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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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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 March 31, 2004



OR



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



Commission File Number: 1-10982



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Cross Timbers Royalty Trust

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Texas                                                          |  | 75-6415930                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer 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
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ̈



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



Outstanding as of April 27, 2004

6,000,000





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CROSS TIMBERS ROYALTY TRUST



FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004



|         |  |                                                                                                      |  |     
|-------- |  | ---------------------------------------------------------------------------------------------------- |  | ----
|         |  | TABLE OF CONTENTS                                                                                    |  |     
|         |  |                                                                                                     
|         |  |                                                                                                      |  | Page
|         |  |                                                                                                     
|         |  | Glossary of Terms                                                                                    |  | 3   
|         |  |                                                                                                     
|PART I.  |  | FINANCIAL INFORMATION                                                                                |  |     
|         |  |                                                                                                     
|Item 1.  |  | Financial Statements                                                                                 |  | 4   
|         |  |                                                                                                     
|         |  | Independent Accountants Review Report                                                               |  | 5   
|         |  |                                                                                                     
|         |  | Condensed Statements of Assets, Liabilities and Trust Corpus at March 31, 2004 and December 31, 2003 |  | 6   
|         |  |                                                                                                     
|         |  | Condensed Statements of Distributable Income for the Three Months Ended March 31, 2004 and 2003      |  | 7   
|         |  |                                                                                                     
|         |  | Condensed Statements of Changes in Trust Corpus for the Three Months Ended March 31, 2004 and 2003   |  | 8   
|         |  |                                                                                                     
|         |  | Notes to Condensed Financial Statements                                                              |  | 9   
|         |  |                                                                                                     
|Item 2.  |  | Trustees Discussion and Analysis                                                                    |  | 11  
|         |  |                                                                                                     
|Item 3.  |  | Quantitative and Qualitative Disclosures about Market Risk                                           |  | 15  
|         |  |                                                                                                     
|Item 4.  |  | Controls and Procedures                                                                              |  | 15  
|         |  |                                                                                                     
|PART II. |  | OTHER INFORMATION                                                                                    |  |     
|         |  |                                                                                                     
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                     |  | 16  
|         |  |                                                                                                     
|         |  | Signatures                                                                                           |  | 17  





2



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CROSS TIMBERS ROYALTY TRUST



GLOSSARY OF TERMS



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



|Bbl | Barrel (of oil)
|--- | ---------------



|Mcf | Thousand cubic feet (of natural gas)
|--- | ------------------------------------



|MMBtu | One million British Thermal Units, a common energy measurement
|----- | --------------------------------------------------------------



|net proceeds | Gross proceeds received by XTO Energy from sale of production from the underlying properties, less applicable costs, as defined in the net profits
interest conveyances
|------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|net profits income | Net proceeds multiplied by the applicable net profits percentage of 75% or 90% and paid to the trust by XTO Energy. Net profits income
is referred to as royalty income for income tax purposes.
|------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|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. The
following defined net profits interests were conveyed to the trust from the underlying properties:
|-------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | 75% net profits interests - interests that entitle the trust to receive 75% of the net proceeds from the underlying properties that are
working interests in Texas and Oklahoma
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|royalty interest | A nonoperating interest in an oil and gas property that provides the owner
|---------------- | --------------------------------------------------------------------------

|(and overriding | a specified share of production without any production or
|--------------- | ---------------------------------------------------------

|royalty interest) | development costs
|----------------- | -----------------



|underlying properties | XTO Energys interest in certain oil and gas properties from which the net profits interests were conveyed. The underlying properties include
royalty and overriding royalty interests in producing and nonproducing 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



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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 March 31, 2004, and the distributable income and changes in trust corpus for the three-month periods ended March 31, 2004 and 2003, have been included. Distributable income
for such interim periods is not necessarily indicative of distributable income for the full year.





4



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INDEPENDENT ACCOUNTANTS REVIEW REPORT



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 March 31, 2004 and the related condensed statements of distributable income and changes in trust corpus for the three-month periods ended March 31, 2004 and 2003. These condensed 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 conducted in accordance with auditing standards generally accepted in the United States of America, 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 of America.



Based on our review, we are not aware of any
material modifications that should be made to the condensed 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 of America, the statement of
assets, liabilities and trust corpus of the Cross Timbers Royalty Trust as of December 31, 2003, and the related statements of distributable income and changes in trust corpus for the year then ended (not presented herein), included in the
trusts 2003 Annual Report on Form 10-K, and in our report dated March 5, 2004, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed statement of assets,
liabilities and trust corpus as of December 31, 2003 is fairly stated, in all material respects, in relation to the statement of assets, liabilities and trust corpus included in the trusts 2003 Annual Report on Form 10-K from which it has
been derived.



