UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]

For the fiscal year ended December 31, 1997
                          -----------------

                                       or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]

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

Commission File Number 0-11981
                       -------

                              PS PARTNERS II, LTD.
             -------------------------------------------------------
             (Exact name of registrant as specified in its charter)



                    California                                      95-3878680
-----------------------------------------------          ---------------------
         (State or other jurisdiction of                      (I.R.S. Employer
         incorporation or organization)                 Identification Number)

                701 Western Avenue
               Glendale, California                                 91201-2394
-----------------------------------------------          ---------------------
     (Address of principal executive offices)                       (Zip Code)


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

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

                                      NONE

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

                      Units of Limited Partnership Interest
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days.

                                    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.  [X]


--------------------------------------------------------------------------------
                       DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE

<PAGE>


                                     PART I

ITEM 1.           BUSINESS.
                  ---------

General
-------

         PS Partners II, Ltd.  (the  "Partnership")  is a publicly  held limited
partnership  formed under the  California  Uniform  Limited  Partnership  Act in
August 1983.  Commencing in November 1983, 128,000 units of limited  partnership
interest (the "Units") were offered to the public in an interstate offering. The
offering was completed in June 1984.

         The  Partnership   was  formed  to  invest  in  and  operate   existing
self-service  facilities  offering  storage  space for personal and business use
(the  "mini-warehouses")  and to  invest  up to 30% of the net  proceeds  of the
offering  in  and  operate  existing  office  and  industrial  properties.   The
Partnership's  investments were made through general  partnerships  with Storage
Equities,  Inc.,  now known as  Public  Storage,  Inc.  ("PSI"),  a real  estate
investment  trust  ("REIT")  organized  as  a  corporation  under  the  laws  of
California. For tax administrative efficiency, the original general partnerships
with PSI were consolidated into a single general partnership  effective December
31, 1990.

         In 1995, there was a series of mergers among Public Storage Management,
Inc. (which was the Partnership's mini-warehouse operator), Public Storage, Inc.
and their  affiliates  (collectively,  "PSMI"),  culminating in the November 16,
1995 merger (the "PSMI Merger") of PSMI into Storage Equities,  Inc. In the PSMI
Merger, Storage Equities,  Inc. was renamed Public Storage, Inc. and it acquired
substantially  all of PSMI's United States real estate operations and became the
operator of the Partnership's mini-warehouse properties.

         The Partnership's general partners (the "General Partners") are PSI and
B. Wayne Hughes  ("Hughes").  PSI became a co-general partner in September 1993,
when PSI acquired the interest of PSI Associates,  Inc. ("PSA"), an affiliate of
PSMI, relating to PSA's general partner capital contribution in the Partnership.
Hughes has been a general partner of the Partnership since its inception. Hughes
is the chairman of the board and chief executive  officer of PSI, and Hughes and
members of his family (the "Hughes  Family") are the major  shareholders of PSI.
The Partnership is managed,  and its investment decisions are made by Hughes and
the  executive  officers  and  directors  of PSI.  The  limited  partners of the
Partnership  have no right to  participate  in the  management or conduct of its
business affairs.

         The Partnership's mini-warehouse properties are managed by PSI pursuant
to a  Management  Agreement.  PSI  believes  that it is the largest  operator of
mini-warehouse facilities in the United States.

         Through 1996, the Partnership's  commercial  properties were managed by
Public  Storage  Commercial  Properties  Group,  Inc.  ("PSCPG")  pursuant  to a
Management Agreement. In January 1997, the Partnership and PSI and other related
partnerships transferred a total of 35 business parks to PS Business Parks, L.P.
("PSBPLP"),  formerly  known  as  American  Office  Park  Properties,  L.P.,  an
operating  partnership formed to own and operate business parks in which PSI has
a significant  interest.  Included  among the  properties  transferred  were the
Partnership's  business parks in exchange for a partnership  interest in PSBPLP.
Until March 17, 1998,  the general  partner of PSBPLP was  American  Office Park
Properties,  Inc., an affiliate of PSI. On March 17, 1998,  American Office Park
Properties,  Inc. was merged into Public  Storage  Properties  XI,  Inc.,  which
changed its name to PS Business Parks, Inc. ("PSBP").  PSBP is a REIT affiliated
with PSI, and is publicly traded on the American Stock Exchange.  As a result of
the merger,  PSBP became the general  partner of PSBPLP (which  changed its name
from American Office Park Properties, L.P. to PS Business Parks, L.P.). See Item
13.

         PSI's current  relationship with the Partnership includes (i) the joint
ownership  of  27  of  the  Partnership's  33  properties  (which  excludes  the
properties  transferred  to PSBPLP in January  1997),  (ii) PSI is a  co-general
partner  along with  Hughes,  who is chairman  of the board and chief  executive
officer of PSI, (iii) as of December 31, 1997, PSI owned approximately 73.81% of
the Partnership's  limited partnership units and (iv) PSI is the operator of the
Partnership's mini-warehouse facilities.


                                      2
<PAGE>



Investments in Facilities
-------------------------

         The  Partnership  owns  interests  in  33  properties   (excluding  the
properties  transferred  to PSBPLP in January 1997);  27 of such  properties are
held  in a  general  partnership  comprised  of the  Partnership  and  PSI . One
property is a leasehold interest in a mini-warehouse  property in Raleigh, North
Carolina.  The Partnership  purchased its last property in July, 1984. Reference
is  made  to the  table  in  Item  2 for a  summary  of  information  about  the
Partnership's properties.

         The Partnership believes that its operating results have benefited from
favorable   industry   trends  and  conditions.   Notably,   the  level  of  new
mini-warehouse  construction  has decreased since 1988 while consumer demand has
increased.  In  addition,  in recent  years  consolidation  has  occurred in the
fragmented mini-warehouse industry.

Mini-warehouses
---------------

         Mini-warehouses,  which  comprise  the  majority  of the  Partnership's
investments,  are designed to offer  accessible  storage  space for personal and
business use at a relatively low cost. A user rents a fully enclosed space which
is for the  user's  exclusive  use and to which  only the user has  access on an
unrestricted   basis   during   business   hours.   On-site   operation  is  the
responsibility  of resident  managers who are supervised by area managers.  Some
mini-warehouses  also  include  rentable  uncovered  parking  areas for  vehicle
storage.  Leases for  mini-warehouse  space may be on a long-term or  short-term
basis,  although typically spaces are rented on a month-to-month  basis.  Rental
rates vary according to the location of the property and the size of the storage
space.

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

         Mini-warehouses in which the Partnership has invested generally consist
of three to seven  buildings  containing  an  aggregate  of between 258 to 1,178
storage  spaces,  most of  which  have  between  25 and 400  square  feet and an
interior height of approximately 8 to 12 feet.

         The  Partnership   experiences  minor  seasonal   fluctuations  in  the
occupancy levels of mini-warehouses with occupancies higher in the summer months
than in the winter  months.  The  Partnership  believes that these  fluctuations
result in part from increased moving activity during the summer.

         The Partnership's  mini-warehouses  are geographically  diversified and
are generally  located in heavily populated areas and close to concentrations of
apartment  complexes,  single family  residences  and  commercial  developments.
However,  there may be  circumstances  in which it may be  appropriate  to own a
property  in a less  populated  area,  for  example,  in an area  that is highly
visible  from a major  thoroughfare  and  close to,  although  not in, a heavily
populated area. Moreover,  in certain population centers,  land costs and zoning
restrictions may create a demand for space in nearby less populated areas.

         As  with  most  other  types  of  real  estate,   the   conversion   of
mini-warehouses to alternative uses in connection with a sale or otherwise would
generally require substantial  capital  expenditures.  However,  the Partnership
does not intend to convert its mini-warehouses to other uses.

Commercial Properties
---------------------

         Through 1996, the Partnership  owned and operated an office building in
Lakewood, California and a retail office warehouse center in Austin, Texas which
were  transferred  to PSBPLP  in  January  1997 in  exchange  for a  partnership
interest in PSBPLP.

Investment Objectives and Polices;  Sale or Financing of Investments
--------------------------------------------------------------------

         The  Partnership's  objectives are to (i) preserve and protect invested
capital,   (ii)  maximize  the  potential  for  appreciation  in  value  of  its
properties, (iii) provide Federal income tax deductions so that during the early
years of property operations a portion of cash distributions may be treated as a
return of capital for tax purposes,  and  therefore,  may not represent  taxable


                                       3
<PAGE>


income  to the  limited  partners,  (iv)  provide  for cash  distributions  from
operations  and (v) build up equity  through the reduction of mortgage  loans on
the  Partnership's  properties.  The Partnership  will terminate on December 31,
2020 unless dissolved earlier.

Operating Strategies
--------------------

         The Partnership's mini-warehouses are operated by PSI under the "Public
Storage" name, which the Partnership believes is the most recognized name in the
mini-warehouse  industry.  The major  elements  of the  Partnership's  operating
strategies are as follows:

              * Capitalize on Public Storage's name  recognition.  PSI, together
              with  its  predecessor,  has  more  than  20  years  of  operating
              experience in the  mini-warehouse  business.  PSI has informed the
              Partnership  that  it  is  the  largest  mini-warehouse   facility
              operator  in  the  United  States  in  terms  of  both  number  of
              facilities  and rentable  space  operated.  PSI believes  that its
              marketing  and  advertising   programs   improve  its  competitive
              position in the market.  PSI's in-house Yellow Pages staff designs
              and  places   advertisements  in  approximately  700  directories.
              Commencing in early 1996, PSI began to experiment with a telephone
              reservation  system  designed to provide added  customer  service.
              Customers  calling either PSI's toll-free  referral system,  (800)
              44-STORE,  or a  mini-warehouse  facility  are  directed  to PSI's
              reservation system where a trained  representative  discusses with
              the customer space  requirements,  price and location  preferences
              and also  informs the  customer  of other  products  and  services
              provided  by  PSI.  As  of  December  31,  1997,   the   telephone
              reservation  system was supporting  rental  activity at all of the
              Partnership's  properties.   PSI's  toll-free  telephone  referral
              system  services   approximately  160,000  calls  per  month  from
              potential  customers  inquiring as to the nearest  Public  Storage
              mini-warehouse.

              * Maintain  high  occupancy  levels and increase  realized  rents.
              Subject to market conditions,  the Partnership  generally seeks to
              achieve average occupancy levels in excess of 90% and to eliminate
              promotions  prior to increasing  rental rates. The monthly average
              realized  rent per  occupied  square  foot for the  mini-warehouse
              facilities was $.64 in 1997 compared to $.61 in 1996. The weighted
              average occupancy levels at the mini-warehouse facilities were 90%
              in 1997  compared to 91% in 1996.  The  Partnership  has increased
              rental rates in many markets where it has achieved high  occupancy
              levels and eliminated or minimized promotions.

