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 [FEE REQUIRED]

For the fiscal year ended December 31, 1996
                          -----------------

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED].

For the transition period from             to                  
                              ------------    ---------------------

Commission File Number: 1-8389
                       --------

                              PUBLIC STORAGE, INC.
                              --------------------
             (Exact name of registrant as specified in its charter)

               California                                     95-3551121
-----------------------------------                  --------------------------
    (State or other jurisdiction of                        (I.R.S. Employer
     incorporation or organization)                      Identification Number)

701 Western Avenue, Glendale, California                          91201-2397
----------------------------------------             --------------------------
(Address of principal executive offices)                           (Zip Code)

Registrant's telephone number, including area code: (818) 244-8080.
                                                    ---------------

Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
                                                                                                Name of each exchange
                            Title of each class                                                  on which registered
                            --------------------                                                ----------------------
<S>                                                                                             <C>
10% Cumulative Preferred Stock, Series A, $.01 par value............................            New York Stock Exchange
9.20% Cumulative Preferred Stock, Series B, $.01 par value..........................            New York Stock Exchange
Adjustable Rate Cumulative Preferred Stock, Series C, $.01 par value................            New York Stock Exchange
9.50% Cumulative Preferred Stock, Series D, $.01 par value..........................            New York Stock Exchange
10% Cumulative Preferred Stock, Series E, $.01 par value............................            New York Stock Exchange
9.75% Cumulative Preferred Stock, Series F, $.01 par value..........................            New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a Share of 8-7/8% Cumulative
  Preferred Stock, Series G, $.01 par value.........................................            New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a Share of 8.45% Cumulative
  Preferred Stock, Series H, $.01 par value.........................................            New York Stock Exchange
Depositary Shares Each Representing 1/1,000 of a Share of 8-5/8% Cumulative
  Preferred Stock, Series I, $.01 par value.........................................            New York Stock Exchange
8.25% Convertible Preferred Stock, $.01 par value...................................            New York Stock Exchange,
                                                                                                    Pacific Exchange
Common Stock, $.10 par value........................................................            New York Stock Exchange,
                                                                                                    Pacific Exchange
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:

                                      None
                -------------------------------------------------
                                (Title of class)

     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.

                                [ X ] Yes [ ] No
<PAGE>

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]

The  aggregate  market value of the voting stock held by non - affiliates of the
registrant as of March 18, 1997:

Common Stock, $.10 Par Value - $1,525,781,238  (computed on the basis of $28.375
per share which was the  reported  closing  sale price of the  Company's  Common
Stock on the New York Stock Exchange on March 18, 1997).

The number of shares outstanding of the registrant's  classes of common stock as
of March 18, 1997:

Common Stock, $.10 Par Value - 93,038,779 shares
------------------------------------------------

Class B Common Stock, $.10 Par Value - 7,000,000 shares
-------------------------------------------------------




                       DOCUMENTS INCORPORATED BY REFERENCE

Information  required by Part III will be included in an  amendment to this Form
10-K under cover of a Form 10-K/A filed within 120 days of the Registrant's 1996
fiscal year, which information is incorporated by reference into Part III.


                                       2
<PAGE>
                                     PART I
                                     ------

ITEM 1.   BUSINESS
          --------
GENERAL   
----------
     Public Storage,  Inc. (the  "Company") is an equity real estate  investment
trust ("REIT")  organized as a corporation  under the laws of California on July
10, 1980. The Company is a fully integrated,  self-administered and self-managed
real estate investment trust ("REIT") that acquires, develops, owns and operates
self-storage  facilities.  The  Company is the  largest  owner and  operator  of
self-storage  space  in the  United  States  with  direct  and  indirect  equity
investments  in 1,064  self-storage  facilities  containing  approximately  64.0
million square feet of space at December 31, 1996. To a much lesser extent,  the
Company has ownership interests in commercial  properties  containing commercial
and industrial space for rent.

     The Company has  elected to be taxed as a REIT under the  Internal  Revenue
Code of 1986, as amended. To the extent that the Company continues to qualify as
a REIT, it will not be subject to tax, with certain limited  exceptions,  on the
taxable income that is distributed to its shareholders.

     Prior to November 16, 1995, the Company's operations were managed, pursuant
to contractual  arrangements,  by Public Storage  Advisers,  Inc., the Company's
investment   advisor,  by  Public  Storage   Management,   Inc.  ("PMSI"),   its
self-storage  property  operator  and by Public  Storage  Commercial  Properties
Group, Inc. ("PSCP"),  its commercial  property operator.  On November 16, 1995,
the Company completed a merger  transaction with PSMI whereby the Company became
self-administered and self-managed and acquired  substantially all of the United
States real estate  operations  of PSMI.  In addition,  the  Company's  name was
changed from Storage Equities, Inc. to Public Storage, Inc.

MANAGEMENT
----------

     The  Company's  senior  management  team is headed by B. Wayne Hughes (63),
Chairman and Chief Executive Officer.  Mr. Hughes established the Public Storage
Organization  in 1972 and has  successfully  managed the Company through several
market cycles. The Company's executive management includes:  Harvey Lenkin (60),
President;  John Reyes (36), Senior Vice President and Chief Financial  Officer;
Hugh W. Horne (52),  Senior Vice  President  -  Development;  and Marvin M. Lotz
(54), Senior Vice President-Operations.

     The  Company's  five  senior   officers  have  been   responsible  for  the
acquisition of more than 350  self-storage  facilities,  the development of more
than  650  self-storage  facilities  and  the  management  of  more  than  1,000
self-storage  facilities  during their average 18 years of  experience  with the
Public Storage organization.  In addition, the Company's senior management has a
significant ownership position in the Company with executive officers, directors
and their families owning approximately 39.3 million shares or 42% of the Common
Stock as of March 18, 1997.


REIT Structure
--------------
     The Company has elected to operate as a REIT for income tax purposes.  This
structure  provides the Company with two  principal  benefits  which it believes
enhance shareholder value:

  1) Eliminates  effectively  a  corporate  level tax on the  earnings  from the
     Company's business operations.  As long as the Company meets certain tests,
     its common shareholders are not subject to "double taxation".

  2) Facilitates  the  financial  leveraging  of  the  Company's  business  with
     "permanent  capital" i.e.,  perpetual preferred stock, versus debt, with no
     adverse tax  consequences.  Operating as a REIT,  the dividends the Company
     pays on preferred stock have similar tax attributes as interest payments on
     debt.   However,   unlike  debt,   perpetual  preferred  stock  carries  no
     refinancing risks.




                                       3
<PAGE>
INVESTMENT OBJECTIVE
--------------------
     The Company's  primary  objective is to maximize  shareholder value through
internal  growth (by  increasing  funds from  operations  and cash available for
distribution)  and  acquisitions  of  additional  real estate  investments.  The
Company  believes  that its access to capital,  geographic  diversification  and
operating  efficiencies  resulting  from its size will  enhance  its  ability to
achieve this objective.

COMPETITION
-----------
     Competition  in  the  market  areas  in  which  the  Company   operates  is
significant  and  affects  the  occupancy  levels,  rental  rates and  operating
expenses of certain of the Company's  facilities.  The Company believes that its
operating results have benefited from favorable industry trends and conditions.

     In  seeking  investments,  the  Company  competes  with a wide  variety  of
institutions and other  investors.  An increase in the amount of funds available
for real estate investments may increase  competition for ownership of interests
in facilities and may reduce yields. In addition,  recent increases in plans for
development  of  self-storage   facilities  is  expected  to  further  intensify
competition among self-storage operators in certain market areas.

     The  Company   believes  that  the  significant   operating  and  financial
experience of its executive officers and directors,  combined with the Company's
capital structure, national investment scope, geographic diversity, economies of
scale and the "Public  Storage"  name,  should enable the Company to continue to
compete effectively with other entities.

     In recent years  consolidation has occurred in the fragmented  self-storage
industry. In addition to the Company, there are four other publicly traded REITs
and numerous private regional and local operators  operating in the self-storage
industry.  The Company believes that it is well-positioned to capitalize on this
consolidation  trend due to its  demonstrated  access to  capital  and  national
presence.

BUSINESS  ATTRIBUTES
--------------------
     The Company believes it possesses  several  distinguishing  characteristics
which  enable  it to  compete  effectively  in the  self-storage  industry.  The
Company's   facilities  are  part  of  a   comprehensive   distribution   system
encompassing  standardized  procedures,  integrated  reporting  and  information
networks and centralized  marketing.  The Company possesses the most experienced
facility  management,  acquisition  and development  staffs in the  self-storage
industry.

     This  distribution  system  facilitates the  cross-marketing,  referral and
targeting of properties  within each market and is designed to maximize  revenue
through  pricing and  occupancy.  In  addition,  the Company is able to generate
incremental  revenue  from sales of  ancillary  products  such as truck  rental,
locks, boxes and most recently portable  self-storage.  The distribution  system
was significantly  enhanced during 1996 with the introduction and implementation
of the  national  telephone  reservation  center  and  new  facility  management
software. These distinguishing characteristics are as follows:

     NATIONAL  TELEPHONE  RESERVATION  SYSTEM:  Commencing  in early  1996,  the
Company  began  to  experiment  with a  national  telephone  reservation  system
designed  to  provide  added  customer  service.  Customers  calling  either the
Company's toll-free telephone referral system, (800) 44-STORE, or a self-storage
facility are directed to the national  reservation system where a representative
discusses with the customer space requirements,  price and location  preferences
and also  informs the customer of other  products  and services  provided by the
Company.  The  national  telephone   reservation  system,  which  is  no  longer
experimental,  was not fully  operational  for most of the Company's  facilities
until the  fourth  quarter  of 1996.  As of  December  31,  1996,  the  national
telephone  reservation  system  was  supporting  rental  activity  at all of the
Company's properties, with the exception of one major market, which was included
in March 1997.

     The Company  believes that the national  telephone  reservation  system has
enhanced the Company's ability to effectively market its self-storage facilities
and is primarily  responsible for the Company's  increasing occupancy levels and
realized rental rates experienced during 1996.

     PORTABLE SELF-STORAGE: In 1996, the Company organized Public Storage Pickup
and Delivery,  Inc.  ("PSPUD") as a separate  corporation  to operate a portable
self-storage  business that rents storage containers to customers for storage in
central warehouses and provides related transportation  services. The concept of
PSPUD is to provide an alternative to a  self-storage  facility where  customers
                                        4
<PAGE>

transport  their goods to the  facility  and rent a space to store their  goods.
PSPUD will deliver a storage  container(s) to the customer's  location where the
customer, at his convenience,  packs his goods into the storage container. PSPUD
will  subsequently  return to the  customer's  location to retrieve  the storage
container(s) for storage in a central warehouse.

     The Company believes PSPUD's  business  complements the Company's  existing
self-storage  operations and PSPUD is using the national  telephone  reservation
system and various  marketing  initiatives,  including radio and television,  to
promote its rental activity.  PSPUD currently  operates a total of 12 facilities
in six greater  metropolitan  areas in California and Texas.  PSPUD  anticipates
opening four additional  facilities in these areas and in three additional areas
by the end of the first quarter of 1997. PSPUD presently  anticipates  expanding
its operations to a significant  number of additional areas during the remainder
of 1997 and 1998,  subject to continuing  evaluation of the  feasibility of this
business  and the  satisfaction  of  regulatory  requirements.  There  can be no
assurance on the level of PSPUD's expansion or profitability. Although PSPUD was
not material to the Company's 1996 operating  results,  the Company expects that
this business will have a material impact on the Company during 1997 and beyond.

     PSPUD's operating  experience is limited and its operations may be affected
by such  factors as the level of  competition  in the  business,  the demand for
storage  containers,  general economic  conditions,  either nationally or in the
market  areas  in  which  PSPUD  operates,  the rate of  facility  move-ins  and
move-outs,  the  availability  of  acceptable  locations,  the level of  PSPUD's
operating expenses and the cost of capital equipment. The Company estimates that
during  the first  year  operations  of a newly  opened  facility  it will incur
operating  losses  due  to the  "fill-up"  process.  Until  the  facilities  are
operating  profitably,  PSPUD's  operations are expected to adversely impact the
Company's  earnings  growth  rate.  The  extent  of the  impact  will  depend in
significant part on the number, timing and performance of new facilities.

     RETAIL  CENTERS:  In an effort to attract a wider variety of customers,  to
further  differentiate  the Company  from its  competition  and to generate  new
sources of  revenue,  additional  products  are being  offered  to  enhance  the
Company's self-storage business. These products and services include the sale of
locks,  boxes and  packing  supplies  and the rental of trucks and other  moving
equipment through the implementation of a retail expansion truck rental program.

     The  strategic  objective  of the retail  expansion  program is to create a
"Retail Store" that will (i) rent spaces for the attached self-storage facility,
(ii)  rent  spaces  for  the  other  Public   Storage   facilities  in  adjacent
neighborhoods,  (iii) sell  locks,  boxes and  packing  materials  and (iv) rent
trucks and other moving equipment all in an environment that is retail oriented.
Retail stores will be retro-fitted to some existing self-storage facility rental
offices or "built-in" as part of the development of new self-storage facilities,
both in high traffic, high visibility locations.

     ECONOMIES  OF  SCALE:  The  Company  is by  far  the  largest  provider  of
self-storage space in the industry.  The Company operates  approximately one and
one-half  times  the  number of  self-storage  facilities  than the  other  four
publicly traded self-storage REITs in the self-storage  industry combined. As of
December 31, 1996, the Company operated 1,101 self-storage facilities (including
37 managed for third  parties) in 38 states and had over 539,000  spaces rented.
The size and scope of the Company's  operations  have enabled it to consistently
achieve a high level of profit  margins  and low level of  administrative  costs
relative to revenues in its industry.

     BRAND NAME  RECOGNITION:  The Company's  operations are conducted under the
"Public  Storage"  brand  name,  which it believes  is the most  recognized  and
established  name in the  self-storage  industry.  The Company's  operations are
conducted  in 38 states,  giving it national  recognition  and  prominence.  The
Company  focuses its  operations  within those states in the major  metropolitan
markets.  This  concentration  establishes  the  Company as one of the  dominant
providers of storage  space in each market that it operates in and enables it to
use a variety of promotional venues, such as television and radio advertising as
well as targeted discounting and referrals, which are generally not economically
viable to its competitors.


GROWTH STRATEGIES
-----------------
     The  Company's   growth   strategies   focus  on  improving  the  operating
performance  of its  existing  properties  and on  increasing  its  ownership of
self-storage facilities through additional investments.  Major elements of these
strategies are as follows:

     INCREASE  NET  CASH  FLOW OF  EXISTING  PROPERTIES.  The  Company  seeks to
increase  the  net  cash  flow  generated  by  its  existing  properties  by (i)
increasing  average occupancy rates and (ii) achieving higher levels of realized
monthly rents per occupied  square foot. The Company  believes that its property
management   personnel  and  systems   combined  with  the  national   telephone
reservation system will enhance the Company's ability to meet these goals.

     ACQUIRE PROPERTIES OPERATED AND PARTIALLY OWNED BY THE COMPANY. In addition
to 429 wholly owned self-storage facilities,  the Company operates, on behalf of
 
                                      5
<PAGE>

approximately  70 ownership  entities,  635  self-storage  facilities  under the
"Public  Storage" name in which it has a partial equity  interest.  From time to
time, some of these  self-storage  facilities or interests in them are available
for  purchase,  providing  the Company with a source of  additional  acquisition
opportunities.  The Company believes these properties include some of the better
located,  better constructed  self-storage  facilities in the industry.  Because
these  properties  are  partially  owned by the  Company,  it is  provided  with
reliable  operating  information  prior to acquisition and these  properties are
easily integrated into the Company's portfolio.

     DEVELOP PROPERTIES IN SELECTED MARKETS.  During 1995, the Company commenced
construction of self-storage  facilities.  One facility was completed and opened
in August 1995.  During  1996,  the Company  opened a total of four  facilities,
representing  241,000 net  rentable  square feet.  As of December 31, 1996,  the
Company had eleven  facilities at various  stages of  development  with expected
opening dates  ranging from January 1997 through  March 1998.  In addition,  the
Company has identified 17 facilities (1,026,000 square feet) which it expects to
begin  constructing  during 1997. The Company is evaluating  the  feasibility of
developing additional self-storage facilities in selected markets in which there
are few,  if any,  facilities  to  acquire  at  attractive  prices and where the
scarcity  of  other  undeveloped   parcels  of  land  or  other  impediments  to
development make it difficult to construct additional competing facilities.

     ACQUIRE  PROPERTIES  OWNED OR OPERATED BY OTHERS.  The Company believes its
presence  in and  knowledge  of  substantially  all of the major  markets in the
United  States   enhances  its  ability  to  identify   attractive   acquisition
opportunities  and capitalize on the overall  fragmentation  in the self-storage
industry. The Company maintains local market information on rates, occupancy and
competition in each of the markets in which it operates. Of the more than 20,000
self-storage  facilities in the United States, the Company believes that the ten
largest  operators  manage less than 15% of the total space.  During  1996,  the
Company acquired 58 self-storage facilities from unaffiliated third parties. The
Company,  however,  does not expect third party  acquisitions  to be significant
during fiscal 1997, unless attractive investment opportunities are available.

     EXPAND THE PORTABLE SELF-STORAGE BUSINESS: PSPUD currently operates a total
of 12 facilities  in six greater  metropolitan  areas in  California  and Texas.
PSPUD anticipates opening four additional facilities in these areas and in three
additional  areas  by the end of the  first  quarter  of 1997.  PSPUD  presently
anticipates expanding its operations to a significant number of additional areas
during the remainder of 1997 and 1998,  subject to continuing  evaluation of the
feasibility of this business and the satisfaction of regulatory requirements.

     Generally,  PSPUD  expects to expend an amount  ranging  from  $850,000  to
$1,100,000 per facility  during the first full year of operations,  depending on
location and pricing structure. This estimate includes approximately $550,000 of
capitalized  expenditures  and assumes (i) a leased  facility for 2,000  storage
containers,  (ii) a break-even occupancy level of 55% to 65%, (iii) a stabilized
occupancy  level of 90% reached in 9 to 12 months and (iv) monthly  rental rates
ranging  from $35.00 to $45.00 per  container.  Rental  rates will vary based on
location and market  conditions.  Most of the operating  costs of a facility are
expected to be fixed. However, certain fixed costs are expected to be reduced as
the facility reaches a stabilized occupancy level and certain economies of scale
are  expected to be achieved as the number of  facilities  in  operation  grows.
PSPUD's  operating  experience is limited and its  operations may be affected by
certain factors previously described.

     COMMERCIAL PROPERTIES:  Effective January 2, 1997, the Company restructured
its commercial  property operations by reorganizing PSCP, (now known as American
Office Park Properties,  Inc.) its commercial  property manager,  into a private
REIT that will  concentrate  its  investing  efforts in real  estate  facilities
containing   commercial  and  industrial   rental  space  through  an  operating
partnership. The Company and Consolidated Partnerships contributed 35 commercial
properties  to the  operating  partnership  in exchange for limited  partnership
interests in the operating partnership.

     The  Company  believes  that  the   concentration  of  all  the  commercial
properties and the property  manager into one entity will create a vehicle which
should facilitate future growth in this segment of the real estate industry. The
Company  will   participate  in  the  entity's   growth  through  the  Company's
approximate 85% economic interest.  Due to the Company's  significant  ownership
interest in the newly created REIT and operating  partnership,  the Company will
continue to consolidate the REIT and operating  partnership until such time that
the  Company's  ownership  and  control  is  reduced  to a  level  which  is not
significant.



FINANCING OF THE COMPANY'S GROWTH STRATEGIES
--------------------------------------------
     RETAINED OPERATING CASH FLOW: The Company seeks to retain significant funds
(after  funding its  distributions  and  capital  improvements)  for  additional
investments  and debt  reduction.  During the year ended  December 31, 1996, the
Company distributed 44% of its funds from operations ("FFO") allocable to Common
Stock and retained  $70.9 million which was available for principal  payments on
debt and reinvestment into real estate assets. See "Management's  Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity  and Capital
Resources."

                                       6
<PAGE>
     REVOLVING  LINE OF CREDIT:  The Company  currently  has a $150.0  unsecured
million  credit  facility  with a bank group led by Wells Fargo Bank,  which the
Company uses as a temporary  source of  acquisition  financing.  As of March 18,
1997,  there were no  borrowings on this credit  facility.  The Company seeks to
ultimately   finance  all  acquisitions  with  permanent  capital  to  eliminate
refinancing and interest rate risk.

     ACCESS  TO  ACQUISITION  CAPITAL.  The  Company  believes  that its  strong
financial  position  enables it to access  capital to finance its growth.  Since
1993, the Company has issued  approximately $703.2 million of preferred and $1.2
billion of common equity to finance its  acquisitions.  The Company's  long-term
debt,  as a percentage  of  shareholders'  equity,  has  decreased  from 9.6% at
December 31, 1993 to 4.3% at December 31, 1996, thereby  significantly  reducing
refinancing risks. The Company has created leverage in its capital structure for
the benefit of its common  shareholders  through the use of preferred stock. The
Company targets a 40% leverage  ratio;  debt and preferred stock as a percentage
of total shareholders' equity.

     DEVELOPMENT  JOINT  VENTURE:  The  Company  has  reached  an  agreement  in
principle with a joint venture partner to participate in funding the development
of  approximately  $220  million  of  self-storage   facilities  (including  the
properties  currently  under  development  by the  Company).  The joint  venture
partner would  contribute  about 70% of the  venture's  capital with the balance
provided  by the  Company.  After a period of time,  the  Company  would have an
option to acquire the other venturer's interest.  There can be no assurance that
a definitive  agreement can be reached between the Company and the joint venture
partner. Assuming an agreement is finalized, the joint venture is expected to be
funded in early April 1997.



INVESTMENTS IN REAL ESTATE FACILITIES
-------------------------------------
     The  Company  has  invested   directly  and   indirectly  in   self-storage
facilities,  and to a much  smaller  extent in  existing  commercial  properties
containing  commercial and industrial rental space,  principally through (i) the
acquisition  of  wholly-owned  properties,  (ii) the  acquisition of limited and
general  partnership  interests in real estate  partnerships owning self-storage
facilities  and/or  commercial  properties  and (iii) the  acquisition of common
stock  of  other  REITs  owning   self-storage   facilities   and/or  commercial
properties.  The following  table outlines the Company's  ownership  interest in
self-storage facilities and commercial properties:

<TABLE>
<CAPTION>

                                                             At December 31, 1996
                                       ------------------------------------------------------------------------
                                                                                Net Rentable Square Feet
                                        Number of Real Estate Facilities                (in thousands)
                                       ----------------------------------     ---------------------------------
                                        Self-storage         Commercial        Self-storage         Commercial
                                       --------------      --------------     --------------      --------------


  Consolidated facilities:
<S>                                            <C>                 <C>             <C>                 <C>  
       Wholly-owned                            429                 21              26,355              1,503
       Joint Venture and other                 292                 14              17,062              1,542
                                       --------------      --------------     --------------      --------------
                                               721                 35              43,417              3,045
                                       --------------      --------------     --------------      --------------
  Unconsolidated facilities:
       Institutional partnerships              131                  -               7,787                  -
       Foreign partnerships                     42                  -               2,404                  -
       Other partnerships                       51                  -               2,730                  -
       REITs                                   119                 10               7,679                673
                                       --------------      --------------     --------------      --------------
                                               343                 10              20,600                673
                                       --------------      --------------     --------------      --------------
          Totals                             1,064                 45              64,017              3,718
                                       ==============      ==============     ==============      ==============

</TABLE>

     WHOLLY-OWNED  FACILITIES:  As of December 31, 1996, the Company had a total
of  450  wholly-owned  real  estate  facilities  compared  to  273  wholly-owned
facilities  at December  31, 1995.  The  increase in the number of  wholly-owned
facilities was due to the mergers of eight  affiliated  REITs (103  facilities),
acquisition  of other  affiliated  properties  (12  facilities),  acquisition of
facilities from third parties (58 facilities) and the completed  construction of
four facilities during 1996.

     JOINT VENTURE AND OTHER FACILITIES: From 1983 through 1987, the Company and
a series of eight public limited  partnerships (the "PSP Partnerships")  jointly
invested  in  an  aggregate  of  211  real  estate  facilities  through  general
partnerships (the "Joint Ventures"). The Company's joint venture interests range
from  10% to  70%,  but  are  generally  50%  or  less.  In  addition,  the  PSP
Partnerships have a total of 29 real estate facilities which are wholly-owned by
the  partnerships.  The  Company has an  indirect  interest in these  facilities
through its ownership of both limited and general partnership  interests in each
of the PSP Partnerships.

                                       7
<PAGE>

     The Company,  through its direct ownership  interests in the Joint Ventures
combined with its limited and general  partnership  interests owns a significant
economic interest in each of the PSP Partnerships.  In addition,  the Company is
able to exercise  significant control over the PSP Partnerships  through its (i)
position  as  a  co-general  partner,  (ii)  ownership  of  significant  limited
partnership  interests  and (iii)  ability to compel the sale of the  properties
held in the joint  ventures  after seven years after the property was  acquired.
Accordingly,  the Company consolidates the assets,  liabilities,  and results of
operations of these eight partnerships in the Company's financial statements.


     The Company also has significant ownership interests in and control both as
limited partner and general partner of 13 other limited  partnerships  which own
in  aggregate  66  self-storage  facilities.  The  accounts  of these 13 limited
partnerships  are  also  included  in  the  Company's   consolidated   financial
statements.


UNCONSOLIDATED REAL ESTATE ENTITIES
-----------------------------------
     The Company  currently has ownership  interests in 41 limited  partnerships
(consisting  of 18  institutional  Partnerships  that  own  131  properties,  14
partnerships  with  foreign  investors  that own 36  properties,  and nine other
partnerships  that own 57  properties)  and eight REITs that own 129  properties
(collectively the "Unconsolidated  Entities").  The Company's ownership interest
in these entities ranges from 15% to 45%, but generally  averages  approximately
30%.  Due to the  Company's  limited  ownership  interest  and  control of these
entities,  the Company does not  consolidate  the accounts of these entities for
financial  reporting purposes and accounts for such investments using the equity
method.

     INSTITUTIONAL  PARTNERSHIPS.  Under  the  partnership  agreements  for  the
institutional partnerships, the general partners are generally entitled to 8% of
"cash flow from  operations"  (as defined in the partnership  agreements)  until
distributions  to the  limited  partners  from all  sources  equal 100% of their
investment  ("cross-over");  after cross-over, the general partners are entitled
to 25% of cash flow from  operations  and of sale and  financing  proceeds.  The
partnership  agreements  define cash flow from operations as cash funds provided
from operations of the partnerships,  without  deduction for  depreciation,  but
after  deducting  cash funds used to pay or  establish  a reserve  for all other
expenses,  debt payments,  capital  improvements and  replacements.  The general
partners are also entitled to 1% of the limited partnership  interest in respect
of their capital investment.

     PARTNERSHIPS WITH FOREIGN INVESTORS.  Under the partnership  agreements for
the  partnerships  with foreign  investors,  the general  partners are generally
entitled to 8% of "cash flow from operations" until distributions to the limited
partners  equal  105%  to  115%  of  their  investment   ("cross-over");   after
cross-over,  the  general  partners  are  entitled  to 28%  of  cash  flow  from
operations  (including  3% to a third  general  partner  unaffiliated  with  the
Company).  Limited  partners  generally  receive  all of the sale and  financing
proceeds  until  such  proceeds  from a  property  equal  105%  to  115%  of the
investment  in the  property;  the general  partners are entitled to receive the
next sale or financing  proceeds from that property up to an amount equal to 40%
of the sale or financing  proceeds  previously  distributed to limited  partners
from that property;  and any additional sale or financing  proceeds generated by
the same  property are  distributed  72% to the limited  partners and 28% to the
general  partners  (including  3% to the third  general  partner).  The  general
partners are also entitled to 1% of the limited partnership  interest in respect
of their capital investment.

     OTHER  PARTNERSHIPS.  The  sharing  arrangements  between  the  general and
limited  partners in five of the six other  partnerships  are the same as in the
institutional  partnerships.  In the sixth  partnership  (PS Carolinas  Balanced
Fund), the general  partners are entitled to a partnership  management fee of 8%
of cash flow from  operations  until  payments to investors  (consisting of both
limited  partners and  noteholders)  equal 100% of their  collective  investment
("cross-over");  after  cross-over,  the  general  partners  are  entitled  to a
partnership  management fee of 8% of sale proceeds.  After principal and accrued
interest has been paid to the noteholders,  the general partners are entitled to
an additional 17% of cash flow from operations and sales proceeds.


     REIT  INVESTMENTS:  The  Company  and Hughes own shares of common  stock in
eight  REITs  that own 129  properties,  which  like the REITs  acquired  by the
Company in 1994 through 1996 were  organized by the Company in 1990 through 1991
to succeed to the business of Public Storage sponsored limited partnerships.

     The  capital  structures  of the eight  REITs  consist of series A, B and C
shares. The series A shares are generally  analogous to the limited  partnership
interest, and the series B and C shares are analogous to the general partnership
interest, in the predecessor partnerships.

