<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)
[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
          OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 1997
                               --------------

                                       OR

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

For the transition period from _______________ to _______________

Commission File Number:    1-8063

                     CALIFORNIA REAL ESTATE INVESTMENT TRUST
                   ------------------------------------------
             (Exact name of registrant as specified in its charter)

          CALIFORNIA                                       94-6181186
--------------------------------                      ---------------------
(State or other jurisdiction of                         (I.R.S. Employer
  incorporation or organization)                       Identification No.)

131 STEUART STREET, SUITE 200, SAN FRANCISCO, CA            94105
------------------------------------------------            -----
(Address of principal executive offices)                  (Zip Code)

                                 (415) 905-0288
                                 --------------
              (Registrant's telephone number, including area code)

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

Yes [X]         No [ ]



<PAGE>   2



                      APPLICABLE ONLY TO CORPORATE ISSUERS:

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the close of the latest practical date.


                Class                            Outstanding at March 31, 1997
-------------------------------------            -----------------------------
Common Shares of Beneficial Interest
$1.00 par value ("Common Shares")                         9,137,335





<PAGE>   3


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

                     CALIFORNIA REAL ESTATE INVESTMENT TRUST

------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEX                                                                                                          PAGE

PART I.           FINANCIAL INFORMATION
<S>               <C>               <C>                                                                          <C>

                  Item 1:           Financial Statements


                                    Consolidated Balance Sheets -
                                        March 31, 1997 and December 31, 1996                                      1

                                    Consolidated Statements of Operations -
                                        For the Three Months Ended
                                        March 31, 1997 and 1996                                                   2

                                    Consolidated Statements of Cash Flows -
                                        For the Three Months Ended
                                        March 31, 1997 and 1996                                                   3

                                    Notes to Consolidated Financial Statements                                    4

                  Item 2:           Management's Discussion and Analysis of
                                        Financial Condition and Results of Operations                            10


PART II.          OTHER INFORMATION

                  Item 1:           Legal Proceedings                                                            15

                  Item 2:           Changes in Securities                                                        15

                  Item 3:           Defaults Upon Senior Securities                                              15

                  Item 4:           Submission of Matters to a Vote of Security Holders                          15

                  Item 5:           Other Information                                                            15

                  Item 6:           Exhibits and Reports on Form 8-K                                             15
</TABLE>


<PAGE>   4
                          PART I. FINANCIAL INFORMATION

--------------------------------------------------------------------------------
Item 1.  Financial Statements
--------------------------------------------------------------------------------

                     CALIFORNIA REAL ESTATE INVESTMENT TRUST
                                 AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                         MARCH 31,      DECEMBER 31,
                                                                           1997           1996
                                                                        (UNAUDITED)      (AUDITED)
                                                                        ------------    ------------
<S>                                                                     <C>             <C>         
                                    ASSETS

INVESTMENTS, GENERALLY HELD FOR SALE:
     Rental properties                                                  $         --    $  8,585,000
     Notes receivable, net of valuation allowances and deferred gains
         of $6,127,000 at March 31, 1997 and
         December 31, 1996                                                 2,658,000       1,576,000
     Marketable securities available for sale                             13,141.000      14,115,000
                                                                        ------------    ------------
                                                                          15,799,000      24,276,000

Cash                                                                       8,330,000       4,698,000
Receivables, net of allowance of $1,126,000 and $1,001,000
     at March 31, 1997 and December 31, 1996, respectively                   687,000         707,000
Other assets                                                                 208,000         355,000
                                                                        ------------    ------------

              Total Assets                                              $ 25,024,000    $ 30,036,000
                                                                        ============    ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES:
     Long-term notes payable, collateralized by deeds of trust
         on rental properties                                           $    880,000    $  5,169,000
     Accounts payable and accrued expenses                                   113,000         326,000
     Other liabilities                                                            --          70,000
                                                                        ------------    ------------

              Total Liabilities                                              993,000       5,565,000
                                                                        ------------    ------------