              * Systems and controls. PSI has an organizational  structure and a
              property   operation  system,   "CHAMP"   (Computerized  Help  and
              Management  Program),  which links its corporate  office with each
              mini-warehouse.  This enables PSI to obtain daily information from
              each mini-warehouse and to achieve  efficiencies in operations and
              maintain   control  over  its  space   inventory,   rental  rates,
              promotional  discounts and  delinquencies.  Expense  management is
              achieved through  centralized payroll and accounts payable systems
              and a comprehensive  property tax appeals department,  and PSI has
              an extensive  internal  audit  program  designed to ensure  proper
              handling of cash collections.

              *   Professional   property   operation.   In   addition   to  the
              approximately   150  support   personnel  at  the  Public  Storage
              corporate offices, there are approximately 2,700 on-site personnel
              who manage the day-to-day operations of the mini-warehouses in the
              Public Storage system.  These on-site  personnel are supervised by
              110  district  managers,  15 regional  managers  and 3  divisional
              managers   (with  an  average  of  13  years   experience  in  the
              mini-warehouse  industry)  who  report  to  the  president  of the
              mini-warehouse  property  operator (who has 14 years of experience
              with the Public Storage  organization).  PSI carefully selects and
              extensively  trains the  operational  and  support  personnel  and
              offers  them  a  progressive  career  path.  See   "Mini-warehouse
              Property Operator."


                                       4
<PAGE>



Mini-warehouse Property Operator
--------------------------------

         The Partnership's mini-warehouse properties are managed by PSI pursuant
to a Management Agreement.

         Under the supervision of the Partnership, PSI coordinates the operation
of the  facilities,  establishes  rental policies and rates,  directs  marketing
activity  and  directs the  purchase  of  equipment  and  supplies,  maintenance
activity,  and  the  selection  and  engagement  of all  vendors,  supplies  and
independent contractors.

         PSI  engages,  at the  expense of the  Partnership,  employees  for the
operation  of  the  Partnership's   facilities,   including  resident  managers,
assistant managers, relief managers, and billing and maintenance personnel. Some
or all of these  employees may be employed on a part-time  basis and may also be
employed  by  other  persons,  partnerships,  REITs  or  other  entities  owning
facilities operated by PSI.

         In the purchasing of services such as advertising  (including broadcast
media advertising) and insurance, PSI attempts to achieve economies by combining
the resources of the various facilities that it operates. Facilities operated by
PSI  have  historically  carried   comprehensive   insurance,   including  fire,
earthquake, liability and extended coverage.

         PSI has developed systems for space inventory,  accounting and handling
delinquent  accounts,  including a  computerized  network  linking PSI  operated
facilities. Each project manager is furnished with detailed operating procedures
and typically  receives  facilities  management  training from PSI. Form letters
covering a variety of circumstances are also supplied to the project managers. A
record of actions  taken by the project  managers  when  delinquencies  occur is
maintained.

         The  Partnership's  facilities  are typically  advertised  via signage,
yellow pages,  flyers and broadcast media advertising  (television and radio) in
geographic  areas in which many of the  Partnership's  facilities  are  located.
Broadcast  media and other  advertising  costs are charged to the  Partnership's
facilities located in geographic areas affected by the advertising. From time to
time, PSI adopts  promotional  programs,  such as temporary rent reductions,  in
selected areas or for individual facilities.

         For as long as the Management  Agreement is in effect,  PSI has granted
the Partnership a non-exclusive license to use two PSI service marks and related
designs,  including the "Public  Storage" name, in  conjunction  with rental and
operation of  facilities  managed  pursuant to the  Management  Agreement.  Upon
termination of the Management  Agreement,  the Partnership  would no longer have
the right to use the service  marks and related  designs.  The General  Partners
believe that the loss of the right to use the service marks and related  designs
could have a material adverse effect on the Partnership's business.

         The Management  Agreement between the Partnership and PSI provides that
the  Management  Agreement may be terminated  without cause upon 60 days written
notice by either party.

Commercial Property Operator
----------------------------

         Through 1996, the Partnership's  commercial  properties were managed by
PSCPG, now known as PS Business Parks, Inc., pursuant to a Management Agreement.
In January 1997, the Partnership transferred its commercial properties to PSBPLP
in exchange for a partnership interest.

Competition
-----------

         Competition  in the market areas in which the  Partnership  operates is
significant  and  affects  the  occupancy  levels,  rental  rates and  operating
expenses  of  certain  of  the  Partnership   facilities.   Competition  may  be
accelerated  by any increase in  availability  of funds for  investment  in real
estate.  Recent  increases  in plans  for  development  of  mini-warehouses  are
expected to further  intensify  competition  among  mini-warehouse  operators in
certain market areas. In addition to competition from  mini-warehouses  operated
by PSI,  there are three other  national  firms and numerous  regional and local
operators. The Partnership believes that the significant operating and financial
experience of PSI's  executive  officers and directors and the "Public  Storage"
name,  should enable the  Partnership  to continue to compete  effectively  with
other entities.


                                       5
<PAGE>



Other Business Activities
-------------------------

         A corporation  owned by the Hughes Family  reinsures  policies  against
losses to goods  stored by tenants  in the  Partnership's  mini-warehouses.  The
Partnership  believes that the  availability of insurance  reduces the potential
liability of the  Partnership to tenants for losses to their goods from theft or
destruction.  This  corporation  receives  the  premiums  and  bears  the  risks
associated with the insurance.

         A corporation,  in which PSI had a 95% economic interest and the Hughes
Family has a 5% economic interest,  sells locks, boxes and tape to tenants to be
used in securing  their  spaces and moving their  goods.  PSI believes  that the
availability of locks, boxes and tape for sale promotes the rental of spaces.

Employees
---------

         There are 114 persons who render services on behalf of the Partnership.
These persons include resident managers,  assistant  managers,  relief managers,
area managers,  and  administrative  personnel.  Some of these  employees may be
employed  on a  part-time  basis  and may also be  employed  by  other  persons,
partnerships,  REITs or other  entities  owning  facilities  operated  by PSI or
PSBPLP.

Impact of Year 2000
-------------------

         PSI has completed an initial  assessment of its computer  systems.  The
majority of the computer  programs were  installed or upgraded over the past few
years and are Year 2000 compliant.  Some of the older computer programs utilized
by PSI were written without regard for Year 2000 issues and could cause a system
failure or miscalculations with possible disruption of operations. Each of these
computer  programs and systems has been  evaluated to be upgraded or replaced as
part of PSI's Year 2000 project.

         The cost of the Year 2000  project  will be  allocated  to all entities
that use the PSI computer  systems.  The cost of the Year 2000 project  which is
expected to be allocated to the Partnership is approximately  $99,000.  The cost
of new software  will be  capitalized  and the cost of  maintenance  to existing
systems will be expensed as incurred.

         The  project is  expected  to be  completed  by March 31, 1999 which is
prior to any  anticipated  impact on operating  systems.  PSI believes that with
modifications to existing software and, in some instances, the conversion to new
software,  the Year 2000 issue will not pose significant  operational  problems.
However,  if such  modifications are not made, or are not completed timely,  the
Year  2000  issue  could  have  a  material  impact  on  the  operations  of the
Partnership.

         The costs of the  project  and the date on which PSI  believes  it will
complete the Year 2000  modifications  are based on management's best estimates,
which were derived utilizing numerous assumptions of future events. There can be
no guarantee  that these  estimates  will be achieved and actual  results  could
differ materially from those anticipated.


ITEM 2.           PROPERTIES.
                  -----------
         The  following  table sets forth  information  as of December 31, 1997,
about properties owned by the Partnership. Twenty seven of these properties were
acquired jointly with PSI and were contributed to general partnerships comprised
of the Partnership and PSI .

                              Net          Number
                            Rentable         of          Date of       Ownership
Location                  Square Feet      Spaces      Acquisition    Percentage
---------------------     -----------     --------     -----------    ----------
CALIFORNIA
Fremont                       60,700         604         01/13/84          70.0%
   Albrae Street
Pico                          47,400         398         03/01/84          50.0
   Bermudez Street


                                       6


<PAGE>


                              Net          Number
                            Rentable         of          Date of       Ownership
Location                  Square Feet      Spaces      Acquisition    Percentage
---------------------     -----------     --------     -----------    ----------
GEORGIA
Augusta                       40,300         395         12/09/83          81.5%
   Crescent Drive
Marietta                      29,700         258         03/30/84          75.0
   S. Cobb Drive

KANSAS
Olathe                        41,800         287         01/19/84          74.4
   E. Spruce
Shawnee                       64,100         432         01/19/84          74.4
   W. 63rd St.
Topeka                        50,000         376         01/19/84          74.4
   SW 41st St.
Merriam                       59,000         458         01/19/84          74.4
   W. Frontage

MARYLAND
Baltimore                     77,200         807         06/27/84         100.0
   Shannon Road
Baltimore                     49,000         600         06/27/84         100.0
   Laurel Bowie Road
Belton                        42,900         366         01/19/84          74.4
   S. 71 Fwy.
Gladstone                     74,900         590         01/19/84          74.4
   N. Oak Trafficway
Independence                  78,300         554         01/19/84          74.4
   E. 31st St.
Kansas City                   74,100         534         01/19/84          74.4
   E. 112th Terrace
Kansas City                   52,300         465         01/19/84          74.4
   Holmes

NORTH CAROLINA
Charlotte                     53,900         435         12/09/83          81.5
   South Blvd.
Greensboro                    41,900         406         12/09/83          81.5
   Electra Drive
Greensboro                    62,200         651         12/09/83          81.5
   W. Market St.
Raleigh                      105,100         567         05/16/84          53.0
   Departure Dr.
Raleigh                       52,300         439         12/09/83         100.0
   Yonkers Rd

OREGON
Milwaukee                     34,400         384         04/18/84         100.0
   SE McLoughlin Blvd.


                                       7

<PAGE>


                              Net          Number
                            Rentable         of          Date of       Ownership
Location                  Square Feet      Spaces      Acquisition    Percentage
---------------------     -----------     --------     -----------    ----------
PENNSYLVANIA
Philadelphia                 110,300       1,178         05/21/84          36.1%
   Grant Ave.
Trevose                       62,500         787         07/03/84          67.8
   Old Lincoln Highway

RHODE ISLAND
Cranston                      28,700         302         01/24/85          64.6
   Pontiac - 71
   Freeway Dr.
N. Providence                 35,600         386         04/19/84          90.0
   Mineral Springs Ave.

