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


[X]      Quarterly  Report  Pursuant  to Section  13 or 15(d) of the  Securities
         Exchange Act of 1934 For the fiscal quarter ended March 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 0-14599


                 PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985
               INCOME FUND (Exact name of registrant as specified
                                 in its charter)


      California                                          94-2946248
(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


<PAGE>






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

                                 BALANCE SHEETS


                                     ASSETS
<TABLE>
<CAPTION>

                                                                            March 31,             December 31,
                                                                               1997                   1996
                                                                         ----------------------------------------

   <S>                                                                   <C>                    <C>           
   Equipment held for operating leases, at cost                          $    2,993,030         $    3,550,990
   Less accumulated depreciation                                             (2,953,192 )           (3,427,418 )
                                                                          ---------------------------------------
     Net equipment                                                               39,838                123,572

   Cash and cash equivalents                                                    404,900                269,628
   Accounts receivable, net of allowance for doubtful accounts of
     $4,975 in 1997 and $5,082 in 1996                                          118,915                127,105
   Prepaid insurance                                                              2,028                  2,714
                                                                          ---------------------------------------

   Total assets                                                          $      565,681         $      523,019 
                                                                          =======================================

                                        LIABILITIES AND PARTNERS' CAPITAL

   Liabilities:

   Due to affiliates                                                     $        4,641         $        4,641  
   Accounts payable and accrued expenses                                         28,358                 32,221
   Lessee deposits and engine reserves                                           14,000                    615
                                                                          ---------------------------------------
       Total liabilities                                                         46,999                 37,477

   Partners' capital (deficit):

   Limited Partners (22,276 units)                                              611,545                578,736
   General Partner                                                              (92,863 )              (93,194 )
                                                                          ---------------------------------------
       Total partners' capital                                                  518,682                485,542
                                                                          ---------------------------------------

   Total liabilities and partners' capital                               $      565,681         $      523,019   
                                                                          =======================================


</TABLE>












                       See accompanying notes to financial
                                  statements.


<PAGE>



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

                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>


                                                                             For the three months
                                                                                ended March 31,
                                                                            1997             1996
                                                                        --------------------------------

   <S>                                                                   <C>                <C>        
   Revenues:
     Lease revenue                                                       $     98,483       $   106,074
     Interest and other income                                                  3,528             3,453
     Gain on disposition of equipment                                         114,482            19,330
                                                                         ----------------------------------
            Total revenues                                                    216,493           128,857

   Expenses:
     Depreciation                                                              23,510            54,769
     Management fees to affiliate                                              13,922            11,513
     (Recovery of) provision for bad debts                                       (106 )          17,821
     Repairs and maintenance                                                   16,249            22,263
     Insurance expense                                                          1,057             1,826
     General and administrative
         expenses to affiliates                                                 4,364            26,546
     Other general and administrative expenses                                 27,185            10,516
                                                                         ----------------------------------
            Total expenses                                                     86,181           145,254

   Equity in net income of unconsolidated special purpose entity                   --             9,331
                                                                         ----------------------------------

   Net income (loss)                                                     $    130,312       $    (7,066 )
                                                                         ==================================

   Partners' share of net income (loss):

      Limited  Partners - 99%                                            $    129,009       $    (6,995 )
      General Partner - 1%                                                      1,303               (71 )
                                                                         ----------------------------------

            Total                                                        $    130,312       $    (7,066 )
                                                                         ==================================

   Net income (loss) per weighted average Limited
     Partnership Unit (22,276 units)                                     $       5.79       $     (0.31 )
                                                                         ==================================

   Cash distributions                                                    $     97,172       $    99,046
                                                                         ==================================

   Cash distribution per weighted average
      Limited Partnership Unit                                           $       4.32       $      4.40
                                                                         ==================================

</TABLE>


                       See accompanying notes to financial
                                  statements.