Commitments

SHAREHOLDERS' EQUITY:
     Shares of beneficial interest, par value $1 a share; unlimited
         authorization, 9,137,000 shares outstanding at
         March 31, 1997 and December 31, 1996                              9,137,000       9,137,000
     Additional paid-in capital                                           55,145,000      55,118,000
     Unrealized holding income (loss) on marketable securities                19,000         (22,000)
     Accumulated deficit                                                 (40,270,000)    (39,762,000)
                                                                        ------------    ------------

              Total Shareholders' Equity                                  24,031,000      24,471,000
                                                                        ------------    ------------

              Total Liabilities and Shareholders' Equity                $ 25,024,000    $ 30,036,000
                                                                        ============    ============
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       1
<PAGE>   5


                     CALIFORNIA REAL ESTATE INVESTMENT TRUST
                                 AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                           1997              1996
                                                           ----              ----
<S>                                                     <C>                <C>      
REVENUES:
     Rent                                               $ 236,000          $ 569,000
     Interest                                             323,000            302,000
     Other                                                 54,000                 --
                                                        ---------          ---------
                                                          613,000            871,000
                                                        ---------          ---------
                                                                           
EXPENSES:                                                                  
     Operating expenses                                   123,000            148,000
     Property management                                   14,000             27,000
     Depreciation and amortization                         21,000              5,000
     Interest                                              99,000            137,000
     General and administrative                           432,000            413,000
                                                        ---------          ---------
                                                          689,000            730,000
                                                        ---------          ---------
                                                                           
         Income (loss) before gain (loss) on                               
              sale of investments                         (76,000)           141,000
                                                                           
Gain (loss) on sale of investments                       (432,000)           299,000
                                                        ---------          ---------
                                                                           
         Net income (loss)                              $(508,000)         $ 440,000
                                                        =========          =========
                                                                           
Net income (loss) per share of                                             
   beneficial interest                                  $   (0.06)         $    0.05
                                                        =========          =========
</TABLE>
                                                                        



          See accompanying notes to consolidated financial statements.



                                       2
<PAGE>   6


                     CALIFORNIA REAL ESTATE INVESTMENT TRUST
                                 AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                              THREE MONTHS ENDED
                                                                                    MARCH 31,
                                                                            1997              1996
                                                                            ----              ----
<S>                                                                       <C>               <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                                    $  (508,000)      $   440,000
                                                                          -----------       -----------
     Adjustments to reconcile net income to net                                             
        cash provided by operating activities:                                              
         Depreciation and amortization                                         21,000             5,000
         Loss (gain) on sale of investments                                   432,000          (299,000)
     Changes in assets and liabilities:                                                     
         Decrease (increase) in receivables, net                               20,000            (9,000)
         Increase in other assets                                             (53,000)          (59,000)
         (Decrease) increase in accounts payable                                            
              and accrued expenses                                           (213,000)          258,000
         (Decrease) increase in other liabilities                             (70,000)            2,000
                                                                          -----------       -----------
              Total adjustments to net (loss) income                          137,000          (102,000)
                                                                          -----------       -----------
              Net cash (used) provided by operating activities               (371,000)          338,000
                                                                          -----------       -----------
                                                                                            
CASH FLOWS FROM INVESTING ACTIVITIES:                                                       
     Proceeds from sale of investments                                      7,306,000                --
     Improvements to rental properties                                        (64,000)          (45,000)
     Principal collections on notes receivable                                  8,000            12,000
     Principal collections on marketable securities                         1,015,000                --
                                                                          -----------       -----------
              Net cash provided by (used in) investing activities           8,265,000           (33,000)
                                                                          -----------       -----------
                                                                                            
CASH FLOWS FROM FINANCING ACTIVITIES:                                                       
     Principal payments on long-term notes payable                         (4,289,000)          (23,000)
     Additional paid-in capital                                                27,000                --
                                                                          -----------       -----------
         Net cash used in financing activities                             (4,262,000)          (23,000)
                                                                          -----------       -----------
                                                                                            
              Net increase in cash                                          3,632,000           282,000
Cash, beginning of period                                                   4,698,000         4,778,000
                                                                          -----------       -----------
                                                                                            
Cash, end of period                                                       $ 8,330,000       $ 5,060,000
                                                                          ===========       ===========
</TABLE>
                                                                               


          See accompanying notes to consolidated financial statements.


