##### 



ANNUAL REPORT TO SHAREHOLDERS

EXHIBIT 13

[COVER PAGE]

[PERMIAN BASIN ROYALTY TRUST LOGO]

PERMIAN BASIN ROYALTY TRUST ANNUAL REPORT & FORM 10-K 2003

[MAP OF COUNTIES IN TEXAS]

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





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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:

|               |                |   |             |  |               |   |      |  |  |   |         |         | 
|-------------- | -------------- | - | ----------- |  | ------------- | - | ---- |  |  | - | ------- | ------- | 
|               |                |   | Sales Price |  |               |   |     
|               |                |   |             |  | Distributions
|               |                |   | High        |  | Low           |   | Paid
|               |                |   |             |  |               |   |     
|2003           |                |   |             |  |               |   |      |  |  |   |         |        
|First Quarter  |                | $ | 7.45        |  |               | $ | 5.20 |  |  | $ | .145240 |        
|Second Quarter |                |   | 7.50        |  |               |   | 5.45 |  |  |   | .180761 |        
|Third Quarter  |                |   | 8.79        |  |               |   | 7.13 |  |  |   | .185029 |        
|Fourth Quarter |                |   | 8.47        |  |               |   | 7.66 |  |  |   | .177963 |        
|               |                |   |             |  |               |   |      |  |  |   |         |        
|               | Total for 2003 |   |             |  |               |   |      |  |  |   | $       | .688993 | 
|               |                |   |             |  |               |   |      |  |  |   |         |        
|2002           |                |   |             |  |               |   |      |  |  |   |         |        
|First Quarter  |                | $ | 5.65        |  |               | $ | 4.97 |  |  | $ | .094796 |        
|Second Quarter |                |   | 5.95        |  |               |   | 5.00 |  |  |   | .118491 |        
|Third Quarter  |                |   | 5.35        |  |               |   | 4.50 |  |  |   | .133892 |        
|Fourth Quarter |                |   | 6.40        |  |               |   | 5.07 |  |  |   | .155203 |        
|               |                |   |             |  |               |   |      |  |  |   |         |        
|               | Total for 2002 |   |             |  |               |   |      |  |  |   | $       | .502382 | 
|               |                |   |             |  |               |   |      |  |  |   |         |        

Approximately, 1178 Unit holders of record held the 46,608,796 Units of the
Trust at December 31, 2003.

The Trust has no equity compensation plans and has not repurchased any
units during the period covered by this report.

To Unit Holders

We are pleased to present the twenty-third 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, 2003,
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

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##### 



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,
2003, was $32,596,078 and interest income earned for the same period was
$13,937. General and administrative expenses amounted to $496,890. A total of
$32,113,125 or $.688993 per Unit, was distributed to Unit holders during 2003.
A discussion of factors affecting the distributions for 2003 may be found in
the Trustees Discussion and Analysis section of this report and the
accompanying Form 10-K.

As of December 31, 2003, the Trusts proved reserves were estimated at
6,907,324 Bbls of oil and 27,247,364 Mcf of gas. The estimated future net
revenues from proved reserves at December 31, 2003 amount to $320,706,700 or
$6.88 per Unit. The present value of estimated future net revenues discounted
at 10% at December 31, 2003 was $175,551,530 or $3.77 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 Schlumberger Technology Corporation (STC) 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 STC. Subsequently, the Trustee was
advised that 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. STC will continue to perform all accounting operations pertaining to
the Texas Royalty properties under the direction of Riverhill Energy.

Percentage depletion is allowed 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. The Trustee and its accountants have estimated the percentage
depletion for January through December 2003, 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. 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.

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, 2004, and for the year ending December 31, 2004. 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

2



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##### 



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, 2003, is approximately 9.35 years.

The net profits/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 royalty interests are carved vary from
37.5% (Trust net interest) to 50% (Trust net interest) in 76,922 gross acres
and 33,246 net acres, containing 716 gross (316 net) productive oil wells, 186
gross (88 net) productive gas wells and 323 gross (140 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 (Grayburg/San Andreas) oil
field, and the Waddell (Grayburg/San Andreas) 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. Capital expenditures for remedial and maintenance
activities during 2003 totaled approximately $11.8 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 2004 capital expenditures budget
should total approximately $13.2 million gross of which $2.0 million gross is
attributable to drilling, $11.1 million gross to workovers, and $.1 million
gross to facilities.

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,
2003, was computed as shown in the table on the next page.

