<PAGE>

================================================================================

               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   Form 10-Q

   [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934



               For the quarterly period ended September 30, 2000
                                              ------------------

                                      OR

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


                       Commission File Number:  1-10982
                                                -------


                          CROSS TIMBERS ROYALTY TRUST
            (Exact name of registrant as specified in its charter)


                  Texas                                   75-6415930
     -------------------------------                 -------------------
     (State or other jurisdiction of                  (I.R.S. Employer
     incorporation or organization)                  Identification No.)


  Bank of America, N.A., P.O. Box 830650, Dallas, Texas        75283-0650
---------------------------------------------------------     ------------
        (Address of principal executive offices)               (Zip Code)

                                (877) 228-5084
             ----------------------------------------------------
             (Registrant's telephone number, including area code)

                                     NONE
  -------------------------------------------------------------------------
  (Former name, former address and former fiscal year, if change since last
                                    report)


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 the number of units of beneficial interest outstanding, as of the
latest practicable date:

                      Outstanding as of November 1, 2000
                      ----------------------------------
                                   6,000,000

================================================================================
<PAGE>

CROSS TIMBERS ROYALTY TRUST

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------


           TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                      Page
                                                                                      ----
<S>                                                                                   <C>
           Glossary of Terms.......................................................     3


PART I.    FINANCIAL INFORMATION

  Item 1.  Financial Statements....................................................     4

           Report of Independent Public Accountants................................     5

           Condensed Statements of Assets, Liabilities and Trust Corpus
            at September 30, 2000 and December 31, 1999............................     6

           Condensed Statements of Distributable Income
            for the Three and Nine Months Ended September 30, 2000 and 1999........     7

           Condensed Statements of Changes in Trust Corpus
            for the Three and Nine Months Ended September 30, 2000 and 1999........     8

           Notes to Condensed Financial Statements.................................     9

  Item 2.  Trustee's Discussion and Analysis.......................................    12

  Item 3.  Quantitative and Qualitative Disclosures about Market Risk..............    15

PART II.   OTHER INFORMATION

  Item 6. Exhibits and Reports on Form 8-K.........................................    16

          Signatures...............................................................    17
</TABLE>

                                                                               2
<PAGE>

CROSS TIMBERS ROYALTY TRUST

GLOSSARY OF TERMS
-----------------


The following are definitions of significant terms used in this Form 10-Q:

Bbl                          Barrel (of oil)

Bcf                          Billion cubic feet (of natural gas)

Mcf                          Thousand cubic feet (of natural gas)

MMBtu                        One million British Thermal Units, a common energy
                             measurement

net profits interest         An interest in an oil and gas property measured by
                             net profits from the sale of production, rather
                             than a specific portion of production

net proceeds                 Gross proceeds from sale of production from the
                             underlying properties, less applicable costs

royalty income               Net proceeds, multiplied by the applicable net
                             profits percentage of 75% or 90%, and paid to the
                             trust

royalty interest             A nonoperating interest in an oil and gas property
(and overriding              that provides the owner a specified share of
royalty interest)            production without any production or development
                             costs

royalty trust interests      Defined net profits interests that were conveyed
                             from the underlying properties and entitle the
                             trust to receive for each of the following:

                             90% royalty trust interests - 90% of the net
                             proceeds from the underlying properties that are
                             royalty or overriding royalty interests in Texas,
                             Oklahoma and New Mexico

                             75% royalty trust interests - 75% of the net
                             proceeds from the underlying properties that are
                             working interests in Texas and Oklahoma

underlying properties        Cross Timbers Oil's interest in certain oil and gas
                             properties from which the royalty trust interests
                             were conveyed. The underlying properties include
                             royalty and overriding royalty interests in
                             producing and non-producing properties in Texas,
                             Oklahoma and New Mexico, and working interests in
                             producing properties located in Texas and Oklahoma.

working interest             An operating interest in an oil and gas property
                             that provides the owner a specified share of
                             production that is subject to all production and
                             development costs

                                                                               3
<PAGE>

CROSS TIMBERS ROYALTY TRUST

PART I - FINANCIAL INFORMATION
------------------------------


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 September 30, 2000, and the
distributable income and changes in trust corpus for the three- and nine-month
periods ended September 30, 2000 and 1999, have been included.  Distributable
income for such interim periods is not necessarily indicative of the
distributable income for the full year.

                                                                               4
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



Bank of America, 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 September 30, 2000 and the
related condensed statements of distributable income and changes in trust corpus
for the three- and nine-month periods ended September 30, 2000 and 1999.  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
auditing standards generally accepted in the United States, 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 accounting principles generally accepted in the United States.