                                       3
<PAGE>   7


                     CALIFORNIA REAL ESTATE INVESTMENT TRUST
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------

1.       Organization and Basis of Presentation:

                                  Organization

         California Real Estate Investment Trust (the "Trust" or "CalREIT") was
         organized under the laws of the State of California pursuant to a
         Declaration of Trust dated September 15, 1966.

         The Trust became a partner of Totem Square,  L. P. ("Totem"),  a 
         Washington Limited Partnership in which the Trust owns a 59% interest,
         on November 30, 1990. The Trust also formed CalREIT Totem Square, Inc.
         ("Cal-CORP") to act as general partner of Totem. Cal-CORP has a 1%
         interest in Totem, and Totem Square Associates, an unrelated party, has
         the remaining 40%.

         In 1994 the Trust operated as a subsidiary of The Peregrine Real Estate
         Trust ("Peregrine"), which then held 76% of the Trust's outstanding
         Common Shares. In April 1994, Peregrine replaced the CalREIT Board of
         Trustees with a slate of its own Trustees. In 1995, the Board was
         expanded from three to five Trustees, two of whom were independent. In
         1996, the Board of Trustees was comprised of two independent Trustees,
         one Trustee who concurrently served on the Board of Trustees of
         Peregrine, a former officer of the Trust, and the then Chief Executive
         Officer of the Trust.

         On January 3, 1997, Peregrine sold its entire 76%-ownership interest in
         the Trust to CalREIT Investors Limited Partnership ("CRIL"), an entity
         controlled by Samuel Zell. Simultaneous with the closing of this
         Transaction, the Board of Trustees was expanded to seven members; one
         Trustee, who also served on the Peregrine Board of Trustees, resigned;
         and three additional Trustees, nominated by CRIL, were appointed to the
         Board.

         As of March 31, 1997, the Trust had sold its two remaining commercial
         rental properties, Fulton Square Shopping Center and Totem Square in
         Sacramento, California and in Kirkland, Washington, respectively. At
         the end of the first quarter, the Trust owned a mortgage note portfolio
         of four notes encompassing approximately $8,785,000 in loans with an
         aggregate book value of approximately $2,658,000. These loans bear
         interest at an overall effective rate of approximately 8%. They are
         collateralized by mortgages on real property. Three of the investments
         in the four loans were originated by the Trust in connection with the
         disposition of Trust properties prior to 1996. The remaining note, in
         the face amount of approximately $1,090,000, was made in conjunction
         with the sale of Fulton Square Shopping Center in February 1997.

         Additionally,  as  of  March  31,  1997  the  Trust  had  approximately
         $13,141,000 invested in liquid mortgage-backed securities.


                                       4
<PAGE>   8


                     CALIFORNIA REAL ESTATE INVESTMENT TRUST
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

1.       Organization and Basis of Presentation, continued:

                              Basis of Presentation

         The accompanying financial statements are unaudited; however, they have
         been prepared in accordance with generally accepted accounting
         principles for interim financial information and in conjunction with
         the rules and regulations of the Securities and Exchange Commission.
         Accordingly, they do not include all of the disclosures required by
         generally accepted accounting principles for complete financial
         statements. In the opinion of management, all adjustments (consisting
         solely of normal recurring matters) necessary for a fair presentation
         of the financial statements for these interim periods have been
         included. The results for the interim period ended March 31, 1997, are
         not necessarily indicative of the results to be obtained for the full
         fiscal year. These financial statements should be read in conjunction
         with the December 31, 1996, audited financial statements and notes
         thereto, included in the California Real Estate Investment Trust Annual
         Report on Form 10-K. The accompanying unaudited consolidated financial
         statements of California Real Estate Investment Trust include the
         accounts of the Trust, Cal-CORP and Totem.

                            Stock-Based Compensation

         As of March 31, 1997 and December 31, 1996 there were no stock options
         outstanding nor stock option plans in place.