SOUTH CAROLINA
Columbia                      67,300         596         12/09/83          81.5
   Broad River Rd

TENNESSEE
Knoxville                     62,100         578         02/16/84          81.9
   E. Central
   Ave. Pike
Knoxville                     97,400         801         02/16/84          81.9
   Unicorn Drive

VIRGINIA
Lorton                        55,500         576         06/27/84         100.0
   Richmond Hwy
Manassas Balls                44,000         435         03/26/84          41.6
   Ford Rd.
Richmond                      65,700         518         12/09/83          81.5
   Jefferson Davis
Virginia Beach                99,400         762         05/18/84         100.0
   Independence

WASHINGTON
Tacoma                        52,300         666         01/03/84          90.0
   24th St. W.

         The weighted average occupancy level for the mini-warehouse  facilities
was 90% in 1997 compared to 91% in 1996. The monthly  average  realized rent per
square foot for the mini-warehouse  facilities was $.64 in 1997 compared to $.61
in 1996.

         Substantially all of the  Partnership's  facilities were acquired prior
to  the  time  that  it  was  customary  to  conduct   extensive   environmental
investigations in connection with the property  acquisitions.  During the fourth
quarter  of  1995,  an  independent   environmental  consulting  firm  completed
environmental  assessments  on the  Partnership's  properties  to  evaluate  the
environmental  condition of, and  potential  environmental  liabilities  of such
properties.  Based  on the  assessments,  the  Partnership  believes  that it is
probable that it will incur costs  totaling  $68,000 after December 31, 1997 for
known  environmental  remediation   requirements.   Although  there  can  be  no
assurance,   the  Partnership  is  not  aware  of  any  unaccrued  environmental
contamination of its facilities which  individually or in the aggregate would be
material to the Partnership's overall business,  financial condition, or results
of operations.


                                       8

<PAGE>



ITEM 3.           LEGAL PROCEEDINGS.
                  ------------------
         No material legal proceeding is pending against the Partnership.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
                  ----------------------------------------------------
         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of 1997.



                                     PART II

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

         The Partnership has no common stock.

         The Units are not listed on any national  securities exchange or quoted
on the NASDAQ System,  and there is no established public trading market for the
Units. Secondary sales activity for the Units has been limited and sporadic. The
General Partners monitor transfers of the Units (a) because the admission of the
transferee as a substitute  limited partner  requires the consent of the General
Partners  under the  Partnership's  Amended and  Restated  Agreement  of Limited
Partnership,  (b) in order to ensure  compliance with safe harbor  provisions to
avoid  treatment  as a "publicly  traded  partnership"  for tax purposes and (c)
because PSI has  purchased  Units.  However,  the  General  Partners do not have
information regarding the prices at which all secondary sale transactions in the
Units have been effectuated.  Various  organizations  offer to purchase and sell
limited  partnership  interests  (including  securities  of the type such as the
Units) in secondary sales transactions. Various publications such as The Stanger
Report  summarize  and  report  information  (on a  monthly,  bimonthly  or less
frequent basis) regarding  secondary sales  transactions in limited  partnership
interests  (including  the Units),  including the prices at which such secondary
sales transactions are effectuated.

         Exclusive of the General Partners'  interest in the Partnership,  as of
December 31, 1997, there were approximately 1,639 record holders of Units.

         The Partnership  makes quarterly  distributions  of all "Cash Available
for  Distribution"   and  will  make   distributions  of  "Cash  from  Sales  or
Refinancing". Cash Available for Distribution is cash flow from all sources less
cash necessary for any obligations, capital improvements, or reserves.

         Reference is made to Items 6 and 7 hereof for information on the amount
of such distributions.


                                       9
<PAGE>



ITEM 6.           SELECTED FINANCIAL DATA.
                  ------------------------

<TABLE>
<CAPTION>
                                                                    For the Years Ended December 31,
                                              ------------------------------------------------------------------------
                                                1997           1996            1995            1994           1993
                                              -----------  --------------  -------------  -------------  -------------
                                                                    (In thousands, except per Unit data)

<S>                                          <C>             <C>            <C>             <C>             <C>
Revenues                                     $ 14,369        $ 15,456       $ 15,088        $ 14,881        $ 13,827

Depreciation and amortization                   2,887           3,502          3,293           3,419           3,688

Interest expense                                    -              14            177             285             698

Income before gain on -                         4,634           4,114          4,185           3,498           2,106
   disposition of real estate facility
   and early extinguishment of debt

Net income                                      4,634           4,114          4,185           3,722           3,053

    Limited partners' share                     4,043           3,597          3,262           3,528           2,866

    General partners' share                       591             517            923             194             187

Limited partners' per unit data(a)

    Net income                                 $ 31.59         $ 28.10        $ 25.48         $ 27.56         $ 22.39

    Cash distributions (b) (c)                 $ 38.34         $ 33.44        $ 61.97         $ 11.00         $ 11.00

As of December 31,
------------------

Cash and cash equivalents                      $ 1,085         $ 1,239          $ 904         $ 3,258         $ 1,083

Total assets                                  $ 53,252        $ 54,558       $ 56,371        $ 61,149        $ 63,334

Mortgage notes payable                             $ -             $ -        $ 2,260         $ 2,326         $ 7,285

---------------
</TABLE>

(a)  Limited  partners' per Unit data is based on the number of units  (128,000)
     outstanding during the year.

(b)  The General Partners distributed, concurrent with the distributions for the
     second and third  quarters of 1995, a portion of the  operating  reserve of
     the  Partnership and the proceeds from the Weymouth  property  condemnation
     estimated to be $13.92 and $17.40,  respectively.

(c)  The General Partners distributed,  concurrent with the distribution for the
     first  quarter  of  1997,  a  portion  of  the  operating  reserve  of  the
     Partnership estimated to be $4.90.


                                       10
<PAGE>


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

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


         YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996:

         The  Partnership's  net  income  was  $4,634,000  in 1997  compared  to
$4,114,000 in 1996,  representing an increase of $520,000, or 13%. Excluding the
1996  operations for the  Partnership's  business park facilities as compared to
the 1997 equity in income of real estate partnership,  the increase is due to an
increase in the  Partnership's  mini-warehouse  operations,  partially offset by
increased  minority  interest in income for those  properties  held jointly with
PSI.

         Rental  income  for the  Partnership's  mini-warehouse  operations  was
$13,617,000  in 1997  compared  to  $13,049,000  during  1996,  representing  an
increase  of  $568,000,  or 4%. The  increase  in rental  income  was  primarily
attributable  to  increased  rental  rates at the  Partnership's  mini-warehouse
facilities,  partially offset by decreased average occupancy levels. The monthly
average realized rent per square foot for the mini-warehouse facilities was $.64
in 1997 compared to $.61 in 1996. The weighted  average  occupancy levels at the
mini-warehouse  facilities  decreased  from 91% in 1996 to 90% in 1997.  Cost of
operations  (including management fees) increased $222,000, or 5%, to $4,973,000
during 1997 from $4,751,000 in 1996,  respectively.  This increase was primarily
attributable to increases in advertising, property tax, and management expenses.
Accordingly,  for the  Partnership's  mini-warehouse  operations,  property  net
operating  income  increased  by  $346,000,  or 4%, from  $8,298,000  in 1996 to
$8,644,000 during 1997.

         The following table summarizes the Partnership's  operating income, net
of  depreciation,  from its investment in PSBPLP in 1997 compared to that of the
exchanged business park facilities during 1996:

                                                       1997             1996
                                                   ------------     -----------
Equity in earnings of real estate partnership      $  694,000       $        -
Rental income                                               -        2,347,000
Cost of operations                                          -        1,286,000
                                                   ------------     -----------
Net operating income                                  694,000        1,061,000
Depreciation                                                -          747,000
                                                   ------------     -----------
Operating income, net of depreciation              $  694,000       $  314,000
                                                   ============     ===========

         The difference in operating  income,  net of depreciation,  in 1997 and
1996 is  primarily  due to the  effect of  depreciation  and an  improvement  in
proeprty operations.

         Depreciation  and  amortization   attributable  to  the   Partnership's
mini-warehouses  increased  $132,000 from $2,755,000 to $2,887,000 in 1997. This
increase was primarily  attributable to the depreciation of capital expenditures
made during 1996 and 1997.

         Minority  interest  in  income  was  $1,732,000  in  1997  compared  to
$1,637,000 in 1996,  representing  an increase of $95,000,  or 6%. This increase
was primarily  attributable  to an increase in  operations at the  Partnership's
real estate facilities owned jointly with PSI.

         Interest  expense  in 1996  represents  interest  on the  Partnership's
mortgage note payable that was repaid prior to maturity in March 1996.


                                       11
<PAGE>



         YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995:

         The  Partnership's  net  income  in 1996  was  $4,114,000  compared  to
$4,185,000 in 1995,  representing a decrease of $71,000, or 2%. The decrease was
primarily due to an increase in  depreciation  expense,  an increase in minority
interest in income for those properties held jointly with PSI, and a decrease in
interest  income,  partially  offset  by  improved  property  operations  at the
Partnership's real estate facilities  combined with a reduction in environmental
costs.

         Property net operating  income  (rental  income less cost of operations
and management fees and excluding depreciation expense) increased  approximately
$82,000 in 1996 compared to 1995, as rental income increased by $468,000, or 3%,
and cost of operations (including management fees) increased by $386,000, or 7%.

         Rental  income  for the  Partnership's  mini-warehouse  operations  was
$13,049,000 in 1996 compared to $12,564,000 in 1995, representing an increase of
$485,000,  or 4%. The increase in rental  income was primarily  attributable  to
increased   average  realized  rental  rates  combined  with  increased  average
occupancy levels at the mini-warehouse  facilities. The monthly average realized
rent  per  square  foot  for the  mini-warehouse  facilities  were  $.61 in 1996
compared  to  $.59  in  1995.  The  weighted  average  occupancy  levels  at the
mini-warehouse  facilities  were 91% in 1996  compared to 90% in 1995.  Costs of
operations  (including management fees) increased $232,000, or 5%, to $4,751,000
in 1996 from  $4,519,000 in 1995.  This increase was primarily  attributable  to
increases in advertising  and  promotion,  repairs and  maintenance,  and office
expenses. Accordingly, for the Partnership's mini-warehouse operations, property
net operating  income  increased by $253,000,  or 3%, to $8,298,000 in 1996 from
$8,045,000 in 1995.

