<PAGE>   1
                                  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, 1998
                                              ------------------

                                       OR

        [ ]    Transition Report Pursuant to Section 13 or 15(d)
                    of the Securities Exchange Act of 1934
              For the transition period from _______ to ________

                        Commission File Number:  1-8424

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

                 Texas                              75-6297143
      (State or other jurisdiction            (I.R.S. Employer Identi-
          of incorporation or                       fication No.)
             organization)

                                 Trust Division
                               NationsBank, N.A.
                               NationsBank Plaza
                                901 Main Street
                                   17th Floor
                              Dallas, Texas 75202
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (214) 508-2400
              (Registrant's telephone number, including area code)


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 
                                        ---    ---    

Number of units of beneficial interest outstanding at November 6, 1998:
14,579,345

                               Page 1 of 14 Pages
 
<PAGE>   2
 
                             SABINE ROYALTY TRUST

                        PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

       The condensed financial statements included herein have been prepared by
NationsBank, N.A. (as successor to NationsBank of Texas, N.A.), as Trustee (the
"Trustee") of Sabine Royalty Trust (the "Trust"), 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. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in the Trust's latest annual report on Form 10-K. The December
31, 1997 balance sheet is derived from the audited balance sheet of that date.
In the opinion of the Trustee, all adjustments necessary to present fairly the
assets, liabilities and trust corpus of the Trust as of September 30, 1998, the
distributable income for the three-month and nine-month periods ended September
30, 1998 and 1997 and the changes in trust corpus for the nine-month periods
ended September 30, 1998 and 1997, have been included. The distributable income
for such interim periods is not necessarily indicative of the distributable
income for the full year.

       The condensed financial statements as of September 30, 1998 and for the
three-month and nine-month periods ended September 30, 1998 and 1997, included
herein, have been reviewed by Deloitte & Touche LLP, independent public
accountants, as stated in their report appearing herein.


                                        2
<PAGE>   3
 
                        INDEPENDENT ACCOUNTANTS' REPORT

 
NationsBank, N.A., as Trustee
  of Sabine Royalty Trust:


We have reviewed the accompanying condensed statement of assets, liabilities and
trust corpus of Sabine Royalty Trust as of September 30, 1998, and the related
condensed statements of distributable income for the three-month and nine-month
periods ended September 30, 1998 and 1997 and changes in trust corpus for the
nine-month periods ended September 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 of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted 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.

As described in Note 2 to the condensed financial statements, these condensed
financial statements have been prepared on a modified cash basis of accounting,
which is a comprehensive basis of accounting other than generally accepted
accounting principles.

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 2.

We have previously audited, in accordance with generally accepted auditing
standards, the statement of assets, liabilities and trust corpus of Sabine 
Royalty Trust as of December 31, 1997, and the related statements of
distributable income and changes in trust corpus for the year then ended (not
presented herein); and in our report dated March 20, 1998, 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, 1997, is fairly stated, in all
material respects, in relation to the statement of assets, liabilities and trust
corpus from which it has been derived.

/s/ Deloitte & Touche LLP

Dallas, Texas
November 6, 1998


                                        3
<PAGE>   4
 
SABINE ROYALTY TRUST

CONDENSED STATEMENTS OF ASSETS,
LIABILITIES AND TRUST CORPUS

<TABLE>
<CAPTION>
                                             SEPTEMBER 30,
                                                 1998       DECEMBER 31, 
ASSETS                                 NOTES  (UNAUDITED)       1997
------                                 -----  -----------   ------------
<S>                                    <C>    <C>           <C>
                                     
Cash and short-term investments                $2,643,159     $3,857,558
Royalty interests in oil             
  and gas properties                 
  (less accumulated                  
  amortization of                    
  $19,714,220 and                    
  $19,315,915 at                     
  September 30, 1998 and                  
  December 31, 1997)                       1    2,680,965      3,079,270
                                               ----------    -----------

TOTAL                                          $5,324,124     $6,936,828
                                               ==========    ===========
                                     
                                     
LIABILITIES AND TRUST CORPUS         
----------------------------         
                                     
Trust expenses payable                         $   95,490     $  222,322
Other payables                             4      679,716        774,399
                                     
Trust corpus - 14,579,345            
  units of beneficial                
  interest authorized, issued        
  and outstanding                               4,548,918      5,940,107
                                               ----------    -----------
                                     
TOTAL                                          $5,324,124     $6,936,828
                                               ==========    ===========
</TABLE>