<PAGE>



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

                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
               For the period from December 31, 1995 to March 31,
                                      1997


<TABLE>
<CAPTION>




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

   <S>                                                  <C>                    <C>                   <C>             
   Partners' capital (deficit)
      at December 31, 1995                              $    931,401           $  (89,632 )          $     841,769   

   Net income                                                235,702                2,381                  238,083

   Quarterly cash distributions                             (390,367 )             (3,943 )               (394,310 )

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

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

   Net income                                                129,009                1,303                  130,312

   Quarterly cash distributions                              (96,200 )               (972 )                (97,172 )
                                                        -------------------------------------------------------------

   Partners' capital (deficit)
      at March 31, 1997                                 $    611,545           $  (92,863 )          $     518,682 
                                                        =============================================================

</TABLE>







                       See accompanying notes to financial
                                  statements.


<PAGE>



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

                             STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>



                                                                             For the three months ended
                                                                                     March 31,
                                                                             1997                  1996
                                                                        -------------------------------------
   <S>                                                                   <C>                    <C>          
   Operating activities:
   Net income (loss)                                                     $   130,312            $    (7,066 )
      Adjustments to reconcile net income (loss)
         to net cash provided by operating activities:
      Gain on disposition of equipment                                      (114,482 )              (19,330 )
      Depreciation                                                            23,510                 54,769
      Equity in net income from unconsolidated special purpose
        entity                                                                    --                 (9,331 )
      Changes in operating assets and liabilities:
              Accounts receivable, net                                         8,190                 42,674
              Prepaid insurance                                                  686                  1,028
              Accounts payable and accrued expenses                           (3,863 )               (2,695 )
              Lessee deposits and engine reserves                             13,385                   (260 )
                                                                         -------------------------------------

   Net cash provided by operating activities                                  57,738                 59,789
                                                                         -------------------------------------

   Investing activities:
      Proceeds from disposition of equipment                                 174,706                 34,213
      Distributions from unconsolidated special purpose entity                    --                 18,398
                                                                         -------------------------------------

   Net cash provided by investing activities                                 174,706                 52,611
                                                                         -------------------------------------

   Financing activities:
      Cash distributions paid to Limited Partners                            (96,200 )              (98,056 )
      Cash distributions paid to General Partner                                (972 )                 (990 )
                                                                         -------------------------------------
   Net cash used in financing activities                                     (97,172 )              (99,046 )
                                                                         -------------------------------------

   Net increase in cash and cash equivalents                                 135,272                 13,354

   Cash and cash equivalents at beginning of period                          269,628                293,808
                                                                         -------------------------------------

   Cash and cash equivalents at end of period                            $   404,900            $   307,162
                                                                         =====================================

</TABLE>


                       See accompanying notes to financial
                                  statements.



<PAGE>


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

1.   Opinion of Management

     In the  opinion of the  management  of PLM  Financial  Services  Inc.,  the
     General Partner,  the accompanying  unaudited financial  statements contain
     all  adjustments  necessary,   consisting  primarily  of  normal  recurring
     accruals,  to present  fairly the  Partnership's  financial  position as of
     March 31, 1997 and December 31, 1996, the statements of operations and cash
     flows  for the  three  months  ended  March  31,  1997  and  1996,  and the
     statements of changes in partners' capital for the period from December 31,
     1995 to March  31,  1997.  Certain  information  and  footnote  disclosures
     normally  included in  financial  statements  prepared in  accordance  with
     generally  accepted  accounting  principles  have been condensed or omitted
     from  the  accompanying  financial  statements.  For  further  information,
     reference  should be made to the  financial  statements  and notes  thereto
     included in the Partnership's Annual Report on Form 10-K for the year ended
     December 31, 1996, on file at the Securities and Exchange Commission.

2.   Reclassifications

     Certain amounts in the 1996 financial  statements have been reclassified to
conform to the 1997 presentation.

