<PAGE>
                          ANNUAL REPORT TO SHAREHOLDERS

                                                                      EXHIBIT 13


                                  [COVER PAGE]

                       [PERMIAN BASIN ROYALTY TRUST LOGO]

           PERMIAN BASIN ROYALTY TRUST ANNUAL REPORT & FORM 10-K 2001




                           [MAP OF COUNTIES IN TEXAS]


           TEXAS ROYALTY PROPERTIES ARE LOCATED IN 35 TEXAS COUNTIES.
              WADDELL RANCH PROPERTIES ARE LOCATED IN CRANE COUNTY.




<PAGE>
THE TRUST

         The Permian Basin Royalty Trust's (the "Trust") principal assets are
comprised of a 75% net overriding royalty interest carved out by Southland
Royalty Company ("Southland") from its fee mineral interest in the Waddell Ranch
properties in Crane County, Texas ("Waddell Ranch properties"), and a 95% net
overriding royalty interest carved out by Southland from its major producing
royalty properties in Texas ("Texas Royalty properties"). The interests out of
which the Trust's net overriding royalty interests were carved were in all cases
less than 100%. The Trust's net overriding royalty interests represent burdens
against the properties in favor of the Trust without regard to ownership of the
properties from which the overriding royalty interests were carved. The net
overriding royalties above are collectively referred to as the "Royalties." The
properties and interests form which the Royalties were carved and which the
Royalties now burden are collectively referred to as the "Underlying
Properties."

         The Trust has been advised that effective January 1, 1996, Southland
was merged with and into Meridian Oil Inc. ("Meridian"), a Delaware corporation,
with Meridian being the surviving corporation. Meridian succeeded to the
ownership of all the assets, has the rights, powers, and privileges, and assumed
all of the liabilities and obligations of Southland. Effective July 11, 1996,
Meridian changed its name to Burlington Resources Oil & Gas Company ("BROG").
Any reference to BROG hereafter for periods prior to the occurrence of the
aforementioned name change or merger should, as applicable, be construed to be a
reference to Meridian or Southland. Further, BROG notified the Trust that, on
February 14, 1997, the Texas Royalty properties that are subject to the Net
Overriding Royalty Conveyance dated November 1, 1980 ("Texas Royalty
Conveyance"), were sold to Riverhill Energy Corporation ("Riverhill Energy") of
Midland, Texas.

UNITS OF BENEFICIAL INTEREST

         Units of Beneficial Interest ("Units") of the Trust are traded on the
New York Stock Exchange with the symbol PBT. Quarterly high and low sales prices
and the aggregate amount of monthly distributions paid each quarter during the
Trust's two most recent years were as follows:

<Table>
<Caption>
                                                                   SALES PRICE
                                                      -----------------------------------
                                                                                                    DISTRIBUTIONS
2001                                                     HIGH                     LOW                   PAID
                                                      -----------             -----------          ----------------
<S>                                                   <C>                     <C>                  <C>
First Quarter.....................................    $     6.700             $    5.625           $        .256445
Second Quarter....................................          6.850                  5.000                    .256094
Third Quarter.....................................          6.530                  5.500                    .179718
Fourth Quarter....................................          5.950                  5.200                    .154651
                                                                                                   ----------------
          Total for 2001..........................                                                 $        .846908
                                                                                                   ================

2000
First Quarter.....................................    $    5.6250             $   4.3125           $        .134440
Second Quarter....................................         5.1250                 4.2500                    .190844
Third Quarter.....................................         5.8125                 4.7500                    .203032
Fourth Quarter....................................         6.6250                 5.2500                    .234311
                                                                                                   ----------------
          Total for 2000..........................                                                 $        .762627
                                                                                                   ================
</Table>

         Approximately 2,118 Unit holders of record held the 46,608,796 Units of
the Trust at December 31, 2001.



                                       1
<PAGE>
TO UNIT HOLDERS

         We are pleased to present the twenty-second Annual Report of the Trust.
The report includes a copy of the Trust's Annual Report on Form 10-K to the
Securities and Exchange Commission for the year ended December 31, 2001, without
exhibits. Both the report and accompanying Form 10-K contain important
information concerning the Trust's properties, including the oil and gas
reserves attributable to the Royalties owned by the Trust. Production figures,
drilling activity and certain other information included in this report have
been provided to the Trust by BROG (formerly Meridian and Southland).