3



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##### 



|                                                        |                                          |                |            |            |                         |            |            |            |            |           |            |            |            |            |            |            |            |           |            |            |            |            |            |            |            |           | 
|------------------------------------------------------- | ---------------------------------------- | -------------- | ---------- | ---------- | ----------------------- | ---------- | ---------- | ---------- | ---------- | --------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | --------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | --------- | 
|                                                        |                                          |                |            |            | Year Ended December 31,
|                                                        |                                          |                |            |            |                        
|                                                        |                                          |                |            |            | 2003                    |            | 2002       |            | 2001      
|                                                        |                                          |                |            |            |                         |            |            |            |           
|                                                        |                                          |                |            |            | Waddell                 |            | Texas      |            | Waddell    |           | Texas      |            | Waddell    |            | Texas     
|                                                        |                                          |                |            |            | Ranch                   |            | Royalty    |            | Ranch      |           | Royalty    |            | Ranch      |            | Royalty   
|                                                        |                                          |                |            |            | Properties              |            | Properties |            | Properties |           | Properties |            | Properties |            | Properties
|                                                        |                                          |                |            |            |                         |            |            |            |            |           |            |            |            |            |           
|Gross Proceeds of Sales
From the Underlying Properties: |                                          |                |            |            |                         |            |            |            |            |           |            |            |            |            |            |            |            |           |            |            |            |            |            |           
|                                                        | Oil Proceeds                             |                | $          | 24,418,227 |                         |            | $          | 9,454,914  |            |           | $          | 20,543,224 |            |            | $          | 7,785,749  |            |           | $          | 26,477,679 |            |            | $          | 9,524,586  |           
|                                                        | Gas Proceeds                             |                |            | 25,255,338 |                         |            |            | 3,606,615  |            |           |            | 14,861,094 |            |            |            | 2,245,648  |            |           |            | 26,068,379 |            |            |            | 3,771,184  |           
|                                                        |                                          |                |            |            |                         |            |            |            |            |           |            |            |            |            |            |            |            |           |            |            |            |            |            |            |           
|                                                        |                                          | Total          |            |            | 49,673,565              |            |            |            | 13,061,529 |           |            |            | 35,404,318 |            |            |            | 10,031,398 |           |            |            | 52,546,058 |            |            |            | 13,295,770 |          
|                                                        |                                          |                |            |            |                         |            |            |            |            |           |            |            |            |            |            |            |            |           |            |            |            |            |            |            |           
|Less:                                                   |                                          |                |            |            |                         |            |            |            |            |           |            |            |            |            |            |            |            |           |            |            |            |            |            |           
|                                                        | Severance Tax                            |                |            |            |                         |            |            |            |            |           |            |            |            |            |            |            |            |           |            |            |            |            |            |            |           
|                                                        |                                          | Oil            |            |            | 1,045,413               |            |            |            | 350,440    |           |            |            | 863,299    |            |            |            | 302,665    |           |            |            | 1,108,968  |            |            |            | 374,204    |          
|                                                        |                                          | Gas            |            |            | 1,632,642               |            |            |            | 228,928    |           |            |            | 813,581    |            |            |            | 159,431    |           |            |            | 1,160,095  |            |            |            | 239,337    |          
|                                                        |                                          | Other          |            |            | 26,850                  |            |            |            |           |           |            |            | 72,396     |            |            |            |           |           |            |            |           |            |            |            |           |          
|                                                        | Lease Operating Expense and Property Tax |                |            |            |                         |            |            |            |            |           |            |            |            |            |            |            |            |           |            |            |            |            |            |            |           
|                                                        |                                          | Oil and Gas    |            |            | 10,540,850              |            |            |            | 823,331    |           |            |            | 9,424,724  |            |            |            | 933,646    |           |            |            | 9,086,468  |            |            |            | 605,125    |          
|                                                        |                                          | Other Payments |            |            |                        |            |            |            |           |           |            |            |           |            |            |            |           |           |            |            | 50,000     |            |            |            |           |          
|                                                        | Capital Expenditures                     |                |            | 7,734,224  |                         |            |            |            |            |           |            | 3,394,674  |            |            |            | 0          |            |           |            | 3,350,003  |            |            |            |           |           
|                                                        |                                          |                |            |            |                         |            |            |            |            |           |            |            |            |            |            |            |            |           |            |            |            |            |            |            |           
|                                                        |                                          |                | Total      |            |                         | 20,979,979 |            |            |            | 1,402,699 |            |            |            | 14,568,674 |            |            |            | 1,395,742 |            |            |            | 14,755,534 |            |            |            | 1,218,666 | 
|                                                        |                                          |                |            |            |                         |            |            |            |            |           |            |            |            |            |            |            |            |           |            |            |            |            |            |            |           
|                                                        | Net Profits                              |                |            | 28,693,586 |                         |            |            | 11,688,830 |            |           |            | 20,835,643 |            |            |            | 8,635,655  |            |           |            | 37,790,525 |            |            |            | 12,077,104 |           
|                                                        | Net Overriding Royalty Interest          |                |            | 75         | %                       |            |            | 95         | %          |           |            | 75         | %          |            |            | 95         | %          |           |            | 75         | %          |            |            | 95         | %         
|                                                        |                                          |                |            |            |                         |            |            |            |            |           |            |            |            |            |            |            |            |           |            |            |            |            |            |            |           
|Royalty Income                                          |                                          |                | 21,520,190 |            |                         |            | 11,075,888 |            |            |           | 15,626,732 |            |            |            | 8,203,872  |            |            |           | 28,342,893 |            |            |            | 11,473,248 |           
|Negative Revenue (a)                                    |                                          |                |           |            |                         |            |           |            |            |           |           |            |            |            |           |            |            |           |           |            |            |            |           |           
|                                                        |                                          |                |            |            |                         |            |            |            |            |           |            |            |            |            |            |            |            |           |            |            |            |            |            |            |           
|                                                        | Total Royalty Income for Distribution    |                | $          | 21,520,190 |                         |            | $          | 11,075,888 |            |           | $          | 15,626,732 |            |            | $          | 23,803,604 |            |           | $          | 28,342,893 |            |            | $          | 11,473,248 |           
|                                                        |                                          |                |            |            |                         |            |            |            |            |           |            |            |            |            |            |            |            |           |            |            |            |            |            |            |           

