SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K
(Mark One)
[X]        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended      October 28, 1995
                               ______________________

                                       OR
[ ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to ________________
--------------------------------------------------------------------------------

Commission file number                   0-14900
                       _________________________________________________________

                                    PSS, Inc.
                    _______________________________________
             (Exact name of registrant as specified in its charter)

             Delaware                                           91-1335798
  ______________________________                              ________________
 (State or other jurisdiction of                            (I.R.S. Employer
  incorporation or organization)                             Identification No.)

     1511 Sixth Avenue, Seattle, WA                               98101
  ____________________________________                           ________
(Address of principal executive offices)                        (Zip Code)

(Registrant's telephone number, including area code)(206) 621-6938


________________________________________________________________________________
         Former name, former address and former fiscal year, if changed
                               since last report.

Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
  Common stock - $1.00 par value
  7-1/8% Convertible Debentures due July 15, 2006

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes    X      No  
                                         ---          ---
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 this
Form 10-K.       [X]

Aggregate market value of the registrant's voting stock held by nonaffiliates of
the registrant as of December 1, 1995: $270,000.

The  number of shares  of common  stock  outstanding  as of  October  28,  1995:
19,473,728.

Documents incorporated by reference:  None.

                                  Page 1 of 31

<PAGE>



                                     PART I

ITEM 1 - BUSINESS

PSS, Inc. ("PSS"),  through its wholly owned subsidiary,  PNS Inc. ("PNS"), owns
PSSC Inc. ("PSSC");  together, PSS, PNS and PSSC are referred to collectively as
the "Company".

The Company  owns  pass-through  and  participation  certificates  issued by the
Federal  Home  Loan  Mortgage  Corporation  backed  by whole  pool  real  estate
mortgages  ("Mortgage  Certificates"),  and as a result, is primarily engaged in
the  business  of owning  mortgages  and other  liens on and  interests  in real
estate.  At October 28,  1995,  the  Company's  principal  assets  consisted  of
approximately  $5.8 million of Mortgage  Certificates from which interest income
is earned.  The Mortgage  Certificates are financed with borrowings,  payable on
demand,  secured by the Mortgage  Certificates (the "Mortgage  Financing").  The
principal obligations of the Company are the Mortgage Financing borrowings,  the
PSS 7-1/8% Convertible Debentures due July 15, 2006 (the "Debentures"),  and the
PNS 12- 1/8% Senior  Subordinated  Notes due July 15, 1996 (the "Senior Notes"),
upon which interest expense is incurred.

From July 1986, when the Company was organized, until June 1988, subsidiaries of
PNS (the  "Sellers")  operated  retail stores that sold a variety of traditional
drugstore and general  merchandise items. In June 1988, pursuant to an Agreement
for the Purchase and Sale of Assets the Sellers sold  substantially all of their
assets, comprising the Sellers' entire retail operations, to Thrifty Corporation
(a subsidiary of Pacific Enterprises).  In consideration for such sale of assets
(the  "Asset  Sale"),  the  Sellers  received  5.2  million  shares  of  Pacific
Enterprises  common  stock (the "PET  Shares").  During 1990 through  1993,  the
Company sold its PET Shares for the purpose of servicing and  repurchasing  some
of the Debentures and Senior Notes.

ITEM 2 - PROPERTIES

As a result of the Asset Sale, the Company disposed of all its properties.

ITEM 3 - LEGAL PROCEEDINGS

In the opinion of management, there are no material legal proceedings pending to
which the Company is a party or of which any of its assets is the subject.

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

Not applicable.


                                        2

<PAGE>



                                     PART II

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

MARKET INFORMATION

The Company's common stock is traded  over-the-counter.  The high and low prices
for the  stock by  quarter  for the two years  ended  October  28,  1995 were as
follows:

<TABLE>
<CAPTION>

           Quarter ended                            High                Low
           -------------                            ----                ---
<S>                                                 <C>                 <C>
           January 29, 1994                         .03                 .01
           April 30, 1994                           .03                 .01
           July 30, 1994                            .02                 .01
           October 29, 1994                         .02                 .01
           January 27, 1995                         .02                 .01
           April 28, 1995                           .04                 .01
           July 28, 1995                            .04                 .01
           October 28, 1995                         .02                 .01

</TABLE>

The high and low prices for each  quarter  are the high and low bids as reported
by National Quotation Bureau, Incorporated, which are those quoted by dealers to
each other, exclusive of markups, markdowns or commissions, and do not represent
actual transactions.

HOLDERS

As of November 1, 1995, there were 940 holders of record of the Company's common
stock.

DIVIDENDS ON COMMON STOCK

The Company has never paid a dividend and does not anticipate  paying  dividends
for the foreseeable  future.  Any  determination  as to the payment of dividends
will depend upon future earnings,  results of operations,  capital requirements,
the  financial  condition of the Company and such other  factors as the Board of
Directors of the Company may consider.  The  indentures  governing the Company's
Senior Notes and Debentures  contain covenants which restrict the ability of the
Company to pay dividends (see Note 5 to the financial statements).



                                        3

<PAGE>



ITEM 6 - SELECTED FINANCIAL DATA

The following  selected  financial data should be read in  conjunction  with the
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations"  included elsewhere herein. As
explained in Note 2 to the financial statements, information relating to October
28,  1995 is  presented  on a  liquidation  basis,  which  reports  an excess of
liabilities over assets.  Presentation of per share information on a liquidation
basis is not considered meaningful and has been omitted.

<TABLE>
<CAPTION>

                                                                  Year ended
                                      __________________________________________________________________
                                      October 28,  October 29,   October 30,   October 31,   November 2,
                                         1995          1994          1993          1992          1991
                                        ______        ______        ______        ______        ______
                                                (thousands of dollars, except per share data)
<S>                                  <C>           <C>             <C>           <C>           <C>     
INCOME STATEMENT DATA:
Increase in net liabilities          $ (4,231)
Loss before extraordinary items (1)                 $ (2,141)      $ (1,161)     $(32,913)     $(78,358)
Net income (loss) (2)                                  9,568         47,454        27,665       (58,653)
Net income (loss) per common share                      0.49           2.44          1.42         (3.01)


BALANCE SHEET DATA:

Total assets                         $  5,927      $  11,383       $136,634      $217,489      $356,405
Total liabilities                      37,833
Short-term borrowings                   5,278         10,192        124,062       171,089       239,096
Long-term debt                                        28,159         48,144       126,634       235,248
Stockholders' deficit                                (27,675)       (37,243)      (84,697)     (128,048)
Net liabilities                       (31,906)

</TABLE>

(1)  Includes net realized and unrealized losses on Pacific  Enterprises  common
     stock of  approximately  $37 million and $68 million during the years ended
     October 31, 1992 and November 2, 1991, respectively.

(2)  Includes pre-tax  extraordinary  gains on early  extinguishment  of debt of
     approximately $13 million,  $49 million, $77 million and $20 million during
     the years ended October 29, 1994,  October 30, 1993,  October 31, 1992, and
     November 2, 1991, respectively.



                                        4

<PAGE>



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

LIQUIDITY AND CAPITAL RESOURCES

At October 28, 1995, the Company's  principal  assets consisted of approximately
$5.8 million of Mortgage  Certificates  from which interest income is earned and
its principal obligations consisted of Mortgage Financing borrowings, Debentures
and Senior Notes upon which interest expense is incurred.

