UNITED STATES
                       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 December 31, 1996

                                       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 0-18294

                        METRIC INCOME TRUST SERIES, INC.
             (Exact name of Registrant as specified in its charter)

         CALIFORNIA                                              94-3087630
----------------------------------------                     -------------------
(State or other jurisdiction                                 (I.R.S. Employer
of incorporation or organization)                            Identification No.)

         One California Street
       San Francisco, California                                  94111-5415 
----------------------------------------                     -------------------
(Address of principal executive offices)                          (Zip Code)

Registrant's telephone number, including area code: (415) 678-2000
                                                    (800) 347-6707 in all states

Securities registered pursuant to Section 12(b) of the Act:   None
Securities registered pursuant to Section 12(g) of the Act:   Common Stock

      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 ]

      No market for the Shares of Common  Stock  exists and  therefore  a market
value for such Shares cannot be determined.

      Shares of Common Stock outstanding as of March 27, 1997:  6,321,641

                   DOCUMENTS INCORPORATED HEREIN BY REFERENCE:

Information with respect to directors in Item 10 and the information required by
Items  11-13 is  incorporated  by  reference  from  the  proxy  material  of the
Registrant in connection with its Annual Meeting of  Shareholders  scheduled for
June 1997.




<PAGE>



                        METRIC INCOME TRUST SERIES, INC.,
                            a California Corporation

                                     PART I

Item 1.    Business.

Metric Income Trust Series, Inc., a California corporation (hereinafter referred
to as the "Fund" or "Registrant"),  was formed in 1989. Effective April 1, 1997,
the  operations of Metric  Realty,  which has been the Advisor to the Fund since
the Fund's inception,  and certain related companies will be merged with MetLife
Realty Group,  Inc.  ("MRG") into SSR Realty  Advisors,  Inc. ("SSR Realty"),  a
newly formed Delaware  corporation.  All companies  involved in this transaction
are  wholly  owned by  Metropolitan  Life  Insurance  Company.  Metric  Realty's
managing partner as of April 1, 1997 will become SSR Realty, which will maintain
its principal office in White Plains,  New York, and a major corporate office in
San Francisco,  California.  In anticipation of this  transaction,  the Advisory
Agreement  between  Metric Realty and the Fund, was assigned by Metric Realty to
SSR Realty, effective March 27, 1997, with the consent of the Fund's Independent
Directors. This assignment is not anticipated to have any material effect on the
advisory  services  provided to the Fund. At the Board Meeting held on March 27,
1997,  the  Independent  Directors  also  approved the extension of the Advisory
Agreement to March 31, 1998.

The Fund's initial Registration Statement,  filed pursuant to the Securities Act
of 1933 (No.  33-27083),  was declared  effective by the Securities and Exchange
Commission on June 30, 1989. The Registrant  marketed its securities pursuant to
its Prospectus dated June 30, 1989 and thereafter supplemented  (hereinafter the
"Prospectus").  Such  Prospectus was filed with the Commission  pursuant to Rule
424(b) of the Securities Act of 1933.

The principal business of the Fund is to acquire income producing net lease real
properties and investments in mortgage-backed securities which are guaranteed as
to payment of principal  and interest by the U.S.  Government,  U.S.  Government
agencies or  instrumentalities,  or federally chartered  corporations.  The Fund
qualifies as a real estate  investment trust ("REIT") under Sections 856 through
860 of the Internal  Revenue  Code.  The  proceeds of the offering  were used to
purchase  mortgage-backed  securities and twenty-five net lease properties which
are described in Item 2.

Beginning in July 1989  through June 1990 the Fund offered and sold  $60,254,000
in Shares of Common  Stock.  Through  December 31, 1991,  additional  funding of
$2,800,000 was provided from the Dividend  Reinvestment Plan ("DRP").  Effective
with the dividend paid on January 15, 1992 to Shareholders of record on December
31, 1991, the DRP was suspended as a result of the Chapter 11 bankruptcy  filing
by  National  Convenience  Stores,  Inc.  ("NCS"),  which  was the  lessee of 19
convenience  stores  owned  by the  Fund  (see  Item 7 for  further  information
regarding the NCS bankruptcy and related events). All DRP participants  received
the 1992,  1993 and January 15, 1994 dividends in cash. In September,  1993, the
Board of  Directors  voted  unanimously  to  reinstate  the DRP and activate the
Liquidity  Option Program ("LOP")  effective for the first quarter 1994 dividend
which  was  paid in May  1994.  In June  1996,  the  Board  of  Directors  voted
unanimously to terminate the DRP and LOP effective as to dividend  payments made
after  August  15,  1996  (see  Item 7 and  Item 8,  Note 4 to the  consolidated
financial statements).  At the Fund's Annual Meeting on June 11, 1996, the Board
of Directors  voted  unanimously  to proceed with the  liquidation of the Fund's
portfolio over the next several years.

Net lease retail  convenience  store buildings and retail outlets are especially
susceptible to the impact of the financial condition and creditworthiness of the
lessee (or  guarantor  of the  obligations  of the lessee) and other  conditions
outside  the  control of the Fund.  In the event of the  financial  failure of a
lessee of the Fund, the Fund may be unable to promptly recover the property from
the  lessee  or a  trustee  in any  bankruptcy  proceedings  or the Fund may not
receive rent in such  proceedings  sufficient to cover its expenses with respect
to such  property.  Also it may be difficult for the Fund to release  properties
which have been designed or built primarily for a particular tenant.

Environmental site assessments were performed for five of the Fund's convenience
stores and all other properties at the time of property acquisition. No material
adverse environmental conditions or liabilities were identified.  In no case has
the Fund received notice that it is a potentially responsible party with respect
to an environmental clean-up site.

The Fund or its tenants maintain  property and liability  insurance  coverage on
the properties and the Fund believes such coverage to be adequate.

                                        1

<PAGE>



The Fund is subject to the  general  competitive  conditions  in the real estate
industry and the net lease market for  convenience  store  buildings  and retail
outlets.  In addition,  each of the Fund's properties  competes in an area which
normally contains numerous other properties which may be considered  competitive
to the Fund's properties.

Investment  in the Fund is subject to certain  risks,  including the lack of any
public  market for the Fund's  Shares which  adversely  affects the liquidity of
Shareholders'  investments in the Fund;  potential  restrictions on transfers of
Shares which might jeopardize the Fund's qualification as a REIT; limitations on
the  percentage  of the Fund's  Shares owned by any one person;  market risks of
mortgage-backed securities related to their sensitivity to interest rate changes
(such as the fact that an increase  in interest  rates will result in a decrease
in the  value of such  securities  and a  decrease  in rates  may  result  in an
increased  incidence of prepayment of principal at a time when  reinvestment  at
favorable  rates would be impossible);  the possibility  that the Fund might not
continue  to  qualify  as a REIT;  normal  risks  generally  attendant  upon the
ownership  of real estate such as  vacancies,  rent  levels,  changes in general
economic or fiscal conditions, regulatory risks, including zoning and other land
use laws, and natural  disasters;  costs or liabilities which may arise from any
hazardous  materials affecting the Fund's properties;  potential  non-compliance
with Americans with Disabilities Act; losses which could result from the default
or bankruptcy of any tenant of the Fund; and uninsured losses.

Item 2.    Properties.

A description of the properties owned by the Fund is as follows:


                                       Date of     Date of
Name and Location                      Purchase      Sale       Type       Size
-----------------                      --------      ----       ----       ----
Pearle Express Stores: (3)

   24 Orland Square Drive               11/89        7/96      Retail      5,900
     Orland Park, Illinois                                               sq. ft.

   1281 Southlake Circle                11/89        --        Retail      5,800
     Morrow, Georgia                                                     sq. ft.

National Convenience Stores:

   Stop N Go Store #1332                11/89        --        Retail      3,100
     N. Little School Road                                               sq. ft.
     Arlington, Texas

   Stop N Go Store #1386                11/89        --        Retail      3,100
     Babcock Road                                                        sq. ft.
     San Antonio, Texas

   Stop N Go Store #2065 (5)            11/89        --        Retail      3,100
     Baseline Road                                                       sq. ft.
     Fontana, California

   Stop N Go Store #2092 (5)            11/89        --        Retail      3,100
     Mission Road                                                        sq. ft.
     Rubidoux, California

   Stop N Go Store #2374 (5)            11/89        --        Retail      3,100
     E. Orangethorpe Road                                                sq. ft.
     Placentia, California


                                        2

<PAGE>



Item 2.    Properties (continued).

                                         Date of    Date of
Name and Location                        Purchase     Sale       Type     Size
-----------------                        --------     ----       ----     ----

Stop N Go Store #2378                     11/89        --       Retail     3,100
  Green Oaks Blvd                                                        sq. ft.
  Arlington, Texas

Stop N Go Store #2406 (5)                 11/89        --       Retail     3,100
  Windy Hill                                                             sq. ft.
  Marietta, Georgia

Stop N Go Store #285                      11/89        --       Retail     3,100
  Altamesa Blvd                                                          sq. ft.
  Fort Worth, Texas

Stop N Go Store #308                      11/89        --       Retail     3,100
  West Tarrant Blvd                                                      sq. ft.
  Grand Prairie, Texas

Stop N Go #328                            11/89        --       Retail     3,600
  Fredericksburg Blvd                                                    sq. ft.
  San Antonio, Texas

Stop N Go #3592 (10)                      11/89        --       Retail     2,400
  25th/Loop 197                                                          sq. ft.
  Texas City, Texas

Stop N Go Store #655 (9)                  11/89       3/97      Retail     3,100
  Northwest Highway                                                      sq. ft.
  Dallas, Texas

Stop N Go #3571 (8)                       11/89       3/97      Retail     2,400
  N. Circle                                                              sq. ft.
  Sealy, Texas

Stop N Go #3583 (7)                       11/89       2/97      Retail     2,400
  Hwy 288                                                                sq. ft.
  Clute, Texas

Stop N Go Store #674 (5)                  11/89       11/96     Retail     3,100
  Archibald                                                              sq. ft.
  Rancho Cucamonga, California

Stop N Go Store #3755 (6)                 11/89       12/96     Retail     2,900
  FM 1960                                                                sq. ft.
  Houston, Texas

Stop N Go Store #3254 (1)                 11/89       06/93     Retail     2,400
  Stedwick Street                                                        sq. ft.
  San Antonio, Texas



                                        3

<PAGE>



Item 2.    Properties (continued).

                                       Date of     Date of
Name and Location                      Purchase      Sale      Type       Size
-----------------                      --------      ----      ----       ----

   Stop N Go Store #3531 (1)            11/89       08/93     Retail       2,400
     Seawall Blvd                                                        sq. ft.
     Galveston, Texas

   Stop N Go Store #1714 (1)            11/89       12/93     Retail       3,100
     Grand Avenue Parkway                                                sq. ft.
     Pflugerville, Texas

Other Stores:

   Wickes Furniture Store               01/90        --       Retail      51,000
     Torrance, California                                                sq. ft.

   Sam's Club (2)                       05/90       06/96     Retail     108,000
     Menomonee Falls, Wisconsin                                          sq. ft.

   Former Phar-Mor Store (4)            12/90       03/95     Retail      56,400
     Franklin Township, Ohio                                             sq. ft.

   Haverty's Furniture Store            12/94        --       Retail      55,000
     Plano, Texas                                                        sq. ft.



(1)   In December 1991 NCS filed a petition with the U.S.  Bankruptcy  Court for
      reorganization  under  Chapter 11 of the  federal  Bankruptcy  Code.  As a
      result of the bankruptcy proceedings, three stores were closed in 1992 for
      which the leases were rejected and those properties were subsequently sold
      to unaffiliated  buyers (see Item 7 and Item 8, Note 8 to the consolidated
      financial statements).