         Rental  income  for the  Partnership's  business  park  operations  was
$2,347,000 in 1996 compared to  $2,364,000 in 1995,  representing  a decrease of
$17,000.  The decrease in rental  income is  attributable  to decreased  average
occupancy levels at the business park facilities. The weighted average occupancy
levels at the business park facilities were 95% in 1996 compared to 97% in 1995.
The monthly average realized rent per square foot for the business park remained
stable at $.81 for both 1996 and 1995. Cost of operations  (including management
fees) increased $154,000, or 14%, to $1,286,000 in 1996 from $1,132,000 in 1995.
The increase in cost of  operations  is  primarily  due to increases in property
taxes,  lease  commissions,  utilities,  and repairs and  maintenance  expenses.
Accordingly,  for the  Partnership's  business  park  facilities,  property  net
operating  income  decreased by  $171,000,  or 14%, to  $1,061,000  in 1996 from
$1,232,000 in 1995.

         Interest  income  decreased in 1996 over 1995 as a result of a decrease
in average invested cash balances.

         Depreciation and amortization  increased $209,000 to $3,502,000 in 1996
from  $3,293,000  in  1995.   This  increase  is  principally   attributable  to
depreciation of capital expenditures made during 1995 and 1996.

         Interest expense  decreased  approximately  $163,000 to $14,000 in 1996
from  $177,000 in 1995 as a result of the payoff of the  Partnership's  mortgage
note payable in the first quarter of 1996.

         Minority  interest  in income  increased  by  $138,000,  or 9%, in 1996
compared to 1995.  This  increase was primarily  attributable  to an increase in
operations at the  Partnership's  real estate facilities owned jointly with PSI,
partially  offset by the allocation of  depreciation  and  amortization  expense
(pursuant  to the  partnership  agreement  with  respect  to those  real  estate
facilities  which are  jointly  owned with PSI) to PSI of  $347,000  compared to
$328,000 for 1996 and 1995, respectively

Liquidity and Capital Resources
-------------------------------

         The Partnership has adequate sources of cash to finance its operations,
both on a short-term and long-term basis, primarily by internally generated cash
from  property  operations  combined  with cash on hand at December  31, 1997 of
$1,085,000.

                                       12

<PAGE>


         Cash flows from  operating  activities  ($8,363,000  for the year ended
December 31, 1997) have been  sufficient to meet all current  obligations of the
Partnership. Total capital improvements were $1,461,000, $1,236,000 and $803,000
in 1997, 1996, and 1995, respectively. The increase in 1996 capital improvements
is  primarily   attributable  to  painting  and  roofing   improvements  at  the
Partnership's  mini-warehouse  facilities,  combined with tenant improvements at
the Partnership's  Lakewood, CA business park facility.  The increase in 1997 is
primarily attributable to roofing, office, and parking and driveway improvements
at the  Partnership's  mini-warehouse  facilities.  During 1998, the Partnership
anticipates  approximately  $1,050,000 of capital improvements (including PSI 's
joint  venture  share of  $208,000).  During 1995,  the  Partnership's  property
manager   commenced  a  program  to  enhance  the  visual   appearance   of  the
mini-warehouse  facilities.  Such enhancements include new signs, exterior color
schemes, and improvements to the rental offices.

         In March 1996, the Partnership repaid early its remaining mortgage note
payable, utilizing cash reserves.

         Total  distributions  paid to the  General  Partners  and  the  limited
partners  (including  the per Unit  amounts)  for 1997 and prior  years  were as
follows:
                                Total                Per Unit
                             ----------              --------
             1997            $5,507,000               $38.34
             1996             4,804,000                33.44
             1995             8,902,000                61.97
             1994             1,582,000                11.00
             1993             1,582,000                11.00
             1992             1,582,000                11.00
             1991             2,708,000                18.85
             1990             1,077,000                 7.50
             1989             4,310,000                30.00
             1988             4,309,000                30.00
             1987             4,310,000                30.00
             1986             4,669,000                32.50
             1985             5,747,000                40.00
             1984             3,239,000                22.54

         During 1990 and 1992,  distribution  levels were  reduced to enable the
Partnership to retire short term borrowings due to PSI and prepay mortgage notes
which  were  scheduled  to mature in 1992,  1993 and 1994 (such  mortgage  notes
having balloon payments at maturity).  The 1992 distribution  includes a special
distribution  of  cash  reserves  of  approximately  $3.60  per  Unit  The  1995
distribution  includes a special distribution of cash reserves and proceeds from
the Weymouth  property  condemnation of approximately  $31.32 per Unit. The 1997
distribution  includes a special  distribution of cash reserves of approximately
$4.90  per Unit.  Future  distribution  levels  will be based  upon  cash  flows
available  for   distributions   (cash  flows  from   operations   less  capital
improvements, distributions to minority interest and necessary cash reserves).

Impact of Year 2000
-------------------

         PSI has completed an initial  assessment of its computer  systems.  The
majority of the computer  programs were  installed or upgraded over the past few
years and are Year 2000 compliant.  Some of the older computer programs utilized
by PSI were written without regard for Year 2000 issues and could cause a system
failure or miscalculations with possible disruption of operations. Each of these
computer  programs and systems has been  evaluated to be upgraded or replaced as
part of PSI's Year 2000 project.

         The cost of the Year 2000  project  will be  allocated  to all entities
that use the PSI computer  systems.  The cost of the Year 2000 project  which is
expected to be allocated to the Partnership is approximately  $99,000.  The cost
of new software  will be  capitalized  and the cost of  maintenance  to existing
systems will be expensed as incurred.

         The  project is  expected  to be  completed  by March 31, 1999 which is
prior to any  anticipated  impact on operating  systems.  PSI believes that with
modifications to existing software and, in some instances, the conversion to new


                                       13

<PAGE>


software,  the Year 2000 issue will not pose significant  operational  problems.
However,  if such  modifications are not made, or are not completed timely,  the
Year  2000  issue  could  have  a  material  impact  on  the  operations  of the
Partnership.

         The costs of the  project  and the date on which PSI  believes  it will
complete the Year 2000  modifications  are based on management's best estimates,
which were derived utilizing numerous assumptions of future events. There can be
no guarantee  that these  estimates  will be achieved and actual  results  could
differ materially from those anticipated.



ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
             --------------------------------------------


         The Partnership's  financial  statements are included elsewhere herein.
Reference  is  made  to the  Index  to  Consolidated  Financial  Statements  and
Financial Statement Schedules in Item 14(a).

Item 9.      DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
             -----------------------------------------------------

         None.


                                       14
<PAGE>


                                    PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP.
             ----------------------------------------------------

         The Partnership has no directors or executive officers.

         The  Partnership's  General Partners are PSI and B. Wayne Hughes.  PSI,
acting through its directors and executive  officers,  and Mr. Hughes manage and
make investment decisions for the Partnership.  The Partnership's mini-warehouse
properties are managed by PSI pursuant to a Management Agreement.  Through 1996,
the Partnership's  commercial  properties were managed by PSCPG, now known as PS
Business Parks, Inc., pursuant to a Management  Agreement.  In January 1997, the
Partnership  transferred  its  business  parks  to  PSBPLP  in  exchange  for  a
partnership interest in PSBPLP.

         The names of all directors  and executive  officers of PSI, the offices
held by each of them with PSI, and their ages and business experience during the
past five years are as follows:


            Name                            Positions with PSI
-----------------------      -------------------------------------------------

B. Wayne Hughes              Chairman of the Board and Chief Executive Officer
Harvey Lenkin                President and Director
B. Wayne Hughes, Jr.         Vice President and Director
John Reyes                   Senior Vice President and Chief Financial Officer
Carl B. Phelps               Senior Vice President
Obren B. Gerich              Senior Vice President
Marvin M. Lotz               Senior Vice President
David Goldberg               Senior Vice President and General Counsel
A. Timothy Scott             Senior Vice President and Tax Counsel
David P. Singelyn            Vice President and Treasurer
Sarah Hass                   Vice President and Secretary
Robert J. Abernethy          Director
Dann V. Angeloff             Director
William C. Baker             Director
Thomas J. Barrack, Jr.       Director
Uri P. Harkham               Director

         B. Wayne Hughes, age 64, a general partner of the Partnership, has been
a director of PSI since its  organization in 1980 and was President and Co-Chief
Executive  Officer from 1980 until November 1991 when he became  Chairman of the
Board and sole Chief Executive  Officer.  Mr. Hughes has been active in the real
estate  investment field for over 25 years. He is the father of B. Wayne Hughes,
Jr.

         Harvey Lenkin, age 61, has been employed by PSI for 20 years and became
President  and a director of PSI in November  1991.  Mr. Lenkin is a director of
the National Association of Real Estate Investment Trusts (NAREIT).

         B. Wayne Hughes, Jr., age 38, became a director of PSI in January 1998.
He has been Vice President -  Acquisitions  of the Company since 1992. He is the
son of B. Wayne Hughes.

         John Reyes, age 37, a certified public  accountant,  joined PSI in 1990
and was  controller  of PSI from 1992 until  December  1996 when he became Chief
Financial  Officer.  He became a Vice  President  of PSI in November  1995 and a
Senior Vice President of PSI in December 1996.  From 1983 to 1990, Mr. Reyes was
employed by Ernst & Young.

         Carl B.  Phelps,  age 58,  became a  Senior  Vice  President  of PSI in
January  1998  with  overall   responsibility   for  property   acquisition  and
development. From June 1991 until joining PSI, he was a partner in the law firm


                                       15

<PAGE>



of  Andrews & Kurth,  L.L.P.,  which  performed  legal  services  for PSI.  From
December 1982 through May 1991, his  professional  corporation  was a partner in
the law firm of Sachs & Phelps, then counsel to PSI.

         Obren B. Gerich, age 59, a certified public accountant, has been a Vice
President of PSI since 1980 and became Senior Vice  President of PSI in November
1995. He was Chief Financial Officer of PSI until November 1991.

         Marvin M.  Lotz,  age 55,  has had  overall  responsibility  for Public
Storage's  mini-warehouse  operations  since  1988.  He  became  a  Senior  Vice
President  of PSI  in  November  1995.  Mr.  Lotz  was an  officer  of PSI  with
responsibility for property acquisitions from 1983 until 1988.

         David  Goldberg,  age 48,  joined  PSI's legal  staff in June 1991.  He
became Senior Vice President and General  Counsel of PSI in November 1995.  From
December  1982  until  May  1991,  he was a  partner  in the law firm of Sachs &
Phelps, then counsel to PSI.

         A.  Timothy  Scott,  age 46,  became a Senior  Vice  President  and Tax
Counsel of PSI and Vice President and Tax Counsel of the Public Storage REITs in
November 1996.  From June 1991 until joining PSI, Mr. Scott practiced tax law as
a shareholder of the law firm of Heller,  Ehrman, White & McAuliffe,  counsel to
PSI. Prior to June 1991, his  professional  corporation was a partner in the law
firm of Sachs & Phelps, then counsel to PSI.

