SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                                    FORM 10-Q

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


For the quarterly period ended June 30, 1997
                               --------------


                                       or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934


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


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


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


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


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


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


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

                                [ X ] Yes [ ] No

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of July 29, 1997:


Common Stock, $.10 par value, 102,962,244 shares outstanding
------------------------------------------------------------
Class B Common Stock, $.10 Par Value - 7,000,000 shares
-------------------------------------------------------
Equity Stock Series A, $.01 Par Value - 225,000 shares
-------------------------------------------------------


<PAGE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.

                                      INDEX


                                                                                 Pages
                                                                                 -----
PART I. FINANCIAL INFORMATION
-----------------------------

<S>                                                                               <C>     
Item 1.   Condensed Consolidated Balance Sheets at
            June 30, 1997 and December 31, 1996                                    1

          Condensed Consolidated Statements of Income for the
            Three and Six Months Ended June 30, 1997 and 1996                      2

          Condensed Consolidated Statement of Shareholders' Equity                 
            for the Six Months Ended June 30, 1997                                 3

          Condensed Consolidated Statements of Cash Flows
            for the Six Months Ended June 30, 1997 and 1996                        4 - 5

          Notes to Condensed Consolidated Financial Statements                     6 - 14

Item 2.   Management's Discussion and Analysis of
            Financial Condition and Results of Operations                          15 - 26

PART II. OTHER INFORMATION (Items 1, 2, 3 , 4 and 5 are not applicable)
--------------------------

Item 6.   Exhibits and Reports on Form 8-K                                         27



</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (Amounts in thousands, except share data)
                                                                            June 30,                  December 31,
                                                                              1997                       1996
                                                                        -----------------          -----------------
                                     ASSETS                               (Unaudited)
                                     ------
<S>                                                                     <C>                        <C>         
    Cash and cash equivalents............................               $     84,425               $     26,856
    Real estate facilities, at cost:
       Land..............................................                    725,194                    596,141
       Buildings.........................................                  1,964,869                  1,625,172
                                                                        -----------------          -----------------
                                                                           2,690,063                  2,221,313
       Accumulated depreciation..........................                   (333,552)                  (297,655)
                                                                        -----------------          -----------------
                                                                           2,356,511                  1,923,658

    Investment in real estate entities...................                    249,926                    350,190
    Intangible assets, net...............................                    217,598                    222,253
    Other assets.........................................                     57,283                     49,195
                                                                        -----------------          -----------------
                  Total assets...........................               $  2,965,743               $  2,572,152
                                                                        =================          =================

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------

    Notes payable........................................               $    104,116               $    108,443
    Accrued and other liabilities........................                     53,594                     41,467
                                                                        -----------------          -----------------
             Total liabilities...........................                    157,710                    149,910
 
    Minority interest....................................                    166,984                    116,805
 
    Commitments and contingencies
 
    Shareholders' equity:
 
        Preferred Stock, $0.01 par value, 50,000,000
         shares authorized, - 13,328,409 shares issued
         and outstanding (13,421,580 issued and
         outstanding at December 31, 1996), at
         liquidation preference:
             Cumulative Preferred Stock, issued in series                    718,900                    718,900
             Convertible Preferred Stock.................                     55,119                    114,929

       Common stock, $0.10 par value, 200,000,000 shares
         authorized, 102,932,230 shares issued and
         outstanding (88,362,026 at December 31, 1996)...                     10,294                      8,837

       Class B Common Stock, $0.10 par value, 7,000,000
         shares authorized and issued....................                        700                        700

       Paid-in capital...................................                  1,852,022                  1,454,387
       Cumulative net income.............................                    482,989                    396,420
       Cumulative distributions paid.....................                   (478,975)                  (388,736)
                                                                        -----------------          -----------------
             Total shareholders' equity..................                  2,641,049                  2,305,437
                                                                        -----------------          -----------------
                  Total liabilities and shareholders'    
                  equity.................................               $  2,965,743               $  2,572,152
                                                                        =================          =================

</TABLE>
                             See accompanying notes.
                                        1
<PAGE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                  (Amounts in thousands, except per share data)

                                   (Unaudited)
                                                               For the Three Months Ended        For the Six Months Ended
                                                                        June 30,                         June 30,
                                                                  ----------------------          -------------------------
                                                                    1997            1996            1997             1996
                                                                  -------         --------        --------          --------
<S>                                                             <C>            <C>              <C>               <C>      
       REVENUES:
          Rental income:
             Self-storage facilities..................          $  89,171      $  66,117        $ 171,548         $ 124,861
             Commercial properties....................              8,571          5,704           16,168            10,669
          Equity in earnings of real estate entities..              5,029          5,479           10,250            10,090
          Facility management fees....................              2,891          3,549            5,943             7,309
          Ancillary business income...................              2,405            740            3,727             1,237
          Interest and other income...................              2,619          1,521            4,292             3,887
                                                                  -------         --------        --------          --------
                                                                  110,686         83,110          211,928           158,053
                                                                  -------         --------        --------          --------

       EXPENSES:
         Cost of operations:
             Self-storage facilities..................             26,403         19,485           52,894            37,976
             Commercial properties....................              3,573          2,392            6,757             4,586
         Cost of facility management..................                466            547              942             1,175
         Cost of operations - ancillary business......              9,052            422           12,392               862
         Depreciation and amortization ...............             20,758         16,119           40,528            30,687
         General and administrative...................              1,667          1,698            3,286             3,059
         Interest expense.............................              1,962          2,232            3,559             4,813
                                                                  -------         --------        --------          --------
                                                                   63,881         42,895          120,358            83,158
                                                                  -------         --------        --------          --------
       Income before minority interest................             46,805         40,215           91,570            74,895

       Minority interest in income....................             (2,554)        (2,476)          (5,001)           (4,815)
                                                                  -------         --------        --------          --------

       Net income.....................................          $  44,251      $  37,739        $  86,569         $  70,080
                                                                  =======         ========        ========          ========

       Net income allocation:
          Allocable to preferred shareholders.........          $  30,668      $  17,896        $  49,818         $  33,062
          Allocable to common shareholders............             13,583         19,843           36,751            37,018
                                                                  -------         --------        --------          --------
                                                                $  44,251      $  37,739        $  86,569         $  70,080
                                                                  =======         ========        ========          ========

       PER COMMON SHARE:

       Net income.....................................           $   0.14        $   0.27        $   0.39          $    0.51
                                                                  =======         ========        ========          ========

       Weighted average common shares outstanding.....             98,046           73,537          93,883            72,749
                                                                  =======         ========        ========          ========

</TABLE>
                             See accompanying notes.
                                        2
<PAGE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                     For the Six Months Ended June 30, 1997
                    (Amounts in thousands except share data)

                                   (Unaudited)
                                                                    Preferred Stock                                  
                                                               -------------------------                  Class B    
                                                               Cumulative                    Common       Common     
                                                                 Senior      Convertible      Stock        Stock     
                                                               ---------      ---------     ---------    ---------   
<S>                                                            <C>            <C>           <C>          <C>         
Balances at December 31, 1996...........................       $ 718,900      $ 114,929     $   8,837    $     700   

Issuance of common stock:
     In connection with mergers (7,681,432 shares) .....               -              -           768            -   
     Public issuance (4,600,000 shares).................               -              -           460            -   
     Other (46,932 shares)..............................               -              -             5            -   

Conversion of 8.25% Convertible Preferred Stock
   into common stock (57,570 shares)....................               -           (855)            6            -   

Conversion of Mandatory Convertible Preferred Stock,
   Series CC into common stock (2,184,250 shares).......               -        (58,955)          218            -   

Net income..............................................               -              -             -            -   

Cash distributions:
   Cumulative Senior Preferred Stock....................               -              -             -            -   
   Mandatory Convertible Preferred Stock, Series CC.....               -              -             -            -   
   8.25% Convertible Preferred Stock....................               -              -             -            -   
   Common Stock.........................................               -              -             -            -   
                                                               ---------      ---------     ---------    ---------   
Balances at June 30, 1997...............................        $718,900        $55,119       $10,294    $     700   
                                                               =========      =========     =========    =========   
</TABLE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                     For the Six Months Ended June 30, 1997
                    (Amounts in thousands except share data)

                                   (Unaudited)



                                                             
                                                                                                                 Total
                                                                  Paid-in     Cumulative     Cumulative      Shareholders'
                                                                  Capital     Net Income    Distributions       Equity
                                                               ----------     ---------     ----------        ------------
<S>                                                            <C>            <C>           <C>              <C>         
Balances at December 31, 1996...........................       $1,454,387     $ 396,420     $ (388,736)       $  2,305,437

Issuance of common stock:
     In connection with mergers (7,681,432 shares) .....          211,232             -              -             212,000
     Public issuance (4,600,000 shares).................          126,239             -              -             126,699
     Other (46,932 shares)..............................              578             -              -                 583

Conversion of 8.25% Convertible Preferred Stock
   into common stock (57,570 shares)....................              849             -              -                   -

Conversion of Mandatory Convertible Preferred Stock,
   Series CC into common stock (2,184,250 shares).......           58,737             -              -                   -

Net income..............................................                -        86,569              -              86,569

Cash distributions:
   Cumulative Senior Preferred Stock....................                -             -        (32,212)            (32,212)
   Mandatory Convertible Preferred Stock, Series CC.....                -             -        (15,328)            (15,328)
   8.25% Convertible Preferred Stock....................                -             -         (2,278)             (2,278)
   Common Stock.........................................                -             -        (40,421)            (40,421)
                                                               ----------     ---------     ----------       -------------
Balances at June 30, 1997...............................       $1,852,022      $482,989      $(478,975)         $2,641,049
                                                               ==========     =========     ==========       =============
</TABLE>
                             See accompanying notes.
                                        3
<PAGE>
<TABLE>
<CAPTION>

                              PUBLIC STORAGE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

                                   (Unaudited)

