EXHIBIT 13

ANNUAL REPORT TO SHAREHOLDERS

[COVER PAGE]

[PERMIAN BASIN ROYALTY TRUST LOGO]

PERMIAN BASIN ROYALTY TRUST ANNUAL REPORT & FORM 10-K 2002

[MAP OF COUNTIES IN TEXAS]

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

THE TRUST

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

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

UNITS OF BENEFICIAL INTEREST

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

<Table>
<Caption>
SALES PRICE
-------------------------
DISTRIBUTIONS
2002 HIGH LOW PAID
---------- ---------- -------------

First Quarter..................................... $ 5.65 $ 4.97 $ .094796

Second Quarter.................................... 5.95 5.00 .118491

Third Quarter..................................... 5.35 4.50 .133892

Fourth Quarter.................................... 6.40 5.07 .155203
------------
Total for 2002........................... $ .502382
============

2001

First Quarter..................................... $ 6.70 $ 5.625 $ .256445

Second Quarter.................................... 6.85 5.000 .256094

Third Quarter..................................... 6.53 5.500 .179718

Fourth Quarter.................................... 5.95 5.200 .154651
------------
Total for 2001........................... $ .846908
============
</Table>

Approximately 2,363 Unit holders of record held the 46,608,796 Units of
the Trust at December 31, 2002.

TO UNIT HOLDERS

We are pleased to present the twenty-third Annual Report of the Trust.
The report includes a copy of the Trust's Annual Report on Form 10-K to the
Securities and Exchange Commission for the year ended December 31, 2002, without
exhibits. Both the report and accompanying Form 10-K contain important
information concerning the Trust's properties, including the oil and gas
reserves attributable to the Royalties owned by the Trust. Production figures,
drilling activity and certain other information included in this report have
been provided to the Trust by BROG (formerly Meridian and Southland).

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

Royalty income received by the Trustee for the year ended December 31,
2002, was $23,830,604 and interest income earned for the same period was
$17,140. General and administrative expenses amounted to $432,338. A total of
$23,415,406 or $.502382 per Unit, was distributed to Unit holders during 2002. A
discussion of factors affecting the distributions for 2002 may be found in the
Trustee's Discussion and Analysis section of this report and the accompanying
Form 10-K.

As of December 31, 2002, the Trust's proved reserves were estimated at
7,497,000 Bbls of oil and 28,506,000 Mcf of gas. The estimated future net
revenues from proved reserves at December 31, 2002, amount to $294,576,000 or
$6.32 per Unit. The present value of estimated future net revenues discounted at
10% at December 31, 2002, was $161,875,000 or $3.47 per Unit. The computation of
future net revenues is made following guidelines prescribed by the Financial
Accounting Standards Board (explained in Item 2 of the accompanying Form 10-K)
based on year-end prices and costs.

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

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

Percentage depletion is allowed on proven properties acquired after
October 11, 1990. For Units acquired after such date, Unit holders would
normally compute both percentage depletion and cost depletion from each
property, and claim the larger amount as a deduction on their income tax
returns. The Trustee and its accountants have estimated the percentage depletion
for January through December 2002, and it appears that cost depletion will
exceed percentage depletion for all Unit holders.

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

Unit holders of record will continue to receive an individualized tax
information letter for each of the quarters ending March 31, June 30 and
September 30, 2003, and for the year ending December 31, 2003. Unit holders
owning Units in nominee name may obtain monthly tax information from the Trustee
upon request.

Bank of America, N.A., Trustee

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

DESCRIPTION OF THE PROPERTIES

The net overriding royalty interests held by the Trust are carved out
of high-quality producing oil and gas properties located primarily in West
Texas. A production index for oil and gas properties is the number of years
derived by dividing remaining reserves by current production. The production
index for the Trust properties based on the reserve report prepared by
independent petroleum engineers as of December 31, 2002, is approximately [6.26]
years.

