<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-K
(Mark One)
[X]              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
                                            -----------------

                                       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 1-12474
                                                -------

                           TORCH ENERGY ROYALTY TRUST
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
             ------------------------------------------------------

                Delaware                                  74-6411424
     (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)

1100 North Market Street, Wilmington, Delaware               19890
  (Address of principal executive offices)                 (Zip Code)

      Registrant's telephone number, including area code:  (302) 651-8775

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

          Title of each class         Name of each exchange on which registered
          -------------------         -----------------------------------------
       Units of Beneficial Interest           New York Stock Exchange

         Securities registered pursuant to Section 12 (g) of the Act:
                                     NONE

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

                                YES    X       NO
                                     -----        ------

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

The aggregate market value of outstanding units of beneficial interest of the
registrant held by non-affiliates of the registrant at March 1, 2002 was
approximately $51.8 million.
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                           Annual Report on Form 10-K
                  For the fiscal year ended December 31, 2001

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                  Page
                                                                 Number
                                                                 ------
<S>          <C>                                                 <C>
PART I

  Item 1.    Business...........................................    3
  Item 2.    Properties.........................................    9
  Item 3.    Legal Proceedings..................................    12
  Item 4.    Submission of Matters to a Vote of Unitholders.....    12

PART II

  Item 5.    Market for Registrant's Units and Related
             Unitholder Matters.................................    13
  Item 6.    Selected Financial Data............................    13
  Item 7.    Discussion and Analysis of Financial Condition and
             Results of Operations..............................    14
  Item 7a    Quantitative and Qualitative Disclosures About
             Market Risk........................................    17
  Item 8.    Financial Statements and Supplementary Data........    18
  Item 9.    Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure................    31

PART III

  Item 10.   Directors and Executive Officers of the Registrant.    31
  Item 11.   Executive Compensation.............................    31
  Item 12.   Security Ownership of Certain Beneficial Owners and
             Management.........................................    31
  Item 13.   Certain Relationships and Related Transactions.....    32

PART IV

  Item 14.   Exhibits, Financial Statement Schedules and
             Reports on Form 8-K................................    34

             Signatures
</TABLE>

                                       2
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                                     PART I

ITEM 1.  BUSINESS
-----------------

This document includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934.  All statements other than statements of
historical facts included in this document, including without limitation,
statements under "Discussion and Analysis of Financial Condition and Results of
Operations" regarding the  financial position and estimated quantities and net
present values of reserves of the Torch Energy Royalty Trust ("Trust") are
forward-looking statements.  Torch Energy Advisors Incorporated ("Torch") and
the Trust can give no assurances that the assumptions upon which these
statements are based will prove to be correct.  Important factors that could
cause actual results to differ materially from Torch's expectations ("Cautionary
Statements") are disclosed under "Risk Factors" elsewhere in this document.  All
subsequent written and oral forward-looking statements attributable to the Trust
or persons acting on its behalf are expressly qualified by the Cautionary
Statements.

GENERAL

The Trust was formed effective October 1, 1993 under the Delaware Business Trust
Act pursuant to a trust agreement ("Trust Agreement") among Wilmington Trust
Company, as trustee ("Trustee"), Torch Royalty Company ("TRC") and Velasco Gas
Company Ltd. ("Velasco") as owners of certain oil and gas properties
("Underlying Properties") and Torch as grantor.  TRC and Velasco created net
profits interests ("Net Profits Interests") and conveyed such interests to
Torch.  Torch conveyed the Net Profits Interests to the Trust in exchange for an
aggregate of 8,600,000 units of beneficial interest ("Units").  Such Units were
sold to the public through various underwriters in November 1993.  Pursuant to
an administrative services agreement ("Administrative Services Agreement"),
Torch provides accounting, bookkeeping, informational and other services related
to the Net Profits Interest.

The Trust will not terminate prior to January 1, 2003, except upon the
affirmative vote of the holders of not less than 80% of the outstanding Units.
Thereafter, the Trust will terminate upon the first to occur of (i) an
affirmative vote of the holders of not less than 66-2/3% of the outstanding
Units to liquidate the Trust; (ii) such time as the ratio of the cash amounts
received by the Trust from the Net Profits Interests to administrative costs of
the Trust is less than 1.2 to 1.0 for three consecutive quarters; (iii) March 1
of any year if it is determined based on a reserve report as of December 31 of
the prior year that the present value of estimated pre-tax future net cash
flows, discounted at 10%, of proved reserves attributable to the Net Profits
Interests is equal to or less than $25 million; or (iv) December 31, 2012.
After termination of the Trust, the remaining assets of the Trust will be sold
and the proceeds therefrom (after expenses) will be distributed to the
unitholders ("Unitholders").  The sole purpose of the Trust is to hold the Net
Profits Interests, to receive payments from TRC and Velasco, and to make
payments to Unitholders.  The Trust does not conduct any business activity.

TRC and Velasco, as owners of the Underlying Properties subject to and burdened
by the Net Profits Interests, contracted to sell the oil and gas production from
such properties to Torch Energy Marketing Inc. ("TEMI"), a subsidiary of Torch,
under a purchase contract ("Purchase Contract").  TRC and Velasco receive
payments reflecting the proceeds of oil and gas sold and aggregate these
payments, deduct applicable costs and make payments to the Trustee each quarter
for the amounts due to the Trust.  Unitholders receive quarterly cash
distributions relating to oil and gas produced and sold from the Underlying
Properties.  Because no additional properties will be contributed to the Trust,
the assets of the Trust deplete over time and a portion of each cash
distribution made by the Trust is analogous to a return of capital.

                                       3
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

The Underlying Properties constitute working interests in the Chalkley Field in
Louisiana ("Chalkley Field"), the Robinson's Bend Field in the Black Warrior
Basin in Alabama ("Robinson's Bend Field"), fields that produce from the Cotton
Valley formations in Texas ("Cotton Valley Fields") and fields that produce from
the Austin Chalk formation in Texas ("Austin Chalk Fields").  The Underlying
Properties represent interests in all productive formations from 100 feet below
the deepest productive formation in each field to the surface when the Trust was
formed.  The Trust therefore has no interest in deeper productive formations.
Other clients of Torch also own interests in oil and gas properties located in
the same geographic areas as the Underlying Properties and own interests in
certain of the same wells, which interests are not burdened by the Net Profits
Interests.

Sales of coal seam and tight sands gas attributable to the Net Profits Interests
prior to January 1, 2003 result in Unitholders receiving quarterly allocations
of tax credits under Section 29 of the Internal Revenue Code of 1986 ("Section
29 Credit").  In 2001, 2000 and 1999, the Section 29 Credit available for
production from qualifying coal seam properties was approximately $1.08, $1.06
and $1.04, respectively, for each MMBtu of gas produced and sold.  This rate is
adjusted annually for inflation.  The Section 29 Credit available for production
from qualifying tight sands properties is approximately $0.52 for each MMBtu of
gas produced and sold and such amount is not adjusted for inflation.

Separate conveyances ("Conveyances") were used to transfer the Net Profits
Interests in each state.  Net proceeds ("Net Proceeds"), generally defined as
gross revenues received from the sale of production attributable to the
Underlying Properties during any period less property, production, severance and
similar taxes, and development, operating, and certain other costs (excluding
operating and development costs from the Robinson's Bend Field until January 1,
2003), are calculated separately for each Conveyance.  If, during any period,
costs and expenses deducted in calculating Net Proceeds exceed gross proceeds
under a Conveyance, neither the Trust nor Unitholders are liable to pay such
excess directly, but the Trust will receive no payments for distribution to
Unitholders with respect to such Conveyance until future gross proceeds exceed
future costs and expenses plus the cumulative excess of such costs and expenses
not previously recouped by TRC and Velasco plus interest thereon.  Because
development and operating costs generally are deducted in computing Net
Proceeds, such costs will affect the amounts paid to the Trust from the Net
Profits Interests.  The complete definitions of Net Proceeds are set forth in
the Conveyances.

MARKETING ARRANGEMENTS

In connection with the formation of the Trust, TRC, Velasco and TEMI entered
into the Purchase Contract which expires upon the termination of the Trust.
Under the Purchase Contract, TEMI is obligated to purchase all net production
attributable to the Underlying Properties for an index price for oil and gas
("Index Price"), less certain gathering, treating and transportation charges,
which are calculated monthly.  The Index Price equals 97% of the average spot
market prices of oil and gas ("Average Market Prices") at the four locations
where TEMI sells production, which, prior to September 1, 2000, was adjusted to
reflect the terms of a hedge contract ("Hedge Contract") to which TEMI was a
party.  Under the Hedge Contract, TEMI received prices specified in the Hedge
Contract ("Specified Prices") for quantities of oil and gas specified therein
("Specified Quantities").  In calculating the Index Price for gas (which
represents approximately 97% of the estimated reserves as of January 1, 2002, on
a net equivalent Mcf of gas ("Mcfe") basis), the Specified Prices received
weightings of 8% and less during the three years ended December 31, 2001 and the
Average Market Prices received the balance of the weighting.  The Specified
Prices for gas was $1.88 per MMBtu in 1999 and $1.89 per MMBtu in 2000 and were
adjusted to reflect the difference between the settlement prices for oil and gas
in the futures markets and the Average Market Prices.  The Hedge Contract
expired August 31, 2000.

                                       4
<PAGE>

                          TORCH ENERGY ROYALTY TRUST


The Purchase Contract also provides that the minimum price paid by TEMI for gas
production is $1.70 per MMBtu ("Minimum Price").  When TEMI pays a purchase
price based on the Minimum Price it receives price credits ("Price Credits"),
equal to the difference between the Index Price and the Minimum Price, that it
is entitled to deduct in determining the purchase price when the Index Price for
gas exceeds the Minimum Price.  In addition, if the Index Price for gas exceeds
$2.10 per MMBtu, TEMI is entitled to deduct 50% of such excess ("Price
Differential") in determining the purchase price.  Beginning January 1, 2002,
TEMI has an annual option to discontinue the Minimum Price commitment.  However,
if TEMI discontinues the Minimum Price commitment, it will no longer be entitled
to deduct the Price Differential in calculating the purchase price and will
forfeit all accrued Price Credits.  Additionally, if TEMI continues the Minimum
Price commitment, the Minimum Price and the Sharing Price will be increased
for inflation based on the Producer Price Index  on January 1 of each year
commencing January 1, 2002.  As TEMI did not exercise its option to discontinue
the Minimum Price Commitment, the Minimum Price and Sharing Price in 2002,
adjusted for inflation, will be $1.71 and $2.12, respectively.  TEMI has
purchased contracts granting TEMI the right to sell estimated gas production in
excess of the Specified Quantities at a price intended to limit TEMI's losses in
the event the Index Price falls below the Minimum Price.

