<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-K
(Mark One)
(X)               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

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

                                      OR

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

            FOR THE TRANSITION PERIOD FROM           TO
                                          -----------  --------

                        Commission File Number 1-12474
                                               -------

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

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

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

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

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

       Title of each class        Name of each exchange on which registered
       -------------------        -----------------------------------------

  Units of Beneficial Interest              New York Stock Exchange

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

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

                          YES    X       NO
                                ---        ----

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

The aggregate market value of outstanding units of beneficial interest of the
registrant held by non-affiliates of the registrant at March 7, 2000 was
approximately $ 34,937,500.
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                           Annual Report on Form 10-K
                  For the fiscal year ended December 31, 1999

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                              Page
                                                                                             Number
                                                                                            ----------
PART I
<S>           <C>              <C>                                                          <C>
              Item 1.          Business...........................................                   3
              Item 2.          Properties.........................................                   8
              Item 3.          Legal Proceedings..................................                  11
              Item 4.          Submission of Matters to a Vote of Unitholders.....                  11

PART II
              Item 5.          Market for Registrant's Units and Related
                               Unitholder Matters.................................                  12
              Item 6.          Selected Financial Data............................                  12
              Item 7.          Discussion and Analysis of Financial Condition and
                               Results of Operations..............................                  12
              Item 7a.         Quantitative and Qualitative Disclosures About
                               Market Risk........................................                  16
              Item 8.          Financial Statements and Supplementary Data........                  17
              Item 9.          Changes in and Disagreements with Accountants on
                               Accounting and Financial Disclosure................                  31

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

PART IV
              Item 14.         Exhibits, Financial Statement Schedules and
                               Reports on Form 8-K................................                  34
                   ---         Signatures
</TABLE>

                                       2
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                                     PART I

ITEM 1.  BUSINESS

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

General

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

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

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

                                       3
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

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

Sales of coal seam and tight sands gas attributable to the Net Profits Interests
prior to January 1, 2003 result in Unitholders receiving quarterly allocations
of tax credits under Section 29 of the Internal Revenue Code of 1986 ("Section
29 Credit").  In 1999, 1998, and 1997, the Section 29 Credit available for
production from qualifying coal seam properties was approximately $1.07, $1.06
and $1.05, respectively, for each MMBtu of gas produced and sold.  This rate is
adjusted annually for inflation.  The Section 29 Credit available for production
from qualifying tight sands properties is approximately $0.52 for each MMBtu of
gas produced and sold and such amount is not adjusted for inflation.

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

MARKETING ARRANGEMENTS

In connection with the formation of the Trust, TRC, Velasco and TEMI entered
into the Purchase Contract which expires upon the termination of the Trust.
Under the Purchase Contract, TEMI is obligated to purchase all net production
attributable to the Underlying Properties for an index price for oil and gas
("Index Price"), less certain gathering, treating and transportation charges,
which are calculated monthly.  The Index Price equals 97% of the average spot
market prices of oil and gas ("Average Market Prices") at the four locations
where TEMI sells production, which, prior to September 1, 2000, is adjusted to
reflect the terms of a hedge contract ("Hedge Contract") to which TEMI is a
party.  Under the Hedge Contract, TEMI receives prices specified in the Hedge
Contract ("Specified Prices") for quantities of oil and gas specified therein
("Specified Quantities").  In calculating the Index Price for gas (which
represents approximately 97% of the estimated reserves as of January 1, 2000, on
a net equivalent Mcf of gas ("Mcfe") basis), the Specified Prices received
weightings ranging from approximately 40% to 70% pertaining to production prior
to August 31, 1997.  Thereafter, the Specified Prices receive a weighting of
approximately 10% and less.  The Average Market Prices receive the balance of
the weighting.  The Specified Prices for gas increase each year from $1.84 per
MMBtu in 1997 to $1.89 per MMBtu in 2000 and are adjusted to reflect the
difference between the settlement prices for oil and gas in the futures markets
and the Average Market Prices.

                                       4
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

The Purchase Contract also provides that the minimum price paid by TEMI for gas
production is $1.70 per MMBtu ("Minimum Price").  When TEMI pays a purchase
price based on the Minimum Price it receives price credits ("Price Credits"),
equal to the difference between the Index Price and the Minimum Price, that it
is entitled to deduct in determining the purchase price when the Index Price for
gas exceeds the Minimum Price.  In addition, if the Index Price for gas exceeds
$2.10 per MMBtu, TEMI is entitled to deduct 50% of such excess ("Price
Differential") in determining the purchase price.  Beginning January 1, 2002,
TEMI has an annual option to discontinue the Minimum Price commitment.  However,
if TEMI discontinues the Minimum Price commitment, it will no longer be entitled
to deduct the Price Differential in calculating the purchase price and will
forfeit all accrued Price Credits.  TEMI has purchased contracts granting TEMI
the right to sell estimated gas production in excess of the Specified Quantities
at a price intended to limit TEMI's losses in the event the Index Price falls
below the Minimum Price.

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

GATHERING, TREATING AND TRANSPORTATION ARRANGEMENTS

The Purchase Contract entitles TEMI to deduct certain gas gathering, treating
and transportation fees in calculating the purchase price for gas in the
Robinson's Bend, Austin Chalk and Cotton Valley Fields.  The amounts that may be
deducted in calculating the purchase price for such gas are set forth in the
Purchase Contract and are not affected by the actual costs incurred by TEMI to
gather, treat and transport gas.  For the Robinson's Bend Field, TEMI is
entitled to deduct a gathering, treating and transportation fee of $0.260 per
MMBtu adjusted for inflation ($0.281 per MMBtu for 1999, and $0.274 per MMBtu
for 1998 and 1997, plus fuel usage equal to 5% of revenues, payable to Bahia Gas
Gathering, Ltd. ("Bahia"), an affiliate of Torch, pursuant to a gas gathering
agreement.  Additionally, a fee of $.05 per MMBtu, representing a gathering fee
payable to a non-affiliate of Torch, is deducted in calculating the purchase
price for production from 68 of the 394 wells in the Robinson's Bend Field.
TEMI deducts $0.38 per MMBtu plus 17% of revenues in calculating the purchase
price for production from the Austin Chalk Fields as a fee to gather, treat and
transport gas production.  TEMI deducts from the purchase price for gas for
production attributable to certain wells in the Cotton Valley Fields a
transportation fee of $0.045 per MMBtu.  During the years ended December 31,
1999, 1998 and 1997, gathering, treating and transportation fees charged to the
Trust by TEMI, attributable to production during the twelve months ended
September 30, 1999, 1998 and 1997 in the Robinson's Bend, Austin Chalk and
Cotton Valley Fields, totaled $1,308,000, $1,650,000 and $1,965,000,
respectively.  No amounts for gathering, treating or transportation are deducted
in calculating the purchase price from the Chalkley Field.

NET PROFITS INTERESTS

The Net Profits Interests entitle the Trust to receive 95% of the Net Proceeds
attributable to oil and gas produced and sold from wells (other than infill
wells) on the Underlying Properties.  In calculating Net Proceeds from the
Robinson's Bend Field, operating and development costs incurred prior to January
1, 2003 are not deducted.  In addition, the amounts paid to the Trust from the
Robinson's Bend Field during any calendar quarter are subject to a volume
limitation ("Volume Limitation") equal to the gross proceeds from the sale of
912.5 MMcf of gas, less property, production, severance and related taxes.  The
Robinson's Bend Field production attributable to the Trust did not meet the
Volume Limitation during the three years ended December 31, 1999 and is not
expected to do so in the future.

