<PAGE>   1



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

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

[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 ________________________

Commission File Number 0-9097

                         THE PEREGRINE REAL ESTATE TRUST
                         -------------------------------
             (Exact Name of Registrant as Specified in its Charter)

                CALIFORNIA                                   94-2255677
                ----------                                   ----------
      (State or other jurisdiction of                     (I.R.S. Employer
       incorporation or organization)                    Identification No.)

1300 ETHAN WAY, SUITE 200, SACRAMENTO, CALIFORNIA               95825
-------------------------------------------------               -----
     (Address of principal executive office)                  (Zip Code)

Registrant's telephone number, including area code:         (916) 929-8244
                                                            --------------

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                              Title of Each Class
                              -------------------
                      Common Shares of Beneficial Interest

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, and (2) has been subject to the filing requirements for
at least the past 90 days.

                             Yes  X      No
                                -----       -----

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

There is no active trading market for Peregrine's Common Shares of Beneficial
Interest.


Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

                             Yes   X      No
                                 -----       -----

As of March 15, 1998, there were 4,881,122 outstanding Common Shares of
Beneficial Interest. As of March 15, 1998, there were 2,320,540 outstanding
Common Shares of Beneficial Interest held by non-affiliates of the registrant.
Since there is no active trading market for the registrant's Common Shares of
Beneficial Interest, no aggregate market value may be given with respect to such
shares.




<PAGE>   2



<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
                         THE PEREGRINE REAL ESTATE TRUST
--------------------------------------------------------------------------------------------

PART I                                                                                  PAGE
--------------------------------------------------------------------------------------------
<S>            <C>                                                                       <C>
Item 1.        Business                                                                  1-5
Item 2.        Properties                                                                6-7
Item 3.        Legal Proceedings                                                           8
Item 4.        Submission of Matters to a Vote of Security Holders                         8
--------------------------------------------------------------------------------------------

PART II
--------------------------------------------------------------------------------------------

Item 5.        Market for Registrant's Common Shares of Beneficial Interest Equity
                 and Related Security Holder Matters                                       9
Item 6.        Selected Financial Data                                                    10
Item 7.        Management's Discussion and Analysis of Financial Condition and
               Results of Operations                                                   11-18
Item 8.        Financial Statements and Supplementary Data                             19-47
Item 9.        Changes in and Disagreements with Accountants on Accounting
                      and Financial Disclosure                                            48
--------------------------------------------------------------------------------------------

PART III
--------------------------------------------------------------------------------------------

Item 10.       Trustees and Executive Officers of the Registrant                       49-52
Item 11.       Executive Compensation                                                  53-55
Item 12.       Security Ownership of Certain Beneficial Owners and Management             56
Item 13.       Certain Relationships and Related Transactions                             56
--------------------------------------------------------------------------------------------

PART IV
--------------------------------------------------------------------------------------------

Item 14.       Exhibits, Financial Statement Schedules and Reports on Form 8-K         57-59
--------------------------------------------------------------------------------------------
</TABLE>

                                       (i)

<PAGE>   3



--------------------------------------------------------------------------------
                                     PART I
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Item 1.        Business
--------------------------------------------------------------------------------


General

        The Peregrine Real Estate Trust (fka Commonwealth Equity Trust)
("Peregrine" or the "Trust") is a California business trust headquartered in
Sacramento, California. As of December 31, 1997, Peregrine's investments
included eighteen commercial properties located primarily in the Sacramento
area, three hotel properties located in Northern California, a partnership
interest in a general partnership, and one mortgage note secured by real
property.

        Peregrine is governed by a Restated Declaration of Trust dated October
7, 1994. The Restated Declaration of Trust gives the Board of Trustees the power
to borrow money on behalf of Peregrine; to make loans to other persons; to
invest in the securities of other issuers under certain circumstances; to make
investments in property; to purchase outstanding shares of Peregrine for such
consideration as they deem advisable; to issue an annual report to shareholders;
to issue debt securities; to allocate investments between direct and indirect
ownership; and to exercise other powers in connection with Peregrine's
operations. The Trustees can also make decisions regarding investment and sales
activities without the prior approval of shareholders.

Summary of Chapter 11 Bankruptcy Proceedings

        On August 2, 1993, Peregrine filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code, which case was heard in the
United States Bankruptcy Court for the Eastern District of California,
Sacramento Division, as In re Commonwealth Equity Trust Case No. 93-26727-C-11.
The proximate cause of Peregrine's filing a petition for reorganization was its
falling out of compliance with a restructuring agreement entered into on July
17, 1992 with a lender group. California Real Estate Investment Trust
("CalREIT"), Peregrine's former 76% owned subsidiary, did not file for
protection under Chapter 11. Peregrine's Third Amended Plan of Reorganization as
modified (the "Plan of Reorganization" or the "Plan") was confirmed in all
respects on August 8, 1994, and Peregrine emerged from bankruptcy on October 7,
1994 (the "Effective Date" of the Plan). Peregrine is under the jurisdiction of
the United States Bankruptcy Court until entry of a final decree which is
expected to occur in late 1998.

        The Plan provided for inter alia: (a) the restructuring of virtually all
of the Peregrine's secured and unsecured debt; (b) the reduction in the number
of Common Shares of Beneficial Interest held by current shareholders from
approximately 25,100,000 ("old") shares to 2,334,000 ("new") shares (effectively
a reverse stock split); and the issuance of 2,550,000 new Common Shares of
Beneficial Interest, as well as a new class of Redeemable Convertible Preferred
Stock, to a senior lender group comprised of the Prudential Insurance Company of
America, Pacific Mutual Life Insurance Company, ORIX USA Corporation, and Trust
Company of the West (collectively, the "Senior Lender Group"). The total
authorized number of new Common Shares of Beneficial Interest is 50,000,000. As
of the Effective Date, the Senior Lender Group owned a majority of the new
Common Shares of Beneficial Interest (approximately 52%) and all of the new
Redeemable Convertible Preferred Stock ("Preferred



                                       1
<PAGE>   4
Stock" or "Preferred Shares"). The Senior Lender Group also received
restructured secured notes in the aggregate original principal amount of
$40,000,000, which bear interest at 8.50% per annum, with interest payable
in-kind through September 30, 1996 (the "Senior Lender Group Notes").

Business in 1997

        During 1997, Peregrine owned and operated a portfolio of investments
that included real property, a partnership interest, mortgage notes, and through
January 3, 1997, a 76% stock ownership interest in CalREIT. During 1997, efforts
continued to be placed on improving property operations while simultaneously
exploring alternative operating strategies for the future designed to maximize
shareholder value. The immediate priority continued to be to meet Peregrine's
debt obligations, including its obligations to make cash interest payments on
the Senior Lender Group Notes. To achieve this objective, emphasis remained on
maximizing the income stream from the commercial and hotel properties, reducing
operating expenses, and the select disposition of real estate assets with
negative cash flows and/or which require significant capital expenditures beyond
the resources available to Peregrine.

        On January 3, 1997, Peregrine sold its 76% stock ownership interest in
CalREIT for $20,222,000, or approximately $2.91 per share of CalREIT previously
held by Peregrine, to a third party, CalREIT Investors Limited Partnership. The
net book value of CalREIT totaled $24,471,000, or approximately $2.68 per
CalREIT common share of beneficial interest at December 31, 1996 and during
1996, CalREIT shares traded between $1.13 and $2.88. The decision to sell
CalREIT was made by management and the Board of Trustees of Peregrine during
1996.

        In December 1997, Peregrine sold one industrial building known as Pomona
Road. In addition, pursuant to the Plan of Reorganization, Peregrine disposed of
its final parcel of vacant land located in Sacramento, California, during 1997,
by allowing it to be foreclosed upon.

        At the end of 1997, Peregrine's real estate portfolio was comprised of
eighteen commercial properties located primarily in the Sacramento area, and
three hotels located in Northern California. The commercial property portfolio
included six light industrial properties, two mini-storage facilities, six
suburban office buildings, and four retail shopping centers encompassing
approximately 1,025,000 net rentable square feet in total.

        In 1997, management continued its efforts to improve the physical and
operating condition of its commercial properties by completing repairs and
deferred maintenance, controlling property expenses, and improving both
occupancy levels and collections of rent. The Sacramento metropolitan area,
where the majority of Peregrine's commercial properties are located, experienced
some improvements in market conditions in 1997. In an effort to reduce operating
costs and improve the overall management of the commercial properties, Peregrine
terminated its outside commercial property management contract in August 1997
and became self managed.

        The office building located at 3900 Lennane Drive in Sacramento, which
has been vacant since early 1995, was renovated during 1997. Efforts to lease
the vacant building have continued, and management is currently negotiating with
prospective tenants for a long-term lease; however, there can be no assurance
that a lease will be consummated.



                                       2
<PAGE>   5


        The overall weighted average occupancy for Peregrine's commercial
property portfolio at the end of 1997 was approximately 81% as compared to
approximately 83% at the end of 1996, an overall decrease of approximately 2%.
The decrease in occupancy was primarily attributable to decreased occupancies at
the retail shopping centers.

        As a result of the strategic importance and growth prospects of
Peregrine's three hotel properties, emphasis remained on completing the required
refurbishments necessary to comply with Holiday Inn standards, increasing
occupancy, and reducing operating expenses. In an effort to reduce operating
costs and improve the overall management of the hotels, Peregrine terminated its
outside hotel property management contracts in October 1997 and became self
managed. Peregrine's three full service Holiday Inns have an aggregate of 554
guestrooms.

        Due to capital constraints in 1996 and during the first half of 1997,
Peregrine was unable to complete certain refurbishments required by Holiday Inn
with respect to its Chico and Sacramento hotels within the required time frame.
As a result, in February 1997, Peregrine received notices of default on its
Holiday Inn Franchise Agreements with respect to its Chico and Sacramento
hotels. Peregrine was able to obtain an extension of time in which to complete
the necessary refurbishments. The refurbishments were completed at the Chico
hotel in September 1997, and in October 1997, Peregrine received a written
notice from Holiday Inn that the inspection had been completed and the default
had been cured. The refurbishments at the Sacramento hotel are currently
underway and in accordance with a new Holiday Inn License Agreement for
Sacramento, which is dated January 23, 1998 and expires on December 12, 2010,
Peregrine must complete them by September 23, 1998. The total cost of the
required refurbishments at the Sacramento hotel is estimated to be $2,700,000.
Additionally, in accordance with the new Holiday Inn License Agreement for
Walnut Creek, which is dated December 18, 1997 and expires December 18, 2007,
Peregrine is required to complete approximately $750,000 in refurbishments at
the Walnut Creek hotel prior to December 18, 1998. If the required
refurbishments at the Sacramento and Walnut Creek hotels are not completed in a
timely manner or should they not meet Holiday Inn's standards, Holiday Inn may
assert that Peregrine is in default of the License Agreement and Holiday Inn
could attempt to terminate the License Agreement. If the License Agreement is
terminated, it could constitute events of default under both the line of credit
and Senior Lender Group Notes and could result in termination fees payable to
Holiday Inn of approximately $1,100,000 with respect to the Sacramento hotel and
approximately $900,000 with respect to the Walnut Creek hotel. Currently,
Peregrine expects to complete refurbishments at the hotels above the amounts
required by Holiday Inn.

        The overall weighted average occupancy for the Holiday Inns was
approximately 69% during 1997 as compared to approximately 67% during 1996.

        At December 31, 1997, the book value for Peregrine's real estate
portfolio was $65,700,000. On that date, the portfolio was encumbered by
$24,291,000 of first mortgage indebtedness, in addition to the Senior Lender
Group Notes and the line of credit obligation.

        At the beginning of 1997, Peregrine had three notes in its mortgage note
portfolio. During the year, one of the notes, which was in default at December
31, 1996, was paid in full when the subject property was sold. A second note,
which was also in default at the beginning of 1997 and whose book value was $0,
was sold back to the borrower, resulting in a gain of $110,000. At year end,
Peregrine has one mortgage note, whose book value totaled $332,000, remaining in
its portfolio. The note



                                       3
<PAGE>   6

originated from a property disposition prior to 1997 and represents a first
mortgage collateralized by real property located in California.

        During 1997, Peregrine's outstanding balance on its long-term notes
payable, which are collateralized by first deeds of trust on certain of the
commercial properties, was reduced by approximately $2,804,000 as a result of
monthly principal payments and the discounted purchase of one first mortgage
note from the lender, which resulted in the recognition of income from debt
forgiveness of approximately $418,000.

        In 1997, Peregrine's Senior Lender Group Notes were reduced by
$17,537,000 due to principal paydowns, as required by the Note Agreement, from
the net proceeds from the sale of CalREIT and other assets dispositions.

        In December 1997, Peregrine secured a new line of credit (the "Line of
Credit") with a maximum borrowing of $20,000,000, an increase in borrowing
capacity of $11,400,000 from the old line of credit. At December 31, 1997,
Peregrine had an outstanding balance of $8,021,000 on its $20,000,000 Line of
Credit.

        In 1997, interest on the Trust's long-term first mortgage notes totaled
$2,453,000, of which $116,000 was forgiven when the first mortgage on the 3900
Lennane Drive property was purchased from the lender at a discount. Interest,
fees and reimbursable expenses related to the Line of Credit totaled $1,131,000
($874,000 of interest, $182,000 in fees, and $75,000 in reimbursable expenses)
in 1997, of which $507,000 was satisfied by an increase in the outstanding
balance. Interest on the Senior Lender Group Notes totaled $2,442,000 in 1997.
At December 31, 1997, total long-term first mortgage notes of the Trust were
$24,291,000, the outstanding balance on the Line of Credit was $8,021,000, and
total debt obligations to the Senior Lender Group were $26,930,000. Accrued and
unpaid interest at December 31, 1997 totaled $153,000 on the Senior Lender Group
Notes.

        In accordance with the Plan, dividends on the Senior Lender Group's
Redeemable Convertible Preferred Stock were paid in-kind throughout 1997. During
the year, dividends of $2,964,000 were paid in-kind through the issuance of an
additional 1,482,000 Preferred Shares, bringing the total number of Preferred
Shares held by the Senior Lender Group to 15,555,000 as of December 31, 1997.

        On March 23, 1998, Peregrine entered into a purchase and sale agreement
(the "Purchase and Sale Agreement") to purchase a hotel in Northern California
for $9,600,000. Peregrine is currently reviewing the due diligence materials and
exploring financing alternatives. Peregrine may terminate the Purchase and Sale
Agreement within the due diligence period (on or before April 22, 1998) in
accordance with the Agreement. The transaction is subject to numerous
conditions and contingencies. There can be no assurance that financing will be
available and no assurance that the transaction will be consummated.

        A more detailed discussion of the Trust's financial performance, results
of operations and alternative going-forward operating strategies is included in
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.



                                       4
<PAGE>   7



Changes in Management of the Trust

        On May 30, 1997, at Peregrine's Annual Meeting of Shareholders (the
"Annual Meeting"), the Common Shareholders elected four new Trustees, replacing
the four Trustees who had been appointed in 1994 upon the emergence from
bankruptcy. The Trustees elected at the Annual Meeting were: Mr. Bruce A. Karsh,
Mr. Richard Masson, Mr. Carson R. McKissick, and Mr. Matthew L. Witte. In
addition, the Preferred Shareholders re-elected Mr. Roger D. Snell as a Trustee
(the "Preferred Designee"). Mr. Snell was appointed Chairman of the Board of
Trustees and Acting Secretary, and immediately following the Annual Meeting, the
new Board of Trustees held a meeting and voted to terminate the employment
contract with then President and Chief Executive Officer, Mr. Joseph M. Mock,
and engaged Mr. Snell as Peregrine's new President and Chief Executive Officer.
In October 1997, Mr. Karsh resigned as a Trustee and Mr. Michael Joseph was
appointed as his replacement.

        Since May 1997, the Trust has concentrated its efforts on (1) obtaining
a new $20,000,000 operating line of credit, which was secured in December 1997,
(2) the formulation of business plans for each property in Peregrine's
portfolio, which is still in process, and (3) building an in-house management
team, which was completed in January 1998.

        At December 31, 1996, Peregrine had seven (7) full-time employees. As a
result of the termination of the outside management contracts for the commercial
and hotel properties, Peregrine increased its staff to include all hotel
employees, in-house property managers, and additional accounting and support
staff. At December 31, 1997, Peregrine had approximately three hundred fifteen
(315) employees.

Uninsured Losses from Seismic Activity

      All of the Trust's properties are located in areas that are subject to
earthquake activity. The Trust's insurance policies for these properties cover
losses from fires after an earthquake, but they do not cover damage directly
caused by earthquakes or other seismic activity. The Trust has not obtained
earthquake insurance for these properties because such policies have been
unavailable from insurers. In the event that uninsured losses resulting from
earthquake or other seismic activity should occur, the Trust could lose its
capital invested in the affected property, as well as the anticipated future
revenues from such property, and would continue to be obligated on any mortgage
indebtedness or other obligations related to the property. Any such loss could
materially and adversely affect the business of Peregrine and its financial
condition and results of operations.

Potential Environmental Risks

      Investments in real property create a potential for environmental
liability on the part of the owner of, or any mortgage lender on, such real
property. If hazardous substances are discovered on or emanating from any of the
Trust's properties, the owner or operator of the property (including the Trust)
may be held strictly liable for all costs and liabilities relating to such
hazardous substances. The Trust currently carries no insurance for environmental
liabilities.



                                       5
<PAGE>   8



--------------------------------------------------------------------------------
ITEM 2:  PROPERTIES

--------------------------------------------------------------------------------
The following table sets forth certain information relating to properties owned
by Peregrine at December 31, 1997. All of the properties are suitable for the
purpose for which they are designed and are being used.


<TABLE>
<CAPTION>
                                                                   Date of     Ownership   Square   Total Adjusted
             Direct Equity Investments                           Acquisition   Percentage   Feet       Cost(1)       Encumbrances(2)
--------------------------------------------------------------   -----------   ----------  -------  --------------   ---------------
<S>                                                                <C>            <C>      <C>       <C>              <C>
RETAIL SHOPPING CENTERS:
    Regency Plaza Shopping Center, Sacramento, California           5/85          100%     141,965   $ 11,106,000     $ 8,753,000
    University Village Shopping Center, Sacramento, California     12/86          100%      82,882      7,984,000       7,640,000
    TGI Friday's, Citrus Heights, California                        1/87          100%       8,500      1,536,000              --
    Sunrise Hills, Citrus Heights, California                       1/89          100%      78,953      5,195,000       4,279,000
                                                                                                     ------------     -----------
Total Retail Shopping Centers                                                                          25,821,000      20,672,000
                                                                                                     ------------     -----------

OFFICE BUILDINGS:
    One Sunrise Park, Rancho Cordova, California                    8/83          100%      43,747      1,814,000              --
    16th and K Streets, Sacramento, California                      8/87          100%      39,753      3,328,000              --
    Town Center Office Park, Signal Hill, California               12/87          100%      93,693      4,668,000              --
    Hurley Ethan Office Park I, Sacramento, California              4/88          100%      36,645      2,168,000       1,245,000
    Hurley Ethan Office Park II, Sacramento, California             6/88          100%      38,683      2,722,000       2,374,000
    3900 Lennane Drive, Sacramento, California                      5/88          100%      45,000      2,039,000              --
                                                                                                     ------------     -----------
Total Office Buildings                                                                                 16,739,000       3,619,000
                                                                                                     ------------     -----------

INDUSTRIAL BUILDINGS:
    11135 Trade Center Drive, Rancho Cordova, California            5/88          100%     144,332      2,968,000              --
    11167 Trade Center Drive, Rancho Cordova, California            5/88          100%      57,650        985,000              --
    Parkway Center, El Dorado Hills, California                     1/88          100%      45,332      1,504,000              --
    Mallory Service Center, Walnut Creek, California               10/88          100%      21,752      1,017,000              --
    Commerce Street, Corona, California                             9/96          100%      11,535        399,000              --
    Consumer Circle, Corona, California                             9/96          100%      11,900        386,000              --
                                                                                                     ------------     -----------
Total Industrial Buildings                                                                              7,259,000              --
                                                                                                     ------------     -----------
</TABLE>



                                       6
<PAGE>   9



--------------------------------------------------------------------------------
ITEM 2:  PROPERTIES (continued)

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

<TABLE>
<CAPTION>
                                                                   Date of     Ownership   Square   Total Adjusted
             Direct Equity Investments                           Acquisition   Percentage   Feet       Cost(1)       Encumbrances(2)
--------------------------------------------------------------   -----------   ----------  -------  --------------   ---------------
<S>                                                                <C>            <C>      <C>       <C>              <C>
MINI-STORAGE FACILITIES:
    Burbank Mini-Storage, Santa Rosa, California                    4/85          100%      72,200      1,485,000              --
    Downtown Mini-Storage, Sacramento, California (3)               3/88          100%      44,825      1,337,000              --
                                                                                                     ------------     -----------
Total Mini-Storage Facilities                                                                           2,822,000              --
                                                                                                     ------------     -----------

HOTELS:
    Chico Holiday Inn, Chico, California                            9/86          100%      87,000      3,555,000              --
    Sacramento Holiday Inn, Sacramento, California                  9/86          100%     139,800     10,257,000              --
    Walnut Creek Holiday Inn, Walnut Creek, California              3/85          100%      78,470      3,931,000              --
                                                                                                     ------------     -----------
Total Hotels                                                                                           17,743,000              --
                                                                                                     ------------     -----------
                                                                                                     $ 70,384,000     $24,291,000
                                                                                                     ============     ===========
</TABLE>

(1) Total cost, including reorganization values of Peregrine properties, before
    accumulated depreciation, adjusted for impairment losses in accordance with
    Statement of Financial Accounting Standards No. 121.