                                                                                               For the Six Months Ended
                                                                                                         June 30,
                                                                                             ----------------------------
                                                                                                 1997             1996
                                                                                             -----------      -----------
      Cash flows from operating activities:
<S>                                                                                          <C>               <C>      
         Net income..........................................................                $  86,569         $  70,080
         Adjustments to reconcile  net income to net cash  provided by operating
           activities:
           Depreciation and amortization.....................................                   40,528            30,687
           Depreciation included in equity in earnings of real estate entities                   6,685             8,826
           Minority interest in income.......................................                    5,001             4,815
                                                                                             -----------      -----------
               Total adjustments.............................................                   52,214            44,328
                                                                                             -----------      -----------
                   Net cash provided by operating activities.................                  138,783           114,408
                                                                                             -----------      -----------

      Cash flows from investing activities:
           Capital improvements to real estate facilities....................                  (15,040)           (7,737)
           Construction in process...........................................                  (34,587)          (21,173)
           Acquisition of real estate facilities.............................                        -           (91,500)
           Capital expenditures of portable self-storage operations
             (included in other assets) .....................................                  (11,164)                -
           Acquisition of interests in real estate entities..................                   (9,079)          (70,862)
           Acquisition cost of business combinations.........................                  (68,862)          (53,706)
           Acquisition of minority interests.................................                  (10,416)           (4,588)
           Other.............................................................                      603            (9,295)
                                                                                             -----------      -----------
                   Net cash used in investing activities.....................                 (148,545)         (258,861)
                                                                                             -----------      -----------

      Cash flows from financing activities:
           Net borrowings on note payable to banks...........................                        -             5,000
           Principal payments on notes payable...............................                   (4,327)          (43,683)
           Net proceeds from the issuance of preferred stock.................                        -           163,133
           Net proceeds from the issuance of common stock....................                  127,282            31,031
           Distributions paid to shareholders................................                  (90,239)          (65,238)
           Distributions from operations to minority interests in real
             estate partnerships.............................................                   (9,520)          (10,524)
           Net reinvestment by minority interests into real estate partnerships.                38,570               480
           Other.............................................................                    5,565             3,645
                                                                                             -----------      -----------
                   Net cash provided by financing activities.................                   67,331            83,844
                                                                                             -----------      -----------

      Net increase (decrease) in cash and cash equivalents...................                   57,569           (60,609)
      Cash and cash equivalents at the beginning of the period...............                   26,856            80,436
                                                                                             -----------      -----------
      Cash and cash equivalents at the end of the period.....................                $  84,425         $  19,827
                                                                                             ===========      ===========

</TABLE>
                             See accompanying notes.
                                        4
<PAGE>
<TABLE>
<CAPTION>

                              PUBLIC STORAGE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

                                   (Unaudited)

                                   (Continued)

                                                                                            For the Six Months Ended
                                                                                                    June 30,
                                                                                   -----------------------------------------
                                                                                            1997                  1996
                                                                                   ------------------       ----------------
      SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

<S>                                                                                   <C>                    <C>         
       Acquisition of real estate facilities in exchange for the cancellation of
          mortgage notes  receivable,  the assumption of mortgage notes payable,
          and issuance of common and preferred stock...............................     $          -         $    (2,401)

       Business combinations:
          Real estate facilities..................................................           (413,597)          (249,044)
          Other assets............................................................             (2,667)            (4,780)
          Accrued and other liabilities...........................................             11,342              5,799
          Minority interest.......................................................             21,402             20,139

       Net reduction to investment in real estate entities in connection with
          business combinations...................................................            102,658             63,308

       Assumption of mortgage notes payable in connection with the acquisition of
          real estate facilities..................................................                  -              1,701

       Cancellation of mortgage notes receivable in connection with the acquisition
          of real estate facilities...............................................                  -                700

       Issuance of Mandatory Convertible Preferred Stock, Series CC...............                  -             58,955

       Issuance of common stock in connection with:
          - business combinations.................................................            212,000             47,116
          - conversions of 8.25% Convertible Preferred Stock......................                855                273
          - conversions of Mandatory Convertible Preferred Stock..................             58,955             28,470

       Conversion of 8.25% Convertible Preferred Stock into common stock..........               (855)              (783)

       Conversion of Mandatory Convertible Preferred Stock into common stock......            (58,955)           (28,470)

       Increase in accrued and other liabilities:
          - accrued cash portion of merger costs..................................                  -              4,801

</TABLE>
                             See accompanying notes.
                                        5
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1997


1.  Description of the business
    ---------------------------

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

          The Company invests in real estate  facilities  primarily  through the
     acquisition of  wholly-owned  facilities  combined with the  acquisition of
     equity interests in real estate entities owning real estate facilities.  At
     June 30,  1997,  the Company had direct and  indirect  equity  interests in
     1,122  properties  located  in  38  states,  including  1,070  self-storage
     facilities and 52 commercial properties.

2.   Summary of significant accounting policies
     ------------------------------------------

          Basis of presentation
          ---------------------

          The accompanying unaudited condensed consolidated financial statements
     have  been  prepared  in  accordance  with  generally  accepted  accounting
     principles for interim financial  information and with instructions to Form
     10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
     of the information and footnotes required by generally accepted  accounting
     principles  for  complete  financial  statements.  The  preparation  of the
     consolidated  financial  statements in conformity  with generally  accepted
     accounting principles requires management to make estimates and assumptions
     that affect the amounts reported in the consolidated  financial  statements
     and accompanying notes. Actual results could differ from estimates.  In the
     opinion of management,  all  adjustments  (consisting  of normal  recurring
     accruals)  necessary for a fair presentation have been included.  Operating
     results  for  the  three  and  six  months  ended  June  30,  1997  are not
     necessarily  indicative  of the results  that may be expected  for the year
     ended December 31, 1997. For further information, refer to the consolidated
     financial statements and footnotes thereto included in the Company's annual
     report on Form 10-K for the year ended December 31, 1996.

          The consolidated  financial statements include the accounts of (i) the
     Company, (ii) majority owned subsidiaries which are involved in the sale of
     locks and  boxes,  rental  of trucks  and  portable  self-storage,  and the
     management  and operation of commercial  properties,  and (iii)  twenty-two
     limited partnerships in which the Company has significant economic interest
     (in  excess  of 50%)  and is  able to  exercise  significant  control  (the
     "Consolidated Partnerships"). Collectively, the Company, the majority owned
     subsidiaries,  and the  Consolidated  Partnerships  own a total of 876 real
     estate  facilities,  consisting  of  826  self-storage  facilities  and  50
     commercial properties.

          The Company also has equity investments in 41 other affiliated limited
     partnerships  and two REITs owning in aggregate 246 real estate  facilities
     (244 self-storage facilities and 2 commercial properties) which are managed
     by the  Company.  The  Company's  ownership  interest  in such real  estate
     entities is less than 50% of the total equity  interest  and,  accordingly,
     the Company's  investments in these real estate  entities are accounted for
     using the equity method.


                                       6
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1997



          Income taxes
          ------------

          For all taxable years  subsequent to 1980,  the Company  qualified and
     intends to continue to qualify as a REIT,  as defined in Section 856 of the
     Internal  Revenue Code. As a REIT, the Company is not taxed on that portion
     of its taxable  income which is distributed  to its  shareholders  provided
     that the Company meets  certain  tests.  The Company  believes it will meet
     these tests during 1997 and, accordingly, no provision for income taxes has
     been made in the accompanying financial statements.

          Cash and cash equivalents
          -------------------------

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

          Real estate facilities 
          ----------------------

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

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

          Intangible assets
          -----------------

          Intangible   assets   consist   of   property   management   contracts
     ($165,000,000)  and the  cost  over  the fair  value  of net  tangible  and
     identifiable intangible assets ($67,726,000) acquired in a 1995 merger with
     an affiliate.  Intangible assets are amortized by the straight-line  method
     over 25 years. At June 30, 1997,  intangible  assets are net of accumulated
     amortization of $15,128,000 ($10,473,000 at December 31, 1996). Included in
     depreciation  and  amortization  expense for the three and six months ended
     June 30, 1997 and 1996 is $2,328,000 and $4,655,000,  respectively, related
     to the amortization of intangible assets.

          Revenue/expense recognition
          ---------------------------

          Property  rents are  recognized as earned.  Equity in earnings of real
     estate entities are recognized based on the Company's ownership interest in
     the earnings of each of the  unconsolidated  real estate entities.  Leasing
     commissions  relating to the commercial property operations are expensed as
     incurred.

          Net income per common share
          ---------------------------

          Net income per common  share is computed  using the  weighted  average
     common shares  outstanding  (adjusted for stock options).  The inclusion of
     the Class B Common Stock in the  determination of earnings per common share
     is anti-dilutive and,  accordingly,  are not included in the computation in
     either  period.  The  Company's  preferred  stocks  are  not  common  stock
     equivalents.  Fully diluted earnings per common share are not presented, as
     the assumed conversion of the Company's  convertible preferred stocks would
     be anti-dilutive.

          In computing  earnings per common  share,  preferred  stock  dividends
     reduced income  available to common  stockholders.  At the end of the first
     quarter of 1997, the Company paid a non-recurring  special  dividend to the
     holder of the Series CC Convertible Preferred Stock totaling $13.4 million.
     As a result of this  payment,  the Company  would not have been required to
     pay quarterly dividends with respect to the Series CC Convertible Preferred
     Stock until the quarter ended March 31, 1999.  During the second quarter of


                                       7
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1997

     1997,  the Series CC  Convertible  Preferred  Stock  converted  into common
     stock. Net income allocable to the Company's  preferred stock for the three
     and six months ended June 30, 1997 reflects the special  dividends  paid to
     the Series CC Convertible  preferred  stock of $13.4 million in each period
     compared  to $1.9 million in each of the  comparable  periods in 1996.

          In February  1997,  the Financial  Accounting  Standards  Board issued
     Statement No. 128,  Earnings per Share,  which is required to be adopted on
     December 31, 1997. At that time, the Company will be required to change the
     method  currently  used to compute  earnings  per share and to restate  all
     prior periods.  Under the new requirements for calculating primary earnings
     per share,  the dilutive  effects of stock  options  will be excluded.  The
     impact  of the new  standard  will not have a  material  impact  on  either
     primary or  fully-diluted  earnings  per common share for the three and six
     months ended June 30, 1997 and 1996.

          Reclassification
          ----------------

          Certain reclassifications have been made to the consolidated finanical
     statements for 1996 in order to conform to the 1997 Presentation.