                                       8
<PAGE>

     The series B shares (representing 8% of the original outstanding shares) of
each of  these  eight  REITs  do not  participate  in  distributions  of sale or
financing  proceeds,   but  participate  in  distributions  of  cash  flow  from
operations on the same basis as the series A shares.  The series C shares do not
participate  in any  distributions.  The  series  B and C  shares  (representing
together 25% of the original issued shares) of a REIT convert automatically into
series  A  shares  on a  share-for-share  basis  when  (A)  the  sum of (1)  all
cumulative  distributions  from all  sources  paid with  respect to the series A
shares   (including   liquidating   distributions)   and  (2)   the   cumulative
distributions  from all sources to limited  partners of such REIT's  predecessor
partnership  equals (B) the product of $20 (the pro rata original  investment in
the REITs) multiplied by the number of then-outstanding  series A shares in such
REIT.

     The series A shares of each of the eight  REITs are traded on the  American
Stock Exchange ("AMEX").


PROHIBITED INVESTMENTS AND ACTIVITIES
-------------------------------------
     The Company's  Bylaws  prohibit the Company from  purchasing  properties in
which the  Company's  officers or directors  have an  interest,  or from selling
properties to such persons,  unless the  transactions are approved by a majority
of the independent directors and are fair to the Company based on an independent
appraisal.  This Bylaw  provision may be changed only upon a vote of the holders
of a majority of the shares of (i) Common Stock and Convertible Preferred Stock,
voting  together  and (ii) each of the  series of Senior  Preferred  Stock.  See
"Limitations on Debt" for other restrictions in the Bylaws.

BORROWINGS
----------
     The Company has an unsecured $150.0 million credit facility with a group of
commercial  banks which  expires on July 31, 2001.  The  expiration  date may be
extended by one year on each  anniversary of the credit  agreement.  Interest on
outstanding  borrowings on the credit facility is payable monthly. At the option
of the Company,  the rate of interest  charged on borrowings is equal to (i) the
prime  rate,  or (ii) a rate  ranging  from the London  Interbank  Offered  Rate
("LIBOR")  plus .40% to LIBOR plus 1.10%  depending  on the  Company's  coverage
ratios,  as  defined.  In  addition,  the Company is required to pay a quarterly
commitment  fee of 0.250%  (per  annum) of the unused  portion of the  revolving
credit facility.  The credit facility also includes a bid feature, for up to $50
million,  which allows the Company, at its option, to request the group of banks
to propose the interest rate they would charge on specific borrowings.  However,
in no case may the interest rate bid be greater than the amount  provided by the
credit agreement.

     Under  covenants  of the credit  facility,  the  Company is required to (i)
maintain a balance sheet  leverage ratio (as defined) of less than 0.40 to 1.00,
(ii) maintain net income of not less than $1.00 for each fiscal  quarter,  (iii)
maintain certain cash flow and interest coverage ratios (as defined) of not less
than 1.0 to 1.0 and 5.0 to 1.0,  respectively  and (iv) maintain a minimum total
shareholders'  equity (as defined).  In addition,  the Company is limited in its
ability to incur  additional  borrowings  (the  Company is  required to maintain
unencumbered  assets with an aggregate book value equal to or greater than three
times the  Company's  unsecured  recourse  debt) or sell  assets.  There were no
borrowings outstanding under the credit facility at March 18, 1997.

     As of  December  31,  1996,  the  Company  had  outstanding  borrowings  of
approximately  $108.4  million.  See  Note  8  to  the  consolidated   financial
statements for a summary of the Company's borrowings at December 31, 1996.

     Subject to a limitation on unsecured  borrowings  in the  Company's  Bylaws
(described  below), the Company has broad powers to borrow in furtherance of the
Company's objectives. The Company has incurred in the past, and may incur in the
future,  both  short-term  and  long-term  indebtedness  to  increase  its funds
available for investment in real estate, capital expenditures and distributions.

LIMITATIONS ON DEBT
-------------------
     The Bylaws  provide  that the Board of  Directors  shall not  authorize  or
permit the  incurrence  of any  obligation  by the Company which would cause the
Company's  "Asset  Coverage" of its unsecured  indebtedness  to become less than
300%.  Asset  Coverage  is defined in the  Bylaws as the ratio  (expressed  as a
percentage) by which the value of the total assets (as defined in the Bylaws) of
the Company less the Company's  liabilities  (except  liabilities  for unsecured
borrowings)  bears to the aggregate  amount of all  unsecured  borrowings of the
Company.  This Bylaw provision may be changed only upon a vote of the holders of
a majority of the shares of (i) Common  Stock and  Convertible  Preferred  Stock
voting together and (ii) each of the series of Senior Preferred Stock.

     The Company's Bylaws prohibit the Company from issuing debt securities in a
public  offering  unless the Company's "cash flow" (which for this purpose means
net income,  exclusive of extraordinary  items, plus  depreciation) for the most
recent 12 months for which financial statements are available,  adjusted to give
effect to the  anticipated  use of the proceeds  from the proposed  sale of debt
securities,  would be  sufficient to pay the interest on such  securities.  This
Bylaw  provision may be changed only upon a vote of the holders of a majority of
the shares of (i) Common Stock and  Convertible  Preferred Stock voting together
and (ii) each of the series of Senior Preferred Stock.

                                       9
<PAGE>

     Without  the  consent of the holders of a majority of each of the series of
Senior  Preferred  Stock, the Company will not take any action that would result
in a ratio of "Debt" to  "Assets"  (the "Debt  Ratio")  in excess of 50%.  As of
December  31,  1996,  the Debt Ratio was  approximately  4.2%.  "Debt" means the
liabilities (other than "accrued and other liabilities" and "minority interest")
that should, in accordance with generally  accepted  accounting  principles,  be
reflected  on  the  Company's   consolidated   balance  sheet  at  the  time  of
determination.  "Assets"  means the  Company's  total  assets  that  should,  in
accordance with generally accepted  accounting  principles,  be reflected on the
Company's consolidated balance sheet at the time of determination.

     The Company's bank and senior  unsecured debt  agreements  contain  various
financial covenants,  including  limitations on the level of indebtedness of 30%
of total  capitalization,  as  defined,  and the  prohibition  of the payment of
dividends upon the occurrence of an event of default, as defined.

OTHER BUSINESS ACTIVITIES
-------------------------
     A  corporation  owned by Hughes  and  members of his  family  (the  "Hughes
Family")  reinsures  policies  against  losses to goods stored by tenants in the
Company's self-storage facilities. The Company believes that the availability of
insurance  reduces the potential  liability of the Company to tenants for losses
to their goods from theft or destruction.  The corporation receives the premiums
and bears the risks associated with the insurance.

     The  Company,  through a 95% owned  subsidiary,  sells  locks and boxes and
rents  trucks to the general  public and  tenants to be used in  securing  their
spaces and moving their goods and believes  that the  availability  of locks and
boxes for sale and the rental of trucks promotes the rental of spaces.

     In August 1996, a subsidiary of the Company  acquired a company  engaged in
the  portable  self-storage  business in  Southern  California.  The  subsidiary
currently has twelve  locations as of March 18, 1997 and anticipates  opening an
additional four prior to the end of the first quarter of 1997. The operations of
this subsidiary are not significant to the Company's operations during 1996.


EMPLOYEES 
----------
     There are approximately  3,500 persons who render services on behalf of the
Company, primarily personnel engaged in property operation, substantially all of
whom are employed by a clearing company that provides certain administrative and
cost-sharing  services to the Company and other owners of properties operated by
the Company.

FEDERAL INCOME TAX
------------------
     The  Company  believes  that it has  operated,  and  intends to continue to
operate,  in such a manner as to qualify as a REIT  under the  Internal  Revenue
Code of  1986,  but no  assurance  can be  given  that it will at all  times  so
qualify.  To the extent that the Company continues to qualify as a REIT, it will
not be taxed,  with certain  limited  exceptions,  on the taxable income that is
distributed to its shareholders.

INSURANCE 
----------
     The Company believes that its properties are adequately insured. Facilities
operated by the  Company  have  historically  carried  comprehensive  insurance,
including  fire,  earthquake,  liability and extended  coverage from  nationally
recognized carriers.

PROPOSED  MERGERS
-----------------
     In December 1996, Public Storage Properties XIV, Inc. ("Properties 14") and
Public Storage  Properties XV, Inc.  ("Properties  15") each agreed,  subject to
certain  conditions,  to merge  with and into  the  Company.  Properties  14 and
Properties 15 are affiliated  publicly traded equity REITs.  Each of the mergers
is conditioned on approval by the respective  shareholders  of Properties 14 and
Properties  15.  However,  the mergers are not  conditioned  on each other.  The
Company  expects  that,  if approved by the  shareholders,  the mergers would be
completed in April 1997.

     The  estimated  value of the  Properties 14 merger is  approximately  $63.8
million.  Properties 14 has 2,263,218  outstanding shares of common stock series
A, 232,762  outstanding shares of common stock series B, and 659,494 outstanding
shares of common stock series C. The Company owns 208,033 shares of common stock
series A, 218,616  shares of common stock series B, and 623,058 shares of common
stock series C. Upon completion of the merger,  each outstanding share of common
stock series A of Properties 14 (other than shares held by the Company) would be
                                       10
<PAGE>

converted,  at the election of the  shareholders  of Properties  14, into either
shares of the  Company's  common  stock with a market  value of $21.73 or,  with
respect to up to 20% of the Properties 14 common stock series A, $21.73 in cash.
In addition,  each share of Properties 14 series B and C (other than shares held
by the  Company)  will be  converted  into the  right to  receive  $16.07 in the
Company's  common  stock,  plus  the  estimated   required  REIT   distributions
attributable  to  Properties  14 common stock  series B of $1.18 per share.  The
shares of  Properties 14 common stock series A, B and C held by the Company will
be canceled in the merger.  Properties  14 owns 14  properties  (912,000  square
feet).

     The  estimated  value of the  Properties 15 merger is  approximately  $58.5
million.  Properties 15 has 2,136,885  outstanding shares of common stock series
A, 232,762  outstanding shares of common stock series B, and 659,494 outstanding
shares of common stock series C. The Company owns 501,225 shares of common stock
series A, 138,655  shares of common stock series B, and 416,079 shares of common
stock series C. Upon completion of the merger,  each outstanding share of common
stock series A of Properties 15 (other than shares held by the Company) would be
converted,  at the election of the  shareholders  of Properties  15, into either
shares of the  Company's  common  stock with a market  value of $21.99 or,  with
respect to up to 20% of the Properties 15 common stock series A, $21.99 in cash.
In addition,  each share of Properties 15 series B and C (other than shares held
by the  Company)  will be  converted  into the  right to  receive  $12.63 in the
Company's  common  stock,  plus  the  estimated   required  REIT   distributions
attributable  to  Properties  15 common stock  series B of $1.23 per share.  The
shares of  Properties 15 common stock series A, B and C held by the Company will
be canceled in the merger.  Properties 15 owns 19 properties  (1,087,000  square
feet).

ITEM 2.   PROPERTIES
          ----------
     At  December  31,  1996,  the  Company had direct  ownership  interests  or
partnership interests in 1,109 properties located in 38 states:

<TABLE>
<CAPTION>
                                                             At December 31, 1996
                                       ------------------------------------------------------------------------
                                                                                Net Rentable Square Feet
                                              Number of  Facilities                  (in thousands)
                                       ----------------------------------     ---------------------------------
                                        Self-storage         Commercial        Self-storage         Commercial
                                       --------------      --------------     --------------      --------------
           California:
                <S>                       <C>                 <C>                 <C>                   <C>   
                Northern                    130                 5                   7,291                  444
                Southern                    148                16                   9,587                1,277
           Texas                            120                 8                   7,913                  824
           Florida                           96                 -                   5,540                    -
           Illinois                          62                 -                   3,898                    -
           Colorado                          37                 -                   2,330                    -
           Washington                        36                 1                   2,224                   28
           Georgia                           36                 -                   1,975                    -
           Virginia                          35                 4                   2,332                  328
           New Jersey                        34                 -                   1,955                    -
           Maryland                          32                 -                   1,851                    -
           New York                          28                 -                   1,650                    -
           Ohio                              27                 -                   1,648                    -
           Oregon                            25                 2                   1,232                   40
           Nevada                            22                 -                   1,409                    -
           Pennsylvania                      18                 -                   1,222                    -
           Missouri                          18                 -                     956                    -
           Other states (22 states)         160                 9                   9,004                  777
                                       --------------      --------------     --------------      --------------
                Totals                    1,064                45                  64,017                3,718
                                       ==============      ==============     ==============      ==============                 
</TABLE>
     The  Company's  facilities  are  generally  operated to maximize  cash flow
through the regular review and, when warranted by market conditions,  adjustment
of scheduled  rents.  For the year ended December 31, 1996, the weighted average
occupancy  level and the  weighted  average  annual  realized  rent per rentable
square foot for the Company's  self-storage  facilities were approximately 90.7%
and $8.76,  respectively,  and for the commercial properties approximately 95.6%
and $8.76, respectively.

     None  of the  Company's  current  facilities  involves  1% or  more  of the
Company's total assets, gross revenues or net income.

                                       11
<PAGE>
     SELF-STORAGE FACILITIES:  Self-storage facilities, which comprise the vast
majority  of the  Company's  investments  (approximately  92%  based  on  rental
income),  are  designed  to offer  accessible  storage  space for  personal  and
business use at a relatively low cost. A user rents a fully enclosed space which
is for the  user's  exclusive  use and to which  only the user has  access on an
unrestricted   basis   during   business   hours.   On-site   operation  is  the
responsibility  of resident  managers who are supervised by area managers.  Some
self-storage  facilities  also  include  rentable  uncovered  parking  areas for
vehicle storage.  Leases for self-storage facilities space may be on a long-term
or short-term  basis,  although  typically spaces are rented on a month-to-month
basis.  Rental rates vary according to the location of the property and the size
of the storage space. The Company's  self-storage  facilities are operated under
the "Public Storage" name.

     Users of space in  self-storage  facilities  include both  individuals  and
large and small businesses. Individuals usually employ this space for storage of
furniture,  household appliances,  personal belongings,  motor vehicles,  boats,
campers,  motorcycles and other household goods. Businesses normally employ this
space for  storage  of  excess  inventory,  business  records,  seasonal  goods,
equipment and fixtures.

     Self-storage facilities in which the Company has invested generally consist
of three to seven  buildings  containing  an  aggregate  of  between  350 to 750
storage  spaces,  most of  which  have  between  25 and 400  square  feet and an
interior height of approximately 8 to 12 feet.

     The Company experiences minor seasonal fluctuations in the occupancy levels
of  self-storage  facilities  with  occupancies  generally  higher in the summer
months than in the winter months.  The Company believes that these  fluctuations
result in part from increased moving activity during the summer.

     The  Company's  self-storage  facilities  are  geographically   diversified
located primarily in or near major metropolitan markets in 37 states.  Generally
the Company's self-storage facilities are located in heavily populated areas and
close to  concentrations  of apartment  complexes,  single family residences and
commercial developments.  However, there may be circumstances in which it may be
appropriate to own a property in a less populated area, for example,  in an area
that is highly visible from a major  thoroughfare and close to, although not in,
a heavily populated area.  Moreover,  in certain population centers,  land costs
and zoning  restrictions  may create a demand for space in nearby less populated
areas.

     Since the Company's investments are primarily self-storage facilities,  the
ability of the Company to preserve its investments and achieve its objectives is
dependent in large part upon success in this field. Historically,  the Company's
self-storage   facility   interests  have  generally  shown  a  high  degree  of
consistency in generating cash flows, despite changing economic conditions.  The
Company   believes   that   its   self-storage    facilities   have   attractive
characteristics  consisting  of high  profit  margins,  high  average  occupancy
levels,  a broad tenant base and low levels of capital  expenditures to maintain
their condition and appearance.

     COMMERCIAL PROPERTIES:  The Company may invest in all types of real estate.
Most of the Company's  non-self-storage  facilities investments are interests in
business parks and low-rise office buildings.  A commercial property may include
both industrial and office space.  Industrial space may be used for, among other
things, light manufacturing and assembly, storage and warehousing,  distribution
and research and development  activities.  The Company believes that most of the
office space is occupied by tenants who are also renting  industrial  space. The
remaining  office  space is used  for  general  office  purposes.  A  commercial
property may also include  facilities for commercial uses such as banks,  travel
agencies,  restaurants,  office  supply  shops,  professionals  or other tenants
providing  services to the public.  The amount of retail  space in a  commercial
property is not expected to be significant.

     ENVIRONMENTAL  MATTERS:  The  Company's  current  practice  is  to  conduct
environmental  investigations  in connection  with property  acquisitions.  As a
result of  environmental  investigations  of its properties,  which commenced in
1995, the Company recorded an amount which, in management's best estimate,  will
be  sufficient  to  satisfy   anticipated  costs  of  known   investigation  and
remediation  requirements.  At December 31, 1995, the Company accrued $2,741,000
for  estimated  environmental  remediation  costs.  In  addition,  during  1995,
entities in which the Company  accounts  for on the equity  method also  accrued
amounts for estimated environment remediation costs of which the Company's share
is approximately $510,000. The Company believes that amounts accrued in 1995 are
still sufficient to satisfy anticipated costs and therefore no additional amount
has been accrued in 1996.


ITEM 3.   LEGAL PROCEEDINGS
          -----------------

     There are no material legal proceedings pending against the Company.


                                       12
<PAGE>

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

     The  Company  held an annual  meeting of  shareholders  on October 7, 1996.
Proxies for the annual  meeting were  solicited  pursuant to Regulation 14 under
the Securities  Exchange Act of 1934. The annual meeting  involved the following
matters:

1.   ELECTION OF DIRECTORS

<TABLE>
<CAPTION>
                                                                                  Number of Shares of Convertible
                                             Number of Shares of Common Stock          Preferred Stock, Series CC
                                             --------------------------------      --------------------------------
                     Name                      Voted For           Withheld           Voted For          Withheld
     -------------------------------           ---------           --------           ---------          --------
     <S>                                         <C>                 <C>                 <C>              <C>  
      B. Wayne Hughes                            62,222,007          321,179             58,955               -
      Harvey Lenkin                              62,227,394          315,792             58,955               -
      Robert J. Abernethy                        62,228,191          314,995             58,955               -
      Dann V. Angeloff                           62,226,802          316,384             58,955               -
      William C. Baker                           62,224,518          318,668             58,955               -
      Uri P. Harkham                             62,224,001          319,185             58,955               -
</TABLE>
<TABLE>
<CAPTION>

                             Total Common Stock and Convertible Preferred Stock, Series CC
                             -------------------------------------------------------------

                     Name                                Voted For                              Withheld
     -------------------------------                     ---------                              ---------      
<S>                                                      <C>                                     <C>    
      B. Wayne Hughes                                    62,280,962                              321,179
      Harvey Lenkin                                      62,286,349                              315,792
      Robert J. Abernethy                                62,287,146                              314,995
      Dann V. Angeloff                                   62,285,757                              316,384
      William C. Baker                                   62,283,473                              318,668
      Uri P. Harkham                                     62,282,956                              319,185

</TABLE>

2.   Adoption of amendments to the Company's  articles of  incorporation  in the
     form of Exhibit A to the Company's Proxy Statement dated August 30, 1996 to
     authorize  200,000,000  shares of Equity Stock - approval of this  proposal
     required  the  affirmative  vote of the  holders of (i) a  majority  of the
     Company's  outstanding  shares of Common  Stock and (ii) a majority  of the
     Company's  outstanding  shares of Common  Stock and  Convertible  Preferred
     Stock,  Series CC, voting together as a single class, and this proposal was
     approved by the following vote:
<TABLE>
<CAPTION>

                                                          For             Against           Abstain           No Vote
                                                      ----------         ---------          --------        ---------
        <S>                                           <C>                <C>                <C>             <C>
        Common Stock                                  53,697,808         5,576,843           447,671        2,820,864
        Convertible Preferred Stock, Series CC            58,955                 -                 -                -
                                                      ----------         ---------          --------        ---------
        Total Common Stock and Convertible
        Preferred Stock, Series CC                    53,756,763         5,576,843           447,671        2,820,864
                                                      ==========         =========          ========        =========
</TABLE>

3.   Approval of adoption of the Company's  1996 Stock Option and Incentive Plan
     in the form of Exhibit B to the Company's  Proxy Statement dated August 30,
     1996 -  approval  of  this  proposal  required  the  affirmative  vote of a
     majority of the votes cast on the proposal,  and this proposal was approved
     by the following vote:
<TABLE>
<CAPTION>

                                                          For             Against           Abstain           No Vote
                                                      ----------         ---------          --------        ---------
        <S>                                           <C>                <C>                <C>             <C>
         Common Stock                                 60,876,527         1,166,963           499,694               2
         Convertible Preferred Stock, Series CC           58,955                 -                 -               -
                                                      ----------         ---------          --------        ---------
         Total Common Stock and Convertible
             Preferred Stock, Series CC               60,935,482         1,166,963           499,694               2
                                                      ==========         =========          ========        =========


</TABLE>
                                       13
<PAGE>
                                   PART II


ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 
          MATTERS
          -----------------------------------------------------------------

 a.  Market Price of the Registrant's Common Equity:

          The Common Stock has been listed on the New York Stock  Exchange since
     October 19, 1984 and on the Pacific Exchange since December 26, 1996.

          The  following  table sets forth the high and low sales  prices of the
     Common  Stock  on the New  York  Stock  Exchange  composite  tapes  for the
     applicable periods.


                                                      Range
                                            ---------------------------
     Year              Quarter               High                 Low
---------------    ---------------        ----------          ----------
     1995                1st              $ 17-1/8             $ 13-1/2
                         2nd                17-1/8               15-1/4
                         3rd                18-3/4               16-3/8
                         4th                19-3/4               17-3/8
     1996                1st                21-7/8               18-7/8
                         2nd                21-1/2               19-3/8
                         3rd                22-5/8               19-7/8
                         4th                31-3/8               22-1/4

          As of February 28, 1997,  there were  approximately  19,676 holders of
     record of the Common Stock.

 b.  Related Common Stockholder Matters:

          In  connection  with the PSMI Merger,  the Company (a)  increased  the
     number of shares of Common  Stock that the Company is  authorized  to issue
     from 60,000,000 to 200,000,000,  a portion of which were issued in the PSMI
     Merger,  and authorized  7,000,000  shares of Class B Common Stock,  all of
     which was  issued in the PSMI  Merger,  and (b)  established  an  ownership
     limitation for the Company's capital stock to assist in preserving its REIT
     status.

 c.  Class B Common Stock

          The Class B Common Stock issued in connection with the PSMI Merger has
     the following characteristics:

     *    The Class B Common  Stock will (i) not  participate  in  distributions
          until the later to occur of funds from  operations  ("FFO") per Common
          Share as defined  below,  aggregating  $1.80 during any period of four
          consecutive  calendar  quarters,  or January 1, 2000,  thereafter  the
          Class B Common Stock will  participate  in  distributions  (other than
          liquidating  distributions),  at the  rate  of 97%  of the  per  share
          distributions   on  the  Common  Stock,   provided   that   cumulative
          distributions of at least $.22 per quarter per share have been paid on
          the Common Stock,  (ii) not participate in liquidating  distributions,
          (iii)  not be  entitled  to vote  (except  as  expressly  required  by
          California law) and (iv) automatically convert into Common Stock, on a
          share for share basis, upon the later to occur of FFO per Common Share
          aggregating  $3.00  during  any  period of four  consecutive  calendar
          quarters or January 1, 2003.

     For these purposes:

     1)   FFO, means net income (loss) (computed in accordance with GAAP) before
          (i)  gain  (loss)  on early  extinguishment  of  debt,  (ii)  minority
          interest  in income  and (iii)  gain  (loss)  on  disposition  of real
          estate,  adjusted as follows:  (i) plus  depreciation and amortization
          (including   the  Company's   pro-rata  share  of   depreciation   and
          amortization of  unconsolidated  equity  interests and amortization of
          assets  acquired in the PSMI  Merger,  including  property  management
          agreements and goodwill),  and (ii) less FFO  attributable to minority
          interest.  FFO is a supplemental  performance measure for equity REITs
          as defined  by the  National  Association  of Real  Estate  Investment
          Trusts, Inc.  ("NAREIT").  The NAREIT definition does not specifically
          address the treatment of minority interest in the determination of FFO
  
                                       14
<PAGE>
          or the treatment of the amortization of property management agreements
          and  goodwill.  In the case of the  Company,  FFO  represents  amounts
          attributable to its shareholders after deducting amounts  attributable
          to the minority  interests and before  deductions for the amortization
          of property  management  agreements  and  goodwill.  FFO is  presented
          because many industry  analysts  consider FFO to be one measure of the
          performance of the Company and it is used in establishing the terms of
          the  Class B  Common  Stock.  FFO does  not  take  into  consideration
          scheduled   principal   payments   on  debt,   capital   improvements,
          distributions and other obligations of the Company.  Accordingly,  FFO
          is not a  substitute  for the  Company's  cash flow or net income as a
          measure of the Company's liquidity or operating performance or ability
          to pay distributions.

     2)   FFO per Common Share means FFO less preferred stock  dividends  (other
          than  dividends  on  convertible   preferred  stock)  divided  by  the
          outstanding   weighted   average   shares  of  Common  Stock  assuming
          conversion of all outstanding  convertible  securities and the Class B
          Common Stock.

          For these  purposes,  FFO per share of Common  Stock (as  defined) was
          $1.86 for the year ended December 31, 1996.

          The Company has paid quarterly distributions to its shareholders since
     1981,  its first full year of operations.  Distributions  paid per share of
     Common Stock for 1996 amounted to $0.88.

          Holders of Common Stock are entitled to receive distributions when and
     if declared by the  Company's  Board of Directors  out of any funds legally
     available for that purpose.  The Company is required to distribute at least
     95% of its net taxable ordinary income prior to the filing of the Company's
     tax return and 85%,  subject to certain  adjustments,  during the  calendar
     year, to maintain its REIT status for federal  income tax  purposes.  It is
     management's  intention to pay distributions of not less than this required
     amount.

          For Federal tax purposes, distributions to shareholders are treated as
     ordinary income, capital gains, return of capital or a combination thereof.
     Distributions to common  shareholders  were $0.88,  $0.88 and $0.85 and for
     1996,  1995 and 1994,  respectively  and in each case  represents  ordinary
     income.


 d.  Registrant's Preferred Equity:

          On October  26,  1992,  the  Company  completed  a public  offering of
     1,825,000  shares ($25 stated value per share) of 10% Cumulative  Preferred
     Stock, Series A ("Series A Preferred Stock").  The Series A Preferred Stock
     has  general  preference  rights  over the  Common  Stock  with  respect to
     distributions  and  liquidation  proceeds.  During  1996,  the Company paid
     dividends totaling $4,563,000 ($2.50 per preferred share).

          On  March  25,  1993,  the  Company  completed  a public  offering  of
     2,300,000 shares ($25 stated value per share) of 9.20% Cumulative Preferred
     Stock, Series B ("Series B Preferred Stock").  The Series B Preferred Stock
     has  general  preference  rights  over the  Common  Stock  with  respect to
     distributions  and  liquidation  proceeds.  During  1996,  the Company paid
     dividends totaling $5,488,000 ($2.30 per preferred share).

          On June 30, 1994, the Company completed a public offering of 1,200,000
     shares ($25 stated value per share) of Adjustable Rate Cumulative Preferred
     Stock, Series C ("Series C Preferred Stock").  The Series C Preferred Stock
     has  general  preference  rights  over the  Common  Stock  with  respect to
     distributions  and  liquidation  proceeds.  During  1996,  the Company paid
     dividends totaling $2,212,000 ($1.84 per preferred share)

          On  September  1, 1994,  the Company  completed  a public  offering of
     1,200,000 shares ($25 stated value per share) of 9.50% Cumulative Preferred
     Stock, Series D ("Series D Preferred Stock").  The Series D Preferred Stock
     has  general  preference  rights  over the  Common  Stock  with  respect to
     distributions  and  liquidation  proceeds.  During  1996,  the Company paid
     dividends totaling $2,850,000 ($2.375 per preferred share).

          On  February  1, 1995,  the  Company  completed  a public  offering of
     2,195,000  shares ($25 stated value per share) of 10% Cumulative  Preferred
     Stock, Series E ("Series E Preferred Stock").  The Series E Preferred Stock
     has  general  preference  rights  over the  Common  Stock  with  respect to
     distributions  and  liquidation  proceeds.  During  1996,  the Company paid
     dividends totaling $5,488,000 ($2.50 per preferred share).

                                     15

<PAGE>


          On May 3, 1995, the Company  completed a public  offering of 2,300,000
     shares ($25 stated value per share) of 9.75%  Cumulative  Preferred  Stock,
     Series F ("Series F Preferred  Stock").  The Series F  Preferred  Stock has
     general   preference   rights  over  the  Common   Stock  with  respect  to
     distributions  and  liquidation  proceeds.  During  1996,  the Company paid
     dividends totaling $5,606,000 ($2.437 per preferred share).