PNS is restricted by terms of its Senior Notes  Indenture from paying  dividends
or making  other  payments to PSS,  except that PNS may pay  dividends to PSS in
amounts  sufficient to enable PSS to meet its obligation on its Debentures  when
due. PNS, like its parent company, has a stockholder's deficit.

At October 28, 1995,  the Company had  tangible  assets of  approximately  $5.92
million and liabilities  secured by such assets of approximately  $5.37 million,
thus having a net difference of approximately  $550,000 available for holders of
Senior Notes and Debentures. At October 28, 1995, approximately $5.26 million of
Senior Notes and $22.92  million of  Debentures  remain  outstanding  and annual
interest  thereon,  in  the  absence  of  additional  repurchases,  approximates
$638,000 and $1.63 million, respectively.

The Company failed to pay the interest due January 15, 1995 and July 15, 1995 on
its  Convertible  Debentures  and such default has  continued  beyond the 30 day
"grace"  period.  However,  the  trustee  for  the  Convertible  Debentures  has
indicated to the holders of the Debentures that it does not intend to accelerate
payment of the  Debentures  "because it is unlikely that the  Debenture  holders
would receive any payment if the Debentures were accelerated."

Although the  Company's  subsidiary,  PNS,  paid the interest due on January 15,
1995 on its Senior Notes within the 30 day "grace" period, it failed to make the
interest  payment due on July 15, 1995 and such default has continued beyond the
30 day "grace" period.  Claiming that PNS is in default because it is "unable to
pay its debts as the same  become  due" and due to its  failure to make the July
15, 1995 interest payment,  the trustee for the Senior Notes has accelerated and
declared the  principal  and interest on the Senior  Notes  immediately  due and
payable.  The trustee has since been advised by a representative  of the holders
of a  substantial  portion of the  Senior  Notes  that such  holders  are in the
process of developing a proposal to reorganize the Company and PNS and has asked
the  trustee to forbear  from taking any action for so long as  discussions  are
pending with the Company.  Although the Company has not yet received a proposal,
it has been contacted by the representative of such holders and anticipates that
such a proposal will be  forthcoming.  In the interim,  the trustee has taken no
legal action with respect to the default.

                                        5

<PAGE>




The  Company's  future  operating  results,  liquidity,  capital  resources  and
requirements  are  primarily  dependent  upon actions  which may be taken by the
trustees  for the  Senior  Notes  and the  Debentures  to  collect  amounts  due
thereunder,  the payment of amounts  due on and  purchases  of Senior  Notes and
Debentures and, to a lesser extent, interest rate fluctuations as they relate to
the market value of Mortgage  Certificates  and to the spread of interest income
therefrom  over  interest  expense  on  related   borrowings.   The  Company  is
exclusively invested in Mortgage  Certificates,  and, accordingly,  is presently
relying solely on such as its source of cash funds.  It has not been  determined
what  course of action the  Company  may  pursue  with  respect to debt  service
on Senior Notes and Debentures.


RESULTS OF OPERATIONS

           INTEREST INCOME

Interest  income for each of the years ended October 28, 1995,  October 29, 1994
and October 30, 1993 decreased as compared to the immediate  preceding year as a
result of lower balances of investments  in Mortgage  Certificates,  and for the
years ended October 29, 1994 and October 30, 1993 lower annual  interest  income
rates  earned  on  the  adjustable  rate  Mortgage  Certificates.   Included  in
investment income for the year ended October 28, 1995 is approximately  $100,000
of unrealized  gains  resulting from  mark-to-market  adjustments.  The weighted
average  interest  income  rate  earned  on the  Mortgage  Certificates,  net of
amortization  of  premiums,  approximated  7.3%,  5.0% and 5.8% during the years
ended October 28, 1995, October 29, 1994 and October 30, 1993, respectively.

           INTEREST EXPENSE

Interest expense for each of the years ended October 28, 1995,  October 29, 1994
and October 30, 1993  decreased  as  compared to the  immediate  preceding  year
primarily  due  to  lower  investments  in  Mortgage  Certificates  and  related
borrowings  upon  which  interest  expense is  incurred.  The  weighted  average
interest expense rate on Mortgage  Certificate  related borrowings  approximated
6.0%,  3.9% and 3.4% during the years ended  October 28, 1995,  October 29, 1994
and October 30, 1993, respectively.  Interest expense also decreased during each
of the years ended  October 28,  1995,  October 29, 1994 and October 30, 1993 as
compared to the preceding year as a result of having fewer Debentures and Senior
Notes outstanding due to bond repurchases.

           REALIZED AND UNREALIZED LOSS

During the year ended  October 30, 1993,  the Company  disposed of its remaining
PET Shares and recorded a realized loss of approximately

                                        6

<PAGE>



$40 million and a decrease in  unrealized  loss of  approximately  $42  million,
representing  the  previously  recognized  unrealized  loss for PET Shares  sold
during the year.

           WRITE OFF OF DEFERRED FINANCING COSTS AND ORIGINAL ISSUE
           DISCOUNT

As a result of the continued  default due to the  non-payment of interest on the
Convertible  Debentures  and Senior  Notes,  the Company has expensed  remaining
deferred financing costs and original issue discount.

           EXTRAORDINARY ITEMS

During the year ended October 29, 1994, the Company purchased  approximately $14
million and $6 million of its Senior Notes and Debentures,  respectively, and as
a result,  after the write-off of related deferred financing costs,  recorded an
extraordinary  gain on early  extinguishment  of debt,  before income taxes,  of
approximately $13 million.

During the year ended October 30, 1993, the Company purchased  approximately $65
million and $14 million of its Senior Notes and Debentures, respectively, and as
a result,  after the write-off of related deferred financing costs,  recorded an
extraordinary  gain on early  extinguishment  of debt,  before income taxes,  of
approximately $49 million.



                                        7

<PAGE>



ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

    FINANCIAL STATEMENTS                                                    Page

    Report of Independent Accountants                                          9
    Consolidated Statement of Net Liabilities
    (Liquidation Basis)                                                       10
    Consolidated Balance Sheet (Going Concern Basis)                          10
    Consolidated Statement of Change in Net Liabilities
    (Liquidation Basis)                                                       11
    Consolidated Statements of Operations
    (Going Concern Basis)                                                     11
    Consolidated Statements of Cash Flows                                     12
    Notes to Financial Statements                                             13

    FINANCIAL STATEMENT SCHEDULES

    Financial statement schedule information is presented in the
    financial statements.