KPMG LLP



Dallas, Texas

April 28, 2004





5



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CROSS TIMBERS ROYALTY TRUST

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Condensed Statements of Assets, Liabilities and Trust Corpus



|                                                                                |  |               |             |                  |   |           
|------------------------------------------------------------------------------- |  | ------------- | ----------- | ---------------- | - | ----------
|                                                                                |  | March 31,2004 |             | December 31,2003
|ASSETS                                                                          |  |               | (Unaudited) |                  |   |           
|                                                                                |  |              
|Cash and short-term investments                                                 |  | $             | 1,032,253   |                  | $ | 994,389   
|                                                                                |  |              
|Interest to be received                                                         |  |               | 83          |                  |   | 357       
|                                                                                |  |              
|Net profits interests in oil and gas propertiesnet (Note 1)                    |  |               | 24,243,319  |                  |   | 24,665,401
|                                                                                |  |               |             |                  |   |           
|                                                                                |  |              
|                                                                                |  | $             | 25,275,655  |                  | $ | 25,660,147
|                                                                                |  |               |             |                  |   |           
|                                                                                |  |              
|LIABILITIES AND TRUST CORPUS                                                    |  |               |             |                  |   |           
|                                                                                |  |              
|Distribution payable to unitholders                                             |  | $             | 1,032,336   |                  | $ | 994,746   
|                                                                                |  |              
|Trust corpus (6,000,000 units of beneficial interestauthorized and outstanding) |  |               | 24,243,319  |                  |   | 24,665,401
|                                                                                |  |               |             |                  |   |           
|                                                                                |  |              
|                                                                                |  | $             | 25,275,655  |                  | $ | 25,660,147
|                                                                                |  |               |             |                  |   |           



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





6



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CROSS TIMBERS ROYALTY TRUST

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Condensed Statements of Distributable Income(Unaudited)



|                                                |  |                             |           |      |   |          
|----------------------------------------------- |  | --------------------------- | --------- | ---- | - | ---------
|                                                |  | Three Months Ended March 31
|                                                |  | 2004                        |           | 2003
|                                                |  |                            
|Net profits income                              |  | $                           | 3,116,138 |      | $ | 2,662,646
|                                                |  |                            
|Interest income                                 |  |                             | 428       |      |   | 991      
|                                                |  |                             |           |      |   |          
|                                                |  |                            
|Total income                                    |  |                             | 3,116,566 |      |   | 2,663,637
|                                                |  |                            
|Administration expense                          |  |                             | 70,582    |      |   | 68,409   
|                                                |  |                             |           |      |   |          
|                                                |  |                            
|Distributable income                            |  | $                           | 3,045,984 |      | $ | 2,595,228
|                                                |  |                             |           |      |   |          
|                                                |  |                            
|Distributable income per unit (6,000,000 units) |  | $                           | 0.507664  |      | $ | 0.432538 
|                                                |  |                             |           |      |   |          



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





7



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CROSS TIMBERS ROYALTY TRUST

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Condensed Statements of Changes in Trust Corpus(Unaudited)



|                                      |  |                             |            |   |      |   |            |  
|------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                      |  | Three Months Ended March 31 |           
|                                      |  | 2004                        |            |   | 2003 |  
|                                      |  |                            
|Trust corpus, beginning of period     |  | $                           | 24,665,401 |   |      | $ | 26,556,533 |  
|                                      |  |                            
|Amortization of net profits interests |  |                             | (422,082   | ) |      |   | (477,056   | )
|                                      |  |                            
|Distributable income                  |  |                             | 3,045,984  |   |      |   | 2,595,228  |  
|                                      |  |                            
|Distributions declared                |  |                             | (3,045,984 | ) |      |   | (2,595,228 | )
|                                      |  |                             |            |   |      |   |            |  
|                                      |  |                            
|Trust corpus, end of period           |  | $                           | 24,243,319 |   |      | $ | 26,079,477 |  
|                                      |  |                             |            |   |      |   |            |  