         David P.  Singelyn,  age 36, a certified  public  accountant,  has been
employed by PSI since 1989 and became Vice  President  and  Treasurer  of PSI in
November  1995.  From 1987 to 1989,  Mr.  Singelyn was  Controller of Winchell's
Donut Houses, L.P.

         Sarah Hass,  age 42,  became  Secretary  of PSI in February  1992.  She
became  a Vice  President  of PSI in  November  1995.  She  joined  PSI's  legal
department  in June 1991,  rendering  services on behalf of PSI. From 1987 until
May 1991, her professional  corporation was a partner in the law firm of Sachs &
Phelps,  then  counsel to PSI,  and from  April  1986  until June 1987,  she was
associated  with that  firm,  practicing  in the area of  securities  law.  From
September 1979 until  September  1985, Ms. Hass was associated with the law firm
of Rifkind & Sterling, Incorporated.

         Robert J.  Abernethy,  age 58, has been President of American  Standard
Development Company and of Self-Storage  Management  Company,  which develop and
operate mini-warehouses,  since 1976 and 1977,  respectively.  Mr. Abernethy has
been a director  of PSI since its  organization  in 1980.  He is a member of the
board of directors of Johns  Hopkins  University  and of the Los Angeles  County
Metropolitan  Transportation  Authority  and a  former  member  of the  board of
directors of the Metropolitan Water District of Southern California.

         Dann V. Angeloff, age 62, has been President of the Angeloff Company, a
corporate  financial  advisory  firm,  since  1976.  The  Angeloff  Company  has
rendered,  and is  expected  to  continue  to  render,  financial  advisory  and
securities  brokerage services for PSI. Mr. Angeloff is the general partner of a
limited partnership that owns a mini-warehouse operated by PSI and which secures
a note  owned  by PSI.  Mr.  Angeloff  has  been a  director  of PSI  since  its
organization  in 1980. He is a director of Compensation  Resource  Group,  Eagle
Lifestyle   Nutrition,    Inc.,    Nicholas/Applegate    Growth   Equity   Fund,
Nicholas/Applegate  Investment Trust,  ReadyPac Produce,  Inc. and Royce Medical
Company.

         William C. Baker,  age 64,  became a director of PSI in November  1991.
Since  November  1997,  Mr.  Baker  has been  Chairman  of the  Board  and Chief
Executive  Officer of The Santa Anita Companies,  Inc., which operates the Santa
Anita Racetrack and is a wholly-owned subsidiary of Meditrust Operating Company.
From August 1996 until  November  1997,  he was  Chairman of the Board and Chief
Executive  Officer of Santa Anita Operating Company and Chairman of the Board of
the Board of Santa Anita Realty  Enterprises,  Inc.,  the  companies  which were
merged with  Meditrust in November  1992.  From April 1993 through May 1995, Mr.
Baker was President of Red Robin International, Inc., an operator and franchiser
of casual dining restaurants in the United States and Canada.  From January 1992
through  December 1995, he was Chairman and Chief Executive  Officer of Carolina
Restaurant  Enterprises,  Inc., a franchisee  of Red Robin  International,  Inc.
Since 1991,  he has been Chairman of the Board of Coast  Newport  Properties,  a
real estate brokerage company. From 1976 to 1988, he was a principal shareholder
and  Chairman and Chief  Executive  Officer of Del Taco,  Inc.,  an operator and
franchiser of fast food  restaurants in  California.  Mr. Baker is a director of
Callaway Golf Company and Meditrust Operating Company.


                                       16

<PAGE>



         Thomas J.  Barrack,  Jr., age 50,  became a director of PSI in February
1998.  Mr. Barrack has been the Chairman and Chief  Executive  Officer of Colony
Capital,  Inc. since September 1991. Colony Capital,  Inc. is one of the largest
real estate investors in America, having acquired properties in the U.S., Europe
and Asia. Prior to founding Colony Capital, Inc., from 1987 to 1991, Mr. Barrack
was a principal with the Robert M. Bass Group,  Inc.,  the principal  investment
vehicle for Robert M. Bass of Fort Worth,  Texas. From 1985 to 1987, Mr. Barrack
was President of Oxford Ventures, Inc., a Canadian-based real estate development
company.  From  1984 to  1985,  he was  Senior  Vice  President  at E.F.  Hutton
Corporate  Finance in New York.  Mr.  Barrack was appointed by President  Ronald
Reagan as Deputy Under  Secretary at the U.S.  Department  of the Interior  from
1982 to 1983. Mr. Barrack currently is a director of Continental Airlines,  Inc.
and Virgin Entertainment Group, Ltd.

         Uri P.  Harkham,  age 49,  became a director of PSI in March 1993.  Mr.
Harkham  has been the  President  and Chief  Executive  Officer of the  Jonathan
Martin  Fashion  Group,  which  specializes  in  designing,   manufacturing  and
marketing  women's  clothing,  since its  organization in 1976.  Since 1978, Mr.
Harkham has been the Chairman of the Board of Harkham Properties,  a real estate
firm  specializing in buying and managing fashion  warehouses in Los Angeles and
Australia.

         Pursuant to Articles 16 and 17 of the Partnership's Amended Certificate
and Agreement of Limited  Partnership (the "Partnership  Agreement"),  a copy of
which is included in the Partnership's  prospectus included in the Partnership's
Registration Statement, File No. 2-86355, each of the General Partners continues
to serve until (i) death, insanity, insolvency,  bankruptcy or dissolution, (ii)
withdrawal  with the consent of the other general partner and a majority vote of
the  limited  partners,  or (iii)  removal  by a  majority  vote of the  limited
partners.

         Each  director of PSI serves until he resigns or is removed from office
by PSI,  and may  resign or be removed  from  office at any time with or without
cause. Each officer of PSI serves until he resigns or is removed by the board of
directors  of PSI.  Any such officer may resign or be removed from office at any
time with or without cause.

         There  have  been no events  under  any  bankruptcy  act,  no  criminal
proceedings,  and no judgments or injunctions  material to the evaluation of the
ability of any director or executive officer of PSI during the past five years.


                                       17
<PAGE>



ITEM 11.     EXECUTIVE COMPENSATION.
             -----------------------

         The Partnership has no subsidiaries, directors or officers. See Item 13
for a  description  of certain  transactions  between  the  Partnership  and the
General Partners and their affiliates.

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
             ---------------------------------------------------------------

         (a) At December 31, 1997,  PSI  beneficially  owned more than 5% of the
             Units of the Partnership:



         Title                                          Amount of        Percent
           of                Name and Address of        Beneficial         of
         Class                 Beneficial Owner         Ownership         Class
--------------------   ----------------------------     ----------      --------

Units of               Public Storage, Inc.
Limited                701 Western Avenue
Partnership Interest   Glendale, CA 91201-2394  (1)   94,474 Units (1)   73.81%


----------------------

 (1) These Units are held of record by SEI Arlington Acquisition Corporation,  a
     wholly-owned subsidiary of PSI.

                  The Partnership is not aware of any other beneficial owners of
         more than 5% of the Units.

         (b) The Partnership has no officers and directors.

                  The General Partners (or their  predecessor-in-interest)  have
         contributed $646,000 to the capital of the Partnership  representing 1%
         of the aggregate capital  contributions and as a result  participate in
         the  distributions  to the limited  partners  and in the  Partnership's
         profits and losses in the same  proportion  that the general  partners'
         capital   contribution   bears  to  the  total  capital   contribution.
         Information  regarding  ownership  of  the  Units  by  PSI , a  General
         Partner,  is set forth  under  section  (a) above.  The  directors  and
         executive officers of PSI , as a group, do not own any Units.

         (c) The Partnership knows of no contractual arrangements, the operation
         of the terms of which may at a  subsequent  date  result in a change in
         control of the Partnership,  except for articles 16, 17 and 21.1 of the
         Partnership's Amended Certificate and Agreement of Limited Partnership,
         a copy of which is included in the Partnership's prospectus included in
         the  Partnership's  Registration  Statement  File  No.  2-86355.  Those
         articles  provide,  in substance,  that the limited partners shall have
         the right,  by majority  vote,  to remove a general  partner and that a
         general partner may designate a successor with the consent of the other
         general partner and a majority of the limited partners.

                  The Partnership owns interests in 33 properties (which exclude
         the  properties  transferred  to PSBPLP in  January  1997);  27 of such
         properties  are  held  in  a  general  partnership   comprised  of  the
         Partnership  and PSI.  Under  the  terms of the  partnership  agreement
         relating  to the  ownership  of the  properties,  PSI has the  right to
         compel a sale of each  property  at any time after seven years from the
         date of acquisition at not less than its independently  determined fair
         market  value  provided the  Partnership  receives its share of the net
         sales  proceeds  solely in cash.  As of December 31, 1997,  PSI has the
         right to  require  the  Partnership  to sell all of the  joint  venture
         properties on these terms.


                                       18
<PAGE>



ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
             -----------------------------------------------

         The Partnership  Agreement provides that the General Partners and their
affiliates are entitled to the following compensation:

         1.   Incentive distributions equal to 10% of Cash Flow from Operations.

         2.   Provided the limited partners have received distributions equal to
              100% of  their  investment  plus a  cumulative  8% per  year  (not
              compounded) on their investment  (reduced by  distributions  other
              than  from  Cash Flow  from  Operations),  subordinated  incentive
              distributions  equal  to 15%  of  remaining  Cash  from  Sales  or
              Refinancings.

         3.   Provided the limited partners have received distributions equal to
              100% of their capital  contributions plus a cumulative 6% per year
              (not  compounded) on their  investment  (reduced by  distributions
              other  than   distributions   from  Cash  Flow  from  Operations),
              brokerage  commissions at the lesser of 3% of the sales price of a
              property or 50% of a competitive commission.

         During  1997,  approximately  $551,000  was paid to PSI with respect to
items 1, 2, and 3 above. The Partnership owns interests in 33 properties  (which
exclude  the  properties  transferred  to PSBPLP in  January  1997);  27 of such
properties are held in a general  partnership  comprised of the  Partnership and
PSI.

         The Partnership  has a Management  Agreement with PSI pursuant to which
the Partnership pays PSI a fee of 6% of the gross revenues of the mini-warehouse
spaces operated for the  Partnership.  During 1997, the Partnership paid fees of
$817,000 to PSI pursuant to the Management Agreement.