|                                                        |                                          |                |            |            |                         |            |            |            |            |         |            |            |            |            |           |           |           |         | 
|------------------------------------------------------- | ---------------------------------------- | -------------- | ---------- | ---------- | ----------------------- | ---------- | ---------- | ---------- | ---------- | ------- | ---------- | ---------- | ---------- | ---------- | --------- | --------- | --------- | ------- | 
|                                                        |                                          |                |            |            | Year Ended December 31,
|                                                        |                                          |                |            |            |                        
|                                                        |                                          |                |            |            | 2000                    |            | 1999      
|                                                        |                                          |                |            |            |                         |            |           
|                                                        |                                          |                |            |            | Waddell                 |            | Texas      |            | Waddell    |         | Texas     
|                                                        |                                          |                |            |            | Ranch                   |            | Royalty    |            | Ranch      |         | Royalty   
|                                                        |                                          |                |            |            | Properties              |            | Properties |            | Properties |         | Properties
|                                                        |                                          |                |            |            |                         |            |            |            |            |         |           
|Gross Proceeds of Sales
From the Underlying Properties: |                                          |                |            |            |                         |            |            |            |            |         |            |            |            |            |           |          
|                                                        | Oil Proceeds                             |                | $          | 31,289,829 |                         |            | $          | 9,770,732  |            |         | $          | 18,667,382 |            |            | $         | 5,261,863 |          
|                                                        | Gas Proceeds                             |                |            | 18,342,926 |                         |            |            | 2,701,298  |            |         |            | 12,794,695 |            |            |           | 1,760,499 |          
|                                                        |                                          |                |            |            |                         |            |            |            |            |         |            |            |            |            |           |           |          
|                                                        |                                          | Total          |            |            | 49,632,755              |            |            |            | 12,472,030 |         |            |            | 31,462,077 |            |           |           | 7,022,362 |        
|                                                        |                                          |                |            |            |                         |            |            |            |            |         |            |            |            |            |           |           |          
|Less:                                                   |                                          |                |            |            |                         |            |            |            |            |         |            |            |            |            |           |          
|                                                        | Severance Tax                            |                |            |            |                         |            |            |            |            |         |            |            |            |            |           |           |          
|                                                        |                                          | Oil            |            |            | 1,288,522               |            |            |            | 373,643    |         |            |            | 726,944    |            |           |           | 186,846   |        
|                                                        |                                          | Gas            |            |            | 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    |            |            | 9,318,915               |            |            |            | 442,523    |         |            |            | 9,687,476  |            |           |           | 525,035   |        
|                                                        |                                          | Other Payments |            |            |                        |            |            |            |           |         |            |            | 132,166    |            |           |           | 180,000   |        
|                                                        | Capital Expenditures                     |                |            | 4,606,227  |                         |            |            |           |            |         |            | 1,052,769  |            |            |           |          |          
|                                                        |                                          |                |            |            |                         |            |            |            |            |         |            |            |            |            |           |           |          
|                                                        |                                          |                | Total      |            |                         | 16,430,272 |            |            |            | 962,678 |            |            |            | 12,417,883 |           |           |           | 985,260 | 
|                                                        |                                          |                |            |            |                         |            |            |            |            |         |            |            |            |            |           |           |          
|                                                        | Net Profits                              |                |            | 33,202,483 |                         |            |            | 11,509,352 |            |         |            | 19,044,194 |            |            |           | 6,037,102 |          
|                                                        | Net Overriding Royalty Interest          |                |            | 75         | %                       |            |            | 95         | %          |         |            | 75         | %          |            |           | 95        | %        
|                                                        |                                          |                |            |            |                         |            |            |            |            |         |            |            |            |            |           |           |          
|Royalty Income                                          |                                          |                | 24,901,862 |            |                         |            | 10,933,884 |            |            |         | 14,283,146 |            |            |            | 5,735,247 |          
|Negative Revenue (a)                                    |                                          |                |           |            |                         |            |           |            |            |         | 1,218,732  |            |            |            |          |          
|                                                        |                                          |                |            |            |                         |            |            |            |            |         |            |            |            |            |           |           |          
|                                                        | Total Royalty Income for Distribution    |                |            | 24,901,862 |                         |            |            | 10,933,884 |            |         | $          | 13,064,414 |            |            | $         | 5,735,247 |          
|                                                        |                                          |                |            |            |                         |            |            |            |            |         |            |            |            |            |           |           |          