(2) All of the above properties are pledged as collateral, subject to existing
    liens, for the restructured debt.

(3) Land on which asset is constructed is subject to a ground lease.




                                       7
<PAGE>   10



--------------------------------------------------------------------------------
Item 3.  Legal Proceedings
--------------------------------------------------------------------------------

        Nineteen of the professional firms and companies (the "Professionals")
who rendered services to Peregrine or other interested parties during
Peregrine's bankruptcy case filed fee applications with the Bankruptcy Court and
in September 1996, the Bankruptcy Court issued an order (the "Order") awarding
fees to some of those Professionals. Five of the Professionals appealed the
Order; and the appeals were pending before the U.S. District Court for the
Eastern District of California at December 31, 1996. In addition, one
Professional filed a motion for reconsideration, which was pending before the
Bankruptcy Court. During 1997, Peregrine settled each of these claims.

        Peregrine was named as a defendant in a case filed by MDC REIT Holdings,
LLC ("MDC") in California state court on December 24, 1996. MDC alleged that
Peregrine breached a certain stock purchase agreement pursuant to which
Peregrine was to have sold to MDC certain shares of the common shares of
beneficial interest of CalREIT that were owned by Peregrine. MDC was seeking
damages it allegedly incurred in excess of $900,000, and recovery of its
attorney fees, costs, and interest. Management believed, and had been advised by
its counsel, that MDC's claims were without merit. Peregrine has answered the
complaint, denying any breach of the stock purchase agreement and asserting
numerous affirmative defenses to MDC's claims; however, there was no assurance
as to the outcome of this litigation and any adverse decision could have had a
material adverse effect on Peregrine. In an effort to limit its exposure to
attorney fees and costs, and possible losses, Peregrine entered into a
settlement agreement with MDC in September 1997. In accordance with the
settlement agreement, Peregrine paid MDC $250,000 in exchange for a full and
complete settlement of the action.

        At December 31, 1997, Peregrine was a party to a number of lawsuits
which are not expected to be material to the overall financial statements of
Peregrine.
--------------------------------------------------------------------------------
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.





                                       8
<PAGE>   11



--------------------------------------------------------------------------------
                                     PART II
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Item 5.  Market for the Registrant's Common Shares of Beneficial Interest Equity
         and Related Security Holder Matters
--------------------------------------------------------------------------------


Market

        Peregrine's Common Shares of Beneficial Interest have traded on the
Over-the-Counter Bulletin Board market system under the symbol PGRNS since its
emergence from bankruptcy in October 1994, and its issuance of new Peregrine
Common Shares of Beneficial Interest was completed. Peregrine's Common Shares of
Beneficial Interest were not actively traded during 1997, 1996, or 1995. The
following table sets forth the high and low closing quotations for the shares
during the four quarters of 1995, 1996 and 1997, as reported by Nasdaq. The
Over-the-Counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not necessarily represent actual
transactions.

<TABLE>
<CAPTION>
        1995                               High           Low
        ----                               ----           ---
  <S>                                     <C>           <C>
  First Quarter                            n/a            n/a
  Second Quarter                          $1.50         $1.00
  Third Quarter                            1.00          0.63
  Fourth Quarter                           0.63          0.13

        1996                               High           Low
        ----                               ----           ---
  First Quarter                           $0.50         $0.18
  Second Quarter                           0.50          0.06
  Third Quarter                            0.09          0.03
  Fourth Quarter                           0.10          0.04

        1997                               High           Low
        ----                               ----           ---
  First Quarter                           $0.12         $0.06
  Second Quarter                           0.15          0.06
  Third Quarter                            0.38          0.13
  Fourth Quarter                           1.00          0.19
</TABLE>

Holders

        As of March 15, 1998, there were 13,495 shareholders-of-record of
Peregrine's Common Shares of Beneficial Interest. In addition, there were
approximately 2,500 shareholders whose shares were held by depositories in
street and nominee names.

Dividends

        Peregrine paid no cash dividends on its Common Shares of Beneficial
Interest in 1996 or 1997, and is substantially restricted under the terms of the
Senior Lender Group Notes and Line of Credit from making any cash distributions
to shareholders in the foreseeable future.



                                       9
<PAGE>   12



--------------------------------------------------------------------------------
Item 6.  Selected Financial Data
--------------------------------------------------------------------------------

        The following represents selected financial data for The Peregrine Real
Estate Trust for the years ended December 31, 1997, 1996, and 1995, the period
October 7, 1994 through December 31, 1994 (the "Transition Period"), and the
year ended September 30, 1994. The data should be read in conjunction with other
financial statements and related notes included elsewhere herein. Numbers below
are shown in thousands except for per share data.

<TABLE>
<CAPTION>
                                                                                              Commonwealth
                                                                                              Equity Trust
                                   Year Ended      Year Ended     Year Ended                   Year Ended
                                  December 31,    December 31,   December 31,   Transition    September 30,
                                      1997           1996           1995          Period          1994
                                      ----           ----           ----          ------          ----
<S>                                 <C>            <C>            <C>            <C>            <C>
Operating results:
Revenue(1)                          $  24,828      $  27,162      $  26,893      $   6,806      $  32,858

Loss before extraordinary
  item                              $  (2,008)     $  (7,892)     $ (15,331)     $  (1,338)     $ (23,000)

Extraordinary item                  $     440      $     187      $     598      $      --      $      --

Net loss(2)                         $  (1,568)     $  (7,705)     $ (14,733)     $  (1,338)     $ (23,000)

Net loss attributable to
  Common Shares of
  Beneficial interest(2), (3)       $  (4,818)     $ (10,576)     $ (17,264)     $  (1,894)     $ (23,000)

Loss per Common Share of
  Beneficial Interest before
  extraordinary item, basic
  and diluted                       $   (1.08)     $   (2.21)     $   (3.66)     $   (0.39)     $   (0.92)

Extraordinary item per
  Common Share of
  Beneficial Interest, basic
  and diluted                       $    0.09      $    0.04      $    0.12      $      --      $      --

Net loss per share attributable
  to Common Shares of
  Beneficial Interest, basic
  and diluted(2), (3)               $   (0.99)     $   (2.17)     $   (3.54)     $   (0.39)     $   (0.92)

Financial Position:
Total Assets                        $  69,883      $ 104,726      $ 121,793      $ 142,121      $ 140,186

Long-term Obligations(4)            $  88,757      $ 111,578      $ 115,064      $ 114,478      $ 122,963
</TABLE>

(1) Includes net gains (losses) from foreclosure or sale of investments of
    $1,358, $1,580, ($184), $12, and $688, for the years ended December 31,
    1997, 1996, and 1995, the Transition Period, and the year ended September
    30, 1994, respectively.

(2) Includes valuation losses of ($459), ($4,278), ($9,526), ($119), and
    ($3,413), for the years ended December 31, 1997, 1996, and 1995, the
    Transition Period, and the year ended September 30, 1994, respectively.

(3) Includes net loss plus the effects of Preferred Stock dividends, discounts
    on Preferred Stock dividends, and the accretion of discounts on Preferred
    Stock dividends.

(4) Includes long-term notes payable collateralized by deeds of trust on rental
    properties, Senior Lender Group Notes Payable, the outstanding balance on
    the Line of Credit, and outstanding Redeemable Convertible Preferred Stock.



                                       10
<PAGE>   13



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

        The following section includes a discussion and analysis of the results
of operations for the years ended December 31, 1997, 1996, and 1995 and should
be read in conjunction with the financial statements and notes thereto appearing
elsewhere in the Form 10-K. Results during 1997, 1996, and 1995, serve as
benchmark data for all future comparisons but are not comparable to prior
periods.

        In addition to historical information, the Form 10-K contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, such as
those pertaining to Peregrine's ability to fund its operations or otherwise
satisfy capital requirements, both in the short and long term; to undertake
property repairs, maintenance, improvements, refurbishments, or other capital
expenditures; and to negotiate satisfactory terms with creditors, licensors,
franchisors, or others. Forward-looking statements involve numerous risks and
uncertainties. The following factors, among others discussed herein, could cause
results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: increased interest rates and
operating costs, deteriorating market conditions affecting occupancy or lease
rates, difficulties in finding buyers for property dispositions, environmental
uncertainties, risks related to natural disasters, financial market
fluctuations, changes in real estate laws, real property taxes, and governmental
regulation, as well as general economic trends and the factors discussed
elsewhere in the Form 10-K. Readers are cautioned not to place undue reliance on
forward-looking statements, which reflect management's analysis only as of the
date hereof. Peregrine assumes no obligation to update forward-looking
statements. Readers should refer to Peregrine's reports to be filed from time to
time with the Securities and Exchange Commission pursuant to the Exchange Act.

Overview

        During the twelve months ended December 31, 1997, Peregrine owned and
operated a portfolio of investments that included real property, partnership
interests, mortgage notes, and a 76% stock ownership interest in CalREIT through
January 3, 1997. In 1997, Peregrine continued to concentrate its efforts on
improving property operations, while simultaneously exploring alternative
operating strategies for the future. The immediate priority continued to be to
meet Peregrine's debt obligations. To achieve this objective, emphasis remained
on maximizing the income stream from the commercial and hotel properties and the
select disposition of real estate assets with negative cash flows and/or which
require significant capital expenditures beyond the resources available to
Peregrine.

        Management also continued to explore alternative longer term strategies
to maximize shareholder value, including analysis of current and expected
property valuations, regional and industry market trends and potential long-term
growth opportunities in single and multi-tenant buildings, retail centers and
hotel properties. The assessment of long-term strategies includes consideration
of financing or restructuring alternatives relating to Peregrine's first
mortgage debt and its long-term secured debt to the Senior Lender Group. Under
the terms of the Senior Lender Group Notes, 80% of the net proceeds from the
disposition of assets must be paid to the Senior Lender Group, thus restricting
Peregrine from reinvesting in higher yielding investments or making capital
improvements to existing assets.



                                       11
<PAGE>   14



        On January 3, 1997, Peregrine sold its 76% stock ownership interest in
CalREIT to a third party for $20,222,000 in cash, and in accordance with the
terms of Senior Lender Group Notes, 80% of the net proceeds was paid to the
Senior Lender Group, reducing the balance outstanding by $15,578,000.

        Peregrine's future debt service obligations are approximately $2,646,000
per year on its first mortgage debt, and approximately $2,321,000 on the Senior
Lender Group Notes, based on the balances at December 31, 1997. In addition,
$31,110,000 at face value in Preferred Stock, also held by the Senior Lender
Group, will accrue dividends in-kind through September 30, 1998, and will
require cash dividend payments of approximately $3,399,000 per year thereafter.
It is anticipated, however, that Peregrine will not pay the Preferred Stock
dividends in cash commencing with the December 31, 1998 dividend due to a
restrictive covenant contained in the Line of Credit Agreement, and as a result
the Preferred Stock will automatically convert to Common Shares of Beneficial
Interest on April 10, 1999.

Liquidity and Capital Resources

        The Trust's unrestricted cash totaled $1,247,000 on December 31, 1997,
down from $5,972,000 at December 1996, of which $4,698,000 was held by CalREIT
at December 31, 1996, and unavailable to Peregrine for operating, working
capital, or other purposes. In 1997, the Trust's principal source of funds was
from operating income, proceeds from the sale of certain investments, and
proceeds from principal and interest payments on mortgage notes receivable. At
December 31, 1997, $11,979,000 remained available through the Line of Credit.

        Debt service paid on the Trust's first mortgage notes totaled $4,948,000
in 1997, including the discounted purchase of one note from the lender,
$3,452,000 in 1996, and $4,902,000 in 1995. Peregrine's debt service
requirements on such notes in 1998 are approximately $2,646,000. Interest on the
Senior Lender Group Notes was approximately $2,442,000 in 1997. In 1996 and
1995, interest on the Senior Lender Group Notes was $3,814,000 and $3,596,000,
respectively, of which approximately $2,844,000 and $3,596,000, respectively,
was satisfied through the issuance of interest deferral notes. Principal
paydowns on the Senior Lender Group Notes totaled $17,537,000, $1,818,000, and
$1,024,000, in 1997, 1996, and 1995, respectively.

        At December 31, 1997, Peregrine's short and long term cash commitments
include approximately $3,450,000 to refurbish the Sacramento and Walnut Creek
hotel properties in accordance with Holiday Inn franchise standards; debt
service payments on its first mortgage notes of approximately $2,646,000 per
year; interest on its Senior Lender Group Notes currently estimated at
$2,321,000 per year; repayment of its Line of Credit obligation on September 30,
2000; and repayment of principal on the Senior Lender Group Notes in October
2000. It is anticipated that the Preferred Stock cash dividend requirement will
be eliminated through the conversion to Common Shares of Beneficial Interest as
discussed above.

        On March 23, 1998, Peregrine entered into a purchase and sale agreement
(the "Purchase and Sale Agreement") to purchase a hotel in Northern California
for $9,600,000. Peregrine is currently reviewing the due diligence materials and
exploring financing alternatives. Peregrine may terminate the Purchase and Sale
Agreement within the due diligence period (on or before April 22, 1998) in
accordance with the Agreement. The transaction is subject to numerous
conditions and contingencies.



                                       12
<PAGE>   15

There can be no assurance that financing will be available and no assurance that
the transaction will be consummated.

        Based on cash flows from operations and its revolving Line of Credit,
Peregrine anticipates that it will be able to fund its day-to-day business
operations, meet its debt service obligations on its first mortgage notes and
Senior Lender Group Notes, and fund its capital expenditures through the next
twelve months.

        Peregrine experienced a net decrease in unrestricted cash of $27,000
during 1997 as compared to a net increase in unrestricted cash in 1996 of
$893,000. Cash used in operating activities was $130,000 in 1997, compared to
$1,911,000 in 1996. The decrease in cash used in operating activities of
$1,781,000 is primarily attributable to decreased interest payments on the
Senior Lender Group Notes due to the $15,578,000 principal reduction in January
1997 as a result of the sale of CalREIT. Cash provided by investing activities
was $15,733,000 in 1997, compared to $3,451,000 in 1996, an increase in cash
provided by investing activities of $12,282,000. Cash used in financing
activities was $20,328,000 in 1997, compared to cash used in financing
activities of $647,000 in 1996, an increase of $19,681,000. The increase in cash
provided by investing activities and the increase in cash used in financing
activities from 1996 to 1997 are primarily attributable to the proceeds received
from the sale of CalREIT and the application of such proceeds to the Senior
Lender Group Notes.

Results of Operations

        Occupancy. At December 31, 1997, 1996 and 1995, overall weighted average
occupancy levels for the Trust's properties is shown below:

<TABLE>
<CAPTION>
                                          Occupancy at December 31,
             Property Type              1997          1996          1995
             -------------              ----          ----          ----
        <S>                             <C>            <C>           <C>
        Retail Shopping Centers          76%           82%           80%
        Office Buildings                 72%           75%           65%
        Industrial Buildings             88%           90%           72%
        Mini-Storage Facilities          96%           94%           93%
        Hotels                           69%           67%           65%
        CalREIT Properties              n/a            77%           90%
</TABLE>

        The overall weighted average occupancy level is calculated by
multiplying the occupancy by its square footage (or rooms available) and
dividing the total by the total square footage (or rooms available) in the
portfolio.

        The overall weighted average for Peregrine's entire commercial property
portfolio (excluding CalREIT) as of December 31, 1997 was 81% compared to 83%
and 75% at the end of 1996 and 1995, respectively.

        Real Estate Dispositions. During 1997, Peregrine sold the Pomona Road
industrial building and pursuant to the Plan of Reorganization, disposed of its
final parcel of vacant land in Sacramento, California by allowing it to be
foreclosed upon by the City of Sacramento. During 1996, Peregrine sold the
Sierra Oaks Shopping Center in Roseville, California, the Timberlake Medical
Building in Sacramento, California, the Park Terrace Inn Hotel in Redding,
California, and its partnership interest



                                       13
<PAGE>   16

in Placer Ranch Partners. Also during 1996, pursuant to the Plan of
Reorganization, Peregrine disposed of three of its four parcels of vacant land
located in Sacramento, California, by quit-claim deed to the holders of certain
secured bond claims against the parcels. In addition, CalREIT sold the Redfield
Commerce Center in Scottsdale, Arizona, and the Bekins Storage Facility in
Pasadena, California. In February 1996, because of its limited financial
potential and inability to service its debt, CalREIT transferred ownership of
the Casa Grande Motor Inn property back to the lender pursuant to a foreclosure
proceeding. During 1995, Peregrine sold the Milpitas medical building; the North
Freeway office building; and a parcel of vacant land in Northridge, California.
In addition, during 1995, the office building located at 425 University Avenue
in Sacramento, California was foreclosed upon pursuant to the Plan of
Reorganization.

        Mortgage Note Dispositions. During 1997, a mortgage note held by
Peregrine, which was in default at December 31, 1996, was paid in full when the
subject property was sold. In addition, another mortgage, which was in default
at December 31, 1997 and whose book value was $0, was sold by Peregrine to the
borrower, resulting in a gain of $110,000. In 1996, one mortgage note held by
Peregrine was foreclosed upon, resulting in the acquisition of three industrial
buildings in Corona, California. The properties were recorded at their estimated
fair market value at the date of foreclosure. Also during 1996, one mortgage
note, held by Peregrine, with a face value of $2,240,000, was paid in full prior
to its maturity date. During 1996, CalREIT's mortgage notes were packaged for
sale and disposition. In total, four of CalREIT's seven mortgage notes were sold
in 1996. In 1995, two of Peregrine's mortgage notes were purchased by their
borrowers at discounts.

        Disposition of Investment in CalREIT. On January 3, 1997, Peregrine sold
its 76% stock ownership interest in CalREIT to a third party, CalREIT Investors
Limited Partnership. The sale price of Peregrine's investment was $20,222,000,
or approximately $2.91 per share of CalREIT previously held by Peregrine, which
resulted in a gain of $1,012,000.

        As a result of the sale of CalREIT on January 3, 1997, all assets,
liabilities and shareholders' equity (deficit) attributable to CalREIT which
were included in the balance sheet at December 31, 1996, were eliminated as
follows: the investment in commercial and hotel properties decreased $8,585,000;
the investment in notes receivable decreased $1,576,000; the investment in
marketable securities available-for-sale decreased $14,115,000; unrestricted
cash decreased $4,698,000; rents, accrued interest, and other receivables
decreased $707,000; other assets decreased $355,000; long-term notes payable
collateralized by first deeds on commercial properties decreased $5,169,000;
accounts payable and accrued liabilities decreased $295,000; other liabilities
decreased $70,000; minority interest decreased $5,759,000; and the unrealized
holding losses on marketable securities decreased $22,000. In addition, at the
time of the sale, $32,000 due to Peregrine from CalREIT was recorded as a
receivable. Of the $20,222,000 in proceeds received from the sale of CalREIT,
$15,631,000 was required to be paid to the Senior Lender Group, in accordance
with the Note Agreement, as payment of principal and accrued interest on the
Senior Lender Group Notes Payable; the remaining $4,591,000 was paid to
Peregrine and available for operations and capital expenditures.




