to
     TEC.  The  Partnership's  equity  interest in net income of  unconsolidated
     special-purpose  entity is reflected net of management fees paid or payable
     to IMI and the amortization of acquisition and lease  negotiation fees paid
     to TEC.

     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.

     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 1997, 1996, and 1995). The General Partner is generally  allocated a 1%
     share of the net income (loss) and the limited partners are allocated a 99%
     share of the net income  (loss).  The  General  Partner  received a special
     allocation  of income in the  amount of $94,488  in 1997.  The  Partnership
     agreement  provides for a special  allocation to occur near the dissolution
     of the Partnership. No special allocation was received in 1996 or 1995.

     Cash  distributions are recorded when paid. Cash distributions to investors
     in excess of net income are  considered  to  represent a return of capital.
     Regular  and  special   distributions  to  limited  partners  of  $222,526,
     $352,665, and $363,212 in 1997, 1996, and 1995,  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.


<PAGE>



           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1997

2.   Transactions with General Partner and Affiliates (continued)

     An officer of FSI contributed  $100 of the  Partnership's  initial capital.
     Under the Equipment Management Agreement, IMI receives an annual management
     fee  monthly  attributable  to  either  owned  equipment  or  interests  in
     equipment  owned  by  the  USPE's  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 were payable to IMI as of December 31, 1997 and 1996.

     As of December 31, 1997,  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  yards'  customers  are  credited  to the owners of the  related
     equipment as received.  Direct  expenses  associated with the equipment are
     charged directly to the Partnership.  An allocation of indirect expenses of
     the rental yard operations is charged to the Partnership monthly

     The Partnership  reimbursed FSI and its affiliates  $36,724,  $77,237,  and
     $130,286 for  administrative  and other services performed on behalf of the
     Partnership in 1997, 1996, and 1995, respectively. At December 31, 1997 and
     1996, $4,641 was due to FSI and its affiliates. . 3. Equipment

     The components of owned equipment are as follows:

<TABLE>
<CAPTION>


                                                  1997                  1996
                                            --------------------------------------

  <S>                                         <C>                    <C>
  Trailers                                    $     304,133          $   3,146,140
  Marine containers                                      --                 86,201
  Rail equipment                                         --                318,649
                                            -----------------------------------------
                                                    304,133              3,550,990
Less accumulated depreciation                      (304,133)            (3,427,418 )
                                            -----------------------------------------
Net equipment                                 $          --          $     123,572
                                            =========================================

</TABLE>

     At December 31, 1997 the Partnership owned 17 trailers. 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  trailers,  which earn
     revenue based on  utilization.  The  Partnership's  marine  containers were
     leased to an operator of  utilization-type  pools which included  equipment
     owned by unaffiliated  parties.  In such instances revenues received by the
     Partnership consisted 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 1997 and 1996, the Partnership sold trailers,  railcars,  and marine
     containers.

     All  of  the   equipment   owned  by  the   Partnership   is  operating  in
     PLM-affiliated short-term rental facilities as of December 31, 1997.

     All   leases   are  being   accounted   for  as   operating   leases   with
     utilization-based rentals. Contingent rentals based upon utilization amount
     to $6,002 in 1997, $18,417 in 1996, and $22,703 in 1995.

     The  lessees  accounting  for  10% or  more  of the  total  lease  revenues
     including USPE's during 1997, 1996, and 1995 were Consolidated Rail (19% in
     1997),  CSXT (12% in 1997),  Kanakakee,  Beaverville and Southern  Railroad
     (40% in 1996 and 18% in 1995),  Union  Pacific  (15% in 1997)  and  British
     Aerospace, Inc. (13% in 1996 and 14% in 1995).


<PAGE>




           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1997


4.   Investment in Unconsolidated Special-Purpose Entity

     Prior  to  1996,  the  Partnership   accounted  for  operating   activities
     associated with joint ownership of rental equipment as undivided interests,
     including its proportionate  share of each asset with similar  wholly-owned
     assets in its financial  statements.  Under generally  accepted  accounting
     principles, the effects of such activities, if material, should be reported
     using the equity  method of  accounting.  Therefore,  effective  January 1,
     1996,  the  Partnership  adopted  the  equity  method  to  account  for its
     investment in such jointly-held assets.

