<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-Q


           Quarterly Report Pursuant to Section 13 or 15(d) of the 
                        Securities Exchange Act of 1934


                  For the Quarterly Period Ended June 30, 1998
                                                 -------------


                          Commission File No. 1-10982
                                              -------


                          CROSS TIMBERS ROYALTY TRUST



            Texas                                 I.R.S. No. 75-6415930


                               NationsBank, N.A.
                                 P.O. Box 1317
                         Fort Worth, Texas 76101-1317

                         Telephone Number 817/390-6592



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 and (2) has been subject to such filing requirements for
the past 90 days.  Yes    X     No
                       -------     -------

Number of units of beneficial interest outstanding at August 1, 1998:  6,000,000
                                                                       ---------
<PAGE>
 
CROSS TIMBERS ROYALTY TRUST

PART I - FINANCIAL STATEMENTS
-----------------------------

Item 1.  Financial Statements.

The condensed financial statements included herein are presented, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in annual
financial statements have been condensed or omitted pursuant to such rules and
regulations, although the Trustee believes that the disclosures are adequate to
make the information presented not misleading. These condensed financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Trust's latest annual report on Form 10-K. In the
opinion of the Trustee, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the assets, liabilities and trust
corpus of the Cross Timbers Royalty Trust at June 30, 1998, and the
distributable income and changes in trust corpus for the three and six-month
periods ended June 30, 1998 and 1997, have been included. Distributable income
for such interim periods is not necessarily indicative of the distributable
income for the full year.

                                       2
<PAGE>
 
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



NationsBank, N.A., as Trustee
 for the Cross Timbers Royalty Trust:

We have reviewed the accompanying condensed statement of assets, liabilities and
trust corpus of the Cross Timbers Royalty Trust as of June 30, 1998 and the
related condensed statements of distributable income and changes in trust corpus
for the three and six-month periods ended June 30, 1998 and 1997.  These
financial statements are the responsibility of the Trustee.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants.  A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.

The accompanying condensed financial statements are prepared on a modified cash
basis as described in Note 1 which is a comprehensive basis of accounting other
than generally accepted accounting principles.

Based on our review, we are not aware of any material modifications that should
be made to such condensed financial statements for them to be in conformity with
the basis of accounting described in Note 1.

We have previously audited, in accordance with generally accepted auditing
standards, the statement of assets, liabilities and trust corpus of the Cross
Timbers Royalty Trust as of December 31, 1997 included in the Trust's 1997
annual report on Form 10-K, and in our report dated March 18, 1998, we expressed
an unqualified opinion on that statement.  In our opinion, the information set
forth in the accompanying condensed statement of assets, liabilities and trust
corpus as of December 31, 1997 is fairly stated in all material respects in
relation to the statement of assets, liabilities and trust corpus included in
the Trust's 1997 annual report on Form 10-K from which it has been derived.



ARTHUR ANDERSEN LLP

Fort Worth, Texas
July 30, 1998

                                       3
<PAGE>
 
CROSS TIMBERS ROYALTY TRUST
--------------------------------------------------------------------------------


CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS

                                                     JUNE 30,    DECEMBER 31,
                                                       1998          1997
                                                   ------------  ------------
                                                   (Unaudited)
ASSETS
 
Cash and short-term investments..................  $   518,714    $   662,486
Interest to be received..........................          791          1,065
Net overriding royalty interests in oil and gas
  properties - net (Note 1)......................   36,921,936     38,104,367
                                                   -----------   ------------
                                                   $37,441,441    $38,767,918
                                                   ===========   ============
 
LIABILITIES AND TRUST CORPUS

Distribution payable to Unit holders.............  $   519,505    $   663,551
Trust corpus (6,000,000 Units of beneficial
  interest authorized and outstanding)...........   36,921,936     38,104,367
                                                   -----------   ------------
                                                   $37,441,441    $38,767,918
                                                   ===========   ============
 