          On  December  13,  1995,  the Company  completed a public  offering of
     6,900,000  depositary shares each representing 1/1,000 of a share of 8-7/8%
     Cumulative  Preferred  Stock,  Series G  ("Series G  Preferred  Stock")($25
     stated  value per  depositary  share).  The  Series G  Preferred  Stock has
     general   preference   rights  over  the  Common   Stock  with  respect  to
     distributions  and  liquidation  proceeds.  During  1996,  the Company paid
     dividends totaling $15,479,000 ($2.219 per preferred depositary share).

          On January  25,  1996,  the  Company  completed  a public  offering of
     6,750,000  depositary shares each representing  1/1,000 of a share of 8.45%
     Cumulative  Preferred  Stock,  Series H  ("Series H  Preferred  Stock")($25
     stated  value per  depositary  share).  The  Series H  Preferred  Stock has
     general   preference   rights  over  the  Common   Stock  with  respect  to
     distributions  and  liquidation  proceeds.  During  1996,  the Company paid
     dividends totaling  $13,348,000 ($1.978 per preferred share, pro rated from
     January 25, 1996 through  December 31,  1996,  the period  during which the
     Series H Preferred Stock was outstanding).

          On  November  1, 1996,  the  Company  completed  a public  offering of
     4,000,000  depositary shares each representing 1/1,000 of a share of 8-5/8%
     Cumulative  Preferred  Stock,  Series I  ("Series I  Preferred  Stock")($25
     stated  value per  depositary  share).  The  Series I  Preferred  Stock has
     general   preference   rights  over  the  Common   Stock  with  respect  to
     distributions  and  liquidation  proceeds.  During  1996,  the Company paid
     dividends  totaling  $1,438,000 ($0.359 per preferred share, pro rated from
     November 1, 1996 through  December 31,  1996,  the period  during which the
     Series I Preferred Stock was outstanding).

          The Series A, Series B, Series C, Series D, Series E, Series F, Series
     G, Series H and Series I Preferred  Stock are  collectively  referred to as
     the "Senior Preferred Stock."

          On July 15, 1993, the Company completed a public offering of 2,300,000
     shares ($25 stated value per share) of 8.25%  Convertible  Preferred  Stock
     ("Convertible  Preferred  Stock").  The  Convertible  Preferred  Stock  has
     general  preference  rights over the Common  Stock (and ranks junior to the
     Senior  Preferred  Stock) with  respect to  distributions  and  liquidation
     proceeds.  During  1996 the  Company  paid  dividends  totaling  $4,679,000
     ($2.063 per preferred share).

          Effective  July 1,  1995,  the  Company  issued  31,200  shares of its
     Mandatory  Convertible  Participating  Preferred  Stock to an  unaffiliated
     investor  to acquire  the  investor's  limited  partnership  interest in an
     affiliated   real  estate   partnership.   In  April  1996,  the  Mandatory
     Convertible  Participating  Preferred  Stock was exchanged  into  1,611,265
     shares of common stock.  Costs incurred with the exchange have been charged
     to Paid in Capital.

          In April 1996, the Company issued  $58,955,000  (58,955 shares) of its
     Mandatory  Convertible Preferred Stock, Series CC (the "Series CC Preferred
     Stock").  The  Series CC  Preferred  Stock  ranks  junior to the  Company's
     Cumulative Senior Preferred Stock with respect to general preference rights
     and has a liquidation value of $1,000 per share. Other significant terms of
     the Series CC Preferred Stock include: (i) quarterly distributions equal to
     $32.50 per share, (ii) conversion,  at anytime at the option of the holder,
     into common stock of the Company at a conversion  price of $28.56 or 35.014
     shares of  common  stock for each  share of Series CC  Preferred  Stock and
     (iii)  automatic  conversion  into common stock of the Company on March 31,
     2000 at the conversion price described above.


                                       16

<PAGE>
<TABLE>
<CAPTION>
ITEM 6.   SELECTED FINANCIAL DATA
---------------------------------
                                                                   For the year ended December 31,
                                                 ---------------------------------------------------------------------
                                                  1996 (1)       1995 (1)         1994           1993           1992
                                                 --------        --------       --------       --------        -------
                                                                (In thousands, except per share data)
Revenues:
<S>                                              <C>             <C>            <C>            <C>             <C>    
  Rental income                                  $294,005        $202,134       $141,845       $109,203        $95,886
                                                 ---------       --------       --------       --------        -------
  Equity in earnings of real estate entities       22,121           3,763            764            563              -
  Facility management fees                         14,428           2,144              -              -              -
  Ancillary business income                         3,504             112              -              -              -
  Interest and other income                         7,064           4,497          4,587          4,914          1,562
                                                 ---------       --------       --------       --------        -------
                                                  341,122         212,650        147,196        114,680         97,448
                                                 ---------       --------       --------       --------        -------
Expenses:
  Cost of operations                               93,244          72,247         52,816         42,116         38,348
  Cost of facility management                       2,575             352              -              -              -
  Cost of operations - ancillary business           3,418             100              -              -              -
  Depreciation and amortization                    64,967          40,760         28,274         24,998         22,405
  General and administrative                        5,524           3,982          2,631          2,541          2,629
  Interest expense                                  8,482           8,508          6,893          6,079          9,834
  Environmental cost                                    -           2,741              -              -              -
  Advisory fee                                          -           6,437          4,983          3,619          2,612
                                                 ---------       --------       --------       --------        -------
                                                  178,210         135,127         95,597         79,353         75,828
                                                 ---------       --------       --------       --------        -------
Income before minority interest and gain on
  disposition of real estate                      162,912          77,523         51,599         35,327         21,620
Minority interest in income                        (9,363)         (7,137)        (9,481)        (7,291)        (6,895)
                                                 ---------       --------       --------       --------        -------
Income before gain on disposition of real          153,549         70,386         42,118         28,036         14,725
  estate
Gain on disposition of real estate, net                 -               -              -              -            398
                                                 ---------       --------       --------       --------        -------
Net income                                        $153,549      $  70,386        $42,118        $28,036        $15,123
                                                 =========       ========       ========       ========       ========

Per Common Share:
  Income before gain on disposition of real
     estate                                         $1.10           $0.95          $1.05          $0.98          $0.88
  Gain on disposition of real estate                 -               -              -              -              0.02
                                                 ---------       --------       --------       --------        -------
  Net income                                        $1.10           $0.95      $    1.05          $0.98      $    0.90
                                                 =========       ========       ========       ========       ========
  Distributions per common share                    $0.88           $0.88      $    0.85          $0.84      $    0.84
                                                 =========       ========       ========       ========       ========
  Weighted average common shares                   77,358          41,171         24,077         17,558         15,981
                                                 =========       ========       ========       ========       ========

Total assets                                   $2,572,152      $1,937,461       $820,309       $666,133       $537,724
Total debt                                     $  108,443     $   158,052      $  77,235      $  84,076        $69,478
Minority interest                              $  116,805     $   112,373       $141,227       $193,712       $202,797
Shareholders' equity                           $2,305,437      $1,634,503       $587,786       $376,066       $253,669

Other data:
Net cash provided by operating activities        $245,237        $123,466        $79,180        $59,477        $44,025
                                                 =========       ========       ========       ========       ========
Net cash used in investing activities           $(479,626)      $(248,672)     $(169,590)    $(137,429)       $(21,010)
                                                 =========       ========       ========       ========       ========
Net cash provided by (used in) financing         $180,809        $185,491       $100,029        $80,100       $(21,070)
  activities                                     =========       ========       ========       ========       ========

Funds from operations (2)                        $224,384        $105,086        $56,143        $35,830        $21,133
                                                 =========       ========       ========       ========       ========
</TABLE>
(1)  During 1996 and 1995 the Company  completed  several  significant  business
     combinations and equity  transactions.  See Notes 3 and 11 to the Company's
     consolidated financial statements.

(2)  Funds  from  operations  ("FFO"),  means net  income  (loss)  (computed  in
     accordance  with GAAP)  before (i) gain (loss) on early  extinguishment  of
     debt, (ii) minority interest in income and (iii) gain (loss) on disposition
     of real estate, adjusted as follows: (i) plus depreciation and amortization
     (including the Company's pro-rata share of depreciation and amortization of
     unconsolidated  equity interests and amortization of assets acquired in the
     PSMI Merger,  including property management  agreements and excess purchase
     cost over net assets acquired),  and (ii) less FFO attributable to minority
     interest.  FFO is a  supplemental  performance  measure for equity REITs as
     defined by the National  Association of Real Estate Investment Trusts, Inc.
     ("NAREIT").  The  NAREIT  definition  does  not  specifically  address  the
     treatment of minority interest in the determination of FFO or the treatment
     of the amortization of property  management  agreements and excess purchase
     cost over net assets acquired.  In the case of the Company,  FFO represents
  
                                       17
<PAGE>
     amounts   attributable  to  its   shareholders   after  deducting   amounts
     attributable  to the  minority  interests  and  before  deductions  for the
     amortization  of property  management  agreements and excess  purchase cost
     over net assets acquired.  FFO is presented  because many analysts consider
     FFO to be one measure of the  performance  of the Company and it is used in
     certain aspects of the terms of the Class B Common Stock. FFO does not take
     into   consideration   scheduled   principal   payments  on  debt,  capital
     improvements   distributions   and  other   obligations   of  the  Company.
     Accordingly,  FFO is not a substitute  for the  Company's  cash flow or net
     income as a measure of the Company's liquidity or operating  performance or
     ability to pay distributions.



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

     The following  discussion and analysis  should be read in conjunction  with
the Company's consolidated financial statements and notes thereto.

     OVERVIEW:  Over the past three  years,  the  Company has  effected  several
business  initiatives  which have had and should  continue  to have  significant
effects on the Company's  results of operations  and  financial  condition.  The
Company's asset base has expanded  rapidly through the acquisition of additional
real  estate  investments  which have  principally  been  financed  through  the
issuance of permanent  capital in the form of common and preferred stock and the
retention of operating  cash flow.  Since 1993,  the Company's  total assets and
shareholders' equity have increased significantly as total assets increased from
$666.1  million at December 31, 1993 to $2.6  billion at December 31, 1996,  and
shareholders'  equity increased from $376.1 million at December 31, 1993 to $2.3
billion at December 31, 1996. Among the more significant  transactions  that the
Company completed during 1994, 1995 and 1996 are summarized as follows:

  *  INCREASED  INTERESTS IN REAL ESTATE FACILITIES:  Through the acquisition of
     wholly-owned  facilities  and the  acquisition  of interests in real estate
     entities,  the Company's  ownership  interest in real estate facilities has
     increased from 331 facilities at the end of 1993 to 1,109 facilities at the
     end of 1996.

  *  MERGERS WITH AFFILIATED REITS: Since 1993, the Company has completed eleven
     mergers with affiliated  REITs: one in 1994 with an aggregate cost of $55.8
     million, two in 1995 with an aggregate cost of $135.4 million, and eight in
     1996 with an aggregate cost of $356.8 million.

  *  BECAME  SELF-ADVISED  AND  SELF-MANAGED:  On November 16, 1995, the Company
     became  self-advised  and  self-managed  in connection with the merger with
     Public Storage  Management,  Inc. ("PSMI") with an aggregate cost of $549.3
     million. In the merger with PSMI (the "PSMI Merger"),  the Company acquired
     all the real estate  operations of PSMI,  including (i) general and limited
     partnership interests in 47 limited partnerships owning an aggregate of 286
     self-storage facilities,  (ii) shares of common stock in 16 REITs owning an
     aggregate of 218  self-storage  facilities  and 14  commercial  properties,
     (iii) seven  wholly-owned  properties,  (iv)  all-inclusive  deeds of trust
     secured by ten self-storage facilities,  (v) property management contracts,
     exclusive  of  facilities  owned  by  the  Company,  for  563  self-storage
     facilities  and  through   ownership  of  a  95%  economic  interest  in  a
     subsidiary,  24 commercial  properties and (vi) a 95% economic  interest in
     another  subsidiary  that currently  sells locks and boxes in  self-storage
     facilities operated by the Company.

  *  ISSUANCE OF CAPITAL  STOCK:  To fund the Company's  acquisition  activities
     over the past  three  years the  Company  has issued  approximately  $592.8
     million of  preferred  stock and $321.3  million of common  stock in public
     offerings,  and  approximately  $87.4 million of preferred stock and $830.7
     million  of  common  stock in  connection  with  mergers  and  real  estate
     acquisitions.

  *  DEVELOPMENT  ACTIVITIES:  In 1995,  the Company  commenced  development  of
     self-storage facilities,  opening one in 1995 and four in 1996, with eleven
     under construction at December 31, 1996.

  *  PORTABLE  SELF-STORAGE  BUSINESS:  In August  1996,  the Company  commenced
     operations  in  the  portable  self-storage  business  facilitated  by  the
     acquisition of an existing  operator.  As of December 31, 1996, the Company
     opened three new facilities.  From December 31, 1996 through March 15, 1997
     the Company opened an additional eight facilities.

     The significant increases in both the Company's asset and capital base have
translated into significant  growth in the Company's overall operating  results.
The comparative growth in operating results between 1996 and 1995 is principally
due to the impact of the PSMI  Merger  combined  with  mergers  with  affiliated
REITs.  The  comparative  growth in operating  results  between 1995 and 1994 is
principally due to mergers with affiliated  REITs combined with  acquisitions of
additional real estate facilities and investments in real estate entities.

                                       18


--------------------------------------------------------------------------------
                              Results of Operations
--------------------------------------------------------------------------------

     NET INCOME AND EARNINGS  PER COMMON  SHARE:  Net income for 1996,  1995 and
1994 was $153,549,000, $70,386,000 and $42,118,000,  respectively,  representing
increases  over the prior year of 118.2% for 1996 and 67.1% for 1995. Net income
allocable to common shareholders (net income less preferred stock dividends) for
1996, 1995 and 1994 was $84,950,000, $39,262,000 and $25,272,000,  respectively,
representing  increases  over the prior  year of  116.4%  for 1996 and 55.4% for
1995.  On a per share  basis,  net income was $1.10 per share (based on weighted
average shares  outstanding of 77,358,000)  for 1996,  $0.95 per share (based on
weighted average shares  outstanding of 41,171,000) for 1995 and $1.05 per share
(based on weighted  average  shares  outstanding  of  24,077,000)  for 1994. The
increase in net income per share for 1996 compared to 1995 was  principally  the
result of  improved  real  estate  operations.  The 1996 per share  amount  also
reflects  earnings  dilution  caused by (i)  development  activities  ($0.02 per
share),  (ii) portable self storage  operations  ($0.01 per share) and (iii) the
temporary  uninvested net offering  proceeds ($0.02 per share) from the issuance
of the Series H and Series I  preferred  stock.  The  decrease in net income per
share for 1995 compared to 1994 was principally  due to increasing  depreciation
expense combined with the accrual of estimated  environmental  remediation costs
at the end of 1995 and a greater number of shares outstanding in 1995.

     Net  income  includes  depreciation  and  amortization  expense  (including
depreciation  included  in  equity  in  earnings  of real  estate  entities)  of
approximately  $70,835,000 ($0.92 per common share) for 1996, $31,449,000 ($0.76
per common share) for 1995, and  $14,025,000  ($0.58 per common share) for 1994.
The  fiscal  1995  earnings  per  common  share also  includes  a  reduction  of
approximately  $0.08 per common  share  relating  to the  accrual  of  estimated
environmental remediation costs (discussed below).

     The  Company's   business   operations  consist  of  its  (i)  self-storage
properties, (ii) commercial properties, (iii) property management activities and
(iv)  ancillary   operations,   including  the  Company'  portable  self-storage
operations.  The Company's real estate operations  account for substantially all
of the Company  operating  activities.  During  1996,  approximately  94% of the
Company's   sources  of  operating   income  (income  prior  to  deductions  for
depreciation,  general and administrative  expenses,  advisory fees and interest
expense) was generated from property operations.


--------------------------------------------------------------------------------
                             Real Estate Operations
--------------------------------------------------------------------------------


     At December 31, 1996, the Company's  investment  portfolio consisted of (i)
its wholly-owned  properties,  (ii) properties owned by real estate partnerships
consolidated  with the  Company  (the  "Consolidated  Partnerships")  and  (iii)
properties owned by real estate entities  (partnerships  and REITs) in which the
Company's  ownership  interest  and  control are not  sufficient  to warrant the
consolidation of such entities (the  "Unconsolidated  Entities").  The following
table  summarizes  the  Company's  investment  in real estate  facilities  as of
December 31, 1996:
<TABLE>
<CAPTION>

                                                     Number of Facilities in which the        Net Rentable Square Footage
                                                    Company has an ownership interest in            (in thousands)
                                                    ------------------------------------  -------------------------------------
                                                    Self-storage   Commercial               Self-storage    Commercial
                                                    facilities     properties     Total     facilities      properties    Total
                                                    ------------   ----------   -------     ------------    ----------   -------
<S>                                                     <C>            <C>        <C>        <C>              <C>        <C>   
 Wholly-owned facilities......................          429            21         450        26,355           1,503      27,858
 Facilities owned by Consolidated Partnerships          292            14         306        17,062           1,542      18,604
                                                    ------------   ----------   -------     ------------    ----------   -------
     Total consolidated facilities............          721            35         756        43,417           3,045      46,462
 Facilities owned by Unconsolidated Entities..          343            10         353        20,600             673      21,273
                                                    ------------   ----------   -------     ------------    ----------   -------
     Total facilities in which the Company has 
       an ownership interest..................        1,064            45       1,109        64,017           3,718      67,735
                                                    ============   ==========   =======     ============    ==========   =======
</TABLE>

     The  facilities in which the Company has an ownership  interest are located
in or near major  metropolitan  markets in 38 states.  The Company believes that
geographic  diversity  reduces the impact from regional  economic  downturns and
provides a greater degree of stability to revenues.


                                       19
<PAGE>

     SELF-STORAGE OPERATIONS:  Self-storage rental income and cost of operations
presented on the consolidated statements of income reflect the operations of the
721   self-storage   facilities  owned  by  the  Company  and  the  Consolidated
Partnerships.  The following  table  summarizes  the operating  results  (before
depreciation) of these facilities for each of the past three years:

SELF-STORAGE OPERATIONS:
------------------------
<TABLE>
<CAPTION>


                                  Year Ended December 31,                      Year Ended December 31,  
                                  -----------------------                      -----------------------
                                                          Percentage                                   Percentage
                                  1996          1995        Change             1995          1994        Change
                                --------      --------      ---------         --------     --------       -------- 
                                           (Dollar mounts in thousands, except rents per square foot)

Rental income:
<S>                             <C>           <C>                <C>          <C>          <C>                <C> 
    Consistent group........    $121,481      $116,587           4.2%         $116,587     $112,763           3.4%
    Post 1993 acquisitions..     148,948        67,513         120.6%           67,513       14,234         374.3%
                                --------      --------      ---------         --------     --------       -------- 
                                 270,429       184,100          46.9%          184,100      126,997          45.0%
                                --------      --------      ---------         --------     --------       -------- 
Cost of operations:
    Consistent group........      37,438        40,319         (7.2)%           40,319       40,246           0.2%
    Post 1993 acquisitions..      45,056        23,077          95.2%           23,077        5,020         359.7%
                                --------      --------      ---------         --------     --------       -------- 
                                  82,494        63,396          30.1%           63,396       45,266          40.1%
                                --------      --------      ---------         --------     --------       -------- 
Net operating income:
    Consistent group........      84,043        76,268          10.2%           76,268       72,517           5.2%
    Post 1993 acquisitions..     103,892        44,436         133.8%           44,436        9,214         382.3%
                                --------      --------      ---------         --------     --------       -------- 
                                $187,935      $120,704          55.7%         $120,704      $81,731          47.7%
                                ========      ========      =========         ========     ========       ======== 

Consistent group data:
    Gross margin............       69.2%          65.4%          5.8%           65.4%          64.3%          1.7%
    Weighted average
      occupancy.............       90.7%          89.8%          1.0%           89.8%          90.0%        (0.2)%
    Average realized annual
      rent per square foot         $7.68          $7.44          3.2%           $7.44          $7.08          5.1%
    Average scheduled
      annual rent per              $7.80          $7.20          8.3%           $7.20          $6.84          5.3%
      square foot...........


Number of facilities (at
 the end of the period):
    Consistent group........         298            298            -%             298            298            -%
    Cumulative post 1993
      acquisitions..........         423            222         90.5%             222             67        231.3%

Net rentable square feet (at the end of the period):

    Consistent group........      17,641         17,641            -%          17,641         17,641            -%
    Cumulative post 1993
      acquisitions..........      25,776         13,137         96.2%          13,137          4,166        215.3%

</TABLE>

     The  comparative  increases in the Company's  self-storage  operations from
1994  through  1996  are  principally  due  to  the  acquisition  of  additional
facilities  as  indicated  in the  above  table.  For the  consistent  group  of
facilities  owned  throughout  each of the three  fiscal  years,  year-over-year
improvements  in rental income of 4.2% in 1996 and 3.4% in 1995 are  principally
the result of  increased  realized  rent per square  foot and,  with  respect to
fiscal 1996, increased weighted average occupancy levels.

     Commencing in early 1996,  the Company began to experiment  with a national
telephone  reservation  system  designed  to  provide  added  customer  service.
Customers  calling either the Company's  toll-free  telephone  referral  system,
(800) 44-STORE, or a local Public Storage facility, are directed to the national
reservation  system where a trained  representative  discusses with the customer

                                       20
<PAGE>

space requirements, price and location preferences and also informs the customer
of other products and services provided by the Company.  The national  telephone
reservation system, which is no longer  experimental,  was not fully operational
for most of the  Company's  facilities  until the fourth  quarter of 1996 and is
currently  handling in excess of 100,000  calls per month.  As of  December  31,
1996, the national  telephone  reservation system was supporting rental activity
at all of the  Company's  properties,  with the  exception of one major  market,
which was included in March 1997.

     In connection with the national telephone  reservation  system, the Company
experimented with pricing and promotional  discounts designed to increase rental
activity.  As a result,  promotional discounts increased  significantly.  Rental
income for the Company's self-storage facilities is net of promotional discounts
totaling $4,031,000 and $303,000 for the years ended December 31, 1996 and 1995,
respectively.  The  Company  believes  that  the use of the  national  telephone
reservation  system  combined  with rental  discounts  has resulted in increased
weighted average occupancies.

     In the second half of 1996,  the Company  began to increase  its  scheduled
rents charged to new customers (prior to promotional  discounts) and to existing
tenants  where  warranted.  As a result,  for fiscal  1996,  both  realized  and
scheduled rents per square foot increased  compared to 1995. This trend was also
applicable  throughout  the  portfolio of  self-storage  facilities in which the
Company has an ownership interest and manages (see "Supplemental  Property Data"
below).

     With the exception of property  management  fees, most of the  self-storage
operating costs (i.e. payroll,  property taxes,  repairs and maintenance,  etc.)
are generally fixed. As a result of becoming self-managed in connection with the
PSMI Merger,  the Company no longer incurs  property  management  fees.  Cost of
operations  for 1996 decreased  compared to 1995  principally as a result of the
elimination of property  management fees for 1996. Included in cost of operation
for 1995 and 1994 were  management  fees  totaling  $9,421,000  and  $7,587,000,
respectively  ($5,966,000  in 1995 and  $6,737,000  in 1994 with  respect to the
consistent  group of facilities).  However,  offsetting the decrease in property
management  fees in 1996 are expenses  with  respect to the  national  telephone
reservation system totaling $1,257,000.

     DEVELOPMENT  OF  SELF-STORAGE  FACILITIES:  Commencing in 1995, the Company
began to construct  self-storage  facilities.  Through  December  31, 1996,  the
Company constructed and opened for operation five facilities, one of which began
operations  in August 1995 and four in 1996.  At December 31, 1996,  the Company
had eleven  self-storage  facilities  (approximately  707,000 square feet) under
construction  with an aggregate  cost  incurred to date of  approximately  $33.5
million  and total  additional  estimated  cost to  complete  of $22.5  million.
Generally the  construction  period takes 9 to 12 months  followed by a 18 to 24
month fill-up process until the newly constructed  facility reaches a stabilized
occupancy level of approximately 90%. Due to the timing of the employment of the
capital to construct the  facilities and the  relatively  long "fill-up"  period
until the facilities  reach a stabilized  occupancy  level, the Company believes
that its  development  plans may create  earnings  dilution  in the  short-term.
However,   the  Company  has  reached  an  agreement  in  principle  to  develop
approximately  $220  million of  self-storage  facilities  with a joint  venture
partner (see  "Liquidity and Capital  Resources - Development  activities")  and
expects that the joint development of self-storage facilities will mitigate this
earnings dilution to the extent of the joint venturer's interest.



                                       21
<PAGE>

     COMMERCIAL PROPERTY OPERATIONS:  Commercial property rental income and cost
of operations  presented on the  consolidated  statements of income  reflect the
operations  of the 35  facilities  owned  by the  Company  and the  Consolidated
Partnerships.  The following  table  summarizes  the operating  results  (before
depreciation) of these facilities for each of the past three years:

COMMERCIAL PROPERTY OPERATIONS:
-------------------------------
<TABLE>
<CAPTION>

                                 Year Ended December 31,                       Year Ended December 31,
                                 -----------------------                       -----------------------               
                                                           Percentage                                    Percentage
                                  1996           1995        Change              1995          1994        Change
                                 -------       -------      --------           --------      -------      -------- 
                                           (Dollar amounts in thousands, except rents per square foot)
Rental income:
<S>                              <C>           <C>            <C>              <C>          <C>               <C> 
    Consistent group......       $14,685       $14,689             -%          $14,689      $14,144           3.9%
    Post-1993 Acquisitions         8,891         3,345         165.8%            3,345          704         375.1%
                                 -------       -------      --------           --------      -------      -------- 
                                  23,576        18,034          30.7%           18,034       14,848          21.5%
                                 -------       -------      --------           --------      -------      -------- 
Cost of operations:
    Consistent group......         7,260         7,305         (0.6)%            7,305        7,269           0.5%
    Post-1993 Acquisitions         3,490         1,546         125.7%            1,546          281         450.2%
                                 -------       -------      --------           --------      -------      -------- 
                                  10,750         8,851          21.5%            8,851        7,550          17.2%
                                 -------       -------      --------           --------      -------      -------- 
Net operating income:
    Consistent group......         7,425         7,384           0.6%            7,384        6,875           7.4%
    Post-1993 Acquisitions         5,401         1,799         200.2%            1,799          423         325.3%
                                 -------       -------      --------           --------      -------      -------- 
                                 $12,826        $9,183          39.7%           $9,183       $7,298          25.8%
                                 =======       =======      ========           ========      =======      ========
Consistent Group data:
    Gross margin..........         50.6%          50.3%          0.6%           50.3%          48.6%          3.4%
    Weighted average
      occupancy...........         96.0%          96.3%        (0.3)%           96.3%          95.0%          1.3%
    Average realized annual
      rent per square foot         $8.64          $8.64            -%           $8.64          $8.28          4.4%

Number of facilities (at
 the end of the period):
    Consistent group......            15             15            -%              15             15            -%
    Cumulative Post-1993
    Acquisitions..........            19              5        280.0%               5               1       400.0%

Net rentable square feet (at the end of the period):
    Consistent group......         1,696          1,696            -%           1,696          1,696            -%
    Cumulative Post-1993
    Acquisitions..........         1,041            308        238.0%             308             195        57.9%
</TABLE>

     As  indicated  in  the  above  table,  the  Company's  commercial  property
operations have grown  principally as a result of the addition of new properties
over the past three years.  The operations of the consistent group of properties
over the past three years has been relatively stable, with changes in operations
principally the result of changing  occupancy  levels and realized rental rates.
Due to the size of the Company's investment in commercial properties relative to
its self-storage  facilities,  the Company has not emphasized its growth in this
segment of its portfolio.

     Effective January 2, 1997, the Company restructured its commercial property
operations  to  concentrate  its  investing  efforts in real  estate  facilities
containing commercial and industrial rental space through a separate entity. See
Note 14 to the  consolidated  financial  statements.  The Company  believes that
restructuring  will create a vehicle  which should  facilitate  future growth in
this segment of the real estate  industry.  The Company will participate in this
growth through its ownership  interest in the new entity.  The Company currently
owns approximately 85% of the economic interest in the new entity.  Accordingly,
due to the Company's significant ownership interest the Company will continue to
consolidate the entity until such time that the Company's  ownership and control
is reduced to a level not warranting consolidation.

     EQUITY IN EARNINGS OF REAL ESTATE  ENTITIES:  As of December 31, 1996,  the
Company had ownership interests in 41 affiliated limited  partnerships and eight
affiliated  REITs which  comprise the  Unconsolidated  Entities.  The  Company's
ownership  interest  in these  entities  ranges from 15% to 45%,  but  generally
averages  approximately 30%. Due to the Company's limited ownership interest and
control of these  entities,  the Company  does not  consolidate  the accounts of
these entities for financial reporting purposes.