     The principal  differences  between the previous  accounting method and the
     equity method relate to the  presentation  of activities  relating to these
     assets  in the  income  statement.  Whereas,  under  the  equity  method of
     accounting the Partnership's  proportionate  share is presented as a single
     net amount, "equity in net income (loss) of unconsolidated  special-purpose
     entity",  under the previous  method,  the  Partnership's  income statement
     reflected its  proportionate  share of each  individual item of revenue and
     expense.   Accordingly,  the  effect  of  adopting  the  equity  method  of
     accounting  has no  cumulative  effect  on  previously  reported  partner's
     capital  or on the  Partnership's  net  income  (loss)  for the  period  of
     adoption.  Because the effects on previously issued financial statements of
     applying the equity method of accounting to  investments  in  jointly-owned
     assets are not considered to be material to such financial statements taken
     as a whole, previously issued financial statements have not been restated.

     The following summarizes the financial  information for the special-purpose
     entity and the Partnership's  interest therein as of and for the year ended
     December 31, 1996:

<TABLE>
<CAPTION>

                                                   Net Interest of Partnership
                                   Total USPE
                                 ----------------------------------

<S>                              <C>              <C>
Net Investments                  $           --   $           --
Revenues                                199,477           61,120
Net Income                              862,235          265,108

</TABLE>

     The Partnership  liquidated its 31% investment in an entity which owned one
     commuter aircraft in 1996.

5.   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, 1997, there were temporary  differences of approximately
     $1.4 million between the financial  statement carrying values of assets and
     liabilities   and  the  federal   income  tax  bases  of  such  assets  and
     liabilities.  The  differences  were  principally due to the differences in
     depreciation methods and the tax treatment of underwriting  commissions and
     syndication costs.


<PAGE>




           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1997

6.   Subsequent Event

     With  the  disposal  of  the  majority  of  the  equipment  portfolio,  the
     Partnership's remaining assets were transferred into a liquidating trust as
     of January 1, 1998. The sole Beneficiaries of the liquidating trust are the
     limited  partners and the General Partner.  The Trustees,  as designated by
     the General Partner, are three officers of the General Partner. The amounts
     reflected  for  assets and  liabilities  of the  Partnership  have not been
     adjusted to reflect  liquidation  values.  The equipment  portfolio that is
     actively being marketed for sale by the Trustees continues to be carried at
     the lower of depreciated cost or fair value less cost of disposal. Although
     the Trustees estimate that there will be distributions to the Beneficiaries
     after final disposal of assets and settlement of  liabilities,  the amounts
     cannot be accurately  determined prior to actual disposal of the equipment.
     Cash  receipts  (including  proceeds  from the sale of assets) in excess of
     expected  obligations  and  reasonable  reserves will be distributed to the
     Beneficiaries  in the  liquidating  trust  from time to time,  but not less
     often than annually. Upon final liquidation,  the liquidating trust will be
     dissolved.

     For tax  purposes,  the  liquidating  trust will  continue  be treated as a
     partnership under Internal Revenue Regulation Section  301.7701-3(b)(1)(i).
     Partnership  tax  returns  will be filed  until all the  liquidating  trust
     assets are distributed.

     The Trustees have applied to the Securities and Exchange  Commission  (SEC)
     to terminate  the Trust's  obligation  to file Form 10-Q and Form 10-K.  If
     approved by the SEC, the Trustees will  discontinue  all future  filings of
     these reports.

7.   Special Distributions

     The General  Partner  paid  special  distributions  of $27.58 and $8.89 per
     weighted-average   limited   partnership   unit   during   1997  and  1996,
     respectively. No special distributions were paid in 1995.


<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 tenth 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 6.

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, 1997 and 1996, and the results
of its  operations  and its cash  flows for each of the years in the three  year
period ended December 31, 1996 in conformity with generally accepted  accounting
principles.


/S/ KPMG PEAT MARWICK, LLP
--------------------------------

SAN FRANCISCO, CALIFORNIA
March 24, 1998




<PAGE>




           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND
                            (A Limited Partnership)
                                 BALANCE SHEETS
                                  December 31,

<TABLE>
<CAPTION>



                                                                                  1997                 1996
                                                                            -------------------------------------


<S>                                                                          <C>                    <C>
Assets

Equipment held for operating leases, at cost                                 $    1,295,164         $   4,069,971
Less accumulated depreciation                                                    (1,291,640)           (3,861,489 )
                                                                            ----------------------------------------
    Net equipment                                                                     3,524               208,482

Cash and cash equivalents                                                           191,228               416,360
Investments in unconsolidated special-purpose entities                                   --                99,974
Accounts receivable less allowance for doubtful accounts of
    $3,227 in 1997 and $633 in 1996                                                  25,630                64,261
Prepaid insurance                                                                       913                 3,713
                                                                            ----------------------------------------

      Total assets                                                           $      221,295         $     792,790
                                                                            ========================================