3.   Business combinations
     ---------------------

          Mergers with affiliated REITs
          -----------------------------

          During  the second  quarter  of 1997,  the  Company  completed  merger
     transactions  with six affiliated public REITs whereby the Company acquired
     all the  outstanding  stock of the REITs which it did not previously own in
     exchange  for  cash  and  common  stock  of  the  Company.   The  aggregate
     acquisition cost of these mergers is summarized as follows:
<TABLE>
<CAPTION>
                                                                                        Merger consideration
                                                                        ---------------------------------------------------
                                                                        Common Stock               Pre-existing
     Entity                                              Date of merger                   Cash      investment      Total
     -----------------------------------------           --------------   ---------    ---------   ------------   ---------
                                                                                        (Amounts in thousands)

<S>                                                      <C>                <C>            <C>          <C>         <C>  
     Public Storage Properties XIV, Inc.                 April 11, 1997   $ 34,450       $ 9,145      $19,977     $ 63,572
     Public Storage Properties XV, Inc.                  April 11, 1997     29,764         8,883       18,137       56,784
     Public Storage Properties XVI, Inc.                 June 24, 1997      41,060        10,804       22,225       74,089
     Public Storage Properties XVII, Inc.                June 24, 1997      34,590        15,793       25,862       76,245
     Public Storage Properties XVIII, Inc.               June 24, 1997      39,727        17,570       19,841       77,138
     Public Storage Properties XIX, Inc.                 June 24, 1997      32,409         6,667       18,003       57,079
                                                                          ---------    ---------   ------------   ---------
                                                                          $212,000       $68,862     $124,045      $404,907
                                                                          =========    =========   ============   =========
</TABLE>
          Other business combination
          --------------------------

          During  the second  quarter  of 1997,  the  Company  acquired  limited
     partnership   interest  of  an  affiliated   partnership  for  $22,500,000,
     consisting of the issuance of the Company's  Equity Stock,  Series A to the
     affiliated partnership. The acquisition of this interest, combined with the
     Company's  existing  general  partnership   interest  in  the  partnership,
     significantly increased the Company's ownership interest and control of the
     partnership and, as a result, the Company began to consolidate the accounts
     of this partnership.

          Each of the above mergers with  affiliated  REITs and  acquisition  of
     partnership  interests has been  accounted for as a purchase;  accordingly,
     allocations of the total  acquisition  cost to the net assets acquired were
     made based on the fair value of such assets and liabilities as of the dates
     of each  respective  transaction.  The fair market values of the assets and
     liabilities  assumed with respect to the  transactions  are  summarized  as
     follows:
                                       8
<PAGE>
<TABLE>
<CAPTION>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1997



                                                      REIT           Partnership
                                                     mergers         acquisition          Total
                                                ----------------   --------------     -------------
                                                                   (In thousands)

<S>                                                    <C>           <C>              <C>       
     Real estate facilities...................         $413,597      $        -       $  413,597
     Investment in real estate entities.......                -          21,387           21,387
     Other assets.............................            2,424             243            2,667
     Accrued and other liabilities............          (11,114)           (228)         (11,342)
     Minority interest........................                -         (21,402)         (21,402)
                                                ----------------   --------------     -------------
                                                       $404,907      $        -        $ 404,907
                                                ================   ==============     =============
</TABLE>


          The historical  operating  results of the above business  combinations
     prior to each  respective  acquisition  date have not been  included in the
     Company's  historical  operating results. Pro forma selected financial data
     for the six  months  ended  June  30,  1997 and 1996 as  though  the  above
     business  combinations  had been  effective at the beginning of each period
     are as follows:

<TABLE>
<CAPTION>


                                                                           Six Months Ended           Six Months Ended
          (In thousands, except per share data)                              June 30, 1997             June 30, 1996
          -------------------------------------------------------          -----------------        -----------------
          

<S>                                                                             <C>                        <C>      
          Revenues...............................................               $ 234,196                  $ 183,317
          Net income.............................................               $  90,729                  $  75,715
          Net income per common share............................                   $0.40                      $0.53

</TABLE>

          The pro forma data does not  purport to be  indicative  of  operations
     that would have  occurred  had the  business  combinations  occurred at the
     beginning of each period or future  results of  operations  of the Company.
     Certain pro forma adjustments were made to the combined  historical amounts
     to reflect  expected  reductions  in general  and  administrative  expenses
     combined  with an  estimated  increase  in  depreciation  and  amortization
     expense.



                                       9
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1997

4.   Real estate facilities
     ----------------------

          Activity in real estate facilities during 1997 is as follows:
<TABLE>
<CAPTION>


                                                                       Number of real       Net rentable square      
                                                                      estate facilities           feet            Net carrying cost
                                                                      -----------------     -------------------  ------------------
                                                                             (Amounts in thousands, except number of facilities)
                Operating Facilities
<S>                                                                           <C>                <C>               <C>       
                  Balance at December 31, 1996...............                 756                46,462            $2,185,498
                  Property acquisitions - mergers............                 114                 6,934               412,824
                  Newly opened developed facilities..........                   6                   432                36,824
                   Acquisition of minority interest..........                   -                     -                 5,179
                  Capital improvements.......................                   -                     -                15,040
                  Other......................................                   -                     -                   347
                                                                      -----------------     -------------------  ------------------
                   Balance at June 30, 1997..................                 876                53,828             2,655,712
                                                                      -----------------     -------------------  ------------------

                Construction in progress:
                  Balance at December 31, 1996...............                  11                   707                35,815
                  Expansion  projects acquired in  mergers...                   -                    39                   773
                  Current development........................                   9                   476                34,587
                  Newly opened developed facilities..........                  (6)                 (432)              (36,824)
                                                                      -----------------     -------------------  ------------------
                   Balance at June 30, 1997..................                  14                   790                34,351
                                                                      -----------------     -------------------  ------------------

                Accumulated depreciation:
                  Balance at December 31, 1996...............                   -                     -              (297,655)
                  Additions during the year..................                   -                     -               (35,897)
                                                                      -----------------     -------------------  ------------------
                   Balance at June 30, 1997..................                   -                     -              (333,552)
                                                                      -----------------     -------------------  ------------------
                Total real estate facilities.................                 890                54,618           $ 2,356,511
                                                                      =================     ===================  ==================
</TABLE>


          The Company's policy is to capitalize interest incurred on debt during
     the  course  of  construction  of  its  self-storage  facilities.  Interest
     capitalized  during  the  three  and six  months  ended  June 30,  1997 was
     $354,000 and $1,089,000,  respectively,  compared to $403,000 and $597,000,
     respectively, for the same periods in 1996.


5.  Investment in real estate entities
    ----------------------------------

          The  Company's  investment  in real  estate  entities at June 30, 1997
     generally  consists  of  limited  and  general  partnership   interests  in
     approximately  41 affiliated  partnerships and common stock in 2 affiliated
     REITs.  Such interests  consist of ownership  interests ranging from 15% to
     45% and are accounted for using the equity method of accounting.

          During  the three and six  months  ended June 30,  1997,  the  Company
     recognized   earnings  from  its   investments   totaling   $5,029,000  and
     $10,250,000,  respectively.  Included  in equity in earnings of real estate
     entities for the three and six months ended June 30, 1997 is the  Company's
     share  of  depreciation   expense   totaling   $3,056,000  and  $6,685,000,
     respectively.


                                       10
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1997


          Summarized  combined  financial  data (based on historical  cost) with
     respect to those  unconsolidated  real estate entities in which the Company
     had an ownership interest at June 30, 1997 are as follows:

<TABLE>
<CAPTION>

                                                                         Six Months Ended June 30,
                                                                      -------------------------------
                                                                         1997                 1996
                                                                      --------------   --------------
                                                                             (in thousands)

<S>                                                                    <C>                   <C>    
         Rental income.....................................            $64,393               $59,244
         Total revenues....................................             65,300                60,656
         Cost of operations................................             19,330                18,007
         Depreciation......................................              9,033                 8,618
         Net income........................................             27,792                25,258

         Total assets, net of accumulated depreciation.....            578,820               551,105
         Total debt........................................             79,061                82,081
         Total equity......................................            479,323               447,947

</TABLE>

6.  Revolving line of credit
    ------------------------

          As of June 30, 1997,  the Company had no  borrowings  on its unsecured
     credit  agreement with a group of commercial  banks.  The credit  agreement
     (the  "Credit  Facility")  has a borrowing  limit of $150.0  million and an
     expiration  date of July 31, 2001. The  expiration  date may be extended by
     one  year  on  each  anniversary  of  the  credit  agreement.  Interest  on
     outstanding  borrowings is payable  monthly.  At the option of the Company,
     the rate of interest  charged is equal to (i) the prime rate or (ii) a rate
     ranging  from the London  Interbank  Offered Rate  ("LIBOR")  plus 0.40% to
     LIBOR plus 1.10%  depending on the  Company's  credit  ratings and coverage
     ratios, as defined. In addition, the Company is required to pay a quarterly
     commitment  fee of 0.250% (per  annum) of the unused  portion of the Credit
     Facility. The Credit Facility allows the Company, at its option, to request
     the  group of banks to  propose  the  interest  rate they  would  charge on
     specific borrowings not to exceed $50 million.  However, in no case may the
     interest  rate  proposal be greater than the amount  provided by the Credit
     Facility.