SUPPLEMENTARY FINANCIAL INFORMATION

    SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)                             21


                                        8

<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders 
of PSS, Inc.:


We have audited the  consolidated  balance  sheet of PSS, Inc. as of October 29,
1994, the related consolidated statements of operations, and cash flows for each
of the two years in the period  ended  October 29, 1994.  In  addition,  we have
audited the consolidated statement of net liabilities  (liquidation basis) as of
October 28,  1995,  and the  related  consolidated  statement  of changes in net
liabilities  (liquidation  basis)  and cash  flows  (liquidation  basis) for the
period from October 30, 1994 to October 28, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As described in Note 2 to the financial  statements,  effective October 28, 1995
the Company  adopted the  liquidation  basis of accounting  for  presenting  its
consolidated  financial  statements.  As a result,  the  Company has changed its
basis of  accounting  for periods  subsequent to October 29, 1994 from the going
concern basis to a liquidation basis.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of PSS, Inc. and its subsidiaries
as of October 29, 1994, the results of their operations and their cash flows for
each of the two years then ended and their net  liabilities in liquidation as of
October 28, 1995, and the changes in their net liabilities  (liquidation  basis)
and cash flows  (liquidation  basis) for the period  from  October  30,  1994 to
October 28, 1995, in conformity with generally  accepted  accounting  principles
applied on the basis described in the preceding paragraph.

PRICE WATERHOUSE LLP


/s/ Price Waterhouse LLP

Seattle, Washington
January 25, 1996

                                        9

<PAGE>

<TABLE>
<CAPTION>


                                    PSS, INC.
          Consolidated Statement of Net Liabilities (Liquidation Basis)
                Consolidated Balance Sheet (Going Concern Basis)
                             (thousands of dollars)

                                          October 28,     October 29,
                                             1995            1994
                                          -----------     -----------
                                         (Liquidation   (Going Concern
                                             Basis)          Basis)

<S>                                       <C>           <C>      
Assets:
  Cash and short-term investments         $     11      $      45
  Investment in mortgage certificates        5,840         10,892
  Accrued interest receivable                   76            112
  Deferred financing costs                                    334
                                           -------        -------

Total assets                                 5,927       $ 11,383
                                           =======        =======

Liabilities:
  Borrowings under mortgage certificate
   financing agreement                       5,278       $ 10,192
  Accounts payable and accrued liabilities      92             41
  Reserve for estimated costs during
   period of liquidation                        50
  PNS 12-1/8% senior notes                   5,258          5,258
  Original issue discount on PNS notes                        (19)
  Interest payable on PNS notes                504            187
  Reserve for interest on PNS notes during
   period of liquidation                       456
  PSS 7-1/8% debentures                     22,920         22,920
  Interest payable on PSS debentures         2,107            479
  Reserve for interest on PSS debentures
   during period of liquidation              1,168
                                           -------        -------

Total liabilities                           37,833         39,058
                                           -------        -------

Net Liabilities                           $(31,906)
                                          ========
Stockholders' Deficit:
  Preferred stock, $1 par value, authorized
   10 million shares; none issued
  Common stock, $1 par value, authorized
   60 million shares; issued and
   outstanding 19,473,728                                  19,474
  Additional paid-in capital                              149,110
  Accumulated deficit                                    (196,259)
                                                         --------
Total Stockholders' Deficit                               (27,675)
                                                         --------
Total Liabilities and Stockholders Deficit               $ 11,383
                                                          =======

</TABLE>


                   The accompanying notes are an integral part
                         of these financial statements.

                                       10

<PAGE>


<TABLE>
<CAPTION>

                                    PSS, INC.
              Consolidated Statement of Changes in Net Liabilities
                               (Liquidation Basis)
           Consolidated Statements of Operations (Going Concern Basis)
                  (thousands of dollars except per share data)

                                               Year ended
                                   -----------------------------------------
                                    October 28,   October 29,   October 30,
                                       1995        1994            1993
                                      ------      ------          ------
                                  (Liquidation     (Going Concern Basis)
                                     Basis)

<S>                                <C>          <C>            <C>     
Investment income                  $      582   $  4,804       $  9,073
Interest expense                       (2,765)    (7,841)       (12,076)
Realized loss on sale of Pacific
 Enterprises common stock                                       (40,209)
Decrease in unrealized loss on
 Pacific Enterprises common stock                                41,836
Write off of deferred financing
 costs and original issue discount       (226)
General and administrative expense       (148)      (207)          (383)
                                      -------     ------        -------

Loss from operations before income
 taxes and extraordinary items         (2,557)    (3,244)        (1,759)
Estimated costs and interest during
 period of liquidation                 (1,674)
                                      -------     ------        -------
Increase in Net Liabilities           $(4,231)
                                      =======
Loss before income taxes and
 extraordinary items                              (3,244)        (1,759)
Income tax benefit                                 1,103            598
                                                 -------        -------

Loss before extraordinary items                   (2,141)        (1,161)

Extraordinary items:
  Gain on early extinguishment of
   debt, net of income taxes of
   $4,356 and $16,732, respectively                8,456         32,481
  Tax benefit resulting from
   utilization of net operating
   loss carryforwards                              3,253         16,134
                                                 -------        -------

Net income                                      $  9,568       $ 47,454
                                                 =======        =======

Loss per common share before
 extraordinary items                            $  (0.11)      $  (0.06)
                                                 =======        =======

Net income per common share                     $   0.49       $   2.44
                                                 =======        =======

</TABLE>



                   The accompanying notes are an integral part
                         of these financial statements.

                                       11

<PAGE>



                                    PSS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (thousands of dollars)
<TABLE>
<CAPTION>

                                                                                            Year ended
                                                                     ---------------------------------------------------------
                                                                       October 28,          October 29,          October 30,
                                                                          1995                 1994                 1993
                                                                       ----------           -----------          -----------
                                                                     (Liquidation                 (Going Concern Basis)
                                                                         Basis)
<S>                                                                      <C>                  <C>                  <C>     
Cash flows from operating activities:
  Increase in Net Liabilities                                         $ ( 4,231)
  Net income                                                                                  $  9,568             $ 47,454
  Adjustments to reconcile to net cash flows
   from operating activities:
    Extraordinary gain on early extinguishment of debt                                         (12,812)             (49,213)
    Net realized and unrealized loss on Pacific Enterprises
     common stock                                                                                                    (1,627)
    Amortization                                                            127                    963                1,088
    Write off of deferred financing
     costs and original issue discount                                      226
    Increase in estimated costs and interest during
     period of liquidation                                                1,674
    Decrease in accrued interest receivable                                  36                  1,240                  672
    Increase (decrease) in accrued interest payable                       1,945                   (754)              (2,728)
    Other                                                                   (49)                  (208)                (458)
                                                                      ---------               --------            ---------

     Net cash used by operating activities                                 (272)                (2,003)              (4,812)
                                                                      ---------               --------            ---------

Cash flows from investing activities:
  Proceeds from sale of mortgage certificates                               726                 98,653              13,220
  Principal repayments on mortgage certificates                           4,426                 23,664              33,995
  Proceeds from sale of Pacific Enterprises
   common stock                                                                                                     21,893
                                                                      ---------               --------            ---------
     Net cash provided by investing activities                            5,152                122,317              69,108
                                                                      ---------               --------            --------

Cash flows from financing activities:
  Repayment of borrowings under mortgage
   certificates financing agreement                                      (4,914)              (113,870)            (47,027)
  Repurchases of long-term debt                                                                 (6,971)            (18,568)
                                                                      ---------               --------            --------

     Net cash used by financing activities                               (4,914)              (120,841)            (65,595)
                                                                      ---------               --------            --------

Net decrease in cash and short-term investments                             (34)                  (527)             (1,299)

Cash and short-term investments at
 beginning of year                                                           45                    572               1,871
                                                                      ---------               --------            --------

Cash and short-term investments at
 end of year                                                          $      11               $     45            $    572
                                                                       ========               ========            ========

</TABLE>






                   The accompanying notes are an integral part
                         of these financial statements.