         As more particularly explained in the Notes to the Financial Statements
appearing in this report and in Item 1 of the accompanying Form 10-K, Bank of
America, N.A., as Trustee, has the primary function under the Trust Indenture of
collecting the monthly net proceeds attributable to the Royalties and making
monthly distributions to the Unit holders, after deducting Trust administrative
expenses and any amounts necessary for cash reserves.

         Royalty income received by the Trustee for the year ended December 31,
2001, was $39,816,141 and interest income earned for the same period was
$77,977. General and administrative expenses amounted to $420,723. A total of
$39,473,395, or $.846908 per Unit, was distributed to Unit holders during 2001.
A discussion of factors affecting the distributions for 2001 may be found in the
Trustee's Discussion and Analysis section of this report and the accompanying
Form 10-K.

         As of December 31, 2001, the Trust's proved reserves were estimated at
7,377,792 Bbls of oil and 25,917 Mcf of gas. The estimated future net revenues
from proved reserves at December 31, 2001, amount to $174,342,000 or $3.74 per
Unit. The present value of estimated future net revenues discounted at 10% at
December 31, 2001, was $93,102,000 or $2.01 per Unit. The computation of future
net revenues is made following guidelines prescribed by the Financial Accounting
Standards Board (explained in Item 2 of the accompanying Form 10-K) based on
year-end prices and costs.

         As has been previously reported, Southland advised the Trust that it
became operator of record of the Waddell Ranch properties on May 1, 1991.
Meridian, as successor by merger, became the operator of record effective
January 1, 1996. Meridian changed its name to Burlington Resources Oil & Gas
Company in 1996. All field, technical and accounting operations, however, have
been carried out by Coastal Management Corporation ("CMC") and Riverhill Capital
Corporation ("Riverhill Capital"), but remain under the direction of BROG.

         As was previously reported, in February 1997, BROG sold its interest in
the Texas Royalty properties that are subject to the Texas Royalty Conveyance to
Riverhill Energy, which at the time was a wholly-owned subsidiary of Riverhill
Capital and an affiliate of CMC. Subsequently, the Trustee was advised that
Schlumberger Technology Corporation ("STC") acquired all of the shares of
Riverhill Capital. The Trustee has been advised that, as part of this
transaction, ownership of Riverhill Energy's interests in the Texas Royalty
properties referenced above remain in Riverhill Energy, which was owned by the
former shareholders of Riverhill Capital. CMC will continue to perform all
accounting operations pertaining to the Texas Royalty properties under the
direction of Riverhill Energy.

         The Omnibus Budget Reconciliation Act of 1990 allows percentage
depletion on proven properties acquired after October 11, 1990. For Units
acquired after such date, Unit holders would normally compute both percentage
depletion and cost depletion from each property, and claim the larger amount as
a deduction on their income tax returns. However, the Trustee and its
accountants have estimated the percentage depletion for January through December
2001, and it appears that cost depletion will exceed percentage depletion for
all Unit holders.

         Royalty income is generally considered portfolio income under the
passive loss rules enacted by the Tax Reform Act of 1986. Therefore, in general,
it appears that Unit holders should not consider the taxable income from the
Trust to be passive income in determining net passive income or loss. Unit
holders should consult their tax advisors for further information.



                                       2
<PAGE>

         Unit holders of record will continue to receive an individualized tax
information letter for each of the quarters ending March 31, June 30 and
September 30, 2002, and for the year ending December 31, 2002. Unit holders
owning Units in nominee name may obtain monthly tax information from the Trustee
upon request.


                                      Bank of America, N.A., Trustee



                                      By:     /s/ RON E. HOOPER
                                         --------------------------------------
                                         Ron E. Hooper
                                         Senior Vice President


                                       3
<PAGE>
DESCRIPTION OF THE PROPERTIES

         The net overriding royalty interests held by the Trust are carved out
of high-quality producing oil and gas properties located primarily in West
Texas. A production index for oil and gas properties is the number of years
derived by dividing remaining reserves by current production. The production
index for the Trust properties based on the reserve report prepared by
independent petroleum engineers as of December 31, 2001, is approximately 7.4
years.

         The net overriding royalty interest in the Waddell Ranch properties is
the largest asset of the Trust. The mineral interests in the Waddell Ranch, from
which such net overriding royalty interest was carved, vary from 37.5% to 50.0%
in 78,175 gross (34,205 net) acres, containing 750 gross (332 net) productive
oil wells, 182 gross (87 net) productive gas wells and 336 gross (147 net)
injection wells.

