----

| Delaware                                  |   | 75-2374449          |
|-------------------------------------------|--------|---------------------|
| (State or other jurisdiction              |   | (I.R.S. Employer    |
| of incorporation or organization)         |   | Identification No.) |
|                                      |   |                |
| 6 Desta Drive, Suite 6500, Midland, Texas |   | 79705               |
| (Address of principal executive office)   |   | (Zip Code)          |

| Indicate by check mark whether 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:YesxNo ̈ |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  ̈ Yes                                                                                                                                                                                                                                                                                                                                                                                  |  ̈ No |

| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Large accelerated filer  ̈                                                                                                                                                                                                                            |   | Accelerated filer  ̈ |   | Non-accelerated filer x |   | Smaller reporting company  ̈ |

| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
|------------------------------------------------------------------------------------------------------------------|
|  ̈ Yes                                                                                                       | x No |

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|     | Table of Contents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |     |
|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Page     |
|     | Glossary                                                                                                                                                                              | 3        |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
|     | Part I - FINANCIAL INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |     |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
| Item 1.  | Financial Statements                                                                                                                                                                  | 5        |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
|     | Balance Sheets as of September 30, 2010 and December 31, 2009                                                                                                                         | 6        |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
|     | Statements of Operations for the three months and nine months ended September 30, 2010 and 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 7        |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
|     | Statements of Cash flows for the nine months ended September 30, 2010 and 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 8        |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
| Item 2.  | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 11       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
| Item 3.  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                            | 16       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
| Item 4.  | Controls and Procedures                                                                                                                                                               | 16       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
|     | Part II – OTHER INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |     |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
| Item 1.  | Legal Proceedings                                                                                                                                                                     | 17       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
| Item 1A. | Risk Factors                                                                                                                                                                          | 17       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
| Item 2.  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                           | 17       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
| Item 3.  | Defaults Upon Senior Securities                                                                                                                                                       | 17       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
| Item 4.  | Submission of Matter to a Vote of Security Holders                                                                                                                                    | 17       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
| Item 5.  | Other Information                                                                                                                                                                     | 17       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
| Item 6.  | Exhibits                                                                                                                                                                              | 17       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |
|     | Signatures                                                                                                                                                                            | 18  |

----

Glossary 

----

----

Item 

----

Southwest 

|                                         |   | September 30, |      |   | December 31, |   |
|----------------------------------------------|--------|---------------|-----------|--------|--------------|--------|
|                                         |   | 2010          |      |   | 2009         |   |
|                                         |   | (unaudited)   |      |   |         |   |
| Assets                                       |   |          |      |   |         |   |
|                                         |   |          |      |   |         |   |
| Current assets:                              |   |          |      |   |         |   |
| Cash and cash equivalents                    |   | $             | 129,666   |   |         | $      | 58,405 |   |
| Receivable from Managing General Partner     |   |          | 44,000    |   |         |   | 51,892 |   |
| New Mexico income tax deposits               |   |          | 2,620     |   |         |   | 1,450 |   |
| Total current assets                         |   |          | 176,286   |   |         |   | 111,747 |   |
|                                         |   |          |      |   |         |   |   |   |
| Oil and gas properties - using the full-cost |   |          |      |   |         |   |   |   |
| method of accounting                         |   |          | 2,766,468 |   |         |   | 2,765,931 |   |
| Less accumulated depreciation,               |   |          |      |   |         |   |   |   |
| depletion and amortization                   |   |          | 2,390,335 |   |         |   | 2,356,812 |   |
|                                         |   |          |      |   |         |   |   |   |
| Net oil and gas properties                   |   |          | 376,133   |   |         |   | 409,119 |   |
|                                         |   |          |      |   |         |   |   |   |
|                                         |   | $             | 552,419   |   |         | $      | 520,866 |   |
|                                         |   |          |      |   |         |   |   |   |
| Liabilities and Partners' Deficit            |   |          |      |   |         |   |   |   |
|                                         |   |          |      |   |         |   |   |   |
| Asset retirement obligation                  |   | $             | 1,325,656 |   |         | $      | 1,246,630 |   |
|                                         |   |          |      |   |         |   |   |   |
| Partners' deficit:                           |   |          |      |   |         |   |   |   |
| General partners                             |   |          | (104,097  | )      |         |   | (102,659 | ) |
| Limited partners                             |   |          | (669,140  | )      |         |   | (623,105 | ) |
|                                         |   |          |      |   |         |   |   |   |
| Total partners' deficit                      |   |          | (773,237  | )      |         |   | (725,764 | ) |
|                                         |   |          |      |   |         |   |   |   |
|                                         |   | $             | 552,419   |   |         | $      | 520,866 |   |

