Mendeley and Zotero are both free, but both have storage limits beyond which you have to pay (Zotero is 300M, Mendeley is 2G). If you only store references and annotations you'll likely never exceed those limits, but if you use them as a paper archive you may. (I have a 3G archive)

To clarify, Zotero's storage limit is only for syncing of attached files. You can use Zotero entirely offline if you choose, storing as much as you want, and we also support WebDAV or linked files (which can be in Dropbox, etc.) for syncing files in your personal library.

(Disclosure: Zotero developer)