         Six major fields on the Waddell Ranch properties account for more than
90% of the total production. In the six fields, there are 12 producing zones
ranging in depth from 2,800 to 10,600 feet. Most prolific of these zones are the
Grayburg and San Andres, which produce from depths between 2,800 and 3,400 feet.
Productive from the San Andres are the Sand Hills (Judkins) gas field and the
Sand Hills (McKnight) oil field.

         The Dune and Waddell oil fields are productive from both the Grayburg
and San Andres formations. The Sand Hills (Tubb) oil fields produce from the
Tubb formation at depths averaging 4,300 feet, and the University Waddell
(Devonian) oil field is productive from the Devonian formation between 8,400 and
9,200 feet.

         All of the major oil fields on the Waddell Ranch properties are
currently being water flooded. Engineering studies and 3-D seismic evaluations
on these fields indicate the potential for increased production through infill
drilling, modifications of existing water flood techniques, installation of
larger capacity pumping equipment and tertiary recovery projects. Capital
expenditures for remedial and maintenance activities during 2001 totaled
approximately $9.5 million.

         The Texas Royalty properties, out of which the other net overriding
royalty was carved, are located in 33 counties across Texas. The Texas Royalty
properties consist of approximately 125 separate royalty interests containing
approximately 303,000 gross (51,000 net) producing acres. Approximately 41% of
the future net revenues discounted at 10% attributable to Texas Royalty
properties are located in the Wasson and Yates fields.

         BROG has informed the Trustee that the 2002 capital expenditures budget
should total approximately $9.6 million of which $0 is attributable to the
drilling program and $9.6 million to workovers and recompletions.

COMPUTATION OF ROYALTY INCOME RECEIVED BY THE TRUST

         The Trust's royalty income is computed as a percentage of the net
profit from the operation of the properties in which the Trust owns net
overriding royalty interests. The percentages of net profits are 75% and 95% in
the cases of the Waddell Ranch properties and the Texas Royalty properties,
respectively. Royalty income received by the Trust for the five years ended
December 31, 2001, was computed as shown in the table on the next page.




                                       4
<PAGE>
<Table>
<Caption>
                                                                           YEAR ENDED DECEMBER 31,
                                                -------------------------------------------------------------------------------
                                                          2001                      2000                       1999
                                                ------------------------  -------------------------   -------------------------
                                                  Waddell       Texas       Waddell       Texas        Waddell        Texas
                                                   Ranch       Royalty       Ranch       Royalty        Ranch        Royalty
                                                 Properties   Properties   Properties   Properties    Properties    Properties
                                                -----------  -----------  -----------   -----------   -----------   -----------
<S>                                             <C>          <C>          <C>           <C>           <C>           <C>
Gross Proceeds of Sales
From the Underlying Properties:
    Oil Proceeds .............................  $26,477,679  $ 9,524,586  $31,289,829   $ 9,770,732   $18,667,382   $ 5,261,863
    Gas Proceeds .............................   26,068,379    3,771,184   18,342,926     2,701,298    12,794,695     1,760,499
    Other Payments(a) ........................           --           --           --            --            --            --
                                                -----------  -----------  -----------   -----------   -----------   -----------
        Total ................................   52,546,058   13,295,770   49,632,755    12,472,030    31,462,077     7,022,362
                                                -----------  -----------  -----------   -----------   -----------   -----------
Less:
    Severance Tax
        Oil ..................................    1,108,968      374,204    1,288,522       373,643       726,944       186,846
        Gas ..................................    1,160,095      239,337    1,189,617       146,512       773,689        77,379
        Other ................................           --           --       26,991            --        44,839        16,000
    Lease Operating Expense and Property Tax
        Oil and Gas ..........................    9,086,468      605,125    9,318,915       442,523     9,687,476       525,035
        Other Payments .......................       50,000           --           --            --       132,166       180,000
    Capital Expenditures .....................    3,350,003           --    4,606,227            --     1,052,769            --
                                                -----------  -----------  -----------   -----------   -----------   -----------
             Total ...........................   14,755,534    1,218,666   16,430,272       962,678    12,417,883       985,260
                                                -----------  -----------  -----------   -----------   -----------   -----------
    Net Profits ..............................   37,790,525   12,077,104   33,202,483    11,509,352    19,044,194     6,037,102
    Net Overriding Royalty Interest ..........           75%          95%          75%           95%           75%           95%
                                                -----------  -----------  -----------   -----------   -----------   -----------
Royalty Income ...............................   28,342,893   11,473,248   24,901,862    10,933,884    14,284,146     5,735,247
Negative Revenue (b) .........................           --           --           --            --     1,218,732            --
Litigation Settlement (c) ....................           --           --           --            --            --            --
                                                -----------  -----------  -----------   -----------   -----------   -----------
    Total Royalty Income for Distribution ....  $28,342,893  $11,473,248   24,901,862    10,933,884   $13,064,414   $ 5,735,247
                                                ===========  ===========  ===========   ===========   ===========   ===========
</Table>