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


                                        4
<PAGE>   5
 
SABINE ROYALTY TRUST

CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)

<TABLE>
<CAPTION>

                                      THREE MONTHS ENDED SEPTEMBER 30,
                                      --------------------------------    

                              NOTES        1998              1997    
                              -----     ----------        ---------- 
<S>                           <C>       <C>               <C>        
                                                                     
Royalty income                          $5,919,091        $5,654,003
Interest income                             36,929            38,673
                                        ----------        ----------
Total                                    5,956,020         5,692,676
General and administrative                                           
 expenses                                 (276,627)         (336,524)
                                        ----------        ---------- 
                                                                     
Distributable income                    $5,679,393        $5,356,152
                                        ==========        ========== 
                                                                   
Distributable income                                               
 per unit (basic and 
 assuming dilution)                                               
 (14,579,345 units)           1,3,5     $      .39        $      .37 
                                        ==========        ========== 
</TABLE>

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


                                        5
<PAGE>   6

SABINE ROYALTY TRUST

CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)

<TABLE>
<CAPTION>

                                        NINE MONTHS ENDED SEPTEMBER 30,
                                      ---------------------------------

                              NOTES      1998                  1997    
                              -----   ----------            ---------- 
<S>                           <C>     <C>                   <C>        
                                                                       
Royalty income                        $19,372,591           $19,886,847
Interest income                           128,060               128,579
                                      -----------           -----------
Total                                  19,500,651            20,015,426
General and administrative                                             
 expenses                                (990,778)           (1,033,588)
                                      -----------           -----------
                                                                       
Distributable income                  $18,509,873           $18,981,838
                                      ===========           ===========
                                                                   
Distributable income                                               
 per unit (basic and 
 assuming dilution)                                               
 (14,579,345 units)           1,3,5   $      1.27           $      1.30
                                      ===========           ===========
</TABLE>

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


                                        6
<PAGE>   7

SABINE ROYALTY TRUST

CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)

<TABLE>
<CAPTION>
                                  NINE MONTHS ENDED SEPTEMBER 30,
                                 --------------------------------
                           NOTE      1998                 1997    
                           ----  -----------         ------------ 
<S>                        <C>   <C>                 <C>          
                                                                  
Trust corpus, beginning                                           
 of period                      $  5,940,107         $  5,885,543
Amortization of royalty                                           
 interests                          (398,305)            (442,552)
Distributable income              18,509,873           18,981,838
Distributions                3   (19,502,757)         (19,600,127)
                                ------------         ------------ 

Trust corpus, end
 of period                      $  4,548,918         $  4,824,702
                                ============         ============

Distributions per unit                                           
 (14,579,345 units)          3  $       1.34         $       1.34
                                ============         ============
</TABLE> 

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

                                       7
<PAGE>   8
 
SABINE ROYALTY TRUST

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)


1.  TRUST ORGANIZATION AND PROVISIONS

     Sabine Royalty Trust (the "Trust") was established by the Sabine
Corporation Royalty Trust Agreement (the "Trust Agreement"), made and entered
into effective as of December 31, 1982, to receive a distribution from Sabine
Corporation ("Sabine") of royalty and mineral interests, including landowner's
royalties, overriding royalty interests, minerals (other than executive rights,
bonuses and delay rentals), production payments and any other similar,
nonparticipatory interest, in certain producing and proved undeveloped oil and
gas properties located in Florida, Louisiana, Mississippi, New Mexico, Oklahoma
and Texas (the "Royalties").

     Certificates evidencing units of beneficial interest (the "Units") in the
Trust were mailed on December 31, 1982 to Sabine's shareholders of record on
December 23, 1982, on the basis of one Unit for each share of Sabine's
outstanding common stock. In May 1988, Sabine was acquired by Pacific
Enterprises ("Pacific"), a California corporation. Through a series of mergers,
Sabine was merged into Pacific Enterprises Oil Company (USA) ("Pacific (USA)"),
a California corporation and a wholly owned subsidiary of Pacific, effective
January 1, 1990. This acquisition and the subsequent mergers had no effect on
the Units. Pacific (USA), as successor to Sabine, has assumed by operation of
law all of Sabine's rights and obligations with respect to the Trust. The Units
are listed and traded on the New York Stock Exchange.

      NationsBank, N.A. (as successor to NationsBank of Texas, N.A.), as trustee
(the "Trustee"), acts as trustee of the Trust. The terms of the Trust Agreement
provide, among other things, that:

-  The Trust shall not engage in any business or commercial activity of any kind
   or acquire assets other than those initially transferred to the Trust.