                                       12

<PAGE>



                                    PSS, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY

The consolidated financial statements of PSS, Inc. ("PSS"),  includes its direct
subsidiary  PNS  Inc.   ("PNS")  and  its  subsidiary   PSSC,   Inc.   ("PSSC"),
collectively,  the "Company".  The Company is principally owned by Seacorp, Inc.
("Seacorp") and Zimmerman  Retailing Group Limited ("Zimco").  Seacorp and Zimco
own approximately 41% and 38%, respectively, of the Company's outstanding common
stock, with the remainder publicly owned.

The Company,  through PSSC, owns  pass-through  and  participation  certificates
issued by the Federal Home Loan Mortgage  Corporation  backed by whole pool real
estate  mortgages  ("Mortgage  Certificates"),  and as a  result,  is  primarily
engaged in the business of owning  mortgages and other liens on and interests in
real  estate.  The  principal  obligations  of the Company  are PSSC  borrowings
secured by Mortgage Certificates, PNS 12-1/8% Senior Subordinated Notes due July
15, 1996 (the "Senior Notes") and PSS 7-1/8% Convertible Debentures due July 15,
2006 (the "Debentures").

The Company failed to pay the interest due January 15, 1995 and July 15, 1995 on
its Debentures and such default has continued  beyond the 30 day "grace" period.
The Company has also  failed to make the  January  15,  1996  interest  payment.
However,  the trustee for the  Debentures  has  indicated  to the holders of the
Debentures  that it does not  intend to  accelerate  payment  of the  Debentures
"because it is unlikely that the Debenture  holders would receive any payment if
the Debentures were accelerated."

Although  PNS paid the  interest  due on January  15,  1995 on its Senior  Notes
within the 30 day "grace" period,  it failed to make the interest payment due on
July 15, 1995 and such default has continued  beyond the 30 day "grace"  period.
The Company has also  failed to make the  January  15,  1996  interest  payment.
Claiming  that PNS is in  default  because it is "unable to pay its debts as the
same  become  due" and due to its  failure  to make the July 15,  1995  interest
payment,  the trustee for the Senior  Notes has  accelerated  and  declared  the
principal  and interest on the Senior  Notes  immediately  due and payable.  The
trustee  has  since  been  advised  by a  representative  of  the  holders  of a
substantial  portion of the Senior Notes that such holders are in the process of
developing  a  proposal  to the  Company  and PNS and has asked the  trustee  to
forbear from taking any action for so long as  discussions  are pending with the
Company.  Although  the  Company has not yet  received a  proposal,  it has been
contacted  by the  representative  of such holders and  anticipates  that such a
proposal  will be  forthcoming.  In the interim,  the trustee has taken no legal
action with respect to the default.

                                       13

<PAGE>



NOTE 1 - THE COMPANY (continued)

At October 28, 1995,  the Company had  tangible  assets of  approximately  $5.92
million and liabilities  secured by such assets of approximately  $5.37 million,
thus having a net difference of approximately  $550,000 available for holders of
Senior Notes and Debentures. At October 28, 1995, approximately $5.26 million of
Senior Notes and $22.92 million of Debentures  remain  outstanding  and,  annual
interest  thereon,  in  the  absence  of  additional  repurchases,  approximates
$638,000  and  $1.63  million,  respectively.  The  Company's  future  operating
results,  liquidity,  capital resources and requirements are primarily dependent
upon  actions  which may be taken by the  trustees  for the Senior Notes and the
Debentures to collect amounts due thereunder,  the payment of amounts due on and
purchases of Senior Notes and Debentures and, to a lesser extent,  interest rate
fluctuations as they relate to the market value of Mortgage  Certificates and to
the  spread of  interest  income  therefrom  over  interest  expense  on related
borrowings.  The Company is exclusively invested in Mortgage Certificates,  and,
accordingly, is presently relying solely on such as its source of cash funds. It
has not been  determined  what  course of action the  Company  may  pursue  with
respect to debt service on the Senior Notes and Debentures.




NOTE 2 - LIQUIDATION BASIS OF ACCOUNTING

The consolidated  financial statements for fiscal 1994 and 1993 were prepared on
a going concern basis of accounting which contemplates realization of assets and
satisfaction of liabilities in the normal course of business.  Effective October
28,  1995,  the  Company has adopted the  liquidation  basis of  accounting  for
presenting its consolidated  financial  statements.  This basis of accounting is
considered  appropriate  when,  among  other  things,  liquidation  of a company
appears  imminent  and  the  net  realizable  value  of  assets  are  reasonably
determinable.  Under this basis of accounting, assets and liabilities are stated
at their net realizable  value and estimated costs through the liquidation  date
are provided to the extent reasonably determinable.

The net effect of converting  from the going  concern  basis to the  liquidation
basis of accounting  was an increase in net  liabilities of  approximately  $1.7
million,  as a result of recording  estimated costs and interest  expense to the
liquidation  date. No  adjustment to the reported  value of assets was required.
Under the  liquidation  basis,  the Company has accrued future  liabilities  and
estimated  future net revenues  from  interest or other income  associated  with
mortgage certificates.



                                       14

<PAGE>



NOTE 2 - LIQUIDATION BASIS OF ACCOUNTING (CONTINUED)

The  conversion  from the going concern to  liquidation  basis of accounting has
required the determination of significant estimates and judgments.  A summary of
significant  estimates and judgments  utilized in preparation of the October 28,
1995 consolidated financial statements on a liquidation basis follows:

           *         The  Senior Notes July 15, 1996  due date has been utilized
                     as the liquidation date.

           *         Mortgage Certificates and related interest  receivable  are
                     stated at estimated market value.

           *         Borrowings  secured  by Mortgage Certificates are stated at
                     face value.

           *         The  reserve  for  estimated  costs  during  the  period of
                     liquidation  represents estimates of costs (primarily legal
                     and  trustee  fees)  to be  incurred  in the  future to the
                     liquidation date.

           *         Net  estimated  interest  income to be  earned on  Mortgage
                     Certificates  in  excess of  interest  expense  on  related
                     borrowings  is  considered  in  determining the reserve for
                     estimated  costs during the period of liquidation.

           *         Senior Notes and  Debentures and related  interest  accrued
                     through October 28, 1995 are stated at face value.

           *         The reserve for interest  during the period of  liquidation
                     represents  interest on Senior Notes and Debentures for the
                     period from October 29, 1995 to July 15, 1996.

All of the above  estimates  and judgments may be subject to change as facts and
circumstances   change.   Similarly,   actual  costs  and  expenses  may  differ
significantly  depending on a number of factors,  particularly the length of the
liquidation period.

                                       15

<PAGE>



NOTE 3 - SUMMARY OF ACCOUNTING PRINCIPLES

CASH AND SHORT-TERM INVESTMENTS

Cash and short-term investments,  having maturities of three months or less when
purchased, are primarily comprised of interest-bearing short-term bank deposits.