2.       Investments in Notes Receivable:

         As of March 31, 1997 and December 31, 1996, the Trust had long-term
         notes receivable, collateralized by deeds of trust (before valuation
         allowances and deferred gains) of $8,785,000 and $7,703,000,
         respectively. The notes are collateralized by real estate properties in
         California and Arizona. In conjunction with the Trust's plan to
         monetize assets, its mortgage note investments are classified for
         accounting purposes as "held for sale."  The notes bear interest at 
         rates ranging from 7.63% to 9.5% as of March 31, 1997. For the quarter
         ended March 31, 1997 the overall effective rate was approximately 8%.




                                       5


<PAGE>   9


                     CALIFORNIA REAL ESTATE INVESTMENT TRUST
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

3.       Investments in Marketable Securities:

         At March 31, 1997, the Trust had $13,141,000 invested in liquid
         mortgage-backed securities classified as "available-for-sale."

         Statement of Financial Accounting Standards No. 115, "Accounting for
         Certain Investments in Debt and Equity Securities," (SFAS 115) issued
         in May 1993 requires that at the date of acquisition and at each
         reporting date, debt and equity securities be classified as
         "held-to-maturity," "trading," or "available for sale." Investments in
         debt securities in which the Trust has the positive intent and ability
         to hold to maturity are required to be classified as
         "held-to-maturity." "Held-to-maturity" securities are required to be
         stated at cost and adjusted for amortization of premiums and discounts
         to maturity in the consolidated balance sheet. Investments in debt and
         equity securities that are not classified as "held-to-maturity" and
         equity securities that have readily determinable fair values are to be
         classified as "trading" or "available-for-sale" and are measured at
         fair value in the consolidated balance sheet. Securities that are
         bought and held principally for the purpose of selling them in the near
         term are classified as "trading." Unrealized holding gains and losses
         for "trading" securities are included in earnings.

         Investments that are not classified as "held-to-maturity" or "trading"
         securities are classified as "available-for-sale." Unrealized holding
         gains and losses for "available-for-sale" securities are excluded from
         earnings and reported as a separate component of shareholders' equity
         until realized.

         In accordance with SFAS 115, the Trust determines the appropriate
         classification at the time of purchase and reevaluates such designation
         at each balance sheet date.



                                       6
<PAGE>   10


                     CALIFORNIA REAL ESTATE INVESTMENT TRUST
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

3.       Investments in Marketable Securities, continued:

         At March 31, 1997, the Trust's "available-for-sale" securities
         consisted of the following:

<TABLE>
<CAPTION>
                                                                  (In thousands)                  
                                                                    Unrealized        Estimated
                                                      Cost      Gains       Losses    Fair Value
                                                      ----      -----       ------    ----------
        <S>                                         <C>       <C>         <C>         <C>     
        Federal National Mortgage
          Association, adjustable rate interest
          currently at 7.842%, due April 1, 2024    $ 2,681   $     --    $    (17)   $  2,664
        
        Federal Home Loan Mortgage
          Corporation, adjustable rate interest
          currently at 7.666%, due June 1, 2024         908         --          (3)        905
        
        Federal National Mortgage
          Association, adjustable rate interest
          currently at 7.311%, due April 1, 2025        656         --          (5)        651
        
        Federal National Mortgage
          Association, adjustable rate interest
          currently at 6.147%, due May 1, 2026        3,089         17          --       3,106
        
        Federal National Mortgage
          Association, adjustable rate interest
          currently at 6.156%, due June 1, 2026       5,788         27          --       5,815
                                                   --------   --------    --------    --------
        
                                                   $ 13,122   $     44    $    (25)   $ 13,141
                                                   ========   ========    ========    ========
</TABLE>

         The maturity dates above are not necessarily indicative of expected
         maturities as principal is often prepaid on such instruments.

4.       Long-Term Notes Payable:

         The Trust has one note payable to John Alden Life Insurance Company
         with an interest rate of 9.25% per annum. Principal and interest are
         payable monthly until August 7, 2017 when the entire unpaid principal
         balance and any unpaid interest are due.


                                       7

<PAGE>   11


                     CALIFORNIA REAL ESTATE INVESTMENT TRUST
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

5.       Income Taxes:

         The Trust has elected to be taxed as a real estate investment trust and
         as such, is not taxed on that portion of its taxable income which is
         distributed to shareholders, provided that at least 95% of its real
         estate trust taxable income is distributed and that the Trust meets
         certain other REIT requirements.