The Net Profits Interests also entitle the Trust to 20% of the Net Proceeds
(defined below) of wells drilled on the Underlying Properties since the Trust's
establishment into formations in which the Trust has an interest, other than
wells drilled to replace damaged or destroyed wells ("Infill Wells").  Infill
Well Net

                                       5
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

Proceeds represent the aggregate gross revenues received from Infill Wells less
the aggregate amount of the following Infill Well costs: i) property,
production, severance and similar taxes; ii) development costs; iii) operating
costs; and iv) interest on the recovered portion, if any, of the foregoing costs
computed at a rate of interest announced publicly by Citibank, N.A. in New York
as its base rate.

                                  RISK FACTORS

VOLATILITY OF OIL AND GAS PRICES

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

UNCERTAINTY OF ESTIMATES OF RESERVES AND FUTURE NET CASH FLOWS

Estimates of economically recoverable oil and gas reserves and of future net
cash flows are based upon a number of variable factors and assumptions, all of
which are to some degree speculative and may vary considerably from actual
results. Therefore, actual production, revenues, taxes and development and
operation expenditures may not occur as estimated. Future results of the Trust
will depend upon the ability of the owners of the Underlying Properties to
develop, produce and sell their oil and natural gas reserves. The reserve data
included herein are estimates only and are subject to many uncertainties. Actual
quantities of oil and natural gas may differ considerably from the amounts set
forth herein. In addition, different reserve engineers may make different
estimates of reserve quantities and cash flows based upon the same available
data. An impairment loss is recognized when the net carrying value of the Net
Profits Interests exceeds the sum of the estimated undiscounted future cash
flows attributable to the Trust's oil and gas reserves plus the estimated future
tax credits under Section 29 of the Internal Revenue Code of 1986 ("Section 29
Credit") for Federal income tax purposes. The impairment loss is equal to the
difference between the carrying value of the Net Profits Interest and the fair
value of the Net Profits Interest. An impairment of $29.1 million in the
carrying value of the Net Profits Interest was recorded during the fourth
quarter of 1998. No impairment was recorded for 1999 or 1997.


OPERATING RISKS

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

                                       6
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

COMPETITION AND MARKETS

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

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

REGULATION OF NATURAL GAS

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

Federal Regulation

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

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

State Regulation

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

                                       7
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

ENVIRONMENTAL REGULATION

Activities on the Underlying Properties are subject to existing Federal, state
and local laws, rules and regulations which govern health, safety, environmental
quality and pollution control. It is anticipated that, absent the occurrence of
an unanticipated event, compliance with existing Federal, state and local laws,
rules and regulations regulating health, safety, the release of materials into
the environment or otherwise relating to the protection of the environment will
not have a material adverse effect upon the Trust or Unitholders. Torch has
informed the Trust that it cannot predict what effect additional regulation or
legislation, enforcement policies thereunder, and claims for damages to
property, employees, other persons and the environment resulting from operations
on the Underlying Properties could have on the Trust or Unitholders. However,
pursuant to the terms of the Conveyances, any costs or expenses incurred by TRC
or Velasco in connection with environmental liabilities, to the extent arising
out of or relating to activities occurring on, or in connection with, or
conditions existing on or under, the Underlying Properties before October 1,
1993, will be borne by TRC or Velasco and not the Trust and will not be deducted
in calculating Net Proceeds and will, therefore, not reduce amounts payable to
the Trust.

ITEM 2.  PROPERTIES

DESCRIPTION OF THE UNDERLYING PROPERTIES

Chalkley Field.  The Underlying Properties in the Chalkley Field, located in
Cameron Parish, Louisiana, include an average 16.2% working interest (12.1% net
revenue interest) in five unitized wells producing from the Miogyp "B" reservoir
and one well producing from the Lower Miogyp reservoir. The wells produce from a
depth in excess of 14,000 feet. The working interest in the well producing in
the Lower Miogyp reservoir is 64.4% (48.3% net revenue interest). A subsidiary
of Exxon Corporation operates the five wells in the Miogyp "B" reservoir, and a
subsidiary of Torch operates the well producing from the Lower Miogyp formation.

Robinson's Bend Field.  The Underlying Properties include an average 42.7%
working interest (31.6% net revenue interest) in 394 wells in the Robinson's
Bend Field in the Black Warrior Basin of Alabama. Sales of production of coal
seam gas from the Robinson's Bend Field prior to January 1, 2003 entitle
Unitholders to Section 29 Credits, provided certain requirements are met. The
Section 29 Credit for qualifying coal seam gas production was approximately
$ 1.07, $1.06 and $1.05 per MMBtu in 1999, 1998 and 1997, respectively. This
rate is adjusted annually for inflation. All of the wells in the Robinson's Bend
Field are operated by an affiliate of Torch.

The amounts paid to the Trust from the Robinson's Bend Field in any calendar
quarter are subject to a Volume Limitation equal to the gross proceeds from the
sale of 912.5 MMcf, less property, production, severance and similar taxes, and
development, operating, and certain other costs (excluding operating and
development costs until January 1, 2003). Gross production during 1999, 1998 and
1997 attributable to distributions from the Underlying Properties in the
Robinson's Bend Field averaged 652 MMcf, 719 MMcf and 787 MMcf per quarter,
respectively, and was therefore 32%, 25% and 18%, respectively, less than the
Volume Limitation for the year.

In calculating amounts paid to the Trust, lease operating expenses in the
Robinson's Bend field are not deducted until after 2002. When these amounts are
deducted, the amounts paid to the Trust attributable to the Robinson's Bend
field will be reduced substantially. If average prices following 2002 are not
substantially greater than gas prices in December 1999, the Trust's current
reserve reports indicate that the Trust will not receive any payments
attributable to the Robinson's Bend field.

                                       8
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

Cotton Valley Fields.  The Underlying Properties include an average 54.5%
working interest (41.5% net revenue interest) in 41 wells in four fields that
produce from the Upper and Lower Cotton Valley formations in Texas. A
substantial portion of the gas produced and sold from the Cotton Valley Fields
prior to January 1, 2003 qualifies for the Section 29 Tax Credits for
productions of tight sands gas. The Section 29 Credit for qualifying tight sands
gas production is approximately $0.52 per MMBtu and is not adjusted for
inflation. All of the wells in the Cotton Valley Fields are operated by a
subsidiary of Torch.

Austin Chalk Fields.  The Underlying Properties include an average of 17.4%
working interest (13.6% net revenue interest) in 90 wells in the Austin Chalk
Fields of Central Texas. Production from these fields is derived primarily from
the highly fractured Austin Chalk formation using horizontal drilling
techniques. A substantial portion of the gas produced and sold from these fields
prior to January 1, 2003 qualifies for the Section 29 Credits for tight sands
gas. A subsidiary of Torch operates eight wells in the Austin Chalk Fields. A
majority of the wells in the Austin Chalk Fields are operated by Union Pacific
Resources Corporation.

WELL COUNT AND ACREAGE SUMMARY

The following table shows, as of December 31, 1999, the gross and net interest
in oil and gas wells for the Underlying Properties:

<TABLE>
<CAPTION>
                                              Gas Wells              Oil Wells
                                          -----------------     ------------------
                                           Gross      Net         Gross      Net
                                          -------   -------     ---------  -------
<S>                                       <C>       <C>         <C>        <C>
Chalkley Field......................          6         1.5        ---       ---
Robinson's Bend Field...............        394       168.3        ---       ---
Cotton Valley Fields................         41        20.9        ---       ---
Austin Chalk Fields.................         39         8.7         51       7.6
                                          -----      ------        ---     -----
  Total.............................        480      199.40         51       7.6
                                          =====      ======        ===     =====
</TABLE>

The following table shows the gross and net acreage for the Underlying
Properties as of December 31, 1999.  A gross acre in the following table refers
to the number of acres in which a working interest is owned directly by the
Trust.  The number of net acres is the sum of the fractional ownership of
working interests owned directly by the Trust in the gross acres expressed as a
whole number and percentages thereof.  A net acre is deemed to exist when the
sum of fractional ownership of working interests in gross acres equals one.