3.   Equipment

     The components of owned equipment are as follows:
<TABLE>
<CAPTION>

                                                          March 31,             December 31,
                                                             1997                   1996
                                                       ----------------------------------------
   Equipment held for operating leases:

   <S>                                                  <C>                     <C>          
   Trailers                                             $   2,910,211           $   3,146,140
   Marine containers                                           82,819                  86,201
   Rail equipment                                                  --                 318,649
                                                        ----------------------------------------
                                                            2,993,030               3,550,990
   Less accumulated depreciation                           (2,953,192 )            (3,427,418 )
                                                        ----------------------------------------
   Net equipment                                        $      39,838           $     123,572
                                                        ========================================
</TABLE>

All  of the equipment  owned by the Partnership was either on lease or operating
     in  PLM-affiliated  short-term  rental  facilities  at March  31,  1997 and
     December 31, 1996.

During the three months ended March 31, 1997, the  Partnership  sold or disposed
     of railcars,  trailers  and marine  containers  with an aggregate  net book
     value of $60,224 for  proceeds of  $174,706.  During the three months ended
     March 31,  1996,  the  Partnership  sold or disposed of trailers and marine
     containers  with an  aggregate  net book  value of  $14,883  for  aggregate
     proceeds of $34,213.

4.   Liquidation and special distributions

     During the first quarter of 1995, the  Partnership  completed its 10th year
     of  operations.  As  originally  anticipated  by the General  Partner,  the
     Partnership  is being  liquidated in an orderly manner in its 11th and 12th
     years of operation. The General Partner is actively marketing the remaining
     equipment  portfolio with the intent of maximizing  sale proceeds.  As sale
     proceeds are received the

<PAGE>



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

4.   Liquidation and special distributions (continued)

     General Partner intends to periodicially  declare special  distributions to
     distribute the sale proceeds to the partners.  During the liquidation phase
     of the Partnership the equipment will continue to be leased under operating
     leases  until  sold.  Operating  cash  flows,  to the  extent  they  exceed
     Partnership expenses,  will continue to be distributed on a quarterly basis
     to partners. The amounts reflected for assets and liabilites of Partnership
     have not  been  adjusted  to  reflect  liquidation  values.  The  equipment
     portfolio  continues to be carried at the lower of depreciated cost or fair
     value less cost to dispose.  Although the General  Partner  estimates  that
     there will be  distributions  after  liquidation of assets and liabilities,
     the amounts cannot be accurately  determined prior to actual liquidation of
     the equipment.  Any excess proceeds over expected  Partnership  obligations
     will be distributed to the Partners throughout the liquidation period. Upon
     final liquidation, the Partnership will be dissolved.



<PAGE>



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

                                 BALANCE SHEETS

                                     ASSETS
<TABLE>
<CAPTION>

                                                                            March 31,            December 31,
                                                                              1997                   1996
                                                                        ----------------------------------------

   <S>                                                                   <C>                    <C>          
   Equipment held for operating leases, at cost                          $   3,832,106          $   4,069,971
       Less accumulated depreciation                                        (3,688,771 )           (3,861,489 )
                                                                         ---------------------------------------
         Net equipment                                                         143,335                208,482

   Cash and cash equivalents                                                   343,774                416,360
   Investments in unconsolidated special purpose entity                         73,224                 99,974
   Accounts receivable, net of allowance for doubtful accounts of
       $612 in 1997 and $633 in 1996                                            53,046                 64,261
   Prepaid insurance                                                             2,707                  3,713
                                                                         ---------------------------------------

   Total assets                                                          $     616,086          $     792,790
                                                                         =======================================

                        LIABILITIES AND PARTNERS' CAPITAL

   Liabilities:

   Due to affiliates                                                     $       7,026          $       7,026
   Accounts payable and accrued expenses                                        10,030                 13,040
                                                                         ---------------------------------------
       Total liabilities                                                        17,056                 20,066

   Partners' capital (deficit):

   Limited Partners (33,727 units)                                             741,543                913,500
   General Partner                                                            (142,513 )             (140,776 )
                                                                         ---------------------------------------
       Total partners' capital                                                 599,030                772,724
                                                                         ---------------------------------------

   Total liabilities and partners' capital                               $     616,086          $     792,790
                                                                         =======================================
</TABLE>






                       See accompanying notes to financial
                                  statements.


