<PAGE>   1
         PERMIAN BASIN
         ROYALTY TRUST
         1997 ANNUAL REPORT
         AND FORM 10-K

         PERMIAN BASIN
         ROYALTY TRUST
         1997 ANNUAL REPORT
         AND FORM 10-K


<PAGE>   2




TEXAS ROYALTY PROPERTIES ARE LOCATED IN 33 TEXAS COUNTIES.

[MAP OF TEXAS WITH CERTAIN COUNTIES IDENTIFIED]

WADDELL RANCH PROPERTIES ARE LOCATED IN CRANE COUNTY, TEXAS.


<PAGE>   3



THE TRUST

The Permian Basin Royalty Trust's 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 "Royalties."

     The Permian Basin Royalty Trust (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 and Gas Company ("BROG"). Any reference to BROG
hereafter may also be construed as a reference to Meridian and Southland.
Further, BROG notified the Trust that, on February 14, 1997, its interests in
the "Texas Royalty properties" that are subject to the Net Overriding Royalty
Conveyance dated November 1, 1980 ("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>
-----------------------------------------------------------------------------------------------
                                                                                  Distributions
1997                                             High              Low                Paid
----                                         ---------          ---------          -----------
<S>                                          <C>                <C>                <C>
First Quarter .....................          $   4.750          $   4.000          $ .183907
Second Quarter ....................              4.500              4.000            .086304
Third Quarter .....................              5.500              4.188            .093186
Fourth Quarter ....................              5.688              4.125            .112695
                                                                                   ---------
    Total for 1997 ................                                                $ .476092
                                                                                   =========

1996
----
First Quarter .....................          $   3.750          $   3.125          $ .052637
Second Quarter ....................              4.000              3.125            .079382
Third Quarter .....................              4.250              3.125            .149395
Fourth Quarter ....................              4.875              4.000            .136717
                                                                                   ---------
    Total for 1996 ................                                                $ .418131
                                                                                   =========
----------------------------------------------------------------------------------------------
</TABLE>


Approximately 2,521 Unit holders of record held the 46,608,796 Units of the
Trust at December 31, 1997. Distributions of ownership of Units is presented in
the following table:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                                         Number of
TYPE OF UNIT HOLDERS                                     Unit Holders      Units Held
--------------------                                     ------------      ----------
<S>                                                         <C>            <C>
Nominee .....................................                   1              65,353
Individuals .................................               2,062           2,873,359
Institutions ................................                  55          43,044,642
Fiduciaries .................................                 402             620,642
Brokers .....................................                   1               4,800
                                                            -----          ----------
    Total ...................................               2,521          46,608,796
                                                            =====          ==========
-------------------------------------------------------------------------------------
</TABLE>




                                       1

<PAGE>   4


TO UNIT HOLDERS

We are pleased to present the eighteenth 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, 1997, 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.

     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,
NationsBank of Texas, 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,
1997, was $22,598,873 and interest income earned for the same period was
$42,665. General and administrative expenses amounted to $451,423. A total of
$22,190,115 or $.476092 per Unit, was distributed to Unit holders during 1997. A
discussion of factors affecting the distributions for 1997 may be found in the
Trustee's Discussion and Analysis section of this report.

     In March 1998, BROG and Coastal Management Corporaton ("CMC") notified the
Trustee that distributable income for March 1998 includes approximately $1.1
million which represents the Trust's portion of an approximate $1.5 million
severance tax refund received by BROG from the State of Texas. With regard to
the source of such payment, BROG advised the Trustee that BROG, along with other
working interest owners in the Waddell Ranch, engaged an independent severance
tax consultant to analyze severance taxes incurred on gas production for the
period June 1991 to March 1997. As a result of their analysis, a refund was
requested and subsequently received in March 1998 for approximately $1.3
million. Further, the State of Texas refunded approximately $200,000 to BROG for
severance taxes related to gas production for the period April 1997 to November
1997, based on the results of an analysis for the period June 1991 to March
1997. This resulted in a total refund of approximately $1.5 million to BROG, out
of which the Trust received $1.1 million, referenced above.

     As of December 31, 1997, the Trust's proved reserves were estimated at
9,463,928 Bbls of oil and 28,804,066 Mcf of gas. The estimated future net
revenues from proved reserves at December 31, 1997, amount to $212,178,000 or
$4.55 per Unit. The present value of estimated future net revenues discounted at
10% at December 31, 1997, was $104,135,000 or $2.23 per Unit. The computation of
future net revenues is made following guidelines prescribed by the Financial
Accounting Standard 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 Trustee 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. Meridian
changed its name to Burlington Resources Oil and Gas Company in 1996. All field,
technical and accounting operations, however, have been carried out by CMC, a
wholly owned subsidiary of Riverhill Capital Corporation ("Riverhill Capital"),
but remain under the direction of BROG.

     In the fourth quarter of 1996, BROG notified the Trustee that, pursuant to
an ongoing divestiture program, BROG intended to sell its interests in the Texas
Royalty properties that are subject to the Conveyance. A Purchase and Sale
Agreement was executed between BROG and Riverhill Energy, a wholly owned
subsidiary of Riverhill Capital. The Trustee has been advised by BROG that the
transaction closed on February 14, 1997. The Trustee has further been informed
by BROG that, as required by the Conveyance, Riverhill Energy succeeded to all
of the requirements upon and the responsibilities of BROG under the Conveyance
with regard to the Texas Royalty properties. BROG and Riverhill Energy have
further advised the Trustee that all accounting operations pertaining to the
Texas Royalty properties are being performed by CMC under the direction of
Riverhill Energy.

     The Trustee has further been advised that the shareholders of Riverhill
Capital have executed a term sheet with Schlumberger Technology Corporation
("STC"), whereby, subject to the satisfaction of certain conditions, all of the
shares of Riverhill Capital will be purchased by and sold to STC. As stated
above, Riverhill Energy and CMC are wholly owned subsidiaries of Riverhill
Capital. The Trustee has further been advised that, as part of this contemplated
transaction, ownership of Riverhill Energy's interests in the Texas Royalty
properties referenced above, will remain in



                                       2

<PAGE>   5



Riverhill Energy, which will be owned by the current shareholders of Riverhill
Capital.

     In the event the sale to and purchase by STC is consummated, it is
anticipated that CMC will continue to perform its field, technical and
accounting operations on behalf of BROG with regard to the Waddell Ranch
properties and all accounting operations pertaining to the Texas Royalty
properties which will remain under the direction of Riverhill Energy. The
Trustee has been advised that Riverhill Energy will assure that the various
administrative functions and reporting requirements are met.

     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 1997, and it
appears that cost depletion will exceed percentage depletion for all Unit
holders. Therefore, the Trust will not provide percentage depletion factors for
1997.

     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.

     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, 1998, and for the year ending December 31, 1998. Unit holders
owning Units in nominee name may obtain monthly tax information from the Trustee
upon request.

NationsBank of Texas, N.A.


By: /s/ ERIC F. HYDEN
Eric F. Hyden
Vice President




                                       3

<PAGE>   6



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, 1997, is approximately 11 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 834 gross (344 net) productive
oil wells, 160 gross (67 net) productive gas wells and 347 gross (137 net)
injection wells. 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. 39.8% of
the future net revenues discounted at 10% attributable to Texas Royalty
properties are located in the Wasson and Yates fields.

WADDELL RANCH

Six major fields on the Waddell Ranch 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 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 drilling, remedial and maintenance activities during 1997 totaled
approximately $11.8 million. A substantial portion of the capital expenditures
was related to the drilling of productive oil wells as part of an infill
drilling program. The success of this program is reflected in an increase in
both production and the producing reserves. Successful infill drilling and
various production well workovers in the Sand Hills (Tubb), Waddell and Sand
Hills (McKnight) fields are mainly responsible for the increased monthly
production and producing reserves. The Trustee has been advised by BROG that
1997 oil production levels from all fields increased 3.6% above the 1996 oil
production level.

     BROG has informed the Trustee that the 1998 capital expenditures budget
should total approximately $17.6 million, of which $9.7 million is attributable
to the drilling program, $4.6 million to workovers and recompletions, $2.3
million to facility upgrades and replacements and $1 million to a seismic
project. The budgeted amount represents an estimated 50% increase in capital
expenditures for 1998 as compared with the actual 1997 capital expenditures.


                                       4
<PAGE>   7



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, 1997, was
computed as shown in the table below.


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                            Year Ended December 31,
                            ----------------------------------------------------------------------------
                                      1997                              1996                    1995
                            ----------------------------     ---------------------------      ----------
Gross Proceeds of Sales       Waddell          Texas           Waddell          Texas          Waddell
From Properties From           Ranch          Royalty           Ranch          Royalty          Ranch
Which the Net Overriding     Properties      Properties       Properties      Properties      Properties
Royalties Were Carved:       -----------     -----------     -----------     -----------     -----------
<S>                          <C>             <C>             <C>             <C>             <C>
  Oil Proceeds ..........    $27,099,891     $ 8,427,062     $26,720,538     $ 8,249,254     $20,714,309
  Gas Proceeds ..........     17,105,677       2,318,393      14,056,885       1,898,423      10,707,104
  Other Payments ........
                             -----------     -----------     -----------     -----------     -----------
    Total ...............     44,205,568      10,745,455      40,777,423      10,147,677      31,421,413
                             -----------     -----------     -----------     -----------     -----------
Less:
  Severance Tax
    Oil .................      1,037,862         320,447       1,103,059         315,491         874,011
    Gas .................      1,232,298         135,717       1,041,208         114,812         761,787
    Other ...............                                         63,954          24,970
  Lease Operating Expense
  and Property Tax
    Oil and Gas .........     12,239,689         597,508      12,209,663       1,637,143      11,096,563
    Other Payments ......         50,297
  Capital Expenditures ..     11,789,849              --       9,989,064              --      10,504,989
                             -----------     -----------     -----------     -----------     -----------
    Total ...............     26,349,995       1,053,672      24,406,948       2,092,416      23,237,350
                             -----------     -----------     -----------     -----------     -----------
Net Profits .............     17,855,573       9,691,783      16,370,475       8,055,261       8,184,063
  Net Overriding
    Royalty Interest ....             75%             95%             75%             95%             75%
                             -----------     -----------     -----------     -----------     -----------
Royalty Income ..........    $13,391,679     $ 9,207,194     $12,277,856     $ 7,652,498     $ 6,138,047
                             ===========     ===========     ===========     ===========     ===========