INVESTMENT IN MORTGAGE CERTIFICATES

The  investment in Mortgage  Certificates  is recorded at estimated  fair value,
based upon market prices  obtained from  traders.  Gains and losses  realized on
sale are determined utilizing the specific  identification method. Premiums paid
are amortized utilizing the interest method. Gains and losses realized upon sale
of  Mortgage  Certificates  and  unrealized  gains  and  losses  resulting  from
mark-to-market adjustments are included in investment income.

INCOME (LOSS) PER COMMON SHARE

As explained in Note 2,  effective  October 28,  1995,  the Company  adopted the
liquidation  basis of accounting,  which reports an excess of  liabilities  over
assets.  Accordingly,  the  presentation  of per common share  information  on a
liquidation basis is not considered meaningful and has been omitted.

Income  (loss) per common share data for periods  prior to October 28, 1995 have
been computed on the basis of  19,473,728  shares  outstanding.  For purposes of
calculating  income  (loss) per common share,  the  conversion of the PSS 7-1/8%
Convertible Debentures would be antidilutive and thus was not assumed.

RECLASSIFICATIONS

Certain reclassifications have been made in prior years' financial statements.


                                       16

<PAGE>



NOTE 4 - INVESTMENT IN MORTGAGE CERTIFICATES

Mortgage  Certificates  are financed with  borrowings  provided by an investment
bank pursuant to a letter  agreement  (the  "Financing  Agreement").  Borrowings
pursuant to the Financing  Agreement (the "Mortgage  Financing")  are secured by
the Mortgage  Certificates.  In the event of a decrease in the aggregate  market
value of the  Mortgage  Certificates  below the  requirements  of the  Financing
Agreement,  additional  collateral is required.  Principal and interest payments
received on Mortgage  Certificates are maintained in an interest earning account
and are  released to the  Company,  at its  request,  after all interest and any
"mark-to-market" indebtedness then due have been paid. The Mortgage Financing is
payable on demand and generally bears interest at rates approximating LIBOR plus
10 basis  points.  Mortgage  Financing  borrowings  and related  interest  rates
approximated  $5.3 million and 6.0% at October 28, 1995 and $10 million and 5.1%
at October 29,  1994,  respectively.  During the years ended  October 28,  1995,
October 29, 1994 and October 30, 1993, the average  balance of mortgage  related
borrowings  outstanding  approximated $5 million,  $91 million and $143 million,
and the weighted annual average interest expense rates  approximated 6.0%, 3.9%,
and 3.4%, respectively.

At October  28,  1995,  the  average  annual  interest  rate to be earned on the
Mortgage  Certificates  approximated 8.0% as determined on a basis that interest
rates do not  change.  The rate of  interest  on the  Mortgage  Certificates  is
adjustable  based  on  general  interest  rate  trends  with  certain  maximums,
including  limits of 2% for annual  interest  rate  changes  and  interest  rate
maximums of approximately 13%. The weighted average interest income rates earned
on the Mortgage  Certificates,  net of  amortization  of premiums,  approximated
7.4%,  5.0% and 5.8% during the years ended  October 28, 1995,  October 29, 1994
and October 30, 1993, respectively.

The  Company  sold  approximately  $1  million,  $99  million and $13 million of
Mortgage  Certificates during the years ended October 28, 1995, October 29, 1994
and October 30, 1993, respectively.


                                       17

<PAGE>



NOTE 5 - SUBORDINATED DEBT

Subordinated  debt and related  interest payable through the balance sheet dates
are summarized as follows (thousands of dollars):

<TABLE>
                                          October 28,  October 29,
                                             1995         1994
                                            ------       ------
<S>                                       <C>          <C>     
PNS 12-1/8% Senior Notes                  $  5,258     $  5,258
Interest payable on Senior Notes               504          187
                                           -------      -------
                                          $  5,762     $  5,445
                                           =======      =======

PSS 7-1/8% Debentures                     $ 22,920     $ 22,920
Interest payable on Debentures               2,107          479
                                           -------      -------
                                          $ 25,027     $ 23,399
                                           =======      =======

</TABLE>


In July 1986,  the Company  completed  three public  securities  offerings  (the
"Public  Offerings").  PNS issued  $150  million of Senior  Notes (at a price of
98.6%) and PSS sold 3.25  million  shares of its common  stock and issued at par
$150 million of Debentures  convertible  to PSS common stock at $19.68 per share
(the  conversion  price is subject to adjustment in the case of dilution).  Debt
financing  costs and the discount on the Senior Notes have been  amortized  over
the term of the borrowings. PSS invested the net proceeds from its two offerings
in PNS, in the form of a contribution to capital and an  intercompany  debenture
between PNS and PSS (the "Intercompany Debenture") in the amount of $150 million
with  substantially  the same  interest  rate and  redemption  provisions as the
Debentures.  At October 28, 1995, the  Intercompany  Debenture  approximated  $9
million.

As  explained  in Note 1, the  Company is in default due to the  non-payment  of
interest on the Senior Notes and Debentures.  As a result, during the year ended
October 28, 1995 the Company  expensed  remaining  deferred  financing costs and
original issue discount.

The indenture  governing  the Senior Notes  restricts the ability of PNS and its
subsidiaries  to pay  dividends or make other  payments to PSS. The Senior Notes
indenture  permits PNS to pay  dividends to PSS in amounts  sufficient to enable
PSS to meet its  obligations on the Debentures  when due (to the extent payments
are not made to PSS when due pursuant to the Intercompany  Debenture),  provided
that no event of default (as defined in the Senior Notes indenture) has occurred
and is continuing. PNS, like its parent company, has a stockholder's deficit.

The Senior Notes and Debentures provide for semiannual interest payments and are
unsecured.  Principal  repayment  on the Senior Notes is due in full on July 15,
1996. The Debentures  require annual  principal  payments of  approximately  $11
million commencing July 15, 1996 until July 15, 2006 when the balance is due; by
utilizing Debentures which the Company has previously acquired, there will be no
scheduled maturity payments required before 2006.

                                       18

<PAGE>



NOTE 5 - SUBORDINATED DEBT (continued)

The indentures for the Senior Notes and Debentures  contain certain  restrictive
covenants which, among other things,  limit dividends and similar  distributions
to   stockholders,   redemptions  and  retirements  of  the  Company's   equity,
essentially  prohibiting  such  transactions  as of October 28, 1995,  limit the
Company's  ability to incur debt,  and  restrict  action and  agreements  by the
Company that would prohibit  dividends and similar  distributions to the Company
from  its  subsidiaries,  and  under  certain  conditions,  require  accelerated
redemption payments.

During the year ended October 29, 1994, the Company purchased  approximately $14
million of Senior Notes and $6 million of Debentures and, as a result, after the
write-off of related deferred financing costs, recorded an extraordinary gain on
early extinguishment of debt of approximately $13 million.

During the year ended October 30, 1993, the Company purchased  approximately $64
million of Senior  Notes and $14 million of  Debentures  in exchange for 500,000
PET Shares and  approximately  $23  million  cash (such  total  price  including
accrued  interest),  and as a result,  after the  write-off of related  deferred
financing costs,  recorded an extraordinary gain on early extinguishment of debt
of approximately $49 million.

Interest paid approximated $319,000, $8 million and $14 million during the years
ended October 28, 1995, October 29, 1994 and October 30, 1993, respectively.