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

We have previously audited, in accordance with auditing standards generally
accepted in the United States, the statement of assets, liabilities and trust
corpus of the Cross Timbers Royalty Trust as of December 31, 1999 included in
the trust's 1999 annual report on Form 10-K, and in our report dated March 8,
2000, 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, 1999 is fairly stated in all
material respects in relation to the statement of assets, liabilities and trust
corpus included in the trust's 1999 annual report on Form 10-K from which it has
been derived.



ARTHUR ANDERSEN LLP

Fort Worth, Texas
October 21, 2000

                                                                               5
<PAGE>

CROSS TIMBERS ROYALTY TRUST
--------------------------------------------------------------------------------

Condensed Statements of Assets, Liabilities and Trust Corpus

<TABLE>
<CAPTION>

                                                               September 30,         December 31,
                                                                   2000                  1999
                                                               ------------          ------------
                                                                (Unaudited)
<S>                                                            <C>                  <C>
ASSETS

Cash and short-term investments........................        $ 1,277,300          $    912,164

Interest to be received................................              3,622                 1,840

Net profits interests in oil and gas properties - net..         31,304,846            33,005,334
                                                               -----------          ------------

                                                               $32,585,768          $ 33,919,338
                                                               ===========          ============


LIABILITIES AND TRUST CORPUS

Distribution payable to unitholders....................        $ 1,280,922          $    914,004

Trust corpus (6,000,000 units of beneficial interest
 authorized and outstanding)...........................         31,304,846            33,005,334
                                                               -----------          ------------

                                                               $32,585,768          $ 33,919,338
                                                               ===========          ============
</TABLE>


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

                                                                               6
<PAGE>

CROSS TIMBERS ROYALTY TRUST
--------------------------------------------------------------------------------

Condensed Statements of Distributable Income (Unaudited)

<TABLE>
<CAPTION>
                                         Three Months Ended                     Nine Months Ended
                                            September 30                           September 30
                                   ----------------------------            -------------------------
                                      2000              1999                  2000           1999
                                   ----------        ----------            ----------     ----------
<S>                                <C>               <C>                   <C>            <C>
Royalty income.................    $3,394,310        $1,696,721            $8,224,324     $4,390,115

Interest income................         8,441             2,876                18,309          6,675
                                   ----------        ----------            ----------     ----------

Total income...................     3,402,751         1,699,597             8,242,633      4,396,790

Administration expense.........        56,419            41,545               170,875        126,975
                                   ----------        ----------            ----------     ----------

Distributable income...........    $3,346,332        $1,658,052            $8,071,758     $4,269,815
                                   ==========        ==========            ==========     ==========

Distributable income per unit
            (6,000,000 units)..    $ 0.557722        $ 0.276342            $ 1.345293     $ 0.711637
                                   ==========        ==========            ==========     ==========
 </TABLE>


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

                                                                               7
<PAGE>

CROSS TIMBERS ROYALTY TRUST
--------------------------------------------------------------------------------

Condensed Statements of Changes in Trust Corpus (Unaudited)

<TABLE>
<CAPTION>
                                             Three Months Ended             Nine Months Ended
                                                September 30                   September 30
                                          -------------------------     -----------------------------
                                              2000          1999            2000               1999
                                          -----------   -----------     -----------         ---------
<S>                                       <C>           <C>             <C>               <C>
Trust corpus, beginning of period......   $31,983,302   $35,183,110     $33,005,334       $36,024,941

Amortization of net profits interests..      (678,456)     (760,135)     (1,700,488)       (1,601,966)

Distributable income...................     3,346,332     1,658,052       8,071,758         4,269,815

Distributions declared.................    (3,346,332)   (1,658,052)     (8,071,758)       (4,269,815)
                                          -----------   -----------     -----------       -----------

Trust corpus, end of period............   $31,304,846   $34,422,975     $31,304,846       $34,422,975
                                          ===========   ===========     ===========       ===========

</TABLE>

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

                                                                               8
<PAGE>

CROSS TIMBERS ROYALTY TRUST
--------------------------------------------------------------------------------

Notes to Condensed Financial Statements (Unaudited)


1.   Basis of Accounting

     The financial statements of the Cross Timbers Royalty 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, to Bank of America,
          N.A., as trustee for the trust. Royalty income consists of net
          proceeds received by Cross Timbers Oil from the underlying properties
          in the prior month, multiplied by net profit percentages of 90% for
          the 90% royalty trust interests, and 75% for the 75% royalty trust
          interests.