Liabilities and partners' capital

Liabilities:
Accounts payable and accrued expenses                                        $        9,928         $      13,040
Due to affiliates                                                                     7,026                 7,026
  Total liabilities                                                                  16,954                20,066

Partners' capital (deficit):
Limited partners (33,727 units)                                                     204,341               913,500
General partner                                                                          --              (140,776 )
                                                                            ----------------------------------------
  Total partners' capital                                                           204,341               772,724
                                                                            ----------------------------------------

      Total liabilities and partners' capital                                $      221,295         $     792,790
                                                                            ========================================
</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>




                                                                     1997                 1996              1995
                                                                   ---------------------------------------------------
<S>                                                                  <C>                <C>                <C>
Revenues

Lease revenue                                                        $    220,689       $    406,874       $  1,134,932
Interest and other income                                                  17,622             24,366             35,376
Net gain from disposition of equipment                                    431,757            133,840             84,289
                                                                   -------------------------------------------------------
  Total revenues                                                          670,068            565,080          1,254,597

Expenses

Depreciation                                                              131,511            241,688            511,267
Management fees to affiliate                                               84,318             97,439             87,968
Repairs and maintenance                                                    58,344            104,666            216,498
Insurance expense                                                           6,598              7,511             11,783
General and administrative expenses to affiliates                          56,594            112,550            187,498
Other general and administrative expenses                                  43,154             53,900             47,209
Provision for bad debts                                                     5,702                122             17,200
                                                                   -------------------------------------------------------
  Total expenses                                                          386,221            617,876          1,079,423

Equity in net income of unconsolidated special-
    purpose entities                                                       59,447            653,740                 --
                                                                   -------------------------------------------------------

      Net income                                                     $    343,294       $    600,944       $    175,174
                                                                   =======================================================

Partners' share of net income

Limited partners                                                     $    193,401       $    594,935       $    173,422
General partner                                                           149,893              6,009              1,752

      Total                                                          $    343,294       $    600,944       $    175,174
                                                                   =======================================================

Net income per limited partnership unit (33,727 units)               $       5.73       $      17.64       $       5.14
                                                                   =======================================================

Cash distributions                                                   $     75,660       $    654,356       $    847,539
                                                                   =======================================================

Cash distributions per limited partnership unit                      $       2.22       $      19.21       $      24.88
                                                                   =======================================================

Special cash distributions                                           $    836,017       $    800,000       $    200,000
                                                                   =======================================================

Special cash distributions per limited partnership unit              $      24.54       $      23.48       $       5.87
                                                                   =======================================================

Total cash distributions                                             $    911,677       $  1,454,356       $  1,047,539
                                 =========================================================================================

Total cash distributions per limited partnership unit                $      26.76       $      42.69       $      30.75
                                                                   =======================================================

</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, 1997, 1996, and 1995

<TABLE>
<CAPTION>


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

<S>                                                         <C>                   <C>                  <C>
Partners' capital (deficit) at December 31, 1994            $   2,622,019         $   (123,518)        $   2,498,501

Net income                                                        173,422                1,752               175,174

Cash distribution                                                (839,064 )             (8,475)             (847,539 )

Special distribution                                             (198,000 )             (2,000)             (200,000 )
                                                          -------------------------------------------------------------

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

Net income                                                        594,935                6,009               600,944

Cash distribution                                                (647,812 )             (6,544)             (654,356 )

Special distribution                                             (792,000 )             (8,000)             (800,000 )
                                                          -------------------------------------------------------------

  Partners' capital (deficit) at December 31, 1996                913,500             (140,776)              772,724

Net income                                                        193,401              149,893               343,294

Cash distribution                                                 (74,903 )               (757)              (75,660 )

Special distribution                                             (827,657 )             (8,360)             (836,017 )
                                                          -------------------------------------------------------------

  Partners' capital at December 31, 1997                    $     204,341         $         --         $     204,341
                                                          =============================================================

</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>



                                                                    1997               1996               1995
                                                              ------------------------------------------------------

<S>                                                            <C>                  <C>                 <C>
Operating activities

Net income                                                     $      343,294       $     600,944       $      175,174
Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
  Depreciation                                                        131,511             241,688              511,267
  Net gain from disposition of equipment                             (431,757)           (133,840 )            (84,289)
  Equity in net income of unconsolidated
      special-purpose entity                                          (59,447)           (653,740 )                 --
  Changes in operating assets and liabilities:
    Restricted cash                                                        --                  --                 (728)
    Accounts receivable, net                                           41,631              78,964                9,115
    Prepaid insurance                                                   2,800               1,722                 (516)
    Due from affiliates                                                    --                  --               12,085
    Accounts payable and accrued expenses                              (3,112)             (2,162 )              4,041
    Due to affiliates                                                      --                  --                7,026
    Lessee deposits and engine reserves                                    --                  --                  797
                                                              -----------------------------------------------------------
      Net cash provided by operating activities                        24,920             133,576              633,972
                                                              -----------------------------------------------------------