                                       14
<PAGE>   17



Revenues

        Total revenues were $23,470,000 in 1997, as compared to $25,582,000 in
1996 and $27,077,000 in 1995.

        Hotel Revenues. Hotel revenues were $13,504,000 in 1997, up from
$12,652,000 in 1996 and up from $12,816,000 in 1995. The increase from 1995 and
1996, is primarily attributable to an overall increase in room occupancy, room
rates, and guest services at the Chico, Sacramento, and Walnut Creek hotels;
partially offset by the absence of revenues from the Park Terrace Inn which was
closed for renovations in October 1995 and was sold in October 1996.

        Commercial Property Revenues. Commercial property revenues decreased
from $11,367,000 and $12,418,000 in 1996 and 1995, respectively, to $9,369,000
in 1997. The decrease from 1995 and 1996 is primarily attributable to the
absence of revenues from commercial properties sold in 1995 and 1996; the
absence of revenues from CalREIT's commercial properties due to Peregrine's sale
of its 76% stock ownership interest in CalREIT on January 3, 1997; and decreased
occupancy at the Retail Shopping Centers; partially offset by increased
occupancies at the Mini-Storage Facilities.

        Interest Revenues. Interest revenues were $263,000 in 1997, down from
$1,435,000 in 1996, and down from $1,766,000 in 1995. The decrease in interest
revenue from 1995 and 1996, is primarily attributable to the absence of interest
revenue from CalREIT; and the absence of interest revenue from mortgage notes
paid off or sold in 1995 and 1996; partially offset by an increase in interest
revenue earned on cash balances, resulting from a higher average cash balance
during 1997.

Expenses

        Expenses were $26,377,000 in 1997, as compared to $31,329,000 in 1996,
and $32,365,000 in 1995.

        Hotel Operating Expenses. Hotel operating expenses increased from
$10,424,000 in 1996 and decreased from $10,964,000 in 1995, to $10,499,000 in
1997. The increase from 1996 is primarily attributable to the increased
occupancy at the hotels; partially offset by decreased real property taxes
resulting from successful property tax appeals. The decrease from 1995 is
primarily attributable to the absence of expenses at the Park Terrace Inn and
decreased real property taxes

        Commercial Property Operating Expenses. Commercial property operating
expenses were $3,037,000 in 1997, as compared to $3,948,000 and $4,287,000 in
1996 and 1995, respectively. These decreases are primarily attributable to the
absence of expenses from commercial properties sold in 1995 and 1996; the
absence of expenses from CalREIT's commercial properties due to Peregrine's sale
of its 76% stock ownership interest in CalREIT on January 3, 1997; and a
decrease in real property taxes resulting from successful property tax appeals.

        Commercial and Hotel Property Management Fees. Commercial and hotel
property management fees decreased from $761,000 in 1996 and $633,000 in 1995,
to $510,000 in 1997. The decreases are primarily attributable the absence of
management fees on commercial and hotel properties sold in 1995 and 1996; the
absence of management fees on CalREIT's commercial properties; a reduction in
management fees at the commercial properties due to the termination of the
outside management contract in August 1997; and a decrease in management fees at
the hotel properties due to the



                                       15
<PAGE>   18
termination of the outside management contracts in October 1997; partially
offset by an overall increase in management fees at the hotels during the ten
months ended October 1997 as compared to the ten months ended October 1996 and
1995, resulting from increased revenues.

        Depreciation and Amortization Expense. Depreciation and amortization
expense was $3,340,000 in 1997, up from $2,931,000 in 1996 and down from
$3,763,000 in 1995. The increase from 1996 is primarily attributable to the
reclassification of properties from "held-for-sale" to "held-for-investment";
increases due to capital improvements and lease commissions at the commercial
and hotel properties; and the write off of unamortized tenant improvements and
lease commissions related to tenants who abandoned their leases in 1997. The
decrease from 1995 is primarily attributable to the absence of depreciation and
amortization expense from CalREIT; and the absence of depreciation and
amortization related to properties sold in 1995 and 1996; offset by increases
resulting from capital expenditures and lease commissions; and the write offs.

        Interest Expense. Interest expense decreased to $5,810,000 in 1997, down
from $8,177,000 in 1996 and $8,524,000 in 1995. The decreases are primarily
attributable to decreases resulting from the absence of interest on CalREIT
first mortgages; a decrease resulting from monthly principal paydowns and
payoffs which resulted from the sale of the underlying assets and the discounted
purchase of one note in July 1997; and a decrease in interest on the Senior
Lender Group Notes as a result of principal paydowns, primarily due to the
application of net proceeds from the sale of CalREIT in January 1997; partially
offset by an increase in interest on the Line of Credit due to a higher average
balance outstanding during 1997.

        General and Administrative Expenses. General and administrative expenses
were $3,181,000 in 1997, down from $5,088,000 and $4,194,000 in 1996 and 1995,
respectively. The decrease from 1996 is primarily attributable to a decrease in
outside consulting and appraisal expenses; the absence of expenses in connection
with the retention of an investment banking firm for the purposes of analyzing
strategic alternatives, which was incurred in 1996; and the absence of general
and administrative expenses related to CalREIT; offset by a legal settlement fee
incurred in September 1997 related to Peregrine's sale of its 76% stock
ownership interest in CalREIT. The decrease from 1995 is primarily attributable
to the absence of general and administrative expenses related to CalREIT; a
decrease in legal fees related to bankruptcy matters; a decrease in outside
consulting and appraisal expenses; and a decrease in salaries and wages due
primarily to a lower annual salary during 1997 for the Chief Executive Officer,
elimination of the Chief Financial Officer position, and a reduction in the
number of corporate accounting, administrative and executive personnel; offset
by a legal settlement fee incurred in September 1997 related to Peregrine's sale
of its 76% stock ownership interest in CalREIT.

Reorganization Items

        Reorganization items were $0 in 1997. In 1996, reorganization items
represented an amount paid to a professional firm during the bankruptcy
proceedings, which was ordered to be disgorged back to Peregrine. In 1995, the
reorganization expense represented an additional accrual to increase
professional fees related to the bankruptcy proceedings



                                       16
<PAGE>   19



Gain (Loss) on Foreclosure or Sale of Investments

        Gain (loss) on foreclosure or sale of investments decreased from a gain
of $1,580,000 in 1996, and increased from a loss of $184,000 in 1995, to a gain
of $1,358,000 in 1997. In 1997, the amount is comprised of a gain from the sale
of Peregrine's investment in CalREIT; a gain from the sale of the Pomona Road
industrial building; a loss on the sale and maturity of marketable securities;
and the recognition of a portion of a previously deferred gain. The 1996 amount
is comprised of numerous gains and losses in connection with the sale of real
estate assets, the sale and foreclosure of mortgage notes receivable, the sale
of a partnership interest, and the recognition of deferred gains, by Peregrine
and CalREIT. In 1995, Peregrine and CalREIT recorded gains and losses in
connection with the sale and foreclosure of real estate assets, the sale of
mortgage notes receivable, and the recognition of deferred gains.

Valuation Losses

        In 1997, Peregrine recorded a valuation loss of $459,000 on the Sunrise
Hills Shopping Center, which was attributable to continued impairments in the
value of the asset resulting primarily from the current physical condition of
the asset. In 1996, total valuation losses were $4,278,000, which was comprised
of a $1,390,000 valuation loss recorded by Peregrine against a partnership
investment; $1,145,000 in valuation losses recorded against Peregrine's real
estate assets; and $1,743,000 in valuation losses recorded against CalREIT's
real estate assets. In 1995, total valuation losses recorded by Peregrine and
CalREIT totaled $9,526,000. Peregrine recorded $6,065,000 in valuation losses
against real estate assets and valuation losses of $180,000 against mortgage
notes receivable. CalREIT recorded valuation losses of $1,035,000 against real
estate assets and $2,246,000 against mortgage notes receivable in 1995.

        Additional valuation losses could be recorded in the future if the hotel
properties do not complete their refurbishment programs, or economic conditions
change.

Extraordinary Item, Forgiveness of Debt

        In 1997, Peregrine benefited from a forgiveness of debt of $418,000 in
connection with the discounted purchase of the first mortgage note on the 3900
Lennane Drive property. In addition, Peregrine benefited from the extinguishment
of certain debt related to the bankruptcy proceedings of $22,000. During 1996
and 1995, Peregrine benefited from the extinguishment of certain debt related to
the bankruptcy proceedings of $187,000 and $598,000, respectively.

Dividends

        Peregrine made no cash distributions during 1997, 1996 or 1995. In
addition, Peregrine is substantially restricted from and does not anticipate
making any cash distributions to shareholders in the foreseeable future.



                                       17
<PAGE>   20



Significant Changes in the Economic Environment

        Changing interest rates are not expected to have a significant effect on
Peregrine's operations in 1998, as most of the Peregrine's debt obligations are
at fixed interest rates. During 1996 and 1997, both rental rates and real estate
values have increased; therefore, the effect of inflation is not expected to
have a significant effect on Peregrine's operations in 1998.

Year 2000

        The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of
Peregrine's computer programs or other date sensitive equipment may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations. Peregrine
has identified all significant computer applications and other date sensitive
equipment that will require modification to ensure Year 2000 compliance. The
total cost of the modifications is not expected to be material to the overall
financial statements of Peregrine.






                                       18
<PAGE>   21



--------------------------------------------------------------------------------
Item 8.  Financial Statements and Supplementary Data
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Index                                                                     Page
--------------------------------------------------------------------------------

<S>                                                                       <C>
Financial Statements

  Reports of Independent Accountants                                      20-22

  Balance Sheets                                                             23

  Statements of Operations                                                24-25

  Statements of Changes in Redeemable Convertible Preferred
    Stock and Shareholder's Equity (Deficit) Accounts Attributable
    to Common Shares of Beneficial Interest                               26-27

  Statements of Cash Flows                                                   28

  Notes to Financial Statements                                           29-47

Schedule III - Real Estate and Accumulated Depreciation                   60-64

Schedule IV - Mortgage Loans on Real Estate                               65-66
</TABLE>







                                       19
<PAGE>   22



DELOITTE & TOUCHE, LLP LETTERHEAD



                          INDEPENDENT AUDITORS' REPORT


To the Board Trustees
The Peregrine Real Estate Trust
Sacramento, California

We have audited the accompanying balance sheet of The Peregrine Real Estate
Trust (The Trust) as of December 31, 1997, and the related statements of (1)
operations, (2) changes in redeemable convertible preferred stock and
shareholders' equity (deficit) accounts attributable to common shares of
beneficial interest, and (3) cash flows for the year then ended. Our audit also
included the financial statement schedules related to 1997 listed in the index
at item 14. These financial statements and financial statement schedules are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedules based
on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Peregrine Real Estate Trust at December
31, 1997, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.


/s/  Deloitte & Touche, LLP


Sacramento, California
March 24, 1998





                                       20
<PAGE>   23



COOPERS & LYBRAND, L.L.P. LETTERHEAD



                        REPORT OF INDEPENDENT ACCOUNTANTS


The Board of Trustees
The Peregrine Real Estate Trust



We have audited the consolidated balance sheet of The Peregrine Real Estate
Trust (Peregrine) and Subsidiary (Trust) as of December 31, 1996, and the
consolidated statements of operations, changes in redeemable convertible
preferred stock and shareholders' equity (deficit) accounts attributable to
common shares of beneficial interest and cash flows for each of the years ended
December 31, 1996 and 1995. In connection with our audits of the consolidated
financial statements, we have also audited the columns related to 1996 and 1995
of the financial statement schedules as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 The
Peregrine Real Estate Trust and Subsidiary at December 31, 1996, and the
consolidated results of their operations and their cash flows for each of the
years ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles. Also in our opinion, the 1996 and 1995 columns of the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole present fairly, in all material respects,
the information set forth therein.




                                       21
<PAGE>   24



The accompanying consolidated financial statements and 1996 and 1995 columns of
the related financial statement schedules have been prepared assuming Peregrine
will continue as a going concern. As discussed in the last section of Note 11 to
the financial statements, Peregrine has reported continuing losses from
operations since emergence from bankruptcy, and must fund interest payable to
the Senior Lender Group and certain required hotel improvements. Peregrine
believes it will not maintain compliance in 1997 with the tangible net worth
covenant arising under its Line of Credit Facility, which is near capacity at
December 31, 1996, and matures in October 1997. Additionally, Peregrine has
received notices of default under its license agreements related to two of its
hotels, which if not cured may result in the loss of the Holiday Inn franchise
licenses. Loss of the hotel licenses may lead to defaults under the Line of
Credit and Senior Lender Note Agreements, and to substantial losses related to
asset impairment and certain license termination costs. Peregrine is also a
defendant in a case wherein the plaintiff alleges damages and other costs in
excess of $900,000. These matters raise substantial doubt about Peregrine's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 11. The consolidated financial statements and
1996 and 1995 columns of the related financial statement schedules do not
include any adjustments that might result from the outcome of these
uncertainties.


                                       /s/  Coopers & Lybrand, L.L.P.
                                       COOPERS & LYBRAND, L.L.P.



Sacramento, California
March 19, 1997









                                       22
<PAGE>   25



                         THE PEREGRINE REAL ESTATE TRUST
                                 BALANCE SHEETS
                           December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                         1997               1996
                                                                                         ----               ----
<S>                                                                                  <C>                <C>
                      ASSETS
Investments:
  Commercial and hotel properties, net of accumulated depreciation
    of $4,684,000 and $1,986,000 at December 31, 1997 and 1996, respectively         $  65,700,000      $  77,412,000
  Notes receivable, net of deferred gains of $79,000 and $319,000
    at December 31, 1997 and 1996, respectively                                            332,000          2,296,000
  Restricted marketable securities available-for-sale                                      117,000                 --
  Marketable securities available-for-sale                                                      --         14,115,000

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

                                                                                        66,149,000         93,823,000


Cash                                                                                     1,247,000          5,972,000
Restricted cash                                                                            183,000            986,000
Rents, accrued interest, and other receivables, net of allowance of $41,000
  and $1,153,000 at December 31, 1997 and 1996, respectively                               720,000          1,819,000
Other assets                                                                             1,584,000          2,126,000
                                                                                     -------------      -------------

        Total assets                                                                 $  69,883,000      $ 104,726,000
                                                                                     =============      =============

    LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities:
  Long-term notes payable, collateralized by deeds of trust on
    commercial properties                                                            $  24,291,000      $  32,263,000
  Senior Lender Group Notes Payable                                                     26,930,000         44,467,000
  Line of Credit                                                                         8,021,000          8,583,000
  Accounts payable and accrued liabilities                                               2,064,000          3,446,000
  Other liabilities                                                                        258,000            343,000
                                                                                     -------------      -------------

        Total Liabilities                                                               61,564,000         89,102,000

Commitments and contingencies (Note 11 to financial statements.)

Minority interest                                                                               --          5,759,000

Redeemable Convertible Preferred Stock: 25,000,000 shares authorized; 15,555,000
  and 14,073,000 shares issued and outstanding at December 31, 1997 and 1996,
  respectively; net of unaccreted discount of $1,595,000 and $1,881,000 at
  December 31, 1997 and 1996, respectively; liquidation preference of
  $31,110,000 and $28,146,000 at December 31, 1997 and 1996, respectively               29,515,000         26,265,000

Common Shares of Beneficial Interest:  50,000,000 shares authorized; 4,881,000
  shares outstanding at December 31, 1997 and 1996                                      13,356,000         13,356,000
Unrealized holding losses on marketable securities available-for-sale                           --            (22,000)
Accumulated deficit                                                                    (34,552,000)       (29,734,000)
                                                                                     -------------      -------------
        Total liabilities and shareholders' equity (deficit)                         $  69,883,000      $ 104,726,000
                                                                                     =============      =============
</TABLE>






                         See accompanying notes to financial statements.



                                       23
<PAGE>   26



                         THE PEREGRINE REAL ESTATE TRUST
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  Year Ended        Year Ended        Year Ended
                                                                December 31,      December 31,      December 31,
                                                                        1997              1996              1995
                                                                        ----              ----              ----
<S>                                                             <C>               <C>               <C>
Revenues:
  Hotel property                                                $ 13,504,000      $ 12,652,000      $ 12,816,000
  Commercial property                                              9,369,000        11,367,000        12,418,000
  Interest                                                           263,000         1,435,000         1,766,000
  Other                                                              334,000           128,000            77,000
                                                                ------------      ------------      ------------

                                                                  23,470,000        25,582,000        27,077,000
                                                                ------------      ------------      ------------

Expenses:
  Hotel property operating expenses                               10,499,000        10,424,000        10,964,000
  Commercial property operating expenses                           3,037,000         3,948,000         4,287,000
  Commercial and hotel property management fees                      510,000           761,000           633,000
  Depreciation and amortization                                    3,340,000         2,931,000         3,763,000
  Interest                                                         5,810,000         8,177,000         8,524,000
  General and administrative                                       3,181,000         5,088,000         4,194,000
                                                                ------------      ------------      ------------

                                                                  26,377,000        31,329,000        32,365,000
                                                                ------------      ------------      ------------

    (Loss) before reorganization items,
      gain (loss) on foreclosure or sale of
      investments, valuation losses, extraordinary
      item and minority interest                                  (2,907,000)       (5,747,000)       (5,288,000)

Reorganization items                                                      --           454,000        (1,000,000)
                                                                ------------      ------------      ------------

    (Loss) before gain (loss) on foreclosure or sale of
      investments, valuation losses,
      extraordinary item and minority interest                    (2,907,000)       (5,293,000)       (6,288,000)

Gain (loss) on foreclosure or sale of investments, net             1,358,000         1,580,000          (184,000)
                                                                ------------      ------------      ------------

    (Loss) before  valuation losses,
      extraordinary item and minority interest                    (1,549,000)       (3,713,000)       (6,472,000)

Valuation losses                                                    (459,000)       (4,278,000)       (9,526,000)
                                                                ------------      ------------      ------------

    (Loss) before extraordinary item
      and minority interest                                       (2,008,000)       (7,991,000)      (15,998,000)

Extraordinary item, forgiveness of debt                              440,000           187,000           598,000
                                                                ------------      ------------      ------------

    (Loss) before minority interest                               (1,568,000)       (7,804,000)      (15,400,000)

Minority interest                                                         --            99,000           667,000
                                                                ------------      ------------      ------------

  Net loss                                                      $ (1,568,000)     $ (7,705,000)     $(14,733,000)
                                                                ============      ============      ============
</TABLE>






                 See accompanying notes to financial statements.


                                       24
<PAGE>   27



                         THE PEREGRINE REAL ESTATE TRUST
                      STATEMENTS OF OPERATIONS (Continued)

                                   ----------


Loss per Common Share of Beneficial Interest:

<TABLE>
<CAPTION>
                                                               Year Ended     Year Ended    Year Ended
                                                             December 31,   December 31,  December 31,
                                                                     1997           1996          1995
                                                                     ----           ----          ----
<S>                                                           <C>           <C>            <C>
Net loss                                                      $(1,568,000)  $ (7,705,000)  $(14,733,000)

Preferred Stock dividends, net of discount                     (2,812,000)    (2,516,000)    (2,242,000)

Accretion of discount on Preferred Stock                         (438,000)      (355,000)      (289,000)
                                                              -----------   ------------   ------------

Net loss attributable to Common Shares of
  Beneficial Interest                                         $(4,818,000)  $(10,576,000)  $(17,264,000)
                                                              ===========   ============   ============

Loss per Common Share of Beneficial Interest
  before extraordinary item, basic and diluted                $     (1.08)  $      (2.21)  $      (3.66)


Extraordinary item per Common Share of
  Beneficial Interest, basic and diluted                             0.09           0.04           0.12
                                                              -----------   ------------   ------------

Net loss per share attributable to Common Shares
  of Beneficial Interest, basic and diluted                   $     (0.99)  $      (2.17)  $      (3.54)
                                                              ===========   ============   ============

Weighted average number of Common Shares
  of Beneficial Interest outstanding, basic and diluted         4,881,000      4,881,000      4,883,000
</TABLE>











                 See accompanying notes to financial statements.