          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, costs deducted
          in the calculation of net proceeds 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, such excess costs
          cannot reduce royalty income from other conveyances, but are carried
          forward with accrued interest to be recovered from future net proceeds
          of that conveyance. See Note 3.

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

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

     -    Distributions to unitholders 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 Cross Timbers Oil's historical net book
     value 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 was
     $29,795,603 as of September 30, 2000 and $28,095,115 as of December 31,
     1999.

                                                                               9
<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 unitholders 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
     unitholders 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 $1.02 per MMBtu for 1999, is recalculated annually based on
     each year's qualified production through the year 2002. Such credit, based
     on the unitholder's pro rata share of qualifying production, may not reduce
     the unitholder's regular tax liability (after the foreign tax credit and
     certain other nonrefundable 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. Unitholders
     should consult their tax advisors regarding use of this credit and other
     trust tax compliance matters.

     Based on 2000 qualifying sales volumes and the factors used in the
     calculation of the 1999 coal seam tax credit, the credit is estimated to be
     $0.032 per unit for the quarter ended September 30, 2000 and $0.095 per
     unit for the nine months ended September 30, 2000. The actual coal seam tax
     credit per unit was $0.040 for the quarter ended September 30, 1999 and
     $0.122 for the nine months ended September 30, 1999. Final 2000 coal seam
     tax credit data will be provided to unitholders with year-end tax
     information.


3.   Excess Costs

     There are no excess costs remaining to be recovered as of September 30,
     2000. The following is a summary of changes in excess costs for the 75%
     royalty trust interests by conveyance during the three and nine months
     ended September 30, 1999 and the nine months ended September 30, 2000:

<TABLE>
<CAPTION>
                                                         Three Months                    Nine Months
                                                     Ended September 30              Ended September 30
                                                 -----------------------   -----------------------------------
                                                           1999               2000             1999
                                                 -----------------------   ---------   -----------------------
                                                   Texas        Oklahoma     Texas       Texas        Oklahoma
                                                 --------       --------   ---------   ---------      --------
<S>                                              <C>            <C>        <C>         <C>            <C>
Cumulative excess costs and accrued
  interest - beginning of period.....            $757,604       $ 14,215   $ 375,802   $ 519,817      $      -
Excess costs.........................              34,760         34,345           -     327,318       105,471
Recovery of excess costs and
  accrued interest...................             (82,610)       (14,305)   (383,836)   (165,735)      (72,312)
Accrued interest.....................              14,820             90       8,034      43,174         1,186
                                                 --------       --------   ---------   ---------      --------
Cumulative excess costs and
  accrued interest - end of period...            $724,574       $ 34,345   $       -   $ 724,574      $ 34,345
                                                 ========       ========   =========   =========      ========
Net to trust (75%)...................            $543,431       $ 25,759   $       -   $ 543,431      $ 25,759
                                                 ========       ========   =========   =========      ========
</TABLE>

                                                                              10
<PAGE>

     Any excess costs and accrued interest for each conveyance must be fully
     recovered from the respective future net proceeds of the 75% royalty trust
     interests before they can again contribute to trust royalty income. Excess
     costs and accrued interest as of September 30, 1999 from the Oklahoma 75%
     royalty trust interests were fully recovered in October 1999 and from the
     Texas 75% royalty trust interest were fully recovered in May 2000. See Item
     2, "Trustee's Discussion and Analysis - Costs."

4.   Cross Timbers Oil Company

     On October 6, 2000, the trust and Cross Timbers Oil filed an amended
     registration statement with the Securities and Exchange Commission to sell
     1,360,000 units (22.7% of outstanding units) held by Cross Timbers Oil. 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.

                                                                              11
<PAGE>

Item 2.  Trustee's Discussion and Analysis.

The following discussion should be read in conjunction with the trustee's
discussion and analysis contained in the trust's 1999 annual report, as well as
the condensed financial statements and notes thereto included in this quarterly
report on Form 10-Q.

Distributable Income

For the quarter ended September 30, 2000, royalty income was $3,394,310 compared
to $1,696,721 for the third quarter of 1999.  This 100% increase in royalty
income is primarily the result of higher oil and gas prices.  See "Royalty
Income" below.