</TABLE>


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                  Year Ended December 31,
                             ---------------------------------------------------------------------------
                                1995                        1994                          1993
                             -----------     ----------------------------     --------------------------
Gross Proceeds of Sales        Texas           Waddell           Texas         Waddell           Texas
From Properties From          Royalty           Ranch           Royalty         Ranch          Royalty
Which the Net Overriding     Properties       Properties       Properties     Properties      Properties
Royalties Were Carved:       -----------     -----------     -----------     -----------     -----------
<S>                          <C>             <C>             <C>             <C>             <C>
  Oil Proceeds ..........    $ 6,924,595     $17,573,518     $ 6,197,125     $19,648,107     $ 7,019,561
  Gas Proceeds ..........      1,284,464      12,073,447       1,426,979      12,972,379       1,643,334
  Other Payments ........                      1,133,334       3,687,064
                             -----------     -----------     -----------     -----------     -----------
    Total ...............      8,209,059      30,780,299      11,311,168      32,620,486       8,662,895
                             -----------     -----------     -----------     -----------     -----------
Less:
  Severance Tax
    Oil .................        277,759         786,101         282,966         905,785         320,710
    Gas .................         88,206         906,543         104,697       1,001,106         122,296
    Other ...............                                        153,909
  Lease Operating Expense
  and Property Tax
    Oil and Gas .........      1,657,225      10,633,720         487,728      10,502,602         535,158
    Other Payments ......                                        105,881
  Capital Expenditures ..             --       9,147,647              --       4,068,228              --
                             -----------     -----------     -----------     -----------     -----------
    Total ...............      2,023,190      21,474,011       1,135,181      16,477,721         978,164
                             -----------     -----------     -----------     -----------     -----------
Net Profits .............      6,185,869       9,306,288      10,175,987      16,142,765       7,684,731
  Net Overriding
    Royalty Interest ....             95%             75%             95%             75%             95%
                             -----------     -----------     -----------     -----------     -----------
Royalty Income ..........    $ 5,876,576     $ 6,979,716     $ 9,667,188     $12,107,074     $ 7,300,494
                             ===========     ===========     ===========     ===========     ===========
--------------------------------------------------------------------------------------------------------

</TABLE>


                                       5
<PAGE>   8



DISCUSSION AND ANALYSIS

TRUSTEE'S DISCUSSION AND ANALYSIS FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31,
1997

Royalty income received by the Trust for the three-year period ended December
31, 1997, is reported in the following table:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                                                  Year Ended December 31,
                                    ---------------------------------------------------
ROYALTIES                               1997                1996                1995
---------                           -----------         -----------         -----------
<S>                                 <C>                 <C>                 <C>
Total Revenue ..............        $22,598,873         $19,930,354         $12,014,623
                                            100%                100%                100%
Oil Revenue ................         15,582,132          14,489,263           9,209,821
                                             69%                 73%                 77%
Gas Revenue ................          7,016,741           5,441,091           2,804,802
                                             31%                 27%                 23%
Total Revenue/Unit .........        $   .484863         $   .427609         $   .257776
---------------------------------------------------------------------------------------
</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 1997, 1996 and 1995 for the Royalties
and the properties from which the Royalties were carved, excluding portions
attributable to the adjustments discussed hereafter, are presented in the
following table:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                                                Year Ended December 31,
                                                       --------------------------------------------
ROYALTIES                                                1997             1996             1995
---------                                              ---------        ---------        ---------
<S>                                                    <C>              <C>              <C>
Oil Sales (Bbls) ..............................          817,792          771,824          593,143
Gas Sales (Mcf) ...............................        2,716,755        2,640,381        1,905,299

PROPERTIES FROM WHICH THE ROYALTIES WERE CARVED
-----------------------------------------------
Oil
Total Oil Sales (Bbls) ........................        1,826,019        1,788,737        1,670,471
Average Per Day (Bbls) ........................            5,003            4,887            4,577
Average Price/Bbl .............................        $   19.46        $   19.55        $   16.55

Gas
Total Gas Sales (Mcf) .........................        7,355,162        7,308,406        7,571,614
Average Per Day (Mcf) .........................           20,151           19,968           20,744
Average Price/Mcf .............................        $    2.64        $    2.18        $    1.58
---------------------------------------------------------------------------------------------------
</TABLE>



The average price of oil increased from 1995 to 1996 as the posted price
fluctuated. In 1997, the average price of oil remained relatively unchanged as
the posted price fluctuated. The average price of gas increased from 1995 to
1997.

     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), the production amounts do not provide a
meaningful comparison. Oil production attributable to the properties from which
the Royalties were carved increased approximately 9.3% from 1995 to 1997
primarily due to increased production efforts. Total gas sales decreased
approximately 2.9% from 1995 to 1997 primarily due to natural decline in the
deliverability of the wells.

     Total capital expenditures in 1997 included in the net overriding royalty
calculation were approximately $11.8 million compared to $10.0 million in 1996
and $10.5





                                       6
<PAGE>   9



million in 1995. Lease operating expense and property tax increased from 1995 to
1996 on the Waddell Ranch properties. In 1997, lease operating expense and
property taxes amounted to slightly over $12.2 million, which is relatively
unchanged from 1996.

     In the fourth quarter of 1996, BROG notified the Trust that, pursuant to an
ongoing divestiture program, the company intended to sell the interests referred
to as "Texas Royalty properties" that are subject to the Net Overriding Royalty
Conveyance dated November 1, 1980. A Purchase and Sale Agreement was executed
with Riverhill Energy, a wholly owned subsidiary of Riverhill Capital and an
affiliate of CMC. As previously mentioned, CMC currently conducts all field,
technical and accounting operations on behalf of BROG with regard to the Waddell
Ranch properties. Riverhill Capital is a privately owned Texas corporation with
offices in Bryan and Midland, Texas. The transaction was closed on February 14,
1997. The Trustee has further been informed by BROG that, as required by the
Conveyance, Riverhill Energy agreed to perform all of the requirements upon and
the responsibilities of BROG, under the Conveyance, with regard to the Texas
Royalty properties. BROG and Riverhill Energy have further advised the Trustee
that all field, technical and accounting operations are being performed by CMC
under the direction of Riverhill Energy. BROG has indicated to the Trustee that
BROG will work together with CMC and Riverhill Energy in an effort to assure
that the various administrative functions and reporting requirements assumed by
the buyer are met. Independent auditors representing Riverhill Energy and CMC
and ultimately, the Texas Royalty properties, will be Arthur Andersen LLP.

     The Trustee has been advised that the shareholders of Riverhill Capital
have executed a term sheet with STC, whereby, subject to the satisfaction of
certain conditions, all of the shares of Riverhill Capital will be purchased by
and sold to STC. As stated above, Riverhill Energy and CMC are wholly owned
subsidiaries of Riverhill Capital. The Trustee has further been advised that, as
part of this contemplated transaction, ownership of Riverhill Energy's interests
in the Texas Royalty properties referenced above, will remain in Riverhill
Energy, which will be owned by the current shareholders of Riverhill Capital.

     In the event the sale to and purchase by STC is consummated, it is
anticipated that CMC will continue to perform its field, technical and
accounting operations on behalf of BROG with regard to the Waddell Ranch
properties and all accounting operations pertaining to the Texas Royalty
properties, which will remain under the direction of Riverhill Energy. The
Trustee has been advised that Riverhill Energy will assure that the various
administrative functions and reporting requirements are met.

     The Trustee was previously advised by BROG that approximately $1.3 million
in ad valorem taxes related to 1991 through 1994 for the Texas Royalty
properties that BROG did not previously charge to gross proceeds attributable to
the Trust would be charged to the Trust over 12 months beginning in March 1995.
This charge was made by BROG deducting $87,000 per month from the gross proceeds
attributable to the Texas Royalty properties until the full amount of the ad
valorem taxes was recovered. As of November 1996, the Trustee was advised that
this original charge of $1.3 million and all subsequent adjustments to that
charge were paid.

   The Trust has been advised by BROG that for the period August 1, 1993,
through June 30, 1998, the oil from the Waddell Ranch is being sold under a
competitive bid to the third party.

     In the third quarter of 1996, the Trust was notified of the settlement of a
class action lawsuit pending in the 270th District Court of Harris County, Texas
("the Court") styled Caroline Altheide and Langdon Harrison vs. Meridian Oil
Inc., Meridian Oil Holding Inc., Meridian Oil Trading Inc., Meridian Oil
Production Inc., Southland Royalty Company, El Paso Production Company, Meridian
Oil Hydrocarbons Inc., Meridian Oil Gathering Inc., Meridian Oil Services Inc.
and Edward Parker ("Class Action"). The defendants in this lawsuit are
collectively referred to as "Meridian."

   The members of the class ("Class Members") involved in the Class Action that
was certified by the Court are all persons or entities who (i) at any time
between December 1, 1986 and July 1, 1996 received payments directly from
Meridian, (ii) the payments from Meridian were attributable to interests in
natural gas that was sold at the wellhead to Meridian Oil Trading Inc., and
(iii) the interests were either royalty interests, overriding royalty interests
or interests of a similar nature that burdened the working interests of
Meridian, or working interests in properties operated by Meridian, or royalty
interests, overriding royalty interests or interests of a similar nature that
burdened working interests




                                       7
<PAGE>   10

in properties operated by Meridian. Meridian, the San Juan Basin Royalty Trust,
the Burlington Resources Coal Seam Royalty Trust and the Commissioner of Public
Lands of the New Mexico State Lands Office are not Class Members.

     In summary, the claims asserted in the Class Action ("Class Claims") are
those asserted in Plaintiffs' Second Amended Original Petition filed in the
Class Action which are based upon the manner in which Meridian calculated
payments to its royalty owners and its joint working interest owners in natural
gas-producing properties. It is alleged that those payments were based on
wellhead prices that were set by a marketing affiliate, rather than upon the net
prices that Meridian received for the gas and liquid components in arm's-length
sales to non-affiliated purchasers. More specifically, such claims are based on
Meridian's conduct in basing its payments to Class Members, for natural gas sold
at the wellhead to Meridian Oil Trading Inc., on wellhead prices that resulted
from one or more of the following:

(i)    Meridian's use of allegedly depressed prices for gas set by Meridian Oil
       Trading Inc.;

(ii)   Meridian's use of allegedly inflated cost factors for transportation
       services set by Meridian Oil Trading Inc.;

(iii)  Meridian's use of allegedly depressed net prices for liquids set by
       Meridian Oil Hydrocarbons Inc.; and

(iv)   Meridian's use of allegedly inflated rates for coal seam gathering and
       treating services set by Meridian Oil Gathering Inc.

     It was alleged that Meridian's conduct violated applicable legal
principles. Meridian denied that its conduct had been unlawful or otherwise
wrongful. The Court has not ruled on the merits of the Class Claims or on
Meridian's defenses to such claims.