(2)   Formerly  Wholesale  Club.  The Fund's store was vacated in April 1992 and
      100% of the building was subleased in 1994 and 1995. On June 25, 1996, the
      building was sold to an unaffiliated buyer.

(3)   Formerly Eyelab  Superstores.  On July 10, 1996, the Orland Park, Illinois
      store was sold to an unaffiliated buyer.

(4)   On March 15, 1995, the building was sold to an unaffiliated buyer.

(5)   In April  1994,  through a purchase  and  exchange  transaction  with NCS,
      Circle  K  became  the  operator  of five of the  Fund's  stores,  four in
      California  and one in Georgia.  Although  lease  payments  for the stores
      owned by the Fund are now received from Circle K, NCS remains  financially
      liable  under the terms of the leases.  On November  12,  1996,  the store
      located in Rancho Cucamonga, California was sold to an unaffiliated buyer.
      

(6)    In August 1994, a portion of the land was sold through  condemnation.  On
       December 19, 1996, the store was sold to an  unaffiliated  buyer.
(7)    On February 28, 1997 the store in Clute,Texas was sold to an unaffiliated
       buyer.
(8)    On March 5,  1997 the  store in  Sealy, Texas was sold to an unaffiliated
       buyer. 
(9)    On March 12, 1997 the store in Dallas,  Texas was sold to an unaffiliated
       buyer.
(10)   The store in Texas City,  Texas is currently  under a  sales  contract,
       dated  March  13,  1997,  with  the anticipated closing date of March 27,
       1997.

All of the Registrant's properties are owned in fee.


                                        4

<PAGE>



See Selected  Financial  Data in Item 6 for lease income.  See the  Consolidated
Financial Statements in Item 8 for information  regarding the Fund's properties.
An occupancy summary is set forth on the chart following:

                                OCCUPANCY SUMMARY


                                                         Occupancy rate (%)
                                                           at December 31
                                                    1996        1995        1994
                                                    ----        ----        ----
COMMERCIAL BUILDINGS:
Pearle Express Stores (1) ..................        100%         100%       100%
National Convenience Stores (2) ............        100          100        100
Wickes Furniture Store .....................        100          100        100
Sam's Club (4) .............................        N/A          100        100
Former Phar-Mor Store (3) ..................        N/A          N/A         44
Haverty's Furniture Store ..................        100          100        100



(1)   Represents  occupancy at both of the Pearle Express Stores.  In July 1996,
      the Orland Park, Illinois store was sold.

(2)   Represents the number of stores leased as a percentage of the total number
      of stores owned by the Fund.  One leased  store is vacant,  but the lessee
      remains  current  in its lease  obligations  to the Fund.  In April  1994,
      through a purchase and exchange  transaction with NCS, Circle K became the
      operator  of five of the  Fund's  stores,  four in  California  and one in
      Georgia.  Although lease payments for the stores  operated as Circle K are
      now received from them, NCS remains  financially liable under the terms of
      the leases.  In November and December  1996,  two of the stores were sold,
      followed by one more in February  1997 and two in March 1997.  See Note 10
      and Note 11 to the consolidated financial statements.

(3)   In August  1992  Phar-Mor  filed for  protection  under  Chapter 11 of the
      federal Bankruptcy Code (see Item 7 and Item 8, Note 8 to the consolidated
      financial  statements).  Phar-Mor  rejected the Fund's lease effective May
      15,  1993  after  closing  the  store at the end of  April.  The store was
      subdivided in 1994 and 24,709  square feet was leased to  Superpetz,  Inc.
      The building was subsequently sold on March 15, 1995.

(4)   Represents  economic  occupancy at December 31, 1994.  Lessee  vacated the
      store in April 1992, but remained current in its lease  obligations to the
      Fund.  During the fourth  quarter of 1994 and first  quarter of 1995,  the
      Fund's Advisor reviewed and approved two subleases presented by the lessee
      and the building was 100% occupied until it was sold in June 1996.

Item 3.    Legal Proceedings.

The Fund has been a creditor in bankruptcy  proceedings filed by Phar-Mor.  (See
Item 7 and Item 8, Note 8 to the consolidated financial statements.) In December
1994,  Phar-Mor filed in these proceedings a preference  recovery action against
several  hundred  vendors and  landlords,  including the Fund. The amount of the
preferential  payments  alleged  to have  been  made to the  Fund  was  $90,250,
consisting  of rent paid to the Fund  within 90 days of the  filing of the Phar-
Mor bankruptcy  petitions.  This  preference  action was dismissed in connection
with the confirmation of a reorganization plan for Phar-Mor.

Item 4.    Submission of Matters to a Vote of Security Holders.

No matter was submitted to a vote of security  holders during the period covered
by this Report.

                                        5

<PAGE>



                                     PART II

Item 5. Market for Registrant's  Shares of Common Stock and Related  Stockholder
        Matters.

No public market for the Shares exists, nor is one expected to develop. However,
see Item 8, Note 4 to the consolidated  financial statements for a discussion of
the  circumstances  under  which  Shares of Common  Stock were sold  through the
Dividend Reinvestment Plan (DRP) pursuant to the Liquidity Option Program (LOP).
The per Share price for Shares acquired through the DRP with the proceeds of the
dividends  was  established  by the Fund's  Board of  Directors,  pursuant  to a
formula  having as its  components  independent  third-party  appraisals  of the
Fund's properties as of December 31 of each year, the market value of the Fund's
mortgage-backed  securities,  and the net book  value of its  other  assets  and
liabilities as of each quarter end prior to the dividend  payment.  In June 1996
the  Board of  Directors  voted to  terminate  the DRP and LOP  effective  as to
dividend  payments made after August 15, 1996.  The Board of Directors  believed
that with the implementation of a formal disposition  strategy for the Fund, the
Plan  was no  longer  a  viable  purchase  and  liquidation  vehicle.  It is the
intention of the Fund's Advisor, however, to continue to provide, on a quarterly
basis,  an  estimated  net asset  value per Share  utilizing  the same method as
previously  used to determine  the DRP per Share price.  The estimated net asset
value per Share as of December 31, 1996 has been determined to be $5.08.

Many  factors are  involved in  determining  the actual fair market value of the
shares of stock of a  company.  Therefore,  no  assurance  can be given that the
estimated net asset value per Share  determined by the Advisor to the Fund as of
any valuation date will  represent  actual fair market value of a Share of stock
of the Fund.

In addition, appraised values represent only the opinion of the appraiser and do
not necessarily  reflect the price which the Fund would receive upon the sale of
the asset.  In this regard,  since  methods for  determining  values vary, if an
alternate  method of valuation  were used, it could result in a value  different
from the value determined based on a discounted cash flow analysis, which is the
primary method utilized by the appraisers engaged to appraise the properties.


As of December 31, 1996 the approximate number of Shareholders was as follows:

                                                           Number of
                Title of Class                          Record Holders
                --------------                          --------------

                Common Stock.......................         4,782

Item 6. Selected Financial Data.

The following  table  presents  selected  financial data for Metric Income Trust
Series, Inc., a California  corporation,  for the years ended December 31, 1996,
1995,  1994,  1993, and 1992.  The data should be read in  conjunction  with the
consolidated financial statements included elsewhere herein.


                                            For the Year Ended
                                                December 31
                          ------------------------------------------------------
                           1996        1995        1994        1993        1992
                           ----        ----        ----        ----        ----
                              (Amounts in thousands except per unit data)
TOTAL REVENUES           $ 4,886     $ 5,156     $ 4,670     $ 4,886     $ 5,348
NET INCOME               $ 4,552     $ 3,930     $ 2,888     $ 2,644     $ 2,313
NET INCOME PER SHARE     $   .72     $   .62     $   .46     $   .42     $   .37
TOTAL ASSETS             $35,939     $42,211     $45,603     $49,510     $52,261
DIVIDENDS PER SHARE      $  2.08     $  1.26     $   .85     $   .85     $   .85




                                        6

<PAGE>



                                  Lease Income

The following  Lease Income table  presents  lease income for the  properties by
lessee included in the Fund's consolidated financial statements:


                                                 For the Year Ended
                                                     December 31
                                      ------------------------------------------
                                      1996     1995     1994     1993     1992
                                      ----     ----     ----     ----     ----
                                                (Amounts in thousands)
National Convenience Stores (1)(2)   $1,825   $1,852   $1,552   $1,527   $1,777
Pearle Express Stores (5) ........      217      283      282      265      265
Wickes Furniture Store (7) .......    1,372    1,202    1,135    1,036    1,036
Sam's Club (6) ...................      284      524      511      511      511
Former Phar-Mor Store (3) ........     --         28        6      135      361
Haverty's Furniture Store (4) ....      411      411       11     --       --
                                     ------   ------   ------   ------   ------

Total ............................   $4,109   $4,300   $3,497   $3,474   $3,950
                                     ======   ======   ======   ======   ======



(1)   As a result of  bankruptcy  proceedings,  three stores were closed in 1992
      for which the leases were rejected and the  properties  were  subsequently
      sold in June,  August and December  1993 (see Item 7 and Item 8, Note 8 to
      the consolidated financial statements).  In April 1994, through a purchase
      and exchange transaction with NCS, Circle K became the operator of five of
      the Fund's stores,  four in California and one in Georgia.  Lease payments
      for the Circle K stores  are now  received  from  Circle K;  however,  NCS
      remains financially liable under the terms of the leases. In December 1995
      Diamond Shamrock  purchased the outstanding  stock of NCS and subsequently
      merged  with  Ultramar  Corporation  to  form  Ultramar  Diamond  Shamrock
      Corporation.  In November and December  1996, two stores were sold (one of
      which was operated by Circle K), followed by one more in February 1997 and
      two in March 1997 (See Note 10 and Note 11 to the  consolidated  financial
      statements).

(2)   Includes  $245,000 and $279,000 deferred rent receivable in 1996 and 1995,
      respectively.

(3)   On March 15, 1995, the building was sold to an unaffiliated buyer.

(4)   Acquired in December 1994.

(5)   The Orland Park,  Illinois store was sold in July 1996. See Note 10 to the
      consolidated financial statements.

(6)   The  property  was  sold in June  1996.  See  Note 10 to the  consolidated
      financial statements.

(7)   Includes $162,000 deferred rent receivable in 1996.


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

This  Item  should  be read  in  conjunction  with  the  Consolidated  Financial
Statements and other Items contained elsewhere in this Report.

Results of Operations

Income before net gain on sale of properties  decreased $12,000 in 1996 compared
to 1995.  The 1996  decrease was  primarily due to decreases in lease income and
interest  on  mortgage-backed  securities,  which were  partially  offset by the
decrease in depreciation, as discussed below.

Lease income in 1996  decreased  $191,000 when compared to 1995 primarily due to
the sale of Sam's Club in June 1996,  the Pearle  Express  store in Orland Park,
Illinois in July 1996,  and the NCS stores in Rancho  Cucamonga,  California and
Houston, Texas in November and December 1996,  respectively,  which decrease was
partially offset by the increase in lease income from the Wickes Furniture store
as a result of recording deferred lease income of $162,000 in 1996.

Interest on the Fund's mortgage-backed securities portfolio declined 13% in 1996
compared to 1995 due to the reduction in the amount of  securities  owned by the

                                        7

<PAGE>



Fund.  The total of the Fund's  mortgage-backed  securities  was  reduced due to
principal  repayments.  These repayment  proceeds were used to support  dividend
payments  to  Shareholders.  Other  income  increased  in 1996  compared to 1995
primarily  due to the  receipt  of the  administrative  claim  of  approximately
$19,000 from Phar-Mor for post-petition real estate taxes for the period through
May 15, 1993 (see Note 8 to the consolidated financial statements).