7.   Minority interest
     -----------------

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


                                       11
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1997

8.  Shareholders' equity
    --------------------
          Preferred stock
           ---------------

          At June 30, 1997 and December 31, 1996,  the Company had the following
     series of Preferred Stock outstanding:
<TABLE>
<CAPTION>
                                                                      At June 30, 1997              At December 31, 1996
                                                                ----------------------------    ----------------------------
                                                   Dividend        Shares         Carrying         Shares         Carrying
                          Series                     Rate       Outstanding        Amount       Outstanding        Amount
           -----------------------------------    ----------    --------------  ------------    ------------   -------------
          <S>                                     <C>          <C>           <C>               <C>           <C>         
           Series A ..........................       10.000%      1,825,000     $ 45,625,000      1,825,000     $ 45,625,000
           Series B ..........................        9.200%      2,386,000       59,650,000      2,386,000       59,650,000
           Series C...........................    Adjustable      1,200,000       30,000,000      1,200,000       30,000,000
           Series D...........................        9.500%      1,200,000       30,000,000      1,200,000       30,000,000
           Series E...........................       10.000%      2,195,000       54,875,000      2,195,000       54,875,000
           Series F...........................        9.750%      2,300,000       57,500,000      2,300,000       57,500,000
           Series G ..........................        8.875%          6,900      172,500,000          6,900      172,500,000
           Series H ..........................        8.450%          6,750      168,750,000          6,750      168,750,000
           Series I ..........................        8.625%          4,000      100,000,000          4,000      100,000,000
                                                                --------------  ------------    ------------   -------------
             Total Cumulative Senior Preferred
             Stock............................                   11,123,650      718,900,000     11,123,650      718,900,000
                                                                --------------  ------------    ------------   -------------


           Convertible........................         8.25%      2,204,759       55,119,000      2,238,975       55,974,000
           Mandatory Convertible,   Series CC.        13.00%              -                -         58,955       58,955,000
                                                                --------------  ------------    ------------   -------------
             Total Convertible Preferred Stock                    2,204,759       55,119,000      2,297,930      114,929,000
                                                                --------------  ------------    ------------   -------------
                                                                 13,328,409     $774,019,000     13,421,580     $833,829,000
                                                                ==============  ============    ============   =============
</TABLE>
          The  Series A through  Series I stock  (collectively  the  "Cumulative
     Senior  Preferred  Stock") have general  preference  rights with respect to
     liquidation  and  quarterly  distributions.  With respect to the payment of
     dividends and amounts upon  liquidation,  all of the Company's  Convertible
     Preferred Stock ranks junior to the Cumulative  Senior  Preferred Stock and
     any other shares of preferred stock of the Company ranking on a parity with
     or  senior  to the  Cumulative  Senior  Preferred  Stock.  The  Convertible
     Preferred Stock ranks senior to the common stock,  any additional  class of
     common stock and any series of preferred stock expressly made junior to the
     Convertible Preferred Stock.

          Holders  of  the  Company's  preferred  stock,  except  under  certain
     conditions  and as  noted  above,  will  not be  entitled  to  vote on most
     matters.  In the event of a  cumulative  arrearage  equal to six  quarterly
     dividends  or failure to maintain a Debt Ratio (as defined) of 50% or less,
     holders of all  outstanding  series of preferred  stock (voting as a single
     class without regard to series) will have the right to elect two additional
     members  to serve on the  Company's  Board of  Directors  until  events  of
     default  have been cured.  At June 30,  1997,  there were no  dividends  in
     arrears and the Debt Ratio was 3.5%.

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

          The  Convertible  Preferred  Stock is  convertible  at any time at the
     option of the  holders of such stock into  shares of the  Company's  common
     stock at a conversion  rate of 1.6835 shares of common stock for each share
     of  Convertible   Preferred   Stock,   subject  to  adjustment  in  certain
     circumstances.  On or after July 1,  1998,  the  Convertible  Stock will be
                                       12
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1997


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

          During the  second  quarter  of 1997,  all of the Series CC  Preferred
     Stock was converted into 2,184,250 shares of common stock.

          Equity Stock
          ------------

          In June 1997, the Company contributed  $22,500,000 (225,000 shares) of
     its Equity Stock,  Series A ("Equity  Stock") to a partnership in which the
     Company  is the  general  partner.  As a result of this  contribution,  the
     Company  obtained a majority  interest in the  Partnership  and the Company
     began to  Consolidate  the  accounts of the  Partnership.  The Equity Stock
     ranks on a parity with common stock and junior to the Company's  Cumulative
     Senior  Preferred  Stock and  Convertible  Preferred  Stock with respect to
     general  preference  rights and has a  liquidation  amount of ten times the
     amount  paid to each  Common  Share  up to a  maximum  of $100  per  Share.
     Quarterly  distributions  per  share on the  Equity  Stock are equal to the
     lesser of (i) 10 times the amount paid per Common Stock or (ii) $2.20.

          Common Stock
          ------------

          On March 18, 1997, the Company  publicly  issued  4,600,000  shares of
     common stock, raising net proceeds of approximately $126.7 million.

          An  additional  7,681,000  shares  of  common  stock  were  issued  in
     connection with mergers during the second quarter of 1997.

          Class B Common Stock
          --------------------

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

          For these purposes, FFO means net income (loss) before (i) gain (loss)
     on early extinguishment of debt, (ii) minority interest in income and (iii)
     gain (loss) on  disposition of real estate,  adjusted as follows:  (i) plus
     depreciation and  amortization,  and (ii) less FFO attributable to minority
     interest.  FFO per Common Share means FFO less  preferred  stock  dividends
     (other  than  dividends  on  convertible  preferred  stock)  divided by the
     outstanding  weighted average shares of Common Stock assuming conversion of
     all outstanding convertible securities and the Class B Common Stock.

          For these  purposes,  FFO per share of Common  Stock (as  defined) was
     $1.88 for the four consecutive calendar quarters ended June 30, 1997.


                                       13
<PAGE>
                              PUBLIC STORAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1997



          Dividends
          ---------

          The following summarizes dividends paid during the first six months of
     1997:

<TABLE>
<CAPTION>
                                                      Distributions
                                                      Per Share or           Total
                                                    Depository Share     Distributions
                                                    -----------------    --------------
<S>                                                    <C>                <C>         
           Series A..............................      $    1.250         $  2,282,000
           Series B..............................      $    1.150            2,744,000
           Series C..............................      $    0.991            1,116,000
           Series D..............................      $    1.188            1,426,000
           Series E..............................      $    1.250            2,744,000
           Series F..............................      $    1.218            2,803,000
           Series G..............................      $    1.109            7,655,000
           Series H..............................      $    1.056            7,130,000
           Series I..............................      $    1.078            4,312,000
           Convertible...........................      $    1.031            2,278,000
           Series CC.............................        $260.000           15,328,000
                                                                         --------------
                                                                            49,818,000

           Common................................      $    0.440           40,421,000
                                                                         --------------
                                                                           $90,239,000
                                                                         ==============
</TABLE>

          The  dividend  rate on the  Series C  Preferred  Stock for the  second
     quarter of 1997 was equal to 7.623% per annum.  The dividend rate per annum
     will be adjusted quarterly and will be equal to the highest of one of three
     U.S. Treasury indices (Treasury Bill Rate, Ten Year Constant Maturity Rate,
     or Thirty Year Constant  Maturity Rate)  multiplied by 110%.  However,  the
     dividend  rate for any dividend  period will neither be less than 6.75% per
     annum nor greater than 10.75%.  The  dividend  rate for the quarter  ending
     September 30, 1997 will be equal to 7.425% per annum.

                                       14
<PAGE>

     Management's Discussion and Analysis of Financial Condition and Results of 
     Operations
     --------------------------------------------------------------------------

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

          Net income for the three  months  ended June 30, 1997 was  $44,251,000
     compared  to  $37,739,000  for the same  period  in 1996,  representing  an
     increase of $6,512,000 or 17%. Net income for the six months ended June 30,
     1997 was  $86,569,000  compared to $70,080,000 for the same period in 1996,
     representing an increase of $16,489,000 or 24%. The increases in net income
     for the three and six months  ended June 30, 1997 from the same  periods in
     1996  were  primarily  the  result of  improved  property  operations,  the
     acquisition of additional real estate  facilities during 1997 and 1996, and
     the acquisition of additional  partnership  interests during 1997 and 1996,
     offset partially by start-up operating losses in its new ancillary portable
     self-storage business.

          The 1997  three and six month  earnings  per  common  share  have been
     negatively impacted by a non-recurring  special dividend on preferred stock
     totaling  $13,412,000 (or $0.14 per common share),  as described  below. In
     computing net income per common share, dividends to the Company's preferred
     shareholders  ($30,668,000  and $17,896,000 for the three months ended June
     30, 1997 and 1996, respectively and $49,818,000 and $33,062,000 for the six
     months ended June 30, 1997 and 1996,  respectively) have been deducted from
     net income in  determining  net income  allocable to the  Company's  common
     shareholders.  Accordingly, net income allocable to common shareholders was
     $13,583,000 or $0.14 per common share (based on 98,046,000 weighted average
     shares  outstanding)  for the three months ended June 30, 1997  compared to
     $19,843,000 or $0.27 per common share (based on 73,537,000 weighted average
     shares  outstanding)  for the same period in 1996. Net income  allocable to
     common  shareholders  was  $36,751,000  or $0.39 per common share (based on
     93,883,000  weighted average shares) for the six months ended June 30, 1997
     compared to  $37,018,000  or $0.51 per common  share  (based on  72,749,000
     weighted average shares) for the same period in 1996. In the absence of the
     special  dividend on the preferred stock, net income per common share would
     have  been   $0.28  and  $.53  for  the  three  and  six  months  in  1997,
     respectively.

          At the end of the first  quarter of 1997,  the Company  paid a special
     dividend totaling $13,412,000 to its Series CC Convertible Preferred Stock.
     As a result of the  special  dividend,  the  Company  would not have to pay
     another  dividend  with respect to this stock until the quarter ended March
     31,  1999.  During the second  quarter of 1997,  the Series CC  Convertible
     Preferred  Stock  converted into common stock of the Company.  Accordingly,
     all of the  $13,412,000  of dividends were treated in the second quarter of
     1997 as an  allocation  of net  income  to the  preferred  shareholders  in
     determining  the allocation of net income to the common  shareholders.  The
     special dividend  eliminated the quarterly dividend (fixed charges) of $1.9
     million and resulting dilutive impact to the Company's common shareholders.

          Net income per  common  share for the three and six months  ended June
     30,  1997 was,  in  addition  to the  effects of the  special  dividend  on
     preferred  stock,  negatively  impacted by the dilutive effects of start-up
     losses from the Company's portable self-storage operations ($0.07 and $0.10
     per  common  share  for the  three  and six  months  ended  June 30,  1997,
     respectively)  combined  with  the  Company's  development  activities  and
     temporarily  uninvested net offering proceeds (collectively $0.02 and $0.04
     per  common  share  for the  three  and six  months  ended  June 30,  1997,
     respectively).  In the same  manner,  net income  per common  share for the
     three and six months  ended June 30,  1996 was  negatively  impacted by the
     effect of temporarily uninvested net offering proceeds ($0.01 and $0.02 per
     common   share  for  the  three  and  six  months   ended  June  30,  1996,
     respectively).