     The settlement reached by the parties in the Class Action provides for the
payment of up to $42 million together with interest thereon beginning on July
17, 1996 until the date the settlement checks are initially mailed to the Class
Members participating in the settlement. Such settlement amount is subject to
reduction for certain adjustments such as (i) fees, costs and expenses awarded
by the Court to the Class Counsel (Susman Godfrey L.L.P. and Dick Watt), (ii)
extra compensation awarded by the Court to the named Plaintiffs (Caroline D.
Altheide and Langdon D. Harrison), and (iii) the expense incurred in giving
notice and administering the proposed settlement ("Net Settlement Fund").
Concurrently with Meridian's payment of the Net Settlement Fund to Class Members
who did not timely and validly elect to be excluded from the Class ("Settlement
Class Members"), Meridian is obligated under the settlement to advise its
then-current recipients of royalty payments that Meridian intends (i) to
commence calculating royalty payments based upon the net prices received by
Meridian from non-affiliated third parties for natural gas and the liquids
extracted therefrom, and (ii) in calculating royalty payments on gas produced
from coal seam gas wells using the Val Verde Gathering System, to commence using
a deduction for gathering and treating the gas produced from such wells that
does not exceed 75% of the fee charged by Meridian Oil Gathering Inc. for
similar services to the five largest (by volume) non-affiliated third-party
shippers. Meridian is not obligated to calculate royalty payments in such method
in the future but, if it changes such method of calculation, it is obligated to
provide notice of such change in method of calculation to the then-current
recipients of royalty payments.

     Of the Net Settlement Fund, (i) 48% thereof will be distributed among Class
Members whose interests bear on "conventional" gas-producing properties
(specifically, gas not gathered on the Val Verde Gathering System) that are
located in Meridian's Farmington operating division (which is roughly
coextensive with the San Juan Basin of New Mexico and Colorado), (ii) 42%
thereof will be distributed among the Class Members whose interests bear on the
coal seam gas-producing properties located in Meridian's Farmington operating
division (specifically, gas gathered on the Val Verde Gathering System), and
(iii) 10% thereof will be distributed among those Class Members whose interests
bear on gas-producing properties located in areas other than Meridian's
Farmington operating division. The Trust would fall in the last of these three
classifications. It is estimated that the Trust's share of the Net Settlement
Fund will be between $560,000 and $850,000, the exact amount of which cannot be
determined at this time.

     Upon final judicial approval of the settlement, the settlement provides
that a judgment be entered in the Class Action dismissing the Class Action with
prejudice to its refiling. As a result of the settlement, Settlement Class
Members release and discharge the Released Parties, and




                                       8

<PAGE>   11



each of them, from and with respect to the Class Claims and such Class Members
will not be able to pursue the Class Claims against the Released Parties.
"Released Parties" as used herein means, severally and collectively, the
Defendants and Meridian Oil Inc. and all Affiliates of Burlington Resources Inc.
since December 1, 1986, collectively, and all past and present agents,
employees, officers, directors, shareholders, representatives, attorneys,
predecessors, successors, assigns and affiliates of each of the Defendants and
of Meridian Oil Inc. and all Affiliates of Burlington Resources Inc. since
December 1, 1986, collectively. "Released Parties" also includes all other
persons or entities who are liable or become liable for the conduct of any
person or entity that is identified in the preceding sentence. "Affiliates" as
used herein means Burlington Resources Inc.'s direct and indirect subsidiaries.

     It was determined by the Trustee that the Trust is part of the Class that
was certified by the Court in the Class Action and that it was in the best
interest of the Trust to elect to remain as part of the Class and share in the
Net Settlement Fund. The Trustee believes that the Class Claims, if true, had
little, if any, detrimental effect on the Trust and the Trust is being
adequately compensated as a result of this settlement.

     A judgment has been signed by the Court approving the settlement. However,
a Notice of Appeal was filed by San Juan 1990-A, L.P., K&W Gas Partners, L.P.,
MAP 1992-A Partners, L.P. and The Board of Trustees of Leland Stanford Junior
University, Non-Profit Corporation (Stanford University) ("Objectors") on
February 7, 1997.

     Class Counsel has notified the Trustee that on July 24, 1997, the Court of
Appeals issued its judgment dismissing such appeal on procedural grounds and
that in early September 1997, the Court of Appeals denied a motion for rehearing
filed in such proceeding. The Trustee has further been advised that a petition
for review has been filed with the Texas Supreme Court by the Objectors and is
currently pending. One of the conditions set forth in the settlement agreement
for the distribution of proceeds related to the Class Action is that there will
be no distribution of the settlement proceeds unless and until such judgment is
affirmed or such appeal is dismissed and the time for any further proceedings in
the appellate court of last resort has expired. As a result of such appeal, no
distribution of settlement proceeds has been made to the Trust and the Trustee
does not know if or when the Trust will receive proceeds of such settlement.

     During 1997, the monthly royalty receipts were invested by the Trustee in
U.S. Treasury securities until the monthly distribution date, and earned
interest totaled $42,665. Interest income for 1996 and 1995 was $33,848 and
$25,243, respectively. The increase in interest income from 1995 to 1997 can be
attributed primarily to an increase in the funds available for investment.

     General and administrative expenses in 1997 were $451,423 compared to
$475,628 in 1996 and $407,403 in 1995. The increase in general and
administrative expenses from 1995 to 1996 is primarily due to administrative and
legal fees for providing counsel to the Trust with respect to the sale of the
Texas Royalty properties to Riverhill Energy and analysis of the settlement
announced in the Class Action. The decrease in general and administrative
expenses from 1996 to 1997 is primarily due to higher administrative, accounting
and legal fees incurred in 1996. As previously mentioned, these fees were
applicable to the review performed on the impact of the sale of the Texas
Royalty properties to Riverhill Energy and the analysis of the settlement
announced in the Class Action.

     Distributable income for 1997 was $22,190,115 or $.476092 per Unit.

     Distributable income for 1996 was $19,488,574 or $.418131 per Unit.

     Distributable income for 1995 was $11,632,463 or $.249574 per Unit.



                                        9



<PAGE>   12



RESULTS OF THE 4TH QUARTERS OF 1997 AND 1996

Royalty income received by the Trust for the fourth quarter of 1997 amounted to
$5,315,656 or $.114048 per Unit. For the fourth quarter of 1996, the Trust
received royalty income of $6,459,134 or $.138582 per Unit. Interest income for
the fourth quarter of 1997 amounted to $8,742 compared to $14,063 for the fourth
quarter of 1996. The decrease in interest income can be attributed primarily to
a decrease in funds available for investment. General and administrative
expenses totaled $71,816 for the fourth quarter of 1997 compared to $100,974 for
the fourth quarter of 1996. The decrease in general and administrative expenses
is primarily due to higher administrative, accounting and legal fees incurred in
the fourth quarter of 1996. These fees were applicable to the review performed
on the impact of the sale of the Texas Royalty properties to Riverhill and the
analysis of the Settlement announced in the Class Action.

     Royalty income for the Trust for the fourth quarter is associated with
actual oil and gas production during August through October from the properties
from which the Trust's net overriding royalty interests were carved. Oil and gas
sales attributable to the Royalties and the properties from which the Royalties
were carved for the quarter and the comparable period for 1996 are as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------
Fourth Quarter                               1997             1996
--------------                             ---------        ---------
<S>                                        <C>              <C>
ROYALTIES
Oil Sales (Bbls) ..................          211,660          224,592
Gas Sales (Mcf) ...................          739,489          826,407
</TABLE>


<TABLE>
<CAPTION>
Fourth Quarter                               1997             1996
--------------                             ---------        ---------
<S>                                        <C>              <C>
PROPERTIES FROM WHICH
THE ROYALTIES WERE CARVED
Total Oil Sales (Bbls) ............          460,729          430,057
Average Per Day (Bbls) ............            5,008            4,675
Average Price/Bbls ................        $   17.77        $   22.00
Total Gas Sales (Mcf) .............        1,897,192        1,824,394
Average Per Day (Mcf) .............           20,622           19,830
Average Price/Mcf .................        $    2.51        $    2.36

----------------------------------------------------------------------
</TABLE>


     The posted price of oil decreased for the fourth quarter of 1997 compared
to the fourth quarter of 1996, resulting in an average price per barrel of
$17.77 compared to $22.00 in the same period of 1996. The average price of gas
increased for the fourth quarter of 1997 compared to the same period in 1996,
resulting in an average price per Mcf of $2.51 compared to $2.36 in the fourth
quarter of 1996.

     Gas sales from the properties from which the Royalties were carved
increased slightly in the fourth quarter of 1997 compared to the same period in
1996. The Trustee was advised that oil sales increased in 1997 compared to the
same period in 1996 primarily due to increased production efforts.

     The Trustee has been advised that there were 4 gross (1.75 net) wells
drilled and completed during the three months ended December 31, 1997, and there
were 19 gross (7.875 net) wells in progress.



                                       10
<PAGE>   13





PERMIAN BASIN ROYALTY TRUST

STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
DECEMBER 31, 1997 AND 1996
-------------------------------------------------------------------------------
<TABLE>

<CAPTION>
ASSETS                                                           1997              1996
------                                                        ----------        ----------
<S>                                                           <C>               <C>
Cash and Short-term Investments ......................        $1,724,192        $2,152,992
Net Overriding Royalty Interests in Producing Oil and
    Gas Properties - Net (Notes 2 and 3) .............         3,496,594         3,760,939
                                                              ----------        ----------
                                                              $5,220,786        $5,913,931
                                                              ==========        ==========
LIABILITIES AND TRUST CORPUS
----------------------------
Distribution Payable to Unit Holders .................        $1,724,192        $2,152,992
Trust Corpus - 46,608,796 Units of Beneficial Interest
    Authorized and Outstanding .......................         3,496,594         3,760,939
                                                              ----------        ----------
                                                              $5,220,786        $5,913,931
                                                              ==========        ==========
</TABLE>

-------------------------------------------------------------------------------
STATEMENTS OF DISTRIBUTABLE INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                           1997               1996               1995
                                                        -----------        -----------        -----------
<S>                                                     <C>                <C>                <C>
Royalty Income (Notes 2 and 3) .................        $22,598,873        $19,930,354        $12,014,623
Interest Income ................................             42,665             33,848             25,243
                                                        -----------        -----------        -----------
                                                         22,641,538         19,964,202         12,039,866
Expenditures - General and Administrative ......            451,423            475,628            407,403
                                                        -----------        -----------        -----------
Distributable Income ...........................        $22,190,115        $19,488,574        $11,632,463
                                                        ===========        ===========        ===========
Distributable Income per Unit (46,608,796 Units)        $   .476092        $   .418131        $   .249574
                                                        ===========        ===========        ===========
</TABLE>


-------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN TRUST CORPUS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                            1997                 1996                 1995
                                                        ------------         ------------         ------------
<S>                                                     <C>                  <C>                  <C>
Trust Corpus, Beginning of Period ..............        $  3,760,939         $  4,057,628         $  4,296,056
Amortization of Net Overriding Royalty Interests
    (Notes 2 and 3) ............................            (264,345)            (296,689)            (238,428)
Distributable Income ...........................          22,190,115           19,488,574           11,632,463
Distributions Declared .........................         (22,190,115)         (19,488,574)         (11,632,463)
                                                        ============         ============         ============
Trust Corpus, End of Period ....................        $  3,496,594         $  3,760,939         $  4,057,628
                                                        ============         ============         ============
</TABLE>

-------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this
statement.