<TABLE>
<CAPTION>
                                                Acreage
                                          ------------------
                                           Gross        Net
                                          -------     ------
<S>                                        <C>        <C>
Chalkley Field......................        2,152        425
Robinson's Bend Field...............       33,404     14,288
Cotton Valley Fields................        4,411      2,606
Austin Chalk Fields.................       35,439      6,507
                                          -------     ------
  Total.............................       75,406     23,826
                                          =======     ======
</TABLE>

DRILLING ACTIVITY

The following table sets forth the results of drilling activity for the
Underlying Properties during the three years ended December 31, 1999. Gross
wells, as it applies to wells in the following table, refers to the number of
wells in which a working interest is owned directly by TRC and Velasco ("Gross
Well"). A net well ("Net Well") represents the sum of the fractional ownership
working interests in the Gross Wells expressed as whole numbers and percentages
thereof.

All of the wells shown below represent Infill Wells drilled on the Underlying
Properties. The Net Profits Interest entitle the Trust to 20% of "Infill Net
Proceeds." Infill Net Proceeds is defined as gross proceeds from the sale of
production attributable to infill wells less all produciton, drilling and
completion costs of such wells.

                                       9
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

Infill Net Proceeds are calculated by aggregating the proceeds and costs from
Infill Wells on a state by state basis. Because costs of Infill Wells exceed
proceeds of production, the Trust has not received any Infill Net Proceeds.

<TABLE>
<CAPTION>
                                            Development Wells
              -------------------------------------------------------------------------
                             Gross                                    Net
              -----------------------------------      ---------------------------------
                              Dry                                      Dry
               Productive    Holes      Total            Productive   Holes      Total
              ------------- --------- -----------      ------------  -------   ---------
<S>           <C>            <C>      <C>               <C>           <C>      <C>
1997                6          0          6                  2.8        0          2.8
1998                0          0          0                    0        0            0
1999                1          0          1                   .9        0           .9
</TABLE>

There was no other drilling activity on the Underlying Properties during the
three years ended December 31, 1999.

OIL AND GAS SALES PRICES AND PRODUCTION COSTS

The following table sets forth, for the Underlying Properties, the net
production volumes of gas and oil, the weighted average lifting cost and taxes
per Mcfe deducted in calculating net profits income and the weighted average
sales price per Mcf of gas and Bbl of oil for production attributable to cash
distributions received by Unitholders during the three years ended December 31,
1999 (derived from production during the twelve months ended September 30, 1999,
1998 and 1997, respectively).

<TABLE>
<CAPTION>
                                                                              Chalkley, Cotton Valley
                                                                              and Austin Chalk Fields
                                                               ---------------------------------------------
                                                                        1999            1998            1997
                                                               --------------------  ----------  -----------
<S>                                                                  <C>             <C>             <C>
Production:
  Gas (MMcf)...................................................        4,171           5,135           6,186
  Oil (Mbbl)...................................................           54              74             107

Weighted average lifting cost per Mcfe.........................       $  .39          $  .34          $ 0.26
Weighted average taxes on production per Mcfe..................       $  .08          $ 0.09          $ 0.09
Weighted average sales price (b)
  Gas ($/Mcf)..................................................       $ 1.96          $ 2.12          $ 1.92
  Oil ($/Bbl)..................................................       $11.93          $12.71          $17.06

                                                                              Robinson's Bend Field
                                                               ---------------------------------------------
                                                                        1999            1998            1997
                                                               ------------------  --------------  ---------
Production:
  Gas (MMcf)...................................................        2,607           2,879           3,149
  Oil (Mbbl)...................................................          ---             ---             ---

Weighted average lifting cost per Mcfe.........................       $  ---(a)       $  ---(a)       $  ---(a)
Weighted average taxes on production per Mcfe..................       $  .06          $ 0.07          $ 0.09
Weighted average sales price (b)
  Gas ($/Mcf)..................................................       $ 1.63          $ 1.80          $ 1.61
  Oil ($/Bbl)..................................................       $  ---          $  ---          $  ---
</TABLE>
----------
(a)  No operating costs will be deducted from the Net Profits Interest in the
     Robinson's Bend Field until January 1, 2003.  Average lifting costs per
     Mcfe were $2.47, $2.45 and $2.27, respectively, during 1999, 1998 and 1997,
     in the Robinson's Bend Field.

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

                                       10
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

ITEM 3.  LEGAL PROCEEDINGS

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

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS

No matter was submitted to the Unitholders for a vote in 1999.

                                       11
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S UNITS AND RELATED UNITHOLDER MATTERS

The Units are listed and traded on the New York Stock Exchange under the symbol
"TRU."  At March 1, 2000, there were 8,600,000 Units outstanding and
approximately 645 Unitholders of record.  The following table sets forth, for
the periods indicated, the high and low sales prices per Unit on the New York
Stock Exchange ("NYSE") and the amount of quarterly cash distributions per Unit
made by the Trust:

<TABLE>
<CAPTION>
                                                                                      Cash
                                                          High         Low        Distributions
                                                         ------       ------      ------------
<S>                                                      <C>          <C>         <C>
Quarter ended March 31, 1998.......................      $9.125       $6.250          $.464
Quarter ended June 30, 1998........................      $7.938       $6.688          $.390
Quarter ended September 30, 1998...................      $6.813       $5.250          $.360
Quarter ended December 31, 1998....................      $6.375       $4.250          $.288

Quarter ended March 31, 1999.......................      $5.063       $4.375          $.270
Quarter ended June 30, 1999........................      $6.250       $4.750          $.237
Quarter ended September 30, 1999...................      $5.938       $5.125          $.268
Quarter ended December 31, 1999....................      $5.375       $3.750          $.332
</TABLE>

On March 17, 2000, the high and low sales price per unit on the NYSE was $4.188
and $4.000, respectively.

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

<TABLE>
<CAPTION>
                                               Year Ended December 31,
                               ------------------------------------------------------
                                 1999       1998        1997        1996       1995
                               -------    -------    --------    --------   ---------
<S>                            <C>        <C>        <C>         <C>        <C>
Net profits income........     $10,174    $13,615    $ 15,183    $ 17,381    $ 22,427
Distributable income......     $ 9,511    $12,936    $ 14,525    $ 16,722    $ 21,787
Distributions declared....     $ 9,520    $12,917    $ 14,534    $ 16,727    $ 21,758
Distributable income
per Unit..................     $  1.11    $  1.50    $   1.69    $   1.94    $   2.53
Distributions per Unit....     $  1.11    $  1.50    $   1.69    $   1.95    $   2.53
Total assets (at end of
 period)..................     $49,143    $57,015    $100,845    $121,526    $137,179
</TABLE>

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

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

YEAR 2000 ISSUE

The Year 2000 problem ("Y2k") referred to the inability of computer and other
information technology systems to properly process date and time information.
The problem was caused, in part, by the outdated programming practice of using
two digits rather than four to represent the year in a date.  The consequence of
the Y2k problem was that information technology and embedded processing systems
were at risk of malfunction, particularly during the transition between 1999 to
2000.  Due to the inter-dependence of computer and telecommunications systems
throughout the world, the Trust, the Trust's

                                       12
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

administrative services provider, Torch, their vendors, customers, business
partners and government agencies were exposed to the possible adverse effects of
the Y2k problem. Torch categorized Y2k risks into three general areas: 1)
Corporate Systems, 2) Field Systems and 3) Third Party Exposure.