<Table>
<Caption>
                                                                       YEAR ENDED DECEMBER 31,
                                                   -------------------------------------------------------------
                                                               1998                             1997
                                                   -----------------------------    ----------------------------
                                                     Waddell           Texas          Waddell          Texas
                                                      Ranch            Royalty         Ranch           Royalty
                                                    Properties       Properties      Properties      Properties
                                                   ------------     ------------    ------------    ------------
<S>                                                <C>              <C>             <C>             <C>
Gross Proceeds of Sales
From the Underlying Properties:
     Oil Proceeds ..............................   $ 18,821,076     $  5,404,598    $ 27,099,891    $  8,427,062
     Gas Proceeds ..............................     13,769,872        1,880,571      17,105,677       2,318,393
     Other Payments(a) .........................             --          540,543              --              --
                                                   ------------     ------------    ------------    ------------
        Total ..................................     32,590,948        7,825,712      44,205,568      10,745,455
                                                   ------------     ------------    ------------    ------------
Less:
     Severance Tax
        Oil ....................................        725,100          196,770       1,037,862         320,447
        Gas ....................................     (1,229,730)         104,759       1,232,298         135,717
        Other ..................................             --               --              --              --
     Lease Operating Expense and Property Tax
        Oil and Gas ............................     14,096,881          790,246      12,239,689         597,508
        Other Payments .........................             --               --          50,297
     Capital Expenditures ......................     15,874,193               --      11,789,849              --
                                                   ------------     ------------    ------------    ------------
              Total ............................     29,396,444        1,091,775      26,349,995       1,053,672
                                                   ------------     ------------    ------------    ------------
     Net Profits ...............................      3,194,504        6,733,937      17,855,573       9,691,783
     Net Overriding Royalty Interest ...........             75%              95%             75%             95%
                                                   ------------     ------------    ------------    ------------
Royalty Income .................................      2,395,878        6,397,240      13,391,679       9,207,194
Negative Revenue (b) ...........................      1,218,732               --              --              --
Litigation Settlement (c) ......................        766,051               --              --              --
                                                   ------------     ------------    ------------    ------------
     Total Royalty Income for Distribution .....   $  4,380,661     $  6,397,240    $ 13,391,679    $  9,207,194
                                                   ============     ============    ============    ============
</Table>



                                       5
<PAGE>

----------

(a)      The Trust received funds in 1998 from BROG which represented the
         Trust's portion of amounts that had been previously held in suspense by
         BROG relating to the Texas Royalty properties. The Trustee was advised
         that these amounts relate to revenues received by BROG prior to the
         conveyance of its interest in the Texas Royalty properties to Riverhill
         Energy in February 1997.

(b)      In calculating Trust royalty income for the months of June through
         December 1998, costs exceeded revenues for the Waddell Ranch properties
         underlying the Waddell Ranch Net Overriding Royalty Conveyance dated
         effective November 1, 1980 ("Waddell Ranch Conveyance"), by $1,218,732.
         Pursuant to the Waddell Ranch Conveyance, excess costs plus accrued
         interest must be recovered from future net proceeds relating to the
         underlying Waddell Ranch properties before the properties can again
         contribute to Trust royalty income. Cumulative excess amounts were
         fully recovered in February 1999.

(c)      In November 1998, the Trust received its portion of settlement proceeds
         totaling $766,051 from a class-action lawsuit.