-  The Trustee may not sell all or any part of its assets unless approved by the
   holders of a majority of the outstanding Units in which case the sale must be
   for cash and the proceeds, after satisfying all existing liabilities,
   promptly distributed to Unit holders.

-  The Trustee may establish a cash reserve for the payment of any liability
   that is contingent or uncertain in amount or that otherwise is not currently
   due or payable.

-  The Trustee will use reasonable efforts to cause the Trust and the Unit
   holders to recognize income and expenses on monthly record dates.

-  The Trustee is authorized to borrow funds to pay liabilities of the Trust
   provided that such borrowings are repaid in full before any further
   distributions are made to Unit holders.

-  The Trustee will make monthly cash distributions to Unit holders of record on
   the monthly record date (see Note 3).


                                       8
<PAGE>   9
 
      Because of the passive nature of the Trust and the restrictions and
limitations on the powers and activities of the Trustee contained in the Trust
Agreement, the Trustee does not consider any of the officers and employees of
the Trustee to be "officers" or "executive officers" of the Trust as such terms
are defined under applicable rules and regulations adopted under the Securities
Exchange Act of 1934.

      The proceeds of production from the Royalties are receivable from hundreds
of separate payors. In order to facilitate creation of the Trust and to avoid
the administrative expense and inconvenience of daily reporting to Unit holders,
the conveyances by Sabine of the Royalties located in five of the six states
provided for the execution of an escrow agreement by Sabine and the initial
trustee of the Trust, in its capacities as trustee of the Trust and as escrow
agent. The conveyances by Sabine of the Royalties located in Louisiana provided
for the execution of a substantially identical escrow agreement by Sabine and a
Louisiana bank in the capacities of escrow agent and of trustee under Sabine
Louisiana Royalty Trust. Sabine Louisiana Royalty Trust, the sole beneficiary of
which is the Trust, was established in order to avoid uncertainty under
Louisiana law as to the legality of the Trustee's holding record title to the
Royalties located in Louisiana.

     Pursuant to the terms of the escrow agreements and the conveyances of
the properties by Sabine, the proceeds of production from the Royalties for each
calendar month, and interest thereon, are collected by the escrow agents and are
paid to and received by the Trust only on the next monthly record date.  The
escrow agents have agreed to endeavor to assure that they incur and pay expenses
and fees for each calendar month only on the next monthly record date.  The
Trust Agreement also provides that the Trustee is to endeavor to assure that
income of the Trust will be accrued and received and expenses of the Trust will
be incurred and paid only on each monthly record date.  Assuming that the escrow
arrangement is recognized for Federal income tax purposes and that the Trustee
and escrow agents are able to control the timing of income and expenses, as
stated above, cash and accrual basis Unit holders should be treated as realizing
income only on each monthly record date.  The Trustee is treating the escrow
arrangement as effective for tax purposes.  However, for financial reporting
purposes, royalty and interest income are recorded in the calendar month in
which the amounts are received by either the escrow agents or the Trust.

     Distributable income as determined for financial reporting purposes for a
given quarter will not usually equal the sum of distributions made during that
quarter. Distributable income for a given quarter will approximate the sum of
the distributions made during the last two months of such quarter and the first
month of the next quarter.


                                       9
<PAGE>   10
 
2.  ACCOUNTING POLICIES

    Basis of Accounting

     The financial statements of the 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:

-  Royalty income, net of severance and ad valorem tax, and interest income are
   recognized in the month in which amounts are received by the Trust (see Note
   1).

-  Trust expenses, consisting principally of routine general and administrative
   costs, include payments made during the accounting period. Expenses are
   accrued to the extent of amounts that become payable on the next monthly
   record date following the end of an accounting period. Reserves for
   liabilities that are contingent or uncertain in amount may also be
   established if considered necessary.

-  Royalties that are producing properties are amortized using the unit-of-
   production method. This amortization is shown as a reduction of Trust corpus.

-  Distributions to Unit holders are recognized when declared by the Trustee
   (see Note 3).

     The financial statements of the Trust differ from financial statements
prepared in conformity with generally accepted accounting principles because of
the following:

-  Royalty income is recognized in the month received rather than in the month
   of production.

-  Expenses other than those expected to be paid on the following monthly record
   date are not accrued.

