PS PARTNERS VII LTD, 10-K405, 1998-03-30

PS PARTNERS VII LTD
10-K405, 1998-03-30
LESSORS OF REAL PROPERTY, NEC

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

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 [Fee Required]

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

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]

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

Commission File Number 0-15800
-------

PS PARTNERS VII, LTD., a California Limited Partnership
-------------------------------------------------------
(Exact name of registrant as specified in its charter)

California 95-4018460
---------- ----------
(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 (Zip Code)
offices)

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

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

NONE

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

Units of Limited Partnership Interest
-------------------------------------
(Title of class)

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

Yes X No
-- --

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

- -------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE

NONE

<PAGE>
PART I

ITEM 1. Business.
---------

General
- -------
PS Partners VII, Ltd. (the "Partnership") is a publicly held limited
partnership formed under the California Revised Limited Partnership Act.
Commencing in April 1986, 150,000 units of limited partnership interest (the
"Units") were offered to the public in an interstate offering. The offering was
completed in April 1987 with a total of 108,831 Units sold.

The Partnership was formed to invest in and operate existing self-service
facilities offering storage space for personal and business use (the
"mini-warehouses") and to invest up to 35% of the net proceeds of the offering
in and operate existing office and industrial properties. The Partnership's
investments were made through general partnerships with Storage Equities, Inc.,
now known as Public Storage, Inc. ("PSI"), a real estate investment trust
("REIT") organized as a corporation under the laws of California. For tax
administrative efficiency, the original general partnerships with PSI were
consolidated into a single general partnership effective December 31, 1990.

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

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

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

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

PSI's current relationship with the Partnership includes (i) the joint
ownership of 18 of the Partnership's 20 properties (which excludes the
properties transferred to PSBPLP in January 1997), (ii) PSI is a co-general
partner along with Hughes, who is chairman of the board and chief executive
officer of PSI, (iii) as of December 31, 1997, PSI owned approximately 58.33% of
the Partnership's limited partnership units and (iv) PSI is the operator of the
Partnership's mini-warehouse facilities.

2
<PAGE>

Investments in Facilities
- -------------------------
The Partnership owns interests in 20 properties (excluding the properties
transferred to PSBPLP in January 1997); 18 of such properties are held in a
general partnership comprised of the Partnership and PSI. The Partnership
initially owned interests in 23 properties; 21 mini-warehouses, and 2 business
parks. The Partnership purchased its last property in August, 1987. One of the
mini-warehouses, the Homestead, Florida facility, was completely destroyed by
Hurricane Andrew in August 1992. Reference is made to the table in Item 2 for a
summary of information about the Partnership's properties.

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

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

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

Mini-warehouses in which the Partnership has invested generally consist of
three to seven buildings containing an aggregate of between 291 to 1,175 storage
spaces, most of which have between 25 and 400 square feet and an interior height
of approximately 8 to 12 feet.

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

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

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

Commercial Properties
- ---------------------
Through 1996, the Partnership owned and operated two business parks; one in
Mesa, Arizona and one in Tempe, Arizona. These properties were transferred to
PSBPLP in January 1997 in exchange for a partnership interest in PSBPLP.

Investment Objectives and Polices; Sale or Financing of Investments
- -------------------------------------------------------------------
The Partnership's objectives are to (i) preserve and protect invested
capital, (ii) maximize the potential for appreciation in value of its
properties, (iii) provide Federal income tax deductions so that during the early

3
<PAGE>

years of property operations a portion of cash distributions may be treated as a
return of capital for tax purposes, and therefore, may not represent taxable
income to the limited partners and (iv) provide for cash distributions from
operations. The Partnership will terminate on December 31, 2038, unless
dissolved earlier.

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

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

* Maintain high occupancy levels and increase realized rents. Subject to
market conditions, the Partnership generally seeks to achieve average
occupancy levels in excess of 90% and to eliminate promotions prior to
increasing rental rates. The monthly average realized rent per
occupied square foot for the mini-warehouse facilities were $.64 in
1997 compared to $.61 in 1996. The weighted average occupancy levels
at the mini-warehouse facilities increased from 89% during 1996 to 90%
in 1997. The Partnership has increased rental rates in many markets
where it has achieved high occupancy levels and eliminated or
minimized promotions.

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

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

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

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

4
<PAGE>

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

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

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

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

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

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

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

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

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

5
<PAGE>

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

Employees
- ---------
There are 75 persons who render services on behalf of the Partnership.
These persons include resident managers, assistant managers, relief managers,
district managers, and administrative personnel. Some of these employees may be
employed on a part-time basis and may also be employed by other persons,
partnerships, REITs, or other entities owning facilities operated by PSI or
PSBPLP.

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

The cost of the Year 2000 project will be allocated to all entities that
use the PSI computer systems. The cost of the Year 2000 project which is
expected to be allocated to the Partnership is approximately $60,000. The cost
of new software will be capitalized and the cost of maintenance to existing
systems will be expensed as incurred.