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

                                       4
<PAGE>
 
CROSS TIMBERS ROYALTY TRUST
--------------------------------------------------------------------------------

CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (Unaudited)

<TABLE>
<CAPTION>
 
 
                                         THREE MONTHS ENDED       SIX MONTHS ENDED
                                              JUNE 30,                JUNE 30,
                                       ----------------------  ----------------------
                                          1998        1997        1998        1997
                                       ----------  ----------  ----------  ---------- 
<S>                                   <C>         <C>         <C>         <C>
Royalty income.................        $1,654,355  $3,252,445  $3,989,773  $6,367,035
Interest income................             2,541       5,165       6,312       9,515
                                       ----------  ----------  ----------  ----------
Total income...................         1,656,896   3,257,610   3,996,085   6,376,550
Administration expense.........            49,497      40,971      93,717      90,376
                                       ----------  ----------  ----------  ----------
Distributable income...........        $1,607,399  $3,216,639  $3,902,368  $6,286,174
                                       ==========  ==========  ==========  ==========
Distributable income per Unit
   (6,000,000 Units)...........        $ 0.267899  $ 0.536106  $ 0.650393  $ 1.047695
                                       ==========  ==========  ==========  ==========
</TABLE>


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

                                       5
<PAGE>
 
CROSS TIMBERS ROYALTY TRUST
--------------------------------------------------------------------------------

CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (Unaudited)

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED          SIX MONTHS ENDED
                                                    JUNE 30,                    JUNE 30,
                                            -------------------------  --------------------------
                                               1998          1997         1998          1997
                                            -----------  ------------  ------------  ------------
<S>                                         <C>           <C>           <C>           <C>
Trust Corpus, beginning of period..         $37,423,696   $40,488,291   $38,104,367   $41,337,673
Amortization of net overriding
  royalty interests................            (501,760)     (980,525)   (1,182,431)   (1,829,907)
Distributable income...............           1,607,399     3,216,639     3,902,368     6,286,174
Distributions declared.............          (1,607,399)   (3,216,639)   (3,902,368)   (6,286,174)
                                            -----------   -----------   -----------   -----------
Trust Corpus, end of period........         $36,921,936   $39,507,766   $36,921,936   $39,507,766
                                            ===========   ===========   ===========   ===========
</TABLE>

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

                                       6
<PAGE>
 
CROSS TIMBERS ROYALTY TRUST
--------------------------------------------------------------------------------

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)


1.  BASIS OF ACCOUNTING

    The financial statements of the Cross Timbers Royalty Trust ("the Trust")
    are prepared on the following basis:

    -  Royalty income recorded for a month is the amount computed and paid by
       the interest owner, Cross Timbers Oil Company ("Cross Timbers Oil"), to
       NationsBank, N.A. ("Trustee"), as Trustee for the Trust. Royalty income
       consists of the amounts received by Cross Timbers Oil from the sale of
       production less applicable costs ("net proceeds") from the properties
       underlying the net overriding royalty interests ("Royalty Trust
       Interests") conveyed to the Trust. Net proceeds are multiplied by net
       profit percentages of 90% in the case of Royalty Trust Interests carved
       from certain royalty interests in New Mexico, Oklahoma and Texas ("90%
       Royalty Trust Interests") and 75% in the case of Royalty Trust Interests
       carved from seven working interest properties in Oklahoma and Texas ("75%
       Royalty Trust Interests").

       Applicable costs deducted in the calculation of net proceeds for the 90%
       Royalty Trust Interests generally include applicable taxes,
       transportation, marketing and legal costs, and do not include other
       production and development costs. For the 75% Royalty Trust Interests,
       such costs include production expenses, development costs, applicable
       taxes, operating charges and other costs.