Distributable income for the quarter ended September 30, 2000 was $3,346,332, or
$0.557722 per unit of beneficial interest.  Distributions for the quarter were:


                                                            Distribution
          Record Date                 Payment Date            per Unit
       ------------------          ------------------       ------------

       July 31, 2000               August 14, 2000          $   0.146346
       August 31, 2000             September 15, 2000           0.197889
       September 29, 2000          October 16, 2000             0.213487
                                                            ------------

                                                            $   0.557722
                                                            ============

The distributable income for the quarter includes approximately $0.04 per unit
related to revenues overpaid to the trust for the distribution declared in
September. Cross Timbers Oil expects the correction of this overpayment to
reduce distributable income in fourth quarter 2000.

For the nine months ended September 30, 2000, royalty income was $8,224,324
compared with $4,390,115 for the same 1999 period. This 87% increase in royalty
income is also primarily because of higher oil and gas prices. See "Royalty
Income" below.

Royalty Income

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:

    - oil and gas sales volumes,

    - oil and gas sales prices, and

    - costs deducted in the calculation of royalty income.

The 90% royalty trust interests generally bear no costs other than production
and property taxes, related legal costs, and marketing and transportation
charges.  The 75% royalty trust interests bear these same costs and are also
subject to production and development costs.

                                                                              12
<PAGE>

The following is a summary of the calculation of royalty income received by the
trust:

<TABLE>
<CAPTION>
                                            Three Months                                     Nine Months
                                       Ended September 30 (a)      Increase             Ended September 30 (a)       Increase
                                      ----------------------                           -----------------------      ----------
                                          2000       1999         (Decrease)               2000        1999         (Decrease)
                                      ----------  ----------      ----------           -----------  ----------      ----------
<S>                                   <C>         <C>             <C>                  <C>          <C>             <C>
Sales Volumes
  Oil (Bbls) (b)
     Underlying properties.........       92,766      79,435          17%                  262,258     254,301           3%
          Average per day..........        1,008         863          17%                      957         932           3%
     Royalty trust interests.......       49,770      24,040         107%                  121,955      63,298          93%

  Gas (Mcf) (b)
     Underlying properties.........      829,633     935,338         (11%)               2,396,704   2,669,952         (10%)
          Average per day..........        9,117      10,278         (11%)                   8,747       9,780         (11%)
     Royalty trust interests.......      731,476     822,978         (11%)               2,090,802   2,324,895         (10%)

Average Sales Prices
  Oil (per Bbl)....................       $27.91      $16.34          71%                   $26.34      $12.91         104%
  Gas (per Mcf)....................        $3.47       $2.02          72%                    $3.03       $1.85          64%

Revenues
  Oil sales........................   $2,589,444  $1,297,628         100%              $ 6,907,324  $3,283,489         110%
  Gas sales........................    2,882,885   1,885,097          53%                7,271,384   4,936,099          47%
                                      ----------  ----------                           -----------  ----------
      Total Revenues...............    5,472,329   3,182,725          72%               14,178,708   8,219,588          72%
                                      ----------  ----------                           -----------  ----------

Costs
  Taxes, transportation
     and other.....................      736,444     478,595          54%                1,925,960   1,107,696          74%
  Production expense (c)...........      620,850     599,642           4%                1,862,604   1,795,597           4%
  Development costs................      159,647     175,132          (9%)                 507,840     616,157         (18%)
  Excess costs.....................            -     (69,105)          -                         -    (432,789)          -
  Recovery of excess costs
     and accrued interest..........            -      96,915           -                   383,836     238,047          61%
                                      ----------  ----------                           -----------  ----------
      Total Costs..................    1,516,941   1,281,179          18%                4,680,240   3,324,708          41%
                                      ----------  ----------                           -----------  ----------

Net Proceeds.......................   $3,955,388  $1,901,546         108%              $ 9,498,468  $4,894,880          94%
                                      ==========  ==========                           ===========  ==========
Royalty Income.....................   $3,394,310  $1,696,721         100%              $ 8,224,324  $4,390,115          87%
                                      ==========  ==========                           ===========  ==========
</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 September
     30 generally represent oil production for the period May through July and
     gas production for the period April through June and (2) oil and gas sales
     for the nine months ended September 30 generally represent oil production
     for the period November through July and gas production for the period
     October through June.

(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 volumes is based on the underlying properties.

(c)  Includes an overhead fee which is deducted and retained by Cross Timbers
     Oil. This fee is currently $22,570 per month and is subject to adjustment
     each May based on an oil and gas industry index.

                                                                              13
<PAGE>

The following are explanations of significant variances from third quarter 1999
to 2000 and from the first nine months of 1999 to the comparable period in 2000:

Sales Volumes

Oil
Increased oil sales volumes are primarily because of the timing of cash
receipts.  Natural production decline was largely offset by increased production
on one of the Texas working interest properties as a result of carbon dioxide
injections.