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

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

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

Net Number
Rentable of Date of Ownership
Location Square Feet Spaces Acquisition Percentage
- -------- ----------- ------ ----------- ----------
CALIFORNIA
<S> <C> <C> <C> <C>
Arleta 30,900 299 11/26/86 50.0%
Osborne St.
City of Industry 60,000 565 04/01/87 50.0
Amar Rd.
COLORADO
Denver 104,000 1,022 12/19/86 70.0
Sheridan Blvd.
Lakewood 100,900 780 09/12/86 70.0
W. 6th Ave.
FLORIDA
Homestead - - 10/31/86 100.0
S.W. 157th Ave. (1)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>

Net Number
Rentable of Date of Ownership
Location Square Feet Spaces Acquisition Percentage
- -------- ----------- ------ ----------- ----------
GEORGIA
<S> <C> <C> <C> <C>
Marietta 95,100 637 12/10/86 50.0%
Cobb Pkwy.
INDIANA
Hammond 45,100 395 08/11/87 40.2
Calumet
OKLAHOMA
Oklahoma City 61,000 608 05/28/87 100.0
Hefner Rd.
OREGON
Gresham 45,400 522 12/18/86 50.0
S.E. Burnside
Hillsboro 36,200 458 12/19/86 50.0
Tualatin Valley Hwy.
Portland 51,400 514 07/01/87 100.0
Moody St.
TEXAS
Austin 75,100 808 10/01/86 70.0
Research Blvd.
Houston 77,400 678 10/01/86 70.0
Long Point
Houston 90,100 709 10/01/86 70.0
N. Freeway
Houston 122,100 1,105 10/01/86 70.0
Old Katy Rd.
Houston 119,200 1,105 10/01/86 70.0
Plainfield Rd.
Houston 120,400 1,175 10/01/86 70.0
South Loop 610 West
San Antonio 80,600 788 12/23/86 50.0
Sunset Rd.
VIRGINIA
Annandale 31,400 291 03/16/87 50.0
Ravensworth Rd.
WASHINGTON
Auburn 52,800 605 12/10/86 50.0
Auburn Way N.
Lynwood
96th St. SW 75,800 590 12/31/86 70.0
</TABLE>
- ---------
(1) In August 1992, the facility's mini-warehouse buildings were completely
destroyed by Hurricane Andrew.

The weighted average occupancy level for the mini-warehouse facilities was
90% in 1997 compared to 89% in 1996. The monthly average realized rent per
square foot for the mini-warehouse facilities was $.64 in 1997 compared to $.61
in 1996.

Substantially all of the Partnership's facilities were acquired prior to
the time that it was customary to conduct environmental investigations in
connection with property acquisitions. During the fourth quarter of 1995, an
independent environmental consulting firm completed environmental assessments on
the Partnership's properties to evaluate the environmental condition of, and

7
<PAGE>

potential environmental liabilities of, such properties. Based on the
assessments, the Partnership believes that it is probable that it will incur
costs totaling $71,000 after December 31, 1997 for known environmental
remediation requirements. Although there can be no assurance, the Partnership is
not aware of any unaccrued environmental contamination of any of its property
sites which individually or in the aggregate would be material to the
Partnership's overall business, financial condition, or results of operations.

ITEM 3. Legal Proceedings.
------------------
No material legal proceeding is pending against the Partnership.

ITEM 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.

PART II

ITEM 5. Market for the Partnership's Common Equity and Related Stockholder
Matters.
--------------------------------------------------------------------
The Partnership has no common stock.

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

Exclusive of the General Partners' interest in the Partnership, as of
December 31, 1997, there were approximately 1,942 record holders of Units.

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

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

8
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.
-----------------------
<TABLE>
<CAPTION>

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

<S> <C> <C> <C> <C> <C>
Revenues $ 10,563 $ 10,584 $ 10,401 $ 10,227 $ 9,716

Depreciation and amortization 2,218 2,432 2,204 2,128 2,218

Interest expense - - - - 43

Income before loss on
destroyed real estate facility 2,314 1,971 2,061 2,230 1,789

Net income 2,314 1,971 2,061 2,230 1,657

Limited partners' share 2,025 1,588 1,505 1,850 1,352

General partners' share 289 383 556 380 305

Limited partners'
per unit data (a)

Net income $ 18.61 $ 14.59 $ 13.83 $ 17.00 $ 12.42

Cash distributions (b) (c) $ 22.00 $ 30.01 $ 44.23 $ 39.35 $ 23.80

As of December 31,

Cash and cash
equivalents $ 1,346 $ 142 $ 535 $ 1,844 $ 2,675

Total assets $ 49,785 $ 50,122 $ 51,406 $ 54,630 $ 57,348

</TABLE>

(a) Limited partners' per unit data is based on the weighted average number of
units outstanding during the period (108,831 units).
(b) The General Partners distributed, concurrent with the distribution for the
third quarter of 1995, a portion of the operating cash reserve estimated to
be $8.19 per Unit.
(c) The General Partners distributed, concurrent with the distribution for the
second quarter of 1994, the net insurance proceeds received for the
destruction of the Homestead, Florida facility of $9.75 per Unit. Pursuant
to the Partnership agreement, with respect to the 10% incentive on
distributions of Cash Flow from Operations, the General Partners did not
participate in the special distribution.

9
<PAGE>

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

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

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

The Partnership's net income was $2,314,000 in 1997 compared to $1,971,000
in 1996, representing an increase of $343,000, or 17%. Excluding the 1996
operations for the Partnership's business park facilities as compared to the
1997 equity in income of real estate partnership, the increase is due to an
increase in the Partnership's mini-warehouse operations, partially offset by
increased minority interest in income for those properties held jointly with
PSI.