4



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|(a) |  | 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.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5



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##### 



Discussion and Analysis

Trustees Discussion and Analysis for the Three-Year Period Ended December 31,
2003

Critical Accounting Policies and Estimates

The trusts financial statements reflect the selection and application of
accounting policies that require the Trust to make significant estimates and
assumptions. The following are some of the more critical judgement areas in
the application of accounting policies that currently affect the Trusts
financial condition and results of operations.



| | 1. |  | Revenue Recognition
| | -- |  | -------------------

Revenues from Royalty Interests are recognized in the period in which
amounts are received by the Trust. Royalty income received by the Trust in a
given calendar year will generally reflect the proceeds, on an entitlements
basis, from natural gas produced for the twelve-month period ended September
30th in that calendar year.



| | 2. |  | Reserve Recognition
| | -- |  | -------------------

Independent petroleum engineers estimate the net proved reserves
attributable to the Royalty Interest. In accordance with Statement of Financial
Standards No. 69, Disclosures About Oil and Gas Producing Activities,
estimates of future net revenues from proved reserves have been prepared using
year-end contractual gas prices additional information becomes available. The
reserves actually recovered and the timing of production may be substantially
different from the reserve estimates. and related costs. Numerous
uncertainties are inherent in estimating volumes and the value of proved
reserves and in projecting future production rates and the timing of
development of non-producing reserves. Such reserve estimates are subject to
change as



| | 3. |  | Contingencies
| | -- |  | -------------

Contingencies related to the Underlying Properties that are unfavorably
resolved would generally be reflected by the Trust as reductions to future
royalty income payments to the Trust with corresponding reductions to cash
distributions to Unitholders.

Liquidity and Capital Resources

As stipulated in the Trust Agreement, the Trust is intended to be passive
in nature and the Trustee does not have any control over or any responsibility
relating to the operation of the Underlying Properties. The Trustee has powers
to collect and distribute proceeds received by the Trust and pay Trust
liabilities and expenses and its actions have been limited to those activities.
The Trust is a passive entity and other than the Trusts ability to
periodically borrow money as necessary to pay expenses, liabilities and
obligations of the Trust that cannot be paid out of cash held by the Trust, the
Trust is prohibited from engaging in borrowing transactions. As a result,
other than such borrowings, if any, the Trust has no source of liquidity or
capital resources other than the Royalties.

Results of Operations

Royalty income received by the Trust for the three-year period ended
December 31, 2003, is reported in the following table:

|                   |  |                         |            |      |  |      |            |   |  |   |            |  
|------------------ |  | ----------------------- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                   |  | Year Ended December 31,
|                   |  |                        
|                   |  | 2003                    |            | 2002 |  | 2001
|                   |  |                         |            |      |  |     
|Royalties          |  |                         |            |      |  |      |            |   |  |   |            |  
|Total Revenue      |  | $                       | 32,596,078 |      |  | $    | 23,830,604 |   |  | $ | 39,816,141 |  
|                   |  |                         | 100        | %    |  |      | 100        | % |  |   | 100        | %
|Oil Revenue        |  |                         | 17,927,843 |      |  |      | 15,013,280 |   |  |   | 22,466,757 |  
|                   |  |                         | 55         | %    |  |      | 63         | % |  |   | 56         | %
|Gas Revenue        |  |                         | 14,668,235 |      |  |      | 8,817,324  |   |  |   | 17,349,384 |  
|                   |  |                         | 45         | %    |  |      | 37         | % |  |   | 44         | %
|Total Revenue/Unit |  | $                       | .69935     |      |  | $    | .511289    |   |  | $ | .854327    |  