                                       22
<PAGE>

     Equity in earnings of real estate  entities  represents  the  Company's pro
rata share of earnings of the  Unconsolidated  Entities using the equity method.
Similar to the Company, the Unconsolidated  Entities generate  substantially all
of their  income  from their  ownership  of  self-storage  facilities  which are
managed by the Company.  In the  aggregate,  the  Unconsolidated  Entities own a
total of 353 real estate facilities,  343 of which are self-storage  facilities.
The  following  table  summarizes  the  components  of the  Company's  equity in
earnings of real estate entities:
<TABLE>
<CAPTION>

                                      Year Ended December 31,                     Year Ended December 31,
                                      -----------------------                     -----------------------               
                                                                  Dollar                                     Dollar  
                                       1996           1995        Change            1995          1994        Change
                                      -------       -------      --------         --------      -------      -------- 
                                                              (Amounts in thousands)
<S>                                 <C>           <C>            <C>              <C>          <C>         <C> 
Self-storage operations..........     $41,722        $6,573      $35,149           $6,573         $764      $5,809
Commercial property operations...       2,667           269        2,398              269            -         269
Depreciation:
  Self-storage facilities........     (15,709)       (1,909)     (13,800)          (1,909)           -      (1,909)
  Commercial properties..........      (1,741)         (136)      (1,605)            (136)           -        (136)
Other (a)........................      (4,818)       (1,034)      (3,784)          (1,034)           -      (1,034)
                                      -------       -------      --------         --------      -------      -------- 
    Total equity in earnings of
    real estate entities              $22,121        $3,763      $18,358           $3,763         $764      $2,999
                                      =======       =======      ========         ========      =======     ========= 
</TABLE>
a) principally the Company's pro rata share of general and  administrative
   expense and interest expense

     The increase in 1995 earnings compared to 1994 is principally the result of
the acquisition of ownership  interests in the Unconsolidated  Entities acquired
pursuant to the PSMI Merger.  The increase in earnings in 1996  compared to 1995
is due to (i) the 1996  earnings  reflects a full  year's  operations  for those
interests acquired in the PSMI Merger as opposed to just one and one-half months
in 1995,  (ii) the  Company  acquired  additional  interests  during 1996 in the
Unconsolidated Entities which resulted in increased earnings from these entities
(See Note 5 to the consolidated  financial  statements)  offset by (iii) certain
business combinations occurring in 1996 whereby the Company's existing ownership
interest  in certain  entities  were  converted  into  wholly-owned  real estate
facilities (See Note 3 to the consolidated financial statements).

     The following table summarizes the combined  operating data for fiscal 1996
with  respect  to those  Unconsolidated  Entities  in which the  Company  had an
ownership interest as of December 31, 1996:

 Rental income...................................................  $180,197,000
 Total revenues..................................................   182,036,000
 Cost of operations..............................................    65,417,000
 Depreciation....................................................    27,332,000
 Net income......................................................    75,937,000


                                       23
<PAGE>
--------------------------------------------------------------------------------
                         Property Management Operations
--------------------------------------------------------------------------------

     In  connection  with  the  PSMI  Merger,   the  Company  acquired  property
management  contracts,  exclusive  of  facilities  owned  by  the  Company,  for
self-storage  facilities and, through  ownership of a 95% economic interest in a
subsidiary, the management contracts for commercial properties. These facilities
constitute  all of the United  States  self-storage  facilities  and  commercial
properties doing business under the "Public Storage" name and all those in which
the Company has an interest.  At December 31, 1996,  the Company  managed  1,101
self-storage  facilities  (1,064 owned by affiliates of the Company and 37 owned
by third  parties)  and 45  commercial  properties,  all of which  are  owned by
affiliates of the Company.

     The property management  contracts generally provide for compensation equal
to 6%, in the case of the  self-storage  facilities,  and 5%, in the case of the
commercial  properties,  of gross revenues of the facilities managed.  Under the
supervision of the property  owners,  the Company  coordinates  rental policies,
rent collections,  marketing activities, the purchase of equipment and supplies,
maintenance activity, and the selection and engagement of vendors, suppliers and
independent  contractors.  In  addition,  the  Company  assists  and advises the
property owners in establishing policies for the hire, discharge and supervision
of employees for the operation of these facilities, including resident managers,
assistant managers, relief managers and billing and maintenance personnel.

PROPERTY MANAGEMENT  OPERATIONS:
--------------------------------
<TABLE>
<CAPTION>

                                    Year Ended December 31,                       Year Ended December 31,
                                    -----------------------                       -----------------------               
                                                                Dollar                                        Dollar  
                                     1996           1995        Change              1995          1994        Change
                                    -------       -------      --------           --------      -------      -------- 
                                                              (Amounts in thousands)
<S>                                 <C>           <C>            <C>              <C>          <C>          <C> 
Facility management fees:
    Self-storage..........         $13,474        $1,976       $11,498            $1,976     $       -       $1,976
    Commercial properties.             954           168           786               168             -          168
                                    -------       -------      --------           --------      -------      -------- 
                                    14,428         2,144        12,284             2,144             -        2,144
                                    -------       -------      --------           --------      -------      -------- 
Cost of operations:                                                              
    Self-storage..........           1,820           264         1,556               264             -          264
    Commercial properties.             755            88           667                88             -           88
                                    -------       -------      --------           --------      -------      -------- 
                                     2,575           352         2,223               352             -          352
                                    -------       -------      --------           --------      -------      -------- 
Net operating income:                                                           
    Self-storage..........          11,654         1,712         9,942             1,712             -        1,712
    Commercial properties.             199            80           119                80             -           80
                                    -------       -------      --------           --------      -------      -------- 
                                   $11,853        $1,792       $10,061            $1,792     $       -       $1,792
                                    =======       =======      ========           ========      =======      -------- 
</TABLE>
     Because the Company has  significant  ownership  interests in all but 37 of
the facilities it manages,  the revenues generated from its property  management
operations are generally predictable and are dependent upon the future growth of
rental income for those  facilities the Company  manages.  However,  because the
Company has in the past, and may continue to seek to acquire in the future, real
estate facilities owned by the Unconsolidated  Entities,  the Company's facility
management  income should decrease in 1997 compared to 1996. The acquisitions of
such  facilities  will reduce  management  fee income.  However,  offsetting the
reduction in management fee income will be a corresponding reduction in the cost
of property  operations as the facilities acquired by the Company will no longer
incur property management fees.



                                       24
<PAGE>
--------------------------------------------------------------------------------
                              Ancillary Businesses
--------------------------------------------------------------------------------

     Although not material to the Company's  overall  operations,  its ancillary
business is expected to play a more important role in the future of the Company.
The following table summarizes the Company's ancillary business operations:
<TABLE>
<CAPTION>

                                       Year Ended December 31,                    Year Ended December 31,
                                       -----------------------                    -----------------------               
                                                                   Dollar                                  Dollar  
                                        1996           1995        Change           1995          1994     Change
                                       -------       -------      --------        --------      -------    -------- 
                                                              (Amounts in thousands)
<S>                                 <C>           <C>            <C>              <C>          <C>          <C> 
Ancillary revenues:
    Sales of locks, boxes and
      packaging material.........      $2,540          $101      $2,439             $101     $       -        $101
    Truck rental income..........         543            11         532               11             -         11
    Portable self-storage rents..         421             -         421                -             -          -
                                       -------       -------      --------        --------      -------    -------- 
                                        3,504           112       3,392              112             -        112
                                       -------       -------      --------        --------      -------    -------- 

Cost of operations - ancillary
business
    Locks,  boxes and package
      materials..................       1,660            84       1,576               84             -         84
    Truck rentals................         511            16         495               16             -         16
    Portable self-storage........       1,247             -       1,247                -             -          -
                                       -------       -------      --------        --------      -------    -------- 
                                        3,418           100       3,318              100             -        100
                                       -------       -------      --------        --------      -------    -------- 

Net operating income (loss) -
ancillary business


    Locks,  boxes and package
      materials..................         880            17         863               17              -         17
    Truck rentals................          32            (5)         37               (5)             -         (5)
    Portable self-storage........        (826)            -        (826)               -              -          -
                                       -------       -------      --------        --------      -------    -------- 
                                          $86          $ 12         $74             $ 12              -       $ 12
                                       =======       =======      ========        ========      =======    ========
</TABLE>
     In  an  effort  to  attract  a  wider  variety  of  customers,  to  further
differentiate  the Company from its  competition  and to generate new sources of
revenues,  additional  business are being  developed to complement the Company's
self-storage  business.  These  products  include  the sale of locks,  boxes and
packing supplies and the rental of trucks and other moving equipment through the
implementation of (i) a retail expansion program,  (ii) truck rental program and
more importantly (iii) a portable self-storage business.

     The  strategic  objective  of the retail  expansion  program is to create a
"Retail Store" that will (i) rent spaces for the attached self-storage facility,
(ii)  rent  spaces  for  the  other  Public   Storage   facilities  in  adjacent
neighborhoods,  (iii) sell  locks,  boxes and packing  materials  to the general
public,  including tenants and (iv) rent trucks and other moving equipment,  all
in  an  environment  that  is  more  retail  oriented.  Retail  stores  will  be
retro-fitted to existing  self-storage  facility rental offices or "built-in" as
part of the development of new  self-storage  facilities,  both in high traffic,
high visibility locations.

     In 1996, the Company  organized  Public  Storage Pickup and Delivery,  Inc.
("PSPUD") as a separate corporation to operate a portable  self-storage business
that rents storage containers to customers for storage in central warehouses and
provides related transportation  services. The Company believes PSPUD's business
complements  the Company's  existing  operations and PSPUD is using the national
telephone reservation system and various marketing initiatives,  including radio
and television, to promote its rental activity. PSPUD currently operates a total
of 12 facilities  in six greater  metropolitan  areas in  California  and Texas.
PSPUD anticipates opening four additional facilities in these areas and in three
additional  areas  by the end of the  first  quarter  of 1997.  PSPUD  presently
anticipates expanding its operations to a significant number of additional areas
during the remainder of 1997 and 1998, subject to continuing  evaluation of this
business  and the  satisfaction  of  regulatory  requirements.  There  can be no
assurance on the level of PSPUD's expansion or profitability.

                                       25
<PAGE>

     Generally,  PSPUD  expects to expend an amount  ranging  from  $850,000  to
$1,100,000 per facility  during the first full year of operations,  depending on
location and pricing structure. This estimate includes approximately $550,000 of
capitalized  expenditures  and assumes (i) a leased  facility for 2,000  storage
containers,  (ii) a break-even occupancy level of 55% to 65%, (iii) a stabilized
occupancy level of 90% reached in 9 to 12 months,  and (iv) monthly rental rates
ranging  from $35.00 to $45.00 per  container.  Rental  rates will vary based on
location and market  conditions.  Most of the operating  costs of a facility are
expected to be fixed. However, certain fixed costs are expected to be reduced as
the facility reaches a stabilized occupancy level and certain economies of scale
are expected to be achieved as the number of facilities in operation grows.


     PSPUD's operating  experience is limited and its operations may be affected
by such  factors as the level of  competition  in the  business,  the demand for
storage  containers,  general economic  conditions,  either nationally or in the
market  areas  in  which  PSPUD  operates,  the rate of  facility  move-ins  and
move-outs,  the  availability  of  acceptable  locations,  the level of  PSPUD's
operating expenses and the cost of capital  equipment.  Until the facilities are
operating  profitably,  PSPUD's  operations are expected to adversely impact the
Company's  earnings  growth  rate.  The  extent  of the  impact  will  depend in
significant part on the number, timing and performance of new facilities.


--------------------------------------------------------------------------------
                         Other Income and Expense Items
--------------------------------------------------------------------------------

     INTEREST AND OTHER  INCOME:  Interest and other  income was  $7,064,000  in
1996,  $4,497,000  in 1995,  and  $4,587,000  in 1994.  This income is primarily
attributable  to interest income on cash balances (as a result of uninvested net
equity offering proceeds during 1996 and 1995) and interest income from mortgage
notes  receivable.   The  Company  canceled   approximately  $700,000  in  1996,
$16,435,000  in 1995, and  $24,441,000  in 1994 of mortgage notes  receivable in
connection with the acquisition of real estate  facilities  securing such notes.
The Company also acquired  notes  receivable of $6,667,000 in the PSMI Merger in
1995 and an additional  $3,709,000 in 1996 from affiliated parties. As a result,
interest income from mortgage notes receivable decreased from $4,333,000 in 1994
to $1,974,000  in 1995, as the average  outstanding  mortgage  notes  receivable
balance  was  significantly  lower.  Interest  income  from the  mortgage  notes
receivable  increased from  $1,974,000 in 1995 to $2,710,000 in 1996 as a result
of the notes acquired in 1995 and 1996.

     DEPRECIATION AND  AMORTIZATION:  Depreciation and amortization  expense was
$64,967,000  in  1996,  $40,760,000  in 1995,  and  $28,274,000  in 1994.  These
increases are  principally  due to the  acquisition  of  additional  real estate
facilities  in each period  combined  with  amortization  of  intangible  assets
acquired in connection with the PSMI Merger.  Depreciation  expense with respect
to the real estate facilities was $55,689,000 in 1996,  $39,376,000 in 1995, and
$28,099,000 in 1994; the increases are due to the acquisition of additional real
estate  facilities  in 1994 through 1996.  Amortization  expense with respect to
intangible  assets  acquired in the PSMI Merger  totaled  $9,309,000 in 1996 and
$1,164,000  in 1995 (the  1995  amount  representing  a pro  rated  amount  from
November 16, 1995 through the end of the year).

     GENERAL AND ADMINISTRATIVE EXPENSE:  General and administrative expense was
$5,524,000 in 1996,  $3,982,000 in 1995, and $2,631,000 in 1994. The Company has
experienced  and  expects  to  continue  to  experience  increased  general  and
administrative  costs due to the  following:  (i) the  growth in the size of the
Company,  (ii) the Company's property  acquisition  activities have continued to
expand,  resulting in certain  additional  costs incurred in connection with the
acquisition of additional real estate facilities, and (iii) pursuant to the PSMI
Merger, the Company became self-advised,  resulting in the Company internalizing
management  functions which previously were provided by the Company's investment
adviser.   However,   offsetting   the   expected   increases   in  general  and
administrative  expenses  has been the  elimination  of  advisory  fee  expense.
General  and  administrative  costs for each year  principally  consist of state
income  taxes  (for  states in which the  Company is a  non-resident),  investor
relation  expenses,  and certain  overhead  associated  with the acquisition and
development of real estate facilities.

     INTEREST  EXPENSE:  Interest expense was $8,482,000 in 1996,  $8,508,000 in
1995, and $6,893,000 in 1994. Reflecting the Company's reluctance to finance its
growth with debt,  debt and related  interest  expense  remains  relatively  low
compared to the Company's  overall asset base. The decrease in interest  expense
in 1996 compared to 1995,  principally is due to the early retirement of debt in
1996 of  approximately  $41 million having a weighted average interest rate of
7.76% partially offset by assumption of a $65.5 million,  7.08% unsecured senior
note in connection with the PSMI Merger on November 16, 1995.

     ENVIRONMENTAL  COSTS:  The  Company's  policy  is to  accrue  environmental
assessments  and/or  remediation cost when it is probable that such efforts will
be required and the related costs can  reasonably be estimated.  The majority of
the Company's real estate facilities were acquired prior to the time when it was
customary to conduct environmental assessments. During 1995, the Company and the
Consolidated Partnerships conducted independent environmental  investigations of
  

                                       26
<PAGE>

their real estate facilities.  As a result of these investigations,  the Company
has recorded an amount which, in management's best estimate,  will be sufficient
to satisfy anticipated costs of known remediation requirements.  At December 31,
1995, the Company  accrued  $2,741,000 for estimated  environmental  remediation
costs.  Although  there can be no  assurance,  the  Company  is not aware of any
environmental  contamination of any of its facilities  which  individually or in
the aggregate  would be material to the Company's  overall  business,  financial
condition,  or results of operations.  The Company believes that amounts accrued
in 1995 are sufficient to satisfy anticipated costs.

     ADVISORY  FEES:  Advisory fees were  $4,983,000  in 1994 and  $6,437,000 in
1995. The advisory fee, which was based on a contractual computation,  increased
as a result of  increased  adjusted  net income (as  defined)  per common  share
combined with the issuance of additional  preferred and common stock during each
of the periods.  Advisory fees for fiscal 1995  represents such amounts from the
beginning  of the year  through  November  16,  1995,  when the  Company  became
self-advised pursuant to the PSMI Merger. As a result of becoming  self-advised,
the Company no longer incurs advisory fees.

     MINORITY  INTEREST IN INCOME:  Minority  interest in income  represents the
income allocable to equity interests in the Consolidated  Partnerships which are
not owned by the Company. Since 1990, the Company has acquired portions of these
equity  interests  through its  acquisition  of limited and general  partnership
interests in the Consolidated Partnerships.  These acquisitions have resulted in
reductions  to the  "Minority  interest in income" from what it would  otherwise
have been in the absence of such acquisitions,  and accordingly,  have increased
the  Company's  share  of  the  Consolidated   Partnerships'  income.   However,
offsetting the reduction in minority  interest in 1996 caused by the acquisition
of additional  equity interests are the inclusion of additional  partnerships in
the  Company's  consolidated  financial  statements.  During  1996,  the Company
acquired  sufficient  ownership  interest and control in three  partnerships and
commenced  including  the  accounts  of  these  partnerships  in  the  Company's
consolidated  financial  statements  which  amounted  to an increase in minority
interest in income of approximately $2,187,000 in 1996.

     In determining income allocable to the minority interest for 1996, 1995 and
1994  consolidated   depreciation  and  amortization  expense  of  approximately
$11,490,000,  $11,243,000 and  $13,556,000,  respectively,  was allocated to the
minority  interest.  The  decrease in  depreciation  allocated  to the  minority
interest was principally  the result of the  acquisition of limited  partnership
units in the Consolidated  Partnerships by the Company  throughout  fiscal 1994,
1995 and 1996 offset by an increase in 1996 resulting  from the above  mentioned
consolidation of three partnerships.

                                       27

<PAGE>
--------------------------------------------------------------------------------
                      Supplemental Property Data and Trends
--------------------------------------------------------------------------------

     There are  approximately  81 ownership  entities  owning in aggregate 1,064
self-storage facilities,  including the facilities which the Company owns and/or
operates.  At  December  31,  1996,  343  of  these  facilities  were  owned  by
Unconsolidated Entities, entities in which the Company has an ownership interest
and uses the equity method for financial statement  presentation.  The remaining
721 facilities are owned by the Company and  Consolidated  Partnerships  many of
which were acquired through business  combinations  with affiliates during 1996,
1995, and 1994.

     In order to evaluate how the Company's  overall  portfolio  has  performed,
management  analyzes  the  operating   performance  of  a  consistent  group  of
self-storage facilities representing 951 (55.8 million net rentable square feet)
of the  1,064  self-storage  facilities  (herein  referred  to as  "Same  Store"
self-storage  facilities)  which have been operated  under the "Public  Storage"
name for at least the past  three  years.  The Same  Store  group of  properties
includes 613 consolidated  facilities and 338 facilities owned by Unconsolidated
Entities.  The  following  table  summarizes  the  pre-depreciation   historical
operating results of the Same Store self-storage facilities:

SAME STORE SELF-STORAGE FACILITIES:
-----------------------------------
(historical property operations)
<TABLE>
<CAPTION>

                                   Year Ended December 31,                    Year Ended December 31,
                                  -----------------------                    -----------------------               
                                                            Percentage                              Percentage
                                    1996           1995        Change         1995          1994      Change
                                  -------       -------      --------        --------      -------    -------- 
                                                              (Amounts in thousands)
<S>                               <C>           <C>            <C>            <C>          <C>          <C> 
Rental income..............      $445,586      $422,933        5.4%          $422,933      $403,295       4.9%
Cost of operations(1)......       158,212       149,660        5.7%           149,660       144,752       3.4%
                                  -------       -------      --------        --------      -------    -------- 

Net operating income.......      $287,374      $273,273        5.2%          $273,273      $258,543       5.7%
                                  =======       =======      ========        ========      ========   ======== 

Gross profit margin(3).....         64.5%         64.6%       (0.2)%            64.6%           64.1%     0.8%

Weighted Ave. Occupancy....         91.2%         90.1%        1.2%             90.1%           89.2%     1.0%

Weighted Ave. realized
  annual rent per sq. ft(2)..       $8.76         $8.40        4.3%             $8.40           $8.16     2.9%

Weighted Ave. scheduled
  annual rent per sq. ft(2)..       $9.00         $8.16       10.3%             $8.16           $7.80     4.6%

</TABLE>

1.   Assumes payment of property  management  fees on all facilities,  including
     those facilities owned by the Company for which effective November 16, 1995
     no fee is paid. Cost of operations consists of the following:


                                   1996            1995                1994
                               ----------       ----------         ----------
    Payroll expense              $43,490         $ 42,545           $ 41,092
    Property taxes                40,799           38,325             36,941
    Property management fees      26,139           25,391             24,214
    Advertising                    3,851            3,502              3,709
    Telephone  center costs        1,956                -                  -
    Other (4)                     41,977           39,897             38,796
                               ----------       ----------         ----------
                                $158,212         $149,660           $144,752
                               ==========       ==========         ==========

2.   Realized  rent  per  square  foot  as  presented   throughout  this  report
     represents the actual revenue earned per occupied  square foot.  Management
     believes this is a more relevant  measure then the scheduled  rental rates,
     since scheduled rates can be discounted through the use of promotions.

3.   Gross profit margin is computed by dividing  property net operating  income
     (before  depreciation  expense)  by  rental  revenues.  Cost of  operations
     include a 6% management fee. The gross profit margin excluding the facility
     management  fee was  70.5%,  70.6%  and  70.1%  in  1996,  1995  and  1994,
     respectively.  On November  16,  1995,  the Company  acquired  its facility
     manager and no longer incurs such fees on the properties it owns.

4.   Other expenses principally include utilities,  repairs and maintenance, and
     other items such as office expenses.

     As  indicated  above,  in early 1996,  the Company  implemented  a national
telephone  reservation system designed to provide added customer service for all
the  self-storage  facilities  under  management  by the  Company.  The  Company
believes that the improved operating  results,  as indicated in the above table,
in large  part are due to the  success  of the  national  telephone  reservation
system.  However,  the  national  telephone  reservation  system  was not  fully
  

                                       28
<PAGE>

operational for most of the self-storage  facilities until the later part of the
third  quarter  fourth  quarter of 1996.  As of December 31, 1996,  the national
telephone  reservation  system  was  supporting  rental  activity  at all of the
self-storage  properties managed by the Company, with the exception of one major
market, which will be operational by end of March 1997.

     Rental income for the Same Store facilities included promotional  discounts
totaling  $6,000,000 in 1996  ($3,000,000  of which  occurred  during the fourth
quarter  of  1996)  compared  to  $729,000  and  $1,466,000  in 1995  and  1994,
respectively.   The  significant   increase  in  1996  was  principally  due  to
experimentation  with  pricing and  promotional  discounts  designed to increase
rental activity.


     In addition to evaluating property operating trends in occupancy,  realized
rents,  expenses  and net  operating  income on a Same Store  basis,  management
evaluates  trends by geographic  regions.  Operating  trends for the  Same-Store
facilities for the five largest  regions are shown in the table on the following
page.



                                       29
<PAGE>
<TABLE>
<CAPTION>
                      Same-Store Operating Trends by Region
--------------------------------------------------------------------------------
               Northern California.    Southern California.           Texas                  Florida         
              ---------------------  ----------------------  ----------------------   ---------------------  
                         % change                % change                 % change                % change       
                         from prior              from prior               from prior              from prior   
               Amount       year     Amount         year     Amount          year     Amount         year        
              -------    ----------  -------    -----------  -------      ----------  -------    -----------  
Rental Revenues:                                                                                                          
----------------                                                                                             
       <S>    <C>           <C>      <C>            <C>      <C>            <C>      <C>            <C>      
       1996   $65,222       8.61%    $79,524        4.88%    $39,704        1.31%    $27,908        3.11%    
       1995   $60,053       5.77%    $75,826        3.60%    $39,191        2.69%    $27,066        3.14%    
       1994   $56,777       4.40%    $73,191        6.73%    $38,163        4.32%    $26,241        3.45%    

Cost of operations
------------------
       1996   $18,457       3.37%    $24,580        5.72%    $16,482        5.83%    $10,772        3.46%    
       1995   $17,856       3.39%    $23,250       (1.62)%   $15,574        1.51%    $10,412        1.06%    
       1994   $17,271       5.68%    $23,633        5.52%    $15,342        9.35%    $10,303        4.03%    

Net operating income:
---------------------
       1996   $46,765      10.83%    $54,944        4.50%    $23,222       (1.67)%   $17,136        2.89%    
       1995   $42,197       6.81%    $52,576        6.09%    $23,617        3.49%    $16,654        4.49%    
       1994   $39,506       3.85%    $49,558        7.39%    $22,821        1.19%    $15,938        3.09%    

Weighted avg. occupancy
-----------------------
       1996    94.5%        3.73%      87.3%        2.46%      89.6%        1.36%      88.7%        0.23%    
       1995    91.1%        3.52%      85.2%        2.40%      88.4%        -          88.5%       (1.34)%   
       1994    88.0%        0.57%      83.2%        3.35%      88.4%        1.61%      89.7%       (1.32)%   

Weighted avg. annual realized rents per sq. ft.
-----------------------------------------------
       1996   $10.20        4.94%     $10.32        2.38%      $6.84        -          $8.04        3.10%    
       1995    $9.72        2.53%     $10.08        1.20%      $6.84        1.79%      $7.80        4.84%    
       1994    $9.48        2.60%      $9.96        3.75%      $6.72        3.70%      $7.44        3.33%    
</TABLE>
<TABLE>
<CAPTION>
                      Same-Store Operating Trends by Region
--------------------------------------------------------------------------------
                     Illinois              Other states               Total
              ---------------------  ----------------------   ---------------------
                          % change                % change                % change    
                          from prior              from prior              from prior  
               Amount        year     Amount         year     Amount         year     
               ------     ----------  -------    -----------  -------     ---------- 
Rental Revenues:    
----------------                                                                                                    
       <S>     <C>            <C>     <C>            <C>      <C>            <C>  
       1996    $31,123        9.00%   $202,105       5.13%    $445,586       5.36%
       1995    $28,552        7.67%   $192,245       5.39%    $422,933       4.87%
       1994    $26,518       12.64%   $182,405       9.94%    $403,295       7.73%

Cost of operations
------------------
       1996    $14,887        5.47%   $73,034        6.69%    $158,212       5.71%
       1995    $14,115       16.94%   $68,453        3.51%    $149,660       3.39%
       1994    $12,070        0.32%   $66,133        4.19%    $144,752       4.76%

Net operating income
--------------------
       1996    $16,236       12.46%   $129,071       4.26%    $287,374       5.16%
       1995    $14,437       (0.08)%  $123,792       6.47%    $273,273       5.70%
       1994    $14,448       25.51%   $116,272      13.51%    $258,543       9.47%

Weighted avg. occupancy
-----------------------
       1996      92.8%        -         92.2%        0.55%      91.2%        1.22%
       1995      92.8%        1.98%     91.7%        0.33%      90.1%        1.01%
       1994      91.0%        7.44%     91.4%        2.81%      89.2%        2.53%

Weighted avg. annual realized rents per sq. ft.
----------------------------------------------
       1996      $8.88        8.82%     $8.40        4.48%      $8.76        4.29%
       1995      $8.16        4.62%     $8.04        4.69%      $8.40        2.94%
       1994      $7.80        4.84%     $7.68        6.67%      $8.16        6.25%
</TABLE>
--------
Factors affecting regional trends in revenues and expenses include;
     *  acts  of  nature,   including  the   Northridge   earthquake   (Southern
        California, January 1994).
     *  new competition from property development (Texas)
     *  property  valuations and related  reassessments for purposes of property
        taxes (Illinois, 1995)
These  factors have  affected  and are  expected to continue to affect  regional
operating  trends.  During  1997,  management  expects  additional  property tax
assessments  due to higher  valuations/rates,  resulting in  increased  property
taxes.
                                       30
<PAGE>
--------------------------------------------------------------------------------
                         Liquidity and Capital Resources
--------------------------------------------------------------------------------

     The  Company  has  operated  and  intends  to  continue  to  operate  in  a
self-sufficient manner without reliance on external sources of financing to fund
its  ongoing  operating  needs.  The  Company  believes  that  funds  internally
generated from ongoing operations will continue to be sufficient to enable it to
meet its operating expenses, capital improvements, debt service requirements and
distributions to shareholders for the foreseeable future.

     INTERNALLY  GENERATED  CASH FLOWS:  The  Company  believes  that  important
measures  of its  performance  as well as its  liquidity  are cash  provided  by
operations,  funds from operations  ("FFO") and the ability of these measures to
fund the Company's operating requirements (i.e. capital improvements,  principal
payments on debt, and distribution requirements).

     Net cash provided by operating activities (as determined in accordance with
generally accepted accounting  principles)  reflects the cash generated from the
Company's business before distributions to various equity holders, including the
preferred shareholders,  capital expenditures or mandatory principal payments on
debt.  Net cash provided by operations  has increased  over the past three years
from $79.2 million in 1994 to $245.2 million in 1996.