<PAGE>


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

                              STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                                                               For the three months
                                                                                                 ended March 31,
                                                                                             1997               1996
                                                                                        -----------------------------------
       <S>                                                                                <C>             <C>         
       Revenues:
           Lease revenue                                                                  $   72,195      $    109,192
           Interest and other income                                                           4,318             6,463
           Gain on disposition of equipment                                                   40,958            34,445
                                                                                          -------------------------------
                Total revenues                                                               117,471           150,100

       Expenses:
           Depreciation                                                                       55,082            66,504
           Management fees to affiliate                                                       21,079            15,298
           (Recovery of) provision for bad debts                                                 (21 )             406
           Repairs and maintenance                                                            14,825            23,711
           Insurance expense                                                                   1,431             4,058
           General and administrative expenses to affiliates                                  23,305            37,131
           Other general and administrative expenses                                          12,760            15,283
                                                                                          -------------------------------
               Total expenses                                                                128,461           162,391

       Equity in net income of unconsolidated special purpose entities                        12,956            36,977
                                                                                          -------------------------------

       Net income                                                                         $    1,966      $     24,686
                                                                                          ===============================

       Partners' share of net income:
          Limited  Partners - 99%                                                         $    1,946      $     24,439
          General Partner - 1%                                                                    20               247
                                                                                          -------------------------------

                Total                                                                     $    1,966      $     24,686
                                                                                          ===============================


       Net income per weighted average Limited Partnership
          Unit (33,727 units)                                                             $     0.06      $       0.72
                                                                                          ===============================

       Cash distributions                                                                 $   75,660      $    160,317
                                                                                          ===============================

       Cash distribution per weighted average
          Limited Partnership Unit                                                        $     2.22      $       4.71
                                                                                          ===============================

       Special cash distributions                                                         $  100,000      $    100,000
                                                                                          ===============================

       Special cash distributions per weighted average
          Limited Partnership Unit                                                        $     2.94      $       2.94
                                                                                          ===============================

       Total cash distributions per
          Limited Partnership Unit                                                        $     5.16      $       7.65
                                                                                          ===============================
</TABLE>

                       See accompanying notes to financial
                                  statements.

<PAGE>


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

                   STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
               For the period from December 31, 1995 to March 31,
                                      1997
<TABLE>
<CAPTION>



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

   <S>                                                 <C>                      <C>                    <C>          
   Partners' capital (deficit)
      at December 31, 1995                             $    1,758,377           $  (132,241 )          $   1,626,136

   Net income                                                 594,935                 6,009                  600,944

   Quarterly cash distributions                              (647,812 )              (6,544 )               (654,356 )

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

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

   Net income                                                   1,946                    20                    1,966

   Quarterly cash distributions                               (74,903 )                (757 )                (75,660 )

   Special distributions                                      (99,000 )              (1,000 )               (100,000 )
                                                       ----------------------------------------------------------------

   Partners' capital (deficit)
      at March 31, 1997                                $      741,543           $  (142,513 )          $     599,030
                                                       ================================================================

</TABLE>






                       See accompanying notes to financial
                                  statements.



<PAGE>



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

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                For the three months
                                                                                   ended March 31,
                                                                             1997                   1996
                                                                        --------------------------------------
   <S>                                                                   <C>                   <C>          
   Operating activities:
   Net income                                                            $     1,966           $    24,686  
     Adjustment to reconcile net income
        to net cash provided by operating activities:
      Gain on disposition of equipment                                       (40,958 )             (34,445 )
      Depreciation                                                            55,082                66,504
      Equity in net income from unconsolidated special purpose
        entities                                                             (12,956 )             (36,977 )
      Changes in operating assets and liabilities
         Accounts receivable, net                                             11,215                49,513
         Prepaid insurance                                                     1,006                 2,042
         Accounts payable and accrued expenses                                (3,010 )              (2,972 )
                                                                         -------------------------------------