    -  Royalty income is computed separately for each of five conveyances under
       which the Royalty Trust Interests were conveyed to the Trust. If monthly
       costs exceed revenues for any conveyance ("excess costs"), such excess
       cannot reduce royalty income from other conveyances, but is carried
       forward with accrued interest to be recovered from future net proceeds of
       that conveyance.

    -  Interest income, interest to be received and distribution payable to Unit
       holders include interest to be earned from the monthly record date (last
       business day of the month) through the date of the next distribution to
       Unit holders.

    -  Trust expenses are recorded based on liabilities paid and cash reserves
       established by the Trustee for liabilities and contingencies.

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

    The financial statements of the Trust differ from financial statements
    prepared in accordance with generally accepted accounting principles
    ("GAAP") because revenues are not accrued in the month of production,
    expenses are recognized when paid rather than when incurred, and certain
    cash reserves may be established for contingencies which would not be
    accrued under GAAP. The initial carrying value of the Royalty Trust
    Interests ($61,100,449) represents the net book value from the historical
    accounting records (successful efforts method) of predecessors to Cross
    Timbers Oil on February 12, 1991, the creation date of the Trust.
    Amortization of the Royalty Trust Interests is calculated on a unit-of-
    production basis and is charged directly to trust corpus. Accumulated
    amortization as of June 30, 1998 and December 31, 1997 is $24,178,513 and
    $22,996,082, respectively.

                                       7
<PAGE>
 
2.  FEDERAL INCOME TAXES

    Tax counsel has advised the Trust that, under current tax laws, the Trust
    will be classified as a grantor trust for Federal income tax purposes and
    therefore is not subject to taxation at the trust level. However, the
    opinion of tax counsel is not binding on the Internal Revenue Service.

    The Unit holders are considered, for Federal income tax purposes, 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 the Unit
    holders at the time such income is received or accrued by the Trust, rather
    than when distributed by the Trust.

    Cross Timbers Oil has advised the Trustee that the Trust receives royalty
    income from coal seam gas wells. Production from coal seam gas wells drilled
    after December 31, 1979, and prior to January 1, 1993, qualifies for the
    Federal income tax credit for producing nonconventional fuels under Section
    29 of the Internal Revenue Code. This tax credit, which was approximately
    $1.05 per MMBtu for 1997, is recalculated annually based on each year's
    qualified production through the year 2002. Such credit, based on the Unit
    holder's pro rata share of qualifying production, may not reduce his regular
    tax liability (after the foreign tax credit and certain other non-refundable
    credits) below his tentative minimum tax. Any part of the Section 29 credit
    not allowed for the tax year solely because of this limitation is subject to
    certain carryover provisions. Unit holders should consult their tax advisors
    regarding use of this credit and other Trust tax compliance matters.

    Based on 1998 qualifying sales volumes and the factors used in the
    calculation of the 1997 coal seam tax credit, the credit for the quarter and
    six months ended June 30, 1998 is estimated to be $.048 and $.085 per Unit,
    respectively. The actual coal seam tax credit for the quarter and six months
    ended June 30, 1997 was $.047 and $.099, respectively. Final 1998 coal seam
    tax credit data will be provided to Unit holders with year-end tax
    information.


3.  EXCESS COSTS

    Cross Timbers Oil has advised the Trustee that, in the calculation of
    royalty income for the three months ending June 30, 1998, costs exceeded
    revenues for the Texas conveyance of the 75% Royalty Trust Interests by
    $143,400. Such excess costs plus accrued interest of $2,352 must be
    recovered from future net proceeds of the Texas conveyance of the 75%
    Royalty Trust Interests before this conveyance can again contribute to Trust
    royalty income. See Item 2, "Trustee's Discussion and Analysis - Excess
    Costs."