                                       25
<PAGE>   28



                         THE PEREGRINE REAL ESTATE TRUST
STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS'
 EQUITY (DEFICIT) ACCOUNTS ATTRIBUTABLE TO COMMON SHARES OF BENEFICIAL INTEREST
               PERIOD FROM DECEMBER 31, 1994 TO DECEMBER 31, 1996

                                   ----------

<TABLE>
<CAPTION>
                                   Redeemable Convertible                       Shareholders' Equity (Deficit)
                                       Preferred Stock                Attributable to Common Shares of Beneficial Interest
                                   -----------------------    --------------------------------------------------------------------
                                                                                                  Unrealized Holding
                                                                    Shares of        Additional  Losses on Marketable
                                                               Beneficial Interest     Paid-In       Securities        Accumulated
                                     Number      Amount        Number       Amount     Capital    Available-For-Sale     Deficit
                                   ----------  -----------    ---------  -----------   -------    -----------------    ------------
<S>                                <C>         <C>            <C>        <C>           <C>            <C>             <C>
Balance at December 31, 1994       11,516,000  $20,863,000    4,884,000  $13,339,000   $    --        $     --        $ (1,894,000)

Net loss                                   --           --           --           --        --              --         (14,733,000)

Adjustments related to the
  buyout of old CET shares
  and fractional rounding                  --           --       (3,000)      17,000        --              --                 --

Issuance of dividend-in-kind on
  Redeemable Convertible
  Preferred Stock                   1,212,000    2,425,000           --           --        --              --          (2,425,000)

Discount on Redeemable
  Convertible Preferred Stock
  dividend-in-kind                         --     (183,000)          --           --        --              --             183,000

Accretion of discounts on
  Redeemable Convertible
  Preferred Stock                          --      289,000           --           --        --              --            (289,000)
                                   ----------  -----------    ---------  -----------   -------        --------        ------------

Balance at December 31, 1995       12,728,000   23,394,000    4,881,000   13,356,000        --              --         (19,158,000)

Net loss                                   --           --           --           --        --              --          (7,705,000)

Issuance of dividend-in-kind
  on Redeemable Convertible
  Preferred stock                   1,345,000    2,690,000           --           --        --              --          (2,690,000)

Discount on Redeemable
  Convertible Preferred Stock
  dividend-in-kind                         --     (174,000)          --           --        --              --             174,000

Accretion of discounts on
  Redeemable Convertible
  Preferred Stock                          --      355,000           --           --        --              --            (355,000)

Unrealized holding losses on
  marketable securities
  available-for-sale                       --           --           --           --        --         (22,000)                 --
                                   ----------  -----------    ---------  -----------   -------        --------        ------------

Balance at December 31, 1996       14,073,000  $26,265,000    4,881,000  $13,356,000   $    --        $(22,000)       $(29,734,000)
                                   ----------  -----------    ---------  -----------   -------        --------        ------------
</TABLE>


                 See accompanying notes to financial statements.


                                       26
<PAGE>   29



                         THE PEREGRINE REAL ESTATE TRUST
STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS'
 EQUITY (DEFICIT) ACCOUNTS ATTRIBUTABLE TO COMMON SHARES OF BENEFICIAL INTEREST
               PERIOD FROM DECEMBER 31, 1996 TO DECEMBER 31, 1997

                                   ----------

<TABLE>
<CAPTION>
                                   Redeemable Convertible                       Shareholders' Equity (Deficit)
                                       Preferred Stock                Attributable to Common Shares of Beneficial Interest
                                   -----------------------    --------------------------------------------------------------------
                                                                                                  Unrealized Holding
                                                                    Shares of        Additional  Losses on Marketable
                                                               Beneficial Interest     Paid-In       Securities        Accumulated
                                     Number      Amount        Number       Amount     Capital    Available-For-Sale     Deficit
                                   ----------  -----------    ---------  -----------   -------    -----------------    ------------
<S>                                <C>         <C>            <C>        <C>           <C>            <C>             <C>
Balance at December 31, 1996       14,073,000  $26,265,000    4,881,000  $13,356,000   $    --        $(22,000)       $(29,734,000)

Eliminate unrealized holding
  losses on marketable
  securities available-for-sale
  attributable to CalREIT(1)               --           --           --           --        --          22,000                  --

Net loss                                   --           --           --           --        --              --          (1,568,000)

Issuance of dividend-in-kind on
  Redeemable Convertible
  Preferred Stock                   1,482,000    2,964,000           --           --        --              --          (2,964,000)

Discount on Redeemable
  Convertible Preferred Stock
  dividend-in-kind                         --     (152,000)          --           --        --              --             152,000

Accretion of discounts on
  Redeemable Convertible
  Preferred Stock                          --      438,000           --           --        --              --            (438,000)
                                   ----------  -----------    ---------  -----------   -------        --------        ------------


Balance at December 31, 1997       15,555,000  $29,515,000    4,881,000  $13,356,000   $    --        $     --        $(34,552,000)
                                   ==========  ===========    =========  ===========   =======        ========        ============
</TABLE>


(1) Amount is eliminated to reflect Peregrine's sale of its 76% stock ownership
    interest in CalREIT on January 3, 1997.



                 See accompanying notes to financial statements.


                                       27
<PAGE>   30



                         THE PEREGRINE REAL ESTATE TRUST
                            STATEMENTS OF CASH FLOWS

                                   ----------

<TABLE>
<CAPTION>
                                                             Year Ended         Year Ended         Year Ended
                                                           December 31,       December 31,       December 31,
                                                                   1997               1996               1995
                                                                   ----               ----               ----
<S>                                                        <C>                <C>                <C>
Cash flows from operating activities:
  Net loss                                                 $ (1,568,000)      $ (7,705,000)      $(14,733,000)
                                                           ------------       ------------       ------------
  Adjustments to reconcile net loss to net cash
    (used in) provided by operating activities:

      Interest, fees and reimbursable expenses added
        to principal balance of debt                            507,000          3,881,000          4,258,000
      Depreciation and amortization                           3,340,000          2,931,000          3,763,000
      (Gain) loss on foreclosure or sale of
        investments, net                                     (1,358,000)        (1,580,000)           184,000
      Minority interest in net loss                                  --            (99,000)          (667,000)
      Extraordinary item, forgiveness of debt                  (440,000)          (187,000)          (598,000)
      Valuation losses                                          459,000          4,278,000          9,526,000
      Changes in other assets and liabilities:
      Decrease (increase) in rents, accrued interest,
        and other receivables                                   423,000           (343,000)           (55,000)
      Increase in other assets                                 (569,000)          (719,000)          (335,000)
      Decrease in accounts payable and accrued
        liabilities                                            (909,000)        (2,178,000)          (641,000)
      (Decrease) increase in other liabilities                  (15,000)          (190,000)           162,000
                                                           ------------       ------------       ------------

            Total adjustments                                 1,438,000          5,794,000         15,597,000
                                                           ------------       ------------       ------------

            Net cash (used in) provided by
              operating activities                             (130,000)        (1,911,000)           864,000
                                                           ------------       ------------       ------------

Cash flows from investing activities:
  Purchase of marketable securities                          (3,127,000)       (15,849,000)                --
  Proceeds from the sale and maturity of
    marketable securities                                     3,010,000          1,712,000                 --
  Proceeds from the sale of investments, net of
    $4,698,000 in cash attributable to CalREIT               16,812,000         20,062,000             99,000
  Improvements to commercial and hotel properties            (1,303,000)        (2,513,000)        (2,353,000)
  Purchase of office equipment                                  (49,000)           (15,000)                --
  Principal collections on notes receivable                     390,000             54,000          2,030,000
                                                           ------------       ------------       ------------

            Net cash provided by (used in)
              investing activities                           15,733,000          3,451,000           (224,000)
                                                           ------------       ------------       ------------

Cash flows from financing activities:
  Principal payments on long-term notes payable              (2,511,000)          (166,000)          (430,000)
  Principal payments on Senior Lender Group
    Notes Payable                                           (17,537,000)        (1,818,000)        (1,024,000)
  (Repayments) borrowings on Line of Credit, net             (1,083,000)         2,138,000            395,000
  Decrease (increase) in restricted cash                        803,000           (801,000)           132,000
                                                           ------------       ------------       ------------

            Net cash used in financing activities           (20,328,000)          (647,000)          (927,000)
                                                           ------------       ------------       ------------

Net (decrease) increase in cash                              (4,725,000)           893,000           (287,000)
Cash, beginning of period                                     5,972,000          5,079,000          5,366,000
                                                           ------------       ------------       ------------

Cash, end of period                                        $  1,247,000       $  5,972,000       $  5,079,000
                                                           ============       ============       ============
</TABLE>




                 See accompanying notes to financial statements.



                                       28
<PAGE>   31



                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

1.  Organization, Summary of Significant Accounting Policies and Chapter 11
    Proceedings

                                  Organization

        The Peregrine Real Estate Trust ("Peregrine" or the "Trust") (fka
Commonwealth Equity Trust) was organized under the laws of the State of
California pursuant to a Declaration of Trust dated July 31, 1973, and pursuant
to a Plan of Reorganization (the "Plan") under Chapter 11 of the United States
Bankruptcy Code was reorganized under a Restated Declaration of Trust dated
October 7, 1994 (the "Effective Date").

        At December 31, 1997, Peregrine owned eighteen commercial properties
located primarily in the Sacramento area, three hotel properties located in
Northern California, a partnership interest, and one mortgage note secured by
real property. Peregrine's 76% stock ownership interest in the California Real
Estate Investment Trust ("CalREIT") was sold on January 3, 1997 for $20,222,000
in cash.

                           Principles of Consolidation

        For the year ended December 31, 1997, the financial statements represent
the accounts of Peregrine only, as Peregrine's 76% stock ownership interest in
CalREIT was sold on January 3, 1997. For the year ended December 31, 1996 and
1995, the financial statements include the accounts of Peregrine and CalREIT on
a consolidated basis.

               Plan of Reorganization Under Chapter 11 Proceedings

        On August 2, 1993, Peregrine filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code, which case was heard in the
United States Bankruptcy Court for the Eastern District of California,
Sacramento Division, as In re Commonwealth Equity Trust Case No. 93-26727-C-11.
The proximate cause of Peregrine's filing a petition for reorganization was its
falling out of compliance with a restructuring agreement entered into on July
17, 1992 with a lender group. CalREIT did not file for protection under Chapter
11.

        On June 9, 1994, Peregrine, the lender group, which included the
Prudential Insurance Company of America, Pacific Mutual Life Insurance Company,
ORIX USA Corporation, and Trust Company of the West, (collectively the "Senior
Lender Group"), the Official Committee of Holders of Equity Interests, and the
Official Committee of Creditors Holding Unsecured Claims, filed with the Court
the Third Amended Plan of Reorganization which was subsequently modified by the
First, Second, Third and Fourth Set of Plan Modifications, filed on July 13,
1994, July 20, 1994, July 29, 1994 and August 2, 1994, respectively. The Third
Amended Plan of Reorganization as modified (the "Plan of Reorganization" or the
"Plan") was confirmed in all respects on August 8, 1994.

        The Effective Date of the Plan (the date on which Peregrine emerged from
bankruptcy) was October 7, 1994. Peregrine is under the jurisdiction of the
United States Bankruptcy Court until entry of a final decree which is expected
to occur in late 1998.



                                       29
<PAGE>   32



                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

1.  Organization, Summary of Significant Accounting Policies and Chapter 11
    Proceedings, continued

         Plan of Reorganization Under Chapter 11 Proceedings, continued

        The Plan provided for inter alia: (a) the restructuring of virtually all
of the Peregrine's secured and unsecured debt; (b) the reduction in the number
of Common Shares of Beneficial Interest held by current shareholders from
approximately 25,100,000 ("old") shares to 2,334,000 ("new") shares (effectively
a reverse stock split); and the issuance of 2,550,000 new Common Shares of
Beneficial Interest, as well as a new class of Redeemable Convertible Preferred
Stock, to the Senior Lender Group. The authorized number of new Common Shares of
Beneficial Interest is 50,000,000. From the Effective Date, the Senior Lender
Group owns a majority of the new Common Shares of Beneficial Interest
(approximately 52%) and all of the new Redeemable Convertible Preferred Stock
("Preferred Stock" or "Preferred Shares"). The Senior Lender Group also received
restructured secured notes in the aggregate original principal amount of
$40,000,000.

                             Fresh Start Accounting

        Under the principles of fresh start accounting, all of Peregrine's
assets and liabilities were restated to reflect their reorganization value which
approximated fair value at the date of the reorganization, October 7, 1994. As a
result of the implementation of fresh start accounting, the statements of
operations of the Trust after the consummation of the Plan are not comparable to
the Trust's statements of operations for prior periods.

                         Commercial and Hotel Properties

        The Trust's commercial and hotel properties are recorded at
reorganization value net of accumulated depreciation and impairment losses
("valuation losses") recognized since the Effective Date, unless they are
CalREIT assets, in which case they are carried at cost, net of accumulated
depreciation and impairment losses recognized. The valuation allowance for
possible investment losses represents the excess of the carrying value of
individual properties over their appraised or estimated fair value (less
estimated selling costs if held for sale).

        Impairment losses (valuation losses) are recorded after consideration of
various external factors that may affect fair value of such assets, particularly
overbuilt real estate markets resulting in declining lease rates which adversely
affect real estate. Generally, fair values are estimated using discounted cash
flow, direct capitalization, and market comparison analyses. A gain or loss will
be recorded to the extent that the amounts ultimately realized from property
sales differ from those currently estimated. In the event economic conditions
for real estate decline, additional valuation losses may be recognized in the
near term.

         The allowance for depreciation and amortization has been calculated
under the straight-line method based upon the estimated useful lives of the
properties. CalREIT assets lives range from 30 to 40 years. As of the Effective
Date, new useful lives were estimated for all Peregrine rental properties. These
lives range from 24 to 34 years. Expenditures for maintenance, repairs and
betterments which do not materially prolong the normal useful life of an asset
are charged to operations as incurred. Expenditures which prolong the useful
life of an asset are capitalized and depreciated.



                                       30
<PAGE>   33



                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

1.  Organization, Summary of Significant Accounting Policies and Chapter 11
    Proceedings, continued

                   Commercial and Hotel Properties, continued

        Real estate acquired by cancellation of indebtedness or foreclosure is
recorded at fair market value at the date of acquisition.

        No depreciation is taken on assets classified as "held-for-sale".

                              Partnership Interests

        Partnership investments of 20% to 50% are accounted for by the equity
method. Under this method, the investments are recorded at initial cost and
increased for partnership income and decreased for partnership losses and
distributions.

                              Marketable Securities

        At December 31, 1997 and 1996, marketable securities are classified as
"available-for-sale" and are measured at fair value in the balance sheet.
Unrealized holding gains and losses are excluded from earnings and reported as a
separate component of shareholders' equity (deficit) until realized.

                                  Other Assets

        The Trust amortizes leasing commissions on a straight-line basis over
the lives of the leases to which they relate. Financing costs are amortized over
the lives of the loans or other financial instruments to which they relate.
Corporate furniture, fixtures, and equipment in excess of $500 are capitalized
and depreciated on a straight-line basis over their estimated useful lives.

                                  Income Taxes

        In 1977, Peregrine elected to be and was taxed as a REIT through the
year ended September 30, 1992. During the year ended September 30, 1993,
Peregrine did not qualify to be taxed as a REIT. The termination of its REIT
status is effective as of October 1, 1992.

        Deferred taxes are recorded based on the differences between financial
statement and income tax bases of assets and liabilities and available loss or
credit carryforwards. A "Valuation Allowance" is recorded against deferred tax
assets unless it is more likely than not that the asset will be realized in the
future.

                                      Cash

        The Trust invests its cash in demand and time deposits with banks with
strong credit ratings. Bank balances in excess of federally insured amounts
totaled $1,581,000 and $7,267,000 as of December 31, 1997 and 1996,
respectively. The Trust has not experienced any losses on these deposits.



                                       31
<PAGE>   34



                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

1.  Organization, Summary of Significant Accounting Policies and Chapter 11
    Proceedings, continued

                           Interest Income Recognition

        The Trust recognizes interest income on notes receivable when it is
estimated that the fair value of the collateral related to the note is adequate.

                                    Estimates

        The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

                            Stock-Based Compensation

        Peregrine has elected to continue to account for stock-based
compensation under the provisions of Accounting Principles Board Opinion No. 25
and adopt the disclosure-only provisions of Statement of Financial Accounting
Standard No. 123 ("SFAS 123"). Accordingly, the compensation costs of stock
options are measured using the intrinsic value-based method, whereby the excess,
if any, of the fair value of Peregrine's stock at the date of the grant over the
amount an employee must pay to acquire the stock represents compensation cost.
Had compensation costs for Peregrine's stock-based compensation been determined
using fair value of the options at the grant date, as prescribed by SFAS 123,
Peregrine's net loss would be unchanged for the years ending December 31, 1997,
1996 and 1995 because the fair value of the options granted is deemed to be de
minimus.

                               Net Loss Per Share

        Net loss per Common Share of Beneficial Interest, basic and diluted, has
been computed and presented in accordance with Statement of Financial Accounting
Standard No. 128, "Earnings Per Share", ("SFAS 128") which was issued in
February 1997. The weighted-average number of Common Shares of Beneficial
Interest outstanding during the years ended December 31, 1997, 1996 and 1995,
was 4,881,000, 4,881,000, and 4,883,000, respectively. Common Shares of
Beneficial Interest equivalents are anti-dilutive for the year ended December
31, 1997, 1996, and 1995, and are not considered in calculating net loss per
Common Share of Beneficial Interest.

                                Reclassifications

        Certain reclassifications have been made in the presentation of the
December 31, 1996 and 1995 financial statements to conform to the 1997
presentation.




                                       32
<PAGE>   35



                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

2.  Commercial and Hotel Properties

        At December 31, 1997 and 1996, the property portfolio at
reorganization value or adjusted cost included retail shopping centers,
$25,821,000 and $35,053,000, respectively; office buildings, $16,739,000 and
$16,235,000, respectively; industrial buildings, $7,259,000 and $8,101,000,
respectively; mini-storage facilities, $2,822,000 and $2,808,000, respectively;
land, $0 and $30,000, respectively; and hotels, $17,743,000 and $17,171,000,
respectively.

        Under fresh start accounting, all Peregrine properties were
adjusted at the Effective Date to reorganization value which is different than
tax basis.

        Peregrine's noncancellable operating leases at December 31, 1997,
provide for minimum rental income during each of the next five years of
$6,903,000, $5,855,000, $5,067,000, $3,491,000, and $1,801,000, respectively,
and $3,925,000 thereafter. Certain of the leases increase periodically based on
changes in the Consumer Price Index.

        Contingent rental income was $33,000, $28,000, and $27,000 during 1997,
1996, and 1995, respectively.

        At December 31, 1997, no commercial or hotel properties were classified
as held-for-sale. At December 31, 1996, 3900 Lennane Drive and CalREIT's two
directly owned properties with total carrying values of $1,895,000 and
$8,585,000, respectively, were classified as held-for-sale.


3.  Partnership Interests

        Peregrine is a partner in CR Properties, a general partnership, in which
Peregrine owns a 50% interest. CR Properties is a limited partner in a
partnership which owns an office building in Sacramento, California. No portion
of the CR Properties partnership loss has been recognized in the Trust's
financial statements for the year ended December 31, 1997, 1996, and 1995 as the
partnership agreement specifies that net losses shall be allocated 100% to the
other partner. As CR Properties has a limited partnership interest, it has no
contingent liability with respect to the office building debt.