Rental income for the Partnership's mini-warehouse operations was
$10,269,000 during 1997 compared to $9,672,000 in 1996, representing an increase
of $597,000, or 6%. The increase in rental income was primarily attributable to
increased rental rates and occupancy rates at the mini-warehouse facilities. The
monthly average realized rent per square foot for the mini-warehouse facilities
was $.64 in 1997 compared to $.61 for 1996. The weighted average occupancy
levels at the mini-warehouse facilities increased from 89% during 1996 to 90% in
1997. Cost of operations (including management fees) increased $161,000, or 5%,
to $3,696,000 in 1997 from $3,535,000 in 1996. This increase was primarily
attributable to increases in advertising, property tax, and management fee
expenses. Accordingly, for the Partnership's mini-warehouse operations, property
net operating income increased by $436,000, or 7%, from $6,137,000 in 1996 to
$6,573,000 in 1997.

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

1997 1996
----------- -----------
Equity in earnings of real estate partnership $ 265,000 $ -
Rental income - 900,000
Cost of operations - 421,000
----------- -----------
Net operating income 265,000 479,000
Depreciation - 330,000
----------- -----------
Operating income, net of depreciation $ 265,000 $ 149,000
=========== ===========

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

Depreciation and amortization attributable to the Partnership's
mini-warehouses increased $116,000 from $2,102,000 in 1996 to $2,218,000 in
1997. This increase was primarily attributable to the depreciation of capital
expenditures made during 1996 and 1997.

Minority interest in income increased $102,000, or 5%, to $2,213,000 in
1997 from $2,111,000 during 1996. This increase was primarily attributable to an
increase in operations at the Partnership's real estate facilities owned jointly
with PSI.

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

The Partnership's net income was $1,971,000 in 1996 compared to $2,061,000
in 1995, representing a decrease of $90,000, or 4%. The decrease was primarily
attributable to an increase in depreciation expense, combined with a decrease in
interest income, partially offset by decreases in environmental costs and
minority interest in income for those properties held jointly with PSI, combined
with increased property operating results.

10
<PAGE>

Property net operating income (rental income less cost of operations and
management fees and excluding depreciation expense) increased approximately
$45,000 in 1996 compared to 1995, as rental income increased by $279,000, or 3%,
and cost of operations (including management fees) increased by $234,000, or 6%.

Rental income for the Partnership's mini-warehouse operations was
$9,672,000 in 1996 compared to $9,412,000 in 1995, representing an increase of
$260,000, or 3%. The increase in rental income was primarily attributable to
increased average realized rental rates at the mini-warehouse facilities. The
monthly average realized rent per square foot for the mini-warehouse facilities
were $.61 in 1996 compared to $.60 in 1995. The weighted average occupancy
levels at the mini-warehouse facilities remained stable at 89% during 1996 and
1995. Costs of operations (including management fees) increased $233,000, or 7%,
to $3,535,000 in 1996 from $3,302,000 in 1995. This increase was primarily
attributable to increases in property tax, advertising and promotion, and
payroll expenses. Accordingly, for the Partnership's mini-warehouse operations,
property net operating income increased by $27,000 to $6,137,000 in 1996 from
$6,110,000 in 1995.

Rental income for the Partnership's business park operations was $900,000
in 1996 compared to $881,000 in 1995, representing an increase of $19,000, or
2%. Rental income in 1995 included a $36,000 lease buyout at the Partnership's
Tempe, Arizona facility. Excluding the effect of the lease buyout, the increase
in rental income of $55,000, or 6%, was primarily attributable to increased
rental rates and increased occupancy rates at the Partnership's business park
facilities. The monthly realized rent per square foot for the business park
facilities was $.52 in 1996 compared to $.48 in 1995. The weighted average
occupancy levels at the business park facilities were 100% in 1996 compared to
99% in 1995. Cost of operations (including management fees) increased $1,000 to
$421,000 in 1996 from $420,000 in 1995. Accordingly, for the Partnership's
business park facilities, property net operating income increased by $18,000, or
4%, to $479,000 in 1996 from $461,000 in 1995.

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

Depreciation and amortization increased $228,000 to $2,432,000 in 1996 from
$2,204,000 in 1995. This increase is principally attributable to depreciation of
capital expenditures made during 1995 and 1996.

Minority interest in income was $2,111,000 in 1996 and $2,184,000 in 1995,
representing a decrease of $73,000, or 3%. The decrease was primarily
attributable to the allocation of depreciation and amortization expenses
(pursuant to the partnership agreement with respect to those real estate
facilities which are jointly owned with PSI) to PSI of $118,000 for 1996 and
$25,000 in 1995, partially offset by increased operations at the Partnership's
mini-warehouse facilities which are jointly owned with PSI.

Liquidity and Capital Resources
- -------------------------------
The Partnership has adequate sources of cash to finance its operations,
both on a short-term and a long-term basis, primarily by internally generated
cash from property operations combined with cash on-hand at December 31, 1997
totaling $1,346,000.