                                       6
<PAGE>
DISCUSSION AND ANALYSIS

Trustee's Discussion and Analysis for the Three-Year Period Ended December 31,
2001

         Royalty income received by the Trust for the three-year period ended
December 31, 2001, is reported in the following table:

<Table>
<Caption>
                                               YEAR ENDED DECEMBER 31,
                                      -----------------------------------------
       ROYALTIES                         2001           2000           1999
                                      -----------    -----------    -----------
<S>                                   <C>            <C>            <C>
       Total Revenue ..............   $39,816,141    $35,835,746    $18,799,659
                                              100%           100%           100%
       Oil Revenue ................    22,466,757     24,901,862     12,202,023
                                               56%            70%            65%
       Gas Revenue ................    17,349,384     10,933,884      6,597,626
                                               44%            32%            35%
       Total Revenue/Unit .........   $   .854327    $   .768862    $   .403350
</Table>

         Royalty income of the Trust for the calendar year is associated with
actual oil and gas production for the period November of the prior year through
October of the current year. Oil and gas sales for 2001, 2000 and 1999 for the
Royalties and the Underlying Properties, excluding portions attributable to the
adjustments discussed hereafter, are presented in the following table:

<Table>
<Caption>
                                                        YEAR ENDED DECEMBER 31,
                                                  ---------------------------------
       ROYALTIES                                    2001        2000        1999
                                                  ---------   ---------   ---------
<S>                                               <C>         <C>         <C>
       Oil Sales (Bbls) .......................     941,202     919,429     909,352
       Gas Sales (Mcf) ........................   3,875,586   3,346,445   3,464,208

       UNDERLYING PROPERTIES
       Oil
                  Total Oil Sales (Bbls) ......   1,434,983   1,486,110   1,674,898
                  Average Per Day (Bbls) ......       3,931       4,072       4,589
                  Average Price/Bbl ...........   $   24.88   $   27.66   $   14.29

       Gas
                  Total Gas Sales (Mcf) .......   6,441,298   5,890,023   6,907,167
                  Average Per Day (Mcf) .......      17,593      16,137      18,924
                  Average Price/Mcf ...........   $    4.70   $    3.63   $    2.11
</Table>

         The average price of oil decreased to $24.88 per barrel in 2001, down
from $27.66 per barrel in 2000. In addition, the average price of gas rose from
$3.63 per Mcf in 2000 to $4.70 per Mcf in 2001.

         Since the oil and gas sales attributable to the Royalties are based on
an allocation formula that is dependent on such factors as price and cost
(including capital expenditures), production amounts do not necessarily provide
a meaningful comparison. Total oil production decreased approximately 3.5% from
2000 to 2001 primarily due to lower capital expenditures in previous years.
Total gas sales increased approximately 9% from 2000 to 2001 primarily due to a
increase in capital expenditures for gas wells.

         Total capital expenditures in 2001 used in the net overriding royalty
calculation were approximately $3.4 million compared to $4.6 million in 2000 and
$1.1 million in 1999. During 2001, there were 11 gross (.76 net) wells drilled
and





                                       7
<PAGE>

completed on the Waddell Ranch properties. At December 31, 2001, there were 8
gross (3.75 net) wells in progress on the Waddell Ranch properties.

         In 2001, lease operating expense and property taxes on the Waddell
Ranch properties amounted to approximately $9.1 million, which amount was
approximately the same as in 2000.

         The Trustee has been advised by BROG that for the period August 1,
1993, through June 30, 2002, the oil from the Waddell Ranch was sold under a
competitive bid to a third party.

         During 2001, the monthly royalty receipts were invested by the Trustee
in U.S. Treasury securities until the monthly distribution date, and earned
interest totaled $77,977. Interest income for 2000 and 1999 was $85,348 and
$27,331, respectively.

         General and administrative expenses in 2001 were $420,723 compared to
$375,953 in 2000 and $355,148 in 1999.

         Distributable income for 2001 was $39,473,395, or $.846909 per Unit.

         Distributable income for 2000 was $35,545,141, or $.762627 per Unit.

         Distributable income for 1999 was $18,471,842, or $.396317 per Unit.

RESULTS OF THE FOURTH QUARTERS OF 2001 AND 2000

         Royalty income received by the Trust for the fourth quarter of 2001
amounted to $7,247,490 or $.154651 per Unit. For the fourth quarter of 2000, the
Trust received royalty income of $10,938,461 or $.234686 per Unit. Interest
income for the fourth quarter of 2001 amounted to $9,925 compared to $28,872 for
the fourth quarter of 2000. The decrease in interest income can be attributed
primarily to a decrease in interest rates. General and administrative expenses
totaled $49,388 for the fourth quarter of 2001 compared to $46,306 for the
fourth quarter of 2000.