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





8



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CROSS TIMBERS ROYALTY TRUST

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Notes to Condensed Financial Statements (Unaudited)



|1. | Basis of Accounting
|-- | -------------------



The financial statements of Cross Timbers Royalty Trust are prepared on the following basis and are not intended to present financial position and results
of operations in conformity with generally accepted accounting principles (GAAP):



| | - | Net profits income recorded for a month is the amount computed and paid by XTO Energy Inc., the owner of the underlying properties, to Bank of America, N.A., as trustee for the
trust. Net profits income consists of net proceeds received by XTO Energy Inc. from the underlying properties in the prior month, multiplied by net profit percentages of 90% for the 90% net profits interests, and 75% for the 75% net profits
interests.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Costs deducted in the calculation of net proceeds for the 90% net profits interests generally include applicable taxes, transportation, marketing and legal costs, and do not include
other production and development costs. For the 75% net profits interests, costs deducted in the calculation of net proceeds include production expenses, development costs, applicable taxes, operating charges and other costs.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Net profits income is computed separately for each of five conveyances under which the net profits interests were conveyed to the trust. If monthly costs exceed revenues for any
conveyance, such excess costs must be recovered, with accrued interest, from future net proceeds of that conveyance and cannot reduce net proceeds from the other conveyances.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | 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 those prepared in conformity with GAAP because revenues are recognized when received rather than 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.



Most accounting pronouncements apply to entities whose financial statements
are prepared in accordance with GAAP, directing such entities to accrue or defer revenues and expenses in a period other than when such revenues were received or expenses were paid. Because the trusts financial statements are prepared on the
modified cash basis, as described above, most accounting pronouncements are not applicable to the trusts financial statements.





9



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The initial carrying value of the net profits interests of $61,100,449 represents XTO Energys
historical net book value on February 12, 1991, the creation date of the trust. Amortization of the net profits interests is calculated on a unit-of-production basis and is charged directly to trust corpus. Accumulated amortization was $36,857,130
as of March 31, 2004 and $36,435,048 as of December 31, 2003.



|2. | Contingencies
|-- | -------------



Several states have enacted legislation to require state income tax withholding from nonresident recipients of oil and gas proceeds. After consultation
with legal counsel, XTO Energy has advised the trustee that it believes the trust is not subject to these withholding requirements. However, regulations are being developed or are subject to change by the various states, which could change this
conclusion. In the event it is determined that the trust is required to withhold state taxes, distributions to the unitholders would be reduced by the required amount, subject to the unitholders right to file a state tax return to claim any
refund due.





10



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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 2003 annual report, as well as the condensed financial statements and notes thereto included in this
quarterly report on Form 10-Q. The trusts Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are available on the trusts web site at www.crosstimberstrust.com.



Distributable Income



For the quarter ended March 31, 2004, net profits income was $3,116,138 compared to
$2,662,646 for first quarter 2003. This 17% increase in net profits income is the result of higher gas prices. See Net Profits Income below.



After considering interest income of $428 and administration expense of $70,582, distributable income for the quarter ended March 31, 2004 was $3,045,984, or $0.507664
per unit of beneficial interest. For first quarter 2003, distributable income was $2,595,228, or $0.432538 per unit. Distributions to unitholders for the quarter ended March 31, 2004 were:



|                  |  |                   |  |                      |         
|----------------- |  | ----------------- |  | -------------------- | --------
|Record Date       |  | Payment Date      |  | Distributionper Unit
|January 30, 2004  |  | February 13, 2004 |  | $                    | 0.173532
|February 27, 2004 |  | March 12, 2004    |  |                      | 0.162076
|March 31, 2004    |  | April 14, 2004    |  |                      | 0.172056
|                  |  |                   |  |                      |         
|                  |  |                   |  | $                    | 0.507664
|                  |  |                   |  |                      |         



Net Profits Income



Net profits income is recorded when received by the trust, which is the month following
receipt by XTO Energy, and generally two months after oil production and three months after gas production. Net profits 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 net profits income.
| | - | --------------------------------------------------------



Because properties underlying the 90% net profits 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% net profits interests are subject to production and development costs, since the properties underlying the 75% net profits interests are
working interests.