Depreciation  expense  decreased in 1996  compared to 1995  primarily due to the
sale of the Pearle  Express store in July 1996 and the  classification  of Sam's
Club in 1995 and the NCS  properties in the third quarter of 1996 as Real Estate
Held for  Sale  and  depreciation  not  being  provided  for  subsequent  to the
classification   (see  Note  10  and  Note  6  to  the  consolidated   financial
statements).

General and  administrative  expense  decreased  slightly in 1996 as compared to
1995  primarily  due to the decrease in advisory fee as a result of the sales of
properties  in  1996  and  1995  (see  Note  10 to  the  consolidated  financial
statements)  and the decrease in legal fees relating to the Phar-Mor  bankruptcy
proceedings (see Note 8 to the consolidated financial statements). The decreases
were partially offset by the increase in administrative  expenses  reimbursed to
the Fund's Advisor.

As discussed in Item 8, Note 10, in June, July, November, and December 1996, the
Fund sold the Sam's Club, Pearle Express - Orland Park,  Illinois,  NCS store in
Rancho Cucamonga,  California and NCS store in Houston, Texas, respectively, and
recognized a net gain totaling $760,000.

1995 Compared to 1994

Income before gain (loss) on sale of property and extraordinary  items increased
$513,000 in 1995  compared to 1994.  The 1995  increase was primarily due to the
increase  in  lease  income  as  discussed  below.  In  addition,   interest  on
mortgage-backed  securities  decreased  $145,000,  and interest and other income
decreased  $141,000,  which were offset in part by a $38,000 decrease in general
and administrative expenses.

Lease income in 1995  compared to the prior year  increased  primarily due to an
increase  in lease  income  of  $400,000  from  the  Haverty's  Furniture  Store
("Haverty's")  purchased in December  1994, and an increase in lease income from
NCS as a result of  recording  deferred  lease  income of  $279,000 in 1995 (see
revenue recognition policy in Note 1 to the consolidated financial statements).

Interest on the Fund's mortgage-backed securities portfolio declined 17% in 1995
compared to 1994 due to the reduction in the amount of  securities  owned by the
Fund. The total of the Fund's  mortgage-backed  securities portfolio was reduced
due to  principal  repayments  and the  sale of  mortgage-backed  securities  to
purchase  Haverty's.  These  repayment  proceeds  were used to support  dividend
payments to  Shareholders.  In 1995,  the Fund  recognized a $16,000 gain on the
sale of mortgage-backed securities.

Interest and other income  decreased in 1995  compared to 1994  primarily due to
the  decrease  in cash  available  for  investments  as a  result  of the use of
available cash for the  acquisition of Haverty's in December 1994.  Other income
also  decreased  as less  stock  was  received  from  NCS in 1995  than  1994 in
connection  with  the  settlement  of  the  Fund's  claim  following  bankruptcy
proceedings and the lessee's subsequent reorganization. Revenue from the sale of
Shares of stock in 1995 totaled $20,000 compared to $70,000 in 1994.

General and  administrative  expenses  decreased in 1995 compared to 1994.  This
decrease  was  primarily  a result of a decrease of $28,000 in legal fees mainly
due to the nonrecurring costs incurred in 1994 associated with the establishment
of  the  DRP/LOP,  and  the  discontinuance  of  amortization  of  the  deferred
consulting  fees  (see  Item 8,  Note 9) which  was  offset in part by a $48,000
increase in costs reimbursed to the Fund's Advisor.

As discussed in Item 8, Note 10, in March 1995 the Fund sold the former Phar-Mor
building located in Franklin Township, Ohio, and recognized a gain of $126,000.

                                        8

<PAGE>



Fund Liquidity and Capital Resources

Introduction

The Fund intends to meet its cash needs from cash flow  generated by  properties
and securities and from the proceeds from the sale of properties and securities.
In order to continue to qualify as a REIT for income tax  purposes,  the Fund is
required,  among other  things,  to  distribute  95 percent of its REIT  taxable
income to its Shareholders annually. The current level of regular quarterly cash
dividends to Shareholders is being sustained by cash provided from net operating
activities,  from principal  repayments on the mortgage-backed  securities,  and
from capital gains from the sale of securities.

Since  inception,  the principal  source of capital  resources has been proceeds
from the sale of the Fund's common stock.  Through June 30, 1992,  proceeds from
the sale of common stock totaled $63,054,000,  including proceeds raised through
the DRP of $2,800,000.  The DRP was to have purchased  newly issued Shares until
June 30, 1992, and thereafter,  Shares from Shareholders wishing to sell Shares,
if any.  However,  the DRP was  suspended  effective  with the  January 15, 1992
distribution  to  Shareholders of record on December 31, 1991 as a result of the
Chapter 11 bankruptcy filing by National  Convenience Stores ("NCS").  The Board
of Directors  extended the  suspension  of the DRP with respect to the dividends
paid in 1992,  1993 and January 20, 1994 and all DRP  participants  received the
dividends in cash.

In September,  1993, the Board of Directors  voted  unanimously to reinstate the
DRP and activate the LOP.  Purchases of Shares through the DRP (to the extent of
participation  in the DRP)  commenced  with respect to the dividend paid for the
first quarter of 1994. Shares were purchased through the DRP on the dates and at
the prices noted below:

         DRP Purchase Date    Share Price           Source of Proceeds
         -----------------    -----------           ------------------

         May 16, 1994 ....     $   7.41             Quarterly Dividend
         August 15, 1994 .     $   7.21             Quarterly Dividend
         November 15, 1994     $   7.10             Quarterly Dividend
         January 16, 1995      $   7.04             Quarterly Dividend
         May 15, 1995 ....     $   6.93             Quarterly Dividend
         July 17, 1995 ...     $   6.53      Special Dividend of Sales Proceeds
         August 15, 1995 .     $   6.53             Quarterly Dividend
         November 15, 1995     $   6.54             Quarterly Dividend
         January 16, 1996      $   6.51             Quarterly Dividend
         May 15, 1996 ....     $   6.59             Quarterly Dividend
         August 15, 1996 .     $   6.52             Quarterly Dividend

In June 1996 the Board of Directors  voted  unanimously to terminate the DRP and
LOP  effective as to dividends  paid after August 15, 1996.  The Fund's  Advisor
will continue to provide, on a quarterly basis, an estimated net asset value per
Share  utilizing the same methods  previously  utilized to calculate the DRP per
Share purchase price.  Based on December 31, 1996 appraisals for the properties,
the market value of the Fund's mortgage-backed securities, and carrying value of
its other assets and liabilities as of December 31, 1996, the Advisor  estimates
the per Share net asset value to be $5.08.  Appraisals  of the real  property in
the portfolio will continue to occur annually.

As presented in the Consolidated  Statement of Cash Flows,  cash was provided by
operating  activities.  In addition,  cash was provided by investing  activities
from  proceeds  from sales of  properties  and  principal  payments  received on
mortgage-backed  securities.  Cash was used by investing activities for expenses
incurred in the sales of properties.  Cash was used by financing  activities for
dividends paid to Shareholders.

NCS was the seller and lessee of 19 properties operated as Stop N Go convenience
stores  acquired  by the  Fund  in  November  1989.  In  March  1993,  NCS had a
reorganization  plan confirmed by the Court which became effective March 9, 1993
(NCS had filed a petition for reorganization under Chapter 11 in December 1991).
As payment for a claim filed by the Fund with the Bankruptcy  Court with respect
to the three rejected leases, NCS agreed to issue new shares of its common stock
to the Fund.  Through May 1995,  the Fund  received  17,161  shares of NCS stock
which were  immediately  sold and resulted in net proceeds of $230,000.  In June
1996 the Fund received  $32,000 in lieu of 1,170 shares of NCS common stock from
Diamond  Shamrock  Corporation,  the firm which  purchased  the  majority of the

                                        9

<PAGE>



outstanding  NCS  stock  in  December  1995.  In  late  1996  Diamond   Shamrock
Corporation  merged with Ultramar  Corporation to form Ultramar Diamond Shamrock
Corporation (UDS). This newly created $4 billion  corporation is now reported to
be the fourth largest  independent  oil refining and marketing  company in North
America.  The Fund expects to receive some additional  compensation  from UDS in
1997 as payment for the remainder of the outstanding claim.

In April  1994,  NCS  completed  an  exchange  and sale of stores  with  another
convenience  store  operator,  Circle K Corporation.  NCS exchanged 53 stores in
Southern California for 88 Circle K stores in the Dallas and Houston markets. In
addition,  Circle K purchased 27 NCS stores in the Atlanta  market.  Five of the
Fund's stores, four in Southern California and one in Atlanta,  were included in
the transactions and during the third quarter of 1994 were converted to Circle K
operations.  Although lease payments for the stores operated as Circle K are now
received from Circle K  Corporation,  NCS remains  financially  liable under the
terms of the  leases.  Also in the third  quarter of 1994,  the Fund  received a
payment  of  $91,000  from  the  Texas  Department  of  Transportation   through
condemnation and sale of approximately 3,593 square feet of frontage of the Stop
N Go property in Houston. Effective September 1, 1994, the rent on the store was
reduced by 10.4% to  approximately  $132,000 per year.  The loss recorded at the
time of sale was $32,000.

In  November  1996 the  Fund  sold  National  Convenience  Store  Stop N Go #674
(operated as Circle K) located in Rancho  Cucamonga,  California for $1,650,000.
After payment of expenses of sale of $103,000 (including real estate commissions
of $93,000  paid to outside  brokers)  the  proceeds  received  by the Fund were
approximately $1,547,000.  The carrying value at the time of sale was $1,038,000
(including $37,000 deferred lease income receivable). The gain recognized at the
time of sale was $509,000.

In  December  1996 the Fund  sold  National  Convenience  Store  Stop N Go #3755
located in Houston  (Harris  County),  Texas for  $1,410,000.  After  payment of
expenses of sale of $100,000  (including $81,000 real estate commissions paid to
outside brokers),  the proceeds to the Fund were $1,310,000.  The carrying value
at the time of sale was  $1,587,000  (including  $38,000  deferred  lease income
receivable). The loss recognized at the time of sale was $277,000.

In  February  1997 the Fund  sold  National  Convenience  Store  Stop N Go #3583
located in Clute,  Texas for  $264,000.  After  payment of  expenses  of sale of
$29,000 (including $16,000 real estate commissions paid to outside brokers), the
proceeds to the Fund were  $235,000.  The carrying value at the time of sale was
$373,000  (including  $9,000  deferred  lease  income   receivable).   The  loss
recognized at the time of sale was $138,000.

In March 1997 the Fund sold National  Convenience  Store Stop N Go #3571 located
in Sealy,  Texas for  $265,000.  After  payment of  expenses  of sale of $28,000
(including  $16,000  real  estate  commissions  paid to  outside  brokers),  the
proceeds to the Fund were  $237,000.  The carrying value at the time of sale was
$303,000  (including  $9,000  deferred  lease  income   receivable).   The  loss
recognized at the time of sale was $66,000.

In March 1997 the Fund sold National Convenience Store Stop N Go #655 located in
Dallas,  Texas for  $1,392,000.  After  payment of  expenses of sale of $102,000
(including  $80,000  real  estate  commission  paid to an outside  broker),  the
proceeds to the Fund were $1,290,000. The carrying value at the time of sale was
$715,000  (including  $43,000  deferred  lease  income  receivable).   The  gain
recognized at the time of sale was $575,000.