----

Southwest 

|                                     |   | Three Months Ended |   |   | Nine Months Ended |   |
|------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
|                                     |   | September 30,      |   |   | September 30,     |   |
|                                     |   | 2010               |   |   | 2009              |   |   | 2010 |   |   | 2009 |   |
| Revenues                                 |   |               |   |   |              |   |   |   |   |   |   |   |
|                                     |   |               |   |   |              |   |   |   |   |   |   |   |
| Income from net profits interests        |   | $                  | 67,363 |   |              | $      | 126,850 |   |   | $ | 288,647 |   |   | $ | 115,455 |   |
| Interest                                 |   |               | 51     |   |              |   | 3 |   |   |   | 130 |   |   |   | 18 |   |
|                                     |   |               | 67,414 |   |              |   | 126,853 |   |   |   | 288,777 |   |   |   | 115,473 |   |
|                                     |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Expenses                                 |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation, depletion and amortization |   |               | 10,209 |   |              |   | 12,567 |   |   |   | 33,523 |   |   |   | 28,565 |   |
| Accretion expense                        |   |               | 26,735 |   |              |   | 24,729 |   |   |   | 78,489 |   |   |   | 65,434 |   |
| General and administrative               |   |               | 14,341 |   |              |   | 17,086 |   |   |   | 49,087 |   |   |   | 50,952 |   |
|                                     |   |               | 51,285 |   |              |   | 54,382 |   |   |   | 161,099 |   |   |   | 144,951 |   |
|                                     |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                        |   | $                  | 16,129 |   |              | $      | 72,471 |   |   | $ | 127,678 |   |   | $ | (29,478 | ) |
|                                     |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) allocated to:          |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Managing General Partner                 |   | $                  | 2,371  |   |              | $      | 7,654 |   |   | $ | 14,508 |   |   | $ | (82 | ) |
|                                     |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| General Partner                          |   | $                  | 263    |   |              | $      | 850 |   |   | $ | 1,612 |   |   | $ | (9 | ) |
|                                     |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Limited Partners                         |   | $                  | 13,495 |   |              | $      | 63,967 |   |   | $ | 111,558 |   |   | $ | (29,387 | ) |
|                                     |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Per limited partner unit                 |   | $                  | 2.26   |   |              | $      | 10.69 |   |   | $ | 18.65 |   |   | $ | (4.91 | ) |

