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

                                   Form 10-Q

                                      OR

       [X]     Quarterly Report Pursuant to Section 13 or 15(d)
                    of the Securities Exchange Act of 1934
               For the quarterly period ended September 30, 1995
                                              ------------------


       [ ]     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 organization)              fication No.)
                                         
                                Trust Division
                          NationsBank of Texas, N.A.
                               NationsBank Plaza
                                901 Main Street
                                  12th 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 October 16, 1995:
14,579,345

                              Page 1 of 15 Pages

<PAGE>
 
                             SABINE ROYALTY TRUST

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

Item 1.  Financial Statements.

     The condensed financial statements included herein have been prepared by
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, 1994 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, 1995, the distributable income for the 
three-month and nine-month periods ended September 30, 1995 and 1994, and the 
changes in trust corpus for the nine-month periods ended September 30, 1995 and
1994, have been included. The distributable income for such interim periods is
not necessarily indicative of the distributable income for the full year.

     Deloitte & Touche LLP, independent public accountants, have made a review
of the condensed financial statements as of September 30, 1995 and for the 
three-month and nine-month periods ended September 30, 1995 and 1994 included 
herein.

                                       2
<PAGE>
 
NationsBank of Texas, 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, 1995, the related
condensed statements of distributable income for the three-month and nine-month
periods ended September 30, 1995 and 1994, and changes in trust corpus for the
nine-month periods ended September 30, 1995 and 1994. 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 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, the 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, 1994, 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 17, 1995, 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, 1994, 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

November 10, 1995
Dallas, Texas

                                       3
<PAGE>
 
SABINE ROYALTY TRUST
--------------------

CONDENSED STATEMENTS OF ASSETS,
LIABILITIES AND TRUST CORPUS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
 
                                    SEPTEMBER 30, 
                                         1995      DECEMBER 31,
ASSETS                      NOTES    (UNAUDITED)      1994 
------                      -----   -------------  ------------
<S>                         <C>      <C>           <C>
 
Cash and short-term                   $2,218,991     $2,546,349
  investments
Royalty interests in oil
  and gas properties
  (less accumulated
  amortization of
  $18,231,677 and
  $17,768,889 at
  September 30, 1995 
  and December 31, 1994)        1      4,163,508      4,626,296
                                      ----------     ----------
 
TOTAL                                 $6,382,499     $7,172,645
                                      ==========     ==========
 
LIABILITIES AND TRUST CORPUS
----------------------------
 
Trust expenses payable                $   84,465     $  563,736
0ther payables                  4        476,887        479,212
 
Trust corpus - 14,579,345
  units of beneficial
  interest authorized
  and outstanding                      5,821,147      6,129,697
                                      ----------     ----------
 
TOTAL                                 $6,382,499     $7,172,645
                                      ==========     ==========
</TABLE>

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

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

                                       4
<PAGE>
 
SABINE ROYALTY TRUST
--------------------

CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
--------------------------------------------------------
<TABLE>
<CAPTION>
 
                                        THREE MONTHS ENDED SEPTEMBER 30,
                                        --------------------------------
                              NOTES        1995                  1994    
                              -----     ----------            ----------  
<S>                           <C>       <C>                   <C>         
Royalty income                          $4,253,119            $4,771,754  
Interest income                             27,909                19,500  
                                        ----------            ----------  
Total                                    4,281,028             4,791,254  
General and administrative                                                
 expenses                                  290,953               315,927  
                                        ----------            ----------  
                                                                          
Distributable income                    $3,990,075            $4,475,327  
                                        ==========            ==========   
                                                    
Distributable income                                
 per unit                                           
 (14,579,345 units)           1,3,5     $      .27            $      .31
                                        ==========            ==========
</TABLE>

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

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

                                       5
<PAGE>
 
SABINE ROYALTY TRUST
--------------------

CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
--------------------------------------------------------
<TABLE>
<CAPTION>
                                         NINE MONTHS ENDED SEPTEMBER 30,
                                         -------------------------------
                              NOTES         1995                1994     
                              -----      ----------          ----------- 
<S>                           <C>        <C>                 <C>          
Royalty income                           $13,091,798         $14,127,120  
Interest income                               79,336              51,945   
                                         -----------         -----------   
Total                                     13,171,134          14,179,065   
General and administrative                                                
 expenses                                  1,027,182             999,361   
                                         -----------         -----------   
                                                                          