                                       11

<PAGE>   14


NOTES TO FINANCIAL STATEMENTS

1. TRUST ORGANIZATION AND PROVISIONS

The Permian Basin Royalty Trust ("Trust") was established as of November 1,
1980. NationsBank of Texas, 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 "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 ten 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, 1997 and 1996 aggregated $7,478,622
and $7,214,277, respectively.

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 generally accepted accounting principles ("GAAP")
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 GAAP. Amortization of the
Royalties calculated on a unit-of-production basis is charged directly to trust
corpus.



                                       12

<PAGE>   15




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.

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, 1997 (in thousands, except per Unit
amounts):

<TABLE>
<CAPTION>
                                                               Distributable
                                                                Income and
                                Royalty      Distributable      Distribution
                                Income          Income           Per Unit
                                -------        -------        ---------------
<S>                             <C>            <C>            <C>
1997
----
First Quarter ..........        $ 8,704        $ 8,572        $       .183907
Second Quarter .........          4,186          4,022                .086304
Third Quarter ..........          4,393          4,343                .093186
Fourth Quarter .........          5,316          5,253                .112695
                                -------        -------        ---------------
   Total ...............        $22,599        $22,190        $       .476092
                                =======        =======        ===============
1996
----
First Quarter ..........        $ 2,570        $ 2,454        $       .052637
Second Quarter .........          3,839          3,700                .079382
Third Quarter ..........          7,062          6,963                .149395
Fourth Quarter .........          6,459          6,372                .136717
                                -------        -------        ---------------
   Total ...............        $19,930        $19,489        $       .418131
                                =======        =======        ===============
</TABLE>

8. SUBSEQUENT EVENT

In March 1998, Burlington Resources Oil and Gas Company ("BROG") and Coastal
Management Corporation ("CMC") notified the Trustee that distributable income
for March 1998 includes approximately $1.1 million which represents the Trust's
portion of an approximate $1.5 million severance tax refund received by BROG
from the State of Texas. With regard to the source of such payment, BROG advised
the Trustee that BROG, along with other working interest owners in the Waddell
Ranch, engaged an independent severance tax consultant to analyze severance
taxes incurred on gas production for the period June 1991 to March 1997. As a
result of their analysis, a refund was requested and subsequently received in
March 1998 for approximately $1.3 million. Further, the State of Texas refunded
approximately $200,000 to BROG for severance taxes related to gas production for
the period April 1997 to November 1997, based on the results of the analysis for
the period June 1991 to March 1997. This resulted in a total refund of
approximately $1.5 million to BROG, out of which the Trust received $1.1
million, referenced above.



                                       13

<PAGE>   16


INDEPENDENT AUDITORS' REPORT

NATIONSBANK OF TEXAS, 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 as of December 31, 1997 and 1996, and
the related statements of distributable income and changes in trust corpus for
each of the three years in the period ended December 31, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Trustee, 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 financial
statements were prepared on a modified cash basis, which is a comprehensive
basis of accounting other than generally accepted accounting principles.

     In our opinion, such financial statements present fairly, in all material
respects, the assets, liabilities and trust corpus of the Permian Basin Royalty
Trust as of December 31, 1997 and 1996, and the distributable income and changes
in trust corpus for each of the three years in the period ended December 31,
1997, on the basis of accounting described in Note 3.


/s/ DELOITTE & TOUCHE LLP

Deloitte & Touche LLP
Fort Worth, Texas
March 20, 1998


                                       14
<PAGE>   17



PERMIAN BASIN ROYALTY TRUST
500 West Seventh Street, Suite 1300
Post Office Box 1317
Fort Worth, Texas 76101
NationsBank of Texas, N.A., Trustee

AUDITORS
Deloitte & Touche LLP
Fort Worth, Texas

LEGAL COUNSEL
Wallach & Moore, P.C.
Fort Worth, Texas

TAX COUNSEL
Butler & Binion, L.L.P.
Houston, Texas

TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
Ridgefield Park, New Jersey



Design: Witherspoon & Associates, Fort Worth, Texas



                                       15

<PAGE>   18
      PERMIAN BASIN ROYALTY TRUST o 500 WEST SEVENTH STREET, SUITE 1300 o
                 POST OFFICE BOX 1317 o FORT WORTH, TEXAS 76101

<PAGE>   19

================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ---------------------
                                   FORM 10-K
(Mark One)
[X]           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 1997
                                       OR
[ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
             For the transition period from           to

                         Commission file number 1-8033
                          PERMIAN BASIN ROYALTY TRUST

   (Exact Name of Registrant as Specified in the Permian Basin Royalty Trust
                                   Indenture)

<TABLE>
<S>                                            <C>
                    TEXAS                                        75-6280532
       (State or Other Jurisdiction of                        (I.R.S. Employer
        Incorporation or Organization)                      Identification No.)

          NATIONSBANK OF TEXAS, N.A.
               TRUST DEPARTMENT
                P.O. BOX 1317
              FORT WORTH, TEXAS                                    76101
   (Address of Principal Executive Offices)                      (Zip Code)
</TABLE>

                                 (817) 390-6905
              (Registrant's Telephone Number, Including Area Code)

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

<TABLE>
<CAPTION>
             TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
             -------------------                 -----------------------------------------
<S>                                            <C>
         UNITS OF BENEFICIAL INTEREST                     NEW YORK STOCK EXCHANGE
</TABLE>

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

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  X  No ____

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

     At March 18, 1998, there were 46,608,796 Units of Beneficial Interest of
the Trust outstanding with an aggregate market value on that date of
$215,565,682.

                      DOCUMENTS INCORPORATED BY REFERENCE

     "Units of Beneficial Interest" at page 1; "Trustee's Discussion and
Analysis for the Three-Year Period Ended December 31, 1997" at pages 6 through
9; "Results of the 4th Quarters of 1997 and 1996" at page 10; and "Statements of
Assets, Liabilities and Trust Corpus," "Statements of Distributable Income,"
"Statements of Changes in Trust Corpus," "Notes to Financial Statements" and
"Independent Auditors' Report" at page 11 et seq., in registrant's Annual Report
to security holders for fiscal year ended December 31, 1997 are incorporated
herein by reference for Item 5 (Market for Units of the Trust and Related
Security Holder Matters), Item 7 (Management's Discussion and Analysis of
Financial Condition and Results of Operation) and Item 8 (Financial Statements
and Supplementary Data) of Part II of this Report.
================================================================================
<PAGE>   20

FORWARD LOOKING INFORMATION

     Certain information included in this report contains, and other materials
filed or to be filed by the Trust with the Securities and Exchange Commission
(as well as information included in oral statements or other written statements
made or to be made by the Trust) may contain or include, forward looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the Securities Act of 1933, as amended.
Such forward looking statements may be or may concern, among other things,
capital expenditures, drilling activity, development activities, production
efforts and volumes, hydrocarbon prices and the results thereof, and regulatory
matters. Such forward looking statements generally are accompanied by words such
as "estimate," "expect," "anticipate," "goal," "should," "assume," "believe," or
other words that convey the uncertainty of future events or outcomes.

                                     PART I

ITEM 1. BUSINESS

     The Permian Basin Royalty Trust (the "Trust") is an express trust created
under the laws of the state of Texas by the "Permian Basin Royalty Trust
Indenture" (the "Trust Indenture") entered into on November 3, 1980, between
Southland Royalty Company ("Southland Royalty") and The First National Bank of
Fort Worth, as Trustee. NationsBank of Texas, N.A. (formerly known as NCNB Texas
National Bank), a banking association organized under the laws of the United
States, as the successor of The First National Bank of Fort Worth, is now the
Trustee of the Trust. The principal office of the Trust (sometimes referred to
herein as the "Registrant") is located at 500 West Seventh Street, Fort Worth,
Texas (telephone number 817/390-6905).

     On October 23, 1980, the stockholders of Southland Royalty approved and
authorized that company's conveyance of net overriding royalty interests
(equivalent to net profits interests) to the Trust for the benefit of the
stockholders of Southland Royalty of record at the close of business on the date
of the conveyance consisting of a 75% net overriding royalty interest carved out
of that company's fee mineral interests in the Waddell Ranch properties in Crane
County, Texas and a 95% net overriding royalty interest carved out of that
company's major producing royalty properties in Texas. The conveyance of these
interests (the "Royalties") was made on November 3, 1980, effective as to
production from and after November 1, 1980 at 7:00 a.m.

     The function of the Trustee is to collect the income attributable to the
Royalties, to pay all expenses and charges of the Trust, and then distribute the
remaining available income to the Unit holders. The Trust is not empowered to
carry on any business activity and has no employees, all administrative
functions being performed by the Trustee.

     The Royalties were carved out of and now burden those properties and
interests as are more particularly described under "Item 2. PROPERTIES" herein.

     The Royalties constitute the principal asset of the Trust and the
beneficial interests in the Royalties are divided into that number of Units of
Beneficial Interest (the "Units") of the Trust equal to the number of shares of
the common stock of Southland Royalty outstanding as of the close of business on
November 3, 1980. Each stockholder of Southland Royalty of record at the close
of business on November 3, 1980, received one Unit for each share of the common
stock of Southland Royalty then held.

     In 1985, Southland Royalty became a wholly-owned subsidiary of Burlington
Northern Inc. ("BNI"). In 1988, BNI transferred its natural resource operations
to Burlington Resources Inc. ("BRI") as a result of which Southland Royalty
became a wholly-owned indirect subsidiary of BRI. As a result of these
transactions, El Paso Natural Gas Company ("El Paso") also became an indirect
subsidiary of BRI. In March 1992, El Paso completed an initial public offering
of 5,750,000 newly issued shares of El Paso common stock, thereby decreasing
BRI's ownership of El Paso to approximately eighty-five percent (85%). On June
30, 1992, BRI distributed all of the shares of El Paso common stock owned by BRI
to BRI's stockholders of record as of June 15, 1992. See "Pricing Information"
under "Item 2. PROPERTIES" herein.

                                        1
<PAGE>   21

     Effective January 1, 1996, Southland Royalty, a wholly-owned subsidiary of
Meridian Oil Inc. ("MOI") was merged with and into MOI, by which action the
separate corporate existence of Southland Royalty ceased and MOI survived and
succeeded to the ownership of all of the assets, has the rights, powers and
privileges and assumed all of the liabilities and obligations of Southland
Royalty. In 1996, MOI changed its name to Burlington Resources Oil & Gas Company
("BROG").