11



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



|                                |  |                                |           |                     |   |           |  |     |   
|------------------------------- |  | ------------------------------ | --------- | ------------------- | - | --------- |  | --- | --
|                                |  | Three Months Ended March 31(a) |           | Increase (Decrease) |  
|                                |  | 2004                           |           | 2003                |  
|Sales Volumes                   |  |                                |           |                     |   |           |  |     |   
|Oil (Bbls) (b)                  |  |                                |           |                     |   |           |  |     |   
|Underlying properties           |  |                                | 69,983    |                     |   | 79,527    |  | (12 | %)
|Average per day                 |  |                                | 761       |                     |   | 864       |  | (12 | %)
|Net profits interests           |  |                                | 32,022    |                     |   | 33,606    |  | (5  | %)
|                                |  |                                |          
|Gas (Mcf)(b)                    |  |                                |           |                     |   |           |  |     |   
|Underlying properties           |  |                                | 614,163   |                     |   | 652,435   |  | (6  | %)
|Average per day                 |  |                                | 6,676     |                     |   | 7,092     |  | (6  | %)
|Net profits interests           |  |                                | 542,089   |                     |   | 559,038   |  | (3  | %)
|                                |  |                                |          
|Average Sales Prices            |  |                                |           |                     |   |           |  |     |   
|Oil (per Bbl)                   |  | $                              | 29.66     |                     | $ | 26.89     |  | 10  | % 
|Gas (per Mcf)                   |  | $                              | 5.19      |                     | $ | 3.90      |  | 33  | % 
|                                |  |                                |          
|Revenues                        |  |                                |           |                     |   |           |  |     |   
|Oil sales                       |  | $                              | 2,075,871 |                     | $ | 2,138,382 |  | (3  | %)
|Gas sales                       |  |                                | 3,185,204 |                     |   | 2,546,301 |  | 25  | % 
|                                |  |                                |           |                     |   |           |  |     |   
|Total Revenues                  |  |                                | 5,261,075 |                     |   | 4,684,683 |  | 12  | % 
|                                |  |                                |           |                     |   |           |  |     |   
|                                |  |                                |          
|Costs                           |  |                                |           |                     |   |           |  |     |   
|Taxes, transportation and other |  |                                | 810,919   |                     |   | 743,050   |  | 9   | % 
|Production expense (c)          |  |                                | 780,750   |                     |   | 821,523   |  | (5  | %)
|Development costs               |  |                                | 97,670    |                     |   | 49,842    |  | 96  | % 
|                                |  |                                |           |                     |   |           |  |     |   
|Total Costs                     |  |                                | 1,689,339 |                     |   | 1,614,415 |  | 5   | % 
|                                |  |                                |           |                     |   |           |  |     |   
|                                |  |                                |          
|Net Proceeds                    |  | $                              | 3,571,736 |                     | $ | 3,070,268 |  | 16  | % 
|                                |  |                                |           |                     |   |           |  |     |   
|                                |  |                                |          
|Net Profits Income              |  | $                              | 3,116,138 |                     | $ | 2,662,646 |  | 17  | % 
|                                |  |                                |           |                     |   |           |  |     |   

---

|(a) | Because of the interval between time of production and receipt of royalty income by the trust, oil and gas sales for the quarter ended March 31 generally represent oil production
for the period November through January and gas production for the period October through December.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Oil and gas sales volumes are allocated to the net profits 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 net profits 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 XTO Energy. This fee is currently $22,742 per month and is subject to adjustment each May.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------



12



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The following are explanations of significant variances from first quarter 2003 to 2004:



Sales Volumes



Oil



Oil sales volumes decreased 12% for first quarter 2004 primarily because of natural production decline and timing of cash receipts.



Gas



Gas sales volumes decreased 6% for first quarter 2004 primarily because of natural production decline and prior period volume adjustments
recorded in 2004, partially offset by timing of cash receipts.



Sales Prices



Oil



The first quarter 2004 average oil price was $29.66 per Bbl, a 10% increase from the first quarter 2003 price of $26.89 per Bbl. OPEC
members agreed to increase daily oil production 1.5 million barrels beginning February 2003, to help stabilize a volatile world market. Oil prices remained relatively high in 2003, however, because of the war in Iraq, slower than anticipated
resumption of Iraqi oil exports and unusually low storage levels. OPEC reiterated its intent to maintain oil prices by reducing daily oil production by 2 million barrels beginning June 2003 and by an additional 900,000 barrels beginning November
2003. In March 2004, an unexpected drop in gasoline stocks led oil prices to 13-year highs, reaching $38 per Bbl. OPEC members agreed to reduce daily oil production by 1 million barrels beginning April 2004 to maintain market balance in the second
quarter when there is seasonally low demand. The average NYMEX price for February and March 2004 was $35.63 per Bbl. At April 26, 2004, the average NYMEX futures price for the following twelve months was $34.78 per Bbl. Recent trust oil prices have
averaged approximately $2.60 per Bbl lower than the NYMEX price.