The net profits/overriding royalty interest in the Waddell Ranch
properties is the largest asset of the Trust. The mineral interests in the
Waddell Ranch, from which such net royalty interests are carved vary from 37.5%
(Trust net interest) to 50% (Trust net interest) in 76,922 gross acres and
33,276 net acres, containing 765 gross (339 net) productive oil wells, 184 gross
(88 net) productive gas wells and 324 gross (141 net) injection wells.

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

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

All of the major oil fields on the Waddell Ranch properties are
currently being water flooded. Engineering studies and 3-D seismic evaluations
on these fields indicate the potential for increased production through infill
drilling, modifications of existing water flood techniques, installation of
larger capacity pumping equipment and tertiary recovery projects. Capital
expenditures for remedial and maintenance activities during 2002 totaled
approximately $9.9 million.

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

BROG has informed the Trustee that the 2003 capital expenditures budget
should total approximately $13.207 million gross of which $1.940 million gross
is attributable to drilling, $9.909 million gross to workovers, and $1.358
million gross to facilities.

COMPUTATION OF ROYALTY INCOME RECEIVED BY THE TRUST

The Trust's royalty income is computed as a percentage of the net
profit from the operation of the properties in which the Trust owns net
overriding royalty interests. The percentages of net profits are 75% and 95% in
the cases of the Waddell Ranch properties and the Texas Royalty properties,
respectively. Royalty income received by the Trust for the five years ended
December 31, 2002, was computed as shown in the table on the next page.

<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
2002 2001 2000
------------------------- ------------------------- -------------------------
Waddell Texas Waddell Texas Waddell Texas
Ranch Royalty Ranch Royalty Ranch Royalty
Properties Properties Properties Properties Properties Properties
----------- ----------- ----------- ----------- ----------- -----------

Gross Proceeds of Sales
From the Underlying Properties:

Oil Proceeds .............................. $20,543,224 $ 7,785,749 $26,477,679 $ 9,524,586 $31,289,829 $ 9,770,732

Gas Proceeds .............................. 14,861,094 2,245,648 26,068,379 3,771,184 18,342,926 2,701,298

Other Payments(a) ......................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total ................................. 35,404,318 10,031,397 52,546,058 13,295,770 49,632,755 12,472,030
----------- ----------- ----------- ----------- ----------- -----------
Less:

Severance Tax

Oil ................................... 863,299 302,665 1,108,968 374,204 1,288,522 373,643

Gas ................................... 813,581 159,431 1,160,095 239,337 1,189,617 146,512

Other ................................. 72,396 -- -- -- 26,991 --

Lease Operating Expense and Property Tax

Oil and Gas ........................... 9,424,724 933,646 9,086,468 605,125 9,318,915 442,523

Other Payments ........................ -- -- 50,000 -- -- --

Capital Expenditures ...................... 3,394,674 0 3,350,003 -- 4,606,227 --
----------- ----------- ----------- ----------- ----------- -----------
Total ............................ 14,568,674 1,395,742 14,755,534 1,218,666 16,430,272 962,678
----------- ----------- ----------- ----------- ----------- -----------

Net Profits ............................... 20,835,643 8,635,655 37,790,525 12,077,104 33,202,483 11,509,352

Net Overriding Royalty Interest ........... 75% 95% 75% 95% 75% 95%
----------- ----------- ----------- ----------- ----------- -----------

Royalty Income ............................... 15,626,732 8,203,852 28,342,893 11,473,248 24,901,862 10,933,884
----------- ----------- ----------- ----------- ----------- -----------
Total Royalty Income for Distribution ..... $15,626,732 $ 8,203,852 $28,342,893 $11,473,248 24,901,862 10,933,884
=========== =========== =========== =========== =========== ===========
</Table>

<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998
-------------------------------- ---------------------------------
Waddell Texas Waddell Texas
Ranch Royalty Ranch Royalty
Properties Properties Properties Properties
-------------- -------------- -------------- --------------

Gross Proceeds of Sales
From the Underlying Properties:

Oil Proceeds ....................................... $18,667,2382 $ 5,261,863 $ 18,821,076 $ 5,404,598

Gas Proceeds ....................................... 12,794,695 1,760,499 13,769,872 1,880,571

Other Payments(a) .................................. -- -- -- 540,543
-------------- -------------- -------------- --------------

Total .......................................... 31,462,077 7,022,362 32,590,948 7,825,712
-------------- -------------- -------------- --------------

Less:

Severance Tax

Oil ............................................ 726,944 186,846 725,100 196,770

Gas ............................................ 773,689 77,379 (1,229,730) 104,759

Other .......................................... 44,839 16,000 -- --

Lease Operating Expense and Property Tax

Oil and Gas .................................... 9,687,476 525,035 14,096,881 790,246

Other Payments ................................. 132,166 180,000 -- --

Capital Expenditures ............................... 1,052,769 -- 15,874,193 --
-------------- -------------- -------------- --------------
</Table>

<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998
-------------------------------- ---------------------------------

Total ..................................... 12,417,883 985,260 29,396,444 1,091,775
-------------- -------------- -------------- --------------

Net Profits ........................................ 19,044,194 6,037,102 3,194,504 6,733,937

Net Overriding Royalty Interest .................... 75% 95% 75% 95%
-------------- -------------- -------------- --------------

Royalty Income ........................................ 14,284,146 5,735,247 2,395,878 6,397,240

Negative Revenue (b) .................................. 1,218,732 -- 1,218,732 --

Litigation Settlement (c) ............................. -- -- 766,051 --
-------------- -------------- -------------- --------------

Total Royalty Income for Distribution .............. $ 13,064,414 $ 5,735,247 $ 4,380,661 $ 6,397,240
============== ============== ============== ==============
</Table>

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

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

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

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

DISCUSSION AND ANALYSIS

Trustee's Discussion and Analysis for the Three-Year Period Ended December 31,
2002

Critical Accounting Policies and Estimates

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

1. Revenue Recognition

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

2. Reserve Recognition

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

3. Contingencies

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

4. New Accounting Pronouncements

SFAS No. 143, "Accounting for Asset Retirement Obligations" was issued
in June 2001, and will be adopted by the Trust on January 1, 2003. This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The effect of adopting SFAS No. 143 will not have a
material impact on the Trust's financial statements.

SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections" was issued in
April 2002 and is effective for fiscal years beginning after May 15, 2002. This
Statement includes the rescission of FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and an amendment to FASB Statement No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. The effect of adopting SFAS No. 145 will not have a
material impact on the Trust's financial statements.

SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" was issued in June 2002 and will be effective for exit or disposal
activities subsequent to December 31, 2002. The Trust anticipates no material
impact on its financial statements from the adoption of this accounting
standard.

SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure, an amendment of FASB Statement No. 123," was issued in December 2002
and provides new transition methods if an entity adopts the fair value based
method of valuing stock-based compensation suggested in SFAS No. 123 "Accounting
for Stock-Based Compensation," as well as requiring additional disclosures in
interim and annual financial statements. The Trust has no options or other
stock-based instruments and accordingly, the impact of this new Standard is not
expected to be material to the financial statements of the Trust.

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

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

Liquidity and Capital Resources

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

Results of Operations

Royalty income received by the Trust for the three-year period ended
December 31, 2002, is reported in the following table:

<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------
ROYALTIES 2002 2001 2000
-------------- -------------- -------------

Total Revenue................ $ 23,830,604 $ 39,816,141 $ 35,835,746
100% 100% 100%

Oil Revenue.................. 15,013,280 22,466,757 24,901,862
63% 56% 70%

Gas Revenue.................. 8,817,324 17,349,384 10,933,884
37% 44% 32%

Total Revenue/Unit........... $ .511289 $ .854327 $ .768862
============== ============== =============
</Table>