6.       Related-Party Transactions:

         Pursuant to an oral agreement with Peregrine, costs for certain general
         administrative services, including executive services, accounting
         services, treasury services, financial reporting and internal
         bookkeeping services, shareholder relations, and directors and officers
         insurance were shared with Peregrine. The shared costs were allocated
         to the Trust and Peregrine based upon their respective asset values
         (real property and notes receivable), subject to annual negotiation. At
         March 31, 1997 and December 31, 1996, the Trust had $9,000, and
         $31,000, respectively due to Peregrine pursuant to the cost allocation
         arrangement. The cost allocation arrangement between the Trust and
         Peregrine was terminated on January 7, 1997.

7.       Statements of Cash Flows Supplemental Information:

         In connection with the sale and foreclosure of properties, the Trust
         entered into various non-cash transactions as follows:
<TABLE>
<CAPTION>
                                                                                      (In thousands)
                                                                                For the Three Months Ended

                                                                                 March 31,          March 31,
                                                                                    1997               1996
                                                                                ----------        -----------

         <S>                                                                   <C>                <C>        
         Sales price less selling costs                                        $ 8,396,000        $ 1,033,000
         Amount due from Buyer                                                   1,090,000         (1,033,000)
                                                                                ----------        -----------

         Net cash received                                                      $7,306,000        $        --
                                                                                 =========        ===========
</TABLE>


         Cash paid for interest on the Trust's outstanding debt during the
         three-month periods ended March 31, 1997 and 1996, was $99,000 and
         $139,000, respectively.


                                       8
<PAGE>   12


                     CALIFORNIA REAL ESTATE INVESTMENT TRUST
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   ----------

8.       Per Share Data:

         Per share data is for the three-month periods ended March 31, 1997, and
         March 31, 1996, based on the weighted average number of Common Shares
         outstanding during each period. The weighted average number of shares
         used in the computation was 9,137,000.

9.       Gain (loss) on Sale of Investments:

         Components of the gain (loss) on the sale of investments for the three
         months ended March 31, 1997, and March 31, 1996, were as follows:

<TABLE>
<CAPTION>
                                                        (In thousands)
                                                            For the
                                                       Three Months Ended
                                                            March 31,
                                                       1997         1996
                                                       ----         ----
         <S>                                        <C>           <C>      
         Sale of Redfield Commercial Center         $      --     $ 299,000
         Sale of Fulton Square Shopping Center        (34,000)           --
         Sale of Totem Square                        (398,000)           --
                                                    ---------     ---------
                                                                              
                                                    $(432,000)    $ 299,000
                                                    =========     =========
</TABLE>
                                                                               
10.      Changes in and Disagreements with Accountants on Accounting and 
         Financial Disclosure

         On April 14, 1997, the Board of Trustees adopted a resolution (i) not
         to retain Coopers & Lybrand LLP ("C&L") as the Trust's auditors for the
         fiscal year ending December 31, 1997 and (ii) to engage Ernst & Young
         LLP as the Trust's independent auditors for the fiscal year ending
         December 31, 1997.

         The reports of C&L on the Trust's consolidated financial statements as
         of and for the two years ended December 31, 1996 and December 31, 1995
         did not contain an adverse opinion or a disclaimer opinion nor were
         they qualified or modified as to uncertainty, audit scope or accounting
         principles.

         During the Trust's two most recent fiscal years ended December 31,
         1996, there were no disagreements with C&L on any matter of accounting
         principles or practices, financial statement disclosure, or auditing
         scope or procedure, which disagreements, if not resolved to the
         satisfaction of C&L, would have caused them to make reference thereto
         in their report(s) on the Trust's financial statements for such fiscal
         year(s), nor were there any "reportable events" within the meaning of
         Item 304(a)(1)(v) of Regulation S-K promulgated under the Exchange Act.


                                       9
<PAGE>   13


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

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

The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Form 10-Q.
Historical results set forth are not necessarily indicative of the future
financial position and results of operations of the Trust.