         Through 1996, the Partnership's  commercial  properties were managed by
PSCPG pursuant to a Management Agreement which provides for the payment of a fee
by the Partnership of 5% of the gross revenues of the commercial  space operated
for the Partnership.  In January 1997, the Partnership and PSI and other related
partnerships  transferred a total of 35 business  parks to PSBPLP,  an operating
partnership  formed  to own  and  operate  business  parks  in  which  PSI has a
significant  interest.  Included  among  the  properties  transferred  were  the
Partnership's  business park in exchange for a  partnership  interest in PSBPLP.
The general partner of PSBPLP is PS Business  Parks,  Inc., a REIT traded on the
American Stock Exchange.


                                       19
<PAGE>


                                     PART IV

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

         (a)      List of Documents filed as part of the Report.

                   1. Financial Statements:  See Index to Consolidated Financial
                      Statements and Financial Statement Schedules.

                   2. Financial Statement  Schedules:  See Index to Consolidated
                      Financial Statements and Financial Statement Schedules.

                   3. Exhibits: See Exhibit Index contained herein.

         (b)      Reports on Form 8-K:

                   None

         (c)      Exhibits:  See Exhibit Index contained herein.



                                       20
<PAGE>


                              PS PARTNERS II, LTD.
                                INDEX TO EXHIBITS


3.1  Amended Certificate and Agreement of Limited Partnership.  Previously filed
     with  the  Securities   and  Exchange   Commission  as  Exhibit  A  to  the
     Partnership's Prospectus included in Registration Statement No. 2-86355 and
     incorporated herein by reference.

10.1 Second Amended and Restated  Management  Agreement dated November 16, 1995,
     between the  Partnership  and Public Storage  Management,  Inc.  Previously
     filed  with the  Securities  and  Exchange  Commission  as an exhibit to PS
     Partners, Ltd.'s Annual Report on Form 10-K for the year ended December 31,
     1996 and incorporated herein by reference.

10.2 Amended  Management  Agreement  dated  February  21, 1995  between  Storage
     Equities,  Inc.  and  Public  Storage  Commercial  Properties  Group,  Inc.
     Previously filed with the Securities and Exchange  Commission as an exhibit
     to the Partnership's Annual Report on Form 10-K for the year ended December
     31, 1994 and incorporated herein by reference.

10.3 Participation  Agreement  dated  as of  November  9,  1984,  among  Storage
     Equities,  Inc. the Partnership,  Public Storage, Inc., B. Wayne Hughes and
     Kenneth Q. Volk,  Jr.  Previously  filed with the  Securities  and Exchange
     Commission as an exhibit to Storage  Equities,  Inc.  Annual Report on Form
     10-K for the year  ended  December  31,  1983 and  incorporated  herein  by
     reference.

27   Financial data schedule, Filed herewith.


                                       21
<PAGE>




                                   SIGNATURES


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

                                         PS PARTNERS II, LTD.
Dated:  March 26, 1998           By:     Public Storage, Inc., General Partner

                                 By:     /s/  B. Wayne Hughes
                                         --------------------------------------
                                         B. Wayne Hughes, Chairman of the Board

                                 By:     /s/  B. Wayne Hughes
                                         --------------------------------------
                                         B. Wayne Hughes, General Partner


         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
Partnership in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

                Signature                                     Capacity                               Date
------------------------------------------ -----------------------------------------------      --------------
<S>                                        <C>                                                            <C>
/s/ B. Wayne Hughes                        Chairman of the Board and Chief                      March 26, 1998
------------------------------------------ Executive Officer of Public Storage, Inc. and
B. Wayne Hughes                            General Partner (principal executive officer)


/s/ Harvey Lenkin                          President and Director                               March 26, 1998
------------------------------------------ of Public Storage, Inc.
Harvey Lenkin


/s/ B. Wayne Hughes, Jr.                   Vice President and Director                          March 26, 1998
------------------------------------------ of Public Storage, Inc.
B. Wayne Hughes, Jr.


/s/ John Reyes                             Senior Vice President and Chief Financial Officer    March 26, 1998
------------------------------------------ of Public Storage, Inc. (principal financial
John Reyes                                 officer and principal accounting officer)


/s/ Robert J. Abernethy                    Director of Public Storage, Inc.                     March 26, 1998
------------------------------------------
Robert J. Abernethy


/s/ Dann V. Angeloff                       Director of Public Storage, Inc.                     March 26, 1998
------------------------------------------
Dann V. Angeloff


/s/ William C. Baker                       Director of Public Storage, Inc.                     March 26, 1998
------------------------------------------
William C. Baker


/s/ Uri P. Harkham                         Director of Public Storage, Inc.                     March 26, 1998
------------------------------------------
Uri P. Harkham

</TABLE>

                                       22
<PAGE>


                              PS PARTNERS II, LTD.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULES

                                  (Item 14 (a))


                                                                         Page
                                                                      References
                                                                      ----------


Report of Independent Auditors                                          F-1

Consolidated Financial Statements and Schedules:

Consolidated Balance Sheets as of December 31, 1997
   and 1996                                                             F-2

For the years ended December 31, 1997, 1996 and 1995:
                                                                        F-3
   Consolidated Statements of Income

   Consolidated Statements of Partners' Equity                          F-4

   Consolidated Statements of Cash Flows                             F-5 - F-6

   Notes to Consolidated Financial Statements                       F-7 - F-10

Schedule

III - Real Estate and Accumulated Depreciation                     F-11 - F-13


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


                                       23
<PAGE>




                         Report of Independent Auditors




The Partners
PS Partners II, Ltd.


We have audited the  consolidated  balance  sheets of PS Partners II, Ltd. as of
December 31, 1997 and 1996 and the related  consolidated  statements  of income,
partners'  equity and cash flows for each of the three years in the period ended
December 31, 1997.  Our audits also  included the financial  statement  schedule
listed in the Index at Item 14(a).  These financial  statements and schedule are
the  responsibility of the Partnership's  management.  Our  responsibility is to
express an opinion  on these  financial  statements  and  schedule  based on our
audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the consolidated  financial  position of PS
Partners II, Ltd. at December 31, 1997 and 1996, and the consolidated results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therein.





                                                              ERNST & YOUNG LLP

February 23, 1998
Los Angeles, CA


                                      F-1
<PAGE>


                              PS PARTNERS II, LTD.
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1997 and 1996

<TABLE>
<CAPTION>

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

                                      ASSETS

<S>                                                                  <C>                <C>
Cash and cash equivalents                                            $ 1,085,000        $ 1,239,000

Rent and other receivables                                               103,000            123,000

Real estate facilities, at cost:
    Land                                                              10,580,000         17,414,000
    Buildings and equipment                                           59,525,000         73,222,000
                                                               --------------------------------------
                                                                      70,105,000         90,636,000

    Less accumulated depreciation                                    (32,148,000)       (37,683,000)
                                                               --------------------------------------
                                                                      37,957,000         52,953,000

Investment in real estate partnership                                 13,978,000                  -

Other assets                                                             129,000            243,000
                                                               --------------------------------------

                                                                    $ 53,252,000       $ 54,558,000
                                                               ======================================


                         LIABILITIES AND PARTNERS' EQUITY


Accounts payable                                                       $ 200,000          $ 519,000

Advance payments from renters                                            416,000            427,000

Mortgage notes payable                                                         -                  -

Minority interest in general partnerships                             14,966,000         15,069,000

Partners' equity:
    Limited partners' equity,  $500 per unit, 128,000
       units authorized, issued and outstanding                       37,211,000         38,077,000
    General partner's equity                                             459,000            466,000
                                                               --------------------------------------

Total partners' equity                                                37,670,000         38,543,000
                                                               --------------------------------------

                                                                    $ 53,252,000       $ 54,558,000
                                                               ======================================
</TABLE>
                            See accompanying notes.
                                      F-2
<PAGE>



                              PS PARTNERS II, LTD.
                        CONSOLIDATED STATEMENTS OF INCOME
              For the years ended December 31, 1997, 1996, and 1995

<TABLE>
<CAPTION>

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

REVENUE:

<S>                                                                    <C>               <C>               <C>
Rental income                                                          $ 13,617,000      $ 15,396,000      $ 14,928,000
Equity in income of real estate partnership                                 694,000                 -                 -
Interest income                                                              58,000            60,000           160,000
                                                                   -----------------------------------------------------
                                                                         14,369,000        15,456,000        15,088,000
                                                                   -----------------------------------------------------

COSTS AND EXPENSES:

Cost of operations                                                        4,156,000         5,137,000         4,779,000
Management fees                                                             817,000           900,000           872,000
Depreciation and amortization                                             2,887,000         3,502,000         3,293,000
Interest expense                                                                  -            14,000           177,000
Administrative                                                              143,000           152,000           159,000
Environmental costs                                                               -                 -           124,000
                                                                   -----------------------------------------------------
                                                                          8,003,000         9,705,000         9,404,000
                                                                   -----------------------------------------------------

Income before minority interest                                           6,366,000         5,751,000         5,684,000

Minority interest in income                                              (1,732,000)       (1,637,000)       (1,499,000)
                                                                   -----------------------------------------------------

NET INCOME                                                              $ 4,634,000       $ 4,114,000       $ 4,185,000
                                                                   =====================================================

Limited partners' share of net income
    ($31.59, $28.10, and $25.48 per unit in
    1997, 1996, and 1995, respectively)                                 $ 4,043,000       $ 3,597,000       $ 3,262,000
General partner's share of net income                                       591,000           517,000           923,000
                                                                   =====================================================
                                                                        $ 4,634,000       $ 4,114,000       $ 4,185,000
                                                                   =====================================================
</TABLE>
                            See accompanying notes.
                                      F-3

<PAGE>



                              PS PARTNERS II, LTD.
                   CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
             For the years ended December 31, 1997, 1996, and 1995

<TABLE>
<CAPTION>

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

<S>                                                                  <C>                  <C>            <C>
Balances at December 31, 1994                                        $ 43,430,000         $ 520,000      $ 43,950,000

Net income                                                              3,262,000           923,000         4,185,000

Distributions                                                          (7,932,000)         (970,000)       (8,902,000)

                                                                  ------------------------------------------------------
Balances at December 31, 1995                                          38,760,000           473,000        39,233,000

Net income                                                              3,597,000           517,000         4,114,000

Distributions                                                          (4,280,000)         (524,000)       (4,804,000)

                                                                  ------------------------------------------------------
Balances at December 31, 1996                                          38,077,000           466,000        38,543,000

Net income                                                              4,043,000           591,000         4,634,000

Distributions                                                          (4,909,000)         (598,000)       (5,507,000)
                                                                  ------------------------------------------------------

Balances at December 31, 1997                                        $ 37,211,000         $ 459,000      $ 37,670,000
                                                                  ======================================================
</TABLE>
                            See accompanying notes.
                                      F-4
<PAGE>