The Trust and Torch have not been impacted by the Y2k problem.  Torch's
corporate and field computer systems have operated and expect to continue
operating with no Y2k-related disruptions.  Additionally, the Trust and Torch
have not been impacted by third parties' Y2k issues.

                                       13
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

RESULTS OF OPERATIONS

Discussion of Years Ended December 31, 1999, 1998 and 1997

Because a modified cash basis of accounting is utilized by the Trust, Net
Proceeds to the Trust for the years ended December 31, 1999, 1998 and 1997 is
derived from actual oil and gas production from October 1, 1998 through
September 30, 1999, October 1, 1997 through September 30, 1998 and October 1,
1996 through September 30, 1997, respectively. The following tables set forth,
for the Underlying Properties, oil and gas sales attributable to distributions
received by Unitholders during the three years ended December 31, 1999.

<TABLE>
<CAPTION>
                                                  Bbls of Oil
                                    ---------------------------------------
                                       1999           1998           1997
                                    ---------      ---------      ---------
<S>                                   <C>             <C>            <C>
Chalkley Field................         20,881         26,736         40,260
Robinson's Bend Field.........            ---            ---            ---
Cotton Valley Fields..........          4,841          6,481          6,157
Austin Chalk Fields...........         27,797         41,174         60,236
                                    ---------      ---------      ---------
Total.........................         53,519         74,391        106,653
                                    =========      =========      =========

                                                    Mcf of Gas
                                    ---------------------------------------
                                      1999           1998           1997
                                    ---------      ---------      ---------
Chalkley Field................      2,683,448      3,219,550      4,195,263
Robinson's Bend Field.........      2,606,750      2,879,422      3,148,834
Cotton Valley Fields..........      1,234,693      1,469,645      1,385,461
Austin Chalk Fields...........        253,251        445,443        605,455
                                    ---------      ---------      ---------
Total.........................      6,778,142      8,014,060      9,335,013
                                    =========      =========      =========
</TABLE>

For the year ended December 31, 1999, net profits income was $10,174,000, as
compared to $13,615,000 and $15,183,000 for the same periods in 1998 and 1997,
respectively. The decline in net profits income from 1998 resulted from normal
production declines combined with lower average oil and gas prices paid to the
Trust during 1999. The decline in net profits income from 1997 to 1998 was due
to normal production declines offset by higher average gas prices to the
Trust in 1998.

Gas production attributable to the distributions received by Unitholders during
the year ended December 31, 1999 was 6,778,142 Mcf, as compared to gas
production of 8,014,060 Mcf and 9,335,013 Mcf for the same periods in 1998 and
1997, respectively. Oil production attributable to the Underlying Properties for
the year ended December 31, 1999 was 53,519 Bbls as compared to 74,391 Bbls and
106,653 Bbls for the same periods in 1997 and 1996, respectively.

As of December 31, 1999, seven infill wells were drilled and commenced
production. Infill well oil production totaled 2,010, 1,700 and 2,075 Bbls
during the years ended December 31, 1999, 1998 and 1997, respectively. Infill
well gas production totaled 412,345, 344,458 and 274,577 Mcf during the three
years ended December 31, 1999, 1998 and 1997, respectively. Distributions
received by Unitholders have not been impacted by these wells as gross proceeds
have not exceeded costs and expenses for such infill wells.

The average price used to calculate Net Proceeds for gas during the year ended
December 31, 1999 was $1.95 per MMBtu as compared to $2.10 per MMBtu and $1.91
per MMBtu for the years ended December 31, 1998 and 1997, respectively. The
average price used to calculate Net Proceeds for oil during the

                                       14
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

years ended December 31, 1999, 1998 and 1997 was $11.93, $12.71 and $17.06 per
Bbl, respectively. When TEMI pays a purchase price for gas based on the Minimum
Price of $1.70 per MMBtu, TEMI receives Price Credits which it is entitled to
deduct in determining the purchase price when the Index Price for gas exceeds
the Minimum Price. As of December 31, 1999, TEMI had no outstanding Price
Credits. Net Price Credits in the amount of $97,000 and $317,000 were deducted
in calculating the purchase price related to distributions during 1999 and 1997,
respectively. TEMI accrued Price Credits in the amount of $97,000, net to Trust,
in connection with distributions received by Unitholders during the year ended
December 31, 1998.

Additionally, if the Index Price for gas exceeds $2.10 per MMBtu, TEMI is
entitled to deduct 50% of such excess in calculating the purchase price.
Distributions received by Unitholders during the years ended December 31, 1999,
1998 and 1997 were reduced by $280,000, $650,000 and $406,000, respectively, as
a result of such Sharing Price arrangement.

Lease operating expenses and capital expenditures deducted in calculating
distributions during the years ended December 31, 1999, 1998 and 1997 totaled
$1,849,000, $1,947,000 and $1,898,000, respectively.  In accordance with the
Conveyance, no operating or development costs will be deducted in calculating
the Net Proceeds from the Robinson's Bend Field prior to January 1, 2003.
Severance tax deducted in calculating distributions during the years ended
December 31, 1999, 1998 and 1997 totaled $498,000, $710,000 and $874,000,
respectively, for all four fields.

General and administrative expenses during the years ended December 31, 1999,
1998 and 1997 amounted to $674,000, $700,000 and $678,000, respectively.  These
expenses primarily relate to administrative services provided by Torch and the
Trustee.

During the year ended December 31, 1998, an impairment of $29.1 million was
recorded to the financial statement line item titled "Amortization of Net
Profits Interest" on the Statement of Changes in Trust Corpus to reduce the
carrying value of the Net Profits Interest in accordance with Financial
Accounting Standards Board Statement No. 121. Such impairment was mainly
attributable to depressed gas prices. This impairment did not impact current
year cash distributions nor Section 29 Credits allocated to Unitholders and
additionally will not affect future cash distributions and Section 29 Credits.
No such impairment was recorded during the years ended December 31, 1999 and
1997.

For the year ended December 31, 1999, distributable income was $9,511,000, or
$1.11 per Unit, as compared to $12,936,000, or $1.50 per Unit, and $14,525,000,
or $1.69 per Unit, for the same periods in 1998 and 1997, respectively.  Total
cash distributions of $9,520,000 , or $1.11 per Unit, were made during the year
ended December 31, 1999 as compared to $12,917,000, or $1.50 per Unit, and
$14,534,000, or $1.69 per Unit, for the same periods in 1998 and 1997,
respectively.  The Section 29 Credits relating to qualifying production from
coal seam and tight sands properties, during the twelve months ended September
30, 1999, 1998 and 1997, totaled approximately $0.36, $0.38 and $0.41 per Unit,
respectively.

                                       15
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

Net profits received by the Trust during the years ended December 31, 1999,
1998, and 1997, derived from production sold during the twelve months ended
September 30, 1999, 1998 and 1997, respectively, was computed as shown in the
following table (in thousands):