4.  CROSS TIMBERS OIL COMPANY

    On June 16, 1998, the Trust and Cross Timbers Oil filed a registration
    statement with the Securities and Exchange Commission to sell 1,360,000
    Units (22.7% of outstanding Units) held by Cross Timbers Oil. As Cross
    Timbers Oil stated in a related news release, the filing was made in
    anticipation of better commodity prices and any sale is dependent on an
    improved market for oil and gas equities. The Trust did not participate in
    Cross Timbers Oil's decisions to acquire or sell Units and will not receive
    any of the proceeds in the event of such sale. 

                                       8
<PAGE>
 
Item 2.  Trustee's Discussion and Analysis.

THREE MONTHS ENDED JUNE 30, 1998 AND 1997
-----------------------------------------

For the quarter ended June 30, 1998, royalty income was $1,654,355 compared with
$3,252,445 for the second quarter of 1997.  This 49% decrease in royalty income
is primarily the result of lower oil and gas prices and lawsuit settlement
proceeds of $465,000 received during the second quarter of 1997.

After considering interest income of $2,541 and administration expense of
$49,497, distributable income for the quarter ended June 30, 1998 was
$1,607,399, or $0.267899 per Unit of beneficial interest.  Distributions of
$0.105032, $0.076283 and $0.086584 per Unit were made to Unit holders of record
on April 30, May 29 and June 30, 1998, respectively.  For the quarter ended June
30, 1997, distributable income was $3,216,639, or $0.536106 per Unit.

Royalty income is recorded when received by the Trust, which is the month
following receipt by Cross Timbers Oil, and generally two months after oil
production and three months after gas production.  Royalty income is generally
affected by three major factors:  1) oil and gas sales volumes, 2) oil and gas
sales prices and 3) costs deducted in the calculation of royalty income.
Because properties underlying the 90% Royalty Trust Interests are royalty and
overriding royalty interests, they generally bear no costs other than production
and property taxes, related legal costs, and marketing and transportation
charges.  In addition to these costs, the 75% Royalty Trust Interests are
subject to production and development costs, since the properties underlying the
75% Royalty Trust Interests are working interests.

Volumes

Second quarter oil sales volumes decreased 7% from 1997 to 1998 primarily
because of natural production decline.  Gas sales volumes decreased 35% from
second quarter 1997 to 1998 primarily because of 417,000 Mcf related to
suspended revenues received in a lawsuit settlement in second quarter 1997, as
well as the timing of cash receipts.  Excluding reduced volumes from the lawsuit
settlement and cash receipt timing differences, gas sales volumes declined
approximately 7% because of reduced demand during the warmer 1998 winter and
natural production decline.

Prices

The average oil price for second quarter 1998 declined 32% to $12.91 per barrel
from the second quarter 1997 price of $18.93.

The average gas sales price for the second quarter of 1998 was $1.88 per Mcf,
10% lower than the 1997 price of $2.10.  The second quarter 1997 price included
sharply higher gas prices in January and February that resulted from increased
winter weather-related demand.

Costs

Before the reduction for excess costs (see "Excess Costs" below), costs deducted
in the calculation of second quarter 1998 royalty income (see "Calculation of
Royalty Income") increased 4% or $44,964 over total costs for second quarter
1997.  This was a result of a 117% or $178,345 increase in development costs,
partially offset by a 5% or $36,674 decrease in production expenses and a 23% or
$96,707 net decrease in production and property taxes.

                                       9
<PAGE>
 
Changes in production expense and development costs are primarily related to the
timing of maintenance and development projects on the underlying working
interest properties.  Increased development costs are related to a carbon
dioxide injection project that began in 1998 on one of the Texas underlying
working interest properties, partially offset by decreased Oklahoma drilling
costs.  Production taxes decreased with lower oil and gas revenues, partially
offset by increased estimated property taxes.