Cash flows from operating activities ($6,480,000 for the year ended
December 31, 1997) have been sufficient to meet all current obligations of the
Partnership. Total capital improvements were $578,000, $1,477,000, and $609,000
in 1997, 1996, and 1995, respectively. The increase in 1996 capital improvements
is primarily attributable to various repair and refurbishment projects at four
of the Partnership's Houston, Texas mini-warehouse facilities for approximately
$858,000. During 1998, the Partnership anticipates incurring approximately
$797,000 of capital improvements (including PSI's joint venture share of
$272,000). During 1995, the Partnership's property manager commenced a program
to enhance the visual appearance of the mini-warehouse facilities. Such
enhancements include new signs, exterior color schemes, and improvements to the
rental offices.

11
<PAGE>
The Partnership expects to continue making quarterly distributions. Total
distributions paid to the General Partners and the limited partners (including
per Unit amounts) for 1997 and prior years were as follows:

Total Per Unit
---------------- -------------
1997 $2,687,000 $22.00
1996 3,666,000 30.01
1995 5,403,000 44.23
1994 4,687,000 39.35
1993 2,907,000 23.80
1992 2,701,000 22.10
1991 3,339,000 27.34
1990 2,407,000 19.71
1989 3,053,000 25.00
1988 3,054,000 25.00
1987 2,899,000 24.90
1986 547,000 12.89

The Partnership, in prior years, made distributions based on anticipated
operating cash flows. Beginning with the second quarter of 1990, the
distribution was lowered to a level supported by current operating cash flow
after capital improvements and scheduled debt service. Since then, distributions
have been increased based on improved property performance. The General Partners
distributed, concurrent with the distributions for the fourth quarter of 1991, a
portion of the operating reserve of the Partnership of approximately $8.15 per
Unit. The General Partners distributed, concurrently with the distribution for
the second quarter of 1994, the net insurance proceeds received for the
destruction of the Homestead, Florida facility, of $9.75 per Unit. The General
Partners distributed, concurrently with the distribution for the third quarter
of 1995, a portion of the operating reserve of the Partnership of approximately
$8.19 per Unit.

Future distribution levels will be based on cash available for
distributions (cash flow from all sources, less cash necessary for capital
improvement needs and to establish reserves).

12
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
The Partnership's financial statements are included elsewhere herein.
Reference is made to the Index to Consolidated Financial Statements and
Financial Statement Schedules in Item 14(a).

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
-----------------------------------------------------
None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP.
---------------------------------------------------
The Partnership has no directors or executive officers.

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

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

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

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

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

13
<PAGE>

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

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

Carl B. Phelps, age 58, became a Senior Vice President of PSI in January
1998 with overall responsibility for property acquisition and development. From
June 1991 until joining PSI, he was a partner in the law firm of Andrews &
Kurth, L.L.P., which performed legal services for PSI. From December 1982
through May 1991, his professional corporation was a partner in the law firm of
Sachs & Phelps, then counsel to PSI.

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

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

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

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

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

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

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

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

William C. Baker, age 64, became a director of PSI in November 1991. Since
November 1997, Mr. Baker has been Chairman of the Board and Chief Executive
Officer of The Santa Anita Companies, Inc., which operates the Santa Anita

14
<PAGE>

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

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

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

Pursuant to Articles 16 and 17 of the Partnership's Amended and Restated
Agreement of Limited Partnership (the "Partnership Agreement"), a copy of which
is included in the Partnership's prospectus included in the Partnership's
Registration Statement, File No. 33-1280, each of the General Partners continues
to serve until (i) death, insanity, insolvency, bankruptcy or dissolution, (ii)
withdrawal with the consent of the other general partner and a majority vote of
the limited partners, or (iii) removal by a majority vote of the limited
partners.

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

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

ITEM 11. EXECUTIVE COMPENSATION.
-----------------------
The Partnership has no subsidiaries, directors or officers. See Item 13 for
a description of certain transactions between the Partnership and the General
Partners and their affiliates.

15
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
<TABLE>
<CAPTION>
(a) At December 31, 1997, PSI beneficially owned more than 5% of the Units of the Partnership:

Title Amount of Percent
of Name and Address of Beneficial of
Class Beneficial Owner Ownership Class
- ------------------ -------------------------------------------- ------------------- -----------
<S> <C> <C> <C>
Units of Limited Public Storage, Inc.
Partnership 701 Western Avenue
Interest Glendale, CA 91201-2394 (1) 63,478 Units (1) 58.33%
</TABLE>
- ---------------
(1) These Units are held of record by SEI Arlington Acquisition Corporation,
a wholly-owned subsidiary of PSI.

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

(b) The Partnership has no officers and directors.

The General Partners (or their predecessor-in-interest) have
contributed $550,000 to the capital of the Partnership representing 1%
of the aggregate capital contributions and as a result participate in
the distributions to the limited partners and in the Partnership's
profits and losses in the same proportion that the general partners'
capital contribution bears to the total capital contribution.
Information regarding ownership of the Units by PSI, a General
Partner, is set forth under section (a) above. The directors and
executive officers of PSI, as a group, do not own any units.

(c) The Partnership knows of no contractual arrangements, the
operation of the terms of which may at a subsequent date result in a
change in control of the Partnership, except for articles 16, 17 and
21.1 of the Partnership Agreement, which provide, in substance, that
the limited partners shall have the right, by majority vote, to remove
a general partner and that a general partner may designate a successor
with the consent of the other general partner and a majority of the
limited partners.