     The term "net proceeds" as used in the above conveyance means the excess of
"gross proceeds" received by BROG during a particular period over "production
costs" for such period. "Gross proceeds" means the amount received by BROG (or
any subsequent owner of the interests from which the Royalties were carved) from
the sale of the production attributable to the properties and interests from
which the Royalties were carved, subject to certain adjustments. "Production
costs" means, generally, costs incurred on an accrual basis in operating the
properties and interests out of which the Royalties were carved, including both
capital and non-capital costs; for example, development drilling, production and
processing costs, applicable taxes, and operating charges. If production costs
exceed gross proceeds in any month, the excess is recovered out of future gross
proceeds prior to the making of further payment to the Trust, but the Trust is
not liable for any production costs or liabilities attributable to these
properties and interests or the minerals produced therefrom. If at any time the
Trust receives more than the amount due from the Royalties, it shall not be
obligated to return such overpayment, but the amounts payable to it for any
subsequent period shall be reduced by such amount, plus interest, at a rate
specified in the conveyance.

     To the extent it has the legal right to do so, BROG is responsible for
marketing the production from such properties and interests, either under
existing sales contracts or under future arrangements at the best prices and on
the best terms it shall deem reasonably obtainable in the circumstances. BROG
also has the obligation to maintain books and records sufficient to determine
the amounts payable to the Trustee. BROG, however, can sell its interests in the
properties from which the Royalties were carved.

     Proceeds from production in the first month are generally received by BROG
in the second month, the net proceeds attributable to the Royalties are paid by
BROG to the Trustee in the third month and distribution by the Trustee to the
Unit holders is made in the fourth month. The identity of Unit holders entitled
to a distribution will generally be determined as of the last business day of
each calendar month (the "monthly record date"). The amount of each monthly
distribution will generally be determined and announced ten days before the
monthly record date. Unit holders of record as of the monthly record date will
be entitled to receive the calculated monthly distribution amount for each month
on or before ten business days after the monthly record date. The aggregate
monthly distribution amount is the excess of (i) net revenues from the Trust
properties, plus any decrease in cash reserves previously established for
contingent liabilities and any other cash receipts of the Trust over (ii) the
expenses and payments of liabilities of the Trust plus any net increase in cash
reserves for contingent liabilities.

     Cash held by the Trustee as a reserve for liabilities or contingencies
(which reserves may be established by the Trustee in its discretion) or pending
distribution is placed, at the Trustee's discretion, in obligations issued by
(or unconditionally guaranteed by) the United States or any agency thereof,
repurchase agreements secured by obligations issued by the United States or any
agency thereof, or certificates of deposit of banks having a capital surplus and
undivided profits in excess of $50,000,000, subject, in each case, to certain
other qualifying conditions.

     The income to the Trust attributable to the Royalties is not subject in
material respects to seasonal factors nor in any manner related to or dependent
upon patents, licenses, franchises or concessions. The Trust conducts no
research activities. The Trust has no employees since all administrative
functions are performed by the Trustee.

     BROG has advised the Trustee that it believes that comparable revenues
could be obtained in the event of a change in purchasers of production.

                                        2
<PAGE>   22

ITEM 2. PROPERTIES

     The net overriding royalties conveyed to the Trust include: (1) a 75% net
overriding royalty carved out of Southland Royalty's fee mineral interests in
the Waddell Ranch in Crane County, Texas (the "Waddell Ranch properties"); and
(2) a 95% net overriding royalty carved out of Southland Royalty's major
producing royalty interests in Texas (the "Texas Royalty properties"). The net
overriding royalty for the Texas Royalty properties is subject to the provisions
of the lease agreements under which such royalties were created. References
below to "net" wells and acres are to the interests of Southland Royalty (from
which the Royalties were carved) in the "gross" wells and acres.

     The following information in Item 2 is based upon data and information
furnished to the Trustee by Southland Royalty or BROG.

PRODUCING ACREAGE, WELLS AND DRILLING

     Waddell Ranch Properties. The Waddell Ranch properties consist of 78,175
gross (34,205 net) producing acres. A majority of the proved reserves are
attributable to six fields: Dune, Sand Hills (Judkins), Sand Hills (McKnight),
Sand Hills (Tubb), University-Waddell (Devonian) and Waddell. At December 31,
1997, the Waddell Ranch properties contained 834 gross (344 net) productive oil
wells, 160 gross (67 net) productive gas wells and 347 gross (137 net) injection
wells.

     BROG is operator of record of the Waddell Ranch properties. All field,
technical and accounting operations have been contracted by an agreement between
the working interest owners and Coastal Management Corporation ("CMC") but
remain under the direction of BROG.

     The Waddell Ranch properties are mature producing properties, and all of
the major oil fields are currently being waterflooded. Proved reserves and
estimated future net revenues attributable to the properties are included in the
reserve reports summarized below. BROG does not own the full working interest in
any of the tracts constituting the Waddell Ranch properties and, therefore,
implementation of any development programs will require approvals of other
working interest holders as well as BROG. In addition, implementation of any
development programs will be dependent upon oil and gas prices currently being
received and anticipated to be received in the future. During 1997 there were 23
gross (9.25 net) wells drilled on the Waddell Ranch properties. At December 31,
1997 there were 19 gross (7.875 net) wells in progress on the Waddell Ranch
properties. During 1996 there were 22 gross (8.375 net) oil wells drilled on the
Waddell Ranch properties. At December 31, 1996 there were no wells in progress
on the Waddell Ranch properties. During 1995 there were 32 gross (14.075 net)
oil wells drilled on the Waddell Ranch properties. At December 31, 1995 there
were 3 gross (.8 net) wells in progress on the Waddell Ranch properties. During
1994 there were 22 gross (9.875 net) wells drilled on the Waddell Ranch
properties. At December 31, 1994 there were no wells in progress on the Waddell
Ranch properties.

     BROG has advised the Trustee that the total amount of capital expenditures
for 1997 with regard to the Waddell Ranch properties totalled $11,789,849.
Capital expenditures include the cost of the 1997 drilling program and remedial
and maintenance activities. BROG has advised the Trustee that the capital
expenditures budget for 1998 totals approximately $17,639,000, of which
approximately $9,736,000 is attributable to the 1998 drilling program,
$4,561,000 to workovers and recompletions, $2,320,000 to facility upgrades and
replacements and $1,022,000 to a seismic project. Accordingly, there is an
estimated 50% increase in capital expenditures for 1998 as compared with the
1997 capital expenditures.

     Texas Royalty Properties. The Texas Royalty properties consist of royalty
interests in mature producing oil fields, such as Yates, Wasson, Sand Hills,
East Texas, Kelly-Snyder, Panhandle Regular, N. Cowden, Todd, Keystone, Kermit,
McElroy, Howard-Glasscock, Seminole and others. The Texas Royalty properties
contain approximately 303,000 gross (approximately 51,000 net) producing acres.
Detailed information concerning the number of wells on royalty properties is not
generally available to the owners of royalty interests. Consequently, an
accurate count of the number of wells located on the Texas Royalty properties
cannot readily be obtained.

                                        3
<PAGE>   23

     Approximately $1.3 million in ad valorem taxes related to 1991 through 1994
for the Texas Royalty properties that Southland Royalty did not previously
charge to gross proceeds attributable to the Trust was charged to the Trust over
12 months beginning March 1995. Such amount was charged by deducting $87,000 per
month from gross proceeds attributable to the Texas Royalty properties in
calculating royalty income from such properties. To the extent charges were made
to gross proceeds, the amount of funds available for distribution to Unit
holders was reduced. As of November 1996, the Trustee was advised that this
original charge of $1.3 million and all subsequent adjustments to that charge
had been paid.

     In the fourth quarter of 1996, BROG notified the Trustee that, pursuant to
an ongoing divestiture program, BROG intended to sell its interests in the Texas
Royalty properties that are subject to the Net Overriding Royalty Conveyance to
the Trust dated effective November 1, 1980 ("Conveyance"). A Purchase and Sale
Agreement was executed between BROG and Riverhill Energy Corporation ("Riverhill
Energy"), a wholly owned subsidiary of Riverhill Capital Corporation ("Riverhill
Capital") and an affiliate of CMC. CMC currently conducts all field, technical
and accounting operations on behalf of BROG with regard to the Waddell Ranch
properties. Riverhill Capital is a privately owned Texas corporation with
offices in Bryan and Midland, Texas. The Trustee was advised by BROG that the
transaction closed on February 14, 1997. The Trustee has been further informed
by BROG that, as required by the Conveyance, Riverhill Energy has succeeded to
all of the requirements upon and the responsibilities of BROG under the
Conveyance with regard to the Texas Royalty properties. BROG and Riverhill
Energy have further advised the Trustee that all accounting operations
pertaining to the Texas Royalty properties are being performed by CMC under the
direction of Riverhill Energy. BROG had indicated to the Trustee that BROG will
work together with CMC and Riverhill Energy in an effort to assure that various
administrative functions and reporting requirements assumed by Riverhill Energy
are met. The Trustee has been advised that independent auditors representing
Riverhill Energy and CMC will be Arthur Andersen LLP.

     The Trustee has been advised that the shareholders of Riverhill Capital
have executed a term sheet with Schlumberger Technology Corporation ("STC"),
whereby, subject to the satisfaction of certain conditions, all of the shares of
Riverhill Capital will be purchased by and sold to STC. As stated above,
Riverhill Energy and CMC are wholly owned subsidiaries of Riverhill Capital. The
Trustee has been further advised that, as part of this contemplated transaction,
ownership of Riverhill Energy's interests in the Texas Royalty properties
referenced above will remain in Riverhill Energy which will be owned by the
current shareholders of Riverhill Capital.

     In the event the sale to and purchase by STC is consummated, it is
anticipated that CMC will continue to perform its field, technical and
accounting operations on behalf of BROG with regard to the Waddell Ranch
properties and all accounting operations pertaining to the Texas Royalty
properties which will remain under the direction of Riverhill Energy. The
Trustee has been advised by Riverhill Energy that it will assure that the
various administrative functions and reporting requirements are met.