NOTE 6 - INVESTMENT IN PACIFIC ENTERPRISES COMMON STOCK

In June 1988,  pursuant to an  Agreement  for the  Purchase  and Sale of Assets,
subsidiaries  of PNS (the  "Sellers")  sold  substantially  all of their assets,
comprising the Sellers' entire retail  operations,  to Pacific  Enterprises.  In
consideration  for the sale of such assets,  the Sellers received  approximately
5.2 million shares of Pacific Enterprises common stock (the "PET Shares").

During the year ended  October 30, 1993,  the Company  disposed of its remaining
PET Shares and  recorded a realized  loss of  approximately  $40  million  and a
decrease in  unrealized  loss of  approximately  $42 million,  representing  the
previously recognized unrealized loss for PET Shares sold during the year.

NOTE 7 - RELATIONSHIP WITH AFFILIATES

Prior  to  fiscal  1995,   affiliates  of  Seacorp  provided  the  Company  with
accounting,  legal,  tax and  other  services.  Fees for  services  approximated
$56,000 and $167,000 for the years ended  October 29, 1994 and October 30, 1993,
respectively.

                                       19

<PAGE>




NOTE 8 - INCOME TAXES

Due to  losses  reported  for the year  ended  October  28,  1995,  there was no
provision for income taxes recorded.  During each of the years ended October 29,
1994 and October 30,  1993,  the Company  recognized  an income tax benefit as a
result  of  income   taxes   provided  on  the   extraordinary   gain  on  early
extinguishment  of debt.  The Company also recorded a provision for income taxes
representing  a charge in lieu of income taxes that would have been  provided in
the  absence  of net  operating  loss  carryforwards.  The  income  tax  benefit
resulting from  utilization of net operating loss  carryforwards is presented as
an extraordinary item.

For income tax purposes, net operating loss carryforwards, which begin to expire
in 2001,  approximate $137 million,  and capital loss carryforwards  approximate
$120  million,  $115  million  of which  expire  in 1997 and  1998.  If  certain
substantial  changes in the Company's  ownership should occur, there would be an
annual limitation on the amount of the carryforwards which could be utilized.

NOTE 9 - STOCKHOLDERS' DEFICIT

There have been no changes in common stock or  additional  paid in capital since
October  29,  1994.  As a  result  of  presenting  October  28,  1995  financial
statements on the  liquidation  basis,  changes in  components of  stockholders'
deficit are not presented.  The Company's  stockholders' deficit and the changes
therein  during the two years ended October 29, 1994,  are summarized as follows
(thousands of dollars):

<TABLE>
<CAPTION>

                                                                                       Total
                                                        Additional                     Stock-
                                             Common       Paid-in     Accumulated      holders'
                                              Stock       Capital       Deficit        Deficit
                                             -------      -------       --------       -------
<S>                                         <C>          <C>           <C>            <C>      
Balances at October 31, 1992                $ 19,474     $149,110      $(253,281)     $(84,697)
Net income                                                                47,454        47,454
                                             -------      -------       --------       -------

Balances at October 30, 1993                  19,474      149,110       (205,827)      (37,243)
Net income                                                                 9,568         9,568
                                             -------      -------       --------       -------

Balances at October 29, 1994                $ 19,474     $149,110      $(196,259)     $(27,675)
                                             =======      =======       ========       =======

</TABLE>


                                       20

<PAGE>



NOTE 10 - Selected Quarterly Financial Data (Unaudited)

Selected quarterly  financial data are as follows (thousands of dollars,  except
per share data):

<TABLE>
<CAPTION>

                                                                  Fiscal quarters ended
                                                    ------------------------------------------------
                                                    October 28,   July 29,    April 29,  January 28,
                                                       1995         1995        1995        1995
                                                    -----------   ---------   --------   ---------
<S>                                                <C>           <C>        <C>         <C>      
Loss from operations before income taxes and
 extraordinary items                               $   (513)     $   (556)  $   (862)   $   (626)
Estimated costs and interest during
 period of liquidation                               (1,674)
Increase in net liabilities                          (2,187)
Net loss                                                             (556)      (862)       (626)
Loss before extraordinary items per
 common share                                          (a)           (.03)      (.05)       (.03)
Net income (loss) per common share                     (a)           (.03)      (.05)       (.03)

</TABLE>

(a)  As explained in Note 3, per share  information  has not been presented on a
     liquidation basis.

<TABLE>
<CAPTION>

                                                                  Fiscal quarters ended
                                                    ------------------------------------------------
                                                    October 29,   July 30,    April 30,  January 29,
                                                       1994         1994        1994        1994
                                                    -----------   ---------   --------   ---------
<S>                                                  <C>         <C>        <C>         <C>      
Income (loss) before extraordinary items             $  384      $   (996)  $   (812)   $   (717)
Extraordinary items:
  Gain on early extinguishment of debt                8,456
  Tax benefit resulting from utilization of net
   operating loss carryforwards                       3,253
Net income (loss)                                    12,093          (996)      (812)       (717)
Income (loss) before extraordinary items per
   common share                                         .02          (.05)      (.04)       (.04)
Net income (loss) per common share                      .62          (.05)      (.04)       (.04)

</TABLE>




                                       21

<PAGE>



ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

                                                               PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors of the Company

The  following  table  sets forth  certain  information  concerning  each of the
directors of the Company. All directors will serve until the next Annual Meeting
of Shareholders and until his respective successor is elected or appointed. Each
director of the Company is also a director of PNS.


                                       Present Principal
                                    Occupation or Employment
Name and Position                        and Five Year
with the Company    Age               Employment History
-----------------   ---            --------------------------

Larry Chroman       44   Director of the  Company  since July 1991. President of
Director                 USA Global Link since July 1995  Co-manages investments
                         for  the  William  Zimmerman  family for more than five
                         years.

James M. Lieb       45   Director of the Company since May 1989.  Executive Vice
Director                 President  of The  Trump  Group (a  private  investment
                         group)  since  October 1995  and  Senior Vice President
                         thereof for more than five years.


Gerald P. Nathanson 58   Director  of the  Company  since  October  1986.  Chief
Director                 Executive  Officer,  L.Luria  (a retail company)  since
                         January 1996.  Chief Executive Officer, US Holographics
                         (marketing company for holographic products) from April
                         1992 to December 1995.  Managing Director, C4 Marketing
                         (an import company) until January 1992.

Eddie Trump         49   Director of the Company  since May 1986.  President  of
Director                 The Trump Group for more than five years.





                                       22

<PAGE>

Pursuant to the terms of the Subscription and Stockholders' Agreement, dated May
7, 1986 (the "Stockholders' Agreement"), as amended as of November 25, 1987 (the
"November  1987   Agreement"  and,  as  amended,   the  "Amended   Stockholders'
Agreement"),  between the Company's two major  stockholders,  Zimco and Seacorp,
Seacorp was,  subject to certain  conditions,  entitled to nominate as directors
one-half the  Company's  Nonindependent  Directors  (as defined in the Company's
Restated  Certificate  of  Incorporation)  plus one,  and Zimco was  entitled to
nominate one-half the Nonindependent Directors minus one. Messrs. Lieb and Trump
were  nominees of  Seacorp;  Mr.  Chroman was the nominee of Zimco.  The Amended
Stockholders'  Agreement  terminated in accordance with its terms on October 31,
1995.  See the  discussion  under Item 13 - Certain  Relationships  and  Related
Transactions.