6



---



##### 



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 2003, 2002 and 2001 for the
Royalties and the Underlying Properties, excluding portions attributable to the
adjustments discussed hereafter, are presented in the following table:

|                      |                        |  |                         |           |      |  |           |           |  |  |           |           | 
|--------------------- | ---------------------- |  | ----------------------- | --------- | ---- |  | --------- | --------- |  |  | --------- | --------- | 
|                      |                        |  | Year Ended December 31,
|                      |                        |  |                        
|                      |                        |  | 2003                    |           | 2002 |  | 2001     
|                      |                        |  |                         |           |      |  |          
|Royalties             |                        |  |                         |           |      |  |           |           |  |  |           |          
|Oil Sales (Bbls)      |                        |  | 699,402                 |           |      |  | 728,313   |           |  |  | 941,202   |          
|Gas Sales (Mcf)       |                        |  | 3,160,921               |           |      |  | 3,192,175 |           |  |  | 3,875,586 |          
|Underlying Properties |                        |  |                         |           |      |  |           |           |  |  |           |          
|Oil                   |                        |  |                         |           |      |  |           |           |  |  |           |          
|                      | Total Oil Sales (Bbls) |  |                         | 1,200,844 |      |  |           | 1,272,923 |  |  |           | 1,434,983 | 
|                      | Average Per Day (Bbls) |  |                         | 3,290     |      |  |           | 3,489     |  |  |           | 3,931     | 
|                      | Average Price/Bbl      |  | $                       | 28.21     |      |  | $         | 22.31     |  |  | $         | 24.88     | 
|Gas                   |                        |  |                         |           |      |  |           |           |  |  |           |          
|                      | Total Gas Sales (Mcf)  |  |                         | 6,243,956 |      |  |           | 6,189,015 |  |  |           | 6,441,298 | 
|                      | Average Per Day (Mcf)  |  |                         | 17,107    |      |  |           | 16,956    |  |  |           | 17,593    | 
|                      | Average Price/Mcf      |  | $                       | 4.62      |      |  | $         | 2.74      |  |  | $         | 4.70      | 

The average price of oil increased to $28.21 per barrel in 2003, up from
$22.31 per barrel in 2002. In addition, the average price of gas increased
from $2.74 per Mcf in 2002 to $4.62 per Mcf in 2003.

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 6% from
2003 to 2002 primarily due to lower capital expenditures in previous years.
Total gas sales increased approximately 1% from 2003 to 2002 primarily due to
an increase in capital expenditures for gas wells.

Total capital expenditures in 2003 used in the net overriding royalty
calculation were approximately $7.7 million compared to $9.9 million in 2002
and $3.4 million in 2001. During 2003, there were 2 gross (.88 net) wells
drilled and completed on the Waddell Ranch properties. At December 31, 2003,
there were no wells in progress on the Waddell Ranch properties.

In 2003, lease operating expense and property taxes on the Waddell Ranch
properties amounted to approximately $10.5 million, which amount was higher
than 2002 by $1.1 million.

The Trustee has been advised by BROG that for the period August 1, 1993,
through June 30, 2003, the oil from the Waddell Ranch was sold under a
competitive bid to a third party.

During 2003, the monthly royalty receipts were invested by the Trustee in
U.S. Treasury securities until the monthly distribution date, and earned
interest totaled $13,937. Interest income for 2002 and 2001 was $17,140 and
$77,977, respectively.

General and administrative expenses in 2003 were $496,890 compared to
$432,338 in 2002 and $420,723 in 2001.

Distributable
income for 2003 was $32,113,125, or $.688993 per Unit.

Distributable income for 2002 was $23,415,406, or $.502382 per Unit.

Distributable income for 2001 was $39,473,395, or $.846908 per Unit.

Results of the Fourth Quarters of 2003 and 2002

Royalty income received by the Trust for the fourth quarter of 2003
amounted to $8,351,183 or $.179176 per Unit. For the fourth quarter of 2002,
the Trust received royalty income of $7,296,142 or $.155203 per Unit. Interest
income for the fourth quarter of 2003 amounted to $3,535 compared to $4,929 for
the fourth quarter of 2002. The decrease in interest income can be attributed
primarily to a decrease in interest rates. General and administrative expenses
totaled $60,111 for the fourth quarter of 2003 compared to $67,256 for the
fourth quarter of 2002.