                                        4
<PAGE>   24

OIL AND GAS PRODUCTION

     The Trust recognizes production during the month in which the related
distribution is received. Production of oil and gas attributable to the
Royalties and the properties from which the Royalties were carved and the
related average sales prices attributable to the properties from which the
Royalties were carved for the three years ended December 31, 1997, excluding
portions attributable to the adjustments discussed below, were as follows:

<TABLE>
<CAPTION>
                                           WADDELL                           TEXAS
                                            RANCH                           ROYALTY
                                         PROPERTIES                       PROPERTIES                          TOTAL
                              ---------------------------------   ---------------------------   ---------------------------------
                                1997        1996        1995       1997      1996      1995       1997        1996        1995
                              ---------   ---------   ---------   -------   -------   -------   ---------   ---------   ---------
<S>                           <C>         <C>         <C>         <C>       <C>       <C>       <C>         <C>         <C>
ROYALTIES:
  Production
    Oil (barrels)...........    426,127     418,991     262,221   391,665   352,833   330,922     817,792     771,824     593,143
    Gas (Mcf)...............  1,875,965   1,915,649   1,289,005   840,790   724,732   616,294   2,716,755   2,640,381   1,905,299
PROPERTIES FROM WHICH THE
  ROYALTIES WERE CARVED:
  Production
    Oil (barrels)...........  1,387,056   1,338,340   1,229,822   438,963   450,397   440,649   1,826,019   1,788,737   1,670,471
    Gas (Mcf)...............  6,409,242   6,376,201   6,744,271   945,920   932,205   827,343   7,355,162   7,308,406   7,571,614
  Average Price
    Oil/barrel..............     $19.54      $19.97      $16.84    $19.20    $18.32    $15.71      $19.46      $19.55      $16.55
    Gas/Mcf.................     $ 2.67      $ 2.20      $ 1.59    $ 2.45    $ 2.04    $ 1.55      $ 2.64      $ 2.18      $ 1.58
</TABLE>

PRICING INFORMATION

     Reference is made to "Regulation" for information as to federal regulation
of prices of natural gas. The following paragraphs provide information regarding
sales of oil and gas from the Waddell Ranch properties. As a royalty owner,
Southland Royalty is not furnished detailed information regarding sales of oil
and gas from the Texas Royalty properties.

     Oil. The Trustee has been advised by BROG that for the period August 1,
1993 through June 30, 1998, the oil from the Waddell Ranch properties is being
sold under a competitive bid to independent third parties.

     Gas. The gas produced from the Waddell Ranch properties is processed
through a natural gas processing plant and sold at the tailgate of the plant.
Plant products are marketed by Burlington Resources Hydrocarbons Inc., an
indirect subsidiary of BRI. The processor of the gas (Warren Petroleum Company,
L.P.) receives 15% of the liquids and residue gas as a fee for gathering,
compression, treating and processing the gas.

OIL AND GAS RESERVES

     The following are definitions adopted by the Securities and Exchange
Commission ("SEC") and the Financial Accounting Standards Board which are
applicable to terms used within this Item:

          "Proved reserves" are those estimated quantities of crude oil, natural
     gas and natural gas liquids, which, upon analysis of geological and
     engineering data, appear with reasonable certainty to be recoverable in the
     future from known oil and gas reservoirs under existing economic and
     operating conditions.

          "Proved developed reserves" are those proved reserves which can be
     expected to be recovered through existing wells with existing equipment and
     operating methods.

          "Proved undeveloped reserves" are those proved reserves which are
     expected to be recovered from new wells on undrilled acreage, or from
     existing wells where a relatively major expenditure is required.

          "Estimated future net revenues" are computed by applying current
     prices of oil and gas (with consideration of price changes only to the
     extent provided by contractual arrangements and allowed by federal
     regulation) to estimated future production of proved oil and gas reserves
     as of the date of the latest balance sheet presented, less estimated future
     expenditures (based on current costs) to be incurred in developing and
     producing the proved reserves, and assuming continuation of existing
     economic

                                        5
<PAGE>   25

     conditions. "Estimated future net revenues" are sometimes referred to
     herein as "estimated future net cash flows".

          "Present value of estimated future net revenues" is computed using the
     estimated future net revenues and a discount factor of 10%.

     The independent petroleum engineers' reports as to the proved oil and gas
reserves attributable to the Royalties conveyed to the Trust were obtained from
Cawley, Gillespie & Associates, Inc. The following table presents a
reconciliation of proved reserve quantities from December 31, 1994 through
December 31, 1997 (in thousands):

<TABLE>
<CAPTION>
                                                               WADDELL RANCH    TEXAS ROYALTY
                                                                PROPERTIES        PROPERTIES          TOTAL
                                                              ---------------   --------------   ---------------
                                                               OIL      GAS      OIL      GAS     OIL      GAS
                                                              (Bbls)   (Mcf)    (Bbls)   (Mcf)   (Bbls)   (Mcf)
                                                              ------   ------   ------   -----   ------   ------
<S>                                                           <C>      <C>      <C>      <C>     <C>      <C>
December 31, 1994...........................................   6,037   25,080   4,703    4,825   10,740   29,905
Extensions, discoveries and other additions.................      49       28     -0-      -0-       49       28
Revisions of previous estimates.............................     128    1,024     205      664      333    1,688
Production..................................................    (262)  (1,289)   (331)    (616)    (593)  (1,905)
                                                              ------   ------   -----    -----   ------   ------
December 31, 1995...........................................   5,952   24,843   4,577    4,873   10,529   29,716
Extensions, discoveries and other additions.................      24       24     -0-      -0-       24       24
Revisions of previous estimates.............................   1,746   11,560     448      642    2,194   12,202
Production..................................................    (419)  (1,916)   (353)   (725)     (772)  (2,641)
                                                              ------   ------   -----    -----   ------   ------
December 31, 1996...........................................   7,303   34,511   4,672    4,790   11,975   39,301
Extensions, discoveries and other additions.................      48       52     -0-      -0-       48       52
Revisions of previous estimates.............................  (1,902)  (8,512)    161      680   (1,741)  (7,832)
Production..................................................    (426)  (1,876)   (392)    (841)    (818)  (2,717)
December 31, 1997...........................................   5,023   24,175   4,441    4,629    9,464   28,804
                                                              ======   ======   =====    =====   ======   ======
</TABLE>

     Estimated quantities of proved developed reserves of crude oil and natural
gas as of December 31, 1997, 1996 and 1995 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                              CRUDE OIL    NATURAL GAS
                                                               (Bbls)         (Mcf)
                                                              ---------    -----------
<S>                                                           <C>          <C>
1997........................................................    8,116        23,054
1996........................................................   10,154        32,008
1995........................................................    9,061        23,467
</TABLE>

     The Financial Accounting Standards Board requires supplemental disclosures
for oil and gas producers based on a standardized measure of discounted future
net cash flows relating to proved oil and gas reserve quantities. Under this
disclosure, future cash inflows are computed by applying year-end prices of oil
and gas relating to the enterprise's proved reserves to the year-end quantities
of those reserves. Future price changes are only considered to the extent
provided by contractual arrangements in existence at year-end. The standardized
measure of discounted future net cash flows is achieved by using a discount rate
of 10% a year to reflect the timing of future cash flows relating to proved oil
and gas reserves.

                                        6
<PAGE>   26

     Estimates of proved oil and gas reserves are by their very nature
imprecise. Estimates of future net revenue attributable to proved reserves are
sensitive to the unpredictable prices of oil and gas and other variables.

     The 1997, 1996 and 1995 change in the standardized measure of discounted
future net cash flows related to future royalty income from proved reserves
discounted at 10% is as follows (in thousands):

<TABLE>
<CAPTION>
                                     WADDELL RANCH PROPERTIES       TEXAS ROYALTY PROPERTIES                 TOTAL
                                   -----------------------------   ---------------------------   ------------------------------
                                     1997       1996      1995      1997      1996      1995       1997       1996       1995
                                   --------   --------   -------   -------   -------   -------   --------   --------   --------
<S>                                <C>        <C>        <C>       <C>       <C>       <C>       <C>        <C>        <C>
January 1........................  $150,170   $ 74,070   $64,730   $52,457   $36,324   $33,660   $202,627   $110,394   $ 98,390
Extensions, discoveries and other
  additions......................       619        447       457       -0-       -0-       -0-        619        447        457
Accretion of discount............    15,017      7,407     6,473     5,246     3,632     3,366     20,263     11,039      9,839
Revisions of prior year
  estimates, changes in price and
  other..........................   (89,235)    80,524     8,548    (7,540)   20,153     5,175    (96,775)   100,677     13,723
Royalty income...................   (13,392)   (12,278)   (6,138)   (9,207)   (7,652)   (5,877)   (22,599)   (19,930)   (12,015)
                                   --------   --------   -------   -------   -------   -------   --------   --------   --------
December 31......................  $ 63,179   $150,170   $74,070   $40,956   $52,457   $36,324   $104,135   $202,627   $110,394
                                   ========   ========   =======   =======   =======   =======   ========   ========   ========
</TABLE>

     Oil and gas prices of $15.79 and $16.75 per barrel and $2.28 and $3.14 per
Mcf were used to determine the estimated future net revenues from the Waddell
Ranch properties and the Texas Royalty properties at December 31, 1997. The
downward revision of the estimated oil reserves and the related decrease in the
discounted future net cash flow for the Waddell Ranch properties was primarily
due to the decrease in oil prices from 1996 to 1997. The downward revision in
the estimated gas reserves for the Waddell Ranch properties was primarily due to
the decrease in gas prices from 1996 to 1997.

     Oil and gas prices of $23.88 and $22.32 per barrel and $4.00 and $2.64 per
Mcf were used to determine the estimated future net revenues from the Waddell
Ranch properties and the Texas Royalty properties at December 31, 1996. The
extension, discoveries and other additions for the Waddell Ranch properties are
reserves added as a result of remedial activity in the Waddell Ellenberger
Field. The upward revision of the estimated oil and gas reserves and the related
increase in the discounted future net cash flow for the Waddell Ranch properties
was due to the increase in oil and gas prices from 1995 to 1996, as well as
production response from drilling and remedial activity. The largest increase in
oil reserves due to drilling and remedial activity occurred in the Waddell
Field. The revisions in the oil and gas reserves and related discounted cash
flow for the Texas Royalty properties are mainly due to the increase in oil and
gas prices at December 31, 1996.

     Oil and gas prices of $18.02 and $16.19 per barrel and $1.94 and $1.75 per
Mcf were used to determine the estimated future net revenues from the Waddell
Ranch properties and the Texas Royalty properties at December 31, 1995. The
extension, discoveries and other additions for the Waddell Ranch properties are
proved undeveloped reserves related to field extension development for the
Waddell Field. The upward revisions of both reserves and discounted future net
cash flows for the Waddell Ranch properties are due to the increases in oil
prices as well as production response from drilling and remedial activities on
the Dune Field, Sand Hills (Judkins) Field, Sand Hills (Tubb) Field and the
Waddell Field. The upward revisions of reserves and discounted future net cash
flows for the Texas Royalty properties are due to the increase in oil prices at
December 31, 1995.