Royalty income of the Trust for the calendar year is associated with
actual oil and gas production for the period November of the prior year through
October of the current year. Oil and gas sales for 2002, 2001 and 2000 for the
Royalties and the Underlying Properties, excluding portions attributable to the
adjustments discussed hereafter, are presented in the following table:

YEAR ENDED DECEMBER 31,
------------------------------------------
ROYALTIES 2002 2001 2000
------------ ------------ ------------

Oil Sales (Bbls) ....................... 728,313 941,202 919,429

Gas Sales (Mcf) ........................ 3,192,175 3,875,586 3,346,445

UNDERLYING PROPERTIES

Oil

Total Oil Sales (Bbls) ........ 1,272,923 1,434,983 1,486,110

Average Per Day (Bbls) ........ 3,489 3,931 4,072

Average Price/Bbl ............. $ 22.31 $ 24.88 $ 27.66

Gas

Total Gas Sales (Mcf) ......... 6,189,015 6,441,298 5,890,023

Average Per Day (Mcf) ......... 16,956 17,593 16,137

Average Price/Mcf ............. $ 2.74 $ 4.70 $ 3.63
</Table>

The average price of oil decreased to $22.21 per barrel in 2002, down
from $24.88 per barrel in 2001. In addition, the average price of gas declined
from $4.70 per Mcf in 2001 to $2.76 per Mcf in 2002.

Since the oil and gas sales attributable to the Royalties are based on
an allocation formula that is dependent on such factors as price and cost
(including capital expenditures), production amounts do not necessarily provide
a meaningful comparison. Total oil production decreased approximately 11% from
2002 to 2001 primarily due to lower capital expenditures in previous years.
Total gas sales decreased approximately 4% from 2002 to 2001 primarily due to a
decrease in capital expenditures for gas wells.

Total capital expenditures in 2002 used in the net overriding royalty
calculation were approximately $9.9 million compared to $3.4 million in 2001 and
$4.6 million in 2000. During 2002, there were 4 gross (1.75 net) wells drilled
and completed on the Waddell Ranch properties. At December 31, 2002, there were
no wells in progress on the Waddell Ranch properties.

In 2002, lease operating expense and property taxes on the Waddell
Ranch properties amounted to approximately $9.4 million, which amount was
approximately the same as in 2001.

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

During 2002, the monthly royalty receipts were invested by the Trustee
in U.S. Treasury securities until the monthly distribution date, and earned
interest totaled $17,140. Interest income for 2001 and 2000 was $77,977 and
$85,348, respectively.

General and administrative expenses in 2002 were $432,338 compared to
$420,723 in 2001 and $375,953 in 2000.

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

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

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

RESULTS OF THE FOURTH QUARTERS OF 2002 AND 2001

Royalty income received by the Trust for the fourth quarter of 2002
amounted to $7,296,142 or $.155203 per Unit. For the fourth quarter of 2001, the
Trust received royalty income of $7,247,490 or $.154651 per Unit. Interest
income for the fourth quarter of 2002 amounted to $4,929 compared to $9,925 for
the fourth quarter of 2001. The decrease in interest income can be attributed
primarily to a decrease in interest rates. General and administrative expenses
totaled $67,256 for the fourth quarter of 2002 compared to $49,388 for the
fourth quarter of 2001.

Royalty income for the Trust for the fourth quarter is associated with
actual oil and gas production during August through October from the Underlying
Properties. Oil and gas sales attributable to the Royalties and the Underlying
Properties for the quarter and the comparable period for 2001 are as follows:

<Table>
<Caption>
FOURTH QUARTER
---------------------------
2002 2001
------------ ------------

ROYALTIES

Oil Sales (Bbls) ................... 185,131 226,307

Gas Sales (Mcf) .................... 874,957 943,738

UNDERLYING PROPERTIES

Total Oil Sales (Bbls) ............. 309,368 350,921

Average Per Day (Bbls) ............. 3,363 3,814

Average Price/Bbls ................. $ 26.53 $ 22.52

Total Gas Sales (Mcf) .............. 1,593,780 1,610,652

Average Per Day (Mcf) .............. 17,324 17,507

Average Price/Mcf .................. $ 3.13 $ 2.63
</Table>

The posted price of oil increased for the fourth quarter of 2002
compared to the fourth quarter of 2001, resulting in an average price per barrel
of $26.53 compared to $22.52 in the same period of 2001. The average price of
gas increased for the fourth quarter of 2002 compared to the same period in
2001, resulting in an average price per Mcf of $3.13 compared to $2.63 in the
fourth quarter of 2001.