         Royalty income for the Trust for the fourth quarter is associated with
actual oil and gas production during August through October from the Underlying
Properties. Oil and gas sales attributable to the Royalties and the Underlying
Properties for the quarter and the comparable period for 2000 are as follows:

<Table>
<Caption>
                                                              FOURTH QUARTER
                                                           ---------------------
                                                             2001        2000
                                                           ---------   ---------
<S>                                                        <C>         <C>
                  ROYALTIES
                            Oil Sales (Bbls) ...........     226,307     261,030
                            Gas Sales (Mcf) ............     943,738     873,994

                  UNDERLYING PROPERTIES
                            Total Oil Sales (Bbls) .....     350,921     376,705
                            Average Per Day (Bbls) .....       3,814       4,095
                            Average Price/Bbls .........   $   22.52   $   29.18
                            Total Gas Sales (Mcf) ......   1,610,652   1,360,733
                            Average Per Day (Mcf) ......      17,507      14,791
                            Average Price/Mcf ..........   $    2.63   $    4.45
</Table>

         The posted price of oil decreased for the fourth quarter of 2001
compared to the fourth quarter of 2000, resulting in an average price per barrel
of $22.52 compared to $29.18 in the same period of 2000. The average price of
gas increased




                                       8
<PAGE>

for the fourth quarter of 2001 compared to the same period in 2000, resulting in
an average price per Mcf of $2.63 compared to $4.45 in the fourth quarter of
2000.

         The Trustee has been advised that oil sales decreased in 2001 compared
to the same period in 2000 primarily due to decreased capital expenditures in
prior periods and natural production declines. Gas sales from the Underlying
Properties decreased in the fourth quarter of 2001 compared to the same period
in 2000 due to the same factors.

         The Trust has been advised that 1 gross (.38 net) well was drilled and
completed during the three months ended December 31, 2001, and there were 8
gross (3.75 net) wells in progress.





                                       9
<PAGE>
                           PERMIAN BASIN ROYALTY TRUST
                              FINANCIAL STATEMENTS

               STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
                           DECEMBER 31, 2001 AND 2000

<Table>
<Caption>
ASSETS                                                         2001         2000
                                                            ----------   ----------
<S>                                                         <C>          <C>
Cash and Short-term Investments .........................   $1,842,420   $3,056,122
Net Overriding Royalty Interests in Producing Oil and
        Gas Properties - Net (Notes 2 and 3) ............    2,371,187    2,595,254
                                                            ----------   ----------
                                                            $4,213,606   $5,651,376
                                                            ==========   ==========
LIABILITIES AND TRUST CORPUS
Distribution Payable to Unit Holders ....................   $1,842,420   $3,056,122
Trust Corpus - 46,608,796 Units of Beneficial Interest
        Authorized and Outstanding ......................    2,371,187    2,595,254
                                                            ----------   ----------
                                                            $4,213,606   $5,651,376
                                                            ==========   ==========
</Table>


                       STATEMENTS OF DISTRIBUTABLE INCOME
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2001

<Table>
<Caption>
                                                          2001          2000          1999
                                                       -----------   -----------   -----------
<S>                                                    <C>           <C>           <C>
Royalty Income (Notes 2 and 3) .....................   $39,816,141   $35,835,746   $18,799,659
Interest Income ....................................        77,977        85,348        27,331
                                                       -----------   -----------   -----------
                                                        39,894,118    35,921,094    18,826,990
Expenditures -- General and Administrative .........       420,723       375,953       355,148
                                                       -----------   -----------   -----------
Distributable Income ...............................   $39,473,395   $35,545,141   $18,471,842
                                                       ===========   ===========   ===========
Distributable Income per Unit (46,608,796 Units) ...   $   .846908   $   .762627   $   .396317
                                                       ===========   ===========   ===========
</Table>


                      STATEMENTS OF CHANGES IN TRUST CORPUS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2001

<Table>
<Caption>
                                                           2001            2000            1999
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>
Trust Corpus, Beginning of Period ..................   $  2,595,254    $  2,889,978    $  3,336,583
Amortization of Net Overriding Royalty Interests
       (Notes 2 and 3) .............................       (224,067)       (294,724)       (446,605)
Distributable Income ...............................     39,473,395      35,545,141      18,471,842
Distributions Declared .............................    (39,473,395)    (35,545,141)    (18,471,842)
                                                       ============    ============    ============
Trust Corpus, End of Period ........................   $  2,371,187    $  2,595,254    $  2,889,978
                                                       ============    ============    ============
</Table>