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                 -----------------------------------------------------------------------------------------------
                                                1999                            1998                            1997
                                 -------------------------------  ---------------------------------  ---------------------------
                                    Chalkley,                     Chalkley,                       Chalkley,
                                     Cotton                        Cotton                         Cotton
                                   Valley and                    Valley and                     Valley and
                                     Austin   Robinson's            Austin     Robinson's         Austin      Robinson's
                                     Chalk      Bend                Chalk        Bend              Chalk        Bend
                                     Fields     Field     Total     Fields       Field     Total   Fields      Field     Total
                                     ------     -----     -----    -------      ------     -----    ------     -------    ------
<S>                                 <C>        <C>        <C>      <C>         <C>         <C>      <C>        <C>        <C>
Oil and gas revenues...........        $8,817    $4,239           $11,812        $5,176            $13,694     $5,060
Direct operating expenses:
  Lease operating expenses
   and property tax............         1,727     ---(a)            1,876         ---(a)             1,801     ---(a)
  Severance tax................           341       157               498           212                593        281
                                       ------    ------           -------        ------            -------     ------
                                        2,068       157             2,374           212              2,394        281
                                       ------    ------           -------        ------            -------     ------
Net proceeds before
   capital expenditures........         6,749     4,082             9,438         4,964             11,300      4,779
Capital expenditures...........           122       ---                71           ---                 97        ---
                                       ------    ------           -------        ------            -------     ------
Net proceeds...................         6,627     4,082             9,367         4,964             11,203      4,779
Net profits percentage.........            95%       95%               95%           95%                95%        95%
                                       ------    ------           -------        ------            -------     ------
Net profits income.............        $6,296    $3,878  $10,174  $ 8,899        $4,716   $13,615  $10,643     $4,540     $15,183
                                       ======    ======  =======  =======        ======   =======  =======     ======     =======
</TABLE>
------------
(a)  Lease operating expenses are not deducted in calculating Net Proceeds until
January 1, 2003.  Lease operating expenses and property taxes were $ 6,438,
$7,041 and $7,163 during 1999, 1998 and 1997, respectively.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

All production from the Underlying Properties is sold pursuant to a Purchase
Contract between TRC and Velasco, as the owners of the Underlying Properties,
and TEMI.  Pursuant to the Purchase Contract, TEMI is obligated to purchase all
net production attributable to the Underlying Properties for an Index Price,
less certain other charges.  Substantially all of the Index Price is calculated
based on market prices of oil and gas and therefor is subject to commodity price
risk.  The Purchase Contract expires upon termination of the Trust and provides
a Minimum Price of $1.70 per MMBtu paid by TEMI for gas until December 31, 2001.
When TEMI pays a purchase price based on the Minimum Price, it receives Price
Credits equal to the difference between the Index Price and the Minimum Price
that it is entitled to deduct when the Index Price exceeds the Minimum Price.
Additionally, if the Index Price exceeds $2.10 per MMBtu, TEMI is entitled to
deduct such excess, the Price Differential.  Beginning January 1, 2002, TEMI has
an annual option to discontinue the Minimum Price commitment.  However, if TEMI
discontinues the Minimum Price commitment, it will no longer be entitled to
deduct the Price Differential and will forfeit all accrued Price Credits.

                                       16
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                      Page
                                                                                                     -----
<S>                                                                                                  <C>
Independent Auditors' Reports................................................................          18
Statements of Assets, Liabilities and Trust Corpus at December 31, 1999 and 1998.............          20
Statements of Distributable Income for the Years Ended December 31, 1999, 1998 and 1997......          21
Statements of Changes in Trust Corpus for the Years Ended December 31, 1999, 1998 and 1997...          22
Notes to Financial Statements................................................................          23
</TABLE>

                                       17
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying statement of assets, liabilities and trust
corpus of the Torch Energy Royalty Trust (the "Trust") as of December 31, 1999,
and the related statement of distributable income and changes in trust corpus
for the year then ended.  These financial statements are the responsibility of
the Trustee.  Our responsibility is to express an opinion on these financial
statements based on our audit.

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

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Trust as of December 31,
1999, and the results of its operations and its cash flows for the year then
ended, on the basis of accounting described in Note 2.



/s/ Ernst & Young LLP
----------------------
Houston, Texas
March 17, 2000

                                       18
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying statement of assets, liabilities and trust
corpus of the Torch Energy Royalty Trust (the "Trust") as of December 31, 1998
and the related statements of distributable income and changes in trust corpus
for the years ended December 31, 1998 and 1997.  These financial statements are
the responsibility of the Trustee.  Our responsibility is to express an opinion
on the financial statements based on our audits.

We conducted our audit 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 2 to the financial statements, these financial statements
have been prepared on a modified cash basis of accounting, 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 financial position of the Trust as of December 31, 1998, and the
results of its operations and its cash flows for the years ended December 31,
1998 and 1997 on the basis of accounting described in Note 2.


/s/ KPMG LLP
------------
Houston, Texas
March 26, 1999

                                       19
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

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

                                     ASSETS

<TABLE>
<CAPTION>
                                                                       December 31,   December 31,
                                                                          1999            1998
                                                                       ------------   ------------
<S>                                                                      <C>           <C>
Cash.................................................................    $     2        $     4
Net profits interests in oil and gas properties (net of accumulated
 amortization of $131,459 and $123,589 at December 31, 1999
 and 1998, respectively).............................................     49,141         57,011
                                                                         -------        -------
                                                                         $49,143        $57,015
                                                                         =======        =======
                     LIABILITIES AND TRUST CORPUS

Trust expense payable................................................    $   161        $   155
Trust corpus.........................................................     48,982         56,860
                                                                         -------        -------
                                                                         $49,143        $57,015
                                                                         =======        =======
</TABLE>



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

                                       20
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

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

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                         ------------------------------------
                                                           1999          1998           1997
                                                         -------       --------       -------
<S>                                                      <C>           <C>            <C>
Net profits income.................................      $10,174        $13,615       $15,183
Interest income....................................           11             21            20
                                                         -------       --------       -------
                                                          10,185         13,636        15,203
General and administrative expenses................          674            700           678
                                                         -------       --------       -------
Distributable income...............................      $ 9,511        $12,936       $14,525
                                                         =======       ========       =======
Distributable income per Unit (8,600 Units)........      $  1.11        $  1.50       $  1.69
                                                         =======       ========       =======
Distributions per Unit.............................      $  1.11        $  1.50       $  1.69
                                                         =======       ========       =======
</TABLE>



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

                                       21
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                     STATEMENTS OF CHANGES IN TRUST CORPUS
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                           -------------------------------------
                                                            1999          1998           1997
                                                           -------      --------       --------
<S>                                                        <C>            <C>            <C>
Trust corpus, beginning of year......................      $56,860      $100,668       $121,362
Amortization of Net Profits Interests................       (7,869)      (43,827)       (20,685)
Distributable income.................................        9,511        12,936         14,525
Distributions to Unitholders.........................       (9,520)      (12,917)       (14,534)
                                                           -------      --------       --------
Trust Corpus, end of year............................      $48,982      $ 56,860       $100,668
                                                           =======      ========       ========
</TABLE>



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

                                       22
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS


1.  Nature of Operations

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

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

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

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

                                       23
<PAGE>

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

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

2.  Basis of Accounting

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

--  Revenues are recognized in the period in which amounts are received by the
    Trust. Therefore, revenues recognized during the years ended December 31,
    1999, 1998 and 1997 are derived from oil and gas production sold during the
    twelve-month periods ended September 30, 1999, 1998 and 1997, respectively.
    General and administrative expenses are recognized on an accrual basis.

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

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

--  An impairment loss is recognized when the net carrying value of the Net
    Profits Interests exceeds the sum of the estimated undiscounted future cash
    flows attributable to the Trust's oil and gas reserves plus the estimated
    future tax credits under Section 29 of the Internal Revenue Code of 1986
    ("Section 29 Credit") for Federal income tax purposes. The impairment loss
    is equal to the difference between the carrying value of the Net Profits
    Interest and the fair value of the Net Profits Interest.