     Operating  as a REIT,  the  Company's  ability  to  retain  cash  flow  for
reinvestment  is  restricted.  In order for the  Company  to  maintain  its REIT
status,  a substantial  portion of its operating  cash flow must be used to make
distributions to its shareholders (see "REIT status" below). Remaining cash flow
must then be sufficient to fund  necessary  capital  improvements  and scheduled
debt service requirements.  The following table summarizes the Company's ability
to pay the minority  interests'  distributions,  its  dividends to the preferred
shareholders and capital improvements to maintain the facilities through the use
of cash provided by operating  activities.  The remaining cash flow is available
to the Company to make both scheduled and optional  principal  payments on debt,
pay distributions to common shareholders and for reinvestment.
<TABLE>
<CAPTION>

                                                                                    For the Year Ended December 31,
                                                                                 -------------------------------------
                                                                                  1996           1995            1994
                                                                                 --------       -------         -------
                                                                                         (Amounts in thousands)
<S>                                                                              <C>            <C>             <C>    
Net income.............................................................          $153,549       $70,386         $42,118
Depreciation and amortization..........................................            64,967        40,760          28,274
Depreciation from Unconsolidated Entities..............................            17,450         2,045               -
Minority interest in income............................................             9,363         7,137           9,481
Environmental accrual..................................................                 -         3,251               -
Amortization of discounts on mortgage notes receivable.................               (92)         (113)           (693)
                                                                                 --------       -------         -------
Net cash provided by operating activities..............................           245,237       123,466          79,180

Distributions from operations to minority interests....................           (20,853)      (18,380)        (23,037)
                                                                                 --------       -------         -------

Cash from operations/FFO allocable to the Company's shareholders.......           224,384       105,086          56,143
Less: preferred stock dividends........................................           (68,599)      (31,124)        (16,846)
                                                                                 --------       -------         -------

Cash from operations/FFO available to common shareholders..............           155,785        73,962          39,297

Capital improvements to maintain facilities:
  Self-storage facilities..............................................           (15,957)       (8,509)         (6,360)
  Commercial properties................................................            (4,409)       (2,852)         (1,952)
  Add back: minority interest share of capital improvements to maintain
   facilities..........................................................             3,159         3,219           2,948
                                                                                 --------       -------         -------

Funds available for principal payments on debt, common dividends and
   reinvestment........................................................           138,578        65,820          33,933

Cash distributions to common shareholders..............................           (67,709)      (38,586)        (21,249)
   facilities                                                                    --------       -------         -------

Funds available for principal payments on debt and reinvestment........           $70,869       $27,234       $ 12,684
   facilities                                                                    ========       =======        ========

</TABLE>

     See the  consolidated  statements  of cash  flows for the each of the three
years in the period ended December 31, 1996 for additional information regarding
the Company's investing and financing activities.
                                       31

<PAGE>

     Total FFO increased to  $224,384,000  for the year ended  December 31, 1996
compared to  $105,086,000  in 1995 and  $56,143,000  in 1994.  FFO  available to
common  shareholders  (after deducting  preferred stock dividends)  increased to
$155,785,000  for the year ended  December 31, 1996 compared to  $73,962,000  in
1995 and  $39,297,000  in  1994.  FFO  means  net  income  (loss)  (computed  in
accordance with generally accepted accounting principles) before (i) gain (loss)
on early extinguishment of debt, (ii) minority interest in income and (iii) gain
(loss) on disposition of real estate, adjusted as follows: (i) plus depreciation
and  amortization  (including the Company's  pro-rata share of depreciation  and
amortization  of  unconsolidated  equity  interests and  amortization  of assets
acquired  in the PSMI  Merger,  including  property  management  agreements  and
goodwill), and (ii) less FFO attributable to minority interest.

     FFO is a  supplemental  performance  measure for equity REITs as defined by
the National Association of Real Estate Investment Trusts, Inc. ("NAREIT").  The
NAREIT  definition  does not  specifically  address  the  treatment  of minority
interest in the  determination  of FFO or the treatment of the  amortization  of
property  management  agreements and goodwill.  In the case of the Company,  FFO
represents  amounts  attributable to its  shareholders  after deducting  amounts
attributable   to  the  minority   interests  and  before   deductions  for  the
amortization of property  management  agreements and goodwill.  FFO is presented
because many industry analysts consider FFO to be one measure of the performance
of the  Company and it is used in  establishing  the terms of the Class B Common
Stock.  FFO does not take into  consideration  capital  improvements,  scheduled
principal payments on debt,  distributions and other obligations of the Company.
Accordingly,  FFO is not a substitute  for the Company's cash flow or net income
(as  discussed  above) as a measure  of the  Company's  liquidity  or  operating
performance.


     The  Company  accounts  for the  Unconsolidated  Entities  using the equity
method of accounting,  and  accordingly,  earnings are recognized based upon the
Company's interest in each of the partnerships and REITs. This interest is based
on the  Company's  share of the  increase  or  decrease in the net assets of the
entities  from their  operations.  Provisions  of the  partnerships'  and REITs'
governing  documents provide for the payment of preferred cash  distributions to
other investors (until certain  specified amounts have been paid) without regard
to the pro rata  interest of all  investors  in current  earnings.  As a result,
actual cash  distributions paid to the Company for a period of time will be less
than the Company's  interest in the entities' FFO.  During 1996, FFO distributed
to the Company was approximately  $16.4 million less than the Company's share of
FFO.  Preferred cash  distributions  paid to other investors  during each period
have the effect of  increasing  the Company's  economic  interest in each of the
respective  entities and reducing the amount of future preference payments which
must be paid to other investors  before cash  distributions  will be shared on a
pro rata basis with respect to each investor's  actual  interest.  The aggregate
future preference payments to other investors is approximately $81.1 million and
is expected to be paid over  approximately 12 years,  with  approximately 50% of
the amount being paid over the next 3.5 years.

     DISTRIBUTIONS  REQUIREMENTS:  Over  the  past  four  years,  the  Company's
conservative distribution policy has been the principal reason for the Company's
ability to retain significant  operating cash flows which have been used to make
additional  investments  and debt  reductions.  During 1994,  1995 and 1996, the
Company distributed to common shareholders approximately 54%, 52% and 43% of its
FFO  available  to  common  shareholders,  respectively,  allowing  it to retain
approximately  $110.8  million  over this  period of time after  satisfying  its
capital improvements and preferred stock dividend requirements.

     During 1996, the Company paid dividends totaling $56,472,000 to the holders
of the  Company's  Senior  Preferred  Stock,  $12,127,000  to the holders of the
Convertible  Preferred  Stock,  and  $67,709,000 to the holders of Common Stock.
Dividends  with  respect  to the  Senior  Preferred  Stock  and the  Convertible
Preferred Stock include pro-rated amounts for securities issued during 1996. The
Company estimates the distribution  requirements for fiscal 1997 with respect to
Senior  Preferred Stock and the Convertible  Preferred Stock to be approximately
$76.8 million. Distributions with respect to the common stock will be determined
based upon the  Company's  REIT  distribution  requirements  after  taking  into
consideration distributions to the Company's preferred shareholders.

     CAPITAL  IMPROVEMENT  REQUIREMENTS:  During 1997,  the Company has budgeted
approximately  $26.6  million for capital  improvements  ($22.4  million for its
self-storage  facilities  and $4.2 million for its commercial  properties).  The
minority interests' share of the budgeted capital  improvements is approximately
$3.3 million.

     During 1995, the Company commenced a program to enhance its visual icon and
modernize the appearance of its self-storage facilities, including modernization
of signs, paint color schemes, and rental offices.  Included in the 1997 capital
improvement   budget  is  approximately  $4.8  million  with  respect  to  these
expenditures.

     The  significant   increase  in  capital   improvements  in  1996  for  the
self-storage  facilities  (as  reflected  in  the  table  above)  is  due to the
acquisition  of new  facilities in 1996 and 1995 and the  aforementioned  visual
enhancements during 1996.

                                       32
<PAGE>

     DEBT  SERVICE  REQUIREMENTS:  The  Company  does  not  believe  it has  any
significant refinancing risks with respect to its mortgage debt, all of which is
fixed rate. During 1996, the Company retired early  approximately  $41 million
of  mortgage  debt.  At December  31,  1996,  the Company had total  outstanding
borrowings  of  approximately  $108.4  million.  See Note 8 to the  consolidated
financial statements for approximate principal maturities of such borrowings.

     The Company uses its $150.0  million of bank credit  facility (all of which
was unused as of March 18,  1997)  primarily  to fund  acquisitions  and provide
financial  flexibility  and  liquidity.  The  credit  facility  currently  bears
interest at LIBOR plus 0.40% based on the Company's current financial ratios.


     GROWTH  STRATEGIES:  During 1997, the Company intends to continue to expand
its asset and  capital  base  principally  through the (i)  acquisition  of real
estate  assets and interests in real estate  assets from both  unaffiliated  and
affiliated  parties through direct  purchases,  mergers,  tender offers or other
transactions,  (ii) development of additional  self-storage  facilities and (iv)
the expected  growth in the  operations  of PSPUD in the  portable  self-storage
business. See further discussion below with respect to each of these activities.

     The Company expects to fund these  transactions  with internally  generated
retained cash flows and borrowings under its $150.0 million credit facility. The
Company  intends  to repay  amounts  borrowed  under the  credit  facility  from
undistributed  operating  cash  flow or,  as market  conditions  permit  and are
determined to be  advantageous,  from the public or private  placement of equity
securities.   With  respect  to  the  development  of  additional   self-storage
facilities,  the Company expects to enter into a joint venture arrangement,  see
"Development Activities" below.


     EXTERNAL  FINANCING  ABILITY:  The  Company  believes  that  its  size  and
financial  flexibility enables it to access capital for growth when appropriate.
The Company's financial profile is characterized by a low level of debt to total
capitalization, increasing net income, increasing cash flow from operations, and
a  conservative  dividend  payout  ratio with respect to the common  stock.  The
Company's  credit  ratings  on its Senior  Preferred  Stock by each of the three
major  credit  agencies  are Baa2 by Moody's and BBB+ by Standard  and Poors and
Duff & Phelps.

     The Company's  portfolio of real estate  facilities  remains  substantially
unencumbered. At December 31, 1996, the Company had mortgage debt outstanding of
$48.7 million and had consolidated  real estate  facilities with a book value of
$1.9  billion.  The  Company,  however,  has been  reluctant  to  financing  its
acquisitions  with debt and generally will only increase its mortgage  borrowing
through the assumption of pre-existing debt on acquired real estate facilities.

     Over the past three years the Company has funded  substantially  all of its
acquisitions with permanent  capital (both common and preferred  stock).  Unlike
many other real estate companies, the Company has elected to use preferred stock
despite the fact that the coupon rates of its preferred  stock  exceeds  current
rates on conventional  debt. The Company has chosen this method of financing for
the  following  reasons:  (i) the  Company's  perpetual  preferred  stock has no
sinking fund requirements, or maturity date and does not require redemption, all
of which eliminate any future refinancing risks, (ii) preferred stock allows the
Company to leverage  the common stock  without the  attendant  interest  rate or
refinancing  risks of debt,  and (iii)  dividends on the preferred  stock can be
applied to the Company's REIT distributions requirements,  which have helped the
Company to maintain a low common  stock  dividend  payout  ratio and retain cash
flow.

     On March 18, 1997, the Company publicly issued 4.6 million shares of common
stock, raising net proceeds of approximately $126.5 million. The Company intends
to use the net proceeds from this offering to make  investments  in real estate,
primarily  self-storage,  including  mortgage  loans and interest in real estate
partnerships,  to  satisfy  cash  elections  in  connection  with  mergers  with
affiliated REITs and to fund expenditures of PSPUD.

     PROPOSED  MERGERS  WITH  AFFILIATES:   In  December  1996,  Public  Storage
Properties XIV, Inc.  ("Properties  14") and Public Storage  Properties XV, Inc.
("Properties 15") each agreed, subject to certain conditions,  to merge with and
into the Company. Properties 14 and Properties 15 are affiliated publicly traded
equity REITs.  Each of the mergers is  conditioned on approval by the respective
shareholders  of Properties 14 and Properties 15.  However,  the mergers are not
conditioned  on  each  other.  The  Company  expects  that  if  approved  by the
shareholders,  the mergers would be completed in April 1997. The estimated value
of the Properties 14 and Properties 15 merger is approximately $63.8 million and
$58.5 million,  respectively.  Properties 14 and Properties 15 own 14 properties
(912,000 square feet) and 19 properties  (1,087,000 square feet),  respectively.
The Company currently owns approximately 33% and 35% of the economic interest in
Properties 14 and Properties 15, respectively.

                                       33
<PAGE>

     DEVELOPMENT  ACTIVITIES:  At  December  31,  1996,  the  Company had eleven
self-storage  facilities  (approximately 707,000 square feet) under construction
with an aggregate cost incurred to date of approximately $33.5 million and total
additional  estimated cost to complete of $22.5 million.  The Company  currently
has plans to develop an additional  17  self-storage  facilities  (approximately
1,026,000   square  feet)  in  various   locations  at  an  estimated   cost  of
approximately  $70.2  million.  The Company is  evaluating  the  feasibility  of
developing additional self-storage facilities in selected markets in which there
are few,  if any,  facilities  to  acquire  at  attractive  prices and where the
scarcity  of  other  undeveloped   parcels  of  land  or  other  impediments  to
development make it difficult to construct additional competing facilities.

     The Company has reached an  agreement  in  principle  with a joint  venture
partner to participate in funding the development of approximately  $220 million
of self-storage facilities (including the facilities currently under development
by the Company).  The joint venture  partner would  contribute  about 70% of the
venture's  capital with the balance  provided by the Company.  After a period of
time, the Company would have an option to acquire the other venturer's interest.
There can be no assurance that a definitive agreement can be reached between the
Company and the joint venturer partner.  Assuming an agreement is finalized,  it
is expected that the joint venture would be funded in early April 1997.

     PORTABLE  SELF-STORAGE  BUSINESS:  As indicated  above, in 1996 the Company
organized  PSPUD as a separate  corporation  to operate a portable  self-storage
business  that rents  storage  containers  to  customers  for storage in central
warehouses  and  provides  related  transportation   services.  PSPUD  currently
operates  a  total  of 12  facilities  in  six  greater  metropolitan  areas  in
California and Texas and anticipates opening four additional facilities in these
areas and in three  additional  areas by the end of the first  quarter  of 1997.
PSPUD presently  anticipates expanding its operations to a significant number of
additional  areas during the  remainder of 1997 and 1998,  subject to continuing
evaluation of this  business and the  satisfaction  of regulatory  requirements.
There can be no assurance on the level of PSPUD's expansion or profitability.

     Generally,  PSPUD  expects to expend an amount  ranging  from  $850,000  to
$1,100,000 per facility  during the first full year of operations,  depending on
location and pricing structure. This estimate includes approximately $550,000 of
capitalized expenditures combined with estimated first year operating losses and
is based on certain assumptions indicated above under "Ancillary Businesses."

     REIT STATUS:  The Company  believes  that it has  operated,  and intends to
continue to operate, in such a manner as to qualify as a REIT under the Internal
Revenue Code of 1986, but no assurance can be given that it will at all times so
qualify.  To the extent that the Company continues to qualify as a REIT, it will
not be taxed,  with certain  limited  exceptions,  on the taxable income that is
distributed  to its  shareholders.  As a REIT,  the Company is not taxed on that
portion of its taxable income which is distributed to its shareholders  provided
that at least 95% of its taxable income is so distributed prior to filing of the
Company's  tax  return.   The  Company  has  satisfied  the  REIT   distribution
requirement since 1980.



                                       34
<PAGE>


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
          -------------------------------------------
     The  financial  statements of the Company at December 31, 1996 and December
31, 1995 and for each of the three years in the period  ended  December 31, 1996
and the  report of Ernst & Young  LLP,  Independent  Auditors,  thereon  and the
related financial statement schedules,  are included elsewhere herein. Reference
is made to the Index to Financial Statements and Schedules in Item 14.



ITEM 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
         ----------------------------------------------------
     Not applicable.




                                       35
<PAGE>
                                  PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
          --------------------------------------------------
     Incorporated by reference herein is the information  required by this item,
which is to be  included in an  amendment  on Form 10-K/A to the Form 10-K filed
within 120 days of the end of the Company's 1996 fiscal year.



ITEM 11.  EXECUTIVE COMPENSATION
          ----------------------
     Incorporated by reference herein is the information  required by this item,
which is to be  included in an  amendment  on Form 10-K/A to the Form 10-K filed
within 120 days of the end of the Company's 1996 fiscal year.



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          --------------------------------------------------------------
     Incorporated by reference herein is the information  required by this item,
which is to be  included in an  amendment  on Form 10-K/A to the Form 10-K filed
within 120 days of the end of the Company's 1996 fiscal year.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
         ----------------------------------------------
     Incorporated by reference herein is the information  required by this item,
which is to be  included in an  amendment  on Form 10-K/A to the Form 10-K filed
within 120 days of the end of the Company's 1996 fiscal year.


                                       36
<PAGE>
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
          ---------------------------------------------------------------
(a)  1. Financial Statements
     The  financial  statements  listed in the  accompanying  Index to Financial
Statements and Schedules hereof are filed as part of this report.


     2. Financial Statement Schedules
     The financial  statements  schedules  listed in the  accompanying  Index to
Financial Statements and Schedules are filed as part of this report.


     3. Exhibits
     See Index to Exhibits contained herein.


(b)  Reports on Form 8-K

     The Company  filed a Current  Report on Form 8-K dated  October  28,  1996,
     pursuant to Item 5, which filed certain exhibits  relating to the Company's
     public offering of Depositary Shares each representing 1/1000 of a share of
     8-5/8% Cumulative Preferred Stock, Series I.

(c)  Exhibits:
     See Index to Exhibits contained herein.



                                       37
<PAGE>
                            PUBLIC STORAGE, INC.
                                INDEX TO EXHIBITS
                           (Items 14(a)(3) and 14(c))

3.1       Restated   Articles   of   Incorporation.   Filed  with   Registrant's
          Registration   Statement  No.  33-54557  and  incorporated  herein  by
          reference.

3.2       Certificate of Determination  for the 10% Cumulative  Preferred Stock,
          Series A. Filed with Registrant's  Registration Statement No. 33-54557
          and incorporated herein by reference.

3.3       Certificate of Determination for the 9.20% Cumulative Preferred Stock,
          Series B. Filed with Registrant's  Registration Statement No. 33-54557
          and incorporated herein by reference.

3.4       Amendment to Certificate  of  Determination  for the 9.20%  Cumulative
          Preferred  Stock,  Series  B.  Filed  with  Registrant's  Registration
          Statement No. 33-56925 and incorporated herein by reference.

3.5       Certificate  of  Determination  for the  8.25%  Convertible  Preferred
          Stock. Filed with Registrant's Registration Statement No. 33-54557 and
          incorporated herein by reference.

3.6       Certificate  of  Determination  for  the  Adjustable  Rate  Cumulative
          Preferred  Stock,  Series  C.  Filed  with  Registrant's  Registration
          Statement No. 33-54557 and incorporated herein by reference.

3.7       Certificate of Determination for the 9.50% Cumulative Preferred Stock,
          Series D. Filed with  Registrant's Form 8-A/A  Registration  Statement
          relating  to  the  9.50%  Cumulative  Preferred  Stock,  Series  D and
          incorporated herein by reference.

3.8       Certificate of Determination  for the 10% Cumulative  Preferred Stock,
          Series E. Filed with  Registrant's Form 8-A/A  Registration  Statement
          relating  to  the  10%  Cumulative   Preferred  Stock,  Series  E  and
          incorporated herein by reference.

3.9       Certificate of Determination for the 9.75% Cumulative Preferred Stock,
          Series F. Filed with Registration's Form 8-A/A Registration  Statement
          relating  to  the  9.75%  Cumulative  Preferred  Stock,  Series  F and
          incorporated herein by reference.

3.10      Certificate  of  Determination   for  the  Convertible   Participating
          Preferred Stock.  Filed with Registrant's  Registration  Statement No.
          33-63947 and incorporated herein by reference.

3.11      Certificate  of  Amendment  of Articles of  Incorporation,  Filed with
          Registrant's  Registration  Statement  No.  33-63947 and  incorporated
          herein by reference.

3.12      Certificate  of  Determination  for the  8-7/8%  Cumulative  Preferred
          Stock,  Series G. Filed with  Registration's  Form 8-A/A  Registration
          Statement   relating  to  the  Depositary   Shares  Each  Representing
          1/1,000th of a Share of 8-7/8%  Cumulative  Preferred Stock,  Series G
          and incorporated herein reference..

3.13      Certificate of Determination for the 8.45% Cumulative Preferred Stock,
          Series H. Filed with  Registrant's Form 8-A/A  Registration  Statement
          relating to the  Depositary  Shares Each  Representing  1/1,000th of a
          Share of 8.45% Cumulative  Preferred Stock,  Series H and incorporated
          herein by reference.

3.14      Certificate of  Determination  for the  Convertible  Preferred  Stock,
          Series  CC.  Filed  with  Registrant's   Registration   Statement  No.
          333-03749 and incorporated herein by reference.

  
                                       38
<PAGE>

3.15      Certificate  of Correction of  Certificate  of  Determination  for the
          Convertible  Participating  Preferred Stock.  Filed with  Registrant's
          Registration  Statement  No.  333-08791  and  incorporated  herein  by
          reference.

3.16      Certificate of Determination  for 8-5/8%  Cumulative  Preferred Stock,
          Series I. Filed with  Registrant's Form 8-A/A  Registration  Statement
          relating  to  the  8-5/8%  Cumulative  Preferred  Stock,  Series I and
          incorporated herein by reference.

3.17      Certificate  of  Amendment  of Articles of  Incorporation.  Filed with
          Registrant's  Registration  Statement No.  333-18395 and  incorporated
          herein by reference.

3.18      Bylaws, as amended. Filed with Registrant's Registration Statement No.
          33-64971 and incorporated herein by reference.

3.19      Amendment  to Bylaws  adopted on May 9,1996.  Filed with  Registrant's
          Registration  Statement  No.  333-03749  and  incorporated  herein  by
          reference.

10.1      Amended and Restated Advisory  Contract between  Registrant and Public
          Storage  Advisers,  Inc.  dated as of September  30, 1991.  Filed with
          Registrant's  Current  Report  on Form 8-K dated  October  2, 1991 and
          incorporated herein by reference.

10.2      First  Amendment to Amended and  Restated  Advisory  Contract  between
          Registrant  and Public Storage  Advisers,  Inc. dated as of October 1,
          1991. Filed with Registrant's  Registration Statement No. 33-43750 and
          incorporated herein by reference.

10.3      Second  Amendment to Amended and Restated  Advisory  Contract  between
          Registrant and Public Storage Advisers, Inc. dated as of May 14, 1992.
          Filed with Registrant's  Current Report on Form 8-K dated May 14, 1992
          and incorporated herein by reference.

10.4      Third  Amendment to Amended and  Restated  Advisory  Contract  between
          Registrant and Public Storage Advisers,  Inc. dated as of February 25,
          1993. Filed with the  Registrant's  Annual Report on Form 10-K for the
          year ended December 31, 1992 and incorporated herein by reference.

10.5      Fourth  Amendment to Amended and Restated  Advisory  Contract  between
          Registrant and Public Storage Advisers, Inc. dated as of June 7, 1994.
          Filed with Registrant's Current Report on Form 8-K dated June 23, 1994
          and incorporated herein by reference.

10.6      Fifth  Amendment to Amended and  Restated  Advisory  Contract  between
          Registrant  and Public  Storage  Advisers,  Inc. dated as of August 9,
          1994. Filed with Registrant's  Current Report on Form 8-K dated August
          24, 1994 and incorporated herein by reference.

10.7      Sixth  Amendment to Amended and  Restated  Advisory  Contract  between
          Registrant and Public Storage  Advisers,  Inc. dated as of January 12,
          1995. Filed with Registrant's Current Report on Form 8-K dated January
          24, 1995 and incorporated herein reference.

10.8      Seventh  Amendment to Amended and Restated  Advisory  Contract between
          Registrant  and Public  Storage  Advisers,  Inc. dated as of April 13,
          1995. Filed with  Registrant's  Current Report on Form 8-K dated April
          25, 1995 and incorporated herein by reference.

10.9      Second  Amended  and  Restated  Management   Agreement  by  and  among
          Registrant  and the entities  listed  therein dated as of November 16,
          1995.  Filed with PS Partners,  Ltd.'s  Annual Report on Form 10-K for
          the year ended December 31, 1996 and incorporated herein by reference.

                                       39
<PAGE>

10.10     Amended  Management  Agreement  between  Registrant and Public Storage
          Commercial Properties Group, Inc. dated as of February 21, 1995. Filed
          with  Registrant's  Annual  Report  on Form  10-K for the  year  ended
          December 31, 1994 and incorporated herein by reference.

10.11     Loan Agreement  between  Registrant  and Aetna Life Insurance  Company
          dated as of July 11, 1988. Filed with  Registrant's  Current Report on
          Form 8-K dated July 14, 1988 and incorporated herein by reference.

10.12     Amendment  to  Loan  Agreement  between   Registrant  and  Aetna  Life
          Insurance   Company  dated  as  of  September  1,  1993.   Filed  with
          Registrant's  Annual  Report on Form 10-K for the year ended  December
          31, 1993 and incorporated herein by reference.

10.13     Second Amended and Restated Credit Agreement by and among  Registrant,
          Wells Fargo Bank,  National  Association,  as agent, and the financial
          institutions  party thereto dated as of February 25, 1997.  Filed with
          Registrant's  Registration  Statement No.  333-22665 and  incorporated
          herein by reference.

10.14     Note  Assumption  and Exchange  Agreement by and among Public  Storage
          Management,  Inc., Public Storage, Inc., Registrant and the holders of
          the notes  dated as of  November  13,  1995.  Filed with  Registrant's
          Registration   Statement  No.  33-64971  and  incorporated  herein  by
          reference.

10.15*    Registrant's  1990 Stock Option Plan. Filed with  Registrant's  Annual
          Report  on  Form  10-K  for the  year  ended  December  31,  1994  and
          incorporated herein by reference.

10.16*    Registrant's  1994 Stock Option Plan. Filed with  Registrant's  Annual
          Report  on  Form  10-K  for the  year  ended  December  31,  1994  and
          incorporated herein by reference..

10.17*    Registrant's 1996 Stock Option and Incentive Plan. Filed herewith.

10.18     Agreement and Plan of  Reorganization  between  Registrant  and Public
          Storage Properties VI, Inc. dated as of September 26, 1994. Filed with
          Registrant's  Registration  Statement  No.  33-56925 and  incorporated
          herein by reference.

10.19     Agreement and Plan of  Reorganization  between  Registrant  and Public
          Storage  Properties VII, Inc. dated as of February 2, 1995. Filed with
          Registrant's  Registration  Statement  No.  33-58893 and  incorporated
          herein by reference.

10.20     Agreement  and Plan of  Reorganization  by and among  Public  Storage,
          Inc., Public Storage Management,  Inc. and Registrant dated as of June
          30, 1995.  Filed as Appendix A to  Registrant's  Proxy Statement dated
          October 11, 1995 (filed October 13, 1995) and  incorporated  herein by
          reference.

10.21     Amendment to Agreement and Plan of  Reorganization by and among Public
          Storage, Inc., Public Storage Management, Inc. and Registrant dated as
          of November 13, 1995. Filed with  Registrant's  Current Report on Form
          8-K dated November 16, 1995 and incorporated herein by reference.

10.22     Agreement and Plan of Reorganization among Registrant,  Public Storage
          Properties IX, Inc., and PS Business Parks,  Inc. dated as of December
          13, 1995. Filed with Registrant's Registration Statement No. 333-00591
          and incorporated herein by reference.

10.23     Deposit Agreement dated as of December 13, 1995, among Registrant, The
          First  National  Bank of Boston,  and the  holders  of the  depositary
          receipts evidencing the Depositary Shares Each Representing 1/1,000 of
          a Share of 8-7/8  Cumulative  Preferred  Stock,  Series G.  Filed with
          Registrant's  Form  8-A/A  Registration   Statement  relating  to  the
          Depositary  Shares  Each  Representing  1/1000th  of a Share  of 8-7/8
          Cumulative  Preferred  Stock,  Series  G and  incorporated  herein  by
          reference.

                                       40
<PAGE>

10.24     Deposit Agreement dated as of January 25, 1996, among Registrant,  The
          First  National  Bank of Boston,  and the  holders  of the  depositary
          receipts evidencing the Depositary Shares Each Representing 1/1,000 of
          a Share of 8.45%  Cumulative  Preferred  Stock,  Series H.  Filed with
          Registrant's  Form  8-A/A  Registration   Statement  relating  to  the
          Depositary  Shares  Each  Representing  1/1000th  of a Share  of 8.45%
          Cumulative  Preferred  Stock,  Series  H and  incorporated  herein  by
          reference.

10.25**   Employment  Agreement between  Registrant and B. Wayne Hughes dated as
          of November 16, 1995.  Filed with  Registrant's  Annual Report on Form
          10-K for the year ended December 31, 1995 and  incorporated  herein by
          reference.

10.26     Agreement and Plan of  Reorganization  between  Registrant and Storage
          Properties,  Inc. dated as of March 4, 1996.  Filed with  Registrant's
          Registration  Statement  No.  333-03749  and  incorporated  herein  by
          reference.