Gas production is purchased at the wellhead and, therefore, Net Proceeds do not
include any amounts received in connection with extracting natural gas liquids
from such production at gas processing or treating facilities.

GATHERING, TREATING AND TRANSPORTATION ARRANGEMENTS

The Purchase Contract entitles TEMI to deduct certain gas gathering, treating
and transportation fees in calculating the purchase price for gas in the
Robinson's Bend, Austin Chalk and Cotton Valley Fields.  The amounts that may be
deducted in calculating the purchase price for such gas are set forth in the
Purchase Contract and are not affected by the actual costs incurred by TEMI to
gather, treat and transport gas.  For the Robinson's Bend Field, TEMI is
entitled to deduct a gathering, treating and transportation fee of $0.260 per
MMBtu adjusted for inflation ($0.286, $0.283 and $0.281 per MMBtu for 2001,
2000, and 1999, respectfully), plus fuel usage equal to 5% of revenues, payable
to Bahia Gas Gathering, Ltd. ("Bahia"), an affiliate of Torch, pursuant to a gas
gathering agreement.  Additionally, a fee of $.05 per MMBtu, representing a
gathering fee payable to a non-affiliate of Torch, is deducted in calculating
the purchase price for production from 68 of the 394 wells in the Robinson's
Bend Field.  TEMI deducts $0.38 per MMBtu plus 17% of revenues in calculating
the purchase price for production from the Austin Chalk Fields as a fee to
gather, treat and transport gas production.  TEMI deducts from the purchase
price for gas for production attributable to certain wells in the Cotton Valley
Fields a transportation fee of $0.045 per MMBtu.  During the years ended
December 31, 2001, 2000 and 1999, gathering, treating and transportation fees
charged to the Trust by TEMI, attributable to production during the twelve
months ended September 30, 2001, 2000 and 1999 in the Robinson's Bend, Austin
Chalk and Cotton Valley Fields, totaled $1,438,000, $1,342,000 and $1,309,000,
respectively.  No amounts for gathering, treating or transportation are deducted
in calculating the purchase price from the Chalkley Field.

NET PROFITS INTERESTS

The Net Profits Interests entitle the Trust to receive 95% of the Net Proceeds
attributable to oil and gas produced and sold from wells (other than infill
wells) on the Underlying Properties.  In calculating Net Proceeds from the
Robinson's Bend Field, operating and development costs incurred prior to January
1, 2003 are not deducted.  In addition, the amounts paid to the Trust from the
Robinson's Bend Field during any calendar quarter are subject to a volume
limitation ("Volume Limitation") equal to the gross proceeds from the sale of
912.5 MMcf of gas, less property, production, severance and related taxes.  The

                                       5
<PAGE>

                          TORCH ENERGY ROYALTY TRUST


Robinson's Bend Field production attributable to the Trust did not meet the
Volume Limitation during the three years ended December 31, 2001 and is not
expected to do so in the future.

The Net Profits Interests also entitle the Trust to 20% of the Net Proceeds
(defined below) of wells drilled on the Underlying Properties since the Trust's
establishment into formations in which the Trust has an interest, other than
wells drilled to replace damaged or destroyed wells ("Infill Wells").  Infill
Well Net Proceeds represent the aggregate gross revenues received from Infill
Wells less the aggregate amount of the following Infill Well costs: i) property,
production, severance and similar taxes; ii) development costs; iii) operating
costs; and iv) interest on the recovered portion, if any, of the foregoing costs
computed at a rate of interest announced publicly by Citibank, N.A. in New York
as its base rate.

Effective April 1, 2000, Torch sold its interest in eight Infill Wells and its
approximate 5% interest in the Cotton Valley Field.  The properties were
conveyed subject to the terms and conditions of the Trust Agreement.  The
Trust's Net Profit Interest and Trust Corpus were not impacted by the sale.

                                  RISK FACTORS

VOLATILITY OF OIL AND GAS PRICES

The Trust's cash distributions, operating results and the value of the Net
Profits Interest are substantially dependent on prices of gas and, to a lesser
extent, oil.  Prices for oil and gas are subject to large fluctuations in
response to relatively minor changes in the supply of and demand for oil and
gas, market uncertainty and a variety of additional factors beyond control of
Torch.  These factors include weather conditions in the United States, the
condition of the United States economy, the actions of the Organization of
Petroleum Exporting Countries, governmental regulation, political stability in
the Middle East and elsewhere, the foreign supply of oil and gas, the price of
foreign imports and the availability of alternate fuel sources.  Any substantial
and extended decline in the price of oil and gas would have an adverse effect on
the Trust's revenues, cash distributions and value of the Net Profits Interests.

UNCERTAINTY OF ESTIMATES OF RESERVES AND FUTURE NET CASH FLOWS

Estimates of economically recoverable oil and gas reserves and of future net
cash flows are based upon a number of variable factors and assumptions, all of
which are to some degree speculative and may vary considerably from actual
results.  Therefore, actual production, revenues, taxes and development and
operation expenditures may not occur as estimated.  Future results of the Trust
will depend upon the ability of the owners of  the Underlying Properties to
develop, produce and sell their oil and natural gas reserves.  The reserve data
included herein are estimates only and are subject to many uncertainties.
Actual quantities of oil and natural gas may differ considerably from the
amounts set forth herein.  In addition, different reserve engineers may make
different estimates of reserve quantities and cash flows based upon the same
available data. The present value, discounted at 10%, of future net cash flows
from proved reserves attributable to the Net Profits Interests does not
represent the fair market value of the proved reserves, or the price at which
the Net Profits Interests could be sold.  A determination of fair market value
would involve consideration of many factors in addition to the present value,
discounted at 10%.  An impairment loss is recognized when the net carrying value
of the Net Profits Interests exceeds the sum of the estimated undiscounted
future cash flows attributable to the Net Profits Interest plus the estimated
future tax credits under Section 29 of the Internal Revenue Code of 1986
("Section 29 Credit") for Federal income tax purposes. No impairment loss was
recognized during the three years ended December 31, 2001.

                                       6
<PAGE>

                          TORCH ENERGY ROYALTY TRUST


OPERATING RISKS

Cash payments to the Trust are derived from the production and sale of oil and
gas, which operations are subject to risk inherent in such activities, such as
blowouts, cratering, explosions, uncontrollable flows of oil, gas or well
fluids, fires, pollution and other environmental risks.  These risks could
result in substantial losses which are deducted in calculating the Net Proceeds
paid to the Trust due to injury and loss of life, severe damage to and
destruction of property and equipment, pollution and other environmental damage
and suspension of operations.

COMPETITION AND MARKETS

The Trust's distributions are dependent on gas production and prices and, to a
lesser extent, oil production and prices from the Underlying Properties.  The
gas industry is highly competitive in all of its phases.  In marketing
production from the Underlying Properties, TEMI encounters competition from
major gas companies, independent gas concerns, and individual producers and
operators.  Many of these competitors have greater financial and other resources
than TEMI.  Competition may also be presented by alternative fuel sources,
including heating oil and other fossil fuels.

Market prices are typically volatile as a result of uncertainties caused by
world events.  Demand for natural gas production has historically been seasonal
in nature, and prices for gas fluctuate accordingly.  Such price fluctuations
will directly impact Trust distributions, estimated reserve attributable to the
Trust and estimated future net revenues from Trust reserves.

REGULATION OF NATURAL GAS

The production, transportation and sale of natural gas from the Underlying
Properties are subject to Federal and state governmental regulation, including
regulation of tariffs charged by pipelines, taxes, the prevention of waste, the
conservation of gas, pollution  controls and various other matters.  The United
States has governmental power to impose pollution control measures.

Federal Regulation

The Underlying Properties will be subject to the jurisdiction of FERC with
respect to various aspects of gas operations including the marketing and
production of gas.  The Natural Gas Act and the Natural Gas Policy Act
(collectively, the "Acts") mandate Federal regulation of interstate
transportation of gas.  The Natural Gas Wellhead Decontrol Act of 1989
terminated wellhead price controls on all domestic gas on January 1, 1993.
Numerous questions have been raised concerning the interpretation and
implementation of several significant provisions of the Acts and of the
regulations and policies promulgated by FERC thereunder.  A number of lawsuits
and administrative proceedings have been instituted which challenge the validity
of regulations implementing the Acts.  In addition, FERC currently has under
consideration various policies and proposals that may affect the marketing of
gas under new and existing contracts.  Accordingly, Torch is unable to predict
the impact of any such government regulation.

In the past, Congress has been very active in the area of gas regulation.
Recently enacted legislation repeals incremental pricing requirements and gas
use restraints previously applicable.  At the present time, it is impossible to
predict what proposals, if any, might actually be enacted by Congress or the
various state legislatures and what effect, if any, such proposals might have on
the Underlying Properties and the Trust.

                                       7
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

State Regulation

Many state jurisdictions have at times imposed limitations on the production of
gas by restricting the rate of flow for gas wells below their actual capacity to
produce and by imposing acreage limitations for the drilling of a well.  States
may also impose additional regulations of these matters.  Most states regulate
the production of gas, including requirements for obtaining drilling permits,
the method of developing new fields, provisions for the unitization or pooling
of gas properties, the spacing, operation, plugging and abandonment of wells and
the prevention of waste of gas resources.  The rate of production may be
regulated and the maximum daily production allowable from gas wells may be
established on a market demand or conservation basis or both.

ENVIRONMENTAL REGULATION

Activities on the Underlying Properties are subject to existing Federal, state
and local laws, rules and regulations relating to the protection of public
health and welfare, safety and the environment, including, without limitation,
laws regulating the release of materials into the environment and laws
protecting areas of particular environmental concern.  It is anticipated that,
absent the occurrence of an unanticipated event, compliance with these laws will
not have a material adverse effect upon the Trust or Unitholders.  Torch has
informed the Trust that it cannot predict what effect future regulation or
legislation, enforcement policies thereunder, and claims for damages to
property, employees, other persons and the environment resulting from operations
on the Underlying Properties could have on the Trust or Unitholders.  However,
pursuant to the terms of the Conveyances, any costs or expenses incurred by TRC
or Velasco in connection with environmental liabilities, to the extent arising
out of or relating to activities occurring on, or in connection with, or
conditions existing on or under, the Underlying Properties before October 1,
1993, will be borne by TRC or Velasco and not the Trust and will not be deducted
in calculating Net Proceeds and will, therefore, not reduce amounts payable to
the Trust.