The Trustee has been advised that oil sales decreased in 2002 compared
to the same period in 2001 primarily due to decreased capital expenditures in
prior periods and natural production declines. Gas sales from the Underlying
Properties decreased in the fourth quarter of 2002 compared to the same period
in 2001 due to the same factors.

The Trust has been advised that no wells was drilled and completed
during the three months ended December 31, 2002, and there were no wells in
progress.

OFF-BALANCE SHEET ARRANGEMENTS.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS.

CONTRACTUAL OBLIGATIONS TOTAL PAYMENTS DUE BY PERIOD
- ------------------------------------- ------ -------------------------------------------------------------------
LESS THAN 1 MORE THAN 5
YEAR 1 - 3 YEARS 3-5 YEARS YEARS
------ --------------- ----------- --------- --------------

Long-Term Debt Obligations 0 0 0 0 0

Capital Lease Obligations 0 0 0 0 0

Operating Lease Obligations 0 0 0 0 0

Purchase Obligations 0 0 0 0 0

Other Long-Term Liabilities 0 0 0 0 0
Reflected on the Trusts Balance
Sheet under GAAP

Total 0 0 0 0 0
</Table>

PERMIAN BASIN ROYALTY TRUST
FINANCIAL STATEMENTS

STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
DECEMBER 31, 2002 AND 2001

<Table>
<Caption>
ASSETS 2002 2001
--------------- ----------------

Cash and Short-term Investments................................ $ 2,371,387 $ 1,842,420

Net Overriding Royalty Interests in Producing Oil and
Gas Properties - Net (Notes 2 and 3).................. 2,172,393 2,371,187
--------------- ----------------
$ 4,543,780 $ 4,213,606
=============== ================

LIABILITIES AND TRUST CORPUS

Distribution Payable to Unit Holders .......................... $ 2,371,387 $ 1,842,420

Trust Corpus - 46,608,796 Units of Beneficial Interest
Authorized and Outstanding............................ 2,172,393 2,371,187
--------------- ----------------
$ 4,543,780 $ 4,213,606
=============== ================
</Table>

STATEMENTS OF DISTRIBUTABLE INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 2002

<Table>
<Caption>
2002 2001 2000
---------------- ---------------- ----------------

Royalty Income (Notes 2 and 3)...................... $ 23,830,604 $ 39,816,141 $ 35,835,746

Interest Income..................................... 17,140 77,977 85,348
---------------- ---------------- ----------------

23,847,744 39,894,118 35,921,094

Expenditures -- General and Administrative.......... 432,338 420,723 375,953
---------------- ---------------- ----------------

Distributable Income................................ $ 23,415,406 $ 39,473,395 $ 35,545,141
================ ================ ================

Distributable Income per Unit (46,608,796 Units).... $ .502382 $ .846908 $ .762627
================ ================ ================
</Table>

STATEMENTS OF CHANGES IN TRUST CORPUS
FOR THE THREE YEARS ENDED DECEMBER 31, 2002

<Table>
<Caption>
2002 2001 2000
---------------- --------------- ---------------

Trust Corpus, Beginning of Period................... $ 2,371,187 $ 2,595,254 $ 2,889,978

Amortization of Net Overriding Royalty Interests
(Notes 2 and 3)............................ (198,794) (224,067) (294,724)

Distributable Income................................ 23,415,406 39,473,395 35,545,141