The Fund received several purchase offers for the building  formerly occupied by
Sam's Club,  located in Menomonee  Falls,  Wisconsin,  and in 1996  negotiated a
purchase and sale  agreement  with one potential  buyer which was not affiliated
with MITS or the Advisor. A written  notification of the waiver by the lessee of
its first right of refusal to purchase the property was received by the Advisor.
In June 1996 the Fund sold Sam's Club for $4,910,000 (after credit to seller for
a  construction  holdback of $28,000).  After payment of the expenses of sale of
$201,000  (including  a real estate  commission  of $168,000  paid to an outside
broker),  the proceeds received by the Fund were approximately  $4,709,000.  The
carrying value at the time of sale was  $4,135,000.  The gain  recognized at the
time of sale was $574,000.  Of the proceeds  received by the Fund,  $108,000 was
deposited in an escrow  account to secure  payment for  construction  work to be
completed by the tenant at the property. Due to severe weather, the repairs were
not  undertaken  within the time frame  specified.  The Fund's Advisor has since
negotiated an extension with the tenant and the buyer which requires  completion
by June 1, 1997. Once the repairs have been completed to the satisfaction of the
buyer, the remaining escrow funds will be released to the Fund.


                                       10

<PAGE>



During the fourth  quarter of 1995,  the Fund  successfully  negotiated  a three
year,  eight month lease  extension  for the Pearle  Express  location in Orland
Park, Illinois,  which took effect December 1, 1995. During the first quarter of
1996 the Fund received an offer to purchase the property.  In July 1996 the Fund
sold the Orland Park location for $1,069,000.  After payment of expenses of sale
of  $81,000  (including  real  estate  commissions  of  $64,000  paid to outside
brokers)  the proceeds  received by the Fund were  approximately  $988,000.  The
carrying value at the time of sale was  $1,034,000.  The loss  recognized at the
time of sale was $46,000.

In early  1996 the Fund  received  a  purchase  offer  for the  Morrow,  Georgia
location,  from a potential  buyer not affiliated  with the MITS or the Advisor.
The Fund, however, was not able to reach an acceptable agreement with the buyer,
and continued to market the property through the second quarter. No other viable
offers were received and the property was subsequently  removed from the market.
The Fund  continues to negotiate  with Pearle Inc. to extend or modify the lease
for the Morrow  location,  which by its  current  lease  terms  would  expire on
January 31, 1999.

As discussed in Note 8 to the consolidated  financial  statements,  Phar-Mor,  a
lessee  responsible for 4 percent of lease income for 1993, filed for protection
under  Chapter  11 of the  federal  Bankruptcy  Code in  August  1992.  Phar-Mor
rejected the Fund's lease  effective  May 15, 1993  following the closure of the
store  in  April  and,  as  discussed  in Note 8 to the  consolidated  financial
statements,  the Fund  filed  claims  in the  bankruptcy  proceedings.  The Fund
determined that based upon the closure of the Phar-Mor  store,  and current Ohio
market  conditions,  recovery of the carrying  value of that  property  appeared
unlikely.  Accordingly,  a provision  for  impairment  of value of $780,000  was
recognized in 1993 to reduce the carrying  value of the property  based upon the
estimated  economic  loss to the Fund. In the fourth  quarter of 1994,  the Fund
received an unsolicited purchase offer for the building. Following negotiations,
a purchase and sale  agreement was executed.  The  transaction  closed escrow on
March  15,  1995 at a sales  price  of  $3,050,000.  After  expenses  of sale of
$126,000 (including real estate commissions of $91,000 paid to outside brokers),
the proceeds to the Fund were approximately $2,924,000. At the date of sale, the
carrying amount of land, improvements and unamortized leasing commissions, after
a $780,000 provision for impairment of value recognized in 1993, was $2,798,000.
The gain on the sale was $126,000.

In September 1994, the Board of Directors  approved the purchase,  by the Fund's
subsidiary,  of a 55,000 square foot free standing retail building located along
a major  transportation  corridor in Plano,  Texas.  The purchase  price for the
property,  which was built in 1988 and expanded in early 1994,  was  $4,083,000,
including  acquisition  fees  and  expenses.  The  store,  leased  to  Haverty's
Furniture  Companies,  Inc.,  is subject to a 15 year lease,  with an additional
renewal  option for five  years.  The tenant is  responsible  for all  operating
expenses,  including  taxes,  maintenance  and  insurance  expenses.  Haverty's,
established in 1885, is one of the largest publicly-owned furniture retailers in
the country and owns and operates 89 stores  throughout the Southeast and Texas.
The seller of the  property  was the original  developer,  Rosewood  Real Estate
Investment, Inc. The purchase closed on December 22, 1994.

During the latter part of 1995 and early 1996, the Wickes  Furniture  Store (the
"Store") was marketed for sale, in accordance with the Advisor's  recommendation
and as approved by the Fund's Board of  Directors.  However,  due to weak retail
market   conditions  in  Southern   California  and  current  lease  rates,  few
prospective  buyers  expressed  an interest in  purchasing  the Store at a price
acceptable to the Fund. The property was subsequently  withdrawn from the market
and will be held until market conditions improve.

The  impact  of  inflation  on  the  Fund's  revenues  and  expenses  cannot  be
determined.  It is also  impossible  to predict the impact of  inflation  on the
ultimate  sales price of the  properties  which the Fund has acquired and on the
market values of  mortgage-backed  securities.  Mortgage-backed  securities  are
interest  rate  sensitive  financial  investments  and, to the extent  inflation
affects interest rates,  their value will generally  decrease if market interest
rates increase.  Conversely,  if market  interest rates decline,  the underlying
mortgages  may be prepaid and the Fund may not be able to reinvest  the proceeds
at interest rates as favorable as previously invested.

The Advisor anticipates that the Fund will have sufficient resources to meet its
capital and operating requirements into the foreseeable future.

                                       11

<PAGE>



Item 8.    Financial Statements and Financial Statement Schedules.

                                     METRIC INCOME TRUST SERIES, INC.,
                                         a California corporation
<TABLE>
                                             TABLE OF CONTENTS
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                             <C>
Report of Independent Auditors............................................................................      13
Consolidated Financial Statements:
   Balance Sheets at December 31, 1996 and 1995 ..........................................................      14
   Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994..........................      15
   Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994................      16
   Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994..........................      17
   Notes to Consolidated Financial Statements.............................................................      18
Financial Statement Schedules:
   Schedule III    -  Real Estate and Accumulated Depreciation at December 31, 1996.......................      26

Financial  statements and financial  statement  schedules not included have been omitted  because of the absence of
conditions  under which they are required or because the  information  is included  elsewhere in the  consolidated
financial statements.

</TABLE>
                                                   12

<PAGE>










                         REPORT OF INDEPENDENT AUDITORS

Metric Income Trust Series, Inc., a California corporation:

We have audited the  accompanying  consolidated  balance sheets of Metric Income
Trust Series,  Inc., a California  corporation  ("the Fund"), as of December 31,
1996  and  1995  and  the  related   consolidated   statements  of   operations,
Shareholders'  equity and cash flows for the years ended December 31, 1996, 1995
and 1994. Our audits also included the financial statement schedules of the Fund
listed in the  accompanying  table of contents.  These financial  statements and
financial  statement  schedules are the responsibility of the Fund's management.
Our  responsibility  is to express an opinion on these financial  statements and
financial statement schedules 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 and schedules are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial  statements and
schedules.  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 the
Fund at  December  31,  1996  and  1995,  and the  consolidated  results  of its
operations  and its cash flows for the years ended  December 31, 1996,  1995 and
1994 in conformity with generally accepted accounting  principles.  Also, in our
opinion, the related financial statement schedules,  when considered in relation
to the basic consolidated  financial statements taken as a whole, present fairly
in all material respects the information shown therein.

As discussed in Note 1 to the  consolidated  financial  statements,  in 1994 the
Fund changed its method of accounting for mortgage-backed securities.






Ernst & Young LLP

San Francisco,  California
January 23, 1997, except Note 11 as
to which the date is March 12, 1997

                                       13


<PAGE>


<TABLE>
                        METRIC INCOME TRUST SERIES, INC.,
                            a California corporation

                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1996 and 1995

<CAPTION>
                                                                        1996             1995
                                                                        ----             ----
<S>                                                                <C>             <C>
ASSETS

Cash ...........................................................   $  3,781,000    $    976,000
Accounts and Interest Receivable ...............................        669,000         412,000
Investment in Mortgage-Backed Securities - Net .................      7,251,000       8,575,000

Rental Properties ..............................................     14,798,000      30,889,000
Accumulated Depreciation .......................................     (1,286,000)     (2,784,000)
                                                                   ------------    ------------
     Properties and Improvements - Net .........................     13,512,000      28,105,000

Real Estate Held for Sale ......................................     10,612,000       4,135,000
Prepaid and Other Assets .......................................        114,000           8,000
                                                                   ------------    ------------

     Total Assets ..............................................   $ 35,939,000    $ 42,211,000
                                                                   ============    ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities

Dividends Payable ..............................................   $  3,888,000    $  1,264,000
Payable to Sponsor and Affiliates ..............................          9,000          22,000
Other Accounts Payable and Accrued Liabilities .................        187,000         308,000
                                                                   ------------    ------------

     Total Liabilities .........................................      4,084,000       1,594,000
                                                                   ------------    ------------

Commitments and Contingencies

Shareholders' Equity:
Common Stock - no par value, stated at $0.001, 12,250,000 Shares
     authorized and 6,321,641 Shares issued and outstanding ....          6,000           6,000
Additional Paid-in Capital .....................................     55,200,000      55,200,000
Accumulated Dividends in Excess of Net Income ..................    (23,521,000)    (14,947,000)
Unrealized Holding Gain on Investment
     in Mortgage-Backed Securities - Net .......................        170,000         358,000
                                                                   ------------    ------------

     Total Shareholders' Equity ................................     31,855,000      40,617,000
                                                                   ------------    ------------

     Total Liabilities and Shareholders' Equity ................   $ 35,939,000    $ 42,211,000
                                                                   ============    ============
</TABLE>




                 See notes to consolidated financial statements.


                                       14

<PAGE>


<TABLE>
                        METRIC INCOME TRUST SERIES, INC.,
                            a California corporation

                      CONSOLIDATED STATEMENTS OF OPERATIONS
              For the Years Ended December 31, 1996, 1995 and 1994

<CAPTION>
                                                                    1996         1995          1994
                                                                    ----         ----          ----
<S>                                                             <C>          <C>          <C> 
Revenues:

Lease income ................................................   $4,109,000   $4,300,000   $ 3,497,000
Interest on mortgage-backed securities ......................      611,000      702,000       847,000
Interest and other income ...................................      166,000      138,000       279,000
Gain on sale of mortgage-backed securities - net ............         --         16,000        47,000
                                                                ----------   ----------   -----------
   Total Revenues ...........................................    4,886,000    5,156,000     4,670,000
                                                                ----------   ----------   -----------

Expenses (including $467,000, $454,000 and $414,000 paid or
   payable to advisor and affiliates in 1996, 1995 and 1994):

Depreciation ................................................      397,000      652,000       641,000
General and administrative ..................................      697,000      700,000       738,000
                                                                ----------   ----------   -----------
   Total Expenses ...........................................    1,094,000    1,352,000     1,379,000
                                                                ----------   ----------   -----------

Income Before Gain (Loss) on Sale of Properties
    and Extraordinary Items .................................    3,792,000    3,804,000     3,291,000

Gain (Loss) on Sale of Properties - Net .....................      760,000      126,000       (32,000)

Extraordinary Items - Net ...................................         --           --        (371,000)
                                                                ----------   ----------   -----------

Net Income ..................................................   $4,552,000   $3,930,000   $ 2,888,000
                                                                ==========   ==========   ===========

Net Income per Share
Income before gain (loss) on sale of properties and
   extraordinary items                                               $0.60        $0.60         $0.52
Gain (loss) on sale of properties - net                               0.12         0.02             -
Extraordinary items - net                                                -            -         (0.06)
                                                                     -----        -----         -----

   Net Income per Share                                              $0.72        $0.62         $0.46
                                                                     =====        =====         =====

Dividends per Share                                                  $2.08        $1.26         $0.85
                                                                     =====        =====         =====

</TABLE>




                 See notes to consolidated financial statements.