FOLLOWING DECEMBER 31, 2002, NET PROCEEDS ATTRIBUTABLE TO THE ROBINSON'S BEND
FIELD WILL DECREASE

Prior to December 31, 2002, lease operating expenses will not be deducted in
calculating the Net Proceeds payable to the Trust from the Robinson's Bend
Field.  After 2002, lease operating expenses will be deducted in calculating Net
Proceeds.  As a result, Net Proceeds paid to the Trust will decrease
substantially following 2002.  In 2001, lease operating expense in the
Robinson's Bend Field was $6.2 million.  Because lease operating expenses for
the Robinson's Bend Field during 2001 exceeded Net Proceeds paid to the Trust
from the Robinson's Bend Field, deduction of lease operating expenses in 2001
would have reduced the Net Proceeds paid to the Trust attributable to the
Robinson's Bend Field to zero and amounts paid to the Trust in 2001 would have
been reduced from $16.2 million to $10.4 million, or $1.89 to $1.21 per Unit.
Torch currently estimates that if gas prices are below $5.10 per Mcf in 2003,
lease operating expenses will be greater than Net Proceeds and so the Trust will
not receive any Net Proceeds attributable to the Robinson's Bend Field.
Approximately $4.7 million of the $6.2 million of the lease operating expenses
for 2001 were paid to Torch and its affiliates pursuant to a water disposal
contract and operating agreements covering the wells in the Robinson's Bend
Field.

THE TRUST MAY TERMINATE AFTER 2002

The Trust will terminate on March 1 of any year after 2002 if it is determined
that the pre-tax future net cash flows, discounted at 10%, attributable to
estimated net proved reserves of the Net Profits Interests on the preceding
December 31 are less than $25 million.  The estimated price of natural gas per
Mcf which would result in a termination of the Trust is dependent on the oil and
gas reserve estimates.  Any revisions of oil and natural gas reserve estimates
will impact the estimated price per Mcf that would cause the Trust

                                       8
<PAGE>

                          TORCH ENERGY ROYALTY TRUST


to terminate. Torch currently estimates that unless the price of natural gas on
December 31, 2002 exceeds $3.00 per Mcf, the Trust will terminate. Upon
termination of the Trust, the Trustee is required to sell the Net Profits
Interests. No assurances can be given that the Trustee will be able to sell the
Net Profits Interests, or as to the price that will be received for such Net
Profits Interests or the amount that will be distributed to Unitholders
following such a sale. Such distributions could be below the market value of the
Units.


ITEM 2.  PROPERTIES
-------------------

DESCRIPTION OF THE UNDERLYING PROPERTIES

Chalkley Field.  The Underlying Properties in the Chalkley Field, located in
Cameron Parish, Louisiana, include an average 16.2% working interest (12.1% net
revenue interest) in six unitized wells producing from the Miogyp "B" reservoir.
The wells produce from a depth in excess of 14,000 feet.  A subsidiary of
ExxonMobil Corporation operates the unitized wells.

Robinson's Bend Field.  The Underlying Properties include an average 42.7%
working interest (30.0% net revenue interest) in 394 wells in the Robinson's
Bend Field in the Black Warrior Basin of Alabama.  Sales of production of coal
seam gas from the Robinson's Bend Field prior to January 1, 2003 entitle
Unitholders to Section 29 Credits, provided certain requirements are met.  The
Section 29 Credit for qualifying coal seam gas production was approximately
$1.08, $1.06 and $1.04 per MMBtu in 2001, 2000 and 1999, respectively. This
rate is adjusted annually for inflation. All of the wells in the Robinson's Bend
Field are operated by an affiliate of Torch.

The amounts paid to the Trust from the Robinson's Bend Field in any calendar
quarter are subject to a Volume Limitation equal to the gross proceeds from the
sale of 912.5 MMcf, less property, production, severance and similar taxes, and
development, operating, and certain other costs (excluding operating and
development costs until January 1, 2003). Gross production during 2001, 2000,
and 1999 attributable to distributions from the Underlying Properties in the
Robinson's Bend Field averaged 557 MMcf, 595 MMcf and 652 MMcf per quarter,
respectively, and was therefore 42%, 38% and 32%, respectively, less than the
Volume Limitation for the year.

In calculating amounts paid to the Trust, lease operating expenses and
development costs in the Robinson's Bend Field are not deducted until after
2002.  When these amounts are deducted, the amounts paid to the Trust
attributable to the Robinson's Bend Field will be reduced substantially.

Cotton Valley Fields. The Underlying Properties include an average 49.0% working
interest ( 36.6% net revenue interest) in 41 wells in four fields that produce
from the Upper and Lower Cotton Valley formations in Texas. A substantial
portion of the gas produced and sold from the Cotton Valley Fields prior to
January 1, 2003 qualifies for the Section 29 Tax Credits for productions of
tight sands gas. The Section 29 Credit for qualifying tight sands gas production
is approximately $0.52 per MMBtu and is not adjusted for inflation. All of the
wells in the Cotton Valley Fields are operated by a subsidiary of Torch.

Austin Chalk Fields. The Underlying Properties include an average of 15.9%
working interest (12.4% net revenue interest) in 90 wells in the Austin Chalk
Fields of Central Texas. Production from these fields is derived primarily from
the highly fractured Austin Chalk formation using horizontal drilling
techniques. A substantial portion of the gas produced and sold from these fields
prior to January 1, 2003 qualifies for the Section 29 Credits for tight sands
gas. A subsidiary of Torch operates eight wells in the Austin Chalk Fields. The
remaining wells in the Austin Chalk Fields are operated by third parties.

                                       9
<PAGE>

                          TORCH ENERGY ROYALTY TRUST


WELL COUNT AND ACREAGE SUMMARY

The following table shows, as of December 31, 2001, the gross and net interest
in oil and gas wells for the Underlying Properties:

<TABLE>
<CAPTION>
                                                  Gas Wells                      Oil Wells
                                          -----------------------      -------------------------
                                             Gross         Net           Gross            Net
                                          ---------      --------      ----------      ---------
<S>                                        <C>             <C>           <C>              <C>
Chalkley Field......................              6           1.0             ---            ---
Robinson's Bend Field...............            394         168.3             ---            ---
Cotton Valley Fields................             41          20.9             ---            ---
Austin Chalk Fields.................             38           7.4              51            8.5
                                          ---------      --------      ----------      ---------
  Total.............................            479        197.60              51            8.5
                                          =========      ========      ==========      =========
</TABLE>

The following table shows the gross and net acreage for the Underlying
Properties as of December 31, 2001.  A gross acre in the following table refers
to the number of acres in which a working interest is owned directly by the
Trust.  The number of net acres is the sum of the fractional ownership of
working interests owned directly by the Trust in the gross acres expressed as a
whole number and percentages thereof.  A net acre is deemed to exist when the
sum of fractional ownership of working interests in gross acres equals one.

<TABLE>
<CAPTION>
                                                   Acreage
                                          ------------------------
                                             Gross           Net
                                          ---------      ---------
<S>                                          <C>            <C>
Chalkley Field......................          2,152            425
Robinson's Bend Field...............         33,404         14,288
Cotton Valley Fields................          4,411          2,606
Austin Chalk Fields.................         35,439          6,409
                                          ---------      ---------
  Total.............................         75,406         23,728
                                          =========      =========
</TABLE>

DRILLING ACTIVITY

The following table sets forth the results of drilling activity for the
Underlying Properties during the three years ended December 31, 2001.  Gross
wells, as it applies to wells in the following table, refers to the number of
wells in which a working interest is owned directly by TRC and Velasco ("Gross
Well").  A net well ("Net Well") represents the sum of the fractional ownership
working interests in the Gross Wells expressed as whole numbers and percentages
thereof.

All of the wells shown below represent Infill Wells drilled on the Underlying
Properties.  The Net Profits Interest entitle the Trust to 20% of "Infill Net
Proceeds."  Infill Net Proceeds is defined as gross proceeds from the sale of
production attributable to Infill wells less all production, drilling and
completion costs of such wells.  Infill Net Proceeds are calculated by
aggregating the proceeds and costs from Infill Wells on a state by state basis.
Because costs of Infill Wells exceed proceeds of production, the Trust has not
received any Infill Net Proceeds.


<TABLE>
<CAPTION>
                                                 Development Wells
              ---------------------------------------------------------------------------------------------
                                  Gross                                               Net
              -----------------------------------------------     -----------------------------------------
                                   Dry                                                Dry
               Productive         Holes            Total            Productive       Holes         Total
              -------------   --------------  ---------------     --------------   ---------    -----------
<S>           <C>             <C>             <C>                 <C>              <C>          <C>
2001                      4                0                4                3.5           0           3.5
2000                      0                0                0                  0           0             0
1999                      1                0                1                0.9           0           0.9
</TABLE>

                                       10
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

There was no other drilling activity on the Underlying Properties during the
three years ended December 31, 2001.

OIL AND GAS SALES PRICES AND PRODUCTION COSTS

The following table sets forth, for the Underlying Properties, the net
production volumes of gas and oil, the weighted average lifting cost and taxes
per Mcfe deducted in calculating net profits income and the weighted average
sales price per Mcf of gas and Bbl of oil for production attributable to cash
distributions received by Unitholders during the three years ended December 31,
2001 (derived from production during the twelve months ended September 30, 2001,
2000 and 1999, respectively).

<TABLE>
<CAPTION>
                                                                          Chalkley, Cotton Valley
                                                                          and Austin Chalk Fields
                                                               ------------------------------------------
                                                                   2001            2000            1999
                                                               -----------    -------------   -----------
<S>                                                              <C>             <C>             <C>
Production:
  Gas (MMcf)...................................................        3,664           3,933           4,171
  Oil (Mbbl)...................................................           30              44              54

Weighted average lifting cost per Mcfe.........................       $  .38          $  .34          $  .39
Weighted average taxes on production per Mcfe..................       $  .12          $  .08          $  .08
Weighted average sales price (b)
  Gas ($/Mcf)..................................................       $ 3.54          $ 2.58          $ 1.96
  Oil ($/Bbl)..................................................       $23.16          $22.76          $11.93

                                                                          Robinson's Bend Field
                                                               --------------------------------------------
                                                                   2001            2000            1999
                                                               ----------    -------------   --------------
Production:
  Gas (MMcf)...................................................        2,228           2,381           2,607
  Oil (Mbbl)...................................................          ---             ---             ---

Weighted average lifting cost per Mcfe.........................       $  ---(a)       $  ---(a)       $  ---(a)
Weighted average taxes on production per Mcfe..................       $  .22          $  .13          $ 0.06
Weighted average sales price (b)
  Gas ($/Mcf)..................................................       $ 2.98          $ 2.18          $ 1.63
  Oil ($/Bbl)..................................................       $  ---          $  ---          $  ---
</TABLE>

(a)  No operating costs will be deducted from the Net Profits Interest in the
     Robinson's Bend Field until January 1, 2003.  Average lifting costs per
     Mcfe were $2.79, $2.45 and $2.47, respectively, during 2001, 2000 and 1999,
     in the Robinson's Bend Field.

(b)  Average sales prices are reflective of purchase prices paid by TEMI,
     pursuant to the Purchase Contract, less certain gathering, treating and
     transportation charges.