           Investment in CR Properties general partnership, at
             reorganization value                                     $    --
                                                                       ======

        In 1996, Peregrine was a partner in Placer Ranch Partners, a limited
partnership in which Peregrine owned a 31% limited partnership interest. The
Partnership owned an undeveloped parcel of land in the Stanford Ranch area of
Rocklin, California. During the first quarter of 1996 the General Partner
exercised a Put/Call Option. In accordance with the terms of the Agreement, the
Put/Call Option required that Peregrine sell its interest to the General Partner
or purchase the General Partners interest. In July 1996, after investigation and
analysis, and due to capital constraints, Peregrine sold its 31% interest to the
General Partner for $2,739,000, which resulted in the recognition of a $129,000
gain.


                                       33
<PAGE>   36



                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

4.  Notes Receivable

        In order to facilitate sales of real estate, the Trust has accepted
partial payment in the form of notes receivable collateralized by deeds of
trust. As of December 31, 1997 and 1996, the Trust had long-term notes
receivable collateralized by deeds of trust in the face amounts of $411,000 and
$8,778,000, respectively. Generally the notes are collateralized by real estate
properties in California.

        The notes are to be repaid from the cash flow of the property or
proceeds from the sale or refinancing of the property. Contractually scheduled
principal collections on Peregrine's note portfolio in the face amount of
$411,000 over the next five years, are as follows:

<TABLE>
                          <S>                 <C>
                          1998                $   6,000
                          1999                    6,000
                          2000                    7,000
                          2001                    8,000
                          2002                    9,000
                          Thereafter            375,000
                                              ---------
                                              $ 411,000
                                              =========
</TABLE>

        The note bears interest at an annual rate of 9.50% as of December 31,
1997. For 1997, the overall effective rate of interest on notes receivable was
approximately 10.50%.

        At December 31, 1997, no notes receivable were classified as
held-for-sale. At December 31, 1996, all notes receivable directly owned by
CalREIT with a carrying value of $1,576,000, were classified as held-for-sale.


5.  Investment in Marketable Securities Available-for-Sale

        At December 31, 1997, Peregrine had $117,000 invested in marketable
securities, which were restricted. The funds represent a portion of an indemnity
trust fund (the "Indemnity Trust Fund") which was established to fund possible
indemnification obligations with respect to Peregrine's former Trustees and
officers. The Indemnity Trust Fund, which is managed by an independent
third-party trustee, is restricted as to use for a period of three years ending
May 29, 2000, as defined in the Indemnity Trust Agreement. At December 31, 1997,
Peregrine's available-for-sale securities consisted of U.S Treasury Notes and
investment grade commercial paper whose interest rates range from 5.625% to
5.70% and whose maturity dates range from January 5, 1998 to January 31, 1998.
Unrealized gains and losses on marketable securities are not significant at
December 31, 1997. At December 31, 1996, CalREIT had $14,115,000 invested in
U.S. Government mortgage-backed securities classified as available-for-sale.



                                       34
<PAGE>   37



                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

5.  Investment in Marketable Securities Available-for-Sale, continued

        Interest income recognized during 1997, 1996, and 1995 on marketable
securities available-for-sale was $6,500, $392,000, and $0, respectively.

6.  Restricted Cash

        At December 31, 1997, cash of $183,000 was restricted. Such funds
represent the cash balance in the Indemnity Trust Fund discussed above in Note
5, and the balance of the net proceeds from the sale of certain of Peregrine's
assets, which is due to the Senior Lender Group. At December 31, 1996,
restricted cash of $986,000, representing the balance of the net proceeds from
the sale of certain assets of Peregrine, was held in an escrow account for the
benefit of the Senior Lender Group.


7.  Valuation Allowances

        The Trust adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121") on January 1, 1996. SFAS 121
requires that an impairment be recognized to reduce the carrying amount of
long-lived assets (including certain identifiable intangibles) to their
estimated fair value whenever events or changes circumstances indicate that such
carrying amount may not be recoverable. Upon implementation of SFAS 121 on
January 1, 1996, all previously recorded valuation losses (and accumulated
depreciation) were combined with the cost of the asset; and the resulting amount
was accounted for as its new cost. Upon the recognition of further impairments,
valuation losses (and accumulated depreciation) are combined with the cost of
the asset.

      Analysis of changes in the allowance for possible losses on real estate
investments, partnership interests, notes receivable, and rents, accrued
interest and other receivables for the years ended December 31, 1997, 1996, and
1995 is as follows:

<TABLE>
<CAPTION>
                                      Year Ended         Year Ended        Year Ended
                                    December 31,       December 31,      December 31,
                                            1997               1996              1995
                                            ----               ----              ----
<S>                                    <C>             <C>                <C>
Commercial and Hotel Properties
Allowance for valuation losses on
  commercial and hotel properties:

Beginning balance                      $      --       $ 12,963,000       $ 5,863,000
Provision for valuation losses           459,000          2,888,000         7,100,000
SFAS 121 adjustments                    (459,000)       (15,851,000)               --
                                       ---------       ------------       -----------

Ending balance                         $      --       $         --       $12,963,000
                                       =========       ============       ===========
</TABLE>



                                       35
<PAGE>   38
                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

7.  Valuation Allowances, continued

<TABLE>
<CAPTION>
                                                     Year Ended        Year Ended        Year Ended
                                                   December 31,      December 31,      December 31,
                                                           1997              1996              1995
                                                           ----              ----              ----
<S>                                                 <C>               <C>               <C>
Partnership Investments
Allowance for valuation losses on
  partnership investments:

  Beginning balance                                 $        --       $        --       $        --
  Provision for valuation losses                             --         1,390,000                --
  SFAS 121 adjustments                                       --        (1,390,000)               --
                                                    -----------       -----------       -----------

  Ending balance                                    $        --       $        --       $        --
                                                    ===========       ===========       ===========

Notes Receivable
Allowance for valuation losses,
  unaccreted discounts and deferred
  gains on notes receivable:

  Beginning balance                                 $   319,000       $ 9,466,000       $ 7,317,000
  Elimination of CalREIT deferred gains(1)             (239,000)               --                --
  Provision for valuation losses                             --                --         2,426,000
  Recognition of deferred gains                          (1,000)          (55,000)          (66,000)
  Amounts charged against
     allowance for losses                                    --                --          (211,000)
  SFAS 121 adjustments                                       --        (9,092,000)               --
                                                    -----------       -----------       -----------

  Ending balance                                    $    79,000       $   319,000       $ 9,466,000
                                                    ===========       ===========       ===========

Rents, Accrued Interest, and Other Receivables
Allowance for bad debt losses on rents,
  accrued interest, and other receivables:

  Beginning balance                                 $ 1,153,000       $ 1,040,000       $   285,000
  Elimination of CalREIT allowances(1)               (1,001,000)
  Provision for losses                                   60,000           841,000         1,391,000
  Recoveries                                            (40,000)          (24,000)               --
  Amounts charged against
     allowance for losses                              (131,000)         (704,000)         (636,000)
                                                    -----------       -----------       -----------

  Ending balance                                    $    41,000       $ 1,153,000       $ 1,040,000
                                                    ===========       ===========       ===========
</TABLE>

(1) Amount is deducted to reflect Peregrine's sale of its 76% stock ownership
    interest in CalREIT on January 3, 1997.




                                       36
<PAGE>   39


                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

8.  Long-Term Notes Payable Collateralized by Deeds of Trust on Commercial
    Properties

        At December 31, 1997 and 1996, the Trust had long-term notes payable,
with a face value of $24,291,000 and $32,263,000, respectively, which are
collateralized by first deeds of trust on commercial properties, whose net book
value at December 31, 1997 and 1996, totaled $28,102,000 and $38,695,000,
respectively. The long-term notes payable of $24,291,000 at December 31, 1997,
are due in installments extending to the year 2008, with interest rates ranging
from 8.50% to 10.00%. Contractually scheduled principal payments related to
these long-term notes during each of the next five years, are $339,000,
$372,000, $409,000, $448,000, and $19,722,000, respectively, and $3,001,000
thereafter.

        The office building located at 3900 Lennane Drive, comprising
approximately 45,000 square feet, has been vacant since early 1995. In early
1997, after all efforts to lease the property failed, Peregrine's management
team and Board of Trustees made the decision to cease debt service payments on
the property and allow the lender to commence with foreclosure proceedings. In
June 1997, Peregrine reached an agreement with the first mortgage note lender on
the 3900 Lennane Drive property to purchase the mortgage note and related
obligations at a discount. The difference between the purchase price and the
unpaid balance of the note, accrued interest and other obligations at the time
of the repurchase was approximately $418,000, which was recorded as income from
forgiveness of debt.

9.  Senior Lender Group Notes Payable

        In accordance with the Plan of Reorganization, restructured notes
payable in the face amount of $40,000,000, which bear interest at 8.5% per annum
and are due on October 1, 2000, were issued to the Senior Lender Group in
partial satisfaction of the approximately $80,000,000 obligation owed to them.
Interest was payable in-kind through September 30, 1996, by means of interest
deferral notes issued quarterly. Since September 30, 1996, interest has been
payable monthly in cash, with the first payment commencing November 1, 1996.

        The restructured notes payable and interest deferral notes
(collectively, the "Senior Lender Group Notes Payable" or "Senior Lender Group
Notes") are collateralized generally by all interests of Peregrine in real and
personal property and are subordinated only to certain liens. The Senior Lender
Group Notes contain certain covenants and restrictions and limit Peregrine's
ability to incur additional indebtedness and provide for the mandatory
prepayment of principal in the amount of 80% of the net proceeds from the sale
of the collateral for the Senior Lender Group Notes and from other specified
sources. In addition, there are covenants related to events or conditions
which could have or result in a material adverse effect as defined in the
applicable agreement.

        Senior Lender Group Notes Payable in the face amount of $26,930,000 and
$44,467,000 were outstanding at December 31, 1997 and 1996, respectively.



                                       37
<PAGE>   40



                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

10.  Line of Credit

        On October 7, 1997, Peregrine's line of credit (the "Old Line of
Credit"), with a maximum borrowing of $8,600,000, matured. Prior to the maturity
date, Peregrine began negotiations with the lender to extend the maturity date
of the Old Line of Credit because Peregrine did not have sufficient capital
resources to repay amounts outstanding under the Old Line of Credit. Peregrine
did not agree to the terms of the extension agreement proposed and did not make
the required payment on the Old Line of Credit on the maturity date, resulting
in an event of default on the Old Line of Credit and the Senior Lender Group
Notes, which was cured on December 9, 1997, when the outstanding balance on the
Old Line of Credit was paid in full.

        On December 4, 1997, Peregrine entered into a loan and security
agreement with a new lender to provide Peregrine with a revolving line of credit
(the "Line of Credit") with a maximum borrowing of $20,000,000. The Line of
Credit is collateralized by a first lien on certain Peregrine properties, is a
revolving facility and bears interest at prime plus 25 basis points or LIBOR
plus 225 basis points. The Line of Credit, which matures on September 30, 2000
was used to pay the outstanding balance on the Old Line of Credit, and the
remaining borrowing capacity is available to Peregrine to complete capital
improvements on the commercial and hotel properties. The Line of Credit contains
certain covenants and restrictions and limits Peregrine's ability to incur
additional indebtedness, declare or make distributions, and make prepayments on
the Senior Lender Group Notes and first mortgage notes. In addition, there are
covenants related to events or conditions which could have or result in a
material adverse effect as defined in the applicable agreement. The Line of
Credit also requires that Peregrine maintain certain debt service coverage
ratios beginning June 30, 1998.

        At December 31, 1997, $8,021,000 was outstanding on the Line of Credit
of which $7,929,000 bore interest at a rate of 8.6875% and $92,000 bore interest
at a rate of 8.75%.

        At December 31, 1996, $8,583,000 was outstanding on the Old Line of
Credit at a rate of 10.50%.

        The weighted average interest rate under the Line of Credit and Old Line
of Credit during 1997 and 1996, was approximately 10.98% and 10.52%,
respectively.


11.  Commitments and Contingencies

                                     Leases

        Peregrine is obligated under a land lease to the year 2019. For each of
the next five years the minimum annual payment under the lease is $35,000, and
$581,000 thereafter. Total ground lease expense was $41,000, $38,000, and
$35,000, during the years ended December 31, 1997, 1996 and 1995, respectively.

        During 1995, CalREIT entered into a three year, non-cancelable operating
lease for facilities in San Francisco, California. Rent expense under the
operating lease was $40,000 in 1996 and $30,000 in 1995.



                                       38
<PAGE>   41



                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

11.  Commitments and Contingencies, continued

                              Capital Expenditures

        At December 31, 1997, Peregrine is required by Holiday Inn, under the
License Agreements, to perform certain refurbishments at the Sacramento and
Walnut Creek hotels in order to comply with Holiday Inn standards. At December
31, 1997, the capital expenditures necessary to complete the required
refurbishments are estimated at approximately $2,700,000 and $750,000 for the
Sacramento and Walnut Creek hotels, respectively. If the required refurbishments
are not completed in a timely manner or should they not meet Holiday Inn's
standards, Holiday Inn may assert that Peregrine is in default of the License
Agreement and Holiday Inn could attempt to terminate the License Agreement. If
the License Agreement is terminated, it could constitute events of default under
both the Line of Credit and Senior Lender Group Notes and could result in
termination fees payable to Holiday Inn of approximately $1,100,000 with respect
to the Sacramento hotel and approximately $900,000 with respect to the Walnut
Creek hotel.

                                   Litigation

        At December 31, 1997, Peregrine was a party to a number of lawsuits
which are not expected to be material to the overall financial statements of
Peregrine.

               Financial Status of The Peregrine Real Estate Trust

        At December 31, 1996 there was substantial doubt about Peregrine's
ability to continue as a going concern because of the following matters which
existed of that date:

        o      Large cumulative losses from operations and valuation losses
               against investments;

        o      The failure to complete refurbishment of Peregrine's hotel
               properties which resulted in Peregrine's receiving notice of
               default from Holiday Inn for the Chico and Sacramento hotels in
               February 1997;

        o      Interest payable in cash on Peregrine's Senior Lender Group Notes
               which commenced November 1, 1996;

        o      The pending maturity of Peregrine's Old Line of Credit;

        o      The anticipation that Peregrine would not remain in compliance
               with certain of the Old Line of Credit's financial covenants;

        o      A legal action brought by MDC REIT Holdings, LLC in which
               Peregrine was named as a defendant.



                                       39
<PAGE>   42



                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

11.  Commitments and Contingencies, continued

        The December 31, 1996 financial statements do not include any
adjustments that might have resulted from the outcome of these uncertainties.

        During 1997 Peregrine:

        o      Had a net loss for 1997 of $1,568,000, compared to a net loss for
               1996 and 1995 of $7,705,000 and $14,733,000, respectively;

        o      Completed the required hotel refurbishments at the Chico hotel
               and the refurbishments are underway at the Sacramento hotel.
               Peregrine received written notice from Holiday Inn that the
               default with respect to Chico has been cured and has received an
               extension of time to complete the Sacramento refurbishments;

        o      Obtained a new $20,000,000 Line of Credit (see Note 10 to
               financial statements) and retired the Old Line of Credit in
               December 1997;

        o      Settled its litigation with MDC REIT Holdings, LLC.

        At December 31, 1997, management of Peregrine believes, because of these
events in 1997 and the improving conditions of the economy and the commercial
and hotel industries, it will be able to fund its day-to-day business
operations, and meet its debt service obligations on its first mortgage notes
and Senior Lender Group notes through the next twelve months.



12.  Redeemable Convertible Preferred Stock

        Peregrine's Redeemable Convertible Preferred Stock in the original face
amount of $22,500,000, carries a dividend of 10% per annum. Dividends are
payable in kind through October 1, 1998, by means of additional shares of
Preferred Stock issued quarterly; thereafter, dividends are payable quarterly in
cash. The Preferred Stock automatically converts into Common Shares of
Beneficial Interest pursuant to an established formula if any dividend payment
is not made in full when due. If all dividends are paid in kind through
September 30, 1998, no other Common Shares of Beneficial Interest are issued,
and the Preferred Stock dividends payable in cash on December 31, 1998 are not
paid prior to April 10, 1999, the Preferred Stock would convert to Common Shares
of Beneficial Interest on April 10, 1999, and the Senior Lender Group would, on
account of that conversion, acquire approximately 78% of the total Common Shares
of Beneficial Interest outstanding after the conversion, bringing their total
holdings to approximately 90% of the outstanding shares. It is anticipated that
Peregrine will be unable to pay the Preferred Stock dividend in cash commencing
with the December 31, 1998 dividend due to the Line of Credit covenants and
restrictions, and as a result, the Preferred Stock will automatically convert to
Common Shares of Beneficial Interest on April 10, 1999.



                                       40
<PAGE>   43
                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

12.  Redeemable Convertible Preferred Stock, continued

        The Preferred Stock is redeemable in cash (total redemption value of
$31,110,000 at December 31, 1997) on October 1, 2000, but in certain
circumstances, including the sale of all or substantially all the assets of
Peregrine, may be redeemed earlier.

        The Preferred Stock has been recorded at a discount to its face amount
of $31,110,000, based on an imputed rate of return of 12%.


13.  Distributions

        No cash distributions were made to holders of Common Shares of
Beneficial Interest for the years ended December 31, 1997, 1996 and 1995, and
under the terms of the agreement with respect to the Senior Lender Group Notes
and the Line of Credit, Peregrine is substantially restricted from and does not
anticipate making any distributions to shareholders in the foreseeable future.


14.  Related-Party Transactions

        Peregrine's former subsidiary, CalREIT, was self-administered. During
1996, Peregrine and CalREIT shared certain costs, including personnel costs, for
which CalREIT reimbursed Peregrine pursuant to a cost allocation agreement based
on respective asset values. In 1996 and 1995, reimbursable costs charged by
Peregrine to CalREIT approximated $247,000 and $435,000, respectively.

        For 1996 and 1995, such reimbursements have been offset against any
amounts due to CalREIT and eliminated in the consolidation. At December 31, 1997
and 1996, Peregrine had amounts due from CalREIT aggregating $7,000 and $31,000,
respectively.

        In January 1997, following Peregrine's sale of its 76% stock ownership
interest in CalREIT, the cost allocation agreement between Peregrine and CalREIT
was terminated. Subsequent to the termination of the cost allocation agreement,
Peregrine charged CalREIT $1,600 for direct services provided by Peregrine
employees based upon computed hourly rates, including taxes and benefits.

        During a portion of 1997, and 1996, Peregrine utilized the services of
certain of its former independent Trustees in connection with an analysis of
alternative operating strategies, asset dispositions, and day-to-day management
activities. In connection with the consulting services performed, the following
amounts were paid to such former Trustees (or affiliated companies) during 1997
and 1996:

<TABLE>
<CAPTION>
                                                                     1997        1996
                                                                     ----        ----
<S>                                                                 <C>         <C>
        The McMahan Group (John McMahan, former Trustee)            $ 9,000     $69,000
        John McMahan, former Trustee                                     --      68,000
        John F. Salmon, former Trustee                                6,000      49,000
        The Presidio Group (Kenneth T. Seeger, former Trustee)       59,000      41,000
        Hickey & Hill, Inc. (E. Lawrence Hill, Jr., former Trustee)   5,000          --
</TABLE>



                                       41
<PAGE>   44



                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

14.  Related-Party Transactions, continued

        In addition, Peregrine paid $10,000 to Mr. Roger D. Snell during 1996
for independent consulting services performed prior to his election to the Board
of Trustees in February 1997 and prior to his employment as the Trust's
President and Chief Executive Officer in May 1997.

        During 1996, CalREIT paid $140,000 in compensation to one of its
independent Trustees, Elliot G. Steinberg, in connection with CalREIT's
strategic growth activities, and accrued $180,000 in deferred compensation for
1996, to Frank A. Morrow, the then Chairman of the Board and Chief Executive
Officer, which was paid in March 1997.