          PROPERTY  OPERATIONS:  Rental  income  and  cost  of  operations  have
     increased  significantly  for the three and six months  ended June 30, 1997
     compared to the same periods in 1996.  The increase in property  operations
     for the three and six  months  ended  June 30,  1997  compared  to the same
     periods  in 1996 is  principally  the  result of the  Company's  merger and
     acquisition  activities  throughout  1996 and  1997.  As a result  of these
     activities, the number of facilities included in the Company's consolidated
     financial statements has increased from 631 at June 30, 1996 to 876 at June
     30, 1997.

          The  Company's  self-storage  operations  account  for over 90% of the
     total property  operations and represents the largest comparison  variances
     from period to period.  As a result the  following  table is  presented  to
     further  illustrate  variances  from period to period by (i)  comparing the
     operating  results  of  self-storage  facilities  which  were  owned by the
     Company  throughout 1996 and 1997 and (ii) outlining  operating results for
     those  self-storage  facilities  which were acquired by the Company in 1996
     and 1997 whereby the operations represent partial results from the date the
     facility was acquired through the end of the period.


                                       15
<PAGE>

SUMMARY OF SELF-STORAGE OPERATIONS
----------------------------------
<TABLE>
<CAPTION>

                                            Three months ended June 30,                      Six months ended June 30,
                                            ---------------------------                      ------------------------- 
                                               1997           1996       Change                1997          1996        Change
                                            ----------     ----------  ----------            ----------     ----------  ----------
                                                        (dollar amounts in thousands, except per square foot data)
          Rental income:
<S>                                           <C>            <C>             <C>             <C>          <C>             <C> 
              Pre-1996 acquisitions...........$63,067        $59,643         5.7%            $124,387     $117,508        5.9%
              1996 and 1997 acquisitions.......26,104          6,474       303.2%              47,161        7,353      541.4%
                                            ----------     ----------  ----------            ----------     ----------  ----------
                                               89,171         66,117        34.9%             171,548      124,861       37.4%
                                            ----------     ----------  ----------            ----------     ----------  ----------
          Cost of operations:
              Pre-1996 acquisitions............18,484         17,393         6.3%              37,827       35,691        6.0%
              1996 and 1997 acquisitions........7,919          2,092       278.5%              15,067        2,285      559.5%
                                            ----------     ----------  ----------            ----------     ----------  ----------
                                               26,403         19,485        35.5%              52,894       37,976       39.3%
                                            ----------     ----------  ----------            ----------     ----------  ----------
          Net operating income:
              Pre-1996 acquisitions............44,583         42,250         5.5%              86,560       81,817        5.8%
              1996 and 1997 acquisitions.......18,185          4,382       315.0%              32,094        5,068      533.2%
                                            ----------     ----------  ----------            ----------     ----------  ----------
                                              $62,768        $46,632        34.6%            $118,654      $86,885       36.6%
                                            ==========     ==========  ==========            ==========     ==========  ==========

          Net rentable square feet (at
           the end of the period, in
           000's):
              Pre-1996 acquisitions............32,139         32,139        N/A                32,139        32,139        N/A
              1996 and 1997 acquisitions.......17,633          4,108       329.2%              17,633         4,108     329.2%

          Number of facilities (at the
           end of the period):
              Pre-1996 acquisitions...............547           547         N/A                    547          547        N/A
              1996 and 1997 acquisitions..........279            62        350.0%                  279           62    350.0%

          Pre-1996 acquisitions:
          ----------------------
              Annualized realized rent
               per occupied square foot..........$8.52          $8.16        4.4%                $8.52        $8.16       4.4%
              Annualized scheduled rent
               per square foot...................$9.24          $8.16       13.2%                $9.12        $8.04      13.4%
              Weighted average occupancy
               for the period....................91.6%          91.1%        0.5%                90.5%        89.8%       0.7%
</TABLE>

          The increases in rental income for the pre-1996  acquisitions  for the
     three and six months  ending June 30, 1997  compared to the same periods in
     1996 are due to increasing  realized rent per occupied square foot combined
     with an increased weighted average occupancy level.

          The Company has taken a number of  initiatives  which it believes  has
     enhanced its realized rental rates and occupancy levels:

          In the  second  half of  1996,  the  Company  began  to  increase  its
     scheduled rents charged to new customers  (prior to promotional  discounts)
     and to existing tenants where warranted.

          *    Commencing in early 1996, the Company began to experiment  with a
               telephone  reservation  system designed to provide added customer
               service.   Customers  calling  either  the  Company's   toll-free
               telephone  referral  system,  (800)  44-STORE,  or a self-storage
               facility are directed to the Company's reservation system where a
               representative  discusses with the customer  space  requirements,
               price and location  preferences  and also informs the customer of
               other  products  and  services  provided  by the  Company and its
               subsidiaries.  The  national  reservation  center  was not  fully
               operational for most of the Company's facilities until the fourth
               quarter of 1996.

                                       16
<PAGE>

          *    Commencing  in the latter  part of the first  quarter of 1997 and
               throughout the second  quarter,  the Company  began,  in selected
               markets,  to advertise on local television offering a promotional
               rental rate of $1.00 for the first month.

          Rental income for the three and six months ended June 30, 1997 are net
     of promotional discounts totaling $4,082,000 and $6,792,000,  respectively,
     compared  to  $431,000  and  $581,000  for the same  periods  in  1996.  In
     addition, included in cost of operations for the three and six months ended
     June 30, 1997 are costs  associated with the telephone  reservation  center
     and advertising totaling $1,109,000 and $2,795,000,  respectively, compared
     to $721,000 and $1,426,000 for the same periods in 1996.

          DEVELOPMENT  OF  SELF-STORAGE  FACILITIES:  Commencing  in  1995,  the
     Company began to construct self-storage facilities.  Through June 30, 1997,
     the Company constructed and opened for operation eleven facilities,  one of
     which began  operations in 1995,  four in 1996 and six in 1997 through June
     30,  1997.  At  June  30,  1997,  the  Company  had  fourteen  self-storage
     facilities  (approximately  790,000 square feet) under construction with an
     aggregate  cost incurred to date of  approximately  $31.2 million and total
     additional  estimated  costs to complete of $30.4  million.  Generally  the
     construction  period  takes 9 to 12  months  followed  by a 18 to 24  month
     fill-up process until the newly  constructed  facility reaches a stabilized
     occupancy level of  approximately  90%. Due to the timing of the deployment
     of capital to construct the facilities  and the  relatively  long "fill-up"
     period until the facilities reach a stabilized occupancy level, the Company
     believes that its  development  plans may create  earnings  dilution in the
     short-term.  In April 1997,  the Company  entered into an agreement  with a
     joint venture partner to develop approximately $220 million of self-storage
     facilities   (see   "LIQUIDITY   AND  CAPITAL   RESOURCES   -   DEVELOPMENT
     ACTIVITIES").

          EQUITY IN EARNINGS  OF REAL ESTATE  ENTITIES:  At June 30,  1997,  the
     Company had  ownership  interests  in 41 limited  partnerships  and 2 REITs
     (collectively  the  "Unconsolidated  Entities").  The  Company's  ownership
     interest in these entities  ranges from 15% to 45%, but generally  averages
     approximately  30%. Due to the  Company's  limited  ownership  interest and
     control of these entities, the Company does not consolidate the accounts of
     these  entities for  financial  reporting  purposes,  and accounts for such
     investments using the equity method.

          Equity in earnings  of real estate  entities  was  $5,029,000  for the
     three  months  ended June 30, 1997 as compared to  $5,479,000  for the same
     period in 1996.  Equity in earnings of real estate entities was $10,250,000
     for the six months ended June 30, 1997 as compared to  $10,090,000  for the
     same  period in 1996.  The  change  in 1997 as  compared  to 1996  reflects
     reductions from the Company's merger and partnership acquisition activities
     in the last six months of 1996 (with six  affiliated  REIT  mergers and the
     acquisition of additional  partnership  interests) and, to a lesser extent,
     the first six months of 1997 (with six additional  affiliated  REIT mergers
     occurring  toward  the  end of the  period).  The  merger  and  partnership
     acquisition  activities  resulted in the  elimination of investment in real
     estate  entities  and,  after  the  acquisitions,   the  associated  equity
     earnings.  These  reductions  were  partially  offset by earnings  from the
     purchase of additional equity  investments  during 1996 (total purchases in
     1996 were  approximately  $84  million)  as well as the effect of  improved
     underlying property operations.

                                       17

<PAGE>
          Equity  in  earnings  of real  estate  entities  for the three and six
     months  ended June 30,  1997  consists of the  Company's  pro rata share of
     earnings  (including  the  Company's  share  of  depreciation   expense  of
     $3,056,000 and $6,685,000, respectively) of the Consolidated Entities based
     upon the Company's ownership interest in each for the period. The following
     table summarizes the components of the Company's equity in earnings of real
     estate entities:
<TABLE>
<CAPTION>

                                                 Three Months Ended June 30,                Six Months Ended June 30,
                                            -------------------------------------      ------------------------------------
                                              1997          1996     Dollar Change       1997        1996      Dollar Change
                                            ----------   ----------  -------------     ----------  ----------  -------------
                                                    (Amounts in thousands)                    (Amounts in thousands)

<S>                                           <C>         <C>        <C>               <C>         <C>           <C>      
           Self-storage operations            $8,162      $9,583     $ (1,421)         $16,797     $18,411       $ (1,614)
           Commercial property operations        539         858         (319)           1,168       1,612           (444)
           Depreciation and Amortization:
             Self-storage facilities          (2,828)     (4,013)       1,185           (6,229)     (8,226)         1,997
             Commercial properties              (228)       (319)          91             (456)       (600)           144
           Other                                (616)       (630)          14           (1,030)     (1,107)            77
                                            ----------   ----------  -------------     ----------  ----------  -------------
           Total equity in earnings of
             real estate entities           $  5,029      $5,479      $ ( 450)         $10,250     $10,090        $   160
                                            ==========   ==========  =============     ==========  ==========  =============    

</TABLE>
          Similar  to  the  Company,   the   Unconsolidated   Entities  generate
     substantially  all of their  income from their  ownership  of  self-storage
     facilities.  In the aggregate,  the Unconsolidated  Entities own a total of
     246 facilities at June 30, 1997, including 244 self-storage facilities. The
     Company  expects that its equity in earnings from  Unconsolidated  Entities
     will  generally  decrease  as a result  of the  acquisition  of  additional
     interests in the Unconsolidated Entities by the Company. The Company has in
     the past acquired,  and may continue to seek to acquire in the future, real
     estate  facilities owned by or additional  interests in the  Unconsolidated
     Entities.