Recent Developments

On January 3, 1997, CalReit Investors Limited Partnership ("CRIL"), an affiliate
of Equity Group Investments, Inc. ("EGI") and Samuel Zell, purchased from the
Trust's former parent, The Peregrine Real Estate Trust ("Peregrine"), 6,959,593
Common Shares in the Trust (representing approximately 76% of the outstanding
Common Shares) then owned by Peregrine for an aggregate purchase price of
$20,222,011.

Prior to the purchase, EGI and Victor Capital Group, L.P. ("VCG") presented to
the Board a proposed new business plan in which the Trust would cease to be a
REIT and instead become a specialty finance company designed primarily to take
advantage of high-yielding "mezzanine" investment opportunities in commercial
real estate. EGI and VCG also proposed that they provide the Trust with a new
management team to implement the business plan and that they invest through an
affiliate a minimum of $30 million in a new class of preferred shares to be
issued by the Trust.

The Board approved CRIL's purchase of Peregrine's Common Shares, the new
business plan and the issuance of the convertible preferred shares of the Trust
at $2.69 per share, the preferred shares to be convertible into common shares of
the Trust on a one-for-one basis. The Board also concluded that the transfer to
CRIL would not jeopardize the qualification of the Trust as a REIT, and exempted
CRIL's ownership from certain provisions of the Trust's declaration of trust
intended to discourage ownership of more than 10% of the outstanding shares of
the Trust.

In reaching its decision to approve the foregoing, the Board of Trustees
considered a number of factors including the attractiveness of the proposed new
business plan, the significant real estate investment and financing experience
of the proposed new management team and the significant amount of equity capital
the Trust would obtain from the proposed preferred share issuance. The Board
also considered the terms of previous alternative offers to purchase Peregrine's
interest in the Trust of which the Board was aware and the fact that the average
price of the Trust's Common Shares during the 60 trading days preceding the
Board of Trustees' meeting at which the proposed equity investment was approved
was $2.38 per share.

In connection with CRIL's purchase of the 6,959,593 Common Shares from
Peregrine, the Board of Trustees increased the size of the Board from five to
seven trustees, appointed three new trustees and accepted the resignation of one
then incumbent trustee associated with Peregrine.

The Trust has filed a preliminary proxy statement with the Securities and
Exchange Commission with respect to the annual meeting of its shareholders which
is expected to be held in June. At the annual meeting, the Trust's shareholders
will be asked to vote on proposals to (i) approve the 

                                       10
<PAGE>   14

issuance by the Trust of up to $33,000,000 of cumulative convertible preferred
shares ("Preferred Shares") to Veqtor Finance Company, LLC ("Veqtor"), an
affiliate of Samuel Zell and the principals of VCG (the "Investment"), (ii)
approve an amended and restated declaration of trust of the Trust, (iii) elect
seven trustees to serve on the Trust's board of trustees, (iv) ratify the
appointment of Ernst & Young LLP as auditors of The Trust for the fiscal year
1997 and (v) approve a share option plan. The preliminary proxy statement will
also outline the terms of the Investment and the Preferred Shares and the
Trust's proposed new business plan and management team.

In connection with the commencement of the new business plan (the "New Business
Plan"), concurrently with the consummation of the Investment, the Trust will
acquire the business of VCG, including VCG's existing management team (the
"Acquisition"). The Trust believes that, by acquiring direct ownership of VCG's
existing real estate investment banking, real estate advisory and real estate
asset management businesses as well as the services of VCG's experienced
professional team, the Trust will be better positioned to implement the New
Business Plan.

The issuance and sale of the Preferred Shares and related transactions are
subject to customary conditions, including completion of definitive
documentation.

CRIL, the affiliate of Samuel Zell, that owns the 76% common share interest in
the Trust has advised the Trust that it intends to vote in favor of the
proposals presented in the proxy statement. Accordingly, approval of the
proposals is assured. The record and meeting dates for the annual meeting will
be announced in the near future.