15.  Gain (Loss) on Foreclosure or Sale of Investments:

        Components of the gain (loss) on foreclosure or sale of investments for
the years ended December 31, 1997, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                                                     (In Thousands)
                                                       Year Ended       Year Ended       Year Ended
                                                     December 31,     December 31,     December 31,
                        Components                           1997             1996             1995
                        ----------                           ----             ----             ----
<S>                                                        <C>              <C>               <C>
        Sale of 76% stock ownership interest in CalREIT    $1,012           $   --            $  --
        Sale of Corona Sherman Note                           110               --               --
        Sale of Pomona Road                                   236               --               --
        Sale and maturity of marketable securities             (1)              --               --
        Sale of investment in Placer Ranch Partnership         --              129               --
        Sale of Timberlake Medical Building                    --              (38)              --
        Sale of Park Terrace Inn                               --              (18)              --
        Foreclosure of Java Investments Note                   --              448               --
        Sale of Fountain View Office Building Note             --              115               --
        Sale of Aster Avenue Industrial Complex Note           --              357               --
        Sale of Sierra Oaks Shopping Center                    --              (63)              --
        Sale of Bekins Storage Facility                        --             (164)              --
        Sale of Pavilions at Mesa Note                         --              430               --
        Sale of Spacesaver Mini-Storage Note                   --               30               --
        Sale of Redfield Commerce Center                       --              299               --
        Sale of Milpitas Medical Building                      --               --             (508)
        Sale of Northridge Land                                --               --               81
        Sale of North Freeway Office Building                  --               --              396
        Sale of Sheri Liou Investments Note                    --               --              (74)
        Sale of Alston-Florin Perkins Note                     --               --              (72)
        Foreclosure of 425 University Ave. Office Building     --               --              (73)
        Recognition of deferred gains                           1               55               66
                                                           ------           ------            -----

        Total gains (losses)                               $1,358           $1,580            $(184)
                                                           ======           ======            =====
</TABLE>



                                       42
<PAGE>   45



                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

16.  Income Taxes

        The income tax effect of temporary differences between financial and
income tax reporting that give rise to a significant portion of the deferred
income tax assets under the provision of Statement of Financial Accounting
Standards No. 109 is as follows:

<TABLE>
<CAPTION>
                                               1997                 1996                 1995
                                               ----                 ----                 ----
<S>                                    <C>                  <C>                   <C>
        NOL carryforward               $ 31,406,000         $ 29,956,000          $ 26,760,000
        Fixed assets                     18,655,000           17,474,000            20,254,000
        Investments                       3,310,000           15,555,000            18,429,000
        Notes receivable                     34,000               32,000               248,000
        Capital loss carryforward        24,169,000           10,684,000             6,067,000
        Other                               210,000              272,000               832,000
                                       ------------         ------------          ------------

                                         77,784,000           73,973,000            72,590,000
        Less valuation allowance
          (Note 1 to financial
           statements)                  (77,784,000)         (73,973,000)          (72,590,000)
                                       ------------         ------------          ------------

        Net                            $         --         $         --          $         --
                                       ============         ============          ============
</TABLE>

        At December 31, 1997, the Trust had tax net operating loss carryforwards
("NOL's") which may be applied against future taxable income. Federal NOL's
total $82,691,000 and expire between 1998 and 2011. California NOL's total
$37,223,000 and expire between 1998 and 2003. The utilization of the NOL's is
subject to limitations upon certain changes in ownership as defined in the
Internal Revenue Code.

        Any future benefit realized from NOL's which arose before the Effective
Date of the Plan will be reported as a direct addition to paid-in capital.

        The Trust's alternative minimum tax operating loss carryforwards are
substantially the same as its NOL's at December 31, 1997.

17.  Fair Value of Financial Instruments

        The Trust has adopted Statement of Financial Accounting Standards No.
107, "Disclosure About Fair Value of Financial Instruments" ("SFAS 107"). SFAS
107 requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS 107 excludes certain financial instruments
and all nonfinancial




                                       43
<PAGE>   46



                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

17.  Fair Value of Financial Instruments, continued

instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Trust.

        The estimated fair value of the Trust's financial instruments including
cash, notes receivable, and rents, accrued interest, and other receivables at
December 31, 1997, is approximately the same as their carrying amounts. It is
not practicable to determine the fair value of the Preferred Stock with a face
value of $31,110,000 at December 31, 1997, due to the unusual nature of the
instrument. The estimated fair value of the Trust's long-term notes payable
collateralized by deeds of trust on commercial properties, the Senior Lender
Group Notes Payable, and the Line of Credit with face values of $24,291,000,
$26,930,000, and $8,021,000, respectively, at December 31, 1997, is
approximately the same as their face values at December 31, 1997.


18.  Reorganization Items

        For the year ending December 31, 1996, reorganization income represents
the accrual of a receivable related to professional fees in connection with the
bankruptcy proceedings.

        For the year ending December 31, 1995, reorganization expense represents
an additional accrual to of professional fees related to the Bankruptcy to
adjust the amount previously recorded to the total estimated amount due.


19.  Extraordinary Item, Forgiveness of Debt

        During 1997, Peregrine recorded income from debt forgiveness of $418,000
in connection with the discounted payoff of the outstanding mortgage obligations
(note, accrued interest, and other liabilities) on the 3900 Lennane Drive
property. An additional $22,000 was recorded as income from debt forgiveness
during 1997, which resulted from the extinguishment of certain debt related to
the bankruptcy court proceedings.

        In 1996 and 1995, Peregrine benefited from a forgiveness of debt related
to the extinguishment of certain debt related to the bankruptcy proceedings of
$187,000 and $598,000, respectively.




                                       44
<PAGE>   47



                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

20.  Statements of Cash Flows Supplemental Information

        In connection with the sale or foreclosure of investments (including
Peregrine's sale of its 76% stock ownership interest in CalREIT), the Trust
entered into various non-cash transactions as follows:

<TABLE>
<CAPTION>
                                                Year Ended         Year Ended         Year Ended
                                              December 31,       December 31,       December 31,
                                                      1997               1996               1995
                                                      ----               ----               ----
<S>                                           <C>                <C>                <C>
Sales price less selling costs incurred
  through escrow                              $ 21,515,000       $ 27,655,000       $  5,174,000
Notes receivable                                        --            (20,000)        (2,240,000)
Notes payable assumed by buyer
  or paid through escrow                                --         (7,304,000)        (2,380,000)
Other liabilities assumed by buyer
  or applied to the sale price                      (5,000)          (187,000)          (455,000)
Liabilities incurred in connection with
  foreclosure of mortgage notes                         --            (82,000)                --
                                              ------------       ------------       ------------

Net cash received                             $ 21,510,000       $ 20,062,000       $     99,000
                                              ============       ============       ============

Carrying value of investments sold            $ 19,678,000       $ 23,754,000       $  5,150,000
                                              ============       ============       ============

Carrying value of other assets
  written off at the time of the sale,
  including prepaid selling costs             $    479,000       $     66,000       $    138,000
                                              ============       ============       ============

Other liabilities incurred in connection
  with foreclosure of mortgage notes          $         --       $     22,000       $         --
                                              ============       ============       ============
</TABLE>

        CalREIT's Casa Grande Motor Inn which was collateralized by notes
payable of $3,089,000 was foreclosed upon during 1996. The carrying value of the
assets was equal to the carrying value of the debt; therefore, no gain or loss
on foreclosure was recorded. One property which collateralized notes payable of
$2,764,000 was foreclosed upon during the year ended December 31, 1995, causing
a loss of $73,000.

        In accordance with the Plan of Reorganization, certain vacant parcels of
land in Sacramento, California, whose fair market value was estimated to be
below the city bond assessments encumbering the property, were to be returned to
the bondholders or to the city through sale, quit claim deeds, or foreclosure.
One such parcel of land with a carrying value of $30,000 was foreclosed upon by
the city during the year ended December 31, 1997. Three such parcels of land
with a total carrying value of $152,000 were returned to the bond holders in
lieu of foreclosure during the year ended December 31, 1996. Sixteen such
parcels of land with a total carrying value of $1,215,000 were returned to the
bond holder in lieu of foreclosure during the year ended December 31, 1995. No
gain or loss was recorded on these transactions, as the book value of the land
was equal to the book value of the liabilities.




                                       45
<PAGE>   48


                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

20.     Statements of Cash Flows Supplemental Information, continued

        During the years ended December 31, 1997, 1996 and 1995, increases under
the Line of Credit and Old Line of Credit included $507,000, $918,000, and
$662,000, respectively for interest, fees, and reimbursable expenses incurred
during the respective years.

        Additionally, on March 31, June 30, September 30, and December 31, 1997,
Peregrine issued Preferred Stock in the face amount of $702,000, $729,000,
$756,000, and $777,000, respectively, as payment in kind for the dividends then
due on the outstanding Preferred Stock. On March 31, June 30, and September 30,
1996, Peregrine issued interest deferral notes at 8.5% per annum in the
principal amount of $933,000, $944,000, and $967,000, respectively, as payment
in kind for the interest then due on the Senior Lender Group Notes. Preferred
Stock in the face amount of $643,000, $660,000, $684,000, and $703,000, was
issued on March 31, June 30, September 30, and December 31, 1996, respectively,
as payment in kind for the dividends due on the outstanding Preferred Stock. In
1995, interest deferral notes issued as payment in kind were in the principal
amounts of $867,000, $885,000, $913,000, and $931,000, on March 31, June 30,
September 30, and December 31, respectively. Preferred Stock Dividends issued as
payment in kind were in the face amount of $576,000, $597,000, $618,000, and
$634,000, respectively, on March 31, June 30, September 30, and December 31,
1995.

        During 1996, the long-term first mortgage note on Peregrine's Office
Building at 3900 Lennane Drive was increased by $119,000 of deferred interest.

        Interest paid for the years ended December 31, 1997, 1996 and 1995, was
$5,891,000 $4,979,000, and $4,472,000, respectively.

21.  Stock Option Plan

        Peregrine adopted a stock option plan (the "Stock Option Plan") which
provides the members of the Board of Trustees an opportunity to purchase Common
Shares of Beneficial Interest. The aggregate number of Common Shares of
Beneficial Interest which may be issued upon exercise of all options granted
under the Stock Option Plan shall not exceed 150,000. At December 31, 1997,
1996, and 1995, options for the purchase of 106,664, 80,000 and 53,332, shares,
respectively, were outstanding under the Stock Option Plan, all of which were
exercisable.



                                       46
<PAGE>   49



                         THE PEREGRINE REAL ESTATE TRUST
                          NOTES TO FINANCIAL STATEMENTS

                                   ----------

21.  Stock Option Plan, continued

        Under the terms of the Stock Option Plan, options may be granted to
members of the Board of Trustees who are not full time employees or officers of
Peregrine or any subsidiary of Peregrine. The option price granted under the
Stock Option Plan shall be the greater of (1) the fair market value of the
Common Shares of Beneficial Interest on the Effective Date, October 7, 1994, or
(2) two dollars. Each option which has been granted to date under the Stock
Option Plan has been granted at an exercise price of two dollars per share. On
the Effective Date, each participant was granted an initial option to purchase
6,666 Common Shares of Beneficial Interest. Thereafter, each participant whose
commencement of services is after the Effective Date shall be granted an initial
option to purchase 6,666 Common Shares of Interest as of the date of the
participant's commencement of service. Each participant shall also be granted
additional options to purchase 6,667 Common Shares of Beneficial Interest on
each of the next two anniversaries of the grant date of the initial option.
Pursuant to Oaktree Capital Management's policy, Messrs. Karsh and Masson were
not granted options upon their election as a Trustees. No options were exercised
during 1997, 1996, or 1995. Under the terms of the Stock Option Plan, options
expire on the earlier of (1) the tenth anniversary of their grant date, (2) upon
disability or death of the participant, or (3) in the event of a complete
liquidation of Peregrine, a merger, reorganization or consolidation of Peregrine
with any other corporation in which Peregrine is not the surviving entity, or
Peregrine becomes a wholly owned subsidiary of another corporation. The weighted
average remaining contractual life of options under grant at December 31, 1997,
was approximately 8 years.

        The Plan of Reorganization provides that Peregrine, at the discretion of
the Board of Trustees, may adopt a stock option plan under which management may
be granted options exercisable into a maximum of five percent of the Common
Shares of Beneficial Interest, on a fully diluted basis. No such plan has been
adopted.


22.  Subsequent Events

        On March 23, 1998, Peregrine entered into a purchase and sale agreement
(the "Purchase and Sale Agreement") to purchase a hotel in Northern California
for $9,600,000. Peregrine is currently reviewing the due diligence materials and
exploring financing alternatives. Peregrine may terminate the Purchase and Sale
Agreement within the due diligence period (on or before April 22, 1998) in
accordance with the Agreement. The transaction is subject to numerous conditions
and contingencies. There can be no assurance that financing will be available
and no assurance that the transaction will be consummated.





                                       47
<PAGE>   50
--------------------------------------------------------------------------------
Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure
------------------------------------------------------------------------------

         On September 15, 1997, Peregrine's Audit Committee terminated the
services of Coopers & Lybrand, L.L.P. ("C&L") as the Trust's independent
accountants and on September 19, 1997, engaged Deloitte & Touche, LLP to serve
as the Trust's independent accountants for the year ending December 31, 1997.

      The reports of C&L on the Trust's financial statements for each of the two
most recent fiscal years, December 31, 1996 and 1995, did not contain an adverse
opinion or a disclaimer of opinion, and was not modified as to audit scope or
accounting principle, however, it was modified as to uncertainty surrounding the
Trust's ability to continue as a going concern.

      During the Trust's the most recent fiscal year audit by C&L, December 31,
1996, and subsequent interim periods, March 31, 1997 and June 30, 1997, there
were no disagreements with C&L on any matter or accounting principle or
practices, financial statement disclosure, or auditing scope or procedure, which
if not resolved to the satisfaction of C&L, would have caused it to make a
reference to the subject matter of the disagreement in connection with its
report. In C&L's Report to the Audit Committee for the fiscal year ended
December 31, 1995, C&L reported that the Trust's management had disagreed with
their conclusion regarding the existence of significant uncertainty surrounding
the Trust's ability to continue as a going concern. C&L's termination was not
related to such disagreement. Peregrine authorized C&L to respond fully to the
inquiries of D&T concerning the subject matter of the disagreement. Furthermore,
there were no reportable events within the meaning of item 304(a)(1)(v) of
regulation S-K promulgated under the Securities Exchange Act of 1934, as
amended.










                                       48
<PAGE>   51



--------------------------------------------------------------------------------
                                    PART III
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Item 10.  Trustees and Executive Officers of the Registrant
--------------------------------------------------------------------------------

        (a)    Executive Officers.

        The name and ages of all executive officers of the Trust and principal
occupation and business experience during at least the last five years for each
are set forth below:

<TABLE>
<CAPTION>
       Name             Age                      Position
       ----             ---                      --------
<S>                      <C>   <C>
Roger D. Snell           42    President, Chief Executive Officer, Chairman
                               of the Board of Trustees, and Acting Secretary

Kevin Bond               44    Vice President of Hotel Operations

Scott M. Haskins         33    Vice President and Project Manager

Wendy G. Powell          33    Vice President and Chief Accounting Officer
</TABLE>

        Roger D. Snell, President, Chief Executive Officer, Chairman of the
Board of Trustees, and Acting Secretary. On May 30, 1997, immediately following
the Annual Shareholders Meeting, Mr. Snell was appointed to serve as the
Chairman of the Board of Trustees, Acting Secretary, President and Chief
Executive Officer of Peregrine. Mr. Snell is the founder of Snell&Co, a firm
focused on real estate investments, advisory, and development. Prior to founding
Snell&Co in 1996, he was President and Chief Executive Officer of Pacific
Gateway Properties, from 1992 to 1995. He was also a member of the Board of
Directors and acting Chairman. Between 1985 and 1992, Mr. Snell was a Partner
with Paragon Group, a national development company. Mr. Snell has a BS degree
from the University of California, at Berkeley and an MBA from Harvard
University.

        Kevin Bond, Vice President of Hotel Operations. Mr. Bond was hired by
the Trust in August 1997 as the Vice President of Hotel Operations. He is
responsible for overseeing the daily management of the Trust's hotel properties.
Prior to joining Peregrine, he served as General Manager for the 308 room
Radisson Suite Hotel in Tucson from October 1992 to July 1997. Before becoming
the General Manager, he was resident manager from December 1985 to September
1992 and prior to that he had ten years of hotel work experience with Marriot
Hotels. Mr. Bond received his BS degree in Business Administration from Arizona
State University.




                                       49
<PAGE>   52



        Scott M. Haskins, Vice President and Project Manager. Mr. Haskins began
his employment as Vice President and Project Manager in September 1996. He is
responsible for all project management duties including redevelopment, leasing,
constriction management, financial analysis, and disposition, for a number of
the Trust's real estate investments. Prior to joining Peregrine, he was an asset
manager at Kemper Real Estate Management Company where he oversaw the asset
management duties of 2 million square feet of office, industrial and retail
properties as well as vacant land. Before joining Kemper in 1993, Mr. Haskins
was an associate with Trilex Properties, a residential developer. Mr. Haskins
received his BS degree in Finance from San Diego State University and his MS in
Real Estate Appraisal and Investment Theory from the University of
Wisconsin-Madison.

        Wendy G. Powell, Vice President and Chief Accounting Officer. Ms. Powell
became the Trust's Vice President and the Chief Accounting Officer in June 1997.
She is responsible for the day-to-day financial activities, preparation of all
financial reports, financial analysis, and evaluating compliance with debt
covenants. From April 1996 to May 1997, she had similar duties serving as the
Trust's Controller. Prior to her employment with Peregrine, Ms. Powell was a
Senior Auditor with Coopers & Lybrand, L.L.P., from October 1994 to March 1996.
Prior to joining Coopers & Lybrand, L.L.P., she held similar positions with a
local accounting firm and Deloitte & Touche, LLP from September 1989 to
September 1994. Ms. Powell is a Certified Public Accountant and received her BS
degree in Accounting from California State University, Sacramento.

        (b)    Trustees.

        The Restated Declaration of Trust provides that, so long as any
Preferred Shares are outstanding, Peregrine is to be managed by a Board of five
Trustees, four of whom are to be elected by the holders of Common Shares of
Beneficial Interest, and one of whom is to be elected by holders of Preferred
Shares. On May 30, 1997, at the Annual Shareholders' Meeting, the holders of
Common Shares of Beneficial Interest elected Mr. Bruce A. Karsh, Mr. Richard
Masson, Mr. Carson R. McKissick, and Mr. Matthew L. Witte to serve as Trustees
for the Trust's. The holders of Preferred Shares re-elected Mr. Roger D. Snell
to serve as the "Preferred Designee". In October 1997, Mr. Karsh resigned and
the remaining Board members appointed Mr. Michael C. Joseph to fill the vacant
seat. At the next annual shareholders meeting the holders of the Common Shares
of Beneficial Interest will have the right to elect four Trustees, to serve
until the next annual shareholders meeting or until their successors are elected
and qualified.

        The following sets forth certain information with respect to the
Trustees of Peregrine based on information furnished to the Trust by each
Trustee. There are no arrangements or understandings between any Trustee and any
other person pursuant to which the Trustee was selected as a Trustee except with
respect to Mr. Snell, who was selected by the holders of the Preferred Shares to
serve as the "Preferred Designee" as permitted in the Plan and the Restated
Declaration of Trust. There are no family relationships among any of the
Trustees.




                                       50
<PAGE>   53



<TABLE>
<CAPTION>
                           Date First
    Name, Age           Became a Trustee           Positions Within the Trust
    ---------           ----------------           --------------------------
<S>                      <C>                 <C>
Roger D. Snell           February 1997       President, Chief Executive Officer,
Age 42                                       Chairman of the Board of Trustees,
                                             and Acting Secretary

Michael C.Joseph         October 1997        Trustee
Age 41

Richard Masson           May 1997            Trustee
Age 39

Carson R. McKissick      May 1997            Trustee
Age 65

Matthew L. Witte         May 1997            Trustee
Age 40
</TABLE>


        Roger D. Snell, President, Chief Executive Officer, Chairman of the
Board of Trustees, and Acting Secretary. For information about Mr. Snell's
professional background, see "Executive Officers".