Investing activities
Capitalized equipment repairs                                          (1,435)                 --                 (191)
Proceeds from disposition of equipment                                503,639             206,323              165,784
Liquidation distributions from unconsolidated
    special-purpose entity                                                 --             686,229                   --
Distributions from unconsolidated special
    special-purpose entities                                          159,421             293,494                   --
                                                              -----------------------------------------------------------
      Net cash provided by investing activities                       661,625           1,186,046              165,593
                                                              -----------------------------------------------------------

Financing activities
Cash distributions paid to Limited Partners                          (902,560)         (1,439,812 )         (1,037,064)
Cash distributions paid to General partner                             (9,117)            (14,544 )            (10,475)
                                                              -----------------------------------------------------------
      Net cash used in financing activities                          (911,677)         (1,454,356 )         (1,047,539)
                                                              -----------------------------------------------------------

Net decrease in cash and cash equivalents                            (225,132)           (134,734 )           (247,974)
Cash and cash equivalents at beginning of year                        416,360             551,094              799,068
Cash and cash equivalents at end of year                       $      191,228       $     416,360       $      551,094
                                                              ===========================================================

Supplemental disclosure of non-cash investing and financing
  activities:
  Sales proceeds included in accounts receivable               $        3,000       $          --       $           --
                                                              ===========================================================

</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, 1997


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  or PLM  International)  and
     manages the affairs of the Partnership.

     The net income (loss) and  distributions  of the  Partnership are generally
     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,  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.

     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
     marine containers,  aircraft, and trailers. 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  that are  expected to extend the  equipment's  useful life or
     reduce  equipment  operating  expenses  are  amortized  over the  estimated
     remaining life of the equipment.


<PAGE>



           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1997

     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. 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, 1997, 1996, or 1995.

     Investments in Unconsolidated Special-Purpose Entities

     The Partnership has interests in an unconsolidated  special-purpose  entity
     which own transportation equipment. These interests are accounted for using
     the equity method.

     The  Partnership's  investment in unconsolidated  special-purpose  entities
     includes  acquisition and lease negotiation fees paid by the Partnership to
     TEC.  The  Partnership's  equity  interest in net income of  unconsolidated
     special-purpose  entities  is  reflected  net of  management  fees  paid or
     payable to IMI and the  amortization of acquisition  and lease  negotiation
     fees paid to TEC.

     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.

     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 1997, 1996, and 1995). The General Partner is generally  allocated a 1%
     share of the net income  (loss).  The  General  Partner  received a special
     allocation  of income in the  amount of  $146,460  in 1997 from the gain on
     sale of  equipment as provided  for in the  Partnership's  agreement in the
     event of the  dissolution  of the  Partnership.  No special  allocation was
     received in 1996 or 1995.

     Cash  distributions are recorded when paid. Cash distributions to investors
     in excess of net income are  considered  to  represent a return of capital.
     Cash and special  distributions to limited  partners of $709,159,  $844,877
     and $863,642 in 1997,  1996,  and 1995,  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.


<PAGE>



           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1997

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 monthly  attributable to either owned equipment or interests
     in  equipment  owned  by the  USPE's  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  were  payable  to IMI as of  December  31,  1997 and  1996.  The
     Partnership's  proportional  share of USPE's management fees expense during
     1997 and 1996 was $8,678 and $15,596, respectively.

     As of December 31, 1997,  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  yards'  customers  are  credited  to the owners of the  related
     equipment as received.  Direct  expenses  associated with the equipment are
     charged directly to the Partnership.  An allocation of indirect expenses of
     the rental yard operations is charged to the Partnership monthly

     The Partnership  reimbursed FSI and its affiliates $56,594,  $112,550,  and
     $187,498 for  administrative  and other services performed on behalf of the
     Partnership  in 1997,  1996,  and  1995,  respectively.  The  Partnership's
     proportional  share of USPE's  administrative and other services was $2,213
     and $594 during 1997 and 1996, respectively.