Excess Costs

During the second quarter 1998, costs exceeded revenues for the Texas conveyance
of the 75% Royalty Trust Interests by $143,400, or $107,550 net to the Trust.
Such excess costs are the result of lower oil prices and increased development
costs related to the carbon dioxide injection project that began during the
first quarter. Excess costs from one conveyance cannot reduce royalty income
computed under another conveyance; therefore, cumulative excess costs plus
accrued interest must be recovered from future net proceeds of the underlying
Texas working interest properties before these properties can again contribute
to Trust royalty income.  The Texas 75% Royalty Trust Interests contributed
approximately $0.04 per Unit to second quarter 1997 royalty income, or 7% of
second quarter 1997 distributions.

Amortization

Amortization of Royalty Trust Interests, which is directly charged to trust
corpus, decreased to $501,760 for second quarter 1998 from $980,525 for the
prior year quarter.  Decreased amortization is the result of lower gas sales
volumes for the quarter, as well as reduced oil sales volumes allocated to the
Royalty Trust Interests because of lower oil prices.


SIX MONTHS ENDED JUNE 30, 1998 AND 1997
---------------------------------------

For the six months ended June 30, 1998, royalty income was $3,989,773 compared
with $6,367,035 for the same 1997 period. Lower oil and gas prices and lawsuit
settlement proceeds of $465,000 received in 1997 were the primary reasons for
this 37% decrease in royalty income.

After considering interest income of $6,312 and administration expense of
$93,717, distributable income for the six months ended June 30, 1998 was
$3,902,368, or $0.650393 per Unit of beneficial interest.  For the six months
ended June 30, 1997, distributable income was $6,286,174, or $1.047695 per Unit.

Volumes

Oil sales volumes for the first half of 1998 decreased 4% from the comparable
1997 period primarily because of natural production decline. Gas sales volumes
decreased 26% from the first six months of 1997 primarily as a result of 417,000
Mcf related to suspended revenues received in a 1997 lawsuit settlement. The
remaining gas volume decrease is primarily related to prior period volume
adjustments and the timing of cash receipts. Excluding such adjustments, cash
receipt timing differences and the lawsuit settlement, gas sales volumes
declined approximately 6% because of reduced demand during the warmer 1998
winter and natural production decline.

Prices

The average oil price for the first half of 1998 declined 30% to $14.59 per
barrel from the comparable 1997 price of $20.78.

The average gas price for the first six months of 1998 decreased 2% to $2.22 per
Mcf from the comparable 1997 price of $2.27.

                                       10
<PAGE>
 
Costs

Before the reduction for excess costs (see "Excess Costs" below), costs deducted
in the calculation of royalty income for the first half of 1998 increased 4% or
$106,840 over total costs for the first half of 1997.  This is a result of a 53%
or $165,505 increase in development costs and a 4% or $50,688 increase in
production expenses, partially offset by a 14% or $109,353 net decrease in
production and property taxes.

The increase in development costs of 53% is related to a carbon dioxide
injection project on one of the Texas underlying working interest properties
that began in 1998, partially offset by decreased Oklahoma drilling costs.
Increased production expenses are related to the timing of maintenance projects.
The decrease in production taxes is because of lower oil and gas revenues,
partially offset by increased estimated property taxes.

Excess Costs

During the first half of 1998, costs exceeded revenues for the Texas conveyance
of the 75% Royalty Trust Interests by $143,400, net to the Trust of $107,550.
See "Three Months Ended June 30, 1998 and 1997 -Excess Costs" above.  The Texas
75% Royalty Trust Interests contributed approximately $0.11 per Unit to royalty
income for the first half 1997, or 11% of distributions for that period.

Amortization

Amortization of Royalty Trust Interests, which is directly charged to trust
corpus, decreased to $1,182,431 for first half 1998 from $1,829,907 for the
comparable prior year period.  Decreased amortization is the result of lower gas
sales volumes, as well as reduced oil sales volumes allocated to the Royalty
Trust Interests because of lower oil prices.