                                        7
<PAGE>   27

     The following presents estimated future net revenue and the present value
of estimated future net revenue, for each of the years ended December 31, 1997,
1996 and 1995 (in thousands except amounts per Unit):

<TABLE>
<CAPTION>
                                                     1997                     1996                     1995
                                             ---------------------    ---------------------    ---------------------
                                             ESTIMATED                ESTIMATED                ESTIMATED
                                              FUTURE      PRESENT      FUTURE      PRESENT      FUTURE      PRESENT
                                                NET        VALUE         NET        VALUE         NET        VALUE
                                              REVENUE      AT 10%      REVENUE      AT 10%      REVENUE      AT 10%
                                             ---------    --------    ---------    --------    ---------    --------
<S>                                          <C>          <C>         <C>          <C>         <C>          <C>
Total Proved
  Waddell Ranch properties.................  $126,924     $ 63,179    $294,653     $150,170    $147,068     $ 74,070
  Texas Royalty properties.................    85,254       40,956     111,181       52,457      78,586       36,324
                                             --------     --------    --------     --------    --------     --------
        Total..............................  $212,178     $104,135    $405,834     $202,627    $225,654     $110,394
                                             ========     ========    ========     ========    ========     ========
Total Proved Per Unit......................  $   4.55     $   2.23    $   8.71     $   4.35    $   4.84     $   2.37
                                             ========     ========    ========     ========    ========     ========
Proved Developed
  Waddell Ranch properties.................  $ 94,493     $ 55,150    $226,174     $124,395    $110,611     $ 60,600
  Texas Royalty properties.................    85,254       40,956     111,181       52,457      78,586       36,324
                                             --------     --------    --------     --------    --------     --------
        Total..............................  $179,747     $ 96,106    $337,355     $176,852    $189,197     $ 96,924
                                             ========     ========    ========     ========    ========     ========
</TABLE>

     Reserve quantities and revenues shown in the preceding tables for the
Royalties were estimated from projections of reserves and revenue attributable
to the combined Southland Royalty and Trust interests in the Waddell Ranch
properties and Texas Royalty properties. Reserve quantities attributable to the
Royalties were estimated by allocating to the Royalties a portion of the total
estimated net reserve quantities of the interests, based upon gross revenue less
production taxes. Because the reserve quantities attributable to the Royalties
are estimated using an allocation of the reserves, any changes in prices or
costs will result in changes in the estimated reserve quantities allocated to
the Royalties. Therefore, the reserve quantities estimated will vary if
different future price and cost assumptions occur.

     Proved reserve quantities are estimates based on information available at
the time of preparation and such estimates are subject to change as additional
information becomes available. The reserves actually recovered and the timing of
production of those reserves may be substantially different from the original
estimate. Moreover, the present values shown above should not be considered as
the market values of such oil and gas reserves or the costs that would be
incurred to acquire equivalent reserves. A market value determination would
include many additional factors.

REGULATION

     Many aspects of the production, pricing and marketing of crude oil and
natural gas are regulated by federal and state agencies. The Federal Energy
Regulatory Commission ("FERC") is primarily responsible for federal regulation
of natural gas.

  Natural Gas Regulation

     The interstate transportation and sale for resale of natural gas is subject
to federal governmental regulation, including regulation of tariffs charged and
various other matters, by FERC. The Natural Gas Wellhead Decontrol Act of 1989
terminated federal price controls on wellhead sales of domestic natural gas on
January 1, 1993.

     In 1992, FERC issued Orders Nos. 636 and 636-A, which generally opened
access to interstate gas pipelines by requiring such pipelines to "unbundle"
their transportation services and allow shippers to choose and pay for only the
services they require, regardless of whether the shipper purchases gas from such
pipelines or from other suppliers. These orders also require upstream pipelines
to permit downstream pipelines to assign upstream capacity to their shippers and
place analogous, unbundled access requirements on the downstream pipelines.
Although these orders should generally have the effect of facilitating the
transportation of gas produced from the properties from which the Royalties were
carved, as well as to facilitate the direct access to end-user markets, the
impact of these orders on marketing production from the properties from which
the Royalties were carved cannot be predicted at this time.

                                        8
<PAGE>   28

     While natural gas prices are currently unregulated, Congress historically
has been active in the area of natural gas regulation. It is impossible to
predict whether new legislation to regulate natural gas might be proposed, what
proposals, if any, might actually be enacted by Congress or the various state
legislatures, and what effect, if any, such proposals might have on the
operations of the properties from which the Royalties were carved.

  State Regulation

     The various states regulate the production and sale of oil and natural gas,
including imposing requirements for obtaining drilling permits, the method of
developing new fields, the spacing and operation of wells and the prevention of
waste of oil and gas resources. The rates of production may be regulated and the
maximum daily production allowables from both oil and gas wells may be
established on a market demand or conservation basis, or both.

  Other Regulation

     The petroleum industry is also subject to compliance with various other
federal, state and local regulations and laws, including, but not limited to,
environmental protection, occupational safety, resource conservation and equal
employment opportunity. The Trustee does not believe that compliance with these
laws by the operating parties will have any material adverse effect on the Unit
holders.

                                        9
<PAGE>   29

ITEM 3. LEGAL PROCEEDINGS

     The Trustee has been notified of the settlement of a class action lawsuit
pending in the 270th District Court of Harris County, Texas (the "Court") Cause
No. 92-026182 styled Caroline Altheide and Langdon Harrison v. Meridian Oil
Inc., Meridian Oil Holding Inc., Meridian Oil Trading Inc., Meridian Oil
Production Inc., Southland Royalty Company, El Paso Production Company, Meridian
Oil Hydrocarbons Inc., Meridian Oil Gathering Inc., Meridian Oil Services Inc.
and Edward Parker filed in June 1992 ("Class Action"). The defendants in this
lawsuit are collectively referred to herein as "Meridian."

     The members of the class ("Class Members") involved in the Class Action
that was certified by the Court are all persons or entities who (i) at any time
between December 1, 1986 and July 1, 1996 received payments directly from
Meridian, (ii) the payments from Meridian were attributable to interests in
natural gas that was sold at the wellhead to Meridian Oil Trading Inc., and
(iii) the interests were either royalty interests, overriding royalty interests
or interests of a similar nature that burdened the working interests of
Meridian, or working interests in properties operated by Meridian, or royalty
interests, overriding royalty interests or interests of a similar nature that
burdened working interests in properties operated by Meridian. Meridian, the San
Juan Basin Royalty Trust, the Burlington Resources Coal Seam Royalty Trust and
the Commissioner of Public Lands of the New Mexico State Lands Office are not
Class Members.

     In summary, the claims asserted in the Class Action ("Class Claims") are
those asserted in Plaintiffs' Second Amended Original Petition filed in the
Class Action which are based upon the manner in which Meridian calculated
payments to its royalty owners and its joint working interest owners in natural
gas-producing properties. It is alleged that those payments were based on
wellhead prices that were set by a marketing affiliate, rather than upon the net
prices that Meridian received for the gas and liquid components in arm's-length
sales to non-affiliated purchasers. More specifically, such claims are based on
Meridian's conduct in basing its payments to Class Members, for natural gas sold
at the wellhead to Meridian Oil Trading Inc., on wellhead prices that resulted
from one or more of the following:

          (i) Meridian's use of allegedly depressed prices for gas set by
     Meridian Oil Trading Inc.;

          (ii) Meridian's use of allegedly inflated cost factors for
     transportation services set by Meridian Oil Trading Inc.;

          (iii) Meridian's use of allegedly depressed net prices for liquids set
     by Meridian Oil Hydrocarbons Inc.; and

          (iv) Meridian's use of allegedly inflated rates for coal seam
     gathering and treating services set by Meridian Oil Gathering Inc.

     It was alleged that Meridian's conduct violated applicable legal
principles. Meridian denied that its conduct had been unlawful or otherwise
wrongful. The Court has not ruled on the merits of the Class Claims or on
Meridian's defenses to such claims.

     The settlement reached by the parties in the Class Action provides for the
payment of up to $42 million together with interest thereon beginning on July
17, 1996 until the date the settlement checks are initially mailed to the Class
Members participating in the settlement. Such settlement amount is subject to
reduction for certain adjustments such as (i) fees, costs and expenses awarded
by the Court to the Class Counsel (Susman Godfrey L.L.P. and Dick Watt), (ii)
extra compensation awarded by the Court to the named Plaintiffs (Caroline D.
Altheide and Langdon D. Harrison), and (iii) the expense incurred in giving
notice and administering the proposed settlement ("Net Settlement Fund").
Concurrently with Meridian's payment of the Net Settlement Fund to Class Members
who did not timely and validly elect to be excluded from the Class ("Settlement
Class Members"), Meridian is obligated under the settlement to advise its then
current recipients of royalty payments that Meridian intends (i) to commence
calculating royalty payments based upon the net prices received by Meridian from
non-affiliated third parties for natural gas and the liquids extracted
therefrom, and (ii) in calculating royalty payments on gas produced from coal
seam gas wells using the Val Verde Gathering System, to commence using a
deduction for gathering and treating the gas produced from such wells that does
not exceed 75% of the fee charged by Meridian Oil Gathering Inc. for similar

                                       10
<PAGE>   30

services to the five largest (by volume) non-affiliated third-party shippers.
Meridian is not obligated to calculate royalty payments in such method in the
future but, if it changes such method of calculation, it is obligated to provide
notice of such change in method of calculation to the then-current recipients of
royalty payments.

     Of the Net Settlement Fund, (i) 48% thereof will be distributed among Class
Members whose interests bear on "conventional" gas-producing properties
(specifically, gas not gathered on the Val Verde Gathering System) that are
located in Meridian's Farmington operating division (which is roughly
coextensive with the San Juan Basin of New Mexico and Colorado), (ii) 42%
thereof will be distributed among the Class Members whose interests bear on the
coal seam gas producing properties located in Meridian's Farmington operating
division (specifically, gas gathered on the Val Verde Gathering System), and
(iii) 10% thereof will be distributed among those Class Members whose interests
bear on gas-producing properties located in areas other than Meridian's
Farmington operating division. The Trust would fall into the last of these three
classifications. It is estimated that the Trust's share of the Net Settlement
Fund will be between $560,000 and $850,000, the exact amount of which cannot be
determined at this time.

     Upon final judicial approval of the settlement, the settlement provides
that a judgment be entered in the Class Action dismissing the Class Action with
prejudice to its refiling. As a result of the settlement, Settlement Class
Members release and discharge the Released Parties, and each of them, from and
with respect to the Class Claims and such Class Members will not be able to
pursue the Class Claims against the Released Parties. "Released Parties" as used
herein means, severally and collectively, the Defendants and Meridian Oil Inc.
and all Affiliates of Burlington Resources Inc. since December 1, 1986,
collectively, and all past and present agents, employees, officers, directors,
shareholders, representatives, attorneys, predecessors, successors, assigns and
affiliates of each of the Defendants and of Meridian Oil Inc. and all Affiliates
of Burlington Resources Inc. since December 1, 1986, collectively. "Released
Parties" also includes all other persons or entities who are liable or become
liable for the conduct of any person or entity that is identified in the
preceding sentence. "Affiliates" as used herein means Burlington Resources
Inc.'s direct and indirect subsidiaries.