                              PS PARTNERS II, LTD.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the years ended December 31, 1997, 1996, and 1995

<TABLE>
<CAPTION>

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

CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                                                       <C>              <C>             <C>
Net income                                                                $ 4,634,000      $ 4,114,000     $ 4,185,000

    Adjustments to reconcile net income to net cash
       provided by operating activities

       Depreciation and amortization                                         2,887,000       3,502,000        3,293,000
       Decrease (increase) in rent and other receivables                        20,000         (38,000)         (57,000)
       Decrease (increase) in other assets                                     114,000         (80,000)          (9,000)
       (Decrease) increase in accounts payable                                (319,000)       (129,000)         215,000
       Decrease in advance payments from renters                               (11,000)         (6,000)          (6,000)
       Equity in income of real estate partnership                            (694,000)              -                -
       Minority interest in income                                           1,732,000       1,637,000        1,499,000
                                                                        -------------------------------------------------

          Total adjustments                                                  3,729,000       4,886,000        4,935,000
                                                                        -------------------------------------------------

          Net cash provided by operating activities                          8,363,000       9,000,000        9,120,000
                                                                        -------------------------------------------------

CASH FLOWS USED IN INVESTING ACTIVITIES:

    Distributions from real estate partnership                                 289,000               -                -
    Investment in real estate partnership                                       (3,000)              -                -
    Additions to real estate facilities                                     (1,461,000)     (1,236,000)        (803,000)
                                                                        -------------------------------------------------

          Net cash used in investing activities                             (1,175,000)     (1,236,000)        (803,000)
                                                                        -------------------------------------------------

CASH FLOWS USED IN FINANCING ACTIVITIES:

    Principal payments on mortgage notes payable                                     -      (2,260,000)         (66,000)
    Distributions to holder of minority interest                            (1,835,000)       (365,000)      (1,703,000)
    Distributions to partners                                               (5,507,000)     (4,804,000)      (8,902,000)
                                                                        -------------------------------------------------

          Net cash used in financing activities                             (7,342,000)     (7,429,000)     (10,671,000)
                                                                        -------------------------------------------------

Net (decrease) increase in cash and cash equivalents                          (154,000)        335,000       (2,354,000)

Cash and cash equivalents at the beginning of the period                     1,239,000         904,000        3,258,000
                                                                        -------------------------------------------------

Cash and cash equivalents at the end of the period                         $ 1,085,000     $ 1,239,000        $ 904,000
                                                                        =================================================
</TABLE>
                            See accompanying notes.
                                      F-5
<PAGE>


                              PS PARTNERS II, LTD.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the years ended December 31, 1997, 1996, and 1995
                                   (Continued)

<TABLE>
<CAPTION>

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


Supplemental schedule of noncash investing and financing activities:


    <S>                                                                      <C>                       <C>           <C>
    Investment in real estate partnership                                     $ (13,570,000)            $ -           $ -

    Transfer of real estate facilities for interest in real estate
    partnership, net                                                             13,570,000               -             -

</TABLE>
                            See accompanying notes.
                                      F-6
<PAGE>



                              PS PARTNERS II, LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1997



1.       Summary of Significant Accounting Policies and Partnership Matters
         ------------------------------------------------------------------

         Description of Partnership
         --------------------------

                  PS Partners II, Ltd. (the  "Partnership")  was formed with the
         proceeds  of  an  interstate   public  offering.   PSI  Associates  II,
         Inc.("PSA"), an affiliate of Public Storage Management, Inc., organized
         the  Partnership  along with B. Wayne Hughes  ("Hughes").  In September
         1993, Storage Equities,  Inc., now known as Public Storage,  Inc. ("PSI
         ") acquired the interest of PSA relating to its general partner capital
         contribution  in the  Partnership  and was  substituted as a co-general
         partner in place of PSA.

                  In 1995,  there was a series of mergers  among Public  Storage
         Management, Inc. (which was the Partnership's mini-warehouse operator),
         Public  Storage,  Inc.  and their  affiliates  (collectively,  "PSMI"),
         culminating in the November 16, 1995 merger (the "PSMI Merger") of PSMI
         into Storage Equities,  Inc. In the PSMI Merger, Storage Equities, Inc.
         was renamed Public Storage,  Inc. and it acquired  substantially all of
         PSMI's United States real estate  operations and became the operator of
         the Partnership's mini-warehouse properties.

                  The  Partnership  has  invested  in  existing   mini-warehouse
         storage facilities which offer  self-service  storage spaces for lease,
         usually on a  month-to-month  basis,  to the  general  public and, to a
         lesser  extent,  in  existing  business  park  facilities  which  offer
         industrial and office space for lease.

                  The Partnership has ownership interests in 33 properties in 12
         states, which exclude two properties  transferred to PS Business Parks,
         L.P. ("PSBPLP") in January 1997. 27 of the properties are owned jointly
         through 22 general  partnerships  (the "Joint  Ventures") with PSI. For
         tax  administrative  efficiency  the Joint  Ventures were  subsequently
         consolidated into a single general partnership.  The Partnership is the
         managing  general  partner  of  the  Joint  Ventures,   with  ownership
         interests in the Joint Ventures ranging from 36% to 90%.

         Basis of Presentation
         ---------------------

                  The consolidated  financial statements include the accounts of
         the Partnership and the Joint  Ventures.  PSI 's ownership  interest in
         the  Joint   Ventures  is  shown  as   minority   interest  in  general
         partnerships  in the  accompanying  consolidated  balance  sheets.  All
         significant   intercompany   balances   and   transactions   have  been
         eliminated.

                  Minority  interest  in income  represents  PSI 's share of net
         income  with  respect  to the  Joint  Ventures.  Under the terms of the
         partnership  agreements all depreciation and amortization  with respect
         to each Joint Venture is allocated solely to the Partnership  until the
         limited   partners   recover   their  initial   capital   contribution.
         Thereafter,  all  depreciation  and amortization is allocated solely to
         PSI until it recovers its initial capital  contribution.  All remaining
         depreciation  and  amortization is allocated to the Partnership and PSI
         in proportion to their ownership percentages.


                  Depreciation and  amortization  allocated to PSI was $336,000,
         $347,000  and  $328,000  in 1997,  1996  and  1995,  respectively.  The
         allocation of  depreciation  and  amortization to PSI has the effect of
         reducing  minority interest in income and has no effect on the reported
         depreciation and amortization expense.

                  Under the terms of the  partnership  agreements,  for property
         acquisitions in which PSI issued convertible  securities to the sellers
         for its interest, PSI 's rights to receive cash flow distributions from
         the  partnerships  for any year after the first year of  operation  are
         subordinated  to  cash  distributions  to the  Partnership  equal  to a
         cumulative  annual 7% of its cash  investment (not  compounded).  These
         agreements also specify that upon sale or refinancing of a property for
         more than its original purchase price, distribution of


                                      F-7
<PAGE>



                              PS PARTNERS II, LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1997



1.       Summary of Significant Accounting Policies and Partnership Matters
         ------------------------------------------------------------------
         (continued)
         -----------

         Basis of Presentation (continued)
         ---------------------------------

         proceeds to PSI is subordinated to the return to the Partnership of the
         amount of its cash investment and the 7% distribution described above.

                  In  addition  to the  above  provisions,  PSI has the right to
         compel the sale of each  property  in the general  partnerships  at any
         time after  seven years from the date of  acquisition  at not less than
         its independently determined fair market value provided the Partnership
         receives  its share of the net sales  proceeds  solely in cash.  PSI 's
         right to require the  Partnership to sell all of the  properties  owned
         jointly with the Partnership became exercisable in 1991.

         Depreciation and amortization
         -----------------------------

                  The  Partnership  depreciates the buildings and equipment on a
         straight-line  method over  estimated  useful  lives of 25 and 5 years,
         respectively.  Leasing commissions relating to business park properties
         are expensed when incurred.

         Revenue Recognition
         -------------------

                  Property rents are recognized as earned.

         Allocation of Net Income
         ------------------------

                  The  General  Partners'  share of net  income  consists  of an
         amount attributable to their 1% capital  contribution and an additional
         percentage  of cash flow (as defined,  see Note 4) which relates to the
         General  Partners'  share  of cash  distributions  as set  forth in the
         Partnership  Agreement.  All  remaining  net income is allocated to the
         limited partners.

         Per Unit Data
         -------------

                  Per unit data is based on the  number of  limited  partnership
         units (128,000) outstanding during the year.

         Cash Distributions
         ------------------

                  The Partnership Agreement provides for quarterly distributions
         of cash flow from operations (as defined).  Cash distributions per unit
         were $38.34 for 1997, $33.44 for 1996 and $61.97 for 1995.

         Cash and Cash Equivalents
         -------------------------

                  For financial  statement purposes,  the Partnership  considers
         all highly liquid investments purchased with a maturity of three months
         or less to be cash equivalents.

         Environmental Cost
         ------------------

                  Substantially  all  of  the   Partnership's   facilities  were
         acquired  prior to the time that it was customary to conduct  extensive
         environmental   investigations   in   connection   with  the   property
         acquisitions.  During  the  fourth  quarter  of  1995,  an  independent
         environmental  consulting firm completed  environmental  assessments on
         the Partnership's  properties to evaluate the  environmental  condition
         of, and potential environmental  liabilities of such properties.  Based
         on the assessments,  the Partnership  believes that it is probable that
         it will incur costs totaling  $68,000 after December 31, 1997 for known
         environmental  remediation  requirements.  During 1997, 1996, and 1995,
         the  Partnership  paid none,  $12,000,  and $44,000,  respectively,  in
         connection with the environmental  remediations.  Although there can be
         no assurance, the Partnership is not aware of any


                                   F-8
<PAGE>


                              PS PARTNERS II, LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1997


1.       Summary of Significant Accounting Policies and Partnership Matters
         ------------------------------------------------------------------
         (continued)
         -----------

         Environmental Cost (continued)
         ------------------------------

         unaccrued   environmental   contamination   of  its  facilities   which
         individually or in the aggregate would be material to the Partnership's
         overall business, financial condition, or results of operations.

         Use of Estimates
         ----------------

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

2.       Real Estate Facilities
         ----------------------

                  In  November  1994,  the  Massachusetts   Bay   Transportation
         Authority  exercised its right of eminent domain and took possession of
         the mini-warehouse  property located in Weymouth,  Massachusetts  which
         was owned jointly by the Partnership and PSI. The Partnership  received
         initial condemnation proceeds of approximately $1,910,000, resulting in
         the  recognition of a gain on disposition of real estate  facilities of
         $224,000.

                  The  Partnership  is  presently  contesting  the amount of the
         initial condemnation proceeds,  however, there is no assurance that the
         Partnership will obtain additional condemnation proceeds.