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



                                       10
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

1.       TRUST ORGANIZATION AND PROVISIONS

         The Permian Basin Royalty Trust ("Trust") was established as of
November 1, 1980. Bank of America, N.A. ("Trustee") is Trustee for the Trust.
Southland Royalty Company ("Southland") conveyed to the Trust (1) a 75% net
overriding royalty in Southland's fee mineral interest in the Waddell Ranch in
Crane County, Texas ("Waddell Ranch properties") and (2) a 95% net overriding
royalty carved out of Southland's major producing royalty properties in Texas
("Texas Royalty properties"). The net overriding royalties above are
collectively referred to as the "Royalties."

         On November 3, 1980, Units of Beneficial Interest ("Units") in the
Trust were distributed to the Trustee for the benefit of Southland shareholders
of record as of November 3, 1980, who received one Unit in the Trust for each
share of Southland common stock held. The Units are traded on the New York Stock
Exchange.

         The terms of the Trust Indenture provide, among other things, that:

         o        the Trust shall not engage in any business or commercial
                  activity of any kind or acquire any assets other than those
                  initially conveyed to the Trust;

         o        the Trustee may not sell all or any part of the Royalties
                  unless approved by holders of 75% of all Units outstanding in
                  which case the sale must be for cash and the proceeds promptly
                  distributed;

         o        the Trustee may establish a cash reserve for the payment of
                  any liability which is contingent or uncertain in amount;

         o        the Trustee is authorized to borrow funds to pay liabilities
                  of the Trust; and

         o        the Trustee will make monthly cash distributions to Unit
                  holders (see Note 2).

2.       NET OVERRIDING ROYALTY INTERESTS AND DISTRIBUTION TO UNIT HOLDERS

         The amounts to be distributed to Unit holders ("Monthly Distribution
Amounts") are determined on a monthly basis. The Monthly Distribution Amount is
an amount equal to the sum of cash received by the Trustee during a calendar
month attributable to the Royalties, any reduction in cash reserves and any
other cash receipts of the Trust, including interest, reduced by the sum of
liabilities paid and any increase in cash reserves. If the Monthly Distribution
Amount for any monthly period is a negative number, then the distribution will
be zero for such month. To the extent the distribution amount is a negative
number, that amount will be carried forward and deducted from future monthly
distributions until the cumulative distribution calculation becomes a positive
number, at which time a distribution will be made. Unit holders of record will
be entitled to receive the calculated Monthly Distribution Amount for each month
on or before 10 business days after the monthly record date, which is generally
the last business day of each calendar month.

         The cash received by the Trustee consists of the amounts received by
owners of the interest burdened by the Royalties from the sale of production
less the sum of applicable taxes, accrued production costs, development and
drilling costs, operating charges and other costs and deductions, multiplied by
75% in the case of the Waddell Ranch properties and 95% in the case of the Texas
Royalty properties.

         The initial carrying value of the Royalties ($10,975,216) represented
Southland's historical net book value at the date of the transfer to the Trust.
Accumulated amortization as of December 31, 2001 and 2000, aggregated $8,604,029
and $8,379,962, respectively.



                                       11
<PAGE>

3.       BASIS OF ACCOUNTING

         The financial statements of the Trust are prepared on the following
basis:

         o        Royalty income recorded is the amount computed and paid by the
                  working interest owner to the Trustee on behalf of the Trust.

         o        Trust expenses recorded are based on liabilities paid and cash
                  reserves established out of cash received or borrowed funds
                  for liabilities and contingencies.

         o        Distributions to Unit holders are recorded when declared by
                  the Trustee.

         The financial statements of the Trust differ from financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America because revenues are not accrued in the month of
production and certain cash reserves may be established for contingencies which
would not be accrued in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America.
Amortization of the Royalties calculated on a unit-of-production basis is
charged directly to trust corpus.

4.       FEDERAL INCOME TAX

         For Federal income tax purposes, the Trust constitutes a fixed
investment trust which is taxed as a grantor trust. A grantor trust is not
subject to tax at the trust level. The Unit holders are considered to own the
Trust's income and principal as though no trust were in existence. The income of
the Trust is deemed to have been received or accrued by each Unit holder at the
time such income is received or accrued by the Trust rather than when
distributed by the Trust.