3.   Equipment

     The components of owned equipment are as follows:

<TABLE>
<CAPTION>

                                                  1997                  1996
                                            --------------------------------------

  <S>                                         <C>                    <C>
  Trailers                                    $   1,295,164          $   3,870,247
  Marine containers                                      --                199,724
                                            -----------------------------------------
                                                  1,295,164              4,069,971
Less accumulated depreciation                    (1,291,640)            (3,861,489 )
                                            -----------------------------------------
Net equipment                                 $       3,524          $     208,482
                                            =========================================

</TABLE>

     At December 31, 1997 the Partnership owned 66 trailers. 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  were  leased to the  operator of  utilization-type  pools which
     included  equipment  owned  by  unaffiliated  parties.  In such  instances,
     revenues received by the Partnership consisted 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,
     1997.

     During 1997 and 1996, the Partnership sold trailers and marine containers.

     All   leases   are  being   accounted   for  as   operating   leases   with
     utilization-based  rentals.  Future minimum  rentals of owned and partially
     owned equipment under  non-cancelable  leases at December 31, 1997 for 1998
     are  approximately  $28,926.  Contingent  rentals  based  upon  utilization
     amounted to $6,294 in 1997, $14,332 in 1996, and $29,819 in 1995.


<PAGE>




           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1997


3.   Equipment (continued)

     The  lessees  accounting  for  10% or  more  of the  total  lease  revenues
     including  USPE's during 1997,  1996, and 1995 were Horizon Air Industries,
     Inc. (44% in 1997,  24% in 1996, and 15% in 1995),  and British  Aerospace,
     Inc. (19% in 1996, and 20% in 1995).

4.   Investments in Unconsolidated Special-Purpose Entities

     Prior  to  1996,  the  Partnership   accounted  for  operating   activities
     associated with joint ownership of rental equipment as undivided interests,
     including its proportionate  share of each asset with similar  wholly-owned
     assets in its financial  statements.  Under generally  accepted  accounting
     principles, the effects of such activities, if material, should be reported
     using the equity  method of  accounting.  Therefore,  effective  January 1,
     1996,  the  Partnership  adopted  the  equity  method  to  account  for its
     investment in such jointly-held assets.

     The principal  differences  between the previous  accounting method and the
     equity method relate to the  presentation  of activities  relating to these
     assets  in the  income  statement.  Whereas,  under  the  equity  method of
     accounting the Partnership's  proportionate  share is presented as a single
     net amount, "equity in net income (loss) of unconsolidated  special-purpose
     entities",  under the previous method,  the Partnership's  income statement
     reflected its  proportionate  share of each  individual item of revenue and
     expense.   Accordingly,  the  effect  of  adopting  the  equity  method  of
     accounting  has no  cumulative  effect  on  previously  reported  partner's
     capital  or on the  Partnership's  net  income  (loss)  for the  period  of
     adoption.  Because the effects on previously issued financial statements of
     applying the equity method of accounting to  investments  in  jointly-owned
     assets are not considered to be material to such financial statements taken
     as a whole, previously issued financial statements have not been restated.

     The following summarizes the financial  information for the special-purpose
     entities  and the  Partnership's  interest  therein as of and for the years
     ended December 31, 1997 and 1996:

<TABLE>
<CAPTION>

                                               1997                                    1996
                               --------------------------------------  -------------------------------------
                               ---------------------------------------  --------------------------------------
                                                      Net Interest                            Net Interest
                                      Total          of Partnership           Total USPE     of Partnership
                                      USPE
                               -------------------------------------------------------------------------------

<S>                              <C>                <C>                   <C>                <C>
Net Investments                  $           --     $            --       $      124,423     $       99,974
Revenues                                216,000             173,556              415,477            311,913
Net Income                               73,985              59,447              931,963            653,740

</TABLE>

     The "Investments in Unconsolidated  Special-Purpose Entity" included an 80%
     interest in an entity  which owns a commuter  aircraft  as of December  31,
     1997. The Partnership  liquidated its 69% interest in an entity which owned
     a commuter aircraft in 1996.

5.   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, 1997,  there were temporary  differences  of  approximately
     $2.2 million between the financial  statement carrying values of assets and
     liabilities   and  the  federal   income  tax  bases  of  such  assets  and
     liabilities.  The  differences  were  principally due to the differences in
     depreciation methods and the tax treatment of underwriting  commissions and
     syndication costs.



<PAGE>




           PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND
                             (A Limited Partnership)
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1997

6.   Liquidation and special distributions

     During the first quarter of 1995, the  Partnership  completed its 10th year
     of  operations.  Since that date,  the General  Partner  has been  actively
     marketing the remaining  equipment  portfolio with the intent of maximizing
     sale proceeds. As sale proceeds are received the General Partner intends to
     periodically 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 1997, 1996, and 1995, the General Partner paid special  distributions of
     $24.54, $23.48, and $5.87 per weighted-average limited partnership unit.


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           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.

   25.      Powers of Attorney                                  46-51


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

                                                      -39-


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