10.27     Agreement and Plan of  Reorganization  between  Registrant  and Public
          Storage  Properties  X, Inc.  dated as of June 20,  1996.  Filed  with
          Registrant's  Registration  Statement No.  333-08671 and  incorporated
          herein by reference.

10.28     Agreement and Plan of  Reorganization  between  Registrant  and Public
          Storage  Properties  XII, Inc.  dated as of June 20, 1996.  Filed with
          Registrant's  Registration  Statement No.  333-08791 and  incorporated
          herein by reference.

10.29     Agreement  and  Plan  of  Reorganization  among  Registrant,  Partners
          Preferred Yield, Inc.,  Partners Preferred Yield II, Inc. and Partners
          Preferred  Yield III,  Inc..  dated as of August 15, 1996.  Filed with
          Registrant's  Registration  Statement No.  333-14161 and  incorporated
          herein by reference.

10.30     Deposit Agreement dated as of November 1, 1996, among Registrant,  The
          First  National  Bank of Boston,  and the  holders  of the  depositary
          receipts evidencing the Depositary Shares Each Representing 1/1,000 of
          a Share of 8-5/8%  Cumulative  Preferred  Stock,  Series I. Filed with
          Registrant's  Form  8-A/A  Registration   Statement  relating  to  the
          Depositary  Shares  Each  Representing  1/1000th  of a Share of 8-5/8%
          Cumulative  Preferred  Stock,  Series  I and  incorporated  herein  by
          reference.

10.31     Agreement and Plan of Reorganization among Registrant,  Public Storage
          Properties XIV, Inc. and, Public Storage Proprieties XV, Inc. dated as
          of December 5, 1996. Filed with  Registrant's  Registration  Statement
          No. 333-22665 and incorporated herein by reference.

11        Statement Re Computation of Earnings Per Share. Filed herewith.

12        Statement Re Computation of Ratio of Earnings to Fixed Charges.  Filed
          herewith.

23        Consent of Independent Auditors. Filed herewith.

27        Financial data schedule. Filed herewith.

--------------------
*   Compensatory benefit plan.
**  Management contract.


                                       41
<PAGE>

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

                                       PUBLIC STORAGE, INC.


Date: March  27, 1997                  By:   /s/ Harvey Lenkin         .
      ----------------------           -----------------------------
                                       Harvey Lenkin, President

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>


     Signature                                    Title                                      Date
-------------------------------        --------------------------------------------    ----------------
<S>                                    <C>                                              <C>
/s/ B. Wayne Hughes                    Chairman of the Board, Chief                     March 27, 1997
-------------------------------        Executive Officer and Director                   --------------
B. Wayne Hughes                        (principal executive officer)
                               

  /s/ Harvey Lenkin                    President and Director                           March 27, 1997
------------------                                                                      --------------
Harvey Lenkin


/s/ John Reyes                         Senior Vice President and                        March 27, 1997
-------------------------------        Chief Financial Officer                          --------------
John Reyes                             (principal financial officer and  
                                       principal accounting officer)
                               


/s/ Robert J. Abernethy                Director                                         March 27, 1997
-------------------------------                                                         --------------
Robert J. Abernethy


/s/ Dann V. Angeloff                   Director                                         March 27, 1997
-------------------------------                                                         --------------
Dann V. Angeloff


/s/ William C. Baker                   Director                                         March 27, 1997
-------------------------------                                                         --------------
William C. Baker


/s/ Uri P. Harkham                     Director                                         March 27, 1997
-------------------------------                                                         --------------
Uri P. Harkham
</TABLE>

                                       42

<PAGE>

                              PUBLIC STORAGE, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                  AND SCHEDULES

                                  (Item 14 (a))

<TABLE>
<CAPTION>

                                                                              Page
                                                                           References


<S>                                                                       <C>
Report of Independent Auditors.........................................       F-1

Consolidated balance sheets as of December 31, 1996 and 1995...........       F-2

For each of the three years in the period ended December 31, 1996:

Consolidated statements of income......................................       F-3

Consolidated statements of shareholders' equity .......................       F-4

Consolidated statements of cash flows..................................    F-5 - F-6


Notes to consolidated financial statements.............................   F-7 - F-23

SCHEDULE:


III - Real estate and accumulated depreciation.........................   F-24 - F-43



All other schedules have  been omitted  since the required information  is not
present or not  present  in amounts  sufficient  to  require  submission  of the
schedule,  or because the information  required is included in the  consolidated
financial statements or notes thereto.
</TABLE>

                                       43
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS
                         ------------------------------



The Board of Directors and Shareholders
Public Storage, Inc.


We have audited the accompanying  consolidated balance sheets of Public Storage,
Inc. as of December 31, 1996 and 1995, and the related  consolidated  statements
of income,  shareholders'  equity, and cash flows for each of the three years in
the period  ended  December  31, 1996.  Our audits also  included the  financial
statement  schedule  listed  in the  Index  at  Item 14  (a).  These  financial
statements  and  financial  statement  schedule are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements and financial statement schedule 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  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of Public
Storage, Inc. at December 31, 1996 and 1995, and the consolidated results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1996, in conformity with generally accepted accounting  principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial  statements taken as a whole, presents fairly
in all material respects the information set forth therein.




                                                      ERNST & YOUNG  L L P
Los Angeles, California

February 25, 1997


                                       F-1

<PAGE>

                              PUBLIC STORAGE, INC.
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995
                    (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                                                      December 31,           December 31,
         ASSETS                                                                          1996                   1995
         ------                                                                       -----------            -----------
<S>                                                                                 <C>                     <C>
Cash and cash equivalents....................................................       $      26,856           $     80,436
Real estate facilities, at cost:
   Land......................................................................             596,141                382,144
   Buildings.................................................................           1,625,172              1,030,990
                                                                                      -----------            -----------
                                                                                        2,221,313              1,413,134
   Accumulated depreciation..................................................            (297,655)              (241,966)
                                                                                      -----------            -----------
                                                                                        1,923,658              1,171,168

Investment in real estate entities...........................................             350,190                416,216
Intangible assets, net.......................................................             222,253                231,562
Mortgage notes receivable from affiliates....................................              25,016                 23,699
Other assets.................................................................              24,179                 14,380
                                                                                      -----------            -----------
              Total assets...................................................         $ 2,572,152            $ 1,937,461
                                                                                      ===========            ===========
         LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable................................................................        $    108,443            $   158,052
Accrued and other liabilities................................................              41,467                 32,533
                                                                                      -----------            -----------
         Total liabilities...................................................             149,910                190,585
Minority interest............................................................             116,805                112,373
Commitments and contingencies................................................                   -                      -
Shareholders' equity:
   Preferred Stock, $0.01 par value,  50,000,000 shares  authorized,  13,421,580
     shares  issued  and  outstanding  (13,444,100  issued  and  outstanding  at
     December 31, 1995), at liquidation preference:
         Cumulative Preferred Stock, issued in series........................             718,900                450,150
         Convertible Preferred Stock.........................................             114,929                 85,970

   Common stock,  $0.10 par value,  200,000,000  shares  authorized,  88,362,026
     shares issued and outstanding (71,513,799 at December 31, 1995).........               8,837                  7,152
                                                                             
   Class B Common Stock, $0.10 par value, 7,000,000 shares authorized and
     issued..................................................................                 700                    700
   Paid-in capital...........................................................           1,454,387              1,100,088
   Cumulative net income.....................................................             396,420                242,871
   Cumulative distributions paid.............................................            (388,736)              (252,428)
                                                                                      -----------            -----------
         Total shareholders' equity..........................................           2,305,437              1,634,503
                                                                                      -----------            -----------
              Total liabilities and shareholders' equity.....................         $ 2,572,152            $ 1,937,461
                                                                                      ===========            ===========





</TABLE>
                             See accompanying notes.
                                       F-2
<PAGE>
<TABLE>
<CAPTION>

                              PUBLIC STORAGE, INC.
                   CONSOLIDATED STATEMENTS OF INCOME 
        For each of the three years in the period ended December 31, 1996
                  (amounts in thousands, except per share data)


                                                                           1996                1995                1994
                                                                        ----------         -----------         -----------
REVENUES:
<S>                                                                     <C>                 <C>
   Rental income:
      Self-storage facilities...................................         $270,429            $184,100            $126,997
      Commercial properties.....................................           23,576              18,034              14,848
   Equity in earnings of real estate entities...................           22,121               3,763                 764
   Facility management fee......................................           14,428               2,144                   -
   Ancillary business income....................................            3,504                 112                   -
   Interest and other income....................................            7,064               4,497               4,587
                                                                        ----------         -----------         -----------
                                                                          341,122             212,650             147,196
                                                                        ----------         -----------         -----------

EXPENSES:
  Cost of operations:
      Self-storage facilities...................................           82,494              63,396              45,266
      Commercial properties.....................................           10,750               8,851               7,550
  Cost of facility management...................................            2,575                 352                   -
  Cost of operations - ancillary business.......................            3,418                 100                   -
  Depreciation and amortization ................................           64,967              40,760              28,274
  General and administrative....................................            5,524               3,982               2,631
  Interest expense..............................................            8,482               8,508               6,893
  Environmental cost............................................                -               2,741                   -
  Advisory fee .................................................                -               6,437               4,983
                                                                        ----------         -----------         -----------
                                                                          178,210             135,127              95,597
                                                                        ----------         -----------         -----------
Income before minority interest.................................          162,912              77,523              51,599

Minority interest in income.....................................           (9,363)             (7,137)             (9,481)
                                                                        ----------         -----------         -----------

Net income......................................................         $153,549             $70,386             $42,118
                                                                        ==========         ===========         ===========

Net income allocation:
   Allocable to preferred shareholders..........................        $  68,599             $31,124             $16,846
   Allocable to common shareholders.............................           84,950              39,262              25,272
                                                                        ----------         -----------         -----------
                                                                         $153,549             $70,386             $42,118
                                                                        ==========         ===========         ===========
PER COMMON SHARE:

Net income......................................................      $      1.10         $      0.95         $      1.05
                                                                        ==========         ===========         ===========

Weighted average common shares outstanding......................           77,358              41,171              24,077
                                                                        ==========         ===========         ===========

</TABLE>
                             See accompanying notes.
                                       F-3

<PAGE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
        For each of the three years in the period ended December 31, 1996
           (Amounts in thousands, except share and per share amounts)

                                                                                                       Class B     
                                                              Preferred Stock           Common         Common      
                                                         Cumulative    Convertible       Stock          Stock      
                                                          --------      --------         ------        -------     

<S>                                                       <C>           <C>              <C>             <C>       
BALANCES AT DECEMBER 31, 1993.......................      $103,125      $ 57,500         $1,806          $   -     
   Issuance of Preferred Stock, net of issuance costs:
     Series B, C and D (2,486,000 shares)...........        62,150             -              -              -     
   Issuance of Common Stock (10,770,437 shares).....             -             -          1,077              -     
   Net income.......................................             -             -              -              -     
   Cash distributions:
     Preferred Stock................................             -             -              -              -     
     Common Stock, $0.85 per share..................             -             -              -              -     
                                                          --------      --------         ------        -------     
BALANCES AT DECEMBER 31, 1994.......................       165,275        57,500          2,883              -     
   Issuance of Preferred Stock, net of issuance costs:
     Series E, F, G (4,501,900 shares)..............       284,875             -              -              -     
     Convertible Participating (31,200 shares)......                      28,470                                   
   Issuance of Common Stock (42,687,092 shares).....             -             -          4,269              -     
   Issuance of Class B Common Stock (7,000,000 shares)           -             -              -            700     
   Net income.......................................             -             -              -              -     
   Cash distributions:
     Preferred Stock................................             -             -              -              -     
     Common Stock, $0.88 per share..................             -             -              -              -     
                                                          --------      --------         ------        -------     
BALANCES AT DECEMBER 31, 1995.......................       450,150        85,970          7,152            700     
   Issuance of Preferred Stock, net of issuance costs:
     Series H and I (10,750 shares).................       268,750             -              -              -     
     Mandatory Convertible, Series CC (58,955 shares)            -        58,955              -              -     
   Issuance of Common Stock (15,134,241 shares)                  -             -          1,514              -     
   Conversion of Mandatory Convertible Participating
     Preferred Stock into Common Stock (1,611,265
     shares)                                                     -       (28,470)           161              -     
   Conversion of 8.25% Convertible Preferred Stock
     into Common Stock (102,721 shares)                          -        (1,526)            10              -     
   Net income.......................................             -             -              -              -     
   Cash distributions:
     Preferred Stock................................             -             -              -              -     
     Common Stock, $0.88 per share..................             -             -              -              -     
                                                          --------      --------         ------        -------     
BALANCES AT DECEMBER 31, 1996.......................      $718,900      $114,929         $8,837           $700     
                                                          ========      ========         ======        =======     
</TABLE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
        For each of the three years in the period ended December 31, 1996
           (Amounts in thousands, except share and per share amounts)

                                                                                                            Total
                                                            Paid-in      Cumulative      Cumulative     Shareholders'
                                                            Capital      Net Income     Distributions       Equity
                                                          ----------      --------        ---------      ----------

<S>                                                       <C>             <C>             <C>            <C>       
BALANCES AT DECEMBER 31, 1993.......................      $  227,891      $130,367        $(144,623)     $  376,066
   Issuance of Preferred Stock, net of issuance costs:
     Series B, C and D (2,486,000 shares)...........          (2,300)            -                -          59,850
   Issuance of Common Stock (10,770,437 shares).....         146,770             -                -         147,847
   Net income.......................................               -        42,118                -          42,118
   Cash distributions:
     Preferred Stock................................               -             -          (16,846)        (16,846)
     Common Stock, $0.85 per share..................               -             -          (21,249)        (21,249)
                                                          ----------      --------        ---------      ----------
BALANCES AT DECEMBER 31, 1994.......................         372,361       172,485         (182,718)        587,786
   Issuance of Preferred Stock, net of issuance costs:
     Series E, F, G (4,501,900 shares)..............          (9,718)            -                -         275,157
     Convertible Participating (31,200 shares)......                                                         28,470
   Issuance of Common Stock (42,687,092 shares).....         664,645             -                -         668,914
   Issuance of Class B Common Stock (7,000,000 shares)        72,800             -                -          73,500
   Net income.......................................               -        70,386                -          70,386
   Cash distributions:
     Preferred Stock................................               -             -          (31,124)        (31,124)
     Common Stock, $0.88 per share..................               -             -          (38,586)        (38,586)
                                                          ----------      --------        ---------      ----------
BALANCES AT DECEMBER 31, 1995.......................       1,100,088       242,871         (252,428)      1,634,503
   Issuance of Preferred Stock, net of issuance costs:
     Series H and I (10,750 shares).................          (8,972)            -                -         259,778
     Mandatory Convertible, Series CC (58,955 shares)              -             -                -          58,955
   Issuance of Common Stock (15,134,241 shares)              333,956             -                -         335,470
   Conversion of Mandatory Convertible Participating
     Preferred Stock into Common Stock (1,611,265
     shares)                                                  27,799             -                -            (510)
   Conversion of 8.25% Convertible Preferred Stock
     into Common Stock (102,721 shares)                        1,516             -                -               -
   Net income.......................................               -       153,549                -         153,549
   Cash distributions:
     Preferred Stock................................               -             -          (68,599)        (68,599)
     Common Stock, $0.88 per share..................               -             -          (67,709)        (67,709)
                                                          ----------      --------        ---------      ----------
BALANCES AT DECEMBER 31, 1996.......................      $1,454,387      $396,420        $(388,736)     $2,305,437
                                                          ==========      ========        =========      ==========

</TABLE>
                             See accompanying notes.
                                       F-4

<PAGE>
<TABLE>
<CAPTION>
                            PUBLIC STORAGE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
        FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
                             (AMOUNTS IN THOUSANDS)

                                                                                    1996            1995            1994
                                                                                  --------        --------        --------
Cash flows from operating activities:
<S>                                                                               <C>             <C>             <C>     
   Net income...............................................................      $153,549        $ 70,386        $ 42,118
   Adjustments  to  reconcile  net  income  to net cash  provided  by  operating
     activities:
     Depreciation and amortization (net of amortization of  mortgage notes
       receivable discounts)................................................        64,875          40,647          27,581
     Depreciation included in equity in earnings of real estate entities....        17,450           2,045               -
     Environmental accrual (including $510 from equity in earnings of real
       estate entities).....................................................             -           3,251               -
     Minority interest in income............................................         9,363           7,137           9,481
                                                                                  --------        --------        --------
       Total adjustments....................................................        91,688          53,080          37,062
                                                                                  --------        --------        --------
       Net cash provided by operating activities............................       245,237         123,466          79,180
                                                                                  --------        --------        --------
Cash flows from investing activities:
     Principal payments received on mortgage notes receivable...............         1,784           2,063           6,785
     Proceeds from disposition of real estate facilities, net...............             -               -           1,666
     Acquisition of minority interests in consolidated real estate
       partnerships.....................................................           (15,419)        (32,683)        (51,711)
     Acquisition of mortgage notes receivable...............................        (3,709)        (12,355)         (4,020)
     Acquisition of real estate facilities..................................      (198,404)       (108,326)        (93,026)
     Acquisition cost of business combinations..............................      (113,522)        (57,374)        (20,972)
     Acquisition of interests in real estate entities.......................       (83,893)        (20,657)              -
     Construction in process................................................       (46,097)         (7,979)              -
     Capital improvements to real estate facilities.........................       (20,366)        (11,361)         (8,312)
                                                                                  --------        --------        --------
       Net cash used in investing activities................................      (479,626)       (248,672)       (169,590)
                                                                                  --------        --------        --------
Cash flows from financing activities:
     Net paydowns on revolving line of credit...............................             -         (37,607)        (10,323)
     Net proceeds from the issuances of preferred stock.....................       259,778         275,157          57,899
     Net proceeds from the issuances of common stock........................       130,538          80,526         110,280
     Principal payments on mortgage notes payable...........................       (51,310)        (39,212)         (8,233)
     Distributions paid to shareholders.....................................      (136,308)        (69,072)        (38,095)
     Distributions from operations to minority interests in consolidated
       real estate partnerships.............................................       (20,853)        (18,380)        (23,037)
     Net reinvestment by minority interests in consolidated real estate
       partnerships.........................................................         3,976          (1,739)          7,962
     Other..................................................................        (5,012)         (4,182)          3,576
                                                                                  --------        --------        --------
       Net cash provided by financing activities............................       180,809         185,491         100,029
                                                                                  --------        --------        --------
Net (decrease) increase in cash and cash equivalents........................       (53,580)         60,285           9,619

Cash and cash equivalents at the beginning of the year......................        80,436          20,151          10,532
                                                                                  --------        --------        --------
Cash and cash equivalents at the end of the year............................      $ 26,856        $ 80,436        $ 20,151
                                                                                  ========        ========        ========


</TABLE>
                             See accompanying notes.
                                       F-5

<PAGE>
<TABLE>
<CAPTION>
                            PUBLIC STORAGE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
        FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
                             (AMOUNTS IN THOUSANDS)

                                  (Continued)

                                                                                    1996            1995            1994
                                                                                  --------        --------        --------

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
   INVESTING ACTIVITIES:
   Acquisition of real estate  facilities  in exchange for common and  preferred
     stock,  the  assumption of mortgage  notes  payable,  the  cancellation  of
     mortgage notes receivable and the reduction of
<S>                                                                               <C>             <C>             <C>     
     investment in real estate entities.....................................       $(4,292)       $(87,941)       $(42,656)
   Business combinations (Note 3):
       Real estate facilities...............................................      (531,794)       (230,519)        (57,415)
       Investment in real estate entities...................................       124,696        (385,222)              -
       Mortgage notes receivable............................................             -          (6,667)              -
       Other assets.........................................................        (5,849)         (8,862)         (1,620)
       Intangible assets....................................................             -        (232,726)              -
       Accrued and other liabilities........................................        15,399          17,134             695
       Notes Payable........................................................             -          96,728               -
       Minority interest....................................................        20,139          17,034               -
   Reduction of investment in real estate entities in exchange for real
     estate facilities.....................................................          1,891               -               -
   Acquisition of partnership interests in real estate entities in exchange
     for common stock.......................................................             -          (4,034)              -
   Reduction in other assets - deposits on pending real estate acquisitions.             -               -           4,350
   FINANCING ACTIVITIES:
   Cancellation of mortgage notes receivable to acquire real estate                    700          16,435          24,441
     facilities.............................................................
   Assumption of mortgage notes payable upon the acquisition of real estate
     facilities.............................................................         1,701          60,908          11,715
   Accrued and unpaid distributions ........................................             -             638               -
   Issuance of Preferred Stock:
       Series B Preferred Stock to acquire real estate facilities...........             -               -           2,150
       Mandatory Convertible Preferred Stock, Series CC to acquire interest
         in consolidated real estate partnerships...........................        58,955               -               -
       Mandatory Convertible Participating Preferred Stock to acquire
         interest in consolidated real estate partnerships..................             -          28,470               -
   Issuance of Common Stock:
       In connection with mergers...........................................       204,932         573,756          37,369
       Acquire real estate facilities.......................................             -          10,598               -
       Acquire partnership interests in real estate entities................             -           4,034               -
       In connection with conversion of Convertible Preferred Stock.........        29,486               -               -
   Issuance of Class B Common Stock in connection with mergers.............              -          73,500               -
   Conversion of 8.25% Convertible Preferred Stock..........................        (1,526)              -               -
   Conversion of Mandatory Convertible Preferred Stock......................       (28,470)              -               -

</TABLE>
                             See accompanying notes.
                                       F-6

<PAGE>
                              PUBLIC STORAGE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1996


1.   Description of the business
     ---------------------------
          Public Storage, Inc. (the "Company") is a California corporation which
     was organized in 1980. The Company is a fully integrated, self-administered
     and  self-managed  real estate  investment  trust  ("REIT") that  acquires,
     develops,   owns  and   operates   self-storage   facilities   which  offer
     self-storage  spaces for  lease,  usually on a  month-to-month  basis,  for
     personal and business use. The Company,  to a lesser extent,  also owns and
     operates  commercial   properties   facilities  containing  commercial  and
     industrial rental space.

          Prior to November 16, 1995,  the  Company's  operations  were managed,
     pursuant to contractual arrangements, by Public Storage Advisers, Inc. (the
     "Adviser"), the Company's investment advisor, by Public Storage Management,
     Inc. ("PSMI"), its self-storage  facilities property operator and by Public
     Storage  Commercial  Properties  Group,  Inc.  ("PSCP"),  its business park
     facility operator.  On November 16, 1995, in a series of mergers among PSMI
     and its affiliates, culminating in the merger of PSMI into the Company (the
     "PSMI Merger"),  the Company became  self-administered and self-managed and
     acquired  substantially  all of the United States real estate operations of
     PSMI (Note 3).

          The Company invests in real estate  facilities  primarily  through the
     acquisition of  wholly-owned  facilities  combined with the  acquisition of
     equity interests in real estate entities owning real estate facilities.  At
     December 31, 1996, the Company had direct and indirect equity  interests in
     1,109  properties  located  in  38  states,  including  1,064  self-storage
     facilities  and 45  commercial  properties.  All of  these  facilities  are
     operated by the Company under the "Public Storage" name.

2.   Summary of significant accounting policies
     ------------------------------------------
          Basis of presentation
          ---------------------
          The consolidated  financial statements include the accounts of (i) the
     Company, (ii) majority owned subsidiaries involved in the sale of locks and
     boxes,  rental of trucks and portable  self-storage,  and (iii)  twenty-one
     limited partnerships in which the Company has significant economic interest
     (generally  in excess of 50%) and is able to exercise  significant  control
     (the  "Consolidated  Partnerships").  Collectively,  the  Company  and  the
     Consolidated  Partnerships  own a  total  of 756  real  estate  facilities,
     consisting of 721 self-storage facilities and 35 commercial properties.

          The Company also has equity investments in 41 other affiliated limited
     partnerships and eight REITs owning in aggregate 353 real estate facilities
     (343  self-storage  facilities  and 10  commercial  properties)  which  are
     managed by the  Company.  The  Company's  ownership  interest  in such real
     estate  entities  is  less  than  50% of the  total  equity  interest  and,
     accordingly,  the Company's  investments in these real estate  entities are
     accounted for using the equity method.

          Use of estimates
          ----------------
          The preparation of the consolidated financial statements in conformity
     with generally accepted  accounting  principles requires management to make
     estimates  and  assumptions   that  affect  the  amounts  reported  in  the
     consolidated  financial  statements and accompanying  notes. Actual results
     could differ from those estimates.

          Income taxes
          ------------
          For all taxable years  subsequent to 1980,  the Company  qualified and
     intends to continue to qualify as a REIT,  as defined in Section 856 of the
     Internal  Revenue Code. As a REIT, the Company is not taxed on that portion
     of its taxable  income which is distributed  to its  shareholders  provided
     that the Company meets certain tests. The Company believes it has met these
     tests  during 1996,  1995 and 1994;  accordingly,  no provision  for income
     taxes has been made in the accompanying financial statements.

                                      F-7
<PAGE>

          Financial instruments
          ---------------------
          For  purposes  of  financial  statement   presentation,   the  Company
     considers all highly liquid debt  instruments  purchased with a maturity of
     three months or less to be cash equivalents.

          The carrying  amount of cash and cash  equivalents  and mortgage notes
     receivable  approximates  fair value  because with respect to cash and cash
     equivalents  maturities  are less than three months and with respect to the
     mortgage notes receivable  interest rates approximate  market rates for the
     type of real  estate  securing  such  loans.  The  carrying  amount  of the
     Company's fixed rate long-term debt is estimated using discounted cash flow
     analyses based on incremental borrowing rates the Company believes it could
     obtain with similar terms and maturities.

          Real estate facilities
          ----------------------
          Real estate facilities are recorded at cost.  Depreciation is computed
     using the  straight-line  method  over the  estimated  useful  lives of the
     buildings and improvements, which are generally between 5 and 25 years.

          Allowance for possible losses
          -----------------------------
          The Company has no allowance  for possible  losses  relating to any of
     its  real  estate   investments,   long-lived  assets  and  mortgage  notes
     receivable.  The need for such an allowance is evaluated by  management  by
     means of periodic reviews of its investment portfolio.

          Intangible assets
          -----------------
          Intangible   assets   consist   of   property   management   contracts
     ($165,000,000)  and the  cost  over  the fair  value  of net  tangible  and
     identifiable  intangible assets ($67,726,000)  acquired in the PSMI Merger.
     Intangible  assets are amortized  straight-line  over 25 years. At December
     31, 1996 and 1995, intangible assets are net of accumulated amortization of
     $10,473,000 and  $1,164,000,  respectively.  Included in  depreciation  and
     amortization  expense is $9,309,000 in 1996 and $1,164,000 in 1995 (for the
     period from  November  16, 1995 through  December 31, 1995)  related to the
     amortization of intangible assets.

          Revenue and expense recognition
          -------------------------------
          Property  rents are  recognized as earned.  Equity in earnings of real
     estate entities are recognized based on the Company's ownership interest in
     the earnings of each of the  unconsolidated  real estate entities.  Leasing
     commissions  relating  to the  business  park  operations  are  expensed as
     incurred.

          Environmental costs
          -------------------
          The Company's  policy is to accrue  environmental  assessments  and/or
     remediation cost when it is probable that such efforts will be required and
     the  related  costs  can  be  reasonably  estimated.  The  majority  of the
     Company's  real estate  facilities  were acquired prior to the time that it
     was  customary  to conduct  environmental  assessments.  During  1995,  the
     Company   and   the   Consolidated   Partnerships   conducted   independent
     environmental  investigations of their real estate facilities.  As a result
     of  these  investigations,   the  Company  recorded  an  amount  which,  in
     management's  best  estimate  and  based  upon  independent  analysis,  was
     sufficient to satisfy anticipated costs of known remediation  requirements.
     At  December  31,  1995,  the  Company  accrued  $2,741,000  for  estimated
     environmental  remediation  costs.  Similar  to the  Company,  real  estate
     entities in which the Company accounts for using the equity method recorded
     environmental  accruals at the end of 1995.  The  Company's pro rata share,
     based on its  ownership  interest,  totaled  $510,000  and is  included  in
     "Equity in earnings of real estate entities" in 1995. Although there can be
     no assurance,  the Company is not aware of any environmental  contamination
     of any of its facilities  which  individually  or in the aggregate would be
     material to the Company's overall business, financial condition, or results
     of operations.

                                      F-8
<PAGE>
          Net income per common share
          ---------------------------
          Net income per common  share is computed  using the  weighted  average
     common shares  outstanding  (adjusted for stock options).  The inclusion of
     the Class B Common Stock in the  determination of earnings per common share
     has been  determined  to be  anti-dilutive  (after giving effect to the pro
     forma additional income required to satisfy certain contingencies (Note 11)
     required for the Class B common  stock to convert  into common  stock) and,
     accordingly,  the  conversion of the Class B common stock into common stock
     has not been assumed.

          The Company's  preferred  stocks (Note 11) were  determined  not to be
     common stock equivalents. In computing earnings per common share, preferred
     stock dividends totaling  $68,599,000,  $31,124,000 and $16,846,000 for the
     years ended December 31, 1996, 1995 and 1994, respectively,  reduced income
     available to common stockholders.