    In computing the estimated undiscounted future cash flows, estimated future
    oil and gas prices as determined by Torch management, are applied to
    estimated future production of oil and gas reserves over the economic lives
    of the reserves and pursuant to the Trust Agreement. If the aforementioned
    undiscounted future cash flows and Section 29 Credits are less than the
    carrying value of the Net Profits Interest, an impairment provision is
    recognized. The fair value of the Net Profits Interest is computed by
    discounting the aforementioned cash flows and Section 29 Credits by 10%.
    Additionally, it is assumed for these computations that TEMI continues its
    Minimum Price commitment, pursuant to the Purchase Contract, until the Trust
    dissolves. Based on Torch management's pricing assumptions and production
    estimates by T.J. Smith & Company, Inc., Ryder Scott Company and H.J. Gruy
    and Associates ("Independent Reserve Engineers") at December 31, 1999, the
    present value of the estimated pre-tax future net cash flow, discounted at
    10%, for the proved reserves attributable to the Net Profits Interest will
    be less than $25 million in 2003. Pursuant to the Trust Agreement, it was
    assumed that the Trust would then dissolve and the remaining assets of the
    Trust would be sold and the proceeds therefrom would be distributed to the
    Unitholders. The aforementioned impairment test resulted in a $29.1 million
    write-down in the carrying value of the Net Profits Interest during the
    fourth quarter of 1998.

                                       24
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS


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

3.  Federal Income Taxes

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

Because the Trust is treated as a grantor trust for Federal income tax purposes
and a Unitholder is treated as directly owning an interest in the Net Profits
Interests, each Unitholder is taxed directly on such Unitholder's pro rata share
of income attributable to the Net Profits Interests consistent with the
Unitholder's method of accounting and without regard to the taxable year or
accounting method employed by the Trust.  Amounts payable with respect to the
Net Profits Interests are paid to the Trust on the quarterly record date
established for quarterly distributions in respect to each calendar quarter
during the term of the Trust, and the income, deductions and income tax credits
relating to Section 29 Credits resulting from such payments are allocated to the
Unitholders of record on such date.

4.  Distributions and Income Computations

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

5.  Related Party Transactions

Marketing Arrangements

TRC and Velasco, as owners of the Underlying Properties subject to and burdened
by the Net Profits Interests, contracted to sell the oil and gas production from
such properties to Torch Energy Marketing, Inc. ("TEMI"), a subsidiary of Torch,
under a purchase contract ("Purchase Contract").  Under the Purchase Contract,
TEMI is obligated to purchase all net production attributable to the Underlying
Properties for an index price for oil and gas ("Index Price"), less certain
gathering, treating and transportation charges, which are calculated monthly.
The Index Price equals 97% of the average spot market prices of oil and gas
("Average Market Prices") at the four locations where TEMI sells production,
which, prior to September 1, 2000, is adjusted to reflect the terms of a hedge
contract

                                       25
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS

("Hedge Contract") to which TEMI is a party.  Under the Hedge Contract,
TEMI receives prices specified in the Hedge Contract ("Specified Prices") for
quantities of oil and gas specified therein ("Specified Quantities").  While the
Index Price calculation reflects the terms of the Hedge Contract, the Trust's
net profits income is not impacted by payments or receipts made by or received
by TEMI in connection with its participation in the Hedge Contract.  In
calculating the Index Price for gas (which represents approximately 97% of the
estimated reserves as of January 1, 2000, on an Mcfe basis), the Specified
Prices received weightings ranging from approximately 40% to 70% pertaining to
production prior to August 31, 1997.  Thereafter, the Specified Prices receive a
weighting of approximately 10% and less.  The Average Market Prices receive the
balance of the weighting.  The Specified Prices for gas increase each year from
$1.84 per MMBtu in 1997 to $1.89 per MMBtu in 2000 and are adjusted to reflect
the difference between the settlement prices for oil and gas in the futures
markets and the Average Market Prices.

The Purchase Contract also provides that the minimum price paid by TEMI for gas
production is $1.70 per MMBtu ("Minimum Price"). When TEMI pays a purchase price
based on the Minimum Price it receives price credits ("Price Credits") equal to
the difference between the Index Price and the Minimum Price that it is entitled
to deduct in determining the purchase price when the Index Price for gas exceeds
the Minimum Price. Price Credits are computed on a monthly basis, and as of
December 31, 1999, TEMI had no outstanding Price Credits. Net Price Credits in
the amount of $97,000 and $317,000 were deducted in calculating the purchase
price related to distributions during 1999 and 1997, respectively. TEMI accrued
Price Credits in the amount of $97,000, net to the Trust, in connection with
distributions received by Unitholders during the year ended December 31, 1998.

In addition, if the Index Price for gas exceeds $2.10 per MMBtu ("Sharing
Price"), TEMI is entitled to deduct 50% of such excess ("Price Differential") in
determining the purchase price.  Distributions received by Unitholders during
the years ended December 31, 1999, 1998 and 1997 were reduced by $280,000,
$650,000 and $406,000, respectively, as a result of such Sharing Price
arrangement.  Beginning January 1, 2002, TEMI has an annual option to
discontinue the Minimum Price commitment.  However, if TEMI discontinues the
Minimum Price commitment, it will no longer be entitled to deduct the Price
Differential in calculating the purchase price and will forfeit all accrued
Price Credits.  TEMI has purchased contracts granting TEMI the right to sell
estimated gas production in excess of the Specified Quantities at a price
intended to limit TEMI's losses in the event the Index Price falls below the
Minimum Price.

Gross revenues (before deductions for applicable gathering, treating and
transportation charges) from TEMI included in net profits income for the years
ended December 31, 1999, 1998 and 1997 were $14,365,000, $18,638,000 and
$20,719,000, respectively.

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

Gathering, Treating and Transportation Arrangements

The Purchase Contract entitles TEMI to deduct certain gas gathering, treating
and transportation costs in calculating the purchase price for gas in the
Robinson's Bend, Austin Chalk and Cotton Valley Fields.  The amounts that may be
deducted in calculating the purchase price for such gas are set forth in the

                                       26
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS


Purchase Contract and are not affected by the actual costs incurred by TEMI to
gather, treat and transport gas.  In the Robinson's Bend Field, TEMI is entitled
to deduct a gathering, treating and transportation fee of $0.26 per MMBtu
adjusted annually for inflation ($0.281 per MMBtu for 1999 and $0.274 per MMBtu
for 1998 and 1997), plus fuel usage equal to 5% of revenues, payable to Bahia
Gas Gathering, Ltd. ("Bahia"), an affiliate of Torch, pursuant to a gas
gathering agreement.  Additionally, a fee of $0.05 per MMBtu, representing a
gathering fee payable to a non-affiliate of Torch, is deducted in calculating
the purchase price for production from 68 of the 394 wells in the Robinson's
Bend Field.  TEMI also deducts $0.38 per MMBtu plus 17% of revenues in
calculating the purchase price for production from the Austin Chalk Fields, as a
fee to gather, treat and transport gas production.  TEMI deducts from the
purchase price for gas in the Cotton Valley Fields a transportation fee of
$0.045 per MMBtu for production attributable to certain wells.  This
transportation fee is paid to a third party.  During the years ended December
31, 1999, 1998 and 1997, gathering, treating and transportation fees charged to
the Trust by TEMI, attributable to production during the twelve months ended
September 30, 1999, 1998 and 1997 in the Robinson's Bend, Austin Chalk and
Cotton Valley Fields, totaled $1,309,000, $1,650,000 and $1,965,000,
respectively.  No amounts for gathering, treating or transportation are deducted
in calculating the purchase price from the Chalkley Field.

Operator Overhead Fees

A subsidiary of Torch operates certain oil and gas interests burdened by the Net
Profits Interests.  The Underlying Properties are charged, on the same basis as
other third parties, for all customary expenses and costs reimbursements
associated with these activities.  Operator overhead fees deducted from the Net

Proceeds computations for the Chalkley, Cotton Valley and Austin Chalk fields
totaled $197,000, $196,000, and $182,000 for the years ended December 31, 1999,
1998 and 1997, respectively.  In accordance with the Conveyance, no overhead
fees were deducted in calculating the Net Proceeds from the Robinson Bend
properties.