Distributable income                     $12,143,952         $13,179,704  
                                         ===========         ===========   
                                                                          
Distributable income                                                      
 per unit                                                                 
 (14,579,345 units)           1,3,5      $       .83         $       .90
                                         ===========         ===========
</TABLE>

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

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

                                       6
<PAGE>
 
SABINE ROYALTY TRUST
--------------------

CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                     NINE MONTHS ENDED SEPTEMBER 30,
                                     -------------------------------
                           NOTES          1995               1994    
                           -----      -----------        ----------- 
<S>                        <C>       <C>                <C>          
Trust corpus, beginning              $ 6,129,697         $ 6,801,613 
 of period                                                           
Amortization of royalty                                              
 interests                              (462,788)           (540,479)
Distributable income                  12,143,952          13,179,704 
Distributions                3       (11,989,714)        (13,230,624)
                                     -----------         ----------- 
                                                                     
Trust corpus, end                                                    
 of period                           $ 5,821,147         $ 6,210,214 
                                     ===========         =========== 
                                                                     
Distributions per unit                                               
 (14,579,345 units)                  $       .82         $       .91 
                                     ===========         ===========  
</TABLE> 

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

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

                                       7
<PAGE>
 
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 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>
 
     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>
 
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.


     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>
 
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, 1995, the Trust declared the following
distributions:
 
        Monthly
        Record             Payment   Distribution
        Date                Date       per Unit  
        ------            ---------  ------------

        October 16        October 30    $.07460
        November 15       November 29   $.06301
 

                                       11
<PAGE>
 
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, 1995 was $3,990,075 or $.27 per Unit.  Royalty income amounted to
$4,253,119 while interest income was $27,909.  General and administrative
expenses totaled $290,953.

     Distributions during the period were $.07766, $.06546 and $.12535 per Unit
to Unit holders of record on July 17, August 15 and September 15, 1995, 
respectively.

     Royalty income for the quarter ended September 30, 1995 decreased 
approximately $519,000 or 11% compared with the third quarter of 1994. This was
due primarily to a decrease in the price of oil and gas and to a decrease in the
production of oil and gas in the third quarter of 1995 compared to the third
quarter of 1994. Compared to the preceding quarter ended June 30, 1995, royalty
income decreased approximately $289,000 or 6% due primarily to a decline in oil 
and gas prices for production in the third quarter of 1995.  Royalty income for
the nine-month period ended September 30, 1995 decreased by approximately
$1,036,000 or 8% compared to the same period of 1994 due primarily to the fact
that oil and gas prices were lower for the first nine months of 1995 as compared
to those for the same period in 1994.

     It continues to be difficult to estimate accurately 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, 1995 increased 
approximately $8,000 compared with the third quarter of 1994 due primarily to an
increase in interest rates. Interest income for the nine-month period ended
September 30, 1995 increased by approximately $27,000 as compared to the same
period in 1994 due primarily to an increase in interest rates.

                                       12
<PAGE>
 
     General and administrative expenses for the quarter ended September 30, 
1995 decreased approximately $25,000 compared to the same quarter of 1994 due
primarily to the timing of the payment of costs related to the preparation and
distribution of annual year-end information to Unit holders. Compared to the
preceding quarter ended June 30, 1995, general and administrative expenses
decreased approximately $90,000 due primarily to the timing of payment of the
aforementioned costs. General and administrative expenses for the nine-month
period ended September 30, 1995 increased by approximately $28,000 from the same
period in 1994 due primarily to increased legal expenses associated with the
negotiation of a settlement of certain litigation in which the Trust was a 
plaintiff.

                                       13
<PAGE>
 
                          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.

                                       14
<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.


                                    SABINE ROYALTY TRUST

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


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

Date:  November 10, 1995

   (The Trust has no directors or executive officers.)

                                       15