Gas
Decreased gas sales volumes are primarily because of the timing of cash receipts
and higher natural production decline in coal seam gas production.  These
decreases were partially offset by purchaser volume adjustments.  Sales volumes
for the quarter and nine-month 2000 periods include approximately 70,000 Mcf
related to a purchaser's overpayment.  Sales volumes will be reduced when
this overpayment is corrected, which is expected during fourth quarter
2000.

Sales Prices

Oil
Lower average 1999 prices reflect abnormally low prices resulting from global
excess supply. After OPEC members and other oil producers agreed to production
cuts in March 1999, oil prices climbed through the remainder of 1999 and first
quarter 2000. Despite OPEC production increases, increased demand has sustained
higher prices. In September 2000, when crude oil prices rose to their highest
level in 10 years, the average West Texas Intermediate ("WTI") posted price was
$30.86 per Bbl. The average WTI posted price for October 2000 was $29.96. Recent
trust oil prices have averaged approximately $1.10 higher than the WTI posted
price.

Gas
The average gas price increased 72% for the third quarter and 64% for the nine-
month period. Part of the increase for the nine-month period is related to
purchaser deductions which were netted in the gas price prior to second quarter
1999. Since then, these purchaser deductions are included in taxes,
transportation and other (see "Costs - Taxes" below). Excluding the effect of
this change, gas prices increased 57% for the nine-month period. Gas prices were
lower in 1999 primarily because of the abnormally warm winter of 1998-1999
experienced across the United States that resulted in higher levels of gas in
storage. Gas prices began to increase in May 1999 and, after declining briefly
at year end, have continued to strengthen in 2000. Higher gas prices have been
supported by both lower gas storage levels and increased demand for power
generation. Prices are expected to remain high as the winter heating season
approaches. On November 3, 2000, the average NYMEX price for the following
twelve months was $4.50 per MMBtu. The trust's recent gas prices have averaged
approximately $0.20 per MMBtu higher than the NYMEX price, primarily because of
the effect of higher natural gas liquids prices.

Costs

Taxes
Taxes, transportation and other increased primarily as a result of increased
taxes on higher oil and gas revenues.  Also, beginning in second quarter 1999,
this cost category has included purchaser deductions for gathering and
compression charges.  Prior to second quarter 1999, these charges were netted in
the gas sales

                                                                              14
<PAGE>

price.  As a result, taxes, transportation and other includes an increase of
$286,000 in purchaser deductions for the nine-month period.

Development
Lower development costs primarily reflect completion of the carbon dioxide
injection project on one of the underlying Texas working interest properties in
third quarter 1999.

Excess costs

Primarily because of higher oil prices, all excess costs and accrued interest
for the Texas 75% royalty trust interests were fully recovered in second quarter
2000.  After almost two years of excess costs and recovery of these costs, the
Texas 75% royalty trust interests again began contributing to trust royalty
income in May 2000.  There are no remaining excess costs to be recovered as of
September 30, 2000.  Excess costs occurred in the 1999 periods because of low
oil prices and higher costs related to the carbon dioxide injection project.
See Note 3 to condensed financial statements.


Forward Looking Statements

This report on Form 10-Q 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, as amended.  All statements other
than statements of historical fact included in this Form 10-Q, including,
without limitation, statements contained in this "Trustee's Discussion and
Analysis" regarding the royalty trust interests and industry conditions, are
forward-looking statements.  Although Cross Timbers Oil believes that the
expectations reflected in these forward-looking statements are reasonable,
neither Cross Timbers Oil nor the trustee can give any assurance that such
expectations will prove to be correct.


Item. 3  Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in the trust's market risks, as disclosed in
the trust's Form 10-K for the year ended December 31, 1999.

                                                                              15
<PAGE>

PART II - OTHER INFORMATION
----------------------------

Items 1 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 NCNB Texas National
               Bank (now Bank of America, 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 Bank of America, 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 Bank of America, 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                    18

(b)  Reports on Form 8-K.

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

                                                                              16
<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 BANK OF AMERICA, N.A., TRUSTEE


                                            By       RON E. HOOPER
                                              --------------------------------
                                                      Ron E. Hooper
                                                      Vice President



                                            CROSS TIMBERS OIL COMPANY



Date: November 13, 2000                     By       LOUIS G. BALDWIN
                                              --------------------------------
                                                      Louis G. Baldwin
                                                Executive Vice President and
                                                  Chief Financial Officer

                                                                              17