          Fully  diluted  earnings  per common share are not  presented,  as the
     assumed conversion of the Company's  convertible  preferred stock (Note 11)
     would be anti-dilutive.

          Stock-based compensation
          ------------------------
          In  October  1995,  the FASB  issued  SFAS  No.  123  "Accounting  for
     Stock-Based  Compensation"  ("Statement  123") which provides  companies an
     alternative to accounting for stock-based  compensation as prescribed under
     APB Opinion No. 25 (APB 25). Statement 123 encourages, but does not require
     companies to recognize  expense for stock-based  awards based on their fair
     value at date of grant.  Statement  123 allows  companies  to  continue  to
     follow  existing  accounting  rules  (intrinsic  value method under APB 25)
     provided  that  pro-forma  disclosures  are  made of what  net  income  and
     earnings per share would have been had the new fair value method been used.
     The Company has elected to adopt the disclosure  requirements  of Statement
     123 but will continue to account for stock-based compensation under APB 25.
     Statement  123's  disclosure  requirements  are  applicable to  stock-based
     awards granted in fiscal years beginning after December 15, 1994.


          Reclassifications
          -----------------
          Certain  reclassification have been made to the consolidated financial
     statements  for the  years  ended  December  31,  1995 and 1994 in order to
     conform with the 1996 presentation.

                                      F-9

<PAGE>
3.   Business combinations
     ---------------------

          Mergers with affiliated REITs
          -----------------------------
          During 1996,  the Company  completed  merger  transactions  with eight
     affiliated  public REITs whereby the Company  acquired all the  outstanding
     stock of the REITs which it did not previously own in exchange for cash and
     common  stock  of the  Company.  The  aggregate  acquisition  cost of these
     mergers is summarized as follows:
<TABLE>
<CAPTION>

                                                                                                  Merger consideration
                                                                                     ----------------------------------------------
                                                                                     Common                 Pre-existing
Entity                                                         Date of merger         Stock        Cash      investment     Total
---------------------------------------------------            ------------------   ---------   ----------   ----------   ---------
                                                                                              (Amounts in thousands)
                                                             
<S>                                                           <C>                   <C>           <C>          <C>        <C>     
Public Storage Properties IX, Inc. ("Properties 9")            March 26, 1996       $ 24,719      $ 9,907      $12,937    $ 47,563
PS Business Parks, Inc. ("PSBP")                               March 26, 1996          5,249        2,719        3,337      11,305
Storage Properties, Inc. ("SPI")                               June 27, 1996          17,148        4,801        1,799      23,748
Public Storage Properties X, Inc. ("Properties 10")            September 16, 1996     26,012       14,178        9,333      49,523
Public Storage Properties XII, Inc.  ("Properties 12")         September 16, 1996     33,157        7,436        9,472      50,065
Partners Preferred Yield, Inc. ("PPY")                         December 23, 1996      38,076       13,922       18,179      70,177
Partners Preferred Yield II, Inc. ("PPY-2")                    December 23, 1996      41,790       13,692       18,077      73,559
Partners Preferred Yield III, Inc. ("PPY-3")                   December 23, 1996      18,781        5,787        6,327      30,895
                                                                                    --------      -------      -------    --------
                                                                                    $204,932      $72,442      $79,461    $356,835
                                                                                    ========      =======      =======    ========
                                                             
                                                  
     During 1995, the Company completed merger  transactions with two affiliated
public REITs whereby the Company acquired all the outstanding stock of the REITs
for an aggregate cost of  $135,406,000,  consisting of the issuance of 6,664,287
shares of the Company's common stock  ($99,972,000) and $35,434,000 in cash. The
fair market values of the assets acquired and liabilities assumed were: (i) real
estate  facilities -  $140,775,000,  (ii) other assets -  $1,440,000,  and (iii)
accrued and other liabilities - $6,809,000.

     Affiliated Partnership acquisitions:
     ------------------------------------
     During  1996,  the  Company  increased  its  ownership  interest  in  three
affiliated  limited  partnerships.   Prior  to  the  acquisitions,  the  Company
accounted for its investment in each of the three  partnerships using the equity
method.  As a result of  increasing  its  ownership  interest and control of the
partnerships,  the Company began to consolidate the accounts of the partnerships
in the Company's  consolidated  financial  statements.  These  transactions  are
summarized as follows:

                                                                            Consideration paid
                                                                            to acquire Limited       
                                                                            Partnership Units             The
                                                 Percentage of              -------------------        Company's
                                                Limited Partner       Date      Preferred            Pre-existing
Entity                                          Units Purchased    Purchased      Stock      Cash     investment     Total
---------------------------------------------   ---------------    ---------    ---------   -------- -------------   --------
                                                                                            (Amounts in thousands)
<S>                                              <C>        <C>           <C>         <C>         <C>         <C>     
PS Institutional Fund  ("PSIF")                        64%         March 1996    $     -     $41,080     $27,863     $ 68,943
Diversified Storage Fund ("Diversified")              100%         April 1996      39,410          -      11,565       50,975
Diversified Storage Fund II ("Diversified II")        100%         April 1996      19,545          -       5,807       25,352
                                                                                ---------   -------- -------------   -------- 
                                                                                 $58,955    $41,080     $45,235     $145,270
                                                                                =========   ======== =============   ======== 
</TABLE>
     During 1995,  the Company  increased its ownership  interest and control of
twelve limited partnerships.  As a result, commencing in 1995, the Company began
to  consolidate  the  accounts of these  partnerships  for  financial  statement
purposes.  The aggregate amount of the interests  acquired  totaled  $48,410,000
consisting of the issuance of $28,470,000 of Mandatory Convertible Participating
Preferred Stock and cash of $19,940,000.

                                      F-10
<PAGE>
     PSMI merger
     -----------
     On November 16, 1995, in a series of mergers among PSMI and its affiliates,
culminating  in the merger of PSMI into the  Company  (the "PSMI  Merger"),  the
Company became self-administered and self-managed and acquired substantially all
of the United  States real estate  operations  of PSMI.  As a result of the PSMI
Merger,  the Company's  name was changed from Storage  Equities,  Inc. to Public
Storage, Inc.

     The aggregate consideration paid by the Company for the net assets acquired
in the PSMI  Merger  (including  expenses  of $2.0  million)  was  $549,284,000,
consisting of 29,449,513 shares of common stock ($473,784,000), 7,000,000 shares
of Class B common  stock  ($73,500,000)  (Note 11).  The real estate  operations
acquired in the PSMI Merger included (1) the "Public  Storage" name, (2) general
and limited partnership interests in 47 limited partnerships owning an aggregate
of 286 self-storage facilities, (3) shares of common stock in 16 REITs owning an
aggregate of 218 self-storage  facilities and 14 business park  properties,  (4)
seven wholly-owned  properties,  (5) all-inclusive deeds of trust secured by ten
self-storage  facilities,  (6)  property  management  contracts,   exclusive  of
facilities owned by the Company,  for 563  self-storage  facilities and, through
ownership  of  a  95%  economic  interest  in a  subsidiary,  24  business  park
properties and (7) a 95% economic interest in another  subsidiary that currently
sells locks and boxes in self-storage facilities operated by the Company.

     Each  of  the  above  mergers  with  affiliated  REIT's,   acquisitions  of
partnership  interests,  and merger with PSMI discussed above has been accounted
for as a purchase; accordingly, allocations of the total acquisition cost to the
net  assets  acquired  were  made  based on the fair  value of such  assets  and
liabilities  as of the dates of each  respective  transaction.  The fair  market
values of the  assets  acquired  and  liabilities  assumed  with  respect to the
transactions occurring in 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
                                                REIT         Partnership
                                               mergers      Acquisitions    PSMI Merger          Total
                                             ----------     ------------   ------------        ----------
1996 business combinations:
<S>                                            <C>              <C>        <C>                  <C>     
    Real estate facilities...............      $364,984         $166,810   $          -         $531,794
    Other assets.........................         5,032              817              -            5,849
    Accrued and other liabilities........       (13,181)          (2,218)             -          (15,399)
    Minority interest....................             -          (20,139)             -          (20,139)
                                             ----------     ------------   ------------        ----------
                                               $356,835         $145,270   $          -         $502,105
                                             ==========     ============   ============        ==========

1995 business combinations:
    Real estate facilities...............      $140,775          $69,801        $19,943         $230,519
    Investments in real estate facilities             -           (4,464)       389,686          385,222
    Mortgage notes receivable............             -                -          6,667            6,667
    Other assets.........................         1,440            2,851          4,571            8,862
    Intangible assets....................             -                -        232,726          232,726
    Accrued and other liabilities........        (6,809)            (701)        (9,624)         (17,134)
    Notes payable........................             -           (3,387)       (93,341)         (96,728)
    Minority interest....................             -          (15,690)        (1,344)         (17,034)
                                             ----------     ------------   ------------        ----------
                                               $135,406          $48,410       $549,284         $733,100
                                             ==========     ============   ============        ==========
</TABLE>


     The historical  operating results of the above business  combinations prior
to each  respective  acquisition  date have not been  included in the  Company's
historical  operating  results.  Pro forma data  (unaudited) for the years ended
December 31, 1996,  1995 and 1994 as though (i) business  combinations  and (ii)
the public  issuances of common and  preferred  stock (with the exception of the
Series G, Series H, and Series I preferred stock and for 1996 Public Issuance of
Common Stock) during 1996,  1995 and 1994 and the use of the proceeds  therefrom
had been effective at the beginning of each period follows:

                                      F-11
<PAGE>
<TABLE>
<CAPTION>

                                                                                            For the Year
                                                                                          Ended December 31,
                                                                             --------------------------------------------
                                                                                 1996             1995             1994
                                                                             -----------       ----------       ---------
                                                                                (in thousands except per share data)
          
               <S>                                                             <C>               <C>             <C>     
               Revenues..................................................      $378,718          $343,135        $325,572
               Net income................................................      $163,731          $129,829        $121,693
               Net income per common share...............................         $1.11             $1.10           $1.03
          
</TABLE>
     The pro forma data does not purport to be  indicative  either of results of
operations  that  would  have  occurred  had the  transactions  occurred  at the
beginning of each period or future results of operations of the Company. Certain
pro forma  adjustments were made to the combined  historical  amounts to reflect
(i) expected reductions in general and administrative  expenses,  (ii) estimated
increased  interest  expense from bank borrowings to finance the cash portion of
the acquisition cost, (iii) estimated  increase in depreciation and amortization
expense, and (iv) elimination of advisory fee expense.

4.  Real estate facilities
    ----------------------
     Activity  in real  estate  facilities  during  1996,  1995  and  1994 is as
follows:
<TABLE>
<CAPTION>


                                                            1996                   1995                 1994
                                                        ------------           -----------           -----------
                                                                       (Amounts in thousands)
  Operating Facilities
<S>                                                      <C>                     <C>                   <C>     
     Beginning balance..........................         $1,405,155              $967,718              $764,126
     Property acquisitions
       Business combinations (Note 3) ..........            531,794               230,519                57,415
       Other  acquisitions......................            202,696               191,002               135,682
    Developed facilities........................             18,261                 5,265                     -
     Acquisition of minority interest (Note 9)..              7,226                  (223)                4,820
    Capital improvements........................             20,366                11,361                 8,312
    Property dispositions.......................                  -                  (487)               (2,637)
                                                        ------------           -----------           -----------
     Ending balance.............................          2,185,498             1,405,155               967,718
                                                        ------------           -----------           -----------

  Construction in progress:
    Beginning balance...........................              7,979                     -                     -
    Current development cost....................             46,097                13,244                     -
    Newly opened development facilities.........            (18,261)               (5,265)                    -
                                                        ------------           -----------           -----------
     Ending balance.............................             35,815                 7,979                     -
                                                        ------------           -----------           -----------

  Accumulated depreciation:
    Beginning balance...........................           (241,966)             (202,745)             (175,621)
    Additions during the year...................            (55,689)              (39,376)              (28,099)
    Property dispositions ......................                  -                   155                   975
                                                        ------------           -----------           -----------
     Ending balance.............................           (297,655)             (241,966)             (202,745)
                                                        ------------           -----------           -----------
  Total real estate facilities..................         $1,923,658            $1,171,168              $764,973
                                                        ============           ===========           ===========
</TABLE>
                                      F-12
<PAGE>

     During 1996, the Company acquired a total of 154 real estate facilities for
an  aggregate  cost  of  $531,794,000,   in  connection  with  certain  business
combinations  (Note 3). The Company also  acquired an  additional 58 real estate
facilities from third parties with an aggregate acquisition cost of $202,696,000
consisting  of  the  cancellation  of  mortgage  notes  receivable   ($700,000),
cancellation of pre-existing  investments  ($1,891,000),  assumption of mortgage
notes payable ($1,701,000), and cash ($198,404,000).

     Commencing in 1995, the Company began to construct self-storage facilities.
Through December 31, 1996, the Company constructed and opened for operation five
facilities,  one of which  began  operations  in  August  1995 and four in 1996.
Included  in real  estate  facilities  at  December  31,  1996 is  approximately
$35,815,000  of  costs  related  to  the  remaining   eleven   facilities  under
construction  and the 17  additional  facilities  that the  Company has plans to
develop.

     During 1995, the Company acquired a total of 95 real estate  facilities for
an  aggregate  cost  of  $230,519,000   in  connection  with  certain   business
combinations.  During 1995,  the Company  also  acquired an  additional  58 real
estate facilities for an aggregate cost of $184,861,000  (including the facility
developed in 1995),  consisting of the cancellation of mortgage notes receivable
($16,435,000),  the assumption of mortgage notes payable  ($60,908,000) and cash
($107,518,000).

     A substantial  number of the real estate  facilities  acquired during 1996,
1995 and 1994 were acquired from affiliates with an aggregate  acquisition  cost
of approximately $531,794,000, $300,193,000 and $119,211,000 respectively.

     At December 31,  1996,  the adjusted  basis of real estate  facilities  for
Federal  income  tax  purposes  was   approximately   $1.4  billion  net  of
accumulated depreciation of $598.3 million.


5.   Investments in real estate entities
     -----------------------------------
     During  1996,  the  Company's  equity  in real  estate  entities  decreased
principally as a result of business  combinations whereby the Company eliminated
approximately  $124.7  million  of  pre-existing  equity in real  estate  entity
investments.  Offsetting this decrease were  additional  investments in numerous
other unconsolidated affiliates for $83.9 in cash.

     During  1995,  the Company  (i)  acquired  limited and general  partnership
interest in 47 partnerships  and common stock in 16 REITs in connection with the
PSMI Merger at an  aggregate  cost of  $389,686,000,  (ii)  acquired  additional
interests in some of the same  partnerships  and REITs for an aggregate  cost of
$23,953,000, consisting of Common Stock ($4,034,000) and cash ($19,919,000), and
(iii)  reclassified  investments in  partnerships  which  commencing in 1995 are
consolidated  with  the  Company  ($4,464,000).  Prior to  1995,  the  Company's
investment in real estate  entities  generally  consisted of limited and general
partnership  interests in real estate limited  partnerships which were accounted
for using the cost method.

     At  December  31,  1996,  the  Company's  investments  in these real estate
entities consist generally of ownership interests in 41 affiliated  partnerships
and common stock in 8 affiliated  REITs.  Such  interests  consists of ownership
interests  ranging from 15% to 45% and are accounted for using the equity method
of  accounting.  Accordingly,  earnings are recognized by the Company based upon
the  Company's  ownership  interest  in  each  of the  partnerships  and  REITs.
Provisions of the governing  documents of the partnerships and REITs provide for
the payment of preferred cash  distributions  to other investors  (until certain
specified  amounts have been paid)  without  regard to the pro rata  interest of
investors in current earnings.

     Equity in earnings of real estate  entities  for 1996 and 1995  principally
consists  of the  Company's  pro rata  share of  earnings  for  those  interests
acquired  in the PSMI  Merger.  During  1996 and 1995,  the  Company  recognized
                                      F-13
<PAGE>

earnings from its investments of $22,121,000 and $3,763,000,  respectively,  and
received cash distributions  totaling $27,326,000 and $5,580,000,  respectively.
Included in equity in earnings of real estate  entities for 1996 and 1995 is the
Company's share of depreciation expense ($9,556,000 and $926,000,  respectively)
and  environmental  costs  ($510,000  in 1995,  none in 1996) of the real estate
entities.  In  addition,  equity in earnings of real  estate  entities  includes
amortization  totaling  $7,894,000 in 1996 and  $1,119,000 in 1995 (from date of
the PSMI Merger through the end of the year)  representing  the  amortization of
the Company's cost basis over the underlying book value of the Company's  equity
interest in each of the entities.  At December 31, 1996, the unamortized  excess
of the  Company's  investment  over its equity in the  underlying  net assets of
these real estate entities at the date of acquisition was  approximately  $154.5
million.

     Summarized  combined financial data (based on historical cost) with respect
to those real estate entities in which the Company had an ownership  interest in
at December 31, 1996 are as follows:

                                                              Year ended
                                                             December 31,
                                                      --------------------------
                                                          1996          1995
                                                      ----------     ----------
                                                            (in thousands)

   Rental income.....................................  $ 180,197    $  172,675
   Total revenues....................................    182,036       175,150
   Cost of operations................................     65,417        62,542
   Depreciation......................................     27,332        27,368
   Net income........................................     75,937        69,467

   Total assets, net of accumulated depreciation.....    834,695       839,775
   Total debt........................................     89,349        95,305
   Total equity......................................    710,118       708,768

6.   Mortgage notes receivable from affiliates
     -----------------------------------------
     At December  31,  1996,  mortgage  notes  receivable  of  $25,016,000  bear
interest  at stated  rates  ranging  from 7.4% to 14.0%  and are  secured  by 13
self-storage facilities owned by affiliates of the Company.

     During 1996,  the Company  acquired a $1,970,000  mortgage note  receivable
from a third party  (secured by a  self-storage  facility)  and  provided  loans
totaling  $1,739,000  to  affiliated  limited  partnerships.   During  1995,  in
connection with the PSMI Merger,  the Company acquired mortgage notes receivable
totaling  $6,667,000  which are  secured  by  self-storage  facilities  owned by
affiliated entities.

     The Company  canceled  mortgage notes with a net carrying value of $700,000
and $16,435,000 during 1996 and 1995,  respectively,  as part of the acquisition
cost of the underlying real estate facilities  securing the mortgage notes (Note
4).

7.   Revolving line of credit
     ------------------------
     As of December 31, 1996,  the Company had no  borrowings  on its  unsecured
credit  agreement  with a group of commercial  banks.  On February 25, 1997, the
credit  agreement was amended (the "Credit  Facility") to increase the available
borrowings to $150.0  million and extend the  expiration  date to July 31, 2001.
The  expiration  date may be  extended  by one year on each  anniversary  of the
credit agreement.  Interest on outstanding borrowings is payable monthly. At the
option of the  Company,  the rate of interest  charged is equal to (i) the prime
rate or (ii) a rate ranging  from the London  Interbank  Offered Rate  ("LIBOR")
plus 0.40% to LIBOR plus 1.10%  depending on the  Company's  credit  ratings and
coverage  ratios,  as  defined.  In  addition,  the Company is required to pay a
quarterly  commitment  fee of 0.250%  (per  annum) of the unused  portion of the

                                      F-14
<PAGE>

Credit  Facility.  The Credit  Facility  allows the Company,  at its option,  to
request the group of banks to propose  the  interest  rate they would  charge on
specific  borrowings  not to exceed  $50  million.  However,  in no case may the
interest  rate  proposal  be  greater  than the  amount  provided  by the Credit
Facility.

     Under  covenants  of the Credit  Facility,  the  Company is required to (i)
maintain a balance sheet leverage ratio of less than 0.40 to 1.00, (ii) maintain
net  income  of not less than  $1.00 for each  fiscal  quarter,  (iii)  maintain
certain cash flow and interest coverage ratios (as defined) of not less than 1.0
to  1.0  and  5.0 to  1.0,  respectively  and  (iv)  maintain  a  minimum  total
shareholders'  equity (as defined).  In addition,  the Company is limited in its
ability to incur  additional  borrowings  (the  Company is  required to maintain
unencumbered  assets with an aggregate book value equal to or greater than three
times the Company's  unsecured recourse debt) or sell assets. The Company was in
compliance with the covenants of the Credit Facility at December 31, 1996.

8.   Notes payable
     -------------
     Notes payable at December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>

                                                                     1996                          1995
                                                            ------------------------    --------------------------
                                                            Carrying                     Carrying
                                                             amount      Fair value       amount        Fair value
                                                            ---------    -----------    ----------    -------------
                                                                            (Amounts in thousands)
  <S>                                                       <C>            <C>            <C>            <C>
  7.08% unsecured senior notes, due November 2003..........  $59,750       $59,750        $65,500         $65,500

  Mortgage notes payable:
       10.55% mortgage notes secured by real estate
          facilities, principal and interest payable
          monthly, due August 2004.........................   32,115        34,964         33,699          36,959

       7.07% to 11.10% mortgage notes secured by real estate
          facilities, principal and interest payable monthly,
          due at varying dates between
          December 1997 and September 2028.................   16,578        16,578         22,875          22,875

       Variable rate mortgage notes secured by real
          estate facilities................................        -             -         35,978          35,978
                                                            ---------    -----------    ----------    -------------
                                                            $108,443      $111,292       $158,052        $161,312
                                                            =========    ===========    ==========    =============
</TABLE>

     During 1995, in connection  with the PSMI Merger,  the Company  assumed the
7.08%  unsecured  senior notes  payable.  The senior notes require  interest and
principal  payments  to be  paid  semi-annually  and  have  various  restrictive
covenants, all of which have been met at December 31, 1996.

     The   10.55%   mortgage   notes   consist   of   five   notes   which   are
cross-collateralized  by 19 properties and are due to a life insurance  company.
Although there is a negative spread between the carrying value and the estimated
fair value of the notes,  the notes  provide  for the  prepayment  of  principal
subject  to  the  payment  of  penalties  which  exceed  this  negative  spread.
Accordingly,  prepayment  of the  notes at this time  would not be  economically
practicable.

     Mortgage  notes  payable  are  secured by 30 of the  Company's  real estate
facilities  having an aggregate  net book value of $68.1 million at December 31,
1996.

     At December 31, 1996, approximate principal maturities of notes payable are
as follows:

                                      F-15


<PAGE>
                                                 Fixed Rate
                                                Mortgage debt
                                            --------------------
                           7.08% Unsecured    (weighted average     
                             Senior Notes      rate of 10.28%)          Total
                          ---------------   ---------------------   -----------
                                             (in thousands)

   1997...............       $  6,500          $  4,744                $11,244
   1998...............          7,250             7,908                 15,158
   1999 ..............          8,000             6,484                 14,484
   2000...............          8,750             2,721                 11,471
   2001...............          9,500             2,238                 11,738
   Thereafter.........         19,750            24,598                 44,348
                             ---------         ----------            ----------
                              $59,750           $48,693               $108,443
                             =========         ==========            ==========


     Interest paid (including  interest  related to the borrowings on the Credit
Facility) during 1996, 1995 and 1994 was $10,312,000, $8,595,000 and $5,940,000,
respectively.  In addition,  in 1996 and 1995, the Company capitalized  interest
totaling $1,861,000 and $307,000, respectively,  related to construction of real
estate facilities.

9.   Minority interest
     ------------------
     In consolidation, the Company classifies ownership interests other than its
own in the net  assets  of each of the  Consolidated  Partnerships  as  minority
interest on the consolidated  financial statements.  Minority interest in income
consists  of the  minority  interests'  share of the  operating  results  of the
Company   relating  to  the   consolidated   operations   of  the   Consolidated
Partnerships.

     During 1996,  the Company  acquired  limited  partnership  interests in the
Consolidated  Partnerships  in several  transactions  for an  aggregate  cost of
$15,419,000.  These transactions had the effect of reducing minority interest by
approximately  $8,193,000  (the  historical  book value of such interests in the
underlying net assets of the  partnerships).  The excess of the underlying  book
value over cost  ($7,226,000)  has been  allocated to real estate  facilities in
consolidation.  In  1995  and  1994,  the  Company  acquired  interests  in  the
Consolidated  Partnerships at an aggregate cost of $32,683,000 and  $51,711,000,
respectively,  reducing  minority  interest  by  approximately  $32,906,000  and
$46,891,000,  respectively.  The excess of cost over  underlying book values was
allocated to real estate facilities in consolidation.

     During 1996 and 1995,  in  connection  with certain  business  combinations
(Note 3)  minority  interest  was  increased  by  $20,139,000  and  $17,034,000,
respectively,  representing  the  remaining  partners'  equity  interests in the
aggregate net assets of the consolidated partnerships.

10.  Property management and advisory contracts
     ------------------------------------------
     Pursuant  to  the  PSMI  Merger,   the  Company  became   self-advised  and
self-managed,  accordingly,  effective  November 16, 1995, the Company no longer
incurs either advisory fees or property management fees.

     Prior to the PSMI Merger,  PSMI provided property  operation services for a
fee to the  Company  under  a  management  agreement  and an  affiliate  of PSMI
administered  the  day-to-day  investment  operations  for a fee  pursuant to an
advisory contract. Pursuant to the management agreement, PSMI or an affiliate of
PSMI operated all of the  properties in which the Company  invested in for a fee
which is equal to 6% of the gross revenues of the self-storage facilities spaces
managed and 5% of the gross  revenues  of the  commercial  properties  operated.
Management  fees relating to the  Company's  real estate  facilities,  which are
included in cost of operations,  amounted to $10,232,000  and $8,355,000 in 1995
and 1994,  respectively.  During  1994 and 1995 (from  January  1, 1995  through
November 16,  1995),  the Company paid  advisory  fees equal to  $4,983,000  and
$6,437,000 pursuant to the advisory contract.

                                      F-16
<PAGE>

     In  connection  with  the  PSMI  Merger,   the  Company  acquired  property
management  contracts  for  (i)  self-storage  facilities  owned  by  affiliated
entities and, to a lesser extent,  third parties and (ii) through ownership of a
95% economic interest in a subsidiary,  commercial properties.  These facilities
constitute  all of the United  States  self-storage  facilities  and  commercial
properties  doing  business  under  the  "Public  Storage"  name  and,  with the
exception  of third  party  properties,  all those in which the  Company  had an
interest.   At  December  31,  1996,  the  Company  managed  1,101  self-storage
facilities (721 owned by consolidated  facilities,  343 owned by  unconsolidated
affiliates and 37 owned by third parties) and 45 commercial properties (35 owned
by consolidated facilities and 10 owned by unconsolidated affiliates).

     The property management  contracts generally provide for compensation equal
to 6%, in the case of the  self-storage  facilities,  and 5%, in the case of the
commercial  properties of gross  revenues of the facilities  managed.  Under the
supervision of the property  owners,  the Company  coordinates  rental policies,
rent collections,  marketing activities, the purchase of equipment and supplies,
maintenance activity, and the selection and engagement of vendors, suppliers and
independent  contractors.  In  addition,  the  Company  assists  and advises the
property owners in establishing policies for the hire, discharge and supervision
of employees for the operation of these facilities, including resident managers,
assistant managers, relief managers and billing and maintenance personnel.

11. Shareholders' equity
    --------------------
     Preferred Stock
     ---------------
     At December  31, 1996 and 1995,  the  Company had the  following  series of
Preferred Stock outstanding:
<TABLE>
<CAPTION>

                                                                At December 31, 1996                At December 31, 1995
                                                           -------------------------------       ----------------------------
                                            Dividend           Shares           Carrying            Shares        Carrying
                   Series                      Rate         Outstanding          Amount          Outstanding       Amount
--------------------------------------     -----------     ---------------   --------------      ------------   -------------
<S>                                            <C>             <C>           <C>                    <C>         <C>          
   Series A                                    10.000%         1,825,000     $  45,625,000          1,825,000   $  45,625,000
   Series B                                     9.200%         2,386,000        59,650,000          2,386,000      59,650,000
   Series C                                 Adjustable         1,200,000        30,000,000          1,200,000      30,000,000
   Series D                                     9.500%         1,200,000        30,000,000          1,200,000      30,000,000
   Series E                                    10.000%         2,195,000        54,875,000          2,195,000      54,875,000
   Series F                                     9.750%         2,300,000        57,500,000          2,300,000      57,500,000
   Series G                                     8.875%             6,900       172,500,000              6,900     172,500,000
   Series H                                      8.45%             6,750       168,750,000                  -               -
   Series I                                     8.625%             4,000       100,000,000                  -               -
                                                           ---------------   --------------      ------------   -------------
     Total Senior Preferred Stock                             11,123,650       718,900,000          11,112,900    450,150,000
                                                           ---------------   --------------      ------------   -------------

   Convertible                                   8.25%         2,238,975        55,974,000          2,300,000      57,500,000
   Mandatory Convertible  - Series CC           13.00%            58,955        58,955,000                  -               -
   Mandatory Convertible Participating        Variable                 -                 -             31,200      28,470,000
                                                           ---------------   --------------      ------------   -------------
     Total Convertible Preferred Stock                         2,297,930        114,929,000         2,331,200      85,970,000
                                                           ---------------   --------------      ------------   -------------
                                                              13,421,580       $833,829,000        13,444,100    $536,120,000
                                                           ===============   ==============      ============   =============

</TABLE>

     During 1996, the Company issued  6,750,000  depositary  shares  (depositary
shares,  each  representing  1/1,000 of a share) of its 8.45% Series H Preferred
Stock  (January 25, 1996) raising net proceeds of  approximately  $163.1 million
and 4,000,000 depositary shares (depositary shares, each representing 1/1,000 of
a share) of its 8-5/8% Series I Preferred  Stock  (November 1, 1996) raising net
proceeds of approximately $96.7 million.