                                       11
<PAGE>

                          TORCH ENERGY ROYALTY TRUST


ITEM 3.  LEGAL PROCEEDINGS
--------------------------

There are no material pending legal proceedings to which the Trust is a party.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS
-------------------------------------------------------
No matter was submitted to the Unitholders for a vote in 2001.

                                       12
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                                    PART II

Item 5.  Market for Registrant's Units and Related Unitholder Matters
---------------------------------------------------------------------

The Units are listed and traded on the New York Stock Exchange under the symbol
"TRU."  At March 1, 2002, there were 8,600,000 Units outstanding and
approximately 568 Unitholders of record.  The following table sets forth, for
the periods indicated, the high and low sales prices per Unit on the New York
Stock Exchange ("NYSE") and the amount of quarterly cash distributions per Unit
made by the Trust:

<TABLE>
<CAPTION>
                                                                                                Cash
                                                             High              Low           Distributions
                                                        -----------        ----------      -----------------

<S>                                                         <C>               <C>               <C>
Quarter ended March 31, 2000.......................          $ 4.69           $3.88                 $.31
Quarter ended June 30, 2000........................          $ 5.25           $3.88                 $.34
Quarter ended September 30, 2000...................          $ 8.25           $5.19                 $.41
Quarter ended December 31, 2000....................          $ 7.88           $5.94                 $.41

Quarter ended March 31, 2001.......................          $ 9.82           $7.00                 $.56
Quarter ended June 30, 2001........................          $14.14           $7.61                 $.63
Quarter ended September 30, 2001...................          $11.14           $5.41                 $.42
Quarter ended December 31, 2001....................          $ 7.50           $5.38                 $.28
</TABLE>

On March 1, 2002, the high and low sales price per unit on the NYSE was $6.35
and $5.92, respectively.

ITEM 6. SELECTED FINANCIAL DATA (In thousands, except per Unit amounts)
-------------------------------

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                -----------------------------------------------------------------------
                                    2001            2000          1999           1998            1997
                                ---------      ----------      ----------      ---------      ----------
<S>                              <C>              <C>            <C>             <C>              <C>
Net profits income........        $16,843         $13,243         $10,174        $13,615        $ 15,183
Distributable income......        $16,181         $12,674         $ 9,511        $12,936        $ 14,525
Distributions declared....        $16,211         $12,668         $ 9,520        $12,917        $ 14,534
Distributable income
per Unit..................        $  1.88         $  1.47         $  1.11        $  1.50        $   1.69
Distributions per Unit....        $  1.89         $  1.47         $  1.11        $  1.50        $   1.69
Total assets (at end of
 period)..................        $36,696         $44,941         $49,143        $57,015        $100,845

</TABLE>

Distributable income of the Trust consists of the excess of net profits income
plus interest income less general and administrative expenses of the Trust.  The
Trust recognizes net profits income during the period in which amounts are
received by the Trust.

                                       13
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

ITEM 7.  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
         OPERATIONS
         --------------------------------------------------------------

RESULTS OF OPERATIONS
---------------------

Discussion of Years Ended December 31, 2001, 2000, and 1999

Because a modified cash basis of accounting is utilized by the Trust, Net
Proceeds to the Trust for the years ended December 31, 2001, 2000 and 1999 is
derived from actual oil and gas production from October 1, 2000 through
September 30, 2001, October 1, 1999 through September 30, 2000 and October 1,
1998 through September 30, 1999, respectively.  The following tables set forth,
for the Underlying Properties, oil and gas sales attributable to distributions
received by Unitholders during the three years ended December 31, 2001.

<TABLE>
<CAPTION>
                                                   Bbls of Oil
                                    ------------------------------------------
                                       2001           2000             1999
                                    ---------      ----------      -----------
<S>                                 <C>             <C>             <C>
Chalkley Field................         12,479          17,032           20,881
Robinson's Bend Field.........            ---             ---              ---
Cotton Valley Fields..........          3,059           4,633            4,841
Austin Chalk Fields...........         14,427          22,309           27,797
                                    ---------      ----------      -----------

Total.........................         29,965          43,974           53,519
                                    =========      ==========      ===========

                                                   Mcf of Gas
                                    -----------------------------------------
                                      2001            2000            1999
                                    ---------      ----------      ----------

Chalkley Field................      2,513,448       2,532,663       2,683,448
Robinson's Bend Field.........      2,228,005       2,381,356       2,606,750
Cotton Valley Fields..........      1,041,310       1,198,484       1,234,693
Austin Chalk Fields...........        109,405         201,524         253,251
                                    ---------      ----------      ----------

Total.........................      5,892,168       6,314,027       6,778,142
                                    =========      ==========      ==========
</TABLE>

For the year ended December 31, 2001, net profits income was $16,843,000, as
compared to $13,243,000 and $10,174,000 for the same periods in 2000 and 1999,
respectively.  The increase in net profits income resulted from higher average
oil and gas prices paid to the Trust during 2001 as compared to 2000.  The
increase in net profits income from 1999 to 2000 was due to higher average oil
and gas prices paid to the Trust in 2000 as compared to 1999.

Gas production attributable to the distributions received by Unitholders during
the year ended December 31, 2001 was 5,892,168 Mcf, as compared to gas
production of 6,314,027 Mcf and 6,778,142 Mcf for the same periods in 2000 and
1999, respectively. Oil production attributable to the Underlying Properties for
the year ended December 31, 2001 was 29,965 Bbls as compared to 43,974 Bbls and
53,519 Bbls for the same periods in 2000 and 1999, respectively.

The average price used to calculate Net Proceeds for gas, before gathering,
treating and transportation deductions, during the year ended December 31, 2001
was $3.47 per MMBtu as compared to $2.56 per MMBtu and $1.95 per MMBtu for the
years ended December 31, 2000 and 1999, respectively.  The average price used to
calculate Net Proceeds for oil during the years ended December 31, 2001, 2000
and 1999 was $23.16, $22.76 and $11.93 per Bbl, respectively.  When TEMI pays a
purchase price for gas based on the Minimum Price of $1.70 per MMBtu, TEMI
receives Price Credits which it is entitled to deduct in determining the
purchase price when the Index Price for gas exceeds the Minimum Price.  As of

                                       14
<PAGE>

                          TORCH ENERGY ROYALTY TRUST


December 31, 2001, TEMI had no outstanding Price Credits. No Price Credits were
deducted in calculating the purchase price related to distributions during the
three years ended December 31, 2001.

Additionally, if the Index Price for gas exceeds $2.10 per MMBtu, TEMI is
entitled to deduct 50% of such excess in calculating the purchase price.
Distributions received by Unitholders during the years ended December 31, 2001,
2000, and 1999 were reduced by $7,880,000, $2,866,000 and $280,000,
respectively, as a result of such Sharing Price arrangement.

Lease operating expenses and capital expenditures deducted in calculating
distributions during the years ended December 31, 2001, 2000 and 1999 totaled
$1,631,000, $1,736,000 and $1,849,000, respectively.  In accordance with the
Conveyance, no operating or development costs will be deducted in calculating
the Net Proceeds from the Robinson's Bend Field prior to January 1, 2003.
Severance tax deducted in calculating distributions during the years ended
December 31, 2001, 2000 and 1999 totaled $949,000, $653,000 and $498,000,
respectively, for all four fields.

General and administrative expenses during the years ended December 31, 2001,
2000 and 1999  amounted to $682,000, $584,000 and $674,000, respectively.  These
expenses primarily relate to administrative services provided by Torch and the
Trustee.

For the year ended December 31, 2001, distributable income was $16,181,000, or
$1.88 per Unit, as compared to $12,674,000, or $1.47 per Unit, and $9,511,000,
or $1.11 per Unit, for the same periods in 2000 and 1999, respectively.  Total
cash distributions of $16,211,000, or $1.89 per Unit, were made during the year
ended December 31, 2001 as compared to $12,668,000, or $1.47 per Unit, and
$9,520,000, or $1.11 per Unit, for the same periods in 2000 and 1999,
respectively.  The Section 29 Credits relating to qualifying production from
coal seam and tight sands properties, during the twelve months ended September
30, 2001, 2000 and 1999, totaled approximately $0.29, $0.31 and $0.36 per Unit,
respectively.

                                       15
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

Net profits received by the Trust during the years ended December 31, 2001, 2000
and 1999, derived from production sold during the twelve months ended September
30, 2001, 2000 and 1999, respectively, was computed as shown in the following
table (in thousands):

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                            -------------------------------------------------------------------------------------
                                                    2001                                     2000
                            -------------------------------------------------------------------------------------
                                 Chalkley,                                   Chalkley,
                                  Cotton                                      Cotton
                                Valley and        Robinson's                Valley and     Robinson's
                               Austin Chalk          Bend                  Austin Chalk       Bend
                                  Fields            Field       Total         Fields         Field          Total
                            -----------------   ------------  ---------   --------------  -------------   ----------
<S>                            <C>                <C>           <C>         <C>           <C>               <C>
Oil and gas revenues........         $13,669        $6,640                   $11,140         $5,190
                                     -------        ------                   -------         ------
Direct operating expenses:
  Lease operating expenses
   and property tax.........           1,452           ---(a)                  1,424            ---(a)
  Severance tax.............             453           496                       352            302
                                     -------        ------                   -------         ------
                                       1,905           496                     1,776            302
                                     -------        ------                   -------         ------
Net proceeds before
   capital expenditures.....          11,764         6,144                     9,364          4,888
Capital expenditures........             179           ---                       312            ---
                                     -------        ------                   -------         ------
Net proceeds................          11,585         6,144                     9,052          4,888
Net profits percentage......              95%           95%                       95%            95%
                                     -------        ------                   -------         ------
Net profits income..........         $11,006        $5,837       $16,843     $ 8,599         $4,644     $13,243
                                     =======        ======       =======     =======         ======     =======
</TABLE>

<TABLE>
<CAPTION>
                                              Year Ended December 31,
                            -------------------------------------------------------
                                                       1999
                            -------------------------------------------------------
                                 Chalkley,
                                  Cotton
                                Valley and          Robinson's
                               Austin Chalk           Bend
                                  Fields              Field               Total
                            ----------------     ---------------      ------------
<S>                             <C>                 <C>                    <C>

Oil and gas revenues........      $8,817               $4,239
                                  ------               ------
Direct operating expenses:
  Lease operating expenses
   and property tax.........       1,727                  ---(a)
  Severance tax.............         341                  157
                                  ------               ------
                                   2,068                  157
                                  ------               ------
Net proceeds before
   capital expenditures.....       6,749                4,082
Capital expenditures........         122                  ---
                                  ------               ------
Net proceeds................       6,627                4,082
Net profits percentage......          95%                  95%
                                  ------               ------
Net profits income..........      $6,296               $3,878          $10,174
                                  ======               ======          =======
</TABLE>


(a)  Lease operating expenses are not deducted in calculating Net Proceeds until
January 1, 2003.  Lease operating expenses and property taxes (in thousands)
were $6,221, $5,825 and $6,438 during 2001, 2000 and 1999, respectively.