Distributions Declared.............................. (23,415,406) (39,473,395) (35,545,141)
---------------- --------------- ---------------

Trust Corpus, End of Period......................... $ 2,172,393 $ 2,371,187 $ 2,595,254
================ ================ ===============
</Table>

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

NOTES TO FINANCIAL STATEMENTS

1. TRUST ORGANIZATION AND PROVISIONS

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

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

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

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

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

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

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

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

2. NET OVERRIDING ROYALTY INTERESTS AND DISTRIBUTION TO UNIT HOLDERS

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

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

The initial carrying value of the Royalties ($10,975,216) represented
Southland's historical net book value at the date of the transfer to the Trust.
Accumulated amortization as of December 31, 2002 and 2001, aggregated $8,802,823
and $8,604,029, respectively.

3. BASIS OF ACCOUNTING

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

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

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

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

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

4. NEW ACCOUNTING PRONOUNCEMENTS

2002 and requires liability recognition beginning January 1, 2003. The Trust had
no such guarantees outstanding as of December 31, 2002.

5. FEDERAL INCOME TAX

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

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

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

The classification of the Trust's income for purposes of the passive
loss rules may be important to a Unit holder. Royalty income generally is
treated as portfolio income and does not offset passive losses.

Unit holders should consult their tax advisors for further information.

6. SIGNIFICANT CUSTOMERS

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

7. PROVED OIL AND GAS RESERVES (UNAUDITED)

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

8. QUARTERLY SCHEDULE OF DISTRIBUTABLE INCOME (UNAUDITED)

The following is a summary of the unaudited quarterly schedule of
distributable income for the two years ended December 31, 2002 (in thousands,
except per Unit amounts):

<Table>
<Caption>
DISTRIBUTABLE
INCOME AND
ROYALTY DISTRIBUTABLE DISTRIBUTION
2002 INCOME INCOME PER UNIT
----------------- ----------------- -----------------

First Quarter................. $ 4,574 $ 4,418 $ .094796

Second Quarter................ 5,654 5,523 .118491

Third Quarter................. 6,306 6,241 .133892

Fourth Quarter................ 7,297 7,233 .155203
----------------- ----------------- -----------------

Total................ $ 23,831 $ 23,415 $ .502382
================= ================= =================
</Table>

<Table>
<Caption>
DISTRIBUTABLE
INCOME AND
ROYALTY DISTRIBUTABLE DISTRIBUTION
2001 INCOME INCOME PER UNIT
----------------- ----------------- -----------------

First Quarter................. $ 12,092 $ 11,953 $ .256445

Second Quarter................ 12,043 11,936 .256094

Third Quarter................. 8,433 8,376 .179718

Fourth Quarter................ 7,247 7,208 .154651
----------------- ----------------- -----------------

Total................ $ 39,816 $ 39,473 $ .846908
================= ================= =================
</Table>

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying statements of assets, liabilities and
trust corpus of the Permian Basin Royalty Trust (the "Trust") as of December 31,
2002 and 2001, and the related statements of distributable income and changes in
trust corpus for each of the three years in the period ended December 31, 2002.
These financial statements are the responsibility of the Trustee. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

As described in Note 3 to the financial statements, these statements
were prepared on a modified cash basis of accounting, which is a comprehensive
basis of accounting other than accounting principles generally accepted in the
United States of America.

In our opinion, such financial statements present fairly, in all
material respects, the assets, liabilities and trust corpus of the Trust at
December 31, 2002 and 2001, and the distributable income and changes in trust
corpus for each of the three years in the period ended December 31, 2002, on the
basis of accounting described in Note 3.

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

Deloitte & Touche LLP
Dallas, Texas
March 25, 2003

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

AUDITORS
Deloitte & Touche LLP
Dallas, Texas

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

TAX COUNSEL
Winstead, Sechrest Minick
Houston, Texas

TRANSFER AGENT
Mellon Investor Services LLC
Ridgefield Park, New Jersey