The Trump Group, of which Mr. Trump is a director and officer and Mr. Lieb is an
officer, through affiliates controls Seacorp. See the discussion under Item 12 -
Security Ownership of Certain Beneficial Owners and Management.

EXECUTIVE OFFICERS OF THE COMPANY

Since January 1995, the Company has no executive officers.

ITEM 11 - EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

The Company has no  employees  or  executive  officers.  There are  currently no
arrangements  under which any officer or  director of the Company  will  receive
compensation for serving as such; however, other arrangements may be made in the
future.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The following table sets forth, as of December 1, 1995,  information  concerning
the beneficial ownership of the common stock of the Company by (i) persons known
by the Company to own beneficially more than 5% of its outstanding common stock,
(ii) each of the  directors of the Company and (iii) all directors and executive
officers of the Company as a group.  Except as set forth in the footnotes to the
table, the stockholders  have sole voting and investment power over such shares.
Unless otherwise specified,  the address for all directors is the address of the
Company's executive offices.  The address for Messrs.  Julius and Eddie Trump is
the address set forth below for Seacorp.  The address for Messrs.  Larry Chroman
and  Christopher  Podoll is the address set forth below for Zimmerman  Retailing
Group Limited.


                                       23

<PAGE>


<TABLE>
<CAPTION>

                                        Amount and Nature
                                          of Beneficial     Percent
Name                                        Ownership      of Class
----                                        ---------      --------
<S>                                         <C>              <C>  
Christopher Podoll (a)                      7,330,284        37.6%
Zimmerman Retailing Group Limited (a)       7,330,284        37.6%
 P.O. Box 948
 Route 2, Pleasant Plain Road
 Fairfield, IA 52556
Seacorp, Inc. (b)                           8,014,705        41.1%
 1511 6th Avenue
 Seattle, WA 98101
Eddie Trump (b)                             8,014,705        41.1%
Julius Trump (b)                            8,014,705        41.1%
All Directors and Executive Officers as
 a Group (4 persons) (c)                    8,014,705        41.1%

</TABLE>

(a)  According to the Schedule 13D, as amended (the "Zimco Amended 13D"),  filed
     with the Securities and Exchange Commission (the "Commission"), Zimco is an
     Iowa limited partnership, the sole general partner of which is Soma 2 L.P.,
     a  Delaware  limited  partnership  ("Soma  2").  Soma 2 has as its  general
     partner ZRG Co., Inc., a Delaware corporation ("ZRG"), for which Mr. Podoll
     serves as the sole executive officer and director.  Mr. Podoll is a manager
     of  investments  of the William  Zimmerman  family.  Amounts  include 8,079
     shares issuable upon conversion of Debentures  beneficially owned by Zimco.
     Amounts do not  include  the  ownership  of 6,000  shares and 3,810  shares
     issuable upon  conversion of Debentures  owned by the Surya  Financial Inc.
     Retirement Plan, a retirement plan for the benefit of various  employees of
     Surya Financial Inc., an affiliate of Zimco.

(b)  According to the Schedule  13D, as amended,  filed with the  Commission  by
     Julius Trump, Eddie Trump and Seacorp,  Seacorp is, and Messrs.  Julius and
     Eddie  Trump may be deemed to be,  the  beneficial  owner(s)  of  8,014,705
     shares of common stock.  Such amount  includes  8,079 shares  issuable upon
     conversion of Debentures  beneficially owned by an affiliate of Seacorp. As
     set forth in the Schedule 13D,  Seacorp is a Delaware  corporation and does
     not  presently  have any  business  other than the  ownership  of shares of
     common stock of the Company.  Seacorp is  indirectly  controlled by Messrs.
     Julius and Eddie Trump.

(c)  Assumes the conversion of all Debentures beneficially owned by an affiliate
     of Seacorp.  Does not include shares owned by Zimco. Mr. Chroman,  who is a
     director  of the  Company,  is co- manager of  investments  for the William
     Zimmerman family and Mr. Podoll,  who is also such a manager,  is, as noted
     above, the sole executive officer and director of affiliates of Zimco.

                                       24

<PAGE>


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

STOCKHOLDERS' AGREEMENT

GENERAL.  On May 7,  1986,  Zimco,  Seacorp  and the  Company  entered  into the
Stockholders' Agreement.  Under the Stockholders'  Agreement,  Zimco and Seacorp
exchanged  all of their  common  stock in Pay'n  Save for all of the  issued and
outstanding  Common  Stock of the Company.  Subsequently,  in  consideration  of
Seacorp causing to be made available short-term borrowing facilities aggregating
$20 million to the Company,  Seacorp,  Zimco and certain related parties entered
into an agreement  amending the  Stockholders'  Agreement  (the  "November  1987
Amendment") in certain respects. In connection with the November 1987 Amendment,
the parent of Seacorp  guaranteed  Company  borrowings  by Pay'n Save under such
short-term  borrowing  facilities  (which have since expired) in an amount up to
$15 million.

The Stockholders' Agreement and the November 1987 Amendment were entered into by
Seacorp and Zimco and certain of its related  parties on their own behalf and on
behalf of their respective permitted  transferees,  for the exclusive benefit of
Seacorp and its permitted  transferees (the "Seacorp Group"),  and Zimco and its
permitted  transferees  and certain of its related  parties (the "Zimco Group").
The  Stockholders'  Agreement,  as  amended  by  the  November  1987  Amendment,
terminated in accordance with its terms on October 31, 1995.

The November 1987 Amendment  contains  certain  indemnities in favor of (and for
the benefit of) the Company which remain effective.

Pursuant to separate  agreements,  the Company has granted certain  registration
rights to each group and certain of each group's  transferees,  including Zimco,
with  respect  to  the  shares  of  common  stock   acquired   pursuant  to  the
Stockholders' Agreement.

NOMINATION  OF  DIRECTORS.  The  Stockholders'  Agreement had provided that each
group would  nominate and vote for an equal number of nominees on the  Company's
Board of Directors and vote as stockholders  in favor of each matter  previously
approved by a majority of the directors  nominated by Zimco and Seacorp and vote
against each matter not so approved.  The November  1987  Amendment  amended the
Stockholders'  Agreement  to  provide  that so long as Julius or Eddie  Trump or
their affiliates or certain related parties and certain other designated parties
(collectively,  the "Trump Group") remained the beneficial  owners,  directly or
indirectly,  of at least a  majority  of the  shares  of common  stock  owned by
Seacorp as of  November  25,  1987,  Seacorp  would be  entitled  to nominate as
directors  one-half the number of  Nonindependent  Directors  plus one and Zimco
would be entitled to nominate  one-half the number of  Nonindependent  Directors
minus one, and that at all times at least four seats on the  Company's  Board of
Directors  would be  reserved  for  Nonindependent  Directors. The Stockholders'
Agreement,  as amended,  terminated in accordance  with its terms on October 31,
1995. Consequently, the Company's two major stockholders, Zimco and Seacorp, are
no longer  obligated  to  nominate  and vote for each  other's  nominees  to the
Company's Board of Directors, or to vote as stockholders in favor of each matter
previously  approved  by a  majority  of the  directors  nominated  by Zimco and
Seacorp.