                                       15

<PAGE>


<TABLE>
                                          METRIC INCOME TRUST SERIES, INC.,
                                              a California corporation

                                   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                For the Years Ended December 31, 1996, 1995 and 1994


<CAPTION>
                                                                                                       Unrealized
                                                                                                          Holding
                                                                                                        Gain/(Loss)
                                                                     Additional     Accumulated       on Investment in
                                                  Common Stock        Paid-in    Dividends in Excess  Mortgage-Backed
                                                Shares     Amount     Capital      of Net Income     Securities - Net     Total
                                                ------     ------     -------      -------------      ----------------    -----
<S>                                           <C>        <C>         <C>            <C>              <C>              <C>
Balance, January 1, 1994 ................     6,321,641  $  6,000    $55,200,000    $ (8,427,000)    $                $46,779,000

Effect of Adopting Statement of Financial
     Accounting Standard No. 115 ........                                                                   713,000       713,000
Unrealized Holding Loss
     On Investment in Mortgage-Backed
     Securities - Net ...................                                                                (1,032,000)   (1,032,000)
Income Before Loss on
     Sale of Property and
     Extraordinary Items ................                                              3,291,000                        3,291,000
Loss on Sale of Property ................                                                (32,000)                         (32,000)
Extraordinary Items - Net ...............                                               (371,000)                        (371,000)
Dividends Declared ......................                                             (5,373,000)                      (5,373,000)
                                              ---------     -----     ----------     -----------           ---------   -----------
Balance, December 31, 1994 ..............     6,321,641     6,000     55,200,000     (10,912,000)          (319,000)   43,975,000

Unrealized Holding Gain
     On Investment in Mortgage-Backed
     Securities - Net ...................                                                                   677,000       677,000
Income Before Gain on
     Sale of Property ...................                                              3,804,000                        3,804,000
Gain on Sale of Property ................                                                126,000                          126,000
Dividends Declared ......................                                             (7,965,000)                      (7,965,000)
                                              ---------     -----     ----------     -----------           ---------   -----------
Balance, December 31, 1995 ..............     6,321,641     6,000     55,200,000     (14,947,000)           358,000    40,617,000

Unrealized Holding Loss
     On Investment in Mortgage-Backed
     Securities - Net ...................                                                                  (188,000)     (188,000)
Income Before Gain on
     Sale of Properties .................                                              3,792,000                        3,792,000
Gain on Sale of Properties - Net ........                                                760,000                          760,000
Dividends Declared ......................                                            (13,126,000)                     (13,126,000)
                                              ---------     -----     ----------     -----------           ---------   -----------
Balance, December 31, 1996 ..............     6,321,641  $  6,000    $55,200,000    $(23,521,000)         $ 170,000   $31,855,000
                                              =========     =====     ==========     ===========           =========   ===========

</TABLE>



                 See notes to consolidated financial statements.


                                       16

<PAGE>


<TABLE>
                                            METRIC INCOME TRUST SERIES, INC.,
                                                a California corporation

                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                For the Years Ended December 31, 1996, 1995 and 1994

<CAPTION>
                                                                                         1996           1995            1994
                                                                                         ----           ----            ----
Operating Activities
<S>                                                                                 <C>             <C>            <C>
Net income ......................................................................   $  4,552,000    $ 3,930,000    $ 2,888,000
Adjustments to reconcile net income to net cash provided by operating activities:
   Depreciation and amortization ................................................        389,000        642,000        640,000
   Gain on sale of mortgage-backed securities - net .............................                       (16,000)       (47,000)
   (Gain) loss on sale of properties ............................................       (760,000)      (126,000)        32,000
   Extraordinary items - net ....................................................                                      371,000
   Changes in operating assets and liabilities:
          Accounts and interest receivable ......................................       (332,000)      (296,000)        58,000
          Prepaid and other assets ..............................................       (106,000)         9,000        (93,000)
          Payable to sponsor and affiliates .....................................        (13,000)       (48,000)       (23,000)
          Other accounts payable and accrued liabilities ........................       (121,000)        93,000       (134,000)
                                                                                    ------------    -----------    -----------
Net cash provided by operating activities .......................................      3,609,000      4,188,000      3,692,000
                                                                                    ------------    -----------    -----------

Investing Activities

Rental properties acquisitions and additions ....................................                       (59,000)    (4,250,000)
Acquisition fee paid ............................................................                                      (56,000)
Purchase of cash investments ....................................................                    (2,855,000)    (1,876,000)
Proceeds from cash investments ..................................................                     2,855,000      1,876,000
Purchase of mortgage-backed securities ..........................................                      (301,000)    (1,140,000)
Proceeds from sale of mortgage-backed securities ................................                       303,000      1,419,000
Principal payments received on mortgage-backed securities .......................      1,144,000        626,000      3,066,000
Proceeds from sales of properties ...............................................      9,039,000      3,050,000         91,000
Cash used for selling costs of properties .......................................       (485,000)      (126,000)
                                                                                    ------------    -----------    -----------
Net cash provided (used) by investing activities ................................      9,698,000      3,493,000       (870,000)
                                                                                    ------------    -----------    -----------

Financing Activities

Dividends paid to Shareholders ..................................................    (10,502,000)    (8,044,000)    (5,373,000)
Consulting fees paid ............................................................                                     (709,000)
                                                                                    ------------    -----------    -----------
Cash used by financing activities ...............................................    (10,502,000)    (8,044,000)    (6,082,000)
                                                                                    ------------    -----------    -----------

Increase (Decrease) in Cash and Cash Equivalents ................................      2,805,000       (363,000)    (3,260,000)
Cash and cash equivalents at beginning of year ..................................        976,000      1,339,000      4,599,000
                                                                                    ------------    -----------    -----------

Cash and Cash Equivalents at End of Year ........................................   $  3,781,000    $   976,000    $ 1,339,000
                                                                                    ============    ===========    ===========


                           SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES

Unrealized holding gain (loss) on investment in mortgage-backed securities - see note 3.

Sale of rental properties in 1996 and 1995 - see note 10.



                                   See notes to consolidated financial statements.
</TABLE>

                                                       17

<PAGE>




                        METRIC INCOME TRUST SERIES, INC.,
                            a California corporation

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization and Summary of Significant Accounting Policies

      Organization - Metric Income Trust Series, Inc., a California  corporation
      ("Fund"),  was organized in 1989 under the laws of the State of California
      to acquire income  producing real properties and investments in securities
      which are  guaranteed  as to payment of principal and interest by the U.S.
      Government,  U.S. Government agencies or  instrumentalities,  or federally
      chartered  corporations.  The Fund  qualifies as a real estate  investment
      trust  ("REIT")  under  Sections 856 through 860 of the  Internal  Revenue
      Code.  Metric  Realty  (formerly  known as Metric  Partners),  an Illinois
      general partnership ("Sponsor" and "Advisor"),  is the Sponsor and Advisor
      of the Fund. The general partners of Metric Realty are Metric Realty Corp.
      and Metric Holdings,  Inc.,  Delaware  corporations which are wholly owned
      subsidiaries  of  Metropolitan  Life  Insurance  Company.  As the Advisor,
      Metric Realty has entered into an advisory  agreement  with the Fund under
      which it will furnish  day-to-day  management and carry out the investment
      objectives and policies established by the Board of Directors. The term of
      the  Advisory  Agreement  is  expected  to be  extended  by the  Board  of
      Directors  to March 31,  1998.  The Sponsor  owns 21,506  Shares of common
      stock.

      Consolidation  -  The  consolidated   financial   statements  include  the
      statements of the Fund,  and its  wholly-owned  subsidiary  which owns all
      properties located in Texas. All significant intercompany transactions and
      balances have been eliminated.

      Fair Value of Financial  Instruments - Except for the Fund's investment in
      mortgaged-backed  securities,  the fair  values  of the  Fund's  financial
      instruments  approximate  their  historic cost, as reported in the balance
      sheet.  In  accordance  with FASB  Statement  115 (see below),  the Fund's
      investments in mortgage-backed securities are reported at fair value.

      Change in Accounting  Principle - In June 1993,  the Financial  Accounting
      Standards  Board (FASB) issued  Statement No. 115  "Accounting for Certain
      Investments  in Debt and  Equity  Securities".  In  accordance  with  this
      Statement  and   management's   intentions,   the  Fund's   investment  in
      mortgage-backed    securities   is   classified   as   "available-for-sale
      securities" and reported at fair value,  with unrealized  gains and losses
      excluded  from  earnings  and  reported  as a  net  amount  in a  separate
      component   of   Shareholders'    equity.   The   Fund's   investment   in
      mortgage-backed  securities  is stated at  amortized  cost at December 31,
      1993.  The effect of  adopting  this  statement  at January 1, 1994 was to
      increase mortgage-backed securities and Shareholders' equity by $713,000.

      New Accounting  Pronouncement  - In March 1995, the FASB issued  Statement
      No. 121,  "Accounting  for the  Impairment  of  Long-Lived  Assets and for
      Long-Lived Assets to Be Disposed Of" ("SFAS 121"). This statement requires
      impairment  losses to be recorded on long-lived  assets used in operations
      when indicators of impairment are present and the undiscounted  cash flows
      estimated to be generated  by those assets  during the holding  period are
      less  than the  assets'  carrying  amount.  SFAS 121  also  addresses  the
      accounting for long-lived  assets that are expected to be disposed of. The
      Fund adopted SFAS 121 in the fourth quarter of 1995. No impairment  losses
      were required to be recorded as a result of adopting SFAS 121.

      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.

      Cash and Cash Equivalents - The Fund considers  highly liquid  investments
      with an  original  maturity  date of three  months  or less at the time of
      purchase to be cash equivalents.


                                       18

<PAGE>



      Rental Properties - Rental properties are stated at cost. Prior to 1995, a
      provision  for  impairment of value is recorded when a decline in value of
      property is  determined  to be other than  temporary as a result of one or
      more of the following: (1) a property is offered for sale at a price below
      its current  carrying  value,  (2) a property has been, and is expected to
      continue generating  significant operating deficits and the Fund is unable
      or  unwilling  to sustain such  deficit  results of  operations  or, (3) a
      property's  value has declined  based on  management's  expectations  with
      respect to  projected  future  operational  cash flows during the expected
      holding period and prevailing economic  conditions.  An impairment loss is
      indicated when the undiscounted sum of estimated future cash flows from an
      asset,  including  estimated  sales  proceeds,  and  assuming a reasonable
      period of ownership up to 5 years, is less than the carrying amount of the
      asset.  The  impairment  loss is  measured as the  difference  between the
      estimated fair value and the carrying  amount of the asset. As of December
      31, 1995,  the carrying  value of the rental  properties  is determined in
      accordance with SFAS 121.

      Real  Estate  Held for Sale - Real  estate  held for sale is stated at the
      lower of its carrying  amount or estimated fair value less disposal costs.
      Estimated  fair value for financial  reporting  purposes is computed using
      the estimated sales price approved by the Board of Directors. Depreciation
      is not recorded on assets classified as held for sale.