                                       11
<PAGE>
 
COMPARATIVE OIL AND GAS SALES

Oil and gas sales attributable to the Underlying Properties and the Royalty
Trust Interests are as follows:
<TABLE>
<CAPTION>
 
                                     Three Months Ended       Six Months Ended
                                        June 30, (a)            June 30, (a)
                                    --------------------  ------------------------
                                      1998       1997        1998         1997
                                    --------  ----------  ----------  ------------
<S>                                 <C>       <C>         <C>         <C>
  OIL SALES (Bbls)
     Underlying Properties (b)....    97,064     104,466     201,750      209,925
       Average per day............     1,091       1,174       1,115        1,160
       Average price..............  $  12.91  $    18.93  $    14.59   $    20.78
     Royalty Trust Interests (b)..    22,535      45,787      59,597      101,326

  GAS SALES (Mcf)
     Underlying Properties (b)....   926,605   1,423,279   1,762,506    2,369,166
       Average per day............    10,296      15,814       9,684       13,017
       Average price..............  $   1.88  $     2.10  $     2.22   $     2.27
     Royalty Trust Interests (b)..   800,294   1,255,653   1,525,959    2,090,777
</TABLE>

(a) Because of the interval between time of production and receipt of royalty
    income by the Trust (1) oil and gas sales for the quarter ended June 30
    generally represent oil production for the period February through April and
    gas production for the period January through March and (2) oil and gas
    sales for the six months ended June 30 generally represent oil production
    for the period November through April and gas production for the period
    October through March.

(b) Oil and gas sales volumes are allocated to the Royalty Trust Interests based
    upon a formula that considers oil and gas prices and the total amount of
    production expenses and development costs.  Changes in any of these factors
    may result in disproportionate fluctuations in volumes allocated to the
    Royalty Trust Interests.  Therefore, comparative discussion of oil and gas
    sales is based on the Underlying Properties.

                                       12
<PAGE>
 
CALCULATION OF ROYALTY INCOME

The following is the calculation of royalty income received by the Trust for the
quarters ended June 30, 1998 and 1997.  See Note 1 to Condensed Financial
Statements.
<TABLE>
<CAPTION>
 
                                           Three Months Ended June 30,
                                  ------------------------------------------------
                                          1998                      1997
                                  ----------------------   -----------------------
<S>                               <C>          <C>         <C>          <C>
                                     90%          75%         90%          75%
                                   Royalty      Royalty     Royalty      Royalty
                                    Trust        Trust       Trust        Trust
                                  Interests    Interests   Interests    Interests
                                  ----------   ---------   ---------    ----------
REVENUES
 Oil sales......................  $  306,410   $ 946,531   $  495,879   $1,481,861
 Gas sales......................   1,710,546      34,432    2,926,812       57,086
                                  ----------   ---------   ----------   ----------
  Total.........................   2,016,956     980,963    3,422,691    1,538,947
                                  ----------   ---------   ----------   ----------
COSTS
 Production and property taxes..     212,413     115,179      290,591      133,708
 Production expenses (a)........       1,876     635,284        1,919      671,915
 Development costs..............           -     331,293            -      152,948
 Excess costs (b)...............           -    (143,400)           -            -
                                  ----------   ---------   ----------   ----------
  Total.........................     214,289     938,356      292,510      958,571
                                  ----------   ---------   ----------   ----------
NET PROCEEDS....................   1,802,667      42,607    3,130,181      580,376
Net Profit Percentage...........          90%         75%          90%          75%
                                  ----------   ---------   ----------   ----------
ROYALTY INCOME..................  $1,622,400   $  31,955   $2,817,163   $  435,282
                                  ==========   =========   ==========   ==========
 
</TABLE>

(a) Production expenses for the 75% Royalty Trust Interests include an overhead
    fee which is deducted and retained by Cross Timbers Oil.  This fee is
    currently $21,440 per month, or $64,320 per quarter.  This overhead fee is
    subject to adjustment each May based on an oil and gas industry index.

(b) See Note 3 to Condensed Financial Statements.