FOLLOWING DECEMBER 31, 2002, NET PROCEEDS ATTRIBUTABLE TO THE ROBINSON'S BEND
FIELD WILL DECREASE
-----------------------------------------------------------------------------

Prior to December 31, 2002, lease operating expenses will not be deducted in
calculating the Net Proceeds payable to the Trust from the Robinson's Bend
Field.  After 2002, lease operating expenses will be deducted in calculating Net
Proceeds.   As a result, Net Proceeds paid to the Trust will decrease
substantially following 2002.

During the year ended December 31, 2001, lease operating expenses in the
Robinson's Bend Field were $6.2 million.  Because lease operating expenses for
the Robinson's Bend Field during 2001 exceeded Net Proceeds paid to the Trust
from the Robinson's Bend Field, deduction of lease operating expenses in 2001
would have reduced the Net Proceeds paid to the Trust attributable to the
Robinson's Bend Field to zero.  Torch currently estimates that if gas prices are
below $5.10 per Mcf in 2003, lease operating expenses will be greater than Net
Proceeds and so the Trust would not receive any net Proceeds attributable to the
Robinson's Bend Field under this pricing scenario.  Approximately $4.7 million
of the $6.2 million of the lease operating expenses for 2001

                                       16
<PAGE>

                          TORCH ENERGY ROYALTY TRUST


were paid to Torch and its affiliates pursuant to a water disposal contract and
operating agreements covering the wells in the Robinson's Bend Field.

THE TRUST MAY TERMINATE AFTER 2002
----------------------------------

The Trust will terminate on March 1 of any year after 2002 if it is determined
that the pre-tax future net cash flows, discounted at 10%, attributable to
estimated net proved reserves of the Net Profits Interests on the preceding
December 31 are less than $25 million.  The estimated price of natural gas per
Mcf which would result in a termination of the Trust is dependent on the oil and
gas reserve estimates.  Any revisions of oil and natural gas reserve estimates
would impact the estimated price per Mcf that would cause the Trust to
terminate.   Torch currently projects, based on oil and gas reserve estimates at
December 31, 2001 prepared by independent reserve engineers, that unless the
price of natural gas on December 31, 2002 exceeds $3.00 per Mcf, the Trust will
terminate.  Upon termination of the Trust, the Trustee is required to sell the
Net Profits Interests.  No assurance can be given that the Trustee will be able
to sell the Net Profits Interests, or as to the price that will be received for
such Net Profits Interests or the amount that will be distributed to Unitholders
following such a sale.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------

The Trust is exposed to market risk, including adverse changes in commodity
prices.  The Trust's assets constitute Net Profits Interests in the Underlying
Properties.  As a result, the Trust's operating results can be significantly
affected by fluctuations in commodity prices caused by changing market forces
and the price received for production from the Underlying Properties.

All production from the Underlying Properties is sold pursuant to a Purchase
Contract between TRC and Velasco, as the owners of the Underlying Properties,
and TEMI.  Pursuant to the Purchase Contract, TEMI is obligated to purchase all
net production attributable to the Underlying Properties for an Index Price,
less certain other charges.  Substantially all of the Index Price is calculated
based on market prices of oil and gas and therefor is subject to commodity price
risk.  The Purchase Contract expires upon termination of the Trust and provides
a Minimum Price of $1.70 per MMBtu paid by TEMI for gas until December 31, 2001.
When TEMI pays a purchase price based on the Minimum Price, it receives Price
Credits equal to the difference between the Index Price and the Minimum Price
that it is entitled to deduct when the Index Price exceeds the Minimum Price.
Additionally, if the Index Price exceeds $2.10 per MMBtu, TEMI is entitled to
deduct such excess, the Price Differential.  Beginning January 1, 2002, TEMI has
an annual option to discontinue the Minimum Price commitment.  However, if TEMI
discontinues the Minimum Price commitment, it will no longer be entitled to
deduct the Price Differential and will forfeit all accrued Price Credits.
Additionally, if TEMI continues the Minimum Price commitment, the Minimum and
the Sharing Price will be increased for inflation based on the Producer Price
Index on January 1 of each year commencing January 1, 2002.  As TEMI did not
exercise its option to discontinue the Minimum Price Commitment, the Minimum
Price and Sharing Price in 2002, adjusted for inflation, will be $1.71 and
$2.12, respectively.

                                       17
<PAGE>

                          TORCH ENERGY ROYALTY TRUST


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                      Page
                                                                                                  ----------
<S>                                                                                                  <C>
Independent Auditors' Reports................................................................             19
Statements of Assets, Liabilities and Trust Corpus at December 31, 2001 and 2000.............             20
Statements of Distributable Income for the Years Ended December 31, 2001, 2000 and 1999......             21
Statements of Changes in Trust Corpus for the Years Ended December 31, 2001, 2000 and 1999...             22
Notes to Financial Statements................................................................             23
</TABLE>

                                       18
<PAGE>

                          TORCH ENERGY ROYALTY TRUST


                          INDEPENDENT AUDITORS' REPORT


Wilmington Trust Company
as Trustee of Torch Energy Royalty Trust
and to the Unitholders:

We have audited the accompanying statements of assets, liabilities and trust
corpus of the Torch Energy Royalty Trust (the "Trust") as of December 31, 2001
and 2000, and the related statements of distributable income and changes in
trust corpus for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the Trustee. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

As described in Note 2, the financial statements are prepared on a modified cash
basis of accounting, which is a comprehensive basis of accounting other than
accounting principles generally accepted in the United States.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Trust as of December 31,
2001 and 2000, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2001 in conformity with the
accounting principles described in Note 2.



/s/ Ernst & Young LLP
---------------------
Houston, Texas
March 27, 2002

                                       19
<PAGE>

                          TORCH ENERGY ROYALTY TRUST


               STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
                                 (In thousands)

<TABLE>
<CAPTION>
                                     ASSETS

                                                                  December 31,     December 31,
                                                                      2001            2000
                                                                 -----------      -----------
<S>                                                                <C>              <C>
Cash.......................................................         $     2          $     5
Net profits interests in oil and gas properties
 (net of accumulated amortization of $143,906
 and $135,664 at December 31, 2001 and 2000,
 respectively).............................................           36,694           44,936
                                                                 -----------      -----------
                                                                     $36,696          $44,941
                                                                 ===========      ===========

                         LIABILITIES AND TRUST CORPUS

Trust expense payable......................................          $   185          $   158
Trust corpus...............................................           36,511           44,783
                                                                 -----------      -----------
                                                                     $36,696          $44,941
                                                                 ===========      ===========
</TABLE>

                 The accompanying notes to financial statements
                   are an integral part of these statements.

                                       20
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                       STATEMENTS OF DISTRIBUTABLE INCOME
                    (In thousands, except per Unit amounts)

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                         --------------------------------------
                                                           2001           2000           1999
                                                         --------       --------       --------
<S>                                                      <C>             <C>            <C>
Net profits income.................................       $16,843        $13,243        $10,174

Interest income....................................            20             15             11
                                                         --------       --------       --------
                                                           16,863         13,258         10,185

General and administrative expenses................           682            584            674
                                                         --------       --------       --------
Distributable income...............................       $16,181        $12,674        $ 9,511
                                                         ========       ========       ========
Distributable income per Unit (8,600 Units)........       $  1.88        $  1.47        $  1.11
                                                         ========       ========       ========
Distributions per Unit.............................       $  1.89        $  1.47        $  1.11
                                                         ========       ========       ========
</TABLE>

                 The accompanying notes to financial statements
                   are an integral part of these statements.

                                       21
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                     STATEMENTS OF CHANGES IN TRUST CORPUS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                           ----------------------------------------
                                                              2001            2000           1999
                                                           ---------       ---------       --------
<S>                                                         <C>             <C>            <C>
Trust corpus, beginning of year......................       $ 44,783        $ 48,982        $56,860

Amortization of Net Profits Interests................         (8,242)         (4,205)        (7,869)

Distributable income.................................         16,181          12,674          9,511

Distributions to Unitholders.........................        (16,211)        (12,668)        (9,520)
                                                           ---------       ---------       --------
Trust Corpus, end of year............................       $ 36,511        $ 44,783        $48,982
                                                           =========       =========       ========
</TABLE>

                 The accompanying notes to financial statements
                   are an integral part of these statements.

                                       22
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS


1.  NATURE OF OPERATIONS

The Torch Energy Royalty Trust ("Trust") was formed effective October 1, 1993,
pursuant to a trust agreement ("Trust Agreement") among Wilmington Trust
Company, as trustee ("Trustee"), Torch Royalty Company ("TRC") and Velasco Gas
Company, Ltd. ("Velasco") as owners of certain oil and gas properties
("Underlying Properties") and Torch Energy Advisors Incorporated ("Torch") as
grantor.  TRC and Velasco created net profits interests ("Net Profits
Interests") and conveyed such interests to Torch.  Torch conveyed the Net
Profits Interests to the Trust in exchange for an aggregate of 8,600,000 units
of beneficial interest ("Units").  Such Units were sold to the public through
various underwriters in November 1993.

The Trust will not terminate prior to January 1, 2003, except upon the
affirmative vote of the holders of not less than 80% of the outstanding Units.
Thereafter, the Trust will terminate upon the first to occur of: (i) an
affirmative vote of the holders of not less than 66-2/3% of the outstanding
Units to liquidate the Trust; (ii) such time as the ratio of the cash amounts
received by the Trust from the Net Profits Interests to administrative costs of
the Trust is less than 1.2 to 1.0 for three consecutive quarters; (iii) March 1
of any year if it is determined based on a reserve report as of December 31 of
the prior year that the present value of estimated pre-tax future net cash
flows, discounted at 10%, of proved reserves attributable to the Net Profits
Interests is equal to or less than $25 million; or (iv) December 31, 2012.
After termination of the Trust, the remaining assets of the Trust will be sold,
and the proceeds therefrom (after expenses) will be distributed to the
unitholders ("Unitholders").  The sole purpose of the Trust is to hold the Net
Profits Interests, to receive payments from TRC and Velasco, and to make
payments to Unitholders.  The Trust does not conduct any business activity.

TRC and Velasco receive payments reflecting the proceeds of oil and gas sold and
aggregate these payments, deduct applicable costs and make payments to the
Trustee each quarter for the amounts due to the Trust.  Unitholders receive
quarterly cash distributions relating to oil and gas produced and sold from the
Underlying Properties.  Because no additional properties will be contributed to
the Trust, the assets of the Trust deplete over time and a portion of each cash
distribution made by the Trust is analogous to a return of capital.