                  In 1995,  the  Financial  Accounting  Standards  Board  issued
         Statement of Financial  Accounting Standards No. 121 ("Statement 121"),
         "Accounting for the Impairment of Long-Lived  Assets and for Long-Lived
         Assets to be Disposed of." Statement 121 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 are less than the assets'  carrying  amount.
         Statement 121 also  addresses the method of accounting  for  long-lived
         assets  that are  expected  to be  disposed.  The  Partnership  adopted
         Statement 121 in 1996 and the adoption had no effect.

                  In January  1997,  the  Partnership  and PSI and other related
         partnerships  transferred  a total of 35 business  parks to PSBPLP,  an
         operating partnership formed to own and operate business parks in which
         PSI  has  a  significant   interest.   Included  among  the  properties
         transferred  were the  Partnership's  business  parks in exchange for a
         partnership  interest in PSBPLP.  The  general  partner of PSBPLP is PS
         Business Parks, Inc.

3.       Mortgage Notes Payable
         ----------------------

                  Mortgage  notes  payable at December  31, 1995  consisted of a
         variable  rate  mortgage  note due to a group of banks and secured by a
         real estate  facility  with a net book value of  $2,963,000 at December
         31, 1995. The balance was paid off in March 1996.

                  Interest paid during 1996 and 1995 was $14,000,  and $177,000,
         respectively.


                                      F-9
<PAGE>


                              PS PARTNERS II, LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1997


4.       General Partners' Equity
         ------------------------

                  The General Partners have a 1% interest in the Partnership. In
         addition,   the  General   Partners   have  a  10%   interest  in  cash
         distributions  attributable to operations,  exclusive of  distributions
         attributable to sales and refinancing proceeds.

                  Proceeds  from  sales  and  refinancings  will be  distributed
         entirely to the limited  partners  until the limited  partners  recover
         their  investment plus a cumulative 8% annual return (not  compounded);
         thereafter,  the General  Partners  have a 15%  interest  in  remaining
         proceeds.

5.       Related Party Transactions
         --------------------------

                  The  Partnership  has a management  agreement with PSI whereby
         PSI  operates the  Partnership's  mini-warehouse  facilities  for a fee
         equal to 6% of the facilities' monthly gross revenue (as defined).

                  In January 1997, the Partnership transferred its business park
         facilities to PSBPLP in exchange for a partnership interest in PSBPLP.

                  PSI has a significant economic interest in PSBPLP and PSBP.

6.       Leases
         ------

                  The   Partnership   has   invested   primarily   in   existing
         mini-warehouse  storage  facilities  which offer  self-service  storage
         spaces  for lease to the  general  public.  Leases  for such  space are
         usually on a month-to-month basis.

7.       Taxes Based on Income
         ---------------------

                  Taxes based on income are the responsibility of the individual
         partners and,  accordingly,  the Partnership's  consolidated  financial
         statements do not reflect a provision for such taxes.

                   Taxable net income was $6,509,000,  $2,637,000 and $4,068,000
         for the years ended December 31, 1997, 1996 and 1995, respectively. The
         difference  between taxable income and book income is primarily related
         to timing differences in depreciation expense.


                                      F-10
<PAGE>



                              PS PARTNERS II, LTD.
                           SCHEDULE III - REAL ESTATE
                          AND ACCUMULATED DEPRECIATION

<TABLE>
<CAPTION>

                                                                     Costs                        Gross Carrying Amount
                                                 Initial Cost      subsequent                      At December 31, 1997
                                       --------------------------to acquisition-----------------------------------------------------
Date                                               Building &      Building &                  Building &                Accumulated
Acquired    Description   Encumbrances   Land     Improvement     Improvements     Land       Improvements     Total    Depreciation
------------------------------------------------------------------------------------------------------------------------------------

    Mini-warehouse

<C>                           <C>    <C>          <C>             <C>           <C>          <C>            <C>            <C>
12/83 Charlotte               $ -    $ 165,000    $ 1,274,000     $ 320,000     $ 165,000    $ 1,594,000    $ 1,759,000    $ 873,000
12/83 Greensboro/Market         -      214,000      1,653,000       472,000       214,000      2,125,000      2,339,000    1,186,000
12/83 Greensboro/Electra        -      112,000        869,000       248,000       112,000      1,117,000      1,229,000      608,000
1/83  Raleigh/Yonkers           -      203,000        914,000       361,000       203,000      1,275,000      1,478,000      690,000
12/83 Columbia                  -      171,000      1,318,000       442,000       171,000      1,760,000      1,931,000      975,000
12/83 Richmond                  -      176,000      1,360,000       318,000       176,000      1,678,000      1,854,000      916,000
12/83 Augusta                   -       97,000        747,000       240,000        97,000        987,000      1,084,000      532,000
4/84  Providence                -       92,000      1,087,000       313,000        92,000      1,400,000      1,492,000      753,000
1/85  Cranston                  -      175,000        722,000       272,000       175,000        994,000      1,169,000      524,000
3/84  Marrietta/Cobb            -       73,000        542,000       223,000        73,000        765,000        838,000      398,000
1/84  Fremont/Albrae            -      636,000      1,659,000       417,000       636,000      2,076,000      2,712,000    1,160,000
12/83 Tacoma                    -      553,000      1,173,000       341,000       553,000      1,514,000      2,067,000      832,000
1/84  Belton                    -      175,000        858,000       458,000       175,000      1,316,000      1,491,000      691,000
1/84  Gladstone                 -      275,000      1,799,000       373,000       275,000      2,172,000      2,447,000    1,159,000
1/84  Hickman/112               -      257,000      1,848,000       381,000       257,000      2,229,000      2,486,000    1,202,000
1/84  Holmes                    -      289,000      1,333,000       240,000       289,000      1,573,000      1,862,000      846,000
1/84  Independence              -      221,000      1,848,000       266,000       221,000      2,114,000      2,335,000    1,161,000
1/84  Merriam                   -      255,000      1,469,000       323,000       255,000      1,792,000      2,047,000      940,000
1/84  Olathe                    -      107,000        992,000       270,000       107,000      1,262,000      1,369,000      663,000
1/84  Shawnee                   -      205,000      1,420,000       337,000       205,000      1,757,000      1,962,000      939,000
1/84  Topeka                    -       75,000      1,049,000       195,000        75,000      1,244,000      1,319,000      669,000
2/84  Unicorn/Knoxville         -      662,000      1,887,000       420,000       662,000      2,307,000      2,969,000    1,239,000
2/84  Central/Knoxville         -      449,000      1,281,000       242,000       449,000      1,523,000      1,972,000      827,000
3/84  Manassas                  -      320,000      1,556,000       325,000       320,000      1,881,000      2,201,000    1,030,000
3/84  Pico Rivera               -      743,000        807,000       302,000       743,000      1,109,000      1,852,000      626,000
5/84  Raleigh/Departure         -      302,000      2,484,000       411,000       302,000      2,895,000      3,197,000    1,550,000

</TABLE>
                                      F-11

                              PS PARTNERS II, LTD.
                           SCHEDULE III - REAL ESTATE
                          AND ACCUMULATED DEPRECIATION


<TABLE>
<CAPTION>
                                                                     Costs                        Gross Carrying Amount
                                                 Initial Cost      subsequent                      At December 31, 1997
                                       --------------------------to acquisition-----------------------------------------------------
Date                                               Building &      Building &                  Building &                Accumulated
Acquired    Description   Encumbrances   Land     Improvement     Improvements     Land       Improvements     Total    Depreciation
------------------------------------------------------------------------------------------------------------------------------------

    Mini-warehouse

<C>                          <C>     <C>            <C>           <C>           <C>            <C>          <C>            <C>
4/84  Milwaukie/Oregon       $ -     $ 289,000      $ 584,000     $ 225,000     $ 289,000      $ 809,000    $ 1,098,000    $ 437,000
7/84  Trevose/Old Lincoln      -       421,000      1,749,000       347,000       421,000      2,096,000      2,517,000    1,098,000
5/84  Virginia Beach           -       509,000      2,121,000       597,000       509,000      2,718,000      3,227,000    1,428,000
5/84  Philadelphia/Grant       -     1,041,000      3,262,000       399,000     1,041,000      3,661,000      4,702,000    2,023,000
6/84  Lorton                   -       435,000      2,040,000       460,000       435,000      2,500,000      2,935,000    1,350,000
6/84  Baltimore                -       382,000      1,793,000       530,000       382,000      2,323,000      2,705,000    1,252,000
6/84  Laurel                   -       501,000      2,349,000       610,000       501,000      2,959,000      3,460,000    1,571,000
                              ----------------------------------------------------------------------------------------------------


      TOTAL                  $ -  $ 10,580,000   $ 47,847,000  $ 11,678,000  $ 10,580,000   $ 59,525,000   $ 70,105,000  $32,148,000
                              ======================================================================================================

</TABLE>

                                      F-12
<PAGE>



                              PS PARTNERS II, LTD.
                           REAL ESTATE RECONCILIATION
                            SCHEDULE III (CONTINUED)

(A)  The  following  is  a  reconciliation  of  cost  and  related   accumulated
     depreciation.


                       Gross Carrying Cost Reconciliation
<TABLE>
<CAPTION>

                                                         Years Ended December 31,
                                              ------------------------------------------------
                                                   1997             1996            1995
                                              ------------------------------------------------

<S>                                             <C>             <C>              <C>
Balance at beginning of the period              $ 90,636,000    $ 89,400,000     $ 88,597,000

Additions during the period:
     Improvements, etc.                            1,461,000       1,236,000          803,000

Deductions during the period:
     Disposition of real estate                  (21,992,000)              -                -
                                              ------------------------------------------------

Balance at the close of the period              $ 70,105,000    $ 90,636,000     $ 89,400,000
                                              ================================================

</TABLE>

                     Accumulated Depreciation Reconciliation


<TABLE>
<CAPTION>
                                                         Years Ended December 31,
                                              ------------------------------------------------
                                                   1997             1996            1995
                                              ------------------------------------------------

<S>                                             <C>             <C>              <C>
Balance at beginning of the period              $ 37,683,000    $ 34,181,000     $ 30,887,000

Additions during the period:
     Depreciation                                  2,887,000       3,502,000        3,294,000

Deductions during the period:
     Disposition of real estate                   (8,422,000)              -                -
                                              ------------------------------------------------

Balance at the close of the period              $ 32,148,000    $ 37,683,000     $ 34,181,000
                                              ================================================

</TABLE>

(B)  The  aggregate cost of real  estate  for  Federal  income tax  purposes  is
     $70,257,000.


                                      F-13