   Net cash provided by operating activities                                  12,345                68,351
                                                                         -------------------------------------

   Investing activities:
      Proceeds from disposition of equipment                                  51,023                61,147
      Distributions from unconsolidated special purpose entities              39,706                92,536
                                                                         -------------------------------------

   Net cash provided by investing activities                                  90,729               153,683
                                                                         -------------------------------------

   Financing activities:
      Cash distributions paid to Limited Partners                           (173,903 )            (257,714 )
      Cash distributions paid to General Partner                              (1,757 )              (2,603 )
                                                                         -------------------------------------
   Net cash used in financing activities                                    (175,660 )            (260,317 )
                                                                         -------------------------------------

   Net decrease in cash and cash equivalents                                 (72,586 )             (38,283 )

   Cash and cash equivalents at beginning of period                          416,360               551,094
                                                                         -------------------------------------

   Cash and cash equivalents at end of period                            $   343,774           $   512,811 
                                                                         =====================================


</TABLE>




                       See accompanying notes to financial
                                  statements.



<PAGE>



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

1.   Opinion of Management

     In the  opinion of the  management  of PLM  Financial  Services  Inc.,  the
     General Partner,  the accompanying  unaudited financial  statements contain
     all  adjustments  necessary,   consisting  primarily  of  normal  recurring
     accruals,  to present  fairly the  Partnership's  financial  position as of
     March 31, 1997 and  December 31, 1996,  the  statements  of income and cash
     flows  for the  three  months  ended  March  31,  1997  and  1996,  and the
     statements of changes in partners' capital for the period from December 31,
     1995 to March  31,  1997.  Certain  information  and  footnote  disclosures
     normally  included in  financial  statements  prepared in  accordance  with
     generally  accepted  accounting  principles  have been condensed or omitted
     from  the  accompanying  financial  statements.  For  further  information,
     reference  should be made to the  financial  statements  and notes  thereto
     included in the Partnership's Annual Report on Form 10-K for the year ended
     December 31, 1996, on file at the Securities and Exchange Commission.

2.   Reclassifications

     Certain amounts in the 1996 financial  statements have been reclassified to
conform to the 1997 presentation.

3.   Equipment

     The components of owned equipment are as follows:
<TABLE>
<CAPTION>

                                                           March 31,             December 31,
                                                             1997                    1996
                                                       -----------------------------------------
   Equipment held for operating leases:

   <S>                                                 <C>                    <C>             
   Trailers                                            $    3,632,382         $    3,870,247  
   Marine containers                                          199,724                199,724
                                                       ----------------------------------------
                                                            3,832,106              4,069,971
   Less accumulated depreciation                           (3,688,771 )           (3,861,489 )
                                                       ========================================
   Net equipment                                       $      143,335         $      208,482  
                                                       ========================================
</TABLE>

All  of the equipment  owned by the Partnership was either on lease or operating
     in  PLM-affiliated  short-term  rental  facilities  at March  31,  1997 and
     December 31, 1996.

During the three months ended March 31, 1997, the  Partnership  sold or disposed
     of  trailers  with a net book value of $10,065  for  proceeds  of  $51,023.
     During the three  months  ended March 31,  1996,  the  Partnership  sold or
     disposed of marine containers and trailers with a net book value of $26,702
     for proceeds of $61,147.

4.   Liquidation and special distributions

     During the first quarter of 1995, the  Partnership  completed its 10th year
     of  operations.  As  originally  anticipated  by the General  Partner,  the
     Partnership  is being  liquidated in an orderly manner in its 11th and 12th
     years of operation. The General Partner is actively marketing the remaining
     equipment  portfolio with the intent of maximizing  sale proceeds.  As sale
     proceeds are received the General Partner intends to periodicially  declare
     special distributions to distribute the sale proceeds to

<PAGE>



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

4.   Liquidation and special distributions (continued)

     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.