      In the course of business,  the Fund will  receive  offers for sale of its
      properties,  either  solicited or unsolicited.  For those offers which are
      accepted,  the buyer will usually  require a due  diligence  period before
      consummation  of the  transaction;  it is not unusual for matters to arise
      which result in withdrawal of the offer during this process.  As a result,
      real estate is not  classified  as "held for sale" until it is likely,  in
      the opinion of management, that a property will be disposed of in the near
      term, even if sales negotiations for such property are underway.

      Revenue  Recognition  - Rental  revenue  under tenant lease  agreements is
      recognized on the  straight-line  method over the lease terms except where
      such  amounts  are  immaterial  or  where  the   underlying   tenants  are
      experiencing  financial  difficulties.  Once  difficulties  are  resolved,
      rental  revenue is straight lined (unless the adjustment is immaterial) on
      prospective  rental  streams for tenants  who have  resolved or  mitigated
      their financial difficulties.

      Depreciation - Depreciation  is computed  using the  straight-line  method
      over  estimated  useful lives of 30 years for buildings and  improvements.
      Beginning in the fourth  quarter of 1995,  properties  categorized as real
      estate held for sale are not  depreciated as a result of the Fund adopting
      SFAS 121.

      Mortgage-Backed   Securities  -  Mortgage-backed   securities  consist  of
      certificates  originated  under  or in  connection  with  Federal  housing
      programs of the Government National Mortgage Association ("GNMA"), Federal
      National  Mortgage  Association  ("FNMA"),  and Federal Home Loan Mortgage
      Corporation  ("FHLMC")  and are  guaranteed as to payment of principal and
      interest.  The Fund's intent is to hold these securities as available-for-
      sale  investments.  The Fund will sell and re-invest in mortgage  pools to
      adjust the cash flow from these investments.  Discounts are amortized over
      the terms of the related  securities using the interest  method.  Prior to
      1994  mortgage-backed  securities  were  carried at the lower of amortized
      cost or market.  As a result of the adoption of FASB  Statement No. 115 in
      1994, as discussed above,  mortgage-backed  securities are carried at fair
      value.

      Net Income and  Dividends  Per Share - Net income and  dividends per Share
      are based upon 6,321,641  Shares  outstanding  for each of the years ended
      December 31, 1996,  1995 and 1994.  Dividends  per Share were  composed of
      $.52  ordinary  income,  $.10 capital gains and $1.46 return of capital in
      1996, $.47 ordinary income,  $.01 capital gains and $.78 return of capital
      in 1995, and $.45 ordinary  income,  $.01 capital gains and $.39 return of
      capital in 1994.

      Income Taxes - The Internal  Revenue Code provides that a corporation  can
      qualify as a REIT if, among other things,  the corporation  distributes at
      least 95 percent of its taxable income to  Shareholders  each year. If the
      corporation  distributes  at least 95  percent  of its  taxable  income to
      Shareholders,  such  distributions can be treated as deductions for income
      tax  purposes.  Because the Fund  qualifies as a REIT and had  distributed
      amounts in excess of its  taxable  income  for 1996,  1995,  and 1994,  no
      provision for income taxes has been made in the accompanying  consolidated
      financial statements.

                                       19

<PAGE>



      The tax basis of the  Shareholders'  equity  differs at December  31, 1996
      from the amounts presented in the consolidated balance sheet as follows:


      Financial statement basis of Shareholders' equity            $31,855,000
      Tax basis of Shareholders' equity                             31,684,000
                                                                   -----------
      Difference                                                   $   171,000
                                                                   ===========

      The difference  consists  primarily of adjustments  made for  depreciation
      less  straight-lined   rental  revenue  and  unrealized  holding  gain  on
      investment in mortgage-backed securities.


2.    Transactions with Advisor and Affiliates

      In accordance with the Advisory  Agreement,  the Fund pays the Advisor and
      affiliates  compensation for services provided to the Fund. Amounts earned
      by the Advisor and its  affiliates  for the years ended December 31, 1996,
      1995 and 1994 were as follows:



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

      Reimbursement of administrative expenses .  $200,000   $160,000   $112,000
      Securities management fee ...............     38,000     44,000     51,000
      Advisory fee ............................    229,000    250,000    251,000
      Acquisition fee ............... .........                           56,000
                                                  --------   --------   --------

                                                  $467,000   $454,000   $470,000
                                                  ========   ========   ========

      The  securities  management  fee is earned by State  Street  Research  and
      Management Company, an affiliate of Metropolitan Life Insurance Company.

      Through March 31, 1994,  the  quarterly  advisory fees paid to the Advisor
      were  calculated  at an annual rate of 0.75  percent of the asset value of
      the  Fund's  properties,  which  asset  value  was  based on the  original
      purchase price of the  properties,  adjusted  annually based on changes in
      the Consumer Price Index.  Under the terms of the Advisory  Agreement,  50
      percent of the fees were  subordinated  to the  payment  of an  annualized
      dividend  payment  equaling  at least  8.5  percent  of the  Shareholders'
      adjusted  capital  contribution.  Pursuant to an amendment of the Advisory
      Agreement  approved  by the  Independent  Directors  in  March  1994,  the
      quarterly  advisory  fees  payable  to  the  Advisor  under  the  Advisory
      Agreement  commencing  April 1,  1994,  are  calculated  at a rate of 0.75
      percent per annum of the appraised value of the properties.  Such fees are
      payable  in full  only if the  Fund  makes  annualized  dividend  payments
      equaling  at least  8.5  percent  of the  Shareholders'  adjusted  capital
      contribution (current dividends are 9.1% of adjusted Shareholder capital).
      To the extent that the dividend  paid for a calendar  quarter is less than
      8.5  percent on an  annualized  basis,  the  advisory  fee  payable to the
      Advisor will be proportionately reduced.

3.    Mortgage-Backed Securities

      As a result of adopting FASB  Statement No. 115, a $713,000 net unrealized
      holding gain on investments in mortgage-backed  securities was reported in
      1994  reflecting the  cumulative  effect upon adoption of the Statement on
      January 1. In addition,  during 1996,  1995 and 1994,  the Fund incurred a
      $188,000  unrealized holding loss,  $677,000 unrealized holding gain and a
      $1,032,000  unrealized  holding  loss on  investments  in  mortgage-backed
      securities, respectively, resulting in a cumulative net unrealized holding
      gain of $170,000 at December  31,  1996 and a  cumulative  net  unrealized
      holding gain of $358,000 at December 31, 1995.


                                       20

<PAGE>



      Mortgage-backed  securities at December 31, 1996 and December 31, 1995 are
      carried at fair value and amortized cost, respectively, as follows:


                                         Gross          Gross
                                      Unrealized      Unrealized      Estimated
                      Amortized        Holding         Holding          Fair
                        Cost            Gains          Losses           Value
                        ----            -----          ------           -----
      1996:
      GNMA ...       $5,227,000       $113,000       $   82,000       $5,258,000
      FNMA ...        1,049,000         75,000             --          1,124,000
      FHLMC ..          806,000         63,000             --            869,000
                     ----------       --------       ----------       ----------
                     $7,082,000       $251,000       $   82,000       $7,251,000
                     ==========       ========       ==========       ==========
      1995:
      GNMA ...       $5,749,000       $198,000       $   18,000       $5,929,000
      FNMA ...        1,249,000         94,000             --          1,343,000
      FHLMC ..        1,219,000         84,000             --          1,303,000
                     ----------       --------       ----------       ----------
                     $8,217,000       $376,000       $   18,000       $8,575,000
                     ==========       ========       ==========       ==========


      The individual  securities held are not due at a single maturity date. The
      repayment  periods terminate between 2009 and 2024. The coupon rates range
      from 7 to 10 percent per annum.  Proceeds from the sale of mortgage-backed
      securities  in 1995 and 1994 were $303,000 and  $1,419,000,  respectively.
      The gross  realized  gains on the sales in 1995 and 1994 were  $16,000 and
      $59,000,  respectively.  The gross  realized  losses on sales in 1994 were
      $12,000.  Specific  identification was used to determine amortized cost in
      computing the gains and losses.

4.    Dividend Reinvestment Plan

      The Fund established the Dividend  Reinvestment Plan ("DRP") which, to the
      extent of Shareholder participation and dividends paid by the Fund, was to
      purchase  newly issued Shares from the Fund after the  termination  of the
      initial  public  offering and through June 30, 1992.  After June 30, 1992,
      the DRP, as originally  established,  would,  to the extent of Shareholder
      participation and dividends paid by the Fund, seek to purchase Shares from
      selling  Shareholders  at a formula price, in the absence of market price,
      and  potentially  provide a market for the Shares (the  "Liquidity  Option
      Program").  However,  the  Board  of  Directors  of the Fund  revised  the
      Liquidity  Option  Program  ("LOP") for the period  after June 30, 1992 to
      include  a Share  purchase  price  based  on the  appraised  value  of the
      properties and the net value of other assets and  liabilities  rather than
      the formula  price as described in the original  Prospectus  for the Fund.
      The LOP was activated  and became  effective for the dividend paid for the
      first quarter of 1994.  The Fund  registered  500,000 Shares to be sold by
      Shareholders to the DRP through the LOP. No additional  Shares were issued
      by the  Fund and no  proceeds  from  the  sale of  Shares  to the DRP were
      received by the Fund.  In June 1996,  the Board of  Directors  of the Fund
      voted to terminate the DRP and the LOP  effective as to dividend  payments
      made after August 15, 1996.



                                       21

<PAGE>



5.    Rental Properties

      Rental  properties at cost at December 31, 1996 and 1995 are summarized as
follows:


                                                        Other
                                     Convenience       Retail
                                       Stores          Stores          Total
                                       ------          ------          -----
      1996:

      Land .....................                   $  7,145,000    $  7,145,000
      Buildings and improvements                      7,653,000       7,653,000
      Accumulated depreciation .                     (1,286,000)     (1,286,000)
                                                   ------------    ------------

      Total ....................                   $ 13,512,000    $ 13,512,000
                                                   ============    ============

      1995:

      Land .....................   $  7,303,000    $  7,403,000    $ 14,706,000
      Buildings and improvements      7,533,000       8,650,000      16,183,000
      Accumulated depreciation .     (1,548,000)     (1,236,000)     (2,784,000)
                                   ------------    ------------    ------------

      Total ....................   $ 13,288,000    $ 14,817,000    $ 28,105,000
                                   ============    ============    ============


      In  July  1996,  the  sixteen  National   Convenience  Stores  located  in
      California,  Georgia and Texas were  reclassified  to real estate held for
      sale (see Note 6). Subsequently, two of the stores were sold in the fourth
      quarter of 1996 (see Note 10).

      In July 1996,  the Pearle  Express Store located in Orland Park,  Illinois
      was sold (see Note 10).

      In October  1995,  Sam's Club located in Menomonee  Falls,  Wisconsin  was
      reclassified  to real estate held for sale (see Note 6). The  property was
      subsequently sold in June 1996 (see Note 10).

6.    Real Estate Held for Sale

      In the third  quarter of 1996,  the Fund's Board of  Directors  approved a
      plan to market for sale the sixteen National Convenience Stores located in
      California, Georgia and Texas. Two of the stores were subsequently sold in
      the fourth  quarter of 1996 (see Note 10). In  accordance  with the Fund's
      accounting policies, the remaining fourteen stores were classified as real
      estate held for sale at December  31,  1996.  The lease  income from these
      fourteen stores for 1996, 1995 and 1994 was $1,536,000 (including deferred
      lease income recognized of $212,000), $1,536,000 (including deferred lease
      income recognized of $238,000) and $1,273,000, respectively.  Depreciation
      was $106,000 for the six months ended June 30, 1996, and $212,000 for 1995
      and 1994. No  depreciation  was provided for the six months ended December
      31, 1996.