-  Amortization of the Royalties is shown as a reduction to Trust Corpus and not
   as a charge to operating results.

-  Reserves may be established for contingencies that would not be recorded
   under generally accepted accounting principles.

     Use of Estimates

     The preparation of financial statements in conformity with the basis of 
accounting described above requires management to make estimates and assumptions
that affect reported amounts of certain assets, liabilities, revenues and 
expenses as of and for the reporting periods. Actual results may differ from 
such estimates.

     Impairment

      The Trustee routinely reviews its royalty interests in oil and gas
properties for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. If an impairment event
occurs and it is determined that the carrying value of the Trust's royalty
interests may not be recoverable, an impairment will be recognized as measured
by the amount by which the carrying amount of the royalty interests exceeds the
fair value of these assets, which would likely be measured by discounting
projected cash flows. Should the aggregate dollar amount of the Trust's reserves
decline, an additional impairment provision, which could be material, will be
required. There can be no assurance such a writedown will not occur.

     Federal Income Taxes

     The Internal Revenue Service has ruled that the Trust would be classified
as a grantor trust for Federal income tax purposes and therefore is not subject
to taxation at the trust level. 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. Accordingly, no provision for Federal income tax expense has
been made in these financial statements. The income of the Trust will be deemed
to have been received or accrued by each Unit holder at the time such income is
received or accrued by the Trust.


                                       10
<PAGE>   11
 
3.  DISTRIBUTION TO UNIT HOLDERS

     The amount to be distributed to Unit holders ("Monthly Income Amount") is
determined on a monthly basis. The Monthly Income Amount is an amount equal to
the sum of cash received by the Trust during a monthly period (the period
commencing on the day after a monthly record date and continuing through and
including the next succeeding monthly record date) attributable to the
Royalties, any reduction in cash reserves and any other cash receipts of the
Trust, including interest, reduced by the sum of liabilities paid and any
increase in cash reserves. Unit holders of record on the monthly record date
(the 15th day of each calendar month except in limited circumstances) are
entitled to have distributed to them the calculated Monthly Income Amount for
such month on or before 10 business days after the monthly record date. The
Monthly Income Amount per Unit is declared by the Trust no later than 10 days
prior to the monthly record date.

     The cash received by the Trust from purchasers of the Trust's oil and gas
production consists of gross sales of production less applicable severance
taxes.

4.  OTHER PAYABLES

     Other payables consist primarily of royalty receipts suspended pending
verification of ownership interest or title.

     The Trustee believes that these other payables represent an ordinary
operating condition of the Trust and that such payables will be paid or released
in the normal course of business.


5.  SUBSEQUENT EVENTS

     Subsequent to September 30, 1998, the Trust declared the following 
distributions:

<TABLE>
<CAPTION>
                  Monthly
                  Record            Payment    Distribution
                  Date               Date        per Unit  
                  ---------------   -------    ------------
                  <S>               <C>        <C>
                  October 15        October 29     $.12848
                  November 16       November 30    $.08986
</TABLE>


                                       11
<PAGE>   12
 
Item 2.  Trustee's Discussion and Analysis of Financial Condition
         and Results of Operations.

     Sabine Royalty Trust (the "Trust") makes monthly distributions to the
holders of units of beneficial interest in the Trust ("Units") of the excess of
the preceding month's revenues received over expenses incurred. Upon receipt,
royalty income is invested in short-term investments until its subsequent
distribution. In accordance with the Trust Agreement, the Trust's only long-term
assets consist of royalty interests in producing and proved undeveloped oil and
gas properties. Although the Trust is permitted to borrow funds if necessary to
continue its operations, borrowings are not anticipated in the foreseeable
future.

     Distributable income consists of royalty income plus interest income plus
any decrease in cash reserves established by the Trustee less general and
administrative expenses of the Trust less any increase in cash reserves
established by the Trustee. Distributable income for the three months ended
September 30, 1998 was $5,679,393 or $.39 per Unit. Royalty income amounted to
$5,919,091 while interest income was $36,929. General and administrative
expenses totaled $276,627.

     Distributions during the period were $.12033, $.14098 and $.12021 per Unit
to Unit holders of record on July 15, August 17 and September 15, 1998,
respectively.