The only assets of the Trust, other than cash and temporary investments being
held for the payment of expenses and liabilities and for distribution to
Unitholders, are the Net Profits Interests.  Under the Trust Agreement, the
Trustee receives the payments attributable to the Net Profits Interests and pays
all expenses, liabilities and obligations of the Trust.  The Trustee has the
discretion to establish a cash reserve for the payment of any liability that is
contingent or uncertain in amount or that otherwise is not currently due and
payable.  The Trustee is entitled to cause the Trust to borrow money to pay
expenses, liabilities and obligations that cannot be paid out of cash held by
the Trust.  The Trustee is entitled to cause the Trust to borrow from any
source, including from the entity serving as Trustee, provided that the entity
serving as Trustee shall not be obligated to lend to the Trust.  To secure
payment of any such indebtedness (including any indebtedness to the Trustee),
the Trustee is authorized to (i) mortgage and otherwise encumber the entire
Trust estate or any portion thereof; (ii) carve out and convey production
payments; (iii) include all terms, powers, remedies, covenants and provisions it
deems necessary or advisable, including confession of judgement and the power of
sale with or without judicial proceedings; and (iv) provide for the exercise of
those and other remedies available to a secured lender in the event of a default
on such loan.  The terms of such indebtedness and security interest, if funds
were loaned by the Trustee, must be similar to the terms which the Trustee would
grant to a similarly situated commercial customer with whom it did not have a
fiduciary relationship, and the Trustee shall be entitled to enforce

                                       23
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS


its rights with respect to any such indebtedness and security interest as if it
were not then serving as Trustee.

The Trustee is authorized and directed to sell and convey the Net Profits
Interests without Unitholder approval in certain instances as described in the
Trust Agreement, including upon termination of the Trust.  The Trustee is
empowered by the Trust Agreement to employ consultants and agents (including
Torch) and to make payments of all fees for services or expenses out of the
assets of the Trust.

2.  BASIS OF ACCOUNTING

The financial statements of the Trust are prepared on a modified cash basis and
are not intended to present the financial position and results of operations in
conformity with generally accepted accounting principles ("GAAP").  Preparation
of the Trust's financial statements on such basis includes the following:

-  Revenues are recognized in the period in which amounts are received by the
   Trust. Therefore, revenues recognized during the years ended December 31,
   2001, 2000 and 1999 are derived from oil and gas production sold during the
   twelve-month periods ended September 30, 2001, 2000 and 1999, respectively.
   General and administrative expenses are recognized on an accrual basis.

-  Amortization of the Net Profits Interests is calculated on a unit-of-
   production basis and charged directly to trust corpus.

-  Distributions to Unitholders are recorded when declared by the Trustee.

-  An impairment loss is recognized when the net carrying value of the Net
   Profits Interests exceeds the sum of the estimated undiscounted future cash
   flows attributable to the Trust's oil and gas reserves plus the estimated
   future tax credits under Section 29 of the Internal Revenue Code of 1986
   ("Section 29 Credit") for Federal income tax purposes. No such impairment was
   recorded during the three years ended December 31, 2001.

-  The financial statements of the Trust differ from financial statements
   prepared in accordance with GAAP because net profits income is not accrued in
   the period of production and amortization of the Net Profits Interests is not
   charged against operating results.

3.  FEDERAL INCOME TAXES

Tax counsel has advised the Trustee that, under current tax law, the Trust is
classified as a grantor trust for Federal income tax purposes and not an
association taxable as a business entity.  However, the opinion of tax counsel
is not binding on the Internal Revenue Service.  As a grantor trust, the Trust
is not subject to Federal income tax.

Because the Trust is treated as a grantor trust for Federal income tax purposes
and a Unitholder is treated as directly owning an interest in the Net Profits
Interests, each Unitholder is taxed directly on such Unitholder's pro rata share
of income attributable to the Net Profits Interests consistent with the
Unitholder's method of accounting and without regard to the taxable year or
accounting method employed by the Trust.  Amounts payable with respect to the
Net Profits Interests are paid to the Trust on the quarterly record date
established for quarterly distributions in respect to each calendar quarter
during

                                       24
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS


the term of the Trust, and the income, deductions and income tax credits
relating to Section 29 Credits resulting from such payments are allocated to the
Unitholders of record on such date.

4.  DISTRIBUTIONS AND INCOME COMPUTATIONS

Each quarter the amount of cash available for distribution to Unitholders (the
"Quarterly Distribution Amount") is equal to the excess, if any, of the cash
received by the Trust, on the last day of the second month following the
previous calendar quarter (or the next business day thereafter) ending prior to
the dissolution of the Trust, from the Net Profits Interests then held by the
Trust plus, with certain exceptions, any other cash receipts of the Trust during
such quarter, subject to adjustments for changes made by the Trustee during such
quarter in any cash reserves established for the payment of contingent or future
obligations of the Trust.  Based on the payment procedures relating to the Net
Profits Interest, cash received by the Trust on the last day of the second month
of a particular quarter from the Net Profits Interests generally represents
proceeds from the sale of oil and gas produced from the Underlying Properties
during the preceding calendar quarter.  The Quarterly Distribution Amount for
each quarter is payable to Unitholders of record on the last day of the second
month of the calendar quarter unless such day is not a business day, in which
case the record date is the next business day thereafter.  The Trust distributes
the Quarterly Distribution Amount, which is distributed within approximately 10
days after the record date to each person who was a Unitholder of record on the
associated record date.

5.  RELATED PARTY TRANSACTIONS

Marketing Arrangements

TRC and Velasco, as owners of the Underlying Properties subject to and burdened
by the Net Profits Interests, contracted to sell the oil and gas production from
such properties to Torch Energy Marketing, Inc. ("TEMI"), a subsidiary of Torch,
under a purchase contract ("Purchase Contract").  Under the Purchase Contract,
TEMI is obligated to purchase all net production attributable to the Underlying
Properties for an index price for oil and gas ("Index Price"), less certain
gathering, treating and transportation charges, which are calculated monthly.
The Index Price equals 97% of the average spot market prices of oil and gas
("Average Market Prices") at the four locations where TEMI sells production,
which, prior to September 1, 2000, was adjusted to reflect the terms of a hedge
contract ("Hedge Contract") to which TEMI was a party.  Under the Hedge
Contract, TEMI received prices specified in the Hedge Contract ("Specified
Prices") for quantities of oil and gas specified therein ("Specified
Quantities").  While the Index Price calculation reflects the terms of the Hedge
Contract, the Trust's net profits income was not impacted by payments or
receipts made by or received by TEMI in connection with its participation in the
Hedge Contract.  In calculating the Index Price for gas (which represents
approximately 97% of the estimated reserves as of January 1, 2002, on an Mcfe
basis), the Specified Prices received weightings of 8% and less during the three
years ended December 31, 2001.  The Average Market Prices received the balance
of the weighting.  The Specified Prices for gas were $1.88 per MMBtu in 1999 and
$1.89 per MMBtu in 2000 and were adjusted to reflect the difference between the
settlement prices for oil and gas in the futures markets and the Average Market
Prices.  The Hedge Contract expired August 31, 2000.

The Purchase Contract also provides that the minimum price paid by TEMI for gas
production is $1.70 per MMBtu ("Minimum Price").  When TEMI pays a purchase
price based on the Minimum Price it receives price credits ("Price Credits")
equal to the difference between the Index Price and the Minimum Price that it is
entitled to deduct in determining the purchase price when the Index Price for
gas exceeds the Minimum Price. Price Credits are computed on a monthly basis,
and as of December 31, 2001, TEMI

                                       25
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS


had no outstanding Price Credits. No Price Credits were deducted in calculating
the purchase price related to distributions received by Unitholders during the
three years ended December 31, 2001.

In addition, if the Index Price for gas exceeds $2.10 per MMBtu ("Sharing
Price"), TEMI is entitled to deduct 50% of such excess ("Price Differential") in
determining the purchase price.  Distributions received by Unitholders during
the years ended December 31, 2001, 2000 and 1999 were reduced by $7,880,000,
$2,866,000 and $280,000, respectively, as a result of such Sharing Price
arrangement.  Beginning January 1, 2002, TEMI has an annual option to
discontinue the Minimum Price commitment.  However, if TEMI discontinues the
Minimum Price commitment, it will no longer be entitled to deduct the Price
Differential in calculating the purchase price and will forfeit all accrued
Price Credits.  Additionally, if TEMI continues the Minimum Price commitment,
the Minimum Price and the Sharing Price will be increased for inflation based on
the Producer Price Index on January 1 of each year commencing January 1, 2002.
TEMI did not exercise its option to discontinue the Minimum Price Commitment.
In accordance with the Purchase Contract, the Minimum Price and Sharing Price in
2002, adjusted for inflation, will be $1.71 and $2.12 respectively.  TEMI has
purchased contracts granting TEMI the right to sell estimated gas production in
excess of the Specified Quantities at a price intended to limit TEMI's losses in
the event the Index Price falls below the Minimum Price.

Gross revenues (before deductions for applicable gathering, treating and
transportation charges) from TEMI included in net profits income for the years
ended December 31, 2001, 2000 and 1999 were $21,747,000, $17,672,000 and
$14,365,000, respectively.

Gas production is purchased at the wellhead and, therefore, distributions do not
include any amounts received in connection with extracting natural gas liquids
from such production at gas processing or treating facilities.

Gathering, Treating and Transportation Arrangements

The Purchase Contract entitles TEMI to deduct certain gas gathering, treating
and transportation costs in calculating the purchase price for gas in the
Robinson's Bend, Austin Chalk and Cotton Valley Fields.  The amounts that may be
deducted in calculating the purchase price for such gas are set forth in the
Purchase Contract and are not affected by the actual costs incurred by TEMI to
gather, treat and transport gas.  In the Robinson's Bend Field, TEMI is entitled
to deduct a gathering, treating and transportation fee of $0.26 per MMBtu
adjusted annually for inflation ($0.286, $0.283 and $0.281 per MMBtu for 2001,
2000 and 1999, plus fuel usage equal to 5% of revenues, payable to Bahia Gas
Gathering, Ltd. ("Bahia"), a subsidiary of Torch, pursuant to a gas gathering
agreement.  Additionally, a fee of $0.05 per MMBtu, representing a gathering fee
payable to a non-affiliate of Torch, is deducted in calculating the purchase
price for production from 68 of the 394 wells in the Robinson's Bend Field.
TEMI also deducts $0.38 per MMBtu plus 17% of revenues in calculating the
purchase price for production from the Austin Chalk Fields, as a fee to gather,
treat and transport gas production.  TEMI deducts from the purchase price for
gas in the Cotton Valley Fields a transportation fee of $0.045 per MMBtu for
production attributable to certain wells.  This transportation fee is paid to a
third party.  During the years ended December 31, 2001, 2000 and 1999,
gathering, treating and transportation fees charged to the Trust by TEMI,
attributable to production during the twelve months ended September 30, 2001,
2000, and 1999 in the Robinson's Bend, Austin Chalk and Cotton Valley Fields,
totaled $1,438,000, $1,342,000 and $1,309,000, respectively.  No amounts for
gathering, treating or transportation are deducted in calculating the purchase
price from the Chalkley Field.