     In April 1996, in connection  with the  acquisition of limited  partnership
interests  (Note 3),  the  Company  issued  $58,955,000  (58,955  shares) of its

                                      F-17
<PAGE>

Mandatory  Convertible  Preferred  Stock,  Series CC (the  "Series CC  Preferred
Stock").  The Series CC Preferred Stock ranks junior to the Company's Cumulative
Senior  Preferred  Stock with  respect to  general  preference  rights and has a
liquidation value of $1,000 per share.  Other significant terms of the Series CC
Preferred Stock include: (i) quarterly  distributions equal to $32.50 per share,
(ii)  conversion,  at anytime at the option of the holder,  into common stock of
the Company at a conversion price of $28.56 or 35.014 shares of common stock for
each share of Series CC Preferred  Stock,  and (iii)  automatic  conversion into
common stock of the Company on March 31, 2000 at the conversion  price described
above.

     During the second quarter of 1996, the Mandatory Convertible  Participating
Preferred  Stock was exchanged  into  1,611,265  shares of common  stock.  Costs
incurred in connection with the exchange have been charged to Paid in Capital.

     The  Series  A  through  Series  I  (collectively  the  "Cumulative  Senior
Preferred Stock") have general preference rights with respect to liquidation and
quarterly  distributions.  With respect to the payment of dividends  and amounts
upon liquidation,  all of the Company's Convertible Preferred Stock ranks junior
to the Cumulative Senior Preferred Stock and any other shares of preferred stock
of the  Company  ranking  on a parity  with or senior to the  Cumulative  Senior
Preferred  Stock.  The  Convertible  Preferred  Stock ranks senior to the common
stock,  any additional  class of common stock and any series of preferred  stock
expressly made junior to the Convertible Preferred Stock.

     Holders of the Company's  preferred stock,  except under certain conditions
and as noted above,  will not be entitled to vote on most matters.  In the event
of a  cumulative  arrearage  equal to six  quarterly  dividends  or  failure  to
maintain a Debt Ratio (as  defined) of 50% or less,  holders of all  outstanding
series of preferred  stock (voting as a single class  without  regard to series)
will have the right to elect two  additional  members to serve on the  Company's
Board of  Directors  until  events of default  have been cured.  At December 31,
1996, there were no dividends in arrears and the Debt Ratio was 4.2%.

     Except under certain conditions relating to the Company's  qualification as
a REIT, the Senior  Preferred  Stock are not  redeemable  prior to the following
dates: Series A - September 30, 2002, Series B - March 31, 2003, Series C - June
30, 1999, Series D - September 30, 2004, Series E - January 31, 2005, Series F -
April 30,  2005,  Series G - December  31,  2000,  Series H - January 31,  2001,
Series I - October  31,  2001.  On or after the  respective  dates,  each of the
series  of  Senior  Preferred  Stock  will be  redeemable  at the  option of the
Company,  in whole or in part, at $25 per share (or depositary share in the case
of the Series H and Series I), plus accrued and unpaid dividends.

     The Convertible Preferred Stock is convertible at any time at the option of
the  holders  of such  stock  into  shares of the  Company's  common  stock at a
conversion  rate of 1.6835 shares of common stock for each share of  Convertible
Preferred  Stock,  subject to adjustment in certain  circumstances.  On or after
July 1,  1998,  the  Convertible  Stock  will be  redeemable  for  shares of the
Company's  common stock at the option of the Company,  in whole or in part, at a
redemption  price of 1.6835 shares of common stock for each share of Convertible
Stock (subject to adjustment in certain  circumstances),  if for 20 trading days
within any period of 30 consecutive trading days (including the last trading day
of such period),  the closing price of the common stock on its principal trading
market   exceeds   $14.85  per  share   (subject   to   adjustment   in  certain
circumstances). The Convertible Preferred Stock is not redeemable for cash.


     Common stock
     ------------
     During 1996,  1995 and 1994,  the Company issued shares of its common stock
as follows:
                                      F-18




<PAGE>
<TABLE>
<CAPTION>




                                                   1996                        1995                        1994
                                        ------------------------    ------------------------    ------------------------
                                          Shares        Amount         Shares        Amount       Shares         Amount
                                        ----------      --------    ----------      --------    ----------      --------
                                                               (Dollar amounts in thousands)
<S>                                      <C>           <C>           <C>             <C>         <C>            <C>     
Public offerings.............            6,151,200     $ 128,501     5,482,200       $82,068     7,984,000      $108,083
In connection with mergers              
  (Note 3)...................            8,839,181       204,932    36,113,800       573,756     2,593,914        38,498
Issuance costs of mergers....                    -             -             -        (2,527)            -        (1,124)
Exercise of stock options....              100,663         1,037        46,670           403        82,666           689
Issuance to affiliates.......               43,197         1,000        40,000           582       109,857         1,701
Conversion of Mandatory                 
  Convertible Preferred      
  Stock......................            1,611,265        27,960             -             -             -             -
Acquisition of interests in             
  real estate entities.......                    -             -       257,067         4,034             -             -
Acquisition of real estate              
  facilities (Note 4)........                    -             -       747,355        10,598             -             -
Conversion of 8.25%                     
  Convertible Preferred Stock.             102,721         1,526             -             -             -             -
                                        ----------      --------    ----------      --------    ----------      --------
                                        16,848,227      $364,956    42,687,092      $668,914    10,770,437      $147,847
                                        ==========      ========    ==========      ========    ==========      ======== 
</TABLE>

     Shares of common stock issued to  affiliates in 1996,  1995 and 1994,  were
issued  for cash.  All the shares of common  stock,  with the  exception  of the
shares issued in connection  with the exercise of stock options,  were issued at
the prevailing market price at the time of issuance.

     At December  31,  1996,  the Company had  5,250,004  shares of common stock
reserved in  connection  with the  Company's  stock  option  plans (Note 12) and
12,834,000 shares of common stock reserved for the conversion of the Convertible
Preferred Stock, Class B Common Stock and Series CC convertible preferred stock.

     On March 18, 1997, the Company  publicly issued  4,600,000 shares of common
stock, raising net proceeds of approximately $126.5 million. The Company intends
to use the net proceeds  from this offering to make  investments  in real estate
and fund the activities of its portable self-storage operations.

     Class B Common Stock
     --------------------
     The Class B Common  Stock was issued in  connection  with the PSMI  Merger.
Under the terms of the  merger  agreement,  the  issuance  of the Class B Common
Stock was subject to certain  conditions  which were  satisfied in December 1995
and the Class B Common  Stock was issued on January 2,  1996.  The  Company  has
reflected the Class B Common Stock as outstanding as of December 31, 1995.

     The Class B Common Stock will (i) not  participate in  distributions  until
the later to occur of funds from operations  ("FFO") per Common Share as defined
below,  aggregating  $1.80  during  any  period  of  four  consecutive  calendar
quarters,  or  January  1,  2000;  thereafter,  the  Class B Common  Stock  will
participate in distributions (other than liquidating distributions), at the rate
of 97% of the  per  share  distributions  on the  Common  Stock,  provided  that
cumulative  distributions of at least $0.22 per quarter per share have been paid
on the Common Stock,  (ii) not participate in liquidating  distributions,  (iii)
not be entitled to vote (except as  expressly  required by  California  law) and
(iv)  automatically  convert into Common Stock, on a share for share basis, upon
the later to occur of FFO per Common Share  aggregating  $3.00 during any period
of four consecutive calendar quarters or January 1, 2003.

     For these  purposes FFO,  means net income  (loss)  (computed in accordance
with generally accepted  accounting  principles) before (i) gain (loss) on early
extinguishment  of debt, (ii) minority  interest in income and (iii) gain (loss)
on disposition of real estate,  adjusted as follows:  (i) plus  depreciation and
                                      F-19
<PAGE>

amortization  (including  the  Company's  pro-rata  share  of  depreciation  and
amortization  of  unconsolidated  equity  interests and  amortization  of assets
acquired in the Merger,  including property management agreements and goodwill),
and (ii) less FFO attributable to minority interest. For these purposes, FFO per
Common Share means FFO less preferred stock  dividends  (other than dividends on
convertible  preferred stock) divided by the outstanding weighted average shares
of Common Stock assuming  conversion of all outstanding  convertible  securities
and the Class B Common Stock.

     For these  purposes,  FFO per share of Common  Stock (as defined) was $1.86
for the year ended December 31, 1996.

     Equity Stock
     ------------
     The Company is authorized to issue 200,000,000  shares of Equity Stock. The
Articles of Incorporation  provide that the Equity Stock may be issued from time
to time in one or more series and gives the Board of Directors  broad  authority
to fix the dividend  and  distribution  rights,  conversion  and voting  rights,
redemption  provisions and liquidation rights of each series of Equity Stock. At
December 31, 1996, the Company had no outstanding shares of Equity Stock.

     Dividends
     ---------
     The  characterization  of dividends for Federal income tax purposes is made
based upon  earnings  and  profits of the  Company,  as defined by the  Internal
Revenue  Code.  Distributions  declared  by the  Board of  Directors  (including
distributions  to the holders of  preferred  stock) in 1996,  1995 and 1994 were
characterized as ordinary income.

     The following  summarizes  dividends paid during 1996,  1995 and 1994 (with
the exception of the Series G Preferred Stock  distributions  which were accrued
and unpaid at December 31, 1995):
<TABLE>
<CAPTION>


                                      1996                       1995                       1994
                            ----------------------      ----------------------     ----------------------- 
                            Per share       Total       Per share      Total       Per share        Total
                            ---------    ---------      ---------    ---------     ---------     ---------      
                                                  (in thousands, except per share data)
    <S>                      <C>        <C>             <C>          <C>             <C>          <C>     
    Series A                 $  2.500   $   4,563       $  2.500     $  4,563        $ 2.500      $  4,563
    Series B                 $  2.300       5,488       $  2.300        5,488        $ 2.300         5,340
    Series C                 $  1.840       2,212       $  1.970        2,364        $ 1.042         1,250
    Series D                 $  2.375       2,850       $  2.375        2,850        $ 0.792           950
    Series E                 $  2.500       5,488       $  2.292        5,030              -             -
    Series F                 $  2.437       5,606       $  1.618        3,721              -             -
    Series G                 $  2.219      15,479       $  0.092          638              -             -
    Series H                 $  1.978      13,348              -            -              -             -
    Series I                 $  0.359       1,438              -            -              -             -
    Convertible              $  2.063       4,679       $  2.063        4,744        $ 2.063         4,743
    Series CC                 $97.500       5,748              -            -              -             -
    Mandatory Convertible
      Participating           $54.487       1,700        $55.322        1,726              -             -
                                         ----------                   ---------                   ---------      
                                           68,599                      31,124                       16,846

    Common                     $0.880      67,709       $  0.880       38,586        $ 0.850        21,249
                                         ----------                   ---------                   ---------      
                                         $136,308                     $69,710                      $38,095
                                         ==========                   =========                   =========      

</TABLE>

     The dividend rate on the Series C Preferred Stock is adjusted quarterly and
is equal to the highest of one of three U.S.  Treasury  indices  (Treasury  Bill
Rate, Ten Year Constant  Maturity Rate, and Thirty Year Constant  Maturity Rate)
multiplied by 110%. However,  the dividend rate for any dividend period will not
be less than 6.75% per annum nor  greater  than 10.75% per annum.  The  dividend
rate with respect to the first quarter of 1997 will be equal to 7.26% per annum.

     The  Mandatory  Convertible  Participating  Preferred  Stock was  issued in
connection with the acquisition of all of the limited partnership interests in a
                                      F-20
<PAGE>

real estate limited partnership in 1995. Dividends with respect to the Mandatory
Convertible  Participating Preferred Stock varied depending on operating results
of the underlying real estate  facilities of the partnership.  During June 1996,
the Mandatory Convertible Participating Preferred Stock was exchanged for common
stock of the Company.

12.  Stock options
     -------------
     The Company has a 1990 Stock Option Plan (which was adopted by the Board of
Directors  in 1990 and approved by the  shareholders  in 1991) (the "1990 Plan")
which provides for the grant of non-qualified  stock options.  The Company has a
1994 Stock Option Plan (which was adopted by the Board of Directors and approved
by the  shareholders  in 1994)  (the "1994  Plan")  and a 1996 Stock  Option and
Incentive  Plan (which was adopted by the Board of Directors and approved by the
shareholders in 1996 (the "1996 Plan"),  each of which provides for the grant of
non-qualified options and incentive stock options. (The 1990 Plan, the 1994 Plan
and the 1996 Plan are collectively referred to as the "Plans"). Under the Plans,
the Company has granted non-qualified options to certain directors, officers and
key employees and service  providers to purchase shares of the Company's  common
stock at a price equal to the fair market  value of the common stock at the date
of grant. Generally,  options under the Plans vest over a three-year period from
the date of grant at the rate of  one-third  per year and  expire  (i) under the
1990 Plan, five years after the date they became  exercisable and (ii) under the
1994 Plan and 1996 Plan,  ten years after the date of grant.  The 1996 Plan also
provides  for the grant of  restricted  stock to  officers,  key  employees  and
service  providers on terms  determined  by the Audit  Committee of the Board of
Directors; no shares of restricted stock have been granted.

     Information with respect to the Plans during 1996 and 1995 is as follows:
<TABLE>
<CAPTION>

                                                                       1996                           1995
                                                            -------------------------        ----------------------
                                                                             Weighted        Weighted 
                                                               Number         Average         Number         Average
                                                                 of          Price per          of          Price per
                                                              Options          Share          Options         Share
                                                            -----------      ---------       ---------      ---------
<S>                                                           <C>              <C>            <C>             <C>   
 Options outstanding January 1                                693,667          $13.61         512,834         $11.88
   Granted                                                  1,183,000           21.39         227,500          16.48
   Exercised                                                 (100,663)          10.29         (46,667)          8.63
   Canceled                                                   (23,835)          16.02               -              -
                                                            -----------      ---------       ---------      ---------
 Options outstanding December 31                            1,752,169          $19.02         693,667         $13.61
                                                                             =========                     =========

                                                                $8.125                         $8.125
 Option price range at December 31                          to 25.875                       to $18.00

 Options exercisable at December 31                           367,947          $13.05         302,485         $10.89
                                                            ===========      =========       =========      =========
 Options available for grant at December 31                 3,497,835                          807,000
                                                            ===========                      =========               
</TABLE>

     In 1996, the Company adopted the disclosure  requirement  provision of SFAS
123 in  accounting  for  stock-based  compensation  issued to  employees.  As of
December  31,  1996  and  1995,   there  were  1,391,500  and  208,500   options
outstanding,   respectively,   that  were   subject   to  SFAS  123   disclosure
requirements. The fair value of these options was estimated utilizing prescribed
valuation  models and assumptions as of each respective grant date. Based on the
results of such  estimates,  management  determined  that there was no  material
effect on net income or earnings per share for the years ended December 31, 1996
and 1995. The remaining contractual lives were 8.6 and 7.2 years,  respectively,
at December 31, 1996 and 1995.

13.  Proposed mergers
     ----------------
     In December 1996, Public Storage Properties XIV, Inc. ("Properties 14") and
Public Storage  Properties XV, Inc.  ("Properties  15") each agreed,  subject to
certain  conditions,  to merge  with and into  the  Company.  Properties  14 and
Properties 15 are affiliated  publicly traded equity REITs.  Each of the mergers

                                      F-21
<PAGE>

is conditioned on approval by the respective  shareholders  of Properties 14 and
Properties  15.  However,  the mergers are not  conditioned  on approval of each
other.  The Company  expects that if approved by the  shareholders,  the mergers
would be completed in April 1997.

     The  estimated  value of the  Properties  14 and  Properties  15  merger is
approximately $63.8 million and $58.5 million,  respectively.  Properties 14 and
Properties  15  own 14  properties  (912,000  square  feet)  and  19  properties
(1,087,000 square feet), respectively.  The Company currently owns approximately
33% and  35% of the  economic  interest  in  Properties  14 and  Properties  15,
respectively.

14.  Restructuring of commercial properties operations
     -------------------------------------------------
     Effective January 2, 1997, the Company restructured its commercial property
operations  by forming a new private REIT that will  concentrate  its  investing
efforts in real estate  facilities  containing  commercial and industrial rental
space.  The Company's  majority  owned  subsidiary,  Public  Storage  Commercial
Properties Group, Inc. (which  subsequently  changed its name to American Office
Park Properties,  Inc.), its commercial  property  manager,  contributed all its
property  management  contracts  to a newly  created  operating  partnership  in
exchange for the general partnership interest.  The Company and the Consolidated
Partnerships contributed substantially all of their commercial properties to the
operating partnership in exchange for limited partnership interests. The limited
partnership  interests,  pursuant to the terms and  conditions  of the governing
documents,  are convertible  into shares of common stock of American Office Park
Properties,  Inc.  American  Office Park  Properties,  Inc.  intends to elect to
operate  as a REIT as  defined  in  Section  856 of the  Internal  Revenue  Code
effective January 1, 1997. The restructuring  will not immediately  impact total
assets, shareholders' equity, or the operations of the company.

     The  Company  believes  that the  concentration  of all the  business  park
facilities and the property  manager into one entity will create a vehicle which
should facilitate future growth in this segment of the real estate industry. The
Company and the  affiliates  exchanging  real estate assets to the new REIT will
participate in the growth through its ownership interest in the new REIT.


                                      F-22
<PAGE>

15. Supplementary quarterly financial data (unaudited)
<TABLE>
<CAPTION>

                                                            Three months ended
                                            -------------------------------------------------------------
                                            March 31,        June 30,       September 30,    December 31,
                                             1996             1996             1996             1996
                                            --------        ---------       -------------    ------------
                                                  (in thousands, except per share data)

<S>                                         <C>             <C>              <C>              <C>    
Revenues                                    $74,967         $83,133          $88,103          $94,919
                                            =======         =======          =======          =======

Net income                                   32,341          37,739           40,366           43,103
                                             ======          ======           ======           ======

Per Common Share (Note 2):

   Net income                               $   .24         $   .27          $   .30          $   .29
                                            =======         =======          =======          =======

                                                           Three months ended
                                            -------------------------------------------------------------
                                           March 31,        June 30,       September 30,    December 31,
                                             1995             1995             1995             1995
                                            --------        ---------       -------------    ---------
                                                  (in thousands, except per share data)
Revenues                                    $43,198         $47,912          $56,938          $64,602
                                            =======         =======          =======          =======

Net income                                  $13,200         $16,551          $19,470          $21,165
                                            =======         =======          =======          =======

Per Common Share (Note 2):

   Net income                              $   0.24        $   0.26         $   0.26         $   0.20
                                           ========        ========         ========         ========
</TABLE>

     Revenues  for each of the  three  month  periods  in 1996 and 1995  reflect
reclassification to conform with the fiscal 1996 presentation.  The three months
ended December 31, 1995 reflects the effect of the PSMI merger.

                                  F-23
<PAGE>
                              Public Storage, Inc.
          Exhibit 11 - Statement Re: Computation of Earnings Per Share

<TABLE>
<CAPTION>


                                                                                  For the Year Ended December 31,
                                                                      ----------------------------------------------------------
                                                                          1996                    1995                    1994
                                                                      -------------           -------------           -------------
                                                                           (amounts in thousands, except per share data)
PRIMARY EARNINGS PER SHARE:
---------------------------
<S>                                                                    <C>                      <C>                     <C>    
Net income                                                             $153,549                 $70,386                 $42,118

Less: Preferred Stock Dividends:
   10% Cumulative Preferred Stock, Series A                              (4,563)                 (4,563)                 (4,563)
   9.20% Cumulative Preferred Stock, Series B                            (5,488)                 (5,488)                 (5,339)
   Adjustable Rate Preferred Stock, Series C                             (2,212)                 (2,364)                 (1,250)
   9.50% Cumulative Preferred Stock, Series D                            (2,850)                 (2,850)                   (950)
   10.00% Cumulative Preferred Stock, Series E                           (5,488)                 (5,030)                      -
   9.50% Cumulative Preferred Stock, Series F                            (5,606)                 (3,721)                      -
   8-7/8% Cumulative Preferred Stock, Series G                          (15,479)                   (638)                      -
   8.45% Cumulative Preferred Stock, Series H                           (13,348)                      -                       -
   8-5/8% Cumulative Preferred Stock, Series I                           (1,438)                      -                       -
   8.25% Convertible Preferred Stock                                     (4,679)                 (4,744)                 (4,744)
   Mandatory Convertible Participating Preferred Stock                   (1,700)                 (1,726)                      -
   Mandatory Convertible Preferred Stock, Series CC                      (5,748)                      -                       -
                                                                      ----------          -------------            ------------

Net income allocable to common shareholders                             $84,950                 $39,262                 $25,272
                                                                        =======                 =======                 =======
Weighted Average common and common equivalent shares outstanding:

   Weighted average common shares outstanding                            77,117                  41,039                  23,978

   Net effect of dilutive stock options - based on treasury
     stock method using average market price                                241                     132                      98
                                                                      ---------                --------                --------

   Total                                                                 77,358                  41,171                  24,077
                                                                         ======                  ======                  ======

Primary earnings per common and common equivalent share                $  1.10                 $  0.95                 $  1.05
                                                                        =======                 =======                 =======
</TABLE>

                                   Exhibit-11
<PAGE>
<TABLE>
<CAPTION>


                                                                                          For the Year Ended December 31,
                                                                                  ----------------------------------------------
                                                                                     1996             1995             1994
                                                                                  -----------     -----------       ------------
                                                                                 (amounts in thousands, except per share data)
FULLY-DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
-------------------------------------------------------------
<S>                                                                                  <C>              <C>               <C>    
Net income allocable to common shareholders per Primary calculation above            $84,950          $39,262           $25,272
                                                                         
   Add: Dividends to 8.25% Convertible Preferred Stock                                 4,679            4,744             4,744
   Add: Dividends to Mandatory Convertible Participating Preferred Stock               1,700            1,726                 -
   Add: Dividends to Mandatory Convertible Preferred Stock, Series CC                  5,748                -                 -
                                                                                    --------     ------------      ------------

Net income allocable to common shareholders for purposes of determining
   Fully-diluted Earnings per Common and Common Equivalent Share                     $97,077          $45,732           $30,016
                                                                                     =======          =======           =======

Weighed average common and common equivalent shares outstanding                       77,358           41,171            24,077

    Pro forma weighted average common shares assuming conversion of 8.25%
      Convertible Preferred Stock at date of issuance (July 15, 1994)                  3,823            3,872             3,872

    Pro  forma  weighted  average  common  shares  assuming  conversion  of  the
      Mandatory Convertible Participating Preferred Stock at date of
      issuance (July 1, 1995)                                                            715              785                 -

    Pro  forma  weighted  average  common  shares  assuming  conversion  of  the
      Mandatory Convertible Preferred Stock, Series CC at date of issuance
      (April 1, 1996)                                                                  1,548                -                 -
                                                                                    ========     ============       ===========

Weighed average common and common  equivalent shares for purposes of computation
   of Fully-diluted Earnings per Common and Common Equivalent
   Share                                                                              83,444           45,828            27,949
                                                                                      ======           ======            ======
Fully-diluted Earnings per Common and Common
   Share (1)                                                                        $   1.16         $   1.00           $  1.07
                                                                                    ========         ========           =======
</TABLE>

(1)  Such  amounts are  anti-dilutive  and are not  presented  in the  Company's
     consolidated  financial statements.  The 8.25% Convertible Preferred Stock,
     the Mandatory Convertible  Participating  Preferred Stock and the Mandatory
     Convertible Preferred Stock, Series CC are individual anti-dilutive with an
     incremental   earnings  per  common  share  of  $1.22,   $2.38  and  $3.71,
     respectively, for 1996.

     In addition, the Company has 7,000,000 shares of Class B Common Stock which
     are  convertible  into shares of the Company's  Common Stock subject to the
     attainment of certain earnings milestone by the Company.  The assumption of
     such earnings and the pro forma conversion of the Class B Common Stock into
     Common Stock in the above  computations  would have resulted in an increase
     in the  fully-diluted  earnings  per  common  share,  and  accordingly,  is
     anti-dilutive.

                                   Exhibit-11
<PAGE>


                              PUBLIC STORAGE, INC.
               EXHIBIT 12 - STATEMENT RE: COMPUTATION OF RATIO OF
                            EARNINGS TO FIXED CHARGES

<TABLE>
<CAPTION>

                                                                   For the Year Ended December 31,
                                               ---------------------------------------------------------------------
                                                 1996            1995           1994           1993            1992
                                               --------        -------         -------        -------        -------
                                                                (Amounts in thousands, except ratios)

<S>                                            <C>             <C>             <C>            <C>            <C>    
Net income                                     $153,549        $70,386         $42,118        $28,036        $15,123
   Add: Minority interest in income               9,363          7,137           9,481          7,291          6,895
   Less: Gain on disposition of real estate          -              -               -              -           (398)
   Less: Minority interests in income
     which do not have fixed charges             (8,273)        (4,700)         (5,906)          (737)          (694)
                                               --------        -------         -------        -------        -------
Income from continuing operations               154,639         72,823          45,693         34,590         20,926
   Interest expense                               8,482          8,508           6,893          6,079          9,834
                                               --------        -------         -------        -------        -------
Total Earnings Available to Cover
  Fixed Charges                                $163,121        $81,331         $52,586        $40,669        $30,760
                                               ========        =======         =======        =======        =======

Total Fixed Charges - Interest expense          $10,343         $8,815          $6,893         $6,079         $9,834
                                               ========        =======         =======        =======        =======

Total Preferred Stock dividends                 $68,599        $31,124         $16,846        $10,889           $812
                                               ========        =======         =======        =======        =======
Total Combined Fixed Charges and
   Preferred Stock dividends                    $78,942        $39,939         $23,739        $16,968        $10,646
                                               ========        =======         =======        =======        =======

Ratio of Earnings to Fixed Charges                15.77           9.23            7.63           6.69           3.13
                                               ========        =======         =======        =======        =======
Ratio of Earnings to Combined Fixed
    Charges and Preferred Stock dividends          2.07           2.04            2.22           2.40           2.89
                                               ========        =======         =======        =======        =======
    

SUPPLEMENTAL  DISCLOSURE  OF RATIO OF FUNDS  
---------------------------------------------
  FROM  OPERATIONS  ("FFO")  TO FIXED
  -----------------------------------
     CHARGES:
     --------

FFO                                            $224,384       $105,086         $56,143        $35,830        $21,133
Interest expense                                  8,482          8,508           6,893          6,079          9,834
                                               --------        -------         -------        -------        -------
Adjusted FFO available to cover fixed charges  $232,866       $113,594         $63,036        $41,909        $30,967
                                               ========        =======         =======        =======        =======


Total Fixed Charges - Interest expense          $10,343         $8,815          $6,893         $6,079         $9,834
                                               ========        =======         =======        =======        =======

Total Preferred Stock dividends                 $68,599        $31,124         $16,846        $10,889           $812
                                               ========        =======         =======        =======        =======
Total Combined Fixed Charges and
   Preferred Stock dividends                    $78,942        $39,939         $23,739        $16,968        $10,646
                                               ========        =======         =======        =======        =======

Ratio of FFO to Fixed Charges                     22.51          12.88            9.15           6.89           3.15
                                               ========        =======         =======        =======        =======
Ratio of FFO to Combined Fixed
Charges and Preferred Stock dividends              2.95           2.84            2.66           2.47           2.91
                                               ========        =======         =======        =======        =======

</TABLE>

                                   Exhibit-12
<PAGE>




                         CONSENT OF INDEPENDENT AUDITORS



     We consent to the incorporation by reference in the Registration  Statement
on Form S-8 (No. 33-36004) of Public Storage,  Inc.,  formerly Storage Equities,
Inc.,  pertaining to the 1990 Stock Option Plan, the  Registration  Statement on
Form  S-8  (No.  33-55541)  pertaining  to  the  1994  Stock  Option  Plan,  the
Registration  Statement on Form S-8 (no. 333-13463) pertaining to the 1996 Stock
Option  and  Incentive  Plan,  the  Registration  Statements  on Form S-3  (Nos.
333-00965  and  333-18395)  and  in  the  related  prospectus  and  Registration
Statement on Form S-4 (No. 33-64971) and in the related prospectus of our report
dated February 25, 1997 with respect to the  consolidated  financial  statements
and  schedules of Public  Storage,  Inc. for the years ended  December 31, 1996,
1995 and 1994  included in the Annual Report (Form 10-K) for 1996 filed with the
Securities and Exchange Commission.




                                                           ERNST & YOUNG L L P
March 27, 1997
Los Angeles, California

                                   Exhibit-23