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

          Property management operations reflects the activities with respect to
     the management of facilities owned by affiliated  unconsolidated  entities.
     As a result, the revenues generated from its property management operations
     are generally  predictable  and dependent  upon the future growth of rental
     income  for  these  affiliated  properties.  The  Company  has in the  past
     acquired,  and may  continue to seek to acquire in the future,  real estate
     facilities owned by affiliated entities which are not consolidated with the
     Company.  The acquisition of such facilities  reduces management fee income
     to the Company and is offset by a  corresponding  reduction  in the cost of
     property operations.

          During the three months ended June 30, 1997,  the  Company's  property
     management  operations  generated  net  operating  income of  $2,425,000 on
     revenues  of  $2,891,000  and  expenses  of  $466,000  as  compared  to net
     operating  income of $3,002,000  on revenues of $3,549,000  and expenses of
     $547,000  during the same period in 1996.  During the six months ended June
     30, 1997,  the  Company's  property  management  operations  generated  net
     operating  income of $5,001,000  on revenues of $5,943,000  and expenses of
     $942,000  compared to net  operating  income of  $6,134,000  on revenues of
     $7,309,000  and expenses of $1,175,000  during the same period in 1996. The
     decreases  in  property  management  operations  are  due to the  Company's
     acquisition of facilities which it previously managed for third parties and
     affiliated entities for a fee.


          ANCILLARY  BUSINESSES:  In an effort to  attract  a wider  variety  of
     customers, to further differentiate the Company from its competition and to
     generate new sources of revenues, additional businesses are being developed
     by  affiliates  of the Company to  complement  the  Company's  self-storage
     business.  These  products  include  the sale of locks,  boxes and  packing
     supplies  and the rental of trucks and other moving  equipment  through the

                                       18
<PAGE>
     implementation  of (i) a  retail  expansion  program,  (ii) a truck  rental
     program  and most  significantly  (iii) a portable  self-storage  business.
     Although not significant to the Company's overall operations, the ancillary
     businesses  are expected to play a more important role in the future growth
     of the Company.  The following  table  summarizes  the  ancillary  business
     operations of the Company's consolidated affiliates:

<TABLE>
<CAPTION>


                                                           Three Months Ended June 30,           Six Months Ended June 30,
                                                         ---------------------------------   ------------------------------------
                                                          1997        1996     Dollar Change   1997        1996     Dollar Change
                                                         -------      ------      -------    --------     -------     -------- 
                                                             (Amounts in thousands)               (Amounts in thousands)
           Ancillary revenues:
           -------------------
<S>                                                    <C>            <C>        <C>         <C>         <C>          <C>     
           Sales of  packaging material and truck      $   1,303      $  740     $    563    $  2,153    $  1,237     $    916
           rental income
           Portable self-storage rents                     1,102           -        1,102       1,574           -        1,574
                                                         -------      ------      -------    --------     -------     -------- 
                                                           2,405         740        1,665       3,727       1,237        2,490
                                                         -------      ------      -------    --------     -------     -------- 

           Cost of operations - ancillary business
           ---------------------------------------
           Packaging  material and truck rental            1,183         422          761       1,702         862          840
           Portable self-storage                           7,869           -        7,869      10,690           -       10,690
                                                         -------      ------      -------    --------     -------     -------- 
                                                           9,052         422        8,630      12,392         862       11,530
                                                         -------      ------      -------    --------     -------     -------- 

           Net operating income (loss) - ancillary business
           ---------------------------------------
           Packaging  material and truck rental              120         318         (198)        451         375           76
           Portable self-storage                          (6,767)          -       (6,767)     (9,116)          -       (9,116)
                                                         -------      ------      -------    --------     -------     -------- 
                                                         $(6,647)     $  318      $(6,965)   $ (8,665)    $   375     $ (9,040)
                                                         -------      ------      -------    --------     -------     -------- 

</TABLE>

          In 1996,  the Company  organized  Public  Storage Pickup and Delivery,
     Inc. ("PSPUD") as a separate corporation to operate a portable self-storage
     business  that rents  storage  containers  to  customers  for  storage in a
     central warehouse and provides related transportation services.  During the
     second quarter of 1997,  PSPUD opened 21 new facilities which combined with
     its previously opened facilities  increased the number of opened facilities
     to 34 as of June 30, 1997 (including a mature  facility  acquired in 1996).
     In July  1997,  PSPUD  opened  an  additional  five  facilities.  These  39
     facilities had a total of 16,680 occupied containers as of July 31, 1997.


          Due to the start-up nature of this business,  PSPUD incurred operating
     losses totaling  approximately  $6.8 million and $9.1 million for the three
     and six months ended June 30, 1997, respectively.  Until the facilities are
     operating  profitably,  PSPUD's operations are expected to adversely impact
     the Company's earnings. The extent of the impact will depend in significant
     part on the number, timing and performance of new facilities.

          At July 31, 1997, PSPUD had ten facilities that had been opened for at
     least four months (excluding the mature facility  acquired in 1996).  These
     ten facilities (excluding two smaller facilities in peripheral markets) had
     container capacity ranging from 1,600 to 2,300 containers  (averaging 2,100
     containers) and had average  monthly gross  container  rentals for the four
     months ended July 31, 1997 ranging from 95 to 331 containers (averaging 230
     containers) and had monthly move-outs during this period ranging from 20 to
     145 containers (averaging 101 move-outs).  As with  mini-warehouses,  PSPUD
     believes  that the  portable  self-storage  business  may  experience  some
     seasonal  fluctuations in net rentals with net rentals higher in the Spring
     and Summer than in the Fall and Winter. There can be no assurance as to the
     level of PSPUD's  expansion, level of gross rentals,  level of move-outs or
     profitability.

          PSPUD presently anticipates opening an additional nine facilities from
     August 1, 1997 through September 30, 1997 and does not presently anticipate
     opening facilities in new markets after that date until the Spring of 1998.

          Included  in the  cost  of  operations  of the  portable  self-storage
     operations  are certain  start-up  costs  which the  Company  expects to be
     non-recurring  and only incidental to the opening of new facilities.  These
     costs which totaled  $883,000 and  $1,149,000  for the three and six months
     ended June 30, 1997 are related to site  acquisition,  leasing  activities,
     hiring  and  training  of  personnel.  In  addition,  included  in  cost of
     operations is $3,400,000  and $3,900,000 for the three and six months ended
     June 30, 1997,  respectively,  relating to marketing activities,  including
     television  advertising,  designed  to  enhance  the rental  activities  of
     PSPUD's facilities. 

                                       19


<PAGE>
          INTEREST  AND  OTHER  INCOME:  Interest  and  other  income  increased
     $1,098,000,  to  $2,619,000  for the three  months ended June 30, 1997 from
     $1,521,000 for the same period in 1996. Interest and other income increased
     $405,000,  to  $4,292,000  for the six  months  ended  June 30,  1997  from
     $3,887,000 for the same period in 1996.

          Interest and other income  principally  consists of interest earned on
     cash  balances  and  interest  related to mortgage  notes  receivable.  The
     increase  in  interest  income for the three and six months  ended June 30,
     1997  compared  to the same  periods in 1996 is  primarily  due to interest
     income on excess cash  balances.  On March 18, 1997,  the Company  publicly
     issued  4.6  million  shares of  common  stock,  raising  net  proceeds  of
     approximately  $126.7  million.  The effect of the timing of investing  the
     funds from these offerings resulted in lower average invested cash balances
     in the first  quarter of 1997 as compared  to the same period in 1996,  and
     higher  average  invested  cash  balances in the second  quarter of 1997 as
     compared to the same period in 1996.

          DEPRECIATION AND AMORTIZATION:  Depreciation and amortization  expense
     has increased  $4,639,000,  to $20,758,000  for the three months ended June
     30,  1997  as  compared  to  $16,119,000  for  the  same  period  in  1996.
     Depreciation  and  amortization  expense  has  increased   $9,841,000,   to
     $40,528,000  for the  six  months  ended  June  30,  1997  as  compared  to
     $30,687,000  for the same period in 1996.  These  increases are principally
     due to the acquisition of additional real estate facilities during 1996.

          MINORITY  INTEREST IN INCOME:  Minority  interest in income represents
     the income allocable to equity  interests in the Consolidated  Partnerships
     which are not owned by the  Company.  Minority  interest  in income for the
     three months ended June 30, 1997 was $2,554,000  compared to $2,476,000 for
     the same  period in 1996.  Minority  interest  in income for the six months
     ended June 30,  1997 was  $5,001,000  compared to  $4,815,000  for the same
     period in 1996.

          Minority  interest  in  income  increased  in the  three and six month
     periods  compared  to 1996  due to  improved  property  operations  and the
     consolidation  of investments  which were  previously  accounted for on the
     equity method during the 1996 periods.  These effects were partially offset
     by PSI's acquisition of additional minority interests,  as well as minority
     interests in the losses of PSPUD and the development joint venture.