7



---



##### 



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 2002 are as follows:

|                      |                        |  |                |           |      |  |   |           |  |  |  |  | 
|--------------------- | ---------------------- |  | -------------- | --------- | ---- |  | - | --------- |  |  |  |  | 
|                      |                        |  | Fourth Quarter
|                      |                        |  |               
|                      |                        |  | 2003           |           | 2002 |  |   |           | 
|                      |                        |  |                |           |      |  |   |           | 
|Royalties             |                        |  |                |           |      |  |   |          
|                      | Oil Sales (Bbls)       |  |                | 180,921   |      |  |   | 185,131   | 
|                      | Gas Sales (Mcf)        |  |                | 854,626   |      |  |   | 874,957   | 
|Underlying Properties |                        |  |                |           |      |  |   |          
|                      | Total Oil Sales (Bbls) |  |                | 291,467   |      |  |   | 309,368   | 
|                      | Average Per Day (Bbls) |  |                | 3,168     |      |  |   | 3,363     | 
|                      | Average Price/Bbls     |  | $              | 27.03     |      |  | $ | 26.53     | 
|                      | Total Gas Sales (Mcf)  |  |                | 1,562,380 |      |  |   | 1,593,780 | 
|                      | Average Per Day (Mcf)  |  |                | 16,982    |      |  |   | 17,324    | 
|                      | Average Price/Mcf      |  | $              | 4.49      |      |  | $ | 3.13      | 

The posted price of oil increased for the fourth quarter of 2003 compared
to the fourth quarter of 2002, resulting in an average price per barrel of
$27.03 compared to $26.53 in the same period of 2002. The average price of gas
increased for the fourth quarter of 2003 compared to the same period in 2002,
resulting in an average price per Mcf of $4.49 compared to $3.13 in the fourth
quarter of 2002.

The Trustee has been advised
that oil sales decreased in 2003 compared to
the same period in 2002 primarily due to lower capital expenditures in
prior periods and natural production declines. Gas sales from the Underlying
Properties decreased in the fourth quarter of 2003 compared to the same period
in 2002 due to the same factors.

The Trust has been advised that no well was drilled and completed during
the three months ended December 31, 2003, and there were no wells in progress.

Off-Balance Sheet Arrangements.

As stipulated in the Trust Agreement, the Trust is intended to be passive
in nature and the Trustee does not have any control over or any responsibility
relating to the operation of the Underlying Properties. The Trustee has powers
to collect and distribute proceeds received by the Trust and pay Trust
liabilities and expenses and its actions have been limited to those activities.
Therefore, the Trust has not engaged in any off-balance sheet arrangements.

Tabular Disclosure of Contractual Obligations.

|                                     |  |       |           |        |  |                        |           |           |  |         |   |  |  |  |   |           |  |  |   | 
|------------------------------------ |  | ----- | --------- | ------ |  | ---------------------- | --------- | --------- |  | ------- | - |  |  |  | - | --------- |  |  | - | 
|                                     |  |       |           |        |  | Payments Due by Period
|                                     |  |       |           |        |  |                       
|                                     |  |       |           |        |  | Less than              |           |           |  |         |   |  |  |  |   | More than
|Contractual Obligations              |  | Total |           | 1 Year |  | 1 - 3 Years            |           | 3-5 Years |  | 5 Years
|                                     |  |       |           |        |  |                        |           |           |  |        
|Distribution payable to Unit holders |  |       | 2,873,975 |        |  |                        | 2,873,975 |           |  |         | 0 |  |  |  | 0 |           |  |  | 0 | 
|Total                                |  |       | 2,873,975 |        |  |                        | 2,873,975 |           |  |         | 0 |  |  |  | 0 |           |  |  | 0 | 

8



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##### 



PERMIAN BASIN ROYALTY TRUST
FINANCIAL STATEMENTS

STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
DECEMBER 31, 2003 AND 2002