The Partnership has acquired interests in 20 properties (which
exclude the properties transferred to PSBPLP in January 1997); 18 of
such properties are held in a general partnership comprised of the
Partnership and PSI. Under the terms of the partnership agreement, PSI
has the right to compel a sale of each property at any time after
seven years from the date of acquisition at not less than its
independently determined fair market value provided the Partnership
receives its share of the net sales proceeds solely in cash. As of
December 31, 1997, PSI has the right to require the Partnership to
sell a majority of its properties.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The Partnership Agreement provides that the General Partners and their
affiliates are entitled to the following compensation:

1. Incentive distributions equal to 10% of Cash Flow from Operations.
2. Provided the limited partners have received distributions equal to
100% of their investment plus a cumulative 8% per year (not
compounded) on their investment (reduced by distributions other than
from Cash Flow from Operations), subordinated incentive distributions
equal to 15% of remaining Cash from Sales or Refinancings.
3. Provided the limited partners have received distributions equal to
100% of their capital contributions plus a cumulative 6% per year (not
compounded) on their investment (reduced by distributions other than
distributions from Cash Flow from Operations), brokerage commissions
at the lesser of 3% of the sales price of a property or 50% of a
competitive commission.

16
<PAGE>

During 1997, approximately $269,000 was paid to PSI with respect to items
1, 2, and 3 above. The Partnership owns interests in 20 properties (which
exclude the properties transferred to PSBPLP in January 1997); 18 of such
properties are held in a general partnership comprised of the Partnership and
PSI.

The Partnership has a Management Agreement with PSI pursuant to which the
Partnership pays PSI a fee of 6% of the gross revenues of the mini-warehouse
spaces operated for the Partnership. During 1997, the Partnership paid fees of
$617,000 to PSI pursuant to the Management Agreement.

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

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
---------------------------------------------------------------
(a) List of Documents filed as part of the Report.
1. Financial Statements: See Index to Consolidated Financial
Statements and Financial Statement Schedules.
2. Financial Statement Schedules: See Index to Consolidated
Financial Statements and Financial Statement Schedules.
3. Exhibits: See Exhibit Index contained herein.
(b) Reports on Form 8-K.
None.
(c) Exhibits: See Exhibit Index contained herein.

17
<PAGE>

PS PARTNERS VII, LTD.,
a California Limited Partnership
INDEX TO EXHIBITS

3.1 Amended and Restated Agreement of Limited Partnership. Previously
filed with the Securities and Exchange Commission as an Exhibit to the
Storage Equities, Inc. Registration Statement No. 33-43750 and
incorporated herein by reference.

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

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

10.3 Participation Agreement dated as of April 2, 1986, among Storage
Equities, Inc., the Partnership, Public Storage, Inc., B. Wayne Hughes
and Kenneth Q. Volk, Jr. Previously filed with the Securities and
Exchange Commission as an exhibit to the Storage Equities, Inc.
Current Report on Form 8-K dated August 20, 1986 and incorporated
herein by reference.

27 Financial date schedule. Filed herewith.

18
<PAGE>
SIGNATURES

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

PS PARTNERS VII, LTD.,
a California Limited Partnership
Dated: March 26, 1998 By: Public Storage, Inc., General Partner

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

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Partnership in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

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

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

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

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

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

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

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

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

</TABLE>
19
<PAGE>
PS PARTNERS VII, LTD.,
a California Limited Partnership

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES

(Item 14 (a))

Page
References

Report of Independent Auditors F-1

Consolidated Financial Statements and Schedules:

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

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

Consolidated Statements of Partners' Equity F-4

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

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

Schedule

III - Real Estate and Accumulated Depreciation F-11 - F-12

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

20
<PAGE>
Report of Independent Auditors

The Partners
PS Partners VII, Ltd., a California Limited Partnership

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

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

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

ERNST & YOUNG LLP

February 23, 1998
Los Angeles, California

F-1
<PAGE>
<TABLE>
<CAPTION>
PS PARTNERS VII, LTD.
a California Limited Partnership
CONSOLIDATED BALALNCE SHEETS
December 31, 1997 and 1996

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

ASSETS

<S> <C> <C>
Cash and cash equivalents $ 1,346,000 $ 142,000

Rent and other receivables 72,000 73,000

Real estate facilities, at cost:
Land 16,030,000 18,782,000
Buildings and equipment 44,431,000 51,664,000
------------ ------------
60,461,000 70,446,000

Less accumulated depreciation (19,250,000) (20,703,000)
------------ ------------
41,211,000 49,743,000

Investment in real estate partnership 7,046,000 -

Other assets 110,000 164,000
------------ ------------

$ 49,785,000 $ 50,122,000
============ ============

LIABILITIES AND PARTNERS' EQUITY

Accounts payable $ 987,000 $ 1,054,000

Advance payments from renters 353,000 341,000

Minority interest in general partnerships 21,631,000 21,540,000

Partners' equity:
Limited partners' equity, $500 per unit, 150,000
units authorized, 108,831 issued and outstanding 26,475,000 26,844,000
General partners' equity 339,000 343,000
------------ ------------