     During the three months ended March 31, 1997, and 1996, the General Partner
     paid special  distributions  of $2.94 per Limited  Partnership  Unit out of
     proceeds from equipment  liquidations.  During the liquidation  phase,  the
     Partnership   is  not   permitted  to  reinvest   proceeds  from  sales  or
     liquidations of equipment.  These proceeds,  in excess of operational  cash
     requirements,  are periodically paid out to partners in the form of special
     distributions.  The sales  and  liquidations  occur  because  of  equipment
     destructions,  the  determination  by the  General  Partner  that it is the
     appropriate  time to maximize  the return on an asset  through sale of that
     asset, and, in some leases,  the ability of the lessee to exercise purchase
     options.

5.   Investments in Unconsolidated Special Purpose Entites

     The net investments in  unconsolidated  special purpose entity includes 80%
     interests in a commuter aircraft at March 31, 1997.


<PAGE>



ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
           AND RESULTS  OF OPERATIONS

(I)  Results of Operations

Comparison of the Partnerships' Operating Results for the Three Months 
Ended March 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 quarter
ended March 31, 1997 when  compared  to the same period of 1996.  The  following
table presents lease revenues less direct expenses by owned equipment type:
<TABLE>
<CAPTION>

                                                                               For the three months
                                                                                 ended March 31,
                                                                             1997                1996
                                                                         ---------------------------------
   <S>                                                                   <C>                 <C>       
   Trailers                                                              $   76,569          $   70,526
   Railcar equipment                                                          3,565               7,455
   Marine containers                                                          1,343               5,236
</TABLE>

Trailers:  Trailer lease revenues and direct  expenses were $93,461 and $16,892,
respectively,  for the  quarter  ended March 31,  1997,  compared to $93,308 and
$22,782,  respectively,  during  the  same  period  of  1996.  The  increase  in
contribution  was due to lower  repair  and  maintenance  expense  for the three
months ended March 31, 1997 when compared to the same period of 1996;

Railcar  equipment:  Railcar lease revenues and direct  expenses were $3,661 and
$96, respectively, for quarter ended March 31, 1997, compared to $7,500 and $45,
respectively,   during  the  same  period  of  1996.  The  decrease  in  railcar
contribution  resulted from the sale of all railcars during the first quarter of
1997;

Marine  containers:  Marine  container  lease revenues and direct  expenses were
$1,361 and $18, respectively,  for the quarter ended March 31, 1997, compared to
$5,266  and $30,  respectively,  during the same  period of 1996.  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 contribution.

(B)  Indirect expenses related to owned equipment operations

Total  indirect  expenses  of $69,175  for the  quarter  ended  March 31,  1997,
decreased from $122,397 for the same period in 1996. The variances are explained
as follows:

(a) a $31,259 decrease in depreciation expenses reflecting the sale of equipment
during the first quarter of 1997 and during 1996;

(b) a $17,927  decrease in bad debt  expense  was due to the  General  Partner's
evaluation of the collectibility of trade receivables;

(c) a  $5,513  decrease  in  general  and  administrative  expenses  was  due to
decreased   accounting  costs  and  administrative  costs  associated  with  the
short-term rental facilities.

(C) For the quarter  ended March 31, 1997,  the  Partnership  realized a gain of
$114,482 on the sale or disposition of marine containers, railcars and trailers,
compared  to the same  period in 1996 when the  Partnership  realized  a gain of
$19,330 on the sale or disposition of trailers and marine containers.

(D) Equity in net income of the unconsolidated special purpose entity

Equity in net income of unconsolidated special purpose entity was $9,331 for the
quarter ended March 31, 1996, and represents the  Partnership's  share of income
generated from the  partnership  investment in an entity which owns an aircraft,
accounted for under the equity  method.  This  investment  was sold in the third
quarter of 1996.

(E) Net income (loss)

The  Partnership's  net income of $130,312 in the first quarter of 1997 compared
to a net loss of $7,066 in the first quarter of 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  the  first  quarter  of  1997  is  not
necessarily  indicative of future  periods.  In the first  quarter of 1997,  the
Partnership  distributed $96,200 to the Limited Partners,  or $4.32 per weighted
average Limited Partnership Unit.