Administrative Services Agreement

Pursuant to the Trust Agreement, Torch and the Trust entered into an
administrative services agreement, effective October 1, 1993.  The Trust is
obligated, throughout the term of the Trust, to pay to Torch each quarter an
administrative services fee for accounting, bookkeeping, informational and other
services relating to the Net Profits Interests.  The administrative services fee
is $87,500 per calendar quarter commencing October 1, 1993.  The amount of the
administrative services fee is adjusted annually, based upon the change in the
Producer's Price Index as published by the Department of Labor, Bureau of Labor
Statistics.  Administrative services fees of $377,000, $368,000 and $366,000
were paid by the Trust to Torch during the three years ended December 31, 1999,
1998 and 1997, respectively.

Compensation of the Trustee and Transfer Agent

The Trust Agreement provides that the Trustee be compensated for its
administrative services, out of the Trust assets, in an annual amount of
$41,000, plus an hourly charge for services in excess of a combined total of 250
hours annually at its standard rate.  The Trustee receives a transfer agency fee
of $5.00 annually per account (minimum of $15,000 annually), subject to change
each December, beginning December 1994, based upon the change in the Producer's
Price Index as published by the Department of Labor, Bureau of Labor Statistics,
plus $1.00 for each certificate issued.  Total administrative and transfer agent
fees charged by the Trustee were $56,000 in each of the years ended December 31,
1999, 1998 and 1997.  The Trustee is also entitled to reimbursement for out-of-
pocket expenses.

                                       27
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS


6.  Supplemental Oil and Gas Information (Unaudited)

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

Reserve Quantities:

The following table sets forth the estimated total proved and proved developed
oil and gas reserves attributable to the Trust's Net Profits Interests (all
located in the United States) for the years ended December 31, 1999, 1998 and
1997, based on reserve reports prepared by the Independent Reserve Engineers. As
a net profits interest does not entitle the Trust to a specific quantity of oil
or gas, but to a portion of oil and gas sufficient to yield a specified portion
of the net proceeds derived therefrom, proved reserves attributable to a net
profits interest are calculated by deducting an amount of oil or gas sufficient,
if sold at the prices used in preparing the reserve estimates for the Underlying
Properties, to pay an amount of applicable future estimated production expenses,
development costs and taxes for such Underlying Properties. The use of this
convention to estimate reserve volumes attributable to the Net Profits Interests
is standard practice in the industry.

Year-end reserves at December 31, 1999 were 28.7 billion cubic feet equivalent
to ("Bcfe") as compared to 1998 year-end reserves of 33.6 Bcfe.  The 1999
reserve decline is primarily due to 1999 production of 5.4 Bcfe.  Year-end
reserves at December 31, 1997 were 42.0 Bcfe as compared to 1998 year-end
reserves of 33.6 Bcfe.  The reduction in reported reserves includes 1998
production of 6.3 Bcfe and a negative reserve revision of 2.1 Bcfe.  Such
reserve revision was primarily a result of a decline in natural gas prices in
1998 as compared to 1997.

<TABLE>
<CAPTION>
           Description                      1999                    1998                    1997
---------------------------------     -----------------      -------------------      -----------------
                                        Oil       Gas          Oil         Gas          Oil       Gas
                                       (Mbbl)    (MMcf)       (Mbbl)     (MMcf)        (Mbbl)   (MMcf)
                                      -------    ------      --------   --------      -------   -------
<S>                                   <C>        <C>         <C>        <C>           <C>       <C>
Proved reserves at beginning of
 year............................       136      32,800         202     40,804         293       56,455
Revisions........................        34         360         (36)    (1,860)        (42)      (8,474)
Extensions and discoveries.......       ---         ---         ---        ---         ---          ---
Production.......................       (28)     (5,275)        (30)    (6,144)        (49)      (7,177)
                                      -----      ------         ---     ------         ---       ------
Proved reserves at end of year...       142      27,885         136     32,800         202       40,804
                                      =====      ======         ===     ======         ===       ======
Proved developed reserves at
 beginning of year...............       124      29,190         191     38,359         270       51,027
                                      =====      ======         ===     ======         ===       ======
Proved developed reserves at end
 of year.........................       141      27,414         124     29,190         191       38,359
                                      =====      ======         ===     ======         ===       ======
</TABLE>

                                       28
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS

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

Estimated future net cash flows from the Net Profits Interests in proved oil and
gas reserves at December 31, 1999, 1998 and 1997 are presented in the following
table:

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                 ---------------------------------
                                                                  1999         1998         1997
                                                                 -------      -------      -------
<S>                                                              <C>          <C>           <C>
Future cash inflows.........................................     $ 85,450     $ 80,970     $121,836
Future costs and expenses...................................      (25,654)     (22,268)     (27,536)
                                                                 --------     --------     --------
Net future cash flows.......................................       59,796       58,702       94,300
Discount at 10% for timing of cash flows....................      (18,025)     (16,818)     (29,671)
                                                                 --------     --------     --------
Present value of future net cash flows for proved reserves..     $ 41,771     $ 41,884     $ 64,629
                                                                 ========     ========     ========
</TABLE>


The following table sets forth the changes in the present value of estimated
future net revenues from proved reserves attributable to the Trust's Net Profits
Interests during the years ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                                --------------------------------------
                                                                  1999           1998           1997
                                                                --------       --------       --------
<S>                                                             <C>            <C>            <C>
Balance at beginning of year...............................     $ 41,884       $ 64,629       $ 96,025
Production.................................................      (10,523)       (11,933)       (14,756)
Accretion to discount......................................         (419)           642          9,603
Extensions and discoveries.................................         ----           ----           ----
Revision of prior-year estimates, change in prices
 and other.................................................       10,829        (11,454)       (26,243)
                                                                --------       --------       --------
Balance at end of year.....................................     $ 41,771       $ 41,884       $ 64,629
                                                                ========       ========       ========
</TABLE>

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

The following table summarizes the estimated Section 29 Credits attributable to
the Trust's Net Profits Interest for qualifying coal seam and tight sand
production at December 31, 1999, 1998, and 1997.  Such estimates are based upon
the production estimates set forth in the reserve reports prepared by the
Independent Reserve Engineers.  The qualifying tight sands Section 29 Tax Credit
estimate was computed utilizing a rate of approximately $.52 per MMBtu.  The
qualifying coal seam Section 29 Tax Credit estimate was computed utilizing a
constant rate of approximately $1.07, $1.06 and $1.05 per MMBtu for 1999, 1998
and 1997, respectively.

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                -----------------------------
                                                                 1999       1998        1997
                                                                ------    -------     -------
<S>                                                             <C>        <C>        <C>
Undiscounted...............................................     $7,575    $10,557     $13,974
                                                                ======    =======     =======
Discounted present value at 10%............................     $6,308    $ 8,436     $10,739
                                                                ======    =======     =======
</TABLE>

                                       29
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS


7.  Quarterly Financial Data (Unaudited - in thousands, except per Unit amounts)

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

<TABLE>
<CAPTION>
                                                                                   Distributable
                                                    Net Profits    Distributable      Income
                                                      Income          Income         Per Unit
                                                    -----------    -------------   -------------
<S>                                                 <C>            <C>              <C>
Quarter ended March 31, 1999....................     $ 2,470         $ 2,294           $ .27
Quarter ended June 30, 1999.....................       2,213           2,043             .24
Quarter ended September 30, 1999................       2,471           2,307             .27
Quarter ended December 31, 1999.................       3,020           2,867             .33
                                                     -------         -------           -----
                                                     $10,174          $9,511           $1.11
                                                     =======         =======           =====

Quarter ended March 31, 1998....................     $ 4,152         $ 3,983           $0.46
Quarter ended June 30, 1998.....................       3,518           3,326            0.39
Quarter ended September 30, 1998................       3,299           3,128            0.36
Quarter ended December 31, 1998.................       2,646           2,499            0.29
                                                     -------         -------           -----
                                                     $13,615         $12,936           $1.50
                                                     =======         =======           =====
</TABLE>

                                       30
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                         NOTES TO FINANCIAL STATEMENTS

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

On August 20, 1999 the firm of KPMG LLP was replaced as the Trust's principal
independent accountant and auditors to audit all the Trust's financial
statements with the firm of Ernst & Young LLP.  The Trust had no disagreements
with KPMG LLP concerning their audit or the application of accounting
principles.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11.  EXECUTIVE COMPENSATION

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

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

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

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

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of March 1, 2000, no person or group of persons was known by the Trust to be
the beneficial owner of more than 5% of the Units.  The Trust has no officers or
directors.