      In the third  quarter of 1995,  the Fund's Board of  Directors  approved a
      plan to  market  for sale the  Sam's  Club  located  in  Menomonee  Falls,
      Wisconsin.  Subsequently,  the Fund received an offer from an unaffiliated
      party to purchase the property.  The Board of Directors  approved the sale
      of the property at a specified  price,  and the property was  subsequently
      sold in June 1996 (see Note 10). In accordance with the Fund's  accounting
      policies,  the  property  was  classified  as real estate held for sale at
      December 31, 1995. The lease income from the property for 1996, 1995, 1994
      was $284,000,  $524,000,  and  $511,000,  respectively.  Depreciation  was
      $101,000 for the nine months ended  September  30, 1995,  and $135,000 for
      1994.  No  depreciation  was provided  for 1996 and the fourth  quarter of
      1995.

                                       22

<PAGE>



7.    Minimum Future Lease Income

      Minimum future lease income based on contractual  payment obligations from
      operating leases having  noncancelable  lease terms in excess of one year,
      excluding  the  property  classified  as  real  estate  held  for  sale as
      discussed in Note 6, is as follows:

      1997 ......................................              $ 1,852,000
      1998 ......................................                1,852,000
      1999 ......................................                1,776,000
      2000 ......................................                1,804,000
      2001 ......................................                1,814,000
      Thereafter ................................                7,049,000
                                                               -----------

      Total .....................................              $16,147,000
                                                               ===========

8.    Commitment and Contingencies (Major Tenant Developments)

      National  Convenience  Stores  ("NCS")  was the  seller  and  lessee of 19
      properties  operated as Stop N Go convenience stores acquired by the Fund.
      In December 1991, NCS filed a petition with the U.S.  Bankruptcy  Court in
      Houston,  Texas  for  reorganization  under  Chapter  11  of  the  federal
      Bankruptcy  Code. Its  reorganization  plan was confirmed by the Court and
      became effective in March 1993. The Fund filed a claim with the Bankruptcy
      Court and reached a  settlement  with NCS.  As payment for the claim,  the
      Fund has  received  shares of NCS common  stock which were sold as well as
      cash. Total compensation  received by the Fund to date is $262,000. In the
      fourth  quarter  of 1996,  Diamond  Shamrock  Corporation,  the firm which
      purchased  the  outstanding  stock of NCS in  December  1995,  merged with
      Ultramar  Corporation to form Ultramar Diamond Shamrock Corporation (UDS).
      The Fund  expects  to receive  some  additional  compensation  from UDS as
      payment for the  remainder  of its  outstanding  claim.  The Fund sold the
      convenience  stores located in Rancho  Cucamonga,  California and Houston,
      Texas in 1996 (see Note 10).

      In April 1992, Sam's Club, a lessee located in Menomonee Falls,  Wisconsin
      informed the Fund that it had vacated its  premises.  The lessee  remained
      current in its lease  payments to the Fund and had  informed the Fund that
      it intended to honor the terms of the lease,  which was to have expired in
      2005. During the fourth quarter of 1994 and the first quarter of 1995, the
      Fund's Advisor reviewed and approved two subleases presented by the lessee
      and the building was 100% leased.  The sublease amounts were less than the
      rent  required  under the lease;  however,  the lessee paid the full lease
      amount. The property was sold in June 1996 (see Note 10).

      Phar-Mor,  a former lessee of one  property,  filed for  protection  under
      Chapter 11 of the Federal  Bankruptcy Code in August 1992 and rejected the
      Fund's  lease  effective  May 15,  1993.  The  Fund  filed  claims  in the
      bankruptcy  proceeding totaling $794,000. In December 1994, Phar-Mor filed
      in the  proceedings a preference  recovery  action against several hundred
      vendors and landlords,  including the Fund. The amount of the preferential
      payments alleged to have been made to the Fund was $90,250,  consisting of
      rent  paid  to the  Fund  within  90 days of the  filing  of the  Phar-Mor
      bankruptcy  petitions.  This preference action was dismissed in connection
      with the confirmation of the  reorganization  plan of Phar-Mor.  In August
      1995, the Court confirmed  Phar-Mor's  proposed  reorganization plan which
      called  for  unsecured  creditors  to  receive a portion  of a pool of the
      company's new stock, as well as warrants to purchase additional stock at a
      fixed price. In October 1996, the Fund received approximately $19,000 from
      Phar-Mor to satisfy its  administrative  claim. Also in October,  the Fund
      agreed to settle its remaining  outstanding  lease  rejection claim for an
      allowed claim of approximately $629,000,  which settlement was approved by
      the Bankruptcy  Court in January,  1997. It is  anticipated  that the Fund
      will receive shares of stock with an estimated  value of $8,000 to $10,000
      to satisfy this allowed claim.

      The former Phar-Mor store was subdivided in 1994 and 24,709 square feet of
      the approximately 56,000 square- foot store was leased to Superpetz, Inc.,
      which lease  commenced  November 16, 1994. In the fourth  quarter of 1994,
      the Fund received an unsolicited offer to purchase the building. Following
      negotiations a purchase and sale agreement was executed.  The  transaction
      closed escrow on March 15, 1995 (see Note 10).

                                       23

<PAGE>



9.    Extraordinary Items

      A $237,000 gain on extinguishment of debt included in extraordinary  items
      in 1994 represents debt  forgiveness  related to a reduction in the amount
      of a consulting  fee owed by the Fund to its  Advisor.  Under the Advisory
      Agreement  referenced  in Note 2, the Fund was obligated to pay a $946,000
      consulting  fee to the  Advisor.  Pursuant  to the  June  1989  consulting
      agreement  between  the  Advisor  and  Prudential-Bache  Properties,  Inc.
      ("Prudential"), Prudential agreed to provide the Advisor with consultation
      and advice  relating to the  day-to-day  management of the Fund, for which
      services  Prudential was to receive the $946,000 consulting fee payable to
      the Advisor by the Fund as well as a portion of the advisory fee and other
      contingent  compensation  payable  to  the  Advisor.  This  liability  was
      recorded by the Fund along with a deferred  consulting fee. Prudential and
      the Advisor  terminated  their  consulting  agreement  effective March 31,
      1994, and in connection  therewith,  Prudential  accepted $709,000 (75% of
      the  consulting  fee)  from  the  Advisor  in  full  satisfaction  of  the
      consulting  fee.  In turn,  the  Advisor  agreed  in an  amendment  of the
      Advisory  Agreement to accept,  and on April 27, 1994  accepted,  $709,000
      from the Fund as payment in full of the consulting fee owed to the Advisor
      by the Fund,  thus  passing on to the Fund the  $237,000  savings from the
      reduction in the consulting fee.

      In connection with the above  transaction,  the $608,000 remaining balance
      of deferred  consulting  fees was written off in the first quarter of 1994
      and is also included as an extraordinary item.

10.   Sale of Rental Properties

      In June 1996 the Fund sold the Sam's Club  property  located in  Menomonee
      Falls, Wisconsin for $4,910,000 (after credit to seller for a construction
      holdback of  $28,000).  After  payment of the expenses of sale of $201,000
      (including real estate  commission of $168,000 paid to an outside broker),
      the  proceeds  received  by the Fund were  approximately  $4,709,000.  The
      carrying value at the time of sale was $4,135,000.  The gain recognized at
      the time of sale was  $574,000.  Of the  proceeds  received  by the  Fund,
      $108,000  was  deposited  into an escrow  account  to secure  payment  for
      construction  work to be completed by the tenant at the  property.  Due to
      severe  weather,  the repairs  were not  undertaken  within the time frame
      specified.  The Fund's Advisor has since  negotiated an extension with the
      tenant and the buyer which requires  completion by June 1, 1997.  Once the
      repairs  have  been  completed  to  the  satisfaction  of the  buyer,  the
      remaining escrow funds will be released to the Fund.

      In July 1996 the Fund sold the  Pearle  Express  Store  located  in Orland
      Park,  Illinois for  $1,069,000.  After payment of the expenses of sale of
      $81,000  (including  real estate  commissions  of $64,000  paid to outside
      brokers) the proceeds  received by the Fund were  approximately  $988,000.
      The carrying value at the time of sale was $1,034,000. The loss recognized
      at the time of sale was $46,000.

      In November  1996 the Fund sold the Stop N Go Store #674 located in Rancho
      Cucamonga,  California  for  $1,650,000.  After payment of the expenses of
      sale of $103,000  (including  real estate  commissions  of $93,000 paid to
      outside  brokers)  the  proceeds  received by the Fund were  approximately
      $1,547,000.  The  carrying  value  at the  time  of  sale  was  $1,038,000
      (including $37,000 deferred lease income receivable).  The gain recognized
      at the time of sale was $509,000.

      In  December  1996 the Fund  sold the  Stop N Go Store  #3755  located  in
      Houston,  Texas for  $1,410,000.  After payment of the expenses of sale of
      $100,000  (including  real estate  commissions  of $81,000 paid to outside
      brokers) the proceeds received by the Fund were approximately  $1,310,000.
      The carrying value at the time of sale was $1,587,000  (including  $38,000
      deferred lease income receivable). The loss recognized at the time of sale
      was $277,000.

      In March  1995 the Fund  sold the  former  Phar-Mor  building  located  in
      Franklin  Township,  Ohio for  $3,050,000.  After payment of the estimated
      expenses of sale of $126,000 (including real estate commissions of $91,000
      paid  to  outside  brokers)  the  proceeds   received  by  the  Fund  were
      approximately  $2,924,000.  The  carrying  value  at the  time of sale was
      $2,798,000,  net  of  the  $780,000  provision  for  impairment  of  value
      recognized  in  1993.  The net  gain  recognized  at the  time of sale was
      $126,000.


                                       24

<PAGE>



11.   Subsequent Events

      In February 1997 the Fund sold National  Convenience Store Stop N Go #3583
      located in Clute, Texas for $264,000. After payment of expenses of sale of
      $29,000  (including  $16,000  real  estate  commissions  paid  to  outside
      brokers),  the proceeds to the Fund were  $235,000.  The carrying value at
      the time of sale was  $373,000  (including  $9,000  deferred  lease income
      receivable). The loss recognized at the time of sale was $138,000.

      In March  1997 the Fund sold  National  Convenience  Store Stop N Go #3571
      located in Sealy, Texas for $265,000. After payment of expenses of sale of
      $28,000  (including  $16,000  real  estate  commissions  paid  to  outside
      brokers),  the proceeds to the Fund were  $237,000.  The carrying value at
      the time of sale was  $303,000  (including  $9,000  deferred  lease income
      receivable). The loss recognized at the time of sale was $66,000.

      In March  1997 the Fund sold  National  Convenience  Store  Stop N Go #655
      located in Dallas, Texas for $1,392,000. After payment of expenses of sale
      of $102,000  (including  $80,000 real estate commission paid to an outside
      broker),  the proceeds to the Fund were $1,290,000.  The carrying value at
      the time of sale was $715,000  (including  $43,000  deferred  lease income
      receivable). The gain recognized at the time of sale was $575,000.