        Michael C. Joseph, Trustee. Mr. Joseph joined E.S. Merriman & Sons, a
mortgage banking firm in San Francisco, in January 1994 to form Merriman
Mortgage Partners, the mortgage brokerage arm of E.S. Merriman & Sons. Prior to
forming Merriman Mortgage Partners, he was Regional Director of the San
Francisco office of Grubb & Ellis Financial Services, the mortgage brokerage
division of Grubb & Ellis, where he managed the Northern California mortgage
operation for nine years. Before joining Grubb & Ellis Financial Services, Mr.
Joseph was a construction lender with Continental Illinois National Bank and
Trust in Chicago. He is a graduate of Lafayette College with an MBA from the
Wharton School.

        Richard Masson, Trustee. Mr. Masson currently serves as a Principal of
Oaktree Capital Management, LLC ("OCM"), an investment advisory firm which he
co-founded in May 1995. Prior to founding OCM, he served as a Managing Director
of Trust Company of the West ("TCW") and TCW Asset Management Company ("TAMCO"),
wholly owned subsidiaries of The TCW Group, Inc., where he served since 1988 in
various other capacities for TCW Special Credits. TCW Special Credits serves as
a general partner and investment advisor to certain limited partnerships,
trusts, and accounts invested in securities and debt obligations of financially
distressed companies. TAMCO is the managing general partner of TCW Special
Credits, and Mr. Masson was a general partner of TCW Special Credits. Mr. Masson
currently serves as a member of the Board of Directors of Aureal Semiconductor
and Chief Auto Parts.

        Carson R. McKissick, Trustee. Mr. McKissick was a Senior Advisor of
Trust Company of the West ("TCW"), an investment management company, from 1992
to 1997. Mr. McKissick currently serves as a member of the Board of Directors of
Alexander & Baldwin, Inc., and Triangle Pacific, Corp.




                                       51
<PAGE>   54



        Matthew L. Witte, Trustee. Mr. Witte has been a Director and Officer of
Marwit Capital ("Marwit"), a private investment firm with diversified holdings
in approximately 20 middle-market companies primarily based in the Western
United States. He was appointed President and Chief Executive Officer of Marwit
in April 1994 and is responsible for managing the day-to-day operations. He also
serves as a member of Marwit's Investment Committee. He is currently President
of the Western Regional Association of SBICs and a member of the NASBIC Board of
Governors. Prior to becoming President and Chief Executive Officer of Marwit,
Mr. Witte was a General Partner in the Related Companies, a real estate
investment and development firm with offices in New York and California, and
previously, the Director of Development for Grosvenor International, an
investment affiliate of the Grosvenor Estate of London. In May 1993, Mr. Witte
also formed Regent Partners, Inc. to pursue large scale urban development
projects in partnership with various institutional investors. He is a graduate
of Cornell University, and is a member of the Southland Venture Alliance, and is
a Director of Infotec Commercial Systems, New West Communications, Inc., H&W
Foods, Protrave Services, Inc., and Signature Theatres, LLC.

Section 16(a) Beneficial Ownership Reporting Compliance

        Section 16(a) of the Securities Exchange Act of 1934 requires
Peregrine's Trustees and executive officers, and persons who own more than ten
percent (10%) of a registered class of its equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
certain changes in ownership of all equity securities of Peregrine.

        To Peregrine's knowledge, based solely on review of the copies of such
reports furnished to it and written representations that no other reports were
required during the fiscal year ended December 31, 1997, Peregrine's officers,
Trustees, and greater than ten percent shareholders complied with the applicable
Section 16(a) filing requirements.







                                       52
<PAGE>   55
--------------------------------------------------------------------------------
Item 11.  Executive Compensation
--------------------------------------------------------------------------------

        The following Summary Compensation Table shows for the years ended
December 31, 1997, 1996, and 1995, the annual compensation paid by the Trust to
the Chief Executive Officer and the four other most highly compensated executive
officers of the Trust who earned more than $100,000 during 1997 (collectively,
the "Named Executive Officers").

Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                      Long-Term
                                                                                      Compens-
                               Annual Compensation                                     ation
                               -------------------                                     -----
                                                                        Other        Number of          All
                                                                        Annual       Securities        Other
      Name and                                                         Compens-      Underlying       Compens-
 Principal Position         Period              Salary        Bonus      ation         Options         ation
 ------------------         ------              ------        -----      -----         -------         -----
<S>                   <C>                      <C>             <C>      <C>        <C>               <C>
Roger D. Snell        May 31, 1997 to
President and Chief   December 31, 1997        $145,833        None        None    6,666 Shares(1)   $14,333(2)
Executive Officer
from May 30, 1997
to December 31, 1997

Joseph M. Mock        January 1, 1997 to
Chief Executive       May 30, 1997             $ 75,000        None     $49,500(3)         None         None
Officer from          June 1, 1996 to
June 1, 1996 to       December 31, 1996        $105,000        None        None            None         None
May 30, 1997

Scott M. Haskins      1997                    $100,000      $25,000        None            None         None
Vice President from   September 16, 1996 to
September 16, 1996    December 31, 1996        $ 29,200        Mone        Mone            None         None
to December 31, 1997



</TABLE>


(1) Amount represents options granted by Peregrine to named individual for
    services as an independent Trustee.

(2) Amount represents compensation received for serving as an independent
    Trustee of Peregrine during 1997.

(3) Amount represents $45,000 in severance pay in accordance with Mr. Mock's
    employment agreement and $4,500 in accrued vacation payout at the time of
    his termination.




                                       53
<PAGE>   56



Summary Table of Options Granted to Executive Officers in 1997

<TABLE>
<CAPTION>
                                                                                            Potential
                                      Percent of                                        Realizable Value
                                         Total                                          at Assumed Annual
                                        Options                                          Rates of Stock
                          Number      Granted to                                            Price
                       of Securities   Employees                                        Appreciation for
      Name and          Underlying     in Fiscal                                         Option Term*
 Principal Position       Options        Year       Exercise Price    Expiration Date    5%       10%
 ------------------       -------        ----       --------------    ---------------    ---      --
<S>                    <C>               <C>         <C>             <C>                 <C>      <C>
Roger D. Snell         6,666 Shares      100%        $2.00/Share     February 1, 2007    None     None
and Chief
Executive Officer
from
May 31,1997 to
December 31, 1997
</TABLE>

*  The potential realizable value of the options at an assumed 5% and 10%
   appreciation rate is below the exercise price of $2.00 per share.

Compensation of Trustees

        During 1997, 1996, and 1995, each independent Trustee (Trustees who are
not full-time employees of Peregrine or any subsidiary of Peregrine) was paid a
$5,000 quarterly retainer, $1,000 fee for each full-day Board of Trustees
meeting attended, and $500 for each half-day Board of Trustees meeting attended,
each telephone conference call participated in, or each special committee
meeting attended ("Normal Trustee Fees"). In addition, each Trustee was
reimbursed for out-of-pocket expenses. Pursuant to Oaktree Capital Management's
policy, Messrs. Karsh and Masson were not paid Normal Trustee Fees, instead,
such fees were retained by Peregrine and will be donated to charitable
organizations.

        Under the terms of Peregrine's Stock Option Plan, each of the current
independent Trustees was granted an initial option to purchase 6,666 Common
Shares of Beneficial Interest upon their appointment or election to Board of
Trustees. The exercise price in each case was $2.00 per share. These options
vest on their grant date and are exercisable at any time during the option
period, which expires on the tenth anniversary of the option grant date. No
outstanding options were exercised under the Stock Option Plan during 1997,
1996, or 1995. Pursuant to Oaktree Capital Management's policy, Messrs. Karsh
and Masson were not granted options upon their election as a Trustees.




                                       54
<PAGE>   57



Employment Contracts and Termination of Employment and Change-in-Control
Arrangements

        Roger D. Snell currently serves as President and Chief Executive Officer
of Peregrine. Mr. Snell's employment began on May 31, 1997, and pursuant to a
three year employment agreement dated September 30, 1997 (the "Employment
Agreement") he receives a base salary of $250,000 per year. Pursuant to his
employment agreement, Mr. Snell is eligible to receive such other additional
compensation as may be determined from time to time by the Board of Trustees. In
addition, Mr. Snell is entitled to receive options to purchase eight hundred
fifty thousand (850,000) shares of Peregrine's Common Shares of Beneficial
Interest at twenty-five cents ($0.25) per share, subject to the shareholder's
approval of the 1998 Long-Term Incentive Plan. If Mr. Snell is terminated with
cause, as defined in the Employment Agreement, the only obligation will be the
payment of his base salary through the date of such termination. If Mr. Snell is
terminated without cause, as defined in the Employment Agreement, he is entitled
to receive the greater of (1) a lump sum payment equal to one year's base salary
or (2) the unexpired portion of the based salary for the remainder of the term
of the Employment Agreement. In the case of a resignation resulting from a
change in control, as defined in the Employment Agreement, Mr. Snell is entitled
to receive the unexpired portion of the based salary for the remainder of the
term of the Employment Agreement.

        Joseph M. Mock served as President, Chief Executive Officer and
Principal Accounting Officer of Peregrine from June 1, 1996 through May 30,
1997, and pursuant to an employment agreement he received a salary of $15,000
per month and upon his termination received severance pay equal to three months
salary.






                                       55
<PAGE>   58




--------------------------------------------------------------------------------
Item 12.  Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------------------------

      There is hereby incorporated by reference the information appearing under
the caption "Security Ownership of Certain Beneficial Owners and Management" of
the registrant's definitive Proxy Statement for its 1998 Annual Shareholders
Meeting to be filed with the Securities and Exchange Commission in April 1998.


--------------------------------------------------------------------------------
Item 13.  Certain Relationships and Related Transactions
--------------------------------------------------------------------------------

        In January 1997, following Peregrine's sale of its 76% stock ownership
interest in CalREIT, the cost allocation agreement between Peregrine and CalREIT
was terminated. Subsequent to the termination of the cost allocation agreement,
Peregrine charged CalREIT $1,600 for direct services provided by Peregrine
employees based upon computed hourly rates, including taxes and benefits.

        During a portion of 1997, Peregrine utilized the services of certain of
its former independent Trustees in connection with an analysis of alternative
operating strategies, asset dispositions, and day-to-day management activities.
In connection with the consulting services performed, the following amounts were
paid to such former Trustees (or affiliated companies) during 1997:

<TABLE>
<CAPTION>
                                                                      1997
                                                                      ----
<S>                                                                  <C>
        The McMahan Group (John McMahan, former Trustee)             $ 9,000
        John F. Salmon, former Trustee                                 6,000
        The Presidio Group (Kenneth T. Seeger, former Trustee)        59,000
        Hickey & Hill, Inc. (E. Lawrence Hill, Jr., former Trustee)    5,000
</TABLE>









                                       56
<PAGE>   59



--------------------------------------------------------------------------------
PART IV
--------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
        (a)(1)  Financial Statements                                                     Page
        ------  --------------------                                                     ----
<S>                                                                                      <C>
                Included in Part II of this report::
                  Report of Independent Accountants                                      20-22
                  Balance Sheets                                                            23
                  Statements of Operations                                               24-25
                  Statements of Changes in Redeemable Convertible Preferred
                    Stock and Shareholders' Equity (Deficit) Accounts
                    Attributable to Common Shares of Beneficial Interest                 26-27
                  Statements of Cash Flows                                                  28
                  Notes to Financial Statements                                          29-47

        (a)(2)  Financial Statement Schedules and Exhibits Filed
        ------  ------------------------------------------------

        Schedule III  Real Estate and Accumulated Depreciation                           60-64

        Schedule IV   Mortgage Loans on Real Estate                                      65-66
</TABLE>

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

        The statements and schedules referred to above should be read in
conjunction with the financial statements with notes thereto included in Part II
of this Form 10-K. Schedules not included in this item have been omitted because
they are not applicable or because the required information is presented in the
financial statements or notes thereto.

--------------------------------------------------------------------------------
(b)     Reports on Form 8-K
--------------------------------------------------------------------------------

        Peregrine filed a Current Report on Form 8-K on January 17, 1997,
reporting under Item 2 of such Form, the execution and consummation of a Stock
Purchase Agreement with CalREIT Investors Limited Partnership for the sale of
Peregrine's 76% stock ownership interest in the California Real Estate
Investment Trust, which occurred on January 3, 1997.

      Peregrine filed a Current Report on Form 8-K on June 10, 1997, reporting
under Item 1 of such Form, Changes in Control of Registrant, with respect to the
election of a new Board of Trustees of The Peregrine Real Estate Trust at the
Annual Meeting of Shareholders held May 30, 1997.





                                       57
<PAGE>   60



      Peregrine filed a Current Report on Form 8-K/A on November 18, 1997,
correcting Form 8-K filed on September 19, 1997, reporting under Item 4 of such
Form, Changes in Registrant's Certifying Accountant, with respect to the
termination of Coopers & Lybrand, L.L.P., and the appointment of Deloitte &
Touche, LLP, as Peregrine's independent accountant.

      Peregrine filed a Current Report on Form 8-K on December 23, 1997,
reporting under Item 5 of such Form, Other Events, with respect entering into a
Loan and Security Agreement with Fleet Capital Corporation to provide Peregrine
with a revolving line of credit for a maximum amount of $20,000,000.

--------------------------------------------------------------------------------
(c)     Exhibits
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
    Exhibit
    Number                         Description
    ------                         -----------
    <S>        <C>
     3.1(a)    Restated Declaration of Trust of The Peregrine Real Estate Trust (1)

     3.1(b)    Bylaws of The Peregrine Real Estate Trust (1)

    10.1       Second Amended and Restated Note Agreement dated September 27,
               1994, by and among Commonwealth Equity Trust, the Noteholders
               named therein, and The Prudential Insurance Company of America as
               Agent for the Noteholders (1)

    10.2       Loan and Security Agreement dated October 6, 1994, between
               Commonwealth Equity Trust and Foothill Capital Corporation (1)

    10.3       Redeemable Convertible Preferred Stock Purchase Agreement dated
               as of October 1, 1994, by and among The Peregrine Real Estate
               Trust, Pacific Mutual Life Insurance Company, The Prudential
               Insurance Company of America, PRUCO Life Insurance Company, ORIX
               USA Corporation, Weyerhaeuser Company Master Retirement Trust,
               TCW Special Credits Fund IV, TCW Special Credits Plus Fund, TCW
               Special Credits Trust IV, and TCW Special Credits Trust IVA (1)

    10.4       Registration Rights Agreement dated as of October 1, 1994, by and
               among The Peregrine Real Estate Trust, Pacific Mutual Life
               Insurance Company, The Prudential Insurance Company of America,
               PRUCO Life Insurance Company, ORIX USA Corporation, Weyerhaeuser
               Company Master Retirement Trust, TCW Special Credits Fund IV, TCW
               Special Credits Plus Fund, TCW Special Credits Trust IV, and TCW
               Special Credits Trust IVA (1)

    10.5       Services and Confidentiality Agreement dated October 1, 1994,
               between Commonwealth Equity Trust and FAMA Management, Inc. (1)

    10.6       Third Amended Plan of Reorganization of Commonwealth Equity Trust
               (2)

    10.7       Stock Purchase Agreement, dated as of January 3, 1997, by and
               between The Peregrine Real Estate Trust and CalREIT Investors
               Limited Partnership (3)

    10.8       Form of Indemnification Agreement (4)

    10.9       The Peregrine Real Estate Trust Trustee Stock Option Plan (5)

    10.10      Employment Agreement between The Peregrine Real Estate Trust and
               Joseph M. Mock, dated June 1, 1996 (5)
</TABLE>




                                       58
<PAGE>   61

<TABLE>
    <S>        <C>
    10.11      First Amendment to Employment Agreement between The Peregrine
               Real Estate Trust and Joseph M. Mock, dated December 1, 1996 (5)

    10.12      Second Amendment to Employment Agreement between The Peregrine
               Real Estate Trust and Joseph M. Mock, dated April 30, 1997 (6)

    10.13      Form of Indemnification Agreement (7)

    10.14      Loan and Security Agreement dated December 4, 1997, by and among
               The Peregrine Real Estate Trust and Fleet Capital Corporation (8)

    10.15      Second Amendment to Second Amended and Restated Note Agreement
               dated December 4, 1997, by and among The Peregrine Real Estate
               Trust, the Noteholders named therein, and The Prudential
               Insurance Company of America as agent for the Noteholders (8)

    10.16      Employment Agreement between The Peregrine Real Estate Trust and
               Roger D. Snell, dated September 30, 1997

    27         Financial Data Schedule
</TABLE>

(1) Incorporated herein by reference to Peregrine's Report on Form 8-K dated
    October 7, 1994.

(2) Incorporated herein by reference to Peregrine's Report on Form 8-K dated
    August 25, 1994.

(3) Incorporated herein by reference to Peregrine's Report on Form 8-K dated
    January 17, 1997.

(4) Incorporated herein by reference to Peregrine's Report on Form 10-Q for
    period ended September 30, 1996.

(5) Incorporated herein by reference to Peregrine's Report on Form 10-K for the
    year ended December 31, 1996.

(6) Incorporated herein by reference to Peregrine's Report on Form 10-Q for
    period ended March 31, 1997.

(7) Incorporated herein by reference to Peregrine's Report on Form 10-Q for
    period ended June 30, 1997.

(8) Incorporated herein by reference to Peregrine's Report on Form 8-K dated
    December 23, 1997.