|                                                                                           |  |      |           |      |  |   |           | 
|------------------------------------------------------------------------------------------ |  | ---- | --------- | ---- |  | - | --------- | 
|                                                                                           |  | 2003 |           | 2002
|                                                                                           |  |      |           |     
|ASSETS                                                                                     |  |      |           |      |  |   |           | 
|Cash and Short-term Investments                                                            |  | $    | 2,873,975 |      |  | $ | 2,371,387 | 
|Net Overriding Royalty Interests in Producing Oil and
Gas Properties - Net (Notes 2 and 3) |  |      | 1,991,594 |      |  |   | 2,172,393 | 
|                                                                                           |  |      |           |      |  |   |           | 
|                                                                                           |  | $    | 4,865,569 |      |  | $ | 4,543,780 | 
|                                                                                           |  |      |           |      |  |   |           | 
|LIABILITIES AND TRUST CORPUS                                                               |  |      |           |      |  |   |           | 
|Distribution Payable to Unit Holders                                                       |  | $    | 2,873,975 |      |  | $ | 2,371,387 | 
|Trust Corpus - 46,608,796 Units of Beneficial Interest
Authorized and Outstanding          |  |      | 1,991,594 |      |  |   | 2,172,393 | 
|                                                                                           |  |      |           |      |  |   |           | 
|                                                                                           |  | $    | 4,865,569 |      |  | $ | 4,543,780 | 
|                                                                                           |  |      |           |      |  |   |           | 

STATEMENTS OF DISTRIBUTABLE INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 2003

|                                                 |  |      |            |      |  |      |            |  |  |   |            | 
|------------------------------------------------ |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|                                                 |  | 2003 |            | 2002 |  | 2001
|                                                 |  |      |            |      |  |     
|Royalty Income (Notes 2 and 3)                   |  | $    | 32,596,078 |      |  | $    | 23,830,604 |  |  | $ | 39,816,141 | 
|Interest Income                                  |  |      | 13,937     |      |  |      | 17,140     |  |  |   | 77,977     | 
|                                                 |  |      |            |      |  |      |            |  |  |   |            | 
|                                                 |  |      | 32,610,015 |      |  |      | 23,847,744 |  |  |   | 39,894,118 | 
|Expenditures  General and Administrative        |  |      | 496,890    |      |  |      | 432,338    |  |  |   | 420,723    | 
|                                                 |  |      |            |      |  |      |            |  |  |   |            | 
|Distributable Income                             |  | $    | 32,113,125 |      |  | $    | 23,415,406 |  |  | $ | 39,473,395 | 
|                                                 |  |      |            |      |  |      |            |  |  |   |            | 
|Distributable Income per Unit (46,608,796 Units) |  | $    | .688993    |      |  | $    | .502382    |  |  | $ | .846908    | 
|                                                 |  |      |            |      |  |      |            |  |  |   |            | 

STATEMENTS OF CHANGES IN TRUST CORPUS
FOR THE THREE YEARS ENDED DECEMBER 31, 2003

|                                                                 |  |      |             |      |  |      |             |   |  |   |             |  
|---------------------------------------------------------------- |  | ---- | ----------- | ---- |  | ---- | ----------- | - |  | - | ----------- | -
|                                                                 |  | 2003 |             | 2002 |  | 2001
|                                                                 |  |      |             |      |  |     
|Trust Corpus, Beginning of Period                                |  | $    | 2,172,393   |      |  | $    | 2,371,187   |   |  | $ | 2,595,254   |  
|Amortization of Net Overriding Royalty Interests
(Notes 2 and 3) |  |      | (180,799    | )    |  |      | (198,794    | ) |  |   | (224,067    | )
|Distributable Income                                             |  |      | 32,113,125  |      |  |      | 23,415,406  |   |  |   | 39,473,395  |  
|Distributions Declared                                           |  |      | (32,113,125 | )    |  |      | (23,415,406 | ) |  |   | (39,473,395 | )
|                                                                 |  |      |             |      |  |      |             |   |  |   |             |  
|Trust Corpus, End of Period                                      |  | $    | 1,991,594   |      |  | $    | 2,172,393   |   |  | $ | 2,371,187   |  
|                                                                 |  |      |             |      |  |      |             |   |  |   |             |  

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

9



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##### 



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:



| |  |  | 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;                                              
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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;
|
| |  |  | the Trustee may establish a cash reserve for the payment of
any liability which is contingent or uncertain in amount;                                                                              
|
| |  |  | the Trustee is authorized to borrow funds to pay liabilities of the Trust; and                                                                                                                     
|
| |  |  | 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, 2003 and 2002, aggregated
$8,983,700 and $8,802,823, respectively.

3. Basis of Accounting

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



| |  |  | Royalty income recorded is the amount computed and paid by
the working interest owner to the Trustee on behalf of the Trust.                                 
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Trust expenses recorded are based on liabilities paid and
cash reserves established out of cash received or borrowed funds for
liabilities and contingencies.
|
| |  |  | Distributions to Unit holders are recorded when declared by
the Trustee.                                                                                     

10



---



##### 



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. New Accounting Pronouncements

SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, an amendment of FASB Statement No. 123, was issued in December
2002 and provides new transition methods if an entity adopts the fair value
based method of valuing stock-based compensation suggested in SFAS No. 123
Accounting for Stock-Based Compensation, as well as requiring additional
disclosures in interim and annual financial statements. The Trust has no
options or other stock-based instruments and accordingly, the impact of this
new Standard had no impact on the financial statements of the Trust.