                                       13
<PAGE>
 
PART II - OTHER INFORMATION
---------------------------


Item 1.  Legal Proceedings.

Cross Timbers Oil has advised the Trustee that a lawsuit relating to certain
Texas properties underlying the 75% Royalty Trust Interests has been settled.
Neither the Trust nor Cross Timbers Oil was named as a party in the suit, filed
by surface owners of certain lands in Ector County, Texas.  The surface owners
brought suit against various oil and gas operators and leasehold interest owners
that own oil and gas leases covering the lands involved, alleging that the oil
and gas operations of the named defendants polluted the surface and subsurface
of the land involved.  The Trust's interest in the property involved is a 75%
net overriding royalty in Cross Timbers Oil's 5.2% working interest.  The cost
of the settlement net to the Trust's interest was approximately $18,000.


Item 2 through 5.  Not Applicable


Item 6.  Exhibits and Reports on Form 8-K.

(a)  Exhibits.

       Exhibit Number
       and Description                                                Page
       ---------------                                                ----

       (4)(a)  Cross Timbers Royalty Trust Indenture Amended 
               and Restated on January 13, 1992 by NationsBank 
               of Texas, N.A. (now NationsBank, N.A.) as 
               Trustee, heretofore filed as Exhibit 3.1 to 
               the Trust's Registration Statement No. 33-44385 
               filed with the Securities and Exchange Commission 
               on February 19, 1992, is incorporated herein
               by reference.

          (b)  Net Overriding Royalty Conveyance (Cross 
               Timbers Royalty Trust, 90% - Texas) from South 
               Timbers Limited Partnership, West Timbers Limited
               Partnership, North Timbers Limited Partnership, 
               East Timbers Limited Partnership, Hickory Timbers 
               Limited Partnership, and Cross Timbers Partners,
               L.P. (predecessors of Cross Timbers Oil Company, 
               L.P. which subsequently merged into Cross Timbers 
               Oil Company) to NCNB Texas National Bank (now
               NationsBank, N.A.), as Trustee, dated 
               February 12, 1991 (without Schedules A and B), 
               heretofore filed as Exhibit 10.1 to the Trust's 
               Registration Statement No. 33-44385 filed with 
               the Securities and Exchange Commission on 
               February 19, 1992, is incorporated herein 
               by reference.

          (c)  Net Overriding Royalty Conveyance (Cross Timbers 
               Royalty Trust, 75% - Texas) from South Timbers 
               Limited Partnership, West Timbers Limited Partnership, 
               North Timbers Limited Partnership, East Timbers 
               Limited Partnership, Hickory Timbers Limited 
               Partnership, and Cross Timbers Partners, L.P. 
               (predecessors of Cross Timbers Oil Company, L.P. 
               which subsequently merged into Cross Timbers Oil 
               Company) to NCNB Texas National Bank (now NationsBank, 

                                       14
<PAGE>
 
               N.A.), as Trustee, dated February 12, 1991 
               (without Schedules A and B), heretofore filed as 
               Exhibit 10.5 to the Trust's Registration Statement
               No. 33-44385 filed with the Securities and 
               Exchange Commission on February 19, 1992, is 
               incorporated herein by reference.

 
         (15)  Awareness letter of Arthur Andersen LLP           17


(b)  Reports on Form 8-K.

    No reports on Form 8-K have been filed during the quarter for which this
report is filed.

                                       15
<PAGE>
 
                                   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.


                                  CROSS TIMBERS ROYALTY TRUST
                                  By NATIONSBANK, N.A., TRUSTEE


                                  By  /s/ JOE B. GRISSOM
                                      ----------------------------
                                          Joe  B. Grissom
                                          Vice President



                                  CROSS TIMBERS OIL COMPANY



Date:  August 13, 1998            By  /s/ LOUIS G. BALDWIN
                                      ----------------------------
                                          Louis G. Baldwin
                                          Senior Vice President and
                                          Chief Financial Officer

                                       16