                                       59
<PAGE>   62



--------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997          Page 1 Part A
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                Column A                                          Column B            Column C                    Column D
-----------------------------------------------------------      -----------   ------------------------     ---------------------

                                                                                                           Cost Capitalization and
                                                                                                           Write-Downs Subsequent
                                                                               .Initial Cost to Trust..    ....to Acquisition....
                                                                                             Buildings,
                                                                                            Improvements
                                                                                            and Personal                   Carrying
              Description                                        Encumbrances     Land       Property     Improvements(1)    Cost
              -----------                                        ------------     ----       --------     ---------------    ----
<S>                                                              <C>           <C>          <C>             <C>              <C>
RETAIL SHOPPING CENTERS:
  Regency Plaza Shopping Center, Sacramento, California          $ 8,753,000   $ 4,200,000  $ 7,056,000     $  (150,000)     $ --
  University Village Shopping Center, Sacramento, California       7,640,000       877,000    6,142,000         965,000        --
  TGI Friday's, Citrus Heights, California                                --       450,000    1,125,000         (39,000)       --
  Sunrise Hills, Citrus Heights, California                        4,279,000     2,316,000    3,192,000        (313,000)       --
                                                                 -----------   -----------  -----------     -----------      ----

Total Retail Shopping Centers                                     20,672,000     7,843,000   17,515,000         463,000        --
                                                                 -----------   -----------  -----------     -----------      ----

OFFICE BUILDINGS:
  One Sunrise Park, Rancho Cordova, California                            --       356,000    1,092,000         366,000        --
  16th and K Streets, Sacramento, California                              --       388,000    2,677,000         263,000        --
  Town Center Office Park, Signal Hill, California                        --     1,293,000    3,313,000          62,000        --
  Hurley Ethan Office Park I, Sacramento, California               1,245,000       410,000    1,237,000         521,000        --
  Hurley Ethan Office Park II, Sacramento, California              2,374,000       827,000    1,391,000         504,000        --
  3900 Lennane Drive, Sacramento, California                              --       427,000    1,530,000          82,000        --
                                                                 -----------   -----------  -----------     -----------      ----

Total Office Buildings                                             3,619,000     3,701,000   11,240,000       1,798,000        --
                                                                 -----------   -----------  -----------     -----------      ----

INDUSTRIAL BUILDINGS:
  11135 Trade Center Drive, Rancho Cordova, California                    --       567,000    1,739,000         662,000        --
  11167 Trade Center Drive, Rancho Cordova, California                    --       402,000      567,000          16,000        --
  Parkway Center, El Dorado Hills, California                             --       233,000    1,048,000         223,000        --
  Mallory Service Center, Walnut Creek, California                        --       852,000      154,000          11,000        --
  Commerce Street, Corona, California                                     --       132,000      267,000              --        --
  Consumer Circle, Corona, California                                     --       128,000      258,000              --        --
                                                                 -----------   -----------  -----------     -----------      ----

Total Industrial Buildings                                                --     2,314,000    4,033,000         912,000        --
                                                                 -----------   -----------  -----------     -----------      ----
</TABLE>

                                                                     (Continued)



                                       60
<PAGE>   63
--------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997          Page 2 Part A
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

           Column A                            Column B                Column C                     Column D
---------------------------------            ------------    ----------------------------     ----------------------
                                                                                             Cost Capitalization and
                                                                                              Write-Downs Subsequent
                                                             ...Initial Cost To Trust....     ....to Acquisition....
                                                                              Buildings,
                                                                             Improvements
                                                                             and Personal      Improvements  Carrying
        Description                          Encumbrances       Land           Property            (1)          Cost
        -----------                          ------------       ----           --------       ------------      ----
<S>                                          <C>             <C>              <C>             <C>               <C>
MINI-STORAGE FACILITIES:
  Burbank Mini-Storage,
    Santa Rosa, California                             --        475,000          980,000          30,000         --
  Downtown Mini-Storage,
    Sacramento, California                             --         Leased        1,340,000          (3,000)        --
                                             ------------    -----------      -----------     -----------       ----

Total Mini-Storage Facilities                          --        475,000        2,320,000          27,000         --
                                             ------------    -----------      -----------     -----------       ----

HOTELS:
  Chico Holiday Inn,
    Chico, California                                  --        480,000        4,337,000      (1,262,000)        --
  Sacramento Holiday Inn,
    Sacramento, California                             --      2,297,000        5,719,000       2,241,000         --
  Walnut Creek Holiday Inn,
    Walnut Creek, California                           --      1,099,000        1,812,000       1,020,000         --
                                             ------------    -----------      -----------     -----------       ----

Total Hotels                                           --      3,876,000       11,868,000       1,999,000         --
                                             ------------    -----------      -----------     -----------       ----

Total Investment in Real Estate              $ 24,291,000    $18,209,000      $46,976,000     $ 5,199,000       $ --
                                             ============    ===========      ===========     ===========       ====

PARTNERSHIPS:
  CR Properties,
    Sacramento, California                   $         --    $        --      $        --     $        --       $ --
                                             ------------    -----------      -----------     -----------       ----

Total Investment in Partnerships                       --    $        --      $        --     $        --       $ --
                                             ============    ===========      ===========     ===========       ====

Total Investment in Real Estate
    and Partnership                          $ 24,291,000    $18,209,000      $46,976,000     $ 5,199,000       $ --
                                             ============    ===========      ===========     ===========       ====
</TABLE>




                                       61
<PAGE>   64



--------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997          Page 1 Part B
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                Column A                                Column E                Column F        Column G    Column H     Column I
------------------------------------------  ---------------------------------  ----------     ------------  --------     --------

                                            Gross Amount at Which
                                    .......Carried at Close of Period.......                                          Life on Which
                                                                                                                     Depreciation in
                                                                                                                      Latest Income
                                                 Buildings and                 Accumulated      Date of       Date     Statement is
             Description               Land       Improvements   Total(2)    Depreciation(3)  Construction  Acquired     Computed
             -----------               ----       ------------   --------    ---------------  ------------  --------     --------
<S>                                 <C>           <C>           <C>            <C>                <C>          <C>       <C>
RETAIL SHOPPING CENTERS:
  Regency Plaza Shopping Center,
    Sacramento, California          $4,200,000    $ 6,906,000   $11,106,000    $  243,000         1986         5/85      31 Years
  University Village Shopping
    Center, Sacramento,
    California                         877,000      7,107,000     7,984,000       287,000         1975        12/86      32 Years
  TGI Friday's, Citrus Heights,
    California                         450,000      1,086,000     1,536,000        70,000         1984         1/87      32 Years
  Sunrise Hills, Citrus Heights,
    California                       2,316,000      2,879,000     5,195,000            --         1981         1/89      34 Years
                                    ----------    -----------   -----------    ----------

Total Retail Shopping Centers        7,843,000     17,978,000    25,821,000       600,000
                                    ----------    -----------   -----------    ----------

OFFICE BUILDINGS:
  One Sunrise Park, Rancho
    Cordova, California                356,000      1,458,000     1,814,000       216,000         1982         8/83      24 Years
  16th and K Streets,
    Sacramento, California             388,000      2,940,000     3,328,000       215,000         1987         8/87      33 Years
  Town Center Office Park,
    Signal Hill, Ca1ifornia          1,293,000      3,375,000     4,668,000       275,000         1983        12/87      33 Years
  Hurley Ethan Office Park I,
    Sacramento, California             410,000      1,758,000     2,168,000       259,000         1978         4/88      34 Years
  Hurley Ethan Office Park II,
    Sacramento, Calofornia             827,000      1,895,000     2,722,000       284,000         1981         6/88      34 Years
  3900 Lennane Drive,
    Sacramento, California             427,000      1,612,000     2,039,000        45,000         1984         5/88      34 Years
                                    ----------    -----------   -----------    ----------

Total Office Buildings               3,701,000     13,038,000    16,739,000     1,294,000
                                    ----------    -----------   -----------    ----------

INDUSTRIAL BUILDINGS:
  11135 Trade Center Drive,
    Rancho Cordova, California         567,000      2,401,000     2,968,000       426,000         1984         5/88      34 Years
  11167 Trade Center Drive,
    Rancho Cordova, California         402,000        583,000       985,000        43,000         1984         5/88      34 Years
  Parkway Center, El Dorado
    Hills, California                  233,000      1,271,000     1,504,000       157,000         1985         1/88      33 Years
  Mallory Service Center,
    Walnut Creek, California           852,000        165,000     1,017,000        12,000         1970        10/88      34 Years
  Commerce Street, Corona,
    California                         132,000        267,000       399,000        12,000         1982         9/96      30 Years
  Consumer Circle, Corona,
    California                         128,000        258,000       386,000        11,000         1981         9/96      30 Years
                                    ----------    -----------   -----------    ----------

Total Industrial Buildings           2,314,000      4,945,000     7,259,000       661,000
                                    ----------    -----------   -----------    ----------
</TABLE>

                                                                     (Continued)




                                       62
<PAGE>   65
--------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997          Page 2 Part B
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
        Column A                                Column E                     Column F         Column G     Column H     Column I
--------------------------        --------------------------------------     ----------     ------------   --------     --------
                                        Gross Amount at Which                                                           Life on
                                  .....Carried at Close of Period.......                                                  Which
                                                                                                                      Depreciation
                                                                                                                        in Latest
                                                 Buildings                                                               Income
                                                   and                       Accumulated        Date of      Date     Statement is
      Description                     Land      Improvements    Total(2)    Depreciation(3)  Construction  Acquired     Computed
      -----------                 -----------   -------------   --------    ---------------  ------------  --------     --------
<S>                               <C>            <C>            <C>                <C>          <C>       <C>
MINI-STORAGE FACILITIES:
  Burbank Mini-Storage,
    Santa Rosa, California            475,000     1,010,000      1,485,000        85,000        1984         4/85        30 Years
  Downtown Mini-Storage,
   Sacramento, California              Leased     1,337,000      1,337,000        88,000        1980         3/88        33 Years
                                  -----------   -----------    -----------    ----------

Total Mini-Storage Facilities         475,000     2,347,000      2,822,000       173,000
                                  -----------   -----------    -----------    ----------

HOTELS:
  Chico Holiday Inn, Chico,
    California                        480,000     3,075,000      3,555,000       629,000   1972/1979        9/86         32 Years
  Sacramento Holiday Inn,
    Sacramento, California          2,297,000     7,960,000     10,257,000       911,000        1978        9/86         32 Years
  Walnut Creek Holiday Inn,
    Walnut Creek, California        1,099,000     2,832,000      3,931,000       416,000        1987        3/85         33 Years
                                  -----------   -----------    -----------    ----------

Total Hotels                        3,876,000    13,867,000     17,743,000     1,956,000
                                  -----------   -----------    -----------    ----------

Total Investment in Real Estate   $18,209,000   $52,175,000    $70,384,000    $4,684,000
                                  ===========   ===========    ===========    ==========

PARTNERSHIPS:
  CR Properties,
     Sacramento, California       $        --   $        --    $        --    $       --
                                  -----------   -----------    -----------    ----------

Total Investment in Partnerships  $        --   $        --    $        --    $       --
                                  ===========   ===========    ===========    ==========

Total Investment in Real Estate
  and Partnerships                $18,209,000   $52,175,000    $70,384,000    $4,684,000
                                  ===========   ===========    ===========    ==========
</TABLE>

(1) The Trust records impairment losses which represent the excess of the
    carrying value of individual properties over their estimated fair value.
    Various external factors, particularly the lack of credit available to
    purchasers of real estate and overbuilt real estate markets have adversely
    affected real estate and necessitated the adjustments. Improvements are
    shown net of impairment losses recognized to date.

(2) Represents total cost of assets after impairment losses recognized to date.

(3) Upon implementation of SFAS 121 on January 1, 1996, all previously recorded
    valuation losses (and accumulated depreciation were combined with the cost
    of the asset; and the resulting amount was accounted for as the new cost of
    the asset. Upon the recognition of further impairments, valuation losses
    (and accumulated depreciation) are combined with the cost of the asset.





                                       63
<PAGE>   66
--------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
--------------------------------------------------------------------------------

Reconciliation of total real estate carrying values for the year ended December
31, 1997, 1996 and 1995 are as follows:


<TABLE>
<CAPTION>
                                                         Year Ended          Year Ended          Year Ended
                                                        December 31,        December 31,        December 31,
                                                            1997                1996                1995
                                                            -----               -----               ----
<S>                                                     <C>                 <C>                 <C>
ASSET RECONCILIATION:
   Balance, beginning of period                         $  79,398,000       $ 100,501,000       $ 114,579,000

   Additions:

      Fair market value of assets acquired through
        foreclosure                                                --           1,751,000                  --

      Improvements                                          1,303,000           2,514,000           2,465,000

      Reclassification from other assets                           --               7,000                  --

   Deductions:

      Elimination of CalREIT assets(1)                     (8,585,000)                 --                  --

      Real estate sold                                       (966,000)        (12,920,000)         (6,476,000)

      Foreclosures/insubstance foreclosures                   (30,000)         (3,181,000)         (2,967,000)

      Valuation losses                                       (459,000)         (2,888,000)         (7,100,000)

      SFAS 121 adjustments(2)                                (277,000)         (6,386,000)                 --
                                                        -------------       -------------       -------------

   Balance, end of period                               $  70,384,000       $  79,398,000       $ 100,501,000
                                                        =============       =============       =============


ACCUMULATED DEPRECIATION
  RECONCILIATION:
   Balance, beginning of period                         $   1,986,000       $   6,001,000       $   2,812,000

   Additions:

      Depreciation                                          2,997,000           2,439,000           3,292,000

   Deductions:

      Elimination of CalREIT assets(1)                             --                  --                  --

      Accumulated depreciation on
        real estate sold                                      (22,000)            (68,000)           (103,000)

      SFAS 121 adjustments(2)                                (277,000)         (6,386,000)                 --
                                                        -------------       -------------       -------------

   Balance, end of period                               $   4,684,000       $   1,986,000       $   6,001,000
                                                        =============       =============       =============
</TABLE>


(1) Amount is deducted to reflect Peregrine's sale of its 76% stock ownership
    interest in CalREIT on January 3, 1997.

(2) Upon implementation of SFAS 121 on January 1, 1996, all previously recorded
    valuation losses (and accumulated depreciation) were combined with the cost
    of the asset; and the resulting amount was accounted for as the new cost of
    the asset. Upon the recognition of further impairments, valuation losses
    (and accumulated depreciation) are combined with the cost of the asset.




                                       64
<PAGE>   67
--------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (Notes Receivable Collateralized by
Deeds of Trust) DECEMBER 31, 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

          Column A         Column B  Column C         Column D        Column E  Column F          Column G           Column H
          --------         --------  --------         --------        --------  --------    --------------------     --------
                                                                                                                    Principal
                                                                                           Valuation                 Amount of
                                                                                             Write     Carrying    Loans Subject
                                      Final                                   Face Amount  Downs and   Amount of   to Delinquent
                           Interest  Maturity                          Prior   of Notes     Deferred     Notes       Principal
         Description         Rate      Date    Periodic Payment Terms  Liens   Receivable   Gains(2)  Receivable(1) or Interest
         -----------         ----      ----    ----------------------  -----   ----------   --------  ----------    -----------
<S>                          <C>       <C>      <C>                     <C>    <C>        <C>         <C>           <C>
FIRST DEEDS OF TRUST:

  Office/Retail Building,
    Fullerton California     9.50%     2004      Monthly principal
                                                 and interest
                                                 payments of $3,713     N/A    $ 411,000   $ 79,000   $ 332,000     None
</TABLE>


(1) Represents carrying amount of notes after valuation allowance and deferred
    gains.

(2) The Trust establishes allowances for possible investment losses which
    represent the excess of the face amount of the note over the estimated fair
    value of the property collateralizing the note. In addition, deferred gains
    have been recorded against notes receivable when required under SFAS 66
    (Note 1). Such write downs in no way limit the obligation of the borrower to
    comply with the terms of the note.






                                       65
<PAGE>   68



--------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
--------------------------------------------------------------------------------


A summary of activity for notes receivable collateralized by deeds of trust for
  the years ended December 31, 1997, 1996 and 1995, are as follows:


<TABLE>
<CAPTION>
                                                            Year Ended         Year Ended         Year Ended
                                                           December 31,       December 31,       December 31,
                                                              1997               1996                1995
                                                              ----               ----                ----
<S>                                                        <C>                <C>                <C>
Balance, beginning of period                               $  2,296,000       $ 14,627,000       $ 16,914,000

    Additions:

       New loans                                                     --                 --          2,240,000

       Recognition of deferred gain                               1,000             55,000             66,000

    Deductions:

       Elimination of CalREIT notes receivable, net(1)       (1,575,000)                --                 --

       Collections of principal                                (390,000)           (54,000)        (2,030,000)

       Collections of principal from prepayments                     --         (2,240,000)                --

       Book value of notes receivable sold                           --         (8,892,000)                --

       Book value of notes receivable foreclosed upon                --         (1,200,000)                --

       Deductions from loss on prepayment
         of notes receivable                                         --                 --           (137,000)

       Deductions from valuation losses
         and deferred gains on notes receivable                      --                 --         (2,426,000)

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

Balance, end of period                                     $    332,000       $  2,296,000       $ 14,627,000
                                                           ============       ============       ============
</TABLE>

(1) Amount is deducted to reflect Peregrine's sale of its 76% stock ownership
    interest in CalREIT on January 3, 1997.






                                       66
<PAGE>   69
Signatures

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

March 31, 1998                         /s/  Wendy G. Powell
--------------                         --------------------
     Date                              Chief  Accounting Officer


March 31, 1998                         /s/  Roger D. Snell
--------------                         --------------------
     Date                              President, Chief Executive Officer,
                                       Chairman of the Board of Trustees
                                       and Acting Secretary



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


March 31, 1998                         /s/  Roger D. Snell
--------------                         --------------------
     Date                              Roger D. Snell
                                       President, Chief Executive Officer,
                                       Chairman of the Board of Trustees
                                       and Acting Secretary

March 31, 1998                         /s/  Michael C. Joseph
--------------                         ----------------------
     Date                              Michael C. Joseph
                                       Trustee

March 31, 1998                         /s/  Richard Masson
--------------                         --------------------
     Date                              Richard Masson
                                       Trustee

March 31, 1998                         /s/  Carson R. McKissick
--------------                         ------------------------
     Date                              Carson R. McKissick
                                       Trustee

March 31, 1998                         /s/  Matthew L. Witte
--------------                         ---------------------
     Date                              Matthew L. Witte
                                       Trustee



                                       67
<PAGE>   70
                                EXHIBIT INDEX

<TABLE>
<CAPTION>
    Exhibit
    Number                         Description
    ------                         -----------
    <S>        <C>
     3.1(a)    Restated Declaration of Trust of the Peregrine Real Estate Trust (1)

     3.1(b)    Bylaws of the Peregrine Real Estate Trust (1)

    10.1       Second Amended and Restated Note Agreement dated September 27,
               1994, by and among Commonwealth Equity Trust, the Noteholders
               named therein, and The Prudential Insurance Company of America as
               Agent for the Noteholders (1)

    10.2       Loan and Security Agreement dated October 6, 1994, between
               Commonwealth Equity Trust and Foothill Capital Corporation (1)

    10.3       Redeemable Convertible Preferred Stock Purchase Agreement dated
               as of October 1, 1994, by and among the Peregrine Real Estate
               Trust, Pacific Mutual Life Insurance Company, The Prudential
               Insurance Company of America, PRUCO Life Insurance Company, ORIX
               USA Corporation, Weyerhaeuser Company Master Retirement Trust,
               TCW Special Credits Fund IV, TCW Special Credits Plus Fund, TCW
               Special Credits Trust IV, and TCW Special Credits Trust IVA (1)

    10.4       Registration Rights Agreement dated as of October 1, 1994, by and
               among The Peregrine Real Estate Trust, Pacific Mutual Life
               Insurance Company, The Prudential Insurance Company of America,
               PRUCO Life Insurance Company, ORIX USA Corporation, Weyerhaeuser
               Company Master Retirement Trust, TCW Special Credits Fund IV, TCW
               Special Credits Plus Fund, TCW Special Credits Trust IV, and TCW
               Special Credits Trust IVA (1)

    10.5       Services and Confidentiality Agreement dated October 1, 1994,
               between Commonwealth Equity Trust and FAMA Management, Inc. (1)

    10.6       Third Amended Plan of Reorganization of Commonwealth Equity Trust
               (2)

    10.7       Stock Purchase Agreement, dated as of January 3, 1997, by and
               between The Peregrine Real Estate Trust and CalREIT Investors
               Limited Partnership (3)

    10.8       Form of Indemnification Agreement (4)

    10.9       The Peregrine Real Estate Trust Trustee Stock Option Plan (5)

    10.10      Employment Agreement between The Peregrine Real Estate Trust and
               Joseph M. Mock, dated June 1, 1996 (5)
</TABLE>





<PAGE>   71

<TABLE>
    <S>        <C>
    10.11      First Amendment to Employment Agreement between The Peregrine
               Real Estate Trust and Joseph M. Mock, dated December 1, 1996 (5)

    10.12      Second Amendment to Employment Agreement between The Peregrine
               Real Estate Trust and Joseph M. Mock, dated April 30, 1997 (6)

    10.13      Form of Indemnification Agreement (7)

    10.14      Loan and Security Agreement dated December 4, 1997, by and among
               The Peregrine Real Estate Trust and Fleet Capital Corporation (8)

    10.15      Second Amendment to Second Amended and Restated Note Agreement
               dated December 4, 1997, by and among The Peregrine Real Estate
               Trust, the Noteholders named therein, and The Prudential
               Insurance Company of America as agent for the Noteholders (8)

    10.16      Employment Agreement between The Peregrine Real Estate Trust and
               Roger D. Snell, dated September 30, 1997

    27         Financial Data Schedule
</TABLE>

(1) Incorporated herein by reference to Peregrine's Report on Form 8-K dated
    October 7, 1994.

(2) Incorporated herein by reference to Peregrine's Report on Form 8-K dated
    August 25, 1994.

(3) Incorporated herein by reference to Peregrine's Report on Form 8-K dated
    January 17, 1997.

(4) Incorporated herein by reference to Peregrine's Report on Form 10-Q for
    period ended September 30, 1996.

(5) Incorporated herein by reference to Peregrine's Report on Form 10-K for the
    year ended December 31, 1996.

(6) Incorporated herein by reference to Peregrine's Report on Form 10-Q for
    period ended March 31, 1997.

(7) Incorporated herein by reference to Peregrine's Report on Form 10-Q for
    period ended June 30, 1997.

(8) Incorporated herein by reference to Peregrine's Report on Form 8-K dated
    December 23, 1997.