----

Southwest 

|                                                 |   | Nine Months Ended |     |
|------------------------------------------------------|--------|-------------------|----------|
|                                                 |   | September 30,     |     |
|                                                 |   | 2010              |     |   | 2009 |   |
| Cash flows from operating activities:                |   |              |     |   |   |   |
|                                                 |   |              |     |   |   |   |
| Cash received from income from net profits interests |   | $                 | 295,369  |   |   | $ | 48,618 |   |
| Cash paid to suppliers                               |   |              | (49,087  | ) |   |   | (50,952 | ) |
| Interest received                                    |   |              | 130      |   |   |   | 18 |   |
| Net cash provided by operating activities            |   |              | 246,412  |   |   |   | (2,316 | ) |
|                                                 |   |              |     |   |   |   |   |   |
| Cash flows used in financing activities:             |   |              |     |   |   |   |   |   |
|                                                 |   |              |     |   |   |   |   |   |
| Distributions to partners                            |   |              | (175,151 | ) |   |   | (1,489 | ) |
|                                                 |   |              |     |   |   |   |   |   |
| Net increase (decrease) in cash and cash equivalents |   |              | 71,261   |   |   |   | (3,805 | ) |
|                                                 |   |              |     |   |   |   |   |   |
| Beginning of period                                  |   |              | 58,405   |   |   |   | 31,523 |   |
|                                                 |   |              |     |   |   |   |   |   |
| End of period                                        |   | $                 | 129,666  |   |   | $ | 27,718 |   |
|                                                 |   |              |     |   |   |   |   |   |
| Reconciliation of net income (loss) to net           |   |              |     |   |   |   |   |   |
| cash provided by operating activities:               |   |              |     |   |   |   |   |   |
|                                                 |   |              |     |   |   |   |   |   |
| Net income (loss)                                    |   | $                 | 127,678  |   |   | $ | (29,478 | ) |
|                                                 |   |              |     |   |   |   |   |   |
| Adjustments to reconcile net income (loss) to net    |   |              |     |   |   |   |   |   |
| cash provided by operating activities:               |   |              |     |   |   |   |   |   |
|                                                 |   |              |     |   |   |   |   |   |
| Depreciation, depletion and amortization             |   |              | 33,523   |   |   |   | 28,565 |   |
| Accretion of asset retirement obligation             |   |              | 78,489   |   |   |   | 65,434 |   |
| Settlement of asset retirement obligations           |   |              |     |   |   |   |   |   |
| for plugged and abandoned wells                      |   |              | -        |   |   |   | (15,040 | ) |
| Decrease (increase) in receivables                   |   |              | 6,722    |   |   |   | (51,797 | ) |
| Net cash provided by (used in) operating activities  |   | $                 | 246,412  |   |   | $ | (2,316 | ) |
|                                                 |   |              |     |   |   |   |   |   |
| Noncash investing and financing activities:          |   |              |     |   |   |   |   |   |
|                                                 |   |              |     |   |   |   |   |   |
| Increase in oil and gas properties –           |   |              |     |   |   |   |   |   |
| Asset retirement obligations                         |   | $                 | 537      |   |   | $ | 280,550 |   |

----

| 1. | Organization |
|----|--------------|

|                                                               | Limited  |   | General  |
|--------------------------------------------------------------------|----------|--------|----------|
|                                                               | Partners |   | Partners |
| Interest income on capital contributions                           | 100%     |   | -        |
| Oil and gas sales                                                  | 90%      |   | 10%      |
| All other revenues                                                 | 90%      |   | 10%      |
| Organization and offering costs (1)                                | 100%     |   | -        |
| Syndication costs                                                  | 100%     |   | -        |
| Amortization of organization costs                                 | 100%     |   | -        |
| Property acquisition costs                                         | 100%     |   | -        |
| Gain/loss on property disposition                                  | 90%      |   | 10%      |
| Operating and administrative costs (2)                             | 90%      |   | 10%      |
| Depreciation, depletion and amortization of oil and gas properties | 100%     |   | -        |
| All other costs                                                    | 90%      |   | 10%      |

|   | (1) | All organization costs in excess of 3% of initial capital contributions will be paid by the Managing General Partner and will be treated as a capital contribution.  The Partnership paid the Managing General Partner an amount equal to 3% of initial capital contributions for such organization costs. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Administrative costs in any year, which exceed 2% of capital contributions shall be paid by the Managing General Partner and will be treated as a capital contribution. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2. | Summary of Significant Accounting Policies |
|----|--------------------------------------------|

| 3. | Abandonment Obligations |
|----|-------------------------|

----

| 3. | Abandonment Obligations - continued |
|----|-------------------------------------|

|                                                      |   | 2010   |      |   | 2009   |   |
|-----------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Beginning of period                                       |   | $      | 1,246,630 |   |   | $      | 898,668 |   |
| Accretion expense                                         |   |   | 78,489    |   |   |   | 65,434 |   |
| Revisions of estimates                                    |   |   | 537       |   |   |   | 280,550 |   |
| Settlement of obligations for plugged and abandoned wells |   |   | -         |   |   |   | (15,040 | ) |
| End of period                                             |   | $      | 1,325,656 |   |   | $      | 1,229,612 |   |

| 4. | Subsequent Events |
|----|-------------------|

----

| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
|---------|---------------------------------------------------------------------------------------|