                                       26
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS


Operator Overhead Fees

A subsidiary of Torch operates certain oil and gas interests burdened by the Net
Profits Interests.  The Underlying Properties are charged, on the same basis as
other third parties, for all customary expenses and costs reimbursements
associated with these activities.  Operator overhead fees deducted from the Net
Proceeds computations for the Chalkley, Cotton Valley and Austin Chalk fields
totaled $160,000, $189,000, and $197,000 for the years ended December 31, 2001,
2000 and 1999, respectively.  In accordance with the Conveyance, no overhead
fees were deducted in calculating the Net Proceeds from the Robinson Bend
properties.

Administrative Services Agreement

Pursuant to the Trust Agreement, Torch and the Trust entered into an
administrative services agreement, effective October 1, 1993.  The Trust is
obligated, throughout the term of the Trust, to pay to Torch each quarter an
administrative services fee for accounting, bookkeeping, informational and other
services relating to the Net Profits Interests.  The administrative services fee
is $87,500 per calendar quarter commencing October 1, 1993.  The amount of the
administrative services fee is adjusted annually, based upon the change in the
Producer's Price Index as published by the Department of Labor, Bureau of Labor
Statistics.  Administrative services fees of $384,000, $380,000 and $377,000
were paid by the Trust to Torch during the three years ended December 31, 2001,
2000 and 1999, respectively.

Compensation of the Trustee and Transfer Agent

The Trust Agreement provides that the Trustee be compensated for its
administrative services, out of the Trust assets, in an annual amount of
$41,000, plus an hourly charge for services in excess of a combined total of 250
hours annually at its standard rate.  The Trustee receives a transfer agency fee
of $5.00 annually per account (minimum of $15,000 annually), subject to change
each December, beginning December 1994, based upon the change in the Producer's
Price Index as published by the Department of Labor, Bureau of Labor Statistics,
plus $1.00 for each certificate issued.  Total administrative and transfer agent
fees charged by the Trustee were $56,000 in each of the years ended December 31,
2001, 2000 and 1999.  The Trustee is also entitled to reimbursement for out-of-
pocket expenses.

6.  SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)

Total proved oil and gas reserves attributable to the Net Profits Interests are
primarily based upon reserve reports prepared by the Independent Reserve
Engineers.  Future net cash flows were computed by applying end-of-period
Purchase Contract prices for oil and gas to estimated future production, less
the estimated future expenditures (based on current costs) to be incurred in
developing and producing the reserves.  In accordance with terms of the
Robinson's Bend Field Conveyance, no operating or developing costs prior to
January 1, 2003 were deducted from the Robinson's Bend Field future net
revenues.

                                       27
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS


Reserve Quantities:

The following table sets forth the estimated total proved and proved developed
oil and gas reserves attributable to the Trust's Net Profits Interests (all
located in the United States) for the years ended December 31, 2001, 2000 and
1999, based on reserve reports prepared by T. J. Smith & Company, Inc. ,
Ryder Scott Company and H. J. Gruy and Associates ("Independent Reserve
Engineers").  As a net profits interest does not entitle the Trust to a specific
quantity of oil or gas, but to a portion of oil and gas sufficient to yield a
specified portion of the net proceeds derived therefrom, proved reserves
attributable to a net profits interest are calculated by deducting an amount of
oil or gas sufficient, if sold at the prices used in preparing the reserve
estimates for the Underlying Properties, to pay an amount of applicable future
estimated production expenses, development costs and taxes for such Underlying
Properties.  The use of this convention to estimate reserve volumes attributable
to the Net Profits Interests is standard practice in the industry.

Year-end reserves at December 31, 2001 were 16.5 billion cubic feet equivalent
("Bcfe") as compared to year-end 2000 and 1999 reserves of 42.7 Bcfe and 28.7
Bcfe, respectively.  The decrease in year-end 2001 reserves as compared to year-
end 2000 is a result of the significant decrease in year-end gas prices in 2001
as compared to 2000.  In accordance with Securities and Exchange Commission
reporting guidelines, year-end reserves and the related future net revenues
attributable to the Trust's Net Profits Interest are estimated utilizing oil and
gas prices (pursuant to the Purchase Contract) on the last day of the entity's
fiscal year.  Gas reserves at December 31, 2001, 2000 and 1999 were estimated
utilizing $2.31, $5.49 and $2.04 per mcf of gas, after gathering, treating and
transportation fees, for 2001, 2000 and 1999, respectively.

<TABLE>
<CAPTION>
Description                                       2001                          2000                             1999
-----------                           -------------------------      --------------------------      --------------------------
                                           Oil           Gas              Oil            Gas               Oil            Gas
                                          (Mbbl)       (MMcf)            (Mbbl)        (MMcf)            (Mbbl)         (MMcf)
                                      -----------  ------------      -----------   ------------      ------------   ------------
<S>                                      <C>          <C>               <C>           <C>               <C>            <C>
Proved reserves at beginning of
 year............................             141        41,806              142         27,885               136         32,800
Revisions........................             (67)      (21,299)              25         18,978                34            360
Extensions and discoveries.......             ---           ---              ---            ---               ---            ---
Production.......................              (7)       (4,433)             (25)        (5,057)              (28)        (5,275)
                                      -----------  ------------      -----------   ------------      ------------   ------------
Proved reserves at end of year...              67        16,074              142         41,806               142         27,885
                                      ===========  ============      ===========   ============      ============   ============
Proved developed reserves at
 beginning of year...............             142        41,806              141         27,414               124         29,190
                                      ===========  ============      ===========   ============      ============   ============
Proved developed reserves at end
 of year.........................              67        16,074              142         41,806               141         27,414
                                      ===========  ============      ===========   ============      ============   ============
</TABLE>

                                       28
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS


Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves (in thousands):

Estimated future net cash flows from the Net Profits Interests in proved oil and
gas reserves at December 31, 2001, 2000 and 1999 are presented in the following
table:

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                 -------------------------------------------
                                                                    2001             2000             1999
                                                                 ---------       ----------       ----------
<S>                                                               <C>             <C>              <C>
Future cash inflows........................................       $ 56,762        $ 356,091         $ 85,450
Future costs and expenses..................................        (19,154)        (141,201)         (25,654)
                                                                 ---------       ----------       ----------
Net future cash flows......................................         37,608          214,890           59,796
Discount at 10% for timing of cash flows...................        (10,028)         (81,301)         (18,025)
                                                                 ---------       ----------       ----------
Present value of future net cash flows for proved reserves.       $ 27,580        $ 133,589         $ 41,771
                                                                 =========       ==========       ==========
</TABLE>


The following table sets forth the changes in the present value of estimated
future net revenues from proved reserves attributable to the Trust's Net Profits
Interests during the years ended December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                 -----------------------------------------
                                                                   2001            2000            1999
                                                                 ---------       ---------       ---------
<S>                                                              <C>             <C>             <C>
Balance at beginning of year...............................      $ 133,589        $ 41,771        $ 41,884
Sales of oil and gas produced, net of production costs.....        (14,131)        (15,368)        (10,523)
Accretion to discount......................................         13,359           4,177           4,189
Extensions and discoveries.................................           ----            ----            ----
Revision of prior-year estimates, change in prices
 and other.................................................       (105,237)        103,009           6,221
                                                                 ---------       ---------        --------
Balance at end of year.....................................      $  27,580        $133,589        $ 41,771
                                                                 =========       =========        ========
</TABLE>

Estimates of future net cash flows from proved reserves of gas and oil
condensate were made in accordance with Financial Accounting Standards Board
Statement 69, "Disclosure about Oil and Gas Producing Activities."  The Trust
has not filed or included in reports to any other Federal authority or agency
any estimates of proved net oil and gas reserves.

The following table summarizes the estimated Section 29 Credits attributable to
the Trust's Net Profits Interest for qualifying coal seam and tight sand
production at December 31, 2001, 2000 and 1999.  Such estimates are based upon
the production estimates set forth in the reserve reports prepared by the
Independent Reserve Engineers.  The qualifying tight sands Section 29 Tax Credit
estimate was computed utilizing a rate of approximately $.52 per MMBtu.  The
qualifying coal seam Section 29 Tax Credit estimate was computed utilizing a
constant rate of approximately $1.08, $1.06 and $1.04 per MMBtu for 2001, 2000
and 1999, respectively.

<TABLE>
<CAPTION>
                                                                December 31,
                                                     --------------------------------
                                                      2001         2000         1999
                                                     ------       ------       ------

<S>                                                  <C>          <C>           <C>
Undiscounted....................................     $2,366       $4,878       $7,575
                                                     ------      -------      -------
Discounted present value at 10%.................     $2,151       $4,241       $6,308
                                                     ======      =======      =======
</TABLE>

                                       29
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS


7.  QUARTERLY FINANCIAL DATA (UNAUDITED - IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)

The following table sets forth, for the periods indicated, summarized quarterly
financial data:

<TABLE>
<CAPTION>
                                                                                           Distributable
                                                      Net Profits       Distributable          Income
                                                         Income             Income            Per Unit
                                                     ------------      ------------      --------------
<S>                                                      <C>                 <C>               <C>
Quarter ended March 31, 2001....................          $ 4,945           $ 4,792               $ .56
Quarter ended June 30, 2001.....................            5,573             5,406                 .63
Quarter ended September 30, 2001................            3,755             3,590                 .42
Quarter ended December 31, 2001.................            2,570             2,393                 .27
                                                     ------------      ------------      --------------
                                                          $16,843           $16,181               $1.88
                                                     ============      ============      ==============
Quarter ended March 31, 2000....................          $ 2,819           $ 2,660               $ .31
Quarter ended June 30, 2000.....................            3,090             2,969                 .35
Quarter ended September 30, 2000................            3,703             3,570                 .42
Quarter ended December 31, 2000.................            3,631             3,475                 .39
                                                     ------------      ------------      --------------
                                                          $13,243           $12,674               $1.47
                                                     ============      ============      ==============
</TABLE>

                                       30
<PAGE>

                          TORCH ENERGY ROYALTY TRUST


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
------------------------------------------------------------------------


None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

The Registrant has no directors or executive officers.  The Trustee is a
corporate trustee that may be removed as trustee under the Trust Agreement, with
or without cause, at a meeting duly called and held by the affirmative vote of
Unitholders of not less than a majority of all the Units then outstanding.  Any
such removal of the Trustee shall be effective only at such time as a successor
trustee fulfilling the requirements of Section 3807(a) of the Delaware Business
Trust Act has been appointed and has accepted such appointment.

ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

The following is a description of certain fees and expenses paid or borne by the
Trust, including fees paid to Torch, the Trustee, the Transfer Agent or their
affiliates.

Ongoing Administrative Expenses.  The Trust is responsible for paying all legal,
accounting, engineering and stock exchange fees, printing costs and other
administrative and out-of-pocket expenses incurred by or at the direction of the
Trustee in its capacity as Trustee and/or transfer agent.

Compensation of the Trustee and Transfer Agent.  The Trust Agreement provides
that the Trustee be compensated for its administrative services, out of the
Trust assets, in an annual amount of $41,000, plus an hourly charge for services
in excess of a combined total of 250 hours annually at its standard rate.  The
Trustee receives a transfer agency fee of $5.00 annually per account (minimum of
$15,000 annually), subject to change each December, beginning December 1994,
based upon the change in the Producer's Price Index as published by the
Department of Labor, Bureau of Labor Statistics, plus $1.00 for each certificate
issued.  The Trustee is entitled to reimbursement for out-of-pocket expenses.

Fees to Torch.  Torch will receive, throughout the term of the Trust, an
administrative services fee for accounting, bookkeeping and informational
services related to the Net Profits Interests as described below in "Item 13 -
Administrative Services Agreement."

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

As of March 1, 2002, no person or group of persons was known by the Trust to be
the beneficial owner of more than 5% of the Units.  The Trust has no officers or
directors.

                                       31
<PAGE>

                          TORCH ENERGY ROYALTY TRUST


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

Administrative Services Agreement

Pursuant to the Trust Agreement, Torch and the Trust entered into the
Administrative Services Agreement effective October 1, 1993.  The following
summary of certain provisions of the Administrative Services Agreement does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the provisions of the Administrative Services Agreement.

The Trust is obligated, throughout the term of the Trust, to pay to Torch each
quarter an administrative services fee for accounting, bookkeeping,
informational and other services relating to the Net Profits Interests.  The
administrative services fee is $87,500 per calendar quarter, adjusted annually,
based upon the change in the Producer's Price Index as published by the
Department of Labor, Bureau of Labor Statistics.  Administrative services fees
of $384,000, $380,000 and $377,000 were paid by the Trust to Torch during the
years ended December 31, 2001, 2000 and 1999, respectively.

Marketing Arrangement

TRC and Velasco, as owners of the Underlying Properties subject to and burdened
by the Net Profits Interests, contracted to sell the oil and gas production from
such properties to TEMI under a Purchase Contract.  Under the Purchase Contract,
TEMI is obligated to purchase all net production attributable to the Underlying
Properties for an Index Price for oil and gas less certain gathering, treating
and transportation charges, which are calculated monthly.  The Purchase Contract
also provides that the Minimum Price paid by TEMI for gas production is $1.70
per MMBtu.  When TEMI pays a purchase price based on the Minimum Price, it
receives Price Credits equal to the difference between the Index Price and the
Minimum Price that it is entitled to deduct in determining the purchase price
when the Index Price for gas exceeds the Minimum Price.  Price Credits are
computed on a monthly basis, and as of December 31, 2001, TEMI had no
outstanding Price Credits.

In addition, if the Index Price for gas exceeds $2.10 per MMBtu ("Sharing
Price"), TEMI is entitled to deduct 50% of such excess ("Price Differential") in
determining the purchase price.  Distributions received by Unitholders during
the years ended December 31, 2001, 2000 and 1999 were reduced by $7,880,000,
$2,866,000 and $280,000, respectively, as a result of such Sharing Price
arrangement.  Beginning January 1, 2001, TEMI has an annual option to
discontinue the Minimum Price commitment.  However, if  TEMI discontinues the
Minimum Price commitment, it will no longer be entitled to deduct the Price
Differential in calculating the purchase price and will forfeit all accrued
Price Credits. Additionally, if TEMI continues the Minimum Price commitment, the
Minimum price and the Sharing Price will be increased for inflation based on the
Producer Price Index  on January 1 of each year commencing January 1, 2002. As
TEMI did not exercise its option to discontinue the Minimum Price Commitment,
the Minimum Price Sharing Price in 2002, adjusted for inflation, will be $1.71
and $2.12, respectively.  TEMI has purchased contracts granting TEMI the right
to sell estimated gas production in excess of the Specified Quantities at a
price intended to limit TEMI's losses in the event the Index Price falls below
the Minimum Price.

Gross revenues (before deductions for applicable gathering, treating and
transportation charges) from TEMI included in net profits income for the years
ended December 31, 2001, 2000 and 1999 were $21,747,000, $17,672,000 and
$14,365,000, respectively.

                                       32
<PAGE>

                          TORCH ENERGY ROYALTY TRUST


Gathering, Treating and Transportation Arrangements

The Purchase Contract entitles TEMI to deduct certain gas gathering, treating
and transportation costs in calculating the purchase price for gas in the
Robinson's Bend, Austin Chalk and Cotton Valley Fields.  The amounts that may be
deducted in calculating the purchase price for such gas are set forth in the
Purchase Contract and are not affected by the actual costs incurred by TEMI to
gather, treat and transport gas.  In the Robinson's Bend Field, TEMI is entitled
to deduct a gathering, treating and transportation fee of $0.26 per MMBtu
commencing October 1, 1993 adjusted for inflation ($0.286, $0.283 and $0.281 per
MMBtu for 2001, 2000 and 1999, respectively), plus fuel usage equal to 5% of
revenues, payable to Bahia Gas Gathering, Ltd. ("Bahia"), a subsidiary of Torch,
pursuant to a gas gathering agreement.  Additionally, a fee of $0.05 per MMBtu,
representing a gathering fee payable to a non-affiliate of Torch, is deducted in
calculating the purchase price for production from 68 of the 394 wells in the
Robinson's Bend Field.  TEMI also deducts $0.38 per MMBtu plus 17% of revenues
in calculating the purchase price for production from the Austin Chalk Fields,
as a fee to gather, treat and transport gas production.  TEMI deducts from the
purchase price for gas a transportation fee of $0.045 MMBtu for production
attributable to certain wells in the Cotton Valley Fields.  During the years
ended December 31, 2000, 1999 and 1998, gas gathering, treating and
transportation fees charged to the Trust by TEMI, attributable to production
during the twelve months ended September 30, 2001, 2000 and 1999 in the
Robinson's Bend, Austin Chalk and Cotton Valley Fields, totaled $1,438,000,
$1,342,000 and $1,309,000, respectively.  No amounts for gathering, treating or
transportation are deducted in calculating the purchase price from the Chalkley
Field.

                                       33
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------

(a)  The following documents are filed as part of this report:

     1.  Financial Statements:

     Torch Energy Royalty Trust
       Independent Auditors' Reports
       Statements of Assets, Liabilities and Trust Corpus at December 31, 2001
        and 2000
       Statements of Distributable Income for the Years Ended December 31, 2001,
        2000 and 1999
       Statements of Changes in Trust Corpus for the Years Ended December 31,
        2001, 2000 and   1999
       Notes to Financial Statements

     Torch Energy Advisors Incorporated and Subsidiaries ("Torch")
       Independent Auditors' Report

       Consolidated Balance Sheet of Torch as of December 31, 2001, and 2000 and
       the Related Consolidated Statements of Operations, Stockholders' Equity
       and Comprehensive Income, and Cash Flows for the years ended December 31,
       2001, 2000 and 1999

       Notes to Consolidated Financial Statements

     2.  Financial Statement Schedules

     Financial statement schedules are omitted because of the absence of
     conditions under which they are required or because the required
     information is included in the financial statements and notes thereto.

3.  Exhibits

  EXHIBIT


  NUMBER EXHIBIT
  --------------
     4.    -  Instruments of defining the rights of security holders, including
               indentures.
     4.1   -  Form of Torch Energy Royalty Trust Agreement.*
     4.2   -  Form of Louisiana Trust Agreement.*
     4.3   -  Specimen Trust Unit Certificate.*
     4.4   -  Designation of Ancillary Trustee.*

     10.   -  Material contracts.
     10.1  -  Purchase Agreement between TRC, Velasco and TEMI.*
     10.2  -  Gas Gathering Agreement between TEMI and Bahia Gas Gathering,
               Ltd.*
     10.3  -  Amendment to Gas Gathering Agreement.*
     10.4  -  Water Gathering and Disposal Agreement between Torch Energy
               Associates, Ltd. and Velasco.*
     10.5  -  Form of Texas Conveyance.*
     10.6  -  Form of Louisiana Conveyance.*
     10.7  -  Form of Alabama Conveyance.*
     10.8  -  Standby Performance Agreement between Torch and the Trust.*
     10.9  -  Amendment to Water Gathering Contract.*

                                       34
<PAGE>

                          TORCH ENERGY ROYALTY TRUST


     10.10 -  First Amendment to Oil and Gas Purchase Contract (previously filed
               on form 10-Q for the quarter ended September 30, 1994).

     23.   -  Consents of experts and counsel.
     23.1  -  Consent of T.J. Smith & Company, Inc.
     23.2  -  Consent of H.J. Gruy and Associates, Inc.
     23.3  -  Consent of Ryder Scott Company

     99.   -  Additional Exhibits.
     99.1  -  Financial Statements of Torch Energy Advisors Incorporated.
------
 *   Incorporated by reference from Registration Statements on Form S-1 of Torch
     Energy Advisors Incorporated (Registration No. 33-68688) dated November 16,
     1993.

(b)  Report on Form 8-K:

  None filed during the quarter ended December 31, 2001.

                                       35
<PAGE>

                                   SIGNATURES

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

                                          TORCH ENERGY ROYALTY TRUST

                                          By:  Wilmington Trust Company
                                               Trustee


                                          By:  /s/ Bruce L. Bisson
                                               -------------------
                                                Bruce L. Bisson, Vice President

  Date:  March 29, 2002

   (The Trust has no directors or executive officers.)

                                       36
<PAGE>

                           TORCH ENERGY ROYALTY TRUST

  Torch Energy Royalty Trust
  1100 North Market Street
  Wilmington, Delaware  19890
  Attention:  Corporate Trust Administration

  Legal Counsel
  Haynes and Boone, L.L.P.
  Houston, Texas

  Tax Counsel
  Haynes and Boone, L.L.P.
  Houston, Texas

  Auditors
  Ernst & Young L.L.P.
  Houston, Texas

  Transfer Agent and Registrar
  Wilmington Trust Company
  1100 North Market Street
  Wilmington, Delaware  19890
  Attention:  Corporate Trust Administration

                                       37