          SUPPLEMENTAL PROPERTY DATA

          At June 30, 1997, the Company's  investment  portfolio consists of (i)
     wholly-owned properties owned by the Company, (ii) properties owned by real
     estate  partnerships  in  which  the  Company  has  significant   ownership
     interests (the "Consolidated Partnerships"),  and (iii) properties owned by
     real  estate  entities  (partnerships  and  REITs) in which  the  Company's
     ownership   interest  and  control  are  not   sufficient  to  warrant  the
     consolidation  of  such  entities  (the  "Unconsolidated   Entities").  The
     following  table  summarizes  the  Company's   investment  in  real  estate
     facilities as of June 30, 1997:
<TABLE>
<CAPTION>
                                                  Number of Facilities in which the      Net Rentable Square Footage
                                                  Company has an ownership interest             (in thousands)
                                                 ----------------------------------   --------------------------------
                                                 Self-Storage   Commercial             Self-Storage  Commercial
                                                  Facilities    Properties    Total     Facilities   Properties   Total
                                                 -----------   -----------  -------   ------------   ----------  ------
<S>                                                    <C>         <C>       <C>         <C>           <C>      <C>   
    Wholly-owned facilities (a)  (b)                   530         11        541         32,443        729      33,172
    Facilities owned by Consolidated Partnerships      296         39        335         17,329      3,327      20,656
                                                 ---------   -----------   -------    ----------    -------     ------
        Total consolidated facilities                  826         50        876         49,772      4,056      53,828

    Facilities owned by Unconsolidated Entities        244          2        246         14,149       191       14,340
                                                 ---------   -----------   -------    ----------    -------     ------

        Total facilities in which the Company
          has an ownership interest                  1,070         52      1,122         63,921      4,247      68,168
                                                 =========    ==========   =======    ==========    =======     ======
</TABLE>
          (a) 35 commercial  properties which were previously  "wholly-owned" at
     December 31, 1996 are now classified as "Facilities  Owned by  Consolidated

                                       20
<PAGE>
     Partnerships."  Pursuant to the restructuring of the commercial  properties
     operations,  the  Company  and the  Consolidated  Partnerships  contributed
     substantially  all  of  their  commercial  properties  to a  newly  created
     operating  partnership,  which is owned by American Office Park Properties,
     Inc., the Company's  majority  owned  subsidiary and by the Company and its
     consolidated Partnerships.

          (b) The Company subdivided 7 properties that combined self storage and
     commercial property operations.  These properties were previously accounted
     for as self  storage  facilities.  Net rentable  square  footage of 529,000
     relating  to  the   commercial   portion  of  these   properties  has  been
     reclassified from self-storage facilities to commercial properties.

          In  order  to  evaluate  how  the  Company's   overall  portfolio  has
     performed,  management  analyzes the operating  performance of a consistent
     group  of  self-storage  facilities  representing  951  (55.8  million  net
     rentable square feet) of the 1,070 self-storage facilities (herein referred
     to as "Same Store" self-storage  facilities) which have been operated under
     the "Public  Storage"  name for at least the past three years.  At June 30,
     1997,   the  Company  had   ownership   interests   in  a  total  of  1,070
     mini-warehouse  facilities.  Of these 1,070  properties,  951 or 89% of the
     mini-warehouses have been in operation and managed by Public Storage,  Inc.
     since January 1, 1993. The following table summarizes the operating results
     of these 951 properties:
<TABLE>
<CAPTION>
     SAME STORE SELF-STORAGE FACILITIES (951 FACILITIES):
     ----------------------------------------------------
     (historical property operations)

                                          Three months ended June 30,               Six months ended June 30,
                                          ----------------------------              -------------------------   --------
                                             1997            1996        Change        1997           1996       Change
                                          -------------  -------------   ------     -----------  ------------   --------
                                                                  (dollar amounts in thousands)

<S>                                        <C>             <C>              <C>       <C>            <C>             <C> 
           Rental income..............     $117,318        $110,648         6.0%      $231,253       $217,654        6.2%
           Cost of operations (1).....       40,511          37,771         7.3%        82,554         77,066        7.1%
                                          -----------    -----------     -------     ----------      --------       ------
           Net operating income.......      $76,807       $  72,877         5.4%      $148,699       $140,588        5.8%
                                          ===========    ===========     =======     ==========      ========       ======     
           Gross profit margin (2)....        65.5%          65.9%         (0.4)%       64.3%          64.6%        (0.3)%

           Weighted Average:
           -----------------
                 Occupancy for the    
                 period...............        92.0%          91.8%          0.2%        90.8%          90.5%         0.3%

                 Realized annual rent
                   per sq. ft. for    
                   period (3).........        $9.12          $8.64          5.6%        $9.12          $8.64         5.6%

                 Scheduled annual rent
                   per sq. ft. for    
                   period.............        $9.96          $8.76         13.7%        $9.84          $8.52        15.5%
</TABLE>
     ------------
     1.   Assumes  payment  of  property  management  fees  on  all  facilities,
          including  those  facilities  owned by the Company for which effective
          November 16, 1995 no fee is paid.

     2.   Gross profit  margin is computed by dividing  property  net  operating
          income  (before  depreciation  expense)  by rental  revenues.  Cost of
          operations  include  a 6%  management  fee.  The gross  profit  margin
          excluding  the  facility  management  fee was  71.5% and 71.9% for the
          three  months  ended June 30, 1997 and 1996,  respectively.  The gross
          profit  margin  excluding  the facility  management  fee was 70.3% and
          70.6% for the six months  ended June 30, 1997 and 1996,  respectively.

     3.   Realized rent per square foot represents the actual revenue earned per
          occupied  square foot.  Management  believes  this is a more  relevant
          measure than the scheduled rental rates,  since scheduled rates can be
          discounted through the use of promotions.
                                       21
<PAGE>
          Rental  income  for the Same  Store  facilities  included  promotional
     discounts  totaling  $5.1  million  and $8.6  million for the three and six
     months  ended June 30,  1997,  respectively,  compared to $716,000 and $1.0
     million  for the same  periods  ended  June  30,  1996,  respectively.  The
     increase  in  promotional  discounts  is  principally  due  to  promotional
     activities  offered  through  the  national  telephone  reservation  center
     combined with television  advertising  which began in the second quarter in
     certain markets where the Company  offered a promotional  $1.00 first month
     rent to customers.

          Cost of  operations  for the three and six months  ended June 30, 1997
     increased due to (i)  advertising and promotion,  which increased  $348,000
     and  $1,341,000,  respectively,  due  primarily to the  Company's  national
     telephone reservations center and television advertising in certain markets
     and  (ii)  property  taxes,   which  increased   $927,000  and  $1,833,000,
     respectively, due primarily to higher assessments in Illinois and Colorado.

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

     LIQUIDITY AND CAPITAL RESOURCES
     -------------------------------

          The  Company  has  operated  and  intends to  continue to operate in a
     self-sufficient manner without reliance on external sources of financing to
     fund  its  ongoing   operating  needs.  The  Company  believes  that  funds
     internally generated from ongoing operations will continue to be sufficient
     to enable it to meet its operating  expenses,  capital  improvements,  debt
     service  requirements and distributions to shareholders for the foreseeable
     future.  Over the past six years,  funds internally  generated from ongoing
     operations were in excess of the Company's  operating  needs,  allowing the
     Company to retain  cash  flow,  which it used to  acquire  additional  real
     estate investments or make optional principal repayments on debt.

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

          Net cash provided by  operations  (as  determined  in accordance  with
     generally accepted accounting  principles) reflects the cash generated from
     the Company's  business  before  distributions  to various equity  holders,
     including the preferred  shareholders,  capital  expenditures  or mandatory
     principal  payments on debt.  Net cash provided by operations has increased
     to $138,783,000  from  $114,408,000  for the six months ended June 30, 1997
     and 1996, respectively.

          The  following  table  summarizes  the  Company's  ability  to pay the
     minority   interests'   distributions,   its  dividends  to  the  preferred
     shareholders  and capital  improvements to maintain the facilities  through
     the use of cash provided by operating  activities.  The remaining cash flow
     is available to the Company to make both  scheduled and optional  principal
     payments  on  debt,  pay  distributions  to  common  shareholders  and  for
     reinvestment.

                                       22
<PAGE>
<TABLE>
<CAPTION>
                                                                                     For the Six Months Ended June 30,
                                                                                     ---------------------------------
                                                                                          1997               1996
                                                                                     ----------------   --------------
                                                                                              (in thousands)

<S>                                                                                         <C>               <C>    
           Net income............................................................           $86,569           $70,080
           Depreciation and amortization.........................................            40,528            30,687
           Depreciation from unconsolidated real estate investments..............             6,685             8,826
           Minority interest in income...........................................             5,001             4,815
                                                                                    ----------------   --------------
                 Net cash provided by operating activities.......................           138,783           114,408

           Distributions from operations to minority interests (funds from
             operations allocable to minority interests).........................            (9,520)          (10,524)
                                                                                     ----------------   --------------
           Cash from operations/FFO available to the Company's shareholders......           129,263           103,884

             Less: Preferred stock dividends.....................................           (49,818)          (33,062)
             Add:  Non-recurring  payment  of  dividends  with  respect to the
             Series CC Convertible Preferred (A).................................            13,412                 -

           Cash from operations/FFO available to common shareholders.............            92,857            70,822
           Capital improvements to maintain facilities:
             Self-storage facilities.............................................           (13,517)           (6,327)

             Commercial properties...............................................            (1,523)           (1,410)

           Add back: minority interest share of capital improvements.............               775             1,480
                                                                                     ----------------   --------------
           Funds available for principal payments on debt, common dividends
             and reinvestment....................................................            78,592            64,565
           Cash distributions to common shareholders.............................           (40,421)          (32,176)
                                                                                     ----------------   --------------
           Funds available for principal payments on debt and investment.........           $38,171           $32,389
                                                                                     ================   ==============
</TABLE>
          See the consolidated statements of cash flows for the six months ended
     June 30, 1997 and 1996 for additional  information  regarding the Company's
     investing and financing activities.