     It was determined by the Trustee that the Trust is part of the Class that
was certified by the Court in the Class Action and that it was in the best
interest of the Trust to elect to remain as part of the Class and share in the
Net Settlement Fund. The Trustee believes that the Class Claims, if true, had
little, if any, detrimental effect on the Trust and the Trust is being
adequately compensated as a result of this settlement.

     A judgment has been signed by the Court approving the settlement. However,
a Notice of Appeal was filed by San Juan 1990-A, L.P., K&W Gas Partners, L.P.,
MAP 1992-A Partners, L.P. and The Board of Trustees of Leland Stanford Junior
University, Non-Profit Corporation (Stanford University) ("Objectors") on
February 7, 1997.

     Class Counsel has notified the Trustee that on July 24, 1997 the Court of
Appeals issued its judgment dismissing such appeal on procedural grounds and
that in early September 1997 the Court of Appeals denied a motion for rehearing
filed in such proceeding. The Trustee has been further advised that a petition
for review has been filed with the Texas Supreme Court by the Objectors and is
currently pending. One of the conditions set forth in the settlement agreement
for the distribution of settlement proceeds related to the Class Action is that
there will be no distribution of the settlement proceeds unless and until such
judgment is no longer subject to further appeal and, if there is an appeal, not
unless and until such judgment is affirmed or such appeal is dismissed and the
time for any further proceedings in the appellate court of last resort has
expired. As a result of such appeal, no distribution of settlement proceeds has
been made to the Trust and the Trustee does not know if or when the Trust will
receive proceeds of such settlement.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of Unit holders, through the
solicitation of proxies or otherwise, during the fourth quarter ended December
31, 1997.

                                       11
<PAGE>   31

                                    PART II

ITEM 5. MARKET FOR UNITS OF THE TRUST AND RELATED SECURITY HOLDER MATTERS

     The information under "Units of Beneficial Interest" at page 1 of the
Trust's Annual Report to security holders for the year ended December 31, 1997,
is herein incorporated by reference.

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                    FOR THE YEAR ENDED DECEMBER 31,
                                                -----------------------------------------------------------------------
                                                   1997           1996           1995           1994           1993
                                                -----------    -----------    -----------    -----------    -----------
<S>                                             <C>            <C>            <C>            <C>            <C>
Royalty income................................  $22,598,873    $19,930,354    $12,014,623    $16,646,903    $19,407,568
Distributable income..........................   22,190,115     19,488,574     11,632,463     16,174,570     18,759,882
Distributable income per Unit.................     0.476092       0.418131       0.249574       0.347027       0.402496
Distributions per Unit........................     0.476092       0.418131       0.249574       0.347027       0.402496
Total assets, December 31.....................    5,220,786      5,913,931      5,252,922      6,002,283      6,284,735
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION

     The "Trustee's Discussion and Analysis for the Three Year Period Ended
December 31, 1997" and "Results of the 4th Quarters of 1997 and 1996" at pages 6
through 10 of the Trust's Annual Report to security holders for the year ended
December 31, 1997 is herein incorporated by reference.

  Year 2000 Issue

     Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. The Year 2000 issue affects virtually all companies and organizations. If
a company or organization does not successfully address its Year 2000 issues, it
may face material adverse consequences.

     The Trust is reliant on the performance of BROG and third party vendors for
the receipt of Royalty income, payment of expenses and disbursement of
distributable income. The Trustee can provide no assurance as to whether BROG
and third party vendors will successfully address the Year 2000 issue. Failing
to successfully address the Year 2000 issue by BROG and third party vendors
could have a material adverse impact on the Trust and its Unit holders.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not Applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Financial Statements of the Trust and the notes thereto at page 11 et
seq. of the Trust's Annual Report to security holders for the year ended
December 31, 1997, are herein incorporated by reference.

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

     There have been no changes in accountants and no disagreements with
accountants on any matter of accounting principles or practices or financial
statement disclosures during the twenty-four months ended December 31, 1997.

                                       12
<PAGE>   32

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The Trust has no directors or executive officers. The Trustee is a
corporate trustee which may be removed, with or without cause, at a meeting of
the Unit holders, by the affirmative vote of the holders of a majority of all
the Units then outstanding.

ITEM 11. EXECUTIVE COMPENSATION

     During the years ended December 31, 1997, 1996 and 1995, the Trustee
received total remuneration as follows:

<TABLE>
<CAPTION>
                 NAME OF INDIVIDUAL                    CAPACITIES
                    OR NUMBER OF                        IN WHICH         CASH
                  PERSONS IN GROUP                       SERVED      COMPENSATION    YEAR
                 ------------------                    ----------    ------------    ----
<S>                                                    <C>           <C>             <C>
NationsBank of Texas, N.A............................   Trustee       $60,575(1)     1995
                                                                      $65,338(1)     1996
                                                                      $44,735(1)     1997
</TABLE>

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

(1) Under the Trust Indenture, the Trustee is entitled to an administrative fee
    for its administrative services, preparation of quarterly and annual
    statements with attention to tax and legal matters of: (i) 1/20 of 1% of the
    first $100 million of annual gross revenue of the Trust and 1/30 of 1% in
    excess of $100 million and (ii) Trustee's standard hourly rate in excess of
    300 hours annually. The administrative fee is subject to reduction by a
    credit for funds provision.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     (a) Security Ownership of Certain Beneficial Owners. The following table
sets forth as of December 31, 1997, information with respect to each person
known to own beneficially more than 5% of the outstanding Units of the Trust:

<TABLE>
<CAPTION>
                                             AMOUNT AND NATURE OF     PERCENT
             NAME AND ADDRESS               BENEFICIAL OWNERSHIP(1)   OF CLASS
             ----------------               -----------------------   --------
<S>                                         <C>                       <C>
Burlington Resources Oil & Gas Company(1)      27,577,741 Units       59.17%
  5051 Westheimer
  Suite 1400
  Houston, Texas 77056-2124
</TABLE>

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

(1) This information was provided to the Securities and Exchange Commission and
    to the Trust in a Form 4 dated January 6, 1994, filed with the Securities
    and Exchange Commission by Southland Royalty, a wholly-owned subsidiary of
    BRI, and in Amendment 5 to Schedule 13D and Schedule 13E-3 dated December
    28, 1993, filed with the Securities and Exchange Commission by Southland
    Royalty and BRI. Such Units were reported to be owned directly by Southland
    Royalty, now BROG.

    The Form 4 filed by Southland Royalty and the Schedule 13D and Schedule
    13E-3 filed by Southland Royalty and BRI with the Securities and Exchange
    Commission may be reviewed for more detailed information concerning the
    matters summarized herein.

                                       13
<PAGE>   33

     (b) Security Ownership of Management. The Trustee owns beneficially no
securities of the Trust. In various fiduciary capacities, NationsBank of Texas,
N.A. owned as of March 2, 1998, an aggregate of 316,893 Units with no right to
vote 106,000 of these Units, shared right to vote 27,946 of these Units and sole
right to vote 182,947 of these Units. Such Bank disclaims any beneficial
interests in these Units. The number of Units reflected in this paragraph
includes Units held by all branches of NationsBank of Texas, N.A.

     (c) Change In Control. The Trustee knows of no arrangements which may
subsequently result in a change in control of the Trust.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Trust has no directors or executive officers. See Item 11 for the
remuneration received by the Trustee during the years ended December 31, 1997,
1996 and 1995 and Item 12(b) for information concerning Units owned by
NationsBank of Texas, N.A. in various fiduciary capacities.

                                       14
<PAGE>   34

                                    PART IV

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

     The following documents are filed as a part of this Report:

FINANCIAL STATEMENTS

     Included in Part II of this Report by reference to the Annual Report of the
Trust for the year ended December 31, 1997:

          Independent Auditors' Report

          Statements of Assets, Liabilities and Trust Corpus

          Statements of Distributable Income

          Statements of Changes in Trust Corpus

          Notes to Financial Statements

FINANCIAL STATEMENT SCHEDULES

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

EXHIBITS

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         (4)(a)          -- Permian Basin Royalty Trust Indenture dated November 3,
                            1980, between Southland Royalty Company and The First
                            National Bank of Fort Worth (now NationsBank of Texas,
                            N.A.), as Trustee, heretofore filed as Exhibit (4)(a) to
                            the Trust's Annual Report on Form 10-K to the Securities
                            and Exchange Commission for the fiscal year ended
                            December 31, 1980, is incorporated herein by reference.*
            (b)          -- Net Overriding Royalty Conveyance (Permian Basin Royalty
                            Trust) from Southland Royalty Company to The First
                            National Bank of Fort Worth (now NationsBank of Texas,
                            N.A.), as Trustee, dated November 3, 1980 (without
                            Schedules), heretofore filed as Exhibit (4)(b) to the
                            Trust's Annual Report on Form 10-K to the Securities and
                            Exchange Commission for the fiscal year ended
                            December 31, 1980, is incorporated herein by reference.*
            (c)          -- Net Overriding Royalty Conveyance (Permian Basin Royalty
                            Trust -- Waddell Ranch) from Southland Royalty Company to
                            The First National Bank of Fort Worth (now NationsBank of
                            Texas, N.A.), as Trustee, dated November 3, 1980 (without
                            Schedules), heretofore filed as Exhibit (4)(c) to the
                            Trust's Annual Report on Form 10-K to the Securities and
                            Exchange Commission for the fiscal year ended December
                            31, 1980, is incorporated herein by reference.*
        (13)             -- Registrant's Annual Report to security holders for fiscal
                            year ended December 31, 1997.**
        (23)             -- Consent of Cawley, Gillespie & Associates, Inc.,
                            reservoir engineer.**
        (27)             -- Financial Data Schedule.**
</TABLE>

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

 * A copy of this Exhibit is available to any Unit holder, at the actual cost of
   reproduction, upon written request to the Trustee, NationsBank of Texas,
   N.A., P.O. Box 1317, Fort Worth, Texas 76101.

** Filed herewith.

REPORTS ON FORM 8-K

     During the last quarter of the Trust's fiscal year ended December 31, 1997,
there were no reports on Form 8-K filed by the Trust.

                                       15
<PAGE>   35

                                   SIGNATURE

     PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

                                            NATIONSBANK OF TEXAS, N.A.
                                              TRUSTEE OF THE PERMIAN BASIN
                                              ROYALTY TRUST

                                            By      /s/ ERIC F. HYDEN
                                             -----------------------------------
                                                       (Eric F. Hyden)
                                                       Vice President

Date: March 30, 1998

              (The Trust has no directors or executive officers.)

                                       16