Total partners' equity 26,814,000 27,187,000
------------ ------------

$ 49,785,000 $ 50,122,000
============ ============

</TABLE>
See accompanying notes.
F-2
<PAGE>
<TABLE>
<CAPTION>
PS PARTNERS VII, LTD.
a California Limited Partnership
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1997, 1996, and 1995

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

REVENUE:
<S> <C> <C> <C>
Rental income $ 10,269,000 $ 10,572,000 $ 10,293,000
Equity in income of real estate partnership 265,000 - -
Interest income 29,000 12,000 108,000
----------- ----------- -----------
10,563,000 10,584,000 10,401,000
----------- ----------- -----------

COSTS AND EXPENSES:

Cost of operations 3,079,000 3,331,000 3,113,000
Management fees 617,000 625,000 609,000
Depreciation and amortization 2,218,000 2,432,000 2,204,000
Administrative 122,000 114,000 120,000
Environmental costs - - 110,000
----------- ----------- -----------
6,036,000 6,502,000 6,156,000
----------- ----------- -----------

Income before minority interest 4,527,000 4,082,000 4,245,000

Minority interest in income (2,213,000) (2,111,000) (2,184,000)
----------- ----------- -----------

NET INCOME $ 2,314,000 $ 1,971,000 $ 2,061,000
=========== =========== ===========

Limited partners' share of net income
($18.61, $14.59, and $13.83 per unit in
1997, 1996, and 1995, respectively) $ 2,025,000 $ 1,588,000 $ 1,505,000
General partners' share of net income 289,000 383,000 556,000
----------- ----------- -----------
$ 2,314,000 $ 1,971,000 $ 2,061,000
=========== =========== ===========

</TABLE>
See accompanying notes.
F-3

PS PARTNERS VII, LTD.
a California Limited Partnership
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
For the years ended December 31, 1997, 1996, and 1995

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

<S> <C> <C> <C>
Balances at December 31, 1994 $ 31,831,000 $ 393,000 $ 32,224,000

Net income 1,505,000 556,000 2,061,000

Distributions (4,814,000) (589,000) (5,403,000)
------------ --------- ------------

Balances at December 31, 1995 28,522,000 360,000 28,882,000

Net income 1,588,000 383,000 1,971,000

Distributions (3,266,000) (400,000) (3,666,000)
------------ --------- ------------

Balances at December 31, 1996 26,844,000 343,000 27,187,000

Net income 2,025,000 289,000 2,314,000

Distributions (2,394,000) (293,000) (2,687,000)
------------ --------- ------------

Balances at December 31, 1997 $ 26,475,000 $ 339,000 $ 26,814,000
============ ========= ============

</TABLE>
See accompanying notes.
F-4

PS PARTNERS VII, LTD.
a California Limited Partnership
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996, and 1995

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

CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 2,314,000 $ 1,971,000 $ 2,061,000

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

Depreciation and amortization 2,218,000 2,432,000 2,204,000
Decrease (increase) in rent and other receivables 1,000 (25,000) (5,000)
Decrease (increase) in other assets 54,000 (39,000) (7,000)
(Decrease) increase in accounts payable (67,000) 84,000 30,000
Increase (decrease) in advance payments from renters 12,000 (46,000) 14,000
Equity in income of real estate partnership (265,000) - -
Minority interest in income 2,213,000 2,111,000 2,184,000
----------- --------- ---------

Total adjustments 4,166,000 4,517,000 4,420,000
----------- --------- ---------

Net cash provided by operating activities 6,480,000 6,488,000 6,481,000
----------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from insurance settlement for partial
condemnation of real estate facility - - 312,000
Distributions from real estate partnership 111,000 - -
Additions to real estate facilities (578,000) (1,477,000) (609,000)
----------- --------- ---------

Net cash used in investing activities (467,000) (1,477,000) (297,000)
----------- --------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:

Distributions to holder of minority interest (2,122,000) (1,738,000) (2,090,000)
Distributions to partners (2,687,000) (3,666,000) (5,403,000)
----------- --------- ---------

Net cash used in financing activities (4,809,000) (5,404,000) (7,493,000)
----------- --------- ---------

Net increase (decrease) in cash and cash equivalents 1,204,000 (393,000) (1,309,000)

Cash and cash equivalents at the beginning of the period 142,000 535,000 1,844,000
----------- --------- ---------

Cash and cash equivalents at the end of the period $ 1,346,000 $ 142,000 $ 535,000
=========== ========= =========

</TABLE>
See accompanying notes.
F-5

<PAGE>
<TABLE>
<CAPTION>
PS PARTNERS VII, LTD.
a California Limited Partnership
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996, and 1995
(Continued)

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

Supplemental schedule of noncash investing and financing activities:

<S> <C> <C> <C>
Investment in real estate partnership $ (6,892,000) $ - $ -

Transfer of real estate facilities for interest in real estate 6,892,000 - -
partnership, net

</TABLE>
See accompanying notes.
F-6

<PAGE>
PS PARTNERS VII, LTD.,
a California Limited Partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997

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

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

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

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

The Partnership has ownership interests in 20 properties in 10
states, which exclude 2 properties transferred to PS Business Parks,
L.P. ("PSBPLP") in January 1997. 18 of the properties are owned
jointly through 15 general partnerships (the "Joint Ventures") with
PSI. For tax administrative efficiency the Joint Ventures were
subsequently consolidated into a single general partnership. The
Partnership is the managing general partner of the Joint Ventures,
with ownership interests in the Joint Ventures ranging from 40.2% to
70%.