     Royalty income for the quarter ended September 30, 1998 increased
approximately $265,100 or 5% compared with the third quarter of 1997, due to an
increase in oil and gas production, largely offset by a significant decline in
oil prices in the third quarter of 1998 compared to the same quarter last year.
Compared to the prior quarter ended June 30, 1998, royalty income increased
approximately $231,400 or 4% due to an increase in oil and gas production offset
somewhat by a decline in oil prices in the third quarter of this year. Royalty
income for the nine-month period ended September 30, 1998 decreased
approximately $514,300 or 3%, as compared to the same period in 1997. The
decline was due to lower oil and gas prices, partially offset by an increase in
gas production.

     The following table illustrates average prices received for the periods
discussed above and the related oil and gas production volumes:

<TABLE>
<CAPTION>
                                            Three-Months Ended
                        ----------------------------------------------------------
                        September 30, 1998     September 30, 1997    June 30, 1998
<S>                      <C>                  <C>                <C>    
Production
  Oil (Bbls)                 151,209                 150,367              144,823
  Gas (Mcfs)               2,125,753               1,899,273            2,046,477

Average Price                                                  
  Oil (per bbl)           $    11.87              $    17.60           $    12.58
  Gas (per Mcf)           $     2.14              $     2.12           $     2.11
</TABLE>

<TABLE>
<CAPTION>
                                   Nine-Months Ended
                        ----------------------------------------
                        September 30, 1998    September 30, 1997
<S>                      <C>                  <C>          
Production
  Oil (Bbls)                 457,645              465,248  
  Gas (Mcfs)               6,497,994            5,463,081  

Average Price                                              
  Oil (per bbl)           $    13.37           $    19.10  
  Gas (per Mcf)           $     2.13           $     2.43  
</TABLE>

     It is difficult to accurately estimate future prices of oil and gas, and
any assumptions concerning future prices may prove to be incorrect.

     Interest income for the quarter ended September 30, 1998 decreased
approximately $1,700 compared with the third quarter of 1997. Compared to the
quarter ended June 30, 1998 interest income declined approximately $2,300.
Interest income for the nine-month period ended September 30, 1998 was
essentially unchanged from the same period in 1997. The interest income decline
between the periods discussed above was due to the timing of funds available for
investment, as interest rates remained substantially unchanged.

     General and administrative expenses for the quarter ended September 30, 
1998 decreased approximately $59,900 compared with the third quarter of 1997 
due to the payment in the third quarter of 1997 of costs related to the 
electronic recreation and storage of historical trust documents, and to a 
decline in fees paid to NationsBank, N.A. in its capacity as Trustee and Escrow 
Agent for the Trust. Compared to the preceding quarter ended June 30, 1998, 
general and administrative expenses decreased approximately $64,600 due to the 
payment in the second quarter of 1998 of various costs related to the Trust's 
year-end reporting. General and administrative expenses decreased approximately 
$42,800 for the nine-month period ended September 30, 1998 compared to the same 
period in 1997 due to the aforementioned documentation costs.

YEAR 2000

     Many existing computer programs use only two digits to identify a year in
the date field.  These programs were designed and developed without considering
the impact of the upcoming change in the century.  If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000.  The Year 2000 issue affects virtually all companies and organizations. If
a company or organization does not successfully address its Year 2000 issues, it
may face material adverse consequences.  The Trustee has identified its primary
system that is vulnerable to the Year 2000 issue:  its General Ledger/Accounts
Payable System.  The current system is Year 2000 compliant.  The Trust selected
a system that has been warranted to be Year 2000 compliant and completed the
installation of the new system at the beginning of 1998.  The cost of the system
was approximately $6,000.  To date the Trustee has incurred no other costs in
connection with its efforts to identify, assess, remediate and test the Trust's
systems for Year 2000 compliance.

     The Trustee is in the process of identifying and assessing other
information technology ("IT") systems used in connection with the Trust as well
as other systems, including Trust Mineral Management Systems (TMMS), for Year
2000 compliance.  Non-IT systems are generally more difficult to assess because
they often contain embedded technology that may be subject to Year 2000
problems. The total cost of the Trustee's Year 2000 efforts is expected to be
approximately $10,000 (including the $6,000 referred to above), all of which
will be incurred and paid during the last quarter of 1998 and the [first
quarter] of 1999.  Of this amount, the Trustee expects to pay $4,000 for
identification and assessment of affected systems.

     The Trustee has additionally identified those vendors it believes could
have an impact on its day-to-day operations if their operations were interrupted
as a result of Year 2000 problems.  The Trustee has developed a questionnaire
regarding the vendor's Year 2000 status.  These vendors, consisting primarily of
energy companies, will be contacted before January 1, 1999, to determine their
Year 2000 status.