                                      -25-
<PAGE>



The  Company's  Certificate  of  Incorporation  provides  that  actions  by  the
Company's  Board of Directors  generally  require the  affirmative  vote of that
number of directors equal to the sum of (i) the number of Independent  Directors
(as defined) plus (ii) a majority of the Nonindependent Directors.

CERTAIN VOTING  ARRANGEMENTS.  The November 1987 Amendment provided that Seacorp
and the Zimco Group would use their best efforts to cause the Seacorp  Directors
and the Zimco  Directors to vote  against any  issuance of capital  stock of the
Company or its  subsidiaries  (i) to any  affiliate of Seacorp  unless the Zimco
Group was first offered the opportunity to purchase a portion of such shares pro
rata in accordance with their then ownership of shares of common stock,  for the
same consideration that was to be paid by such affiliate,  or (ii) to any entity
not affiliated  with Seacorp without the consent or approval of the holders of a
majority  of the  outstanding  shares of common  stock,  subject in each case to
waiver by the Zimco Directors. This voting arrangement terminated on October 31,
1995.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company does not have a compensation or similar committee.






                                       26

<PAGE>



                           PART IV. OTHER INFORMATION

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

(a)  See the section  entitled "Index to Financial  Statements"  appearing under
     Item 8 of this Annual Report on Form 10-K.

(b)  Not applicable

(c)  Exhibits:

     3.1       Restated Certificate of              Incorporated by reference
               Incorporation of Pay'n Save Inc.     from Exhibit 3.1  to the
                                                    Registration Statement on
                                                    Form S-1 (File No. 33-5560) 
                                                    of the Company (the
                                                    "Registration Statement").

     3.2       Certificate of Amendment of          Incorporated by reference
               Certificate of Incorporation         from Exhibit 3.2 to the
               of Pay'n Save Inc.                   Registration Statement.

     3.3       Certificate of Amendment of          Incorporated by reference
               Certificate of Incorporation         from Exhibit 3.1 to
               of Pay'n Save Inc.                   Quarterly Report on Form
                                                    10-Q for the quarter ended
                                                    July 30, 1988.

     3.4       Certificate of Amendment of          Incorporated by reference
               Certificate of Incorporation         from Exhibit 3.4 to the
               of PSS, Inc.                         Annual Report on Form 10-K
                                                    for the year ended October
                                                    31, 1992.

     3.5       By-Laws of Pay'n Save Inc.           Incorporated by reference
                                                    from Exhibit 3.3 to the
                                                    Registration Statement.
 
     4.1       Indenture between Pay'n Save         Incorporated by reference
               Inc. and United States Trust         from Exhibit 4.1 
               Company of New York, as Trustee,     to the

                                      -27-

<PAGE>

                relating to the 7-1/8% Con-         Registration Statement.
                vertible Debentures due July 15,     
                2006 (including the form of
                Convertible Debenture).

      4.2       First Supplemental Indenture be-    Incorporated by reference
                tween Pay'n Save Inc., and          from Exhibit 4.1 to the
                United States Trust Company of      Quarterly Report on Form
                New York as Trustee, relating       10-Q for the quarter ended
                to the 7-1/8% Convertible De-       April 30, 1988.
                bentures due July 15, 2006.
                                                                       

      4.3       Indenture between PNS Inc. and      Incorporated by reference
                Norwest Bank Minneapolis, Nat-      from Exhibit 4.1 to the
                ional Association as Trustee,       Registration Statement on
                relating to the 12-1/8% Senior      Form S-1 (File No. 33-5591)
                Subordinated Notes due July 15,     of PNS Inc.         
                1996 (including the form of                              
                Senior Subordinated Note).                                

      4.4       First Supplemental Indenture be-    Incorporated by reference
                tween PNS Inc., and Norwest Bank    from Exhibit 4.2 to the
                Minnesota, National Association     Quarterly Report on Form
                as Trustee, relating to the         10-Q for the quarter ended
                12-1/8% Senior Subordinated         April 30, 1988.
                Notes due July 15, 1996.    

     10.1       Subscription and Stockholders'      Incorporated by reference
                Agreement, dated as of May 7,       from Exhibit 2.3 to the
                1986, by and among Zimmerman        Registration Statement.
                Retailing Group Limited,            
                Seacorp, Inc. and Pay'n Save Inc.      

     10.2       Amended Stockholders' Agreement     Incorporated by reference
                between Pay'n Save Inc., Seacorp,   from Exhibit 10.25 to the
                Inc., Zimmerman Retailing Group     Annual Report on Form 10-K
                Limited and related parties dated   for the year ended October
                November 25, 1987.                  31, 1987.

     10.3       Registration Rights Agreement,      Incorporated by reference
                dated as of May 7, 1986, by         from Exhibit 10.7 to the
                and among Pay'n Save Inc.,          Registration  Statement.
                Seacorp, Inc. and Zimmerman                                  
                Retailing Group Limited.                                     

     10.4       Agreement for purchase and sale     Incorporated by reference
                of assets by and among Pay'n        from Exhibit 2.1 to
                Save Stores, Inc., The Bi-Mart                              

                                      -28-

<PAGE>



                Company, Pay'n Save Drugs Inc.      Form 8-K dated May 13, 1988.
                and Thrifty Corporation, dated                        
                as of May 12, 1988.

     10.5       Letter Agreement dated              Incorporated by reference
                February 9, 1990 by and among       from Exhibit (i) to the
                PSSC Inc. and Bear Stearns &        Quarterly Report on Form 
                Co., Inc. for the purchase and      10-Q for the quarter ended
                financing of adjustable-rate        February 3, 1990.  
                mortgages.
                                                                    

     10.6       Agreements dated as of              Incorporated by reference
                January 14, 1993 with respect       from Exhibit 10.7 to the
                to the acquisition by PSS, Inc.     Annual Report on Form  
                and PNS Inc. of up to $64.475       10-K for the year ended 
                million of Senior Notes and         October 31, 1992.
                $14 million of Debentures.                            
                                                                      

     22.1       Subsidiaries of the Registrant.     Incorporated by reference
                                                    from Exhibit 22.1 to the
                                                    Annual Report on Form 10-K
                                                    for the year ended October
                                                    31, 1992.


                                      -29-

<PAGE>



                                   SIGNATURES

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


                                          PSS, INC.
                                          (Registrant)




Date:  January 26, 1996                   By: /s/ James Lieb
       -----------------                     -------------------
                                             James M. Lieb, Director



                                      -30-

<PAGE>


Pursuant to the requirements 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.

           Date             Title               Signature
           ---
January 26, 1996            Director            By: /s/ Larry Chroman
                                                   ---------------------------
                                                   Larry Chroman


January 26, 1996            Director            By: /s/ James M. Lieb
                                                   ---------------------------
                                                   James M. Lieb


January 26, 1996            Director            By: /s/ Gerald Nathanson
                                                   ---------------------------
                                                   Gerald Nathanson


January 26, 1996            Director            By:/s/ Eddie Trump
                                                   ---------------------------
                                                   Eddie Trump


                                      -31-