SFAS No. 149,  Accounting for Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133 was issued in April 2003
and is effective for contracts entered into after June 20, 2003. The statement
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts. The Trust has no derivative instruments and accordingly, the impact
of this new standard will not be material to the financial statements of the
Trust.

SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity was issued in May 2003, and is
effective for fiscal quarters beginning after June 15, 2003. The Trust has no
Financial Instruments and accordingly, the impact of this new standard will not
be material to the financial statements of the Trust.

FASB interpretation (FIN) No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, requires disclosures beginning with financial statements ending after
December 15, 2002 and requires liability recognition beginning January 1, 2003.
The Trust had no such guarantees outstanding as of December 31, 2003.

FIN No. 46, Consolidation of Variable Interest Entities was issued in
January 2003. This interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, applies immediately to variable interest
entities created after January 31, 2003 and applies to the first period
beginning after June 15, 2003 to entities acquired before February 1, 2003.
This FIN does not affect the Trust as it has no unconsolidated subsidiaries
accounted for under the equity method of accounting.

5. 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. Royalty income generally is treated as
portfolio income and does not offset passive losses.

Unit holders should consult their tax advisors for further information.

6. 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.

7. 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.

11



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##### 



8. 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, 2003 (in thousands,
except per Unit amounts):

|               |       |   |         |        |               |   |              |        |  |   |               |         | 
|-------------- | ----- | - | ------- | ------ | ------------- | - | ------------ | ------ |  | - | ------------- | ------- | 
|               |       |   |         |        |               |   |              |        |  |   | Distributable
|               |       |   |         |        |               |   |              |        |  |   | Income and   
|               |       |   | Royalty |        | Distributable |   | Distribution
|               |       |   | Income  |        | Income        |   | Per Unit    
|               |       |   |         |        |               |   |             
|2003           |       |   |         |        |               |   |              |        |  |   |               |        
|First Quarter  |       | $ | 6,983   |        |               | $ | 6,769        |        |  | $ | .145240       |        
|Second Quarter |       |   | 8,569   |        |               |   | 8,425        |        |  |   | .180761       |        
|Third Quarter  |       |   | 8,692   |        |               |   | 8,624        |        |  |   | .185029       |        
|Fourth Quarter |       |   | 8,352   |        |               |   | 8,295        |        |  |   | .177963       |        
|               |       |   |         |        |               |   |              |        |  |   |               |        
|               | Total |   | $       | 32,596 |               |   | $            | 32,113 |  |   | $             | .688993 | 
|               |       |   |         |        |               |   |              |        |  |   |               |        

|               |       |   |         |        |               |   |              |        |  |   |               |         | 
|-------------- | ----- | - | ------- | ------ | ------------- | - | ------------ | ------ |  | - | ------------- | ------- | 
|               |       |   |         |        |               |   |              |        |  |   | Distributable
|               |       |   |         |        |               |   |              |        |  |   | Income and   
|               |       |   | Royalty |        | Distributable |   | Distribution
|               |       |   | Income  |        | Income        |   | Per Unit    
|               |       |   |         |        |               |   |             
|2002           |       |   |         |        |               |   |              |        |  |   |               |        
|First Quarter  |       | $ | 4,574   |        |               | $ | 4,418        |        |  | $ | .094796       |        
|Second Quarter |       |   | 5,654   |        |               |   | 5,523        |        |  |   | .118491       |        
|Third Quarter  |       |   | 6,306   |        |               |   | 6,241        |        |  |   | .133892       |        
|Fourth Quarter |       |   | 7,297   |        |               |   | 7,233        |        |  |   | .155203       |        
|               |       |   |         |        |               |   |              |        |  |   |               |        
|               | Total |   | $       | 23,831 |               |   | $            | 23,415 |  |   | $             | .502382 | 
|               |       |   |         |        |               |   |              |        |  |   |               |        

12



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##### 



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, 2003 and 2002, and the related statements of distributable income and
changes in trust corpus for each of the three years in the period ended
December 31, 2003. 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,
2003 and 2002, and the distributable income and changes in trust corpus for
each of the three years in the period ended December 31, 2003, on the basis of
accounting described in Note 3.

Deloitte & Touche LLP
Dallas, Texas
March 9, 2004

13



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##### 





| |  |  | 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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