     The Trustee has no reason to believe that its vendors will not be Year 2000
compliant.  In the event the Trustee learns that a vendor's systems will not be
Year 2000 compliant, the Trustee will assess the potential risk and develop
contingency plans at that time.

     The Trust is a passive entity with no business operations, and the IT
systems employed by the Trustee in connection with its duties on behalf of the
Trust are less extensive than the systems employed by many business entities.
The Trust has no formal IT budget, and the Trustee does not anticipate making
any other significant capital expenditures relating to the Trustee's IT systems
used in connection with Trust during 1998 or 1999.  Thus, the expenditures
expected to be made in connection with the Year 2000 efforts described above
will represent substantially all of the Trustee's IT-related capital
expenditures on behalf of the Trust during 1998 and 1999.  These expenses will
be paid as an expense.

     Because the royalty interests held by the Trust are fixed, the Trustee is
dependent upon the third parties (primarily energy companies) that hold
[operating and/or working interests] with respect thereto for the receipt of
royalty income.  Thus, if any such third party failed to deliver royalty income,
the Trustee would have available no alternative source for such income. The
Trustee believes that the worst case scenario would be the failure by the
Trustee and one or more third parties who [pay royalties to the Trust] to
identify or remediate Year 2000 problems on a timely basis, which could cause
the Trustee to be unable to make any distributions to Unit holders.  Such
inability could result in the incurrence by the Trust of interest charges or
other liabilities to Unit holders.  The Trustee believes that in the event of a
failure of any of its internal systems it would be able to replace such systems
in a relatively short period of time, relying on internal resources of
NationsBank, N.A., which serves as the Trustee, although there can be no
assurance that such replacement would not be costly or that it would be
completed without resulting in a significant delay in the distributions to Unit
holders.  With respect to a failure by a third party to deliver royalty income
on a timely basis, the Trustee believes that it would have no control over the
efforts of such third party to correct the problems, and significant delays in
the receipt of royalty income could result.

     The Trust will utilize both internal and external resources to achieve Year
2000 compliance.  The Trustee estimates that its identification and assessment
activities are approximately 80% complete and that its remediation is
approximately 90% complete.  It expects that all of its Year 2000 efforts
related to the Trust's internal systems will be completed by the end of the
first quarter of 1999.  However, there can be no guarantee that the Trustee will
be able to identify all potential Year 2000 problems or to fully remediate all
Year 2000 problems identified on a timely basis.  There also can be no assurance
that the systems of third party vendors on which the Trust relies will be timely
remediated.  The failure by the Trustee or any such third party to fully
remediate its Year 2000 problems on a timely basis could have a material adverse
effect on the Trustee's ability to account for and make timely distribution of
the Trust's distributable income.

     Certain of the statements made above regarding the Trustee's Year 2000
program are forward-looking statements, and there can be no assurance that the
Trustee will be able to achieve Year 2000 compliance in the manner and by the
dates indicated.

Forward Looking Statements

     This Report includes "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, which are intended to be
covered by the safe harbor created thereby. All statements other than statements
of historical fact included in this Report are forward-looking statements.
Although the Trustee believes that the expectations reflected in such forward-
looking statements are reasonable, such expectations are subject to numerous
risks and uncertainties and the Trustee can give no assurance that they will
prove correct. There are many factors, none of which is within the Trustee's
control, that may cause such expectations not to be realized, including, among
other things, factors identified in the Trust's most recent Annual Report on
Form 10-K affecting oil and gas prices and the recoverability of reserves,
general economic conditions, actions and policies of petroleum-producing nations
and other changes in the domestic and international energy markets.


                                       12
<PAGE>   13

                          PART II - OTHER INFORMATION


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

         (a)  Exhibit 27 - Financial Data Schedule.

         (b)  No reports on Form 8-K were filed during
              the quarter for which this report is filed.


                                       13



<PAGE>   14
                                 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.


                                    SABINE ROYALTY TRUST

                                    By: NationsBank, N.A.
                                        (as successor), Trustee


                                    By:  /s/ Ron E. Hooper
                                        --------------------------------------
                                        Ron E. Hooper
                                        Vice President and
                                        Trust Administrator

Date:  November 6, 1998

    (The Trust has no directors or executive officers.)


                                       14
<PAGE>   15

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                     EXHIBIT
-------                    -------
<S>                 <C>    
27                  Financial Data Schedule
</TABLE>