          FFO increased to  $129,263,000  for the six months ended June 30, 1997
     compared to $103,884,000 for the same period in 1996. FFO applicable to the
     common shareholders  (after deducting preferred stock dividends)  increased
     to  $92,857,000  for the  six  months  ended  June  30,  1997  compared  to
     $70,822,000  for the same  period  in 1996.  FFO is used by many  financial
     analysts in evaluating  REITs. The Company defines FFO as net income (loss)
     (computed in accordance with GAAP) before (i) gain (loss) on disposition of
     real estate,  adjusted as follows:  (i) plus depreciation and amortization,
     and  (ii)  less  FFO  attributable  to  minority  interest.   The  National
     Association of Real Estate Investment Trusts, Inc. ("NAREIT") definition of
     FFO does not specifically address the treatment of minority interest in the
     determination  of FFO. In the case of the Company,  FFO represents  amounts
     attributable to its shareholders  after deducting  amounts  attributable to
     the  minority  interests.  FFO does not take into  consideration  scheduled
     principal payments on debt, capital  improvements,  distributions and other
     obligations of the Company.  Accordingly, FFO is a supplemental performance
     measure and is not a substitute  for the Company's  cash flow or net income
     (as discussed  above) as a measure of the Company's  liquidity or operating
     performance.

          The  Company  accounts  for  its  investments  in  the  unconsolidated
     affiliated entities using the equity method of accounting, and accordingly,
     earnings are  recognized  based upon the Company's  interest in each of the
     partnerships  and REITs.  This interest is based on the Company's  share of
     the  increase  or  decrease  in the net assets of the  entities  from their
     operations.  Provisions of the partnerships' and REITs' governing documents
     provide for the payment of preferred cash  distributions to other investors
     (until certain  specified amounts have been paid) without regard to the pro
     rata interest of all  investors in current  earnings.  As a result,  actual
     cash  distributions  paid to the  Company for a period of time will be less
     than the  Company's  interest in the entities'  FFO.  During the six months
     ended June 30, 1997, FFO distributed to the Company was approximately  $8.8
     million less than the Company's share of FFO.  Preferred cash distributions
                                       23
<PAGE>
     paid to other  investors  during each period have the effect of  increasing
     the  Company's  economic  interest in each of the  respective  entities and
     reducing  the amount of future  preference  payments  which must be paid to
     other  investors  before  cash  distributions  will be shared on a pro rata
     basis with respect to each investor's  actual  interest.  At June 30, 1997,
     the   aggregate   future   preference   payments  to  other   investors  is
     approximately  $47.4 million and is expected to be paid over  approximately
     14 years,  with  approximately 40% of the amount being paid over the next 3
     years.

          RETENTION OF OPERATING CASH FLOWS:  Operating as a REIT, the Company's
     ability to retain cash flow for  reinvestment  is restricted.  In order for
     the Company to  maintain  its REIT  status,  a  substantial  portion of its
     operating   cash  flows  must  be  used  to  make   distributions   to  its
     shareholders.  Remaining  cash  flows  must  then  be  sufficient  to  fund
     necessary  capital  improvements  and scheduled debt service  requirements.
     Accordingly,  the Company's ability to be  self-sufficient is predicated on
     its ability to generate sufficient operating cash flows to satisfy its REIT
     distribution requirements, capital improvement requirements, scheduled debt
     service requirements, and provide funds for additional investments.

          Over the past  four  years,  the  Company's  distribution  policy  has
     enabled it to retain significant funds (after capital improvements) to make
     additional investments and debt reductions.  During the first six months of
     1997 and 1996, the Company distributed to common shareholders approximately
     44% and 46% of its FFO  available  to  common  shareholders,  respectively,
     allowing  it to retain  approximately  $38.2  million  and  $32.4  million,
     respectively, after satisfying its capital improvements and preferred stock
     dividend requirements.

          DISTRIBUTION  REQUIREMENTS:  During the first six months of 1997,  the
     Company paid dividends totaling $32,212,000 to the holders of the Company's
     Senior  Preferred  Stock,  $2,278,000  to the  holders  of the  Convertible
     Preferred  Stock,  $15,328,000  to the holders of the Series CC Convertible
     Stock (which, in the quarter ended June 30, 1997 converted to common stock)
     and $40,421,000 to the holders of Common Stock. The Company  estimates that
     the  distribution  requirements  for  fiscal  1997 with  respect  to Senior
     Preferred Stock and the Convertible Preferred Stock to be approximately $84
     million.

          CAPITAL  IMPROVEMENT  REQUIREMENTS:   During  1997,  the  Company  has
     estimated approximately  $30.6  million  for  capital  improvements  ($26.4
     million  for its  self-storage  and  $4.2  million  for its  business  park
     facilities).  The  minority  interests'  share  of  the  estimated capital
     improvements is approximately $3.3 million.  During the first six months of
     1997, the Company  incurred  capital  improvements of  approximately  $15.0
     million.

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

          DEBT  SERVICE  REQUIREMENTS:  The Company  does not believe it has any
     significant  refinancing  risks with respect to its mortgage  debt,  all of
     which is at a fixed  rate.  The  Company  uses its  $150.0  million of bank
     credit  facility (all of which was unused as of August 13, 1997)  primarily
     to fund acquisitions and provide financial  flexibility and liquidity.  The
     credit facility currently bears interest at LIBOR plus 0.47%.

  


                                       24
<PAGE>
          At June 30, 1997, the Company had total  outstanding  notes payable of
     approximately  $104.1 million.  Approximate  principal  maturities of notes
     payable at June 30, 1997 are as follows:

                                                    Fixed Rate
                                                   Mortgage Debt
                              7.08% Unsecured      (Weighted average
                                Senior Notes       rate of 10.3%)       Total
                              ----------------    -------------------  --------
                                               
  1997 (remainder of )             $   3,250           $   3,632      $   6,882
  1998                                 7,250               7,929         15,179
  1999                                 8,000               6,461         14,461
  2000                                 8,750               2,700         11,450
  2001                                 9,500               2,997         12,497
  Thereafter                          19,750              23,897         43,647
                              ----------------    -------------------  --------
                                   $  56,500           $  47,616       $104,116
                              ================    ===================  ========

          EXTERNAL FINANCING:  Despite the Company's ability to retain a portion
     of its internally generated cash flow, the Company's growth strategies have
     required  the  Company  to seek  external  financing.  The  Company  has an
     unsecured  $150.0 million  revolving  credit facility with a group of banks
     which it uses as a temporary source of acquisition financing.  The Company,
     however,  seeks to  ultimately  finance  all  acquisitions  with  permanent
     sources of capital. As a result, the Company has raised capital through the
     public  issuance of both common and preferred stock which was used to repay
     borrowings  and make  additional  investments  in real estate  assets.  The
     Company  believes  that its size and  financial  flexibility  enable  it to
     access capital for growth when appropriate. The Company's financial profile
     is characterized by a low level of debt to total capitalization, increasing
     net  income,  increasing  cash flow  from  operations,  and a  conservative
     dividend  payout  ratio with  respect to the common  stock.  The  Company's
     credit  ratings on its Senior  Preferred  Stock by each of the three  major
     credit agencies are Baa2 by Moody's and BBB+ by Standard and Poors and Duff
     & Phelps.

          The   Company's   portfolio   of  real   estate   facilities   remains
     substantially unencumbered. At June 30, 1997, the Company had mortgage debt
     outstanding of $47.6 million and had  consolidated  real estate  facilities
     with a book value of $2.4 billion. The Company, however, has been averse to
     financing its  acquisitions  with debt and generally will only increase its
     mortgage  borrowing through the assumption of pre-existing debt on acquired
     real estate facilities.

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

          On March 18, 1997, the Company  publicly  issued 4.6 million shares of
     common stock,  raising net proceeds of  approximately  $126.7 million.  The
     Company  intends to use the  remaining  net proceeds  from this offering to
     make investments in real estate, primarily self-storage, including mortgage
     loans and interest in real estate partnerships, and to fund expenditures of
     PSPUD.

          MERGERS AND PROPERTY ACQUISITIONS:  During the second quarter of 1997,
     the Company completed merger  transactions with six affiliated public REITs
     whereby the Company  acquired all the outstanding  stock of the REITs which
     it did not  previously  own in  exchange  for cash and common  stock of the
     Company.  In the  mergers,  the Company  issued an aggregate of 7.7 million
     shares of Common Stock and paid an additional $68.9 million in cash.

          DEVELOPMENT  ACTIVITIES:  At June 30,  1997,  the Company had fourteen
     self-storage   facilities   (approximately   790,000   square  feet)  under
     construction with an aggregate cost incurred to date of approximately $31.2
     million and total  additional  estimated cost to complete of $30.4 million.
                                       25
<PAGE>
     The Company  currently has plans to develop an  additional 11  self-storage
     facilities  (approximately  733,000 square feet) in various locations at an
     estimated cost of  approximately  $54 million  (aggregate costs incurred to
     date  of  approximately  $3.2  million).  The  Company  is  evaluating  the
     feasibility of developing  additional  self-storage  facilities in selected
     markets in which there are few, if any, facilities to acquire at attractive
     prices and where the scarcity of other undeveloped parcels of land or other
     impediments  to  development  make it  difficult  to  construct  additional
     competing facilities.

          In April 1997, the Company formed a joint venture  partnership with an
     unaffiliated  partner to  participate in the  development of  approximately
     $220 million of self-storage facilities.  The venture is funded solely with
     equity  capital  consisting  of 30%  from  the  Company  and 70%  from  the
     institutional  investor.  The Company has received a total of $36.8 million
     in contributions from the joint venture partner through June 30, 1997.

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

          As a REIT,  the  Company is not taxed on that  portion of its  taxable
     income which is distributed to its shareholders  provided that at least 95%
     of its taxable  income is so  distributed  prior to filing of the Company's
     tax return.  The Company has  satisfied the REIT  distribution  requirement
     since 1980.


                                      26

<PAGE>

PART II. OTHER INFORMATION


Item 6   Exhibits and Reports on Form 8-K
         --------------------------------

        (a)    The following Exhibits are included herein:

               (3)  Certificate of Determination of Equity Stock, Series A

               (11) Statement re: Computation of Earnings per Share

               (12) Statement re: Computation of Ratio of Earnings to Fixed 
                    Charges

               (27) Financial Data Schedule

        (b)    Reports on Form 8-K

               No reports on Form 8-K were filed by the Company during
               the quarter ended June 30, 1997.

  


                                       27
<PAGE>
                                   SIGNATURES




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




                                 DATED: August 14, 1997

                                 PUBLIC STORAGE, INC.
 

                                  BY:   /s/ John Reyes
                                        -----------------------------
                                        John Reyes
                                        Senior Vice President and
                                         Chief Financial Officer
                                         (Principal financial officer)


                                       28