                                       31
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Administrative Services Agreement

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

The Trust is obligated, throughout the term of the Trust, to pay to Torch each
quarter an administrative services fee for accounting, bookkeeping,
informational and other services relating to the Net Profits Interests.  The
administrative services fee is $87,500 per calendar quarter, adjusted annually,
based upon the change in the Producer's Price Index as published by the
Department of Labor, Bureau of Labor Statistics.  Administrative services fees
of $377,000, $368,000 and $366,000 were paid by the Trust to Torch during the
years ended December 31, 1999, 1998 and 1997, respectively.

Marketing Arrangement

TRC and Velasco, as owners of the Underlying Properties subject to and burdened
by the Net Profits Interests, contracted to sell the oil and gas production from
such properties to TEMI under a Purchase Contract.  Under the Purchase Contract,
TEMI is obligated to purchase all net production attributable to the Underlying
Properties for an Index Price for oil and gas less certain gathering, treating
and transportation charges, which are calculated monthly.  The Purchase Contract
also provides that the Minimum Price paid by TEMI for gas production is $1.70
per MMBtu.  When TEMI pays a purchase price based on the Minimum Price, it
receives Price Credits equal to the difference between the Index Price and the
Minimum Price that it is entitled to deduct in determining the purchase price
when the Index Price for gas exceeds the Minimum Price.  Price Credits are
computed on a monthly basis, and as of December 31, 1999, TEMI had no
outstanding Price Credits.  TEMI may be entitled to deduct Price Credits in
calculating the purchase price in the future when the Index Price for gas
exceeds the Minimum Price.  Net Price Credits in the amount of $97,000 and
$317,000 were deducted in calculating the purchase price related to
distributions received by Unitholders during 1999 and 1997, respectively.  TEMI
accrued Price Credits in the amount of $97,000, net to the Trust, in connection
with distributions received by Unitholders during the year ended December 31,
1998.

In addition, if the Index Price for gas exceeds $2.10 per MMBtu ("Sharing
Price"), TEMI is entitled to deduct 50% of such excess ("Price Differential") in
determining the purchase price.  Distributions received by Unitholders during
the years ended December 31, 1999, 1998 and 1997 were reduced by $280,000,
$650,000 and $406,000, respectively, as a result of such Sharing Price
arrangement.  Beginning January 1, 2001, TEMI has an annual option to
discontinue the Minimum Price commitment.  However, if TEMI discontinues the
Minimum Price commitment, it will no longer be entitled to deduct the Price
Differential in calculating the purchase price and will forfeit all accrued
Price Credits.  TEMI has purchased contracts granting TEMI the right to sell
estimated gas production in excess of the Specified Quantities at a price
intended to limit TEMI's losses in the event the Index Price falls below the
Minimum Price.

Gross revenues (before deductions for applicable gathering, treating and
transportation charges) from TEMI included in net profits income for the years
ended December 31, 1999, 1998 and 1997 were $14,365,000, $18,638,000 and
$20,719,000, respectively.

                                       32
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

Gathering, Treating and Transportation Arrangements

The Purchase Contract entitles TEMI to deduct certain gas gathering, treating
and transportation costs in calculating the purchase price for gas in the
Robinson's Bend, Austin Chalk and Cotton Valley Fields.  The amounts that may be
deducted in calculating the purchase price for such gas are set forth in the
Purchase Contract and are not affected by the actual costs incurred by TEMI to
gather, treat and transport gas.  In the Robinson's Bend Field, TEMI is entitled
to deduct a gathering, treating and transportation fee of $0.26 per MMBtu
commencing October 1, 1993 adjusted for inflation ($.281 per MMBtu for 1999 and
$0.274 per MMBtu for 1998 and 1997), plus fuel usage equal to 5% of revenues,
payable to Bahia Gas Gathering, Ltd. ("Bahia"), an affiliate of Torch, pursuant
to a gas gathering agreement.  Additionally, a fee of $0.05 per MMBtu,
representing a gathering fee payable to a non-affiliate of Torch, is deducted in
calculating the purchase price for production from 68 of the 394 wells in the
Robinson's Bend Field.  TEMI also deducts $0.38 per MMBtu plus 17% of revenues
in calculating the purchase price for production from the Austin Chalk Fields,
as a fee to gather, treat and transport gas production.  TEMI deducts from the
purchase price for gas a transportation fee of $0.045 MMBtu for production
attributable to certain wells in the Cotton Valley Fields.  During the years
ended December 31, 1999, 1998 and 1997, gas gathering, treating and
transportation fees charged to the Trust by TEMI, attributable to production
during the 12 months ended September 30, 1999, 1998 and 1997 in the Robinson's
Bend, Austin Chalk and Cotton Valley Fields, totaled $1,309,000, $1,650,000 and
$1,965,000, respectively.  No amounts for gathering, treating or transportation
are deducted in calculating the purchase price from the Chalkley Field.

                                       33
<PAGE>

                          TORCH ENERGY ROYALTY TRUST

                                    PART IV

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

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

     1.  Financial Statements:

         Torch Energy Royalty Trust
           Independent Auditors' Reports
           Statements of Assets, Liabilities and Trust Corpus at December 31,
             1999 and 1998
           Statements of Distributable Income for the Years Ended December 31,
             1999, 1998 and 1997
           Statements of Changes in Trust Corpus for the Years Ended December
             31, 1999, 1998 and 1997
           Notes to Financial Statements

         Torch Energy Advisors Incorporated and Subsidiaries ("Torch") and
         Torch's Predecessor ("Predecessor")
           Independent Auditors' Report
           Consolidated Balance Sheet of Torch as of December 31, 1999 and 1998
             and the Related Consolidated Statements of Operations,
             Stockholders' Equity and Comprehensive Income, and Cash Flows for
             the years ended December 31, 1999, 1998 and 1997
           Predecessor's Consolidated Statement of Operations, Predecessor's
             Equity and Notes to Consolidated Financial Statements

2.  Financial Statement Schedules

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

3.  Exhibits

EXHIBIT
NUMBER EXHIBIT
--------------

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

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

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                          TORCH ENERGY ROYALTY TRUST

     10.8 -  Standby Performance Agreement between Torch and the Trust.*
     10.9 -  Amendment to Water Gathering Contract.*
     10.10-  First Amendment to Oil and Gas Purchase Contract (previously filed
             on form 10-Q for the quarter ended September 30, 1994).

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

27.  Financial Data Schedule

99.  Additional Exhibits.
     99.1  Financial Statements of Torch Energy Advisors Incorporated.

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

(b)  Report on Form 8-K:

     None filed during the quarter ended December 31, 1999.

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                                  SIGNATURES

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

                                           TORCH ENERGY ROYALTY TRUST

                                           By:  Wilmington Trust Company
                                                Trustee


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

Date:  March 24, 2000

   (The Trust has no directors or executive officers.)

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                           TORCH ENERGY ROYALTY TRUST

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

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

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

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

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

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