Dispositions of Properties and Mortgage Notes

As of January 1, 1997, the Trust's investment portfolio included two commercial
properties, as well as three mortgage notes secured by real property, all "held
for sale." The Trust's real estate portfolio, carried at a book value of
$8,585,000 as of January 1, 1997, included Fulton Square Shopping Center in
Sacramento, California and a 60% interest in Totem Square, a mixed-use retail
property in Kirkland, Washington. During the first quarter, these two commercial
properties were sold. The sale of Fulton Square closed on February 14, 1997 and
the sale of Totem Square closed on March 3, 1997. The proceeds from these sales
were invested in liquid mortgage-backed securities which satisfy REIT-asset
qualification requirements and mortgage loans. As of the end of the first
quarter, the Trust had $13,141,000 invested in such securities.

The Trust's mortgage note portfolio, carried at an aggregate book value of
$2,658,000 as of March 31, 1997, consists of four loans which bear interest at
an overall effective rate of approximately 8% and are collateralized by
mortgages on real property.

Management of the Trust's Investments

All strategic and investment decisions are made by the Board of Trustees. The
Trust is self-administered and has no employees; in 1996 operating and
administration services were provided by the employees of Peregrine (for which
Peregrine received a reimbursement of costs) and by independent contractors. As
of January 7, 1997, the arrangement with Peregrine was mutually terminated.
Day-to-day operations and administration of CalREIT are currently being provided
by independent contractors.


                                       11
<PAGE>   15


United Property Services, Inc. ("UPSI") was the property manager for the Trust's
commercial properties. The Trust's agreement with UPSI terminated upon the
disposition of Totem Square.

The Trust's financial and operating performance information is further set forth
in the accompanying financial statements.

Comparison of the Three Months Ended March 31, 1997 to the Three Months Ended
March 31, 1996

Net Loss of $508,000 was reported by the Trust for the three months ended March
31, 1997, a decrease of $948,000 from the net income of $440,000 for the three
months ended March 31, 1996. The net loss was primarily the result of a decrease
in rental revenues from properties sold during the period and the losses
resulting from the sales of investments.

Total Revenues decreased $258,000, or 30%, to $613,000 for the three months
ended March 31, 1997, down from $871,000 for the three months ended March 31,
1996 The decrease for the three months ended March 31, 1997, was primarily
attributable to a decrease in rental revenue as a result of the sale of the
Trust's remaining rental properties.

Rental revenues, decreased $333,000, or 38%, to $236,000 for the three months
ended March 31, 1997, down from $569,000 for the three months ended March 31,
1996. These decreases were primarily the result of decreases in rental revenue
due to the sale of the Redfield Commerce Center in March 1996, the sale of the
Bekins Storage Facility in May 1996, the foreclosure sale of the Casa Grande
Motor Inn in February 1996, the sale of Fulton Square Shopping Center in
February 1997 and the sale of Totem Square in March 1997.

Interest revenues increased $21,000, or 7%, to $323,000 for the three months
ended March 31, 1997, up from $302,000 for the three months ended March 31,
1996. This increase was primarily due to the increase in interest earned on cash
accounts and marketable securities.

Total Expenses decreased $41,000, or 60%, to $689,000 for the three months ended
March 31, 1997, down from $730,000 for the three months ended March 31, 1996.
These decreases were primarily attributable to decreases in operating and
interest expenses resulting from the disposition of properties and mortgage
notes within the Trust's portfolio during the prior twelve-month period.

Interest expense decreased $38,000, or 28%, to $99,000 for the three months
ended March 31, 1997, down from $137,000 for the three months ended March 31,
1996. This decrease primarily resulted from the cessation of interest expense on
notes secured by properties which have been sold.

Dispositions. During the first quarter of 1997, the Trust sold Fulton Square
Shopping Center, a retail property located in Sacramento, California. The net
loss recognized from the sale of Fulton Square was approximately $34,000. The
Trust also sold Totem Square, a retail property located in Kirkland, Washington.
The net loss recognized from the sale of Totem Square was approximately $398,000
of which the majority was transfer taxes and the elimination of unamortized
tenant improvements and leasing commissions.


                                       12
<PAGE>   16



Liquidity and Capital Resources

The Trust considers its liquidity and ability to generate cash from operations
and financings to be sufficient to sustain day-to-day operations and to
implement the New Business Plan.