Gas



The first quarter 2004 average gas price was $5.19 per Mcf, a 33%
increase from the first quarter 2003 price of $3.90. With colder than normal weather, record low gas storage levels and continued increasing demand, gas prices were relatively high during the first five months of 2003. With diminished demand related
to higher prices, natural gas prices were lower during the summer months, then rose with cooler weather in the fall and early winter. Forecasts for continued production declines, increasing natural gas demand and larger than projected storage
withdrawals have supported higher prices in early 2004. Prices in 2004 will continue to be affected by weather, the pace of recovery of the domestic economy and fluctuations in North American production. In any case, natural gas prices are expected
to remain volatile. The first quarter 2004 gas price is primarily related to production from October through December 2003, when the average NYMEX price was $5.40. The average NYMEX price for January through March 2004 was $5.72 per MMBtu. At April
26, 2004, the average NYMEX futures price for the following twelve months was $6.03 per MMBtu. Recent trust gas prices have averaged approximately $0.40 per MMBtu lower than the NYMEX price.





13



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Costs



Taxes



Taxes, transportation and other increased 9% for the first quarter because of higher production taxes and other deductions related to higher revenues, partially offset by decreased Texas property taxes.



Production Expenses



Production expenses were 5% lower for the first quarter primarily because of the timing of maintenance projects, partially offset by higher
insurance costs and increased fuel costs related to higher gas prices.



Development



Development costs increased 96% for the first
quarter primarily because of increased drilling activity on one of the properties underlying the Oklahoma 75% net profits interests.



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 regarding the net profits interests, underlying properties, development
activities, development, production and other costs, oil and gas prices, and industry and market conditions, are forward-looking statements that are subject to risks and uncertainties which are detailed in Part II, Item 7 of the trusts Annual
Report on Form 10-K for the year ended December 31, 2003, which is incorporated by this reference as though fully set forth herein. Although XTO Energy and the trustee believe that the expectations reflected in such forward-looking statements are
reasonable, neither XTO Energy nor the trustee can give any assurance that such expectations will prove to be correct.





14



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Item 3. Quantitative and Qualitative Disclosures about Market Risk.



There have been no material changes in the trusts market risks, as disclosed in Part II, Item 7a of the trusts Annual Report on Form 10-K for the year ended December 31, 2003.



Item 4. Controls and Procedures.



As of the end
of the period covered by this report, the trustee carried out an evaluation of the effectiveness of the design and operation of the trusts disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that
evaluation, the trustee concluded that the trusts disclosure controls and procedures are effective in timely alerting the trustee to material information relating to the trust required to be included in the trusts periodic filings with
the Securities and Exchange Commission. In its evaluation of disclosure controls and procedures, the trustee has relied, to the extent considered reasonable, on information provided by XTO Energy. There has not been any change in the trusts
internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the trusts internal control over financial reporting.





15



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PART IIOTHER INFORMATION



Items 1 through 5. Not Applicable.



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



| | (a) | Exhibits.
| | --- | ---------



|                              |  |                                                                                                                                                                                        
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Numberand Description |  |                                                                                                                                                                                        
|                              | 
|(15)                          |  | Awareness letter of KPMG LLP                                                                                                                                                           
|                              | 
|(31)                          |  | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                 
|                              | 
|(32)                          |  | Section 1350 Certification                                                                                                                                                             
|                              | 
|(99)                          |  | Items 7 and 7a to the Annual Report on Form 10-K for Cross Timbers Royalty Trust filed with the Securities and Exchange Commission on March 11, 2004 (incorporated herein by
reference)



| | (b) | Reports on Form 8-K.
| | --- | --------------------



No reports on Form 8-K were filed during the quarter. The trust furnished three reports on Form 8-K under Item 12 for this period.





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---

SIGNATURES



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



|                     |  |  |  |                                                               |  |                         |  |                                                     
|-------------------- |  |  |  | ------------------------------------------------------------- |  | ----------------------- |  | ----------------------------------------------------
|                     |  |  |  | CROSS TIMBERS ROYALTY TRUST By BANK OF
AMERICA, N.A., TRUSTEE
|                     |  |  |  |                                                              
|                     |  |  |  |                                                               |  | By:                     |  | /s/    NANCY G. WILLIS                              
|                     |  |  |  |                                                               |  |                         |  |                                                     
|                     |  |  |  |                                                               |  |                         |  | Nancy G. Willis Vice President                      
|                     |  |  |  | XTO ENERGY INC.                                              
|                     |  |  | 
|Date: April 29, 2004 |  |  |  | By:                                                           |  | /s/    LOUIS G. BALDWIN
|                     |  |  |  |                                                               |  |                         | 
|                     |  |  |  |                                                               |  |                         |  | Executive Vice President and Chief Financial Officer





17