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

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

Depreciation and amortization allocated to PSI was $116,000,
$118,000, and $25,000 in 1997, 1996, and 1995, respectively. The
allocation of depreciation and amortization to PSI has the effect of
reducing minority interest, and has no effect on the reported
depreciation and amortization expense.

Under the terms of the partnership agreements, PSI has the right
to compel the sale of each property in the general partnerships at any
time after seven years from the date of acquisition at not less than
its independently determined fair market value provided the
Partnership receives its share of the net proceeds

F-7
<PAGE>
PS PARTNERS VII, LTD.,
a California Limited Partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997

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

Basis of Presentation (continued)
---------------------------------
solely in cash. PSI's right to require the Partnership to sell
all of the jointly owned properties became exercisable during 1993.

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

Revenue Recognition
-------------------
Property rents are recognized as earned.

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

Per Unit Data
-------------
Per unit data is based on the weighted average number of limited
partner units (108,831) outstanding during the year.

Environmental Cost
------------------
Substantially all of the Partnership's facilities were acquired
prior to the time that it was customary to conduct extensive
environmental investigations in connection with the property
acquisitions. During the fourth quarter of 1995, an independent
environmental consulting firm completed environmental assessments on
the Partnership's properties to evaluate the environmental condition
of, and potential environmental liabilities of such properties. Based
on the assessments, the Partnership believes that it is probable that
it will incur costs totaling $71,000 after December 31, 1997 for known
environmental remediation requirements. During 1997, 1996, and 1995,
the Partnership paid none, $13,000, and $25,000, respectively, in
connection with the environmental remediations. Although there can be
no assurance, the Partnership is not aware of any unaccrued
environmental contamination of its facilities which individually or in
the aggregate would be material to the Partnership's overall business,
financial condition, or results of operations.

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

Cash Distributions
------------------
The Partnership Agreement provides for quarterly distributions of
cash flow from operations (as defined). Cash distributions per limited
partner unit were $22.00, $30.01, and $44.23 for 1997, 1996, and 1995,
respectively.

F-8
<PAGE>
PS PARTNERS VII, LTD.,
a California Limited Partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997

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

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

2. Real Estate Facilities
----------------------
In August 1992, the buildings at a mini-warehouse facility
located in Homestead, Florida were completely destroyed by Hurricane
Andrew. The facility was adequately insured with respect to business
interruption and reconstruction of the facility. During 1993, the
Partnership received net insurance settlement proceeds of
approximately $1,212,000. The General Partners decided not to
reconstruct the buildings and have not yet sold the related land. In
1993, the Partnership recognized a loss of $132,000 on the insurance
settlement and write-off of the net book value of the property.

In 1993, the State of Texas exercised its right of eminent domain
and took possession of a portion of the Houston, North Freeway
mini-warehouse facility, including land and buildings. Since 1993, the
Partnership and the State of Texas have been negotiating an
appropriate amount of compensation to be paid to the Partnership for
the portion of the property which was condemned. In 1995, a final
settlement was reached whereby the Partnership received total
condemnation proceeds of $845,000 (initial proceeds were received in
1993, and the final settlement was received in 1995). Approximately
$413,000 of the proceeds was utilized to construct additional rental
space on the remaining property. In 1995, the Partnership reduced real
estate facilities by approximately $332,000, representing the net book
value of the property taken in the condemnation.

In 1995, the State of Oregon exercised its right of eminent
domain, and took possession of a portion of the Tualatin Highway,
Hillsboro mini-warehouse facility. Property claimed included
utilities, signage, and drainage easements. The Partnership and the
State of Oregon reached a settlement in 1997, whereby the Partnership
received condemnation proceeds of approximately $100,000. Accordingly,
in 1997, the Partnership reduced real estate facilities by the amount
of the proceeds. Net of capitalized costs previously incurred of
approximately $100,000 (during 1995 and 1996) to cure defects caused
by the condemnation, there was no net change in the overall book value
of the Tualatin real estate facilities, as a result of the partial
condemnation.

In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("Statement 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." Statement 121 requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the method of accounting for long-lived
assets that are expected to be disposed. The Partnership adopted
Statement 121 in 1996 and the adoption had no effect.

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

F-9

<PAGE>
PS PARTNERS VII, LTD.,
a California Limited Partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997

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

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

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

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

PSI has a significant economic interest in PSBPLP and PSBP.

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

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

Taxable net income was $4,762,000, $1,833,000 and $1,825,000 for
the years ended December 31, 1997, 1996 and 1995, respectively. The
difference between taxable income and book income is primarily related
to timing differences in depreciation expense.