                                       25



<PAGE>

<TABLE>
                                                                                                                       SCHEDULE III

                                                 METRIC INCOME TRUST SERIES, INC.,
                                                      a California corporation

                                             REAL ESTATE AND ACCUMULATED DEPRECIATION
                                                          December 31, 1996



                                                       All amounts in thousands
                                                                COLUMNS
       A                    B                        C                              D               E                F         G
------------------------------------------------------------------------------------------------------------------------------------
                                              Cost capitalized            Gross amount at which
                   Initial Cost to Fund    subsequent to acquisition  carried at close of period(1)
                   --------------------    -------------------------  -----------------------------
<CAPTION>
                                                                        Buildings
                              Buildings                                    and                                     Date
                                 and        Improve-   Carrying          Improve-              Accumulated        of con-   Date ac-
Description          Land    Improvements     ments     Costs     Land    ments   Total(2)  depreciation(3)(4)   struction   quired
-----------          ----    ------------     -----     -----     ----    -----   --------  -------------------   ---------  ------
<S>                <C>            <C>        <C>      <C>     <C>      <C>       <C>           <C>                  <C>        <C>
Pearle Express
Store
Morrow, GA          $  333         $  838     $       $        $  333   $  838    $ 1,171       $  200              1977       11/89

Wickes
Furniture
Store
Torrance, CA         5,801          3,740                       5,801    3,740      9,541          873              1988       01/90

Haverty's
Furniture
Store
Plano, TX            1,011          3,072      3                1,011    3,075      4,086          213              1988       12/94
                    ------         ------     --      --       ------   ------    -------       ------
Total               $7,145         $7,650     $3      $        $7,145   $7,653    $14,798       $1,286
                    ======         ======     ==      ==       ======   ======    =======       ======

</TABLE>


















                                                         See accompanying notes.

                                                                   26

<PAGE>


<TABLE>
                                                                                         SCHEDULE III

                                  METRIC INCOME TRUST SERIES, INC.,
                                      a California corporation

                              REAL ESTATE AND ACCUMULATED DEPRECIATION
                                          December 31, 1996
<CAPTION>
NOTES:

<S>                                                                                         <C> 
(1)      The aggregate cost for Federal income tax purposes is $14,798,000.

(2)      Balance, January 1, 1994......................................................     $35,344,000
         Property acquisitions (initial cost to Fund) .................................       4,055,000
         Improvements capitalized subsequent to acquisition ...........................         251,000
         Cost of land sold ............................................................        (123,000)
                                                                                            -----------

         Balance, December 31, 1994 ...................................................      39,527,000
         Property acquisitions (initial cost to Fund) .................................          28,000
         Improvements capitalized subsequent to acquisition ...........................          31,000
         Cost of property and improvements  sold ......................................      (3,832,000)
         Property reclassified to real estate held for sale ...........................      (4,865,000)
                                                                                            -----------

         Balance, December 31, 1995 ...................................................      30,889,000
         Cost of property and improvements sold .......................................      (1,255,000)
         Property reclassified to real estate held for sale ...........................     (14,836,000)
                                                                                            -----------

         Balance, December 31, 1996 ...................................................    $ 14,798,000
                                                                                            ===========

(3)      Balance, January 1, 1994......................................................    $  3,347,000
         Additions charged to expense .................................................         641,000
                                                                                            -----------

         Balance, December 31, 1994 ...................................................       3,988,000
         Additions charged to expense .................................................         652,000
         Accumulated depreciation on improvements sold ................................        (346,000)
         Provision on property sold ...................................................        (780,000)
         Accumulated depreciation on property reclassified to real estate held for sale        (730,000)
                                                                                            -----------

         Balance, December 31, 1995 ...................................................       2,784,000
         Additions charged to expense .................................................         397,000
         Accumulated depreciation on improvements sold ................................        (221,000)
         Accumulated depreciation on property reclassified to real estate held for sale      (1,674,000)
                                                                                            -----------

         Balance, December 31, 1996 ...................................................    $  1,286,000
                                                                                            ===========

(4)      Depreciation is computed on life of 30 years.

</TABLE>
                                                        27

<PAGE>



Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure.

Not Applicable.

                                    PART III

Information  with respect to directors and executive  officers of the Registrant
in Item 10 and the  information  required  by Items 11 - 13 is  incorporated  by
reference to the proxy material of the Registrant in connection  with its Annual
Meeting of Shareholders scheduled for June 1997.


                                     PART IV

Item 14.   Exhibits, Financial Statements Schedules, and Reports on Form 8-K.

(a)   1.  and 2.  See  Item 8 of  this  Form  10-K  for  Consolidated  Financial
      Statements for the Fund, Notes thereto, and Financial Statement Schedules.
      (A table of contents to  Consolidated  Financial  Statements and Financial
      Statement  Schedules  is  included  in Item 8 and  incorporated  herein by
      reference.)

(b)   The following reports on Form 8-K was required to be filed during the last
      quarter covered by this Report:

      On November  22, 1996,  and December 23, 1996,  Reports were filed on Form
      8-K reporting the  disposition  of the Rancho  Cucamonga,  California  and
      Harris County (Houston), Texas convenience store properties, respectively.
      On January 8, 1997,  and January 29, 1997,  subsequent to the close of the
      quarter, the Reports filed on November 22, 1996 and December 23, 1996 were
      amended to include  additional  information  concerning the disposition of
      the properties.

(c)   List of Exhibits (numbered in accordance with Item 601 of Regulation S-K):

      3.1   Restated  Articles of Incorporation of the Registrant.  Incorporated
            by reference to  Post-Effective  Amendment No. 1 to the Registrant's
            Form  S-11  Registration  Statement  filed  with the  Commission  on
            September 29, 1989.

      3.2   Amended  and  Restated  Bylaws of the  Registrant.  Incorporated  by
            reference to Post-Effective Amendment No. 1 to the Registrant's Form
            S-11  Registration  Statement filed with the Commission on September
            29, 1989.

      10.1  Advisory  Agreement dated June 29, 1989,  between the Registrant and
            Metric Realty. Incorporated by reference to Post-Effective Amendment
            No. 1 to the  Registrant's  Form S-11  Registration  Statement filed
            with the Commission on September 29, 1989.

      10.2  First  Amendment  to  Advisory  Agreement  dated  January  1,  1991.
            Incorporated by reference to the Registrant's  Annual Report on Form
            10-K for 1990 filed with the Commission on March 25, 1991.

      10.3  Second  Amendment  to  Advisory   Agreement  dated  April  1,  1991.
            Incorporated by reference to the Registrant's  Annual Report on Form
            10-K for 1990 filed with the Commission on March 25, 1991.

      10.4  Third   Amendment  to  Advisory   Agreement  dated  April  1,  1992.
            Incorporated by reference to the Registrant's  Annual Report on Form
            10-K for 1993 filed with the Commission on February 25, 1994.

      10.5  Fourth  Amendment  to  Advisory   Agreement  dated  April  1,  1993.
            Incorporated by reference to the Registrant's  Annual Report on Form
            10-K for 1993 filed with the Commission on February 25, 1994.

      10.6  Securities  Management  Agreement  dated June 29, 1989,  between the
            Registrant and Federal Street Financial Advisors,  Inc. Incorporated
            by reference to  Post-Effective  Amendment No. 1 to the Registrant's
            Form  S-11  Registration  Statement  filed  with the  Commission  on
            September 29, 1989.

                                       28

<PAGE>



      10.7  Custodial  Services  Agreement dated July 17, 1989 between Citibank,
            N.A. Incorporated by reference to Post-Effective  Amendment No. 2 to
            the  Registrant's  Form S-11  Registration  Statement filed with the
            Commission on February 28, 1990.

      10.8  Indemnification Agreements dated May 7, 1991, between Registrant and
            the following: William G. Moeckel, Jr., Donald K. Devine, William F.
            Garlock,  W. Patrick  McDowell and Robert M. Rouse.  Incorporated by
            reference to the  Registrant's  Annual  Report on Form 10-K for 1993
            filed with the Commission on February 25, 1994.

      10.9  Indemnification   Agreements   dated  February  11,  1994,   between
            Registrant and the following: Carroll Archibald, Robert A. Fiddaman,
            Margot M. Giusti,  Herman H. Howerton and Joyce Jaber.  Incorporated
            by reference to the Registrant's Annual Report on Form 10-K for 1993
            filed with the Commission on February 25, 1994.

      10.10 Fifth  Amendment  to Advisory  Agreement  dated as of April 1, 1994.
            Incorporated  by  reference to the  Registrant's  Report on Form 8-K
            filed with the Commission on February 15, 1995.

      10.11 Sixth  Amendment  to Advisory  Agreement  dated as of April 1, 1995.
            Incorporated  by reference to the  Registrant's  Report on Form 10-Q
            filed with the Commission on May 11, 1995.

      10.12 Seventh Amendment to  Advisory Agreement  dated as of April 1, 1996.
            Incorporated by  reference to the Registrant's  Report on Form  10-Q
            filed with the Commission on May 14, 1996.

      10.13 Assignment  and  Assumption  Agreement  dated as of March  27,  1997
            between Metric Realty and SSR Realty Advisors, Inc., relating to the
            Advisory Agreement.

      10.14 Agreement  for Purchase and Sale of Sam's Club,  dated May 15, 1996,
            incorporated  by  reference to the  Registrant's  Report on Form 8-K
            filed with the  Commission  on July 9,  1996,  as amended on Form 8-
            K/A, filed with the Commission on August 23, 1996.

      10.15 Agreement for Purchase and Sale of Pearle Express Store,  located in
            Orland Park, Illinois, dated May 16, 1996, incorporated by reference
            to the Registrant's  Report on Form 8-K filed with the Commission on
            July 25, 1996, as amended on Form 8-K/A,  filed with the  Commission
            on October 10, 1996.

      10.16 Agreement for Purchase and Sale of Circle K Store, located in Rancho
            Cucamonga,  California,  dated  November 12, 1996,  incorporated  by
            reference  to the  Registrant's  Report on Form 8-K  filed  with the
            Commission  on November  22, 1996,  as amended on Form 8-K/A,  filed
            with the Commission on January 8, 1997.

      10.17 Earnest Money Contract for Stop N Go Store, located in Harris County
            (Houston),  Texas, dated December 3, 1996, incorporated by reference
            to the Registrant's  Report on Form 8-K filed with the Commission on
            December  23,  1996,  as  amended  on Form  8-K/A,  filed  with  the
            Commission on January 29, 1997.

      16.1  Letter from Deloitte & Touche,  LLP dated  September 27, 1994 to the
            Securities and Exchange Commission. Incorporated by reference to the
            Registrant's  Report  on Form  8-K  filed  with  the  Commission  on
            September 28, 1994.

      20.1  Letter dated February 15, 1995 from Registrant to its  Shareholders.
            Incorporated  by  reference to the  Registrant's  Report on Form 8-K
            filed with the Commission on February 15, 1995.

      20.2  Letter dated February 15, 1996 from Registrant to its  Shareholders.
            Incorporated  by  reference to the  Registrant's  Report on Form 8-K
            filed with the Commission on February 15, 1996.

                                       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.

                                     REGISTRANT

                                     METRIC INCOME TRUST SERIES, INC.,
                                     a California corporation



                                     By:   /s/ Kevin M. Howley
                                           -------------------------------------
                                           Kevin M. Howley
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)


                                     Date: March 27, 1997
                                           -------------------------------------

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 date indicated.



By:       /s/Thomas P. Lydon, Jr.               By:   /s/William A. Finelli
          ---------------------------------           --------------------------
          Thomas P. Lydon, Jr.                        William A. Finelli
          Chairman of the Board                       Director




By:       /s/ William G. Moeckel, Jr.           By:   /s/ William F. Garlock
          --------------------------------            --------------------------
          William G. Moeckel, Jr.                     William F. Garlock
          Director                                    Director



By:       /s/ Margot M. Giusti                  By:   /s/ Robert M. Rouse
          --------------------------------            --------------------------
          Margot M. Giusti                            Robert M. Rouse
          Executive Vice President and Chief          Director
          Financial Officer (Principal
          Financial and Accounting
          Officer)





Date:            March 27, 1997
          -------------------------------