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 quarter
ended March 31, 1997 when  compared  to the same period of 1996.  The  following
table presents lease revenues less direct expenses by owned equipment type:
<TABLE>
<CAPTION>

                                                                               For the three months
                                                                                 ended March 31,
                                                                             1997                1996
                                                                         ---------------------------------
   <S>                                                                   <C>                 <C>       
   Trailers                                                              $   55,187          $   83,140
   Marine containers                                                          1,298               1,237
</TABLE>

Trailers:  Trailer lease revenues and direct  expenses were $70,855 and $15,668,
respectively,  for the quarter  ended March 31,  1997,  compared to $107,892 and
$24,752,  respectively  during the same  period  during  1996.  The  decrease in
contribution  was due to lower  utilization  of trailers and the  disposition of
equipment during the first quarter of 1997 and during 1996;

Marine  containers:  Marine  container  lease revenues and direct  expenses were
$1,340 and $42, respectively,  for the quarter ended March 31, 1997, compared to
$1,300 and $63, respectively during the same period during 1996.

(B)  Indirect expenses related to owned equipment operations

Total  indirect  expenses of  $112,751  for the  quarter  ended March 31,  1997,
decreased from $137,576 for the same period in 1996. The variances are explained
as follows:

(a) a  $16,349  decrease  in the  general  and  administrative  expenses  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;

(b) a $11,422 decrease in depreciation  expenses  reflecting the sale of certain
assets during the first quarter of 1997 and during 1996;

(c) a $5,781  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) For the quarter  ended March 31, 1997,  the  Partnership  realized a gain of
$40,958 on the sale or disposition  of trailers,  compared to the same period in
1996, when the Partnership realized a gain of $34,445 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 $12,956 and
$36,977 for the quarter  ended March 31, 1997 and March 31, 1996,  respectively,
represents the  Partnership's  share of income generated from the  partnership's
investment  in  entities  which own  aircraft,  accounted  for under the  equity
method. The Partnership liquidated its 69% investment in an aircraft as a result
of the General  Partner's  sale of the asset during 1996.  As of March 31, 1997,
the Partnership's  remaining investment in unconsolidated purpose entity was the
80% interest in a commuter aircraft.

(E)  Net income

     The  Partnership's  net income  decreased to $1,966 in the first quarter of
1997.  from $24,686 in the first quarter of 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  the  first  quarter  of  1997  is  not
necessarily  indicative of future  periods.  In the first  quarter of 1997,  the
Partnership  distributed $173,903 to the Limited Partners, or $5.16 per weighted
average Limited Partnership Unit which included a special  distribution of $2.94
per weighted average Limited Partnership Unit.

(II) Asset Sales

The General Partner is actively marketing the remaining equipment portfolio with
the intent of maximizing sale proceeds.

As discussed in note 4, the Partnerships have entered the portfolio  liquidation
phase as of the third  quarter of 1995.  During the three months ended March 31,
1997, TEP VIIB sold or disposed of railcars,  trailers and marine containers for
$174,706, and TEP VIIC sold or disposed of trailers and for $51,023.

(III) Market Values

As of March 31, 1997,  the General  Partner  estimated  the fair market value of
each  Partnerships'  equipment  portfolio to be approximately:  $0.7 million and
$1.6 million for TEP VIIB and TEP VIIC respectively.

(IV) Future outlook

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




<PAGE>


                                            PART II - OTHER INFORMATION

Item 6.           Exhibits and Reports on Form 8-K

         (a)      Exhibits

                  None.

         (b)      Reports on Form 8-K

                  None.



<PAGE>


Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                           PLM TRANSPORTATION EQUIPMENT
                                           PARTNERS VIIC 1985 INCOME FUND

                                           By:      PLM Financial Services, Inc.
                                                    General Partner




Date:  May 9, 1997                         By:      /s/ David J. Davis
                                                    ------------------
                                                    David J. Davis
                                                    Vice President and
                                                    Corporate Controller