         The Royalties constitute "economic interests" in oil and gas properties
for Federal income tax purposes. Unit holders must report their share of the
revenues of the Trust as ordinary income from oil and gas royalties and are
entitled to claim depletion with respect to such income.

         The Trust has on file technical advice memoranda confirming the tax
treatment described above.

         The classification of the Trust's income for purposes of the passive
loss rules may be important to a Unit holder. As a result of the Tax Reform Act
of 1986, royalty income will generally be treated as portfolio income and will
not offset passive losses.

5.       SIGNIFICANT CUSTOMERS

         Information as to significant purchasers of oil and gas production
attributable to the Trust's economic interests is included in Item 2 of the
Trust's Annual Report on Form 10-K which is included in this report.

6.       PROVED OIL AND GAS RESERVES (UNAUDITED)

         Proved oil and gas reserve information is included in Item 2 of the
Trust's Annual Report on Form 10-K which is included in this report.





                                       12
<PAGE>
7.       QUARTERLY SCHEDULE OF DISTRIBUTABLE INCOME (UNAUDITED)

         The following is a summary of the unaudited quarterly schedule of
distributable income for the two years ended December 31, 2001 (in thousands,
except per Unit amounts):

<Table>
<Caption>
                                                                                                    DISTRIBUTABLE
                                                                                                     INCOME AND
                                                               ROYALTY          DISTRIBUTABLE       DISTRIBUTION
2001                                                           INCOME              INCOME             PER UNIT
                                                         -----------------   -----------------   -----------------
<S>                                                      <C>                 <C>                 <C>
First Quarter.......................................     $          12,092   $          11,953   $         .256445
Second Quarter......................................                12,043              11,936             .256094
Third Quarter.......................................                 8,433               8,376             .179718
Fourth Quarter......................................                 7,247               7,208             .154651
                                                         -----------------   -----------------   -----------------
           Total....................................     $          39,816   $          39,473   $         .846908
                                                         =================   =================   =================
</Table>

<Table>
<Caption>
                                                                                                    DISTRIBUTABLE
                                                                                                     INCOME AND
                                                               ROYALTY          DISTRIBUTABLE       DISTRIBUTION
2000                                                           INCOME              INCOME             PER UNIT
                                                         -----------------   -----------------   -----------------
<S>                                                      <C>                 <C>                 <C>
First Quarter.......................................     $           6,373   $           6,266   $        0.134440
Second Quarter......................................                 9,037               8,895            0.190844
Third Quarter.......................................                 9,487               9,463            0.203032
Fourth Quarter......................................                10,939              10,921            0.234311
                                                         -----------------   -----------------   -----------------
           Total....................................     $          35,836             $35,545   $        0.762627
                                                         =================   =================   =================
</Table>



                                       13
<PAGE>
                          INDEPENDENT AUDITORS' REPORT


BANK OF AMERICA, N.A., AS TRUSTEE FOR THE PERMIAN BASIN ROYALTY TRUST:

         We have audited the accompanying statements of assets, liabilities and
trust corpus of the Permian Basin 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 audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 3 to the financial statements, these statements
were 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 of America.

         In our opinion, such financial statements present fairly, in all
material respects, the assets, liabilities and trust corpus of the Trust at
December 31, 2001 and 2000, and the distributable income and changes in trust
corpus for each of the three years in the period ended December 31, 2001, on the
basis of accounting described in Note 3.



         /s/ DELOITTE & TOUCHE LLP
--------------------------------------------

Deloitte & Touche LLP
Dallas, Texas
March 22, 2002



                                       14
<PAGE>
                    PERMIAN BASIN ROYALTY TRUST
                    901 Main Street, Suite 1700
                    P.O. Box 830650
                    Dallas, Texas 75202
                    Bank of America, N.A., Trustee

                    AUDITORS
                    Deloitte & Touche LLP
                    Dallas, Texas

                    LEGAL COUNSEL
                    Thompson & Knight L.L.P.
                    Dallas, Texas

                    TAX COUNSEL
                    Winstead, Sechrest Minick
                    Houston, Texas

                    TRANSFER AGENT
                    Mellon Investor Services LLC
                    Ridgefield Park, New Jersey




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