F-10
<PAGE>
<TABLE>
<CAPTION>
PS PARTNERS VII, LTD.
A CALIFORNIA LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE
AND ACCUMULATED DEPRECIATION

Costs Gross Carrying Amount
Initial Cost subsequent At December 31, 1997
----------------------to acquisition --------------------------------------------------
Date Building & Building & Building & Accumulated
Acquired Description Encumbrances Land Improvement Improvements Land Improvements Total Depreciation
- -----------------------------------------------------------------------------------------------------------------------------------
Mini-warehouse
<C> <C> <C> <C> <C> <C> <C> <C> <C>
9/86 Lakewood/W. 6th Ave. $ - $ 1,070,000 $ 3,155,000 $ 479,000 $ 1,070,000 $ 3,634,000 $ 4,704,000 $ 1,697,000
10/86 Pilgrim/Houston/Loop 610 - 1,299,000 3,491,000 926,000 1,299,000 4,417,000 5,716,000 1,977,000
10/86 Pilgrim/Houston/S.W. Fwy - 904,000 2,319,000 539,000 904,000 2,858,000 3,762,000 1,261,000
10/86 Pilgrim/Houston/FM 1960 - 719,000 1,987,000 2,000 662,000 2,046,000 2,708,000 887,000
10/86 Pilgrim/Houston/Old Katy Rd. - 1,365,000 3,431,000 917,000 1,365,000 4,348,000 5,713,000 1,886,000
10/86 Pilgrim/Houston/Long Point - 451,000 1,187,000 469,000 451,000 1,656,000 2,107,000 772,000
10/86 Austin/Red Rooster - 1,390,000 1,710,000 393,000 1,390,000 2,103,000 3,493,000 926,000
12/86 Lynnwood/196th SW - 1,063,000 1,602,000 314,000 1,063,000 1,916,000 2,979,000 844,000
12/86 Auburn/Auburn Way North - 606,000 1,144,000 325,000 606,000 1,469,000 2,075,000 681,000
12/86 Gresham/Burnside - 351,000 1,056,000 335,000 351,000 1,391,000 1,742,000 613,000
12/86 Denver/Sheridan Rd. - 1,033,000 2,792,000 589,000 1,033,000 3,381,000 4,414,000 1,479,000
12/86 Marietta/Cobb Pkwy. - 536,000 2,764,000 548,000 536,000 3,312,000 3,848,000 1,477,000
12/86 Hillsboro/Tualatin Hwy. - 461,000 574,000 207,000 461,000 781,000 1,242,000 380,000
11/86 Arleta/Osborne St. - 987,000 663,000 230,000 987,000 893,000 1,880,000 393,000
4/87 City of Industry/Amar Rd. - 748,000 2,052,000 363,000 748,000 2,415,000 3,163,000 646,000
3/87 Annandale/Ravensworth - 679,000 1,621,000 185,000 679,000 1,806,000 2,485,000 801,000
5/87 OK City/Hefner - 459,000 941,000 206,000 459,000 1,147,000 1,606,000 499,000
12/86 San Antonio/Sunst Rd. - 1,206,000 1,594,000 474,000 1,206,000 2,068,000 3,274,000 871,000
8/86 Hammond/Calumet - 97,000 751,000 470,000 97,000 1,221,000 1,318,000 496,000
7/86 Portland/Moody - 663,000 1,637,000 (68,000) 663,000 1,569,000 2,232,000 664,000
-------------------------------------------------------------------------------------------------

$ - $ 16,087,000 $ 36,471,000 $ 7,903,000 $ 16,030,000 $ 44,431,000 $ 60,461,000 $ 19,250,000
=================================================================================================

</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
PS PARTNERS VII, LTD.
A CALIFORNIA LIMITED PARTNERSHIP
REAL ESTATE RECONCILIATION
SCHEDULE III (CONTINUED)

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

GROSS CARRYING COST RECONCILIATION

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

<S> <C> <C> <C>
Balance at beginning of the period $ 70,446,000 $ 68,969,000 $ 68,847,000
------------ ------------ ------------

Additions during the period:
Improvements, etc. 578,000 1,477,000 587,000

Deductions during the period:
Disposition of real estate (10,563,000) - (465,000)
------------ ------------ ------------
Balance at the close of the period $ 60,461,000 $ 70,446,000 $ 68,969,000
============= ============ ============

ACCUMULATED DEPRECIATION RECONCILIATION

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

Balance at beginning of the period $ 20,703,000 $ 18,271,000 $ 16,222,000

Additions during the period:
Depreciation 2,218,000 2,432,000 2,049,000

Deductions during the period:
Disposition of real estate (3,671,000) - -
------------ ------------ ------------

Balance at the close of the period $ 19,250,000 $ 20,703,000 $ 18,271,000
============ ============ ============

</TABLE>
(B) The aggregate cost of real estate for Federal income tax purposes is
$59,804,000.

F-12

<ARTICLE> 5
<CIK> 0000781850
<NAME> PS PARTNERS VII, LTD.
<MULTIPLIER> 1
<CURRENCY> U.S. $

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,346,000
<SECURITIES> 0
<RECEIVABLES> 72,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,418,000
<PP&E> 60,461,000
<DEPRECIATION> (19,250,000)
<TOTAL-ASSETS> 49,785,000
<CURRENT-LIABILITIES> 1,340,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 26,814,000
<TOTAL-LIABILITY-AND-EQUITY> 49,785,000
<SALES> 0
<TOTAL-REVENUES> 10,563,000
<CGS> 0
<TOTAL-COSTS> 3,697,000
<OTHER-EXPENSES> 2,339,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,314,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,314,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,314,000
<EPS-PRIMARY> 18.61
<EPS-DILUTED> 18.61

</TABLE>