----

----

|                                      |   | Three Months Ended |   |
|-------------------------------------------|--------|--------------------|--------|
|                                      |   | September 30,      |   |
|                                      |   | 2010               |   |   | 2009 |   |
| Oil production in barrels                 |   |               | 3,261  |   |   |   | 4,330 |   |
| Gas production in mcf                     |   |               | 2,356  |   |   |   | 1,696 |   |
| Total (BOE)                               |   |               | 3,654  |   |   |   | 4,613 |   |
| Average price per barrel of oil           |   | $                  | 72.53  |   |   | $ | 64.63 |   |
| Average price per mcf of gas              |   | $                  | 4.99   |   |   | $ | 5.01 |   |
| Partnership distributions                 |   | $                  | 25,000 |   |   | $ | - |   |
| Limited partner distributions             |   | $                  | 22,500 |   |   | $ | - |   |
| Per unit distribution to limited partners |   | $                  | 3.76   |   |   | $ | - |   |
| Number of limited partner units           |   |               | 5,983  |   |   |   | 5,983 |   |

----

|                                      |   | Nine Months Ended |    |
|-------------------------------------------|--------|-------------------|---------|
|                                      |   | September 30,     |    |
|                                      |   | 2010              |    |   | 2009 |   |
| Oil production in barrels                 |   |              | 11,001  |   |   |   | 11,850 |   |
| Gas production in mcf                     |   |              | 4,821   |   |   |   | 5,563 |   |
| Total (BOE)                               |   |              | 11,805  |   |   |   | 12,777 |   |
| Average price per barrel of oil           |   | $                 | 74.06   |   |   | $ | 51.76 |   |
| Average price per mcf of gas              |   | $                 | 5.68    |   |   | $ | 4.40 |   |
| Partnership distributions                 |   | $                 | 175,151 |   |   | $ | 1,489 |   |
| Limited partner distributions             |   | $                 | 157,593 |   |   | $ | 1,020 |   |
| Per unit distribution to limited partners |   | $                 | 26.34   |   |   | $ | .17 |   |
| Number of limited partner units           |   |              | 5,983   |   |   |   | 5,983 |   |

----

----

Item 

Item 

| ·   | management has evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | this evaluation was conducted under the supervision and with the participation of management, including the chief executive and chief financial officers of the Managing General Partner; and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | it is the conclusion of chief executive and chief financial officers of the Managing General Partner that these disclosure controls and procedures are effective in ensuring that information that is required to be disclosed by the Partnership in reports filed or submitted with the SEC is recorded, processed, summarized and reported within the time periods specified in the rules and forms established by the SEC. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Item 1. | Legal Proceedings |
|---------|-------------------|

| Item 1A. | Risk Factors |
|----------|--------------|

| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
|---------|-------------------------------------------------------------|

| Item 3. | Defaults Upon Senior Securities |
|---------|---------------------------------|

| Item 4. | Submission of Matter to a Vote of Security Holders |
|---------|----------------------------------------------------|

| Item 5. | Other Information |
|---------|-------------------|

| Item 6. | Exhibits |
|---------|----------|

|   | (a) | Exhibits: |
|--------|-----|-----------|

|              31.1 | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                        |
|------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              31.2 | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                        |
|              32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

----

SIGNATURES

|   | Southwest Royalties Institutional Income Fund |
|--------|-----------------------------------------------|
|   | X-C, L.P., a Delaware limited partnership     |
|   |                                          |
| By:    | Southwest Royalties, Inc., Managing           |
|   | General Partner                               |
|   |                                          |
|   |                                          |
| By:    | /s/ L. Paul Latham                            |
|   | L. Paul Latham                                |
|   | President and Chief Executive Officer         |
|   |                                          |
| Date:  | November 12, 2010                             |

----