At March 31, 1997, the Trust had $8,330,000 in cash; and an investment portfolio
of liquid mortgage-backed securities with a net book value of $13,141,000. The
Trust experienced a net increase in cash of $3,632,000 for the three months
ended March 31, 1997, compared to a net increase in cash of $282,000 for the
three months ended March 31, 1996, a difference of $3,350,000. The Trust's
improved cash position during the above twelve-month period resulted from the
redeployment of the real estate portfolio into better performing assets, a
reduction in overall expenses and from investing activities.

As of March 31, 1997 the Trust owned a mortgage note portfolio of four notes
totaling approximately $8,785,000 in loans with an aggregate book value of
$2,658,000. These loans bear interest at an overall effective rate of 8% and are
collateralized by mortgages on real property.

The Trust has one long-term outstanding debt obligation of $880,000.

Funds From Operations and Funds Available for Distribution. REIT analysts
generally consider Funds From Operations (FFO) an appropriate measure of
performance in comparing the results of operations of REITs. FFO is defined by
the National Association of Real Estate Investment Trusts as net income computed
in accordance with generally accepted accounting principles before gains and
losses on sales of property and from debt restructuring plus depreciation and
amortization. Funds Available for Distribution (FAD) is defined as FFO less
capital expenditures funded by operations and loan amortization. The Trust
believes that in order to facilitate a clear understanding of the historical
operating results of the Trust, FFO and FAD should be examined in conjunction
with net income as presented in this report. FFO and FAD should not be
considered as an alternative to net income as an indication of the Trust's
performance or to cash flow as a measure of liquidity.


                                       13
<PAGE>   17


         FFO (which was computed without adding back amortization of deferred
         financing costs and depreciation of non-rental real estate assets) and
         FAD for the three months ended March 31, 1997 and 1996 are summarized
         as follows:

    Calculation of Funds From Operations and Funds Available for Distribution

<TABLE>
<CAPTION>
                                                (In thousands)
                                          For the Three Months Ended
                                                   March 31,
                                              1997          1996
                                              ----          ----
<S>                                         <C>             <C>  
Net income before
  gain (loss) on sale of investments        ($ 76)          $ 141
                                                                         
Depreciation and                                                         
  amortization                                 21               5
                                            -----           -----
                                                                         
  Funds From Operations                       (55)            146
                                                                         
Capital Improvements                          (64)            (45)
                                                                         
Loan principal                                                           
  payments                                     --             (23)
                                            -----           -----
                                                                         
  Funds Available For                                                    
    Distribution                            $  --           $  78
                                            =====           =====
                                                                              
</TABLE>



                                       14
<PAGE>   18
                           PART II. OTHER INFORMATION


                  Item 1:           Legal Proceedings

                  The Trust filed a complaint in San Francisco Superior Court on
                  September 27, 1996, seeking a declaratory judgment against
                  Carrillion V, a California limited partnership, and its
                  general partner, with respect to an earnest money deposit
                  given by the Defendant under a May 1996 mortgage loan purchase
                  agreement. The dispute was settled out-of-court in the Trust's
                  favor for $54,000 (included in other revenues) in the first
                  quarter of 1997.

<TABLE>
                  <S>               <C>                               
                  Item 2:           Changes in Securities
                                    None

                  Item 3:           Defaults Upon Senior Securities
                                    None

                  Item 4:           Submission of Matters to a Vote of Security Holders
                                    None

                  Item 5:           Other Information
                                    None

                  Item 6:           Exhibits and Reports on Form 8-K

                                    (b) During the quarter ended March 31, 1997,
                                    the Trust filed one Report on Form 8-K dated
                                    January 3, 1997, reporting a change in
                                    control of the Registrant (Item 2 of Form
                                    8-K).
</TABLE>


                                   SIGNATURES


Pursuant to the requirement 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.


                                        CALIFORNIA REAL ESTATE INVESTMENT TRUST



May 15, 1997                            /s/  Frank A. Morrow
------------                            ---------------------
   Date                                 Frank A. Morrow,
                                        Chairman of the Board


                                       15