SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ______________________


                                    FORM 10-Q


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


For the Quarter Ended December 31, 1996           Commission File Number: 814-61


                          CAPITAL SOUTHWEST CORPORATION
             (Exact name of registrant as specified in its charter)

      Texas                                                         75-1072796
(State or other Jurisdiction of                                 (I.R.S. Employer
 Incorporation or Organization)                           Identification Number)

               12900 Preston Road, Suite 700, Dallas, Texas 75230
           (Address of principal executive offices including zip code)

                                 (972) 233-8242
               (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  periods that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                  Yes X      No
                                      --       --
Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

      3,767,051 shares of Common Stock, $1 Par Value as of January 31, 1997



<PAGE>


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


Item 1.    Financial Statements

                  CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARY
                 Consolidated Statements of Financial Condition
                 ----------------------------------------------


<TABLE>
<CAPTION>
<S>                                                                             <C>
Assets                                                        December 31, 1996          March 31, 1996
                                                              -----------------          --------------
                                                                   (Unaudited)
Investments at market or fair value
      Companies more than 25% owned
        (Cost: December 31, 1996 - $20,552,361,
         March 31, 1996 - $21,480,361)                           $211,078,840             $191,043,920
      Companies 5% to 25% owned
        (Cost: December 31, 1996 - $20,937,071,
        March 31, 1996 - $18,750,404)                              37,959,002               19,633,672
      Companies less than 5% owned
        (Cost: December 31, 1996 - $21,313,336,
        March 31, 1996 - $18,313,335)                              61,211,426               46,252,869
                                                                  -----------              -----------
      Total investments
        (Cost: December 31, 1996 - $62,802,768,
        March 31, 1996 - $58,544,100)                             310,249,268              256,930,461
Cash and cash equivalents                                           7,424,267               67,045,185
Receivables                                                           506,035                  285,002
Other assets                                                        3,059,790                2,711,802
                                                                  -----------              -----------
      Totals                                                     $321,239,360             $326,972,450
                                                                  ===========              ===========

Liabilities and Shareholders' Equity

Note payable to bank                                             $      -                 $ 50,000,000
Accrued interest and other liabilities                              1,497,310                1,669,839
Income taxes payable                                                6,268,782                6,050,730
Deferred income taxes                                              86,760,128               69,204,128
Subordinated debentures                                             5,000,000               11,000,000
                                                                  -----------              -----------
      Total liabilities                                            99,526,220              137,924,697
                                                                  -----------              -----------

Shareholders' equity
      Common stock, $1 par value: authorized,
        5,000,000 shares; issued, 4,204,416 shares
        at December 31, 1996 and March 31, 1996                     4,204,416                4,204,416
      Additional capital                                            4,813,121                4,813,121
      Undistributed net investment income                           4,317,669                4,490,374
      Undistributed net realized gain on investments               54,199,736               53,307,782
      Unrealized appreciation of investments -
        net of deferred income taxes                              161,211,500              129,265,362
      Treasury stock - at cost (437,365 shares)                    (7,033,302)              (7,033,302)
                                                                  -----------              ----------- 
      Net assets at market or fair value, equivalent
        to $58.86 per share at December 31, 1996, and
        $50.18 per share at March 31, 1996 on the
        3,767,051 shares outstanding                              221,713,140              189,047,753
        ---------                                                 -----------              -----------
      Totals                                                     $321,239,360             $326,972,450
                                                                  ===========              ===========


</TABLE>


                (See Notes to Consolidated Financial Statements)



                                       2

<PAGE>


                          CAPITAL SOUTHWEST CORPORATION
                                 AND SUBSIDIARY
                      Consolidated Statements of Operations
                      -------------------------------------
                                   (Unaudited)


<TABLE>
<CAPTION>
<S>                                                                            <C>          <C>                <C>  
                                                              Three Months Ended                Nine Months Ended
                                                                  December 31                        December 31
                                                            1996              1995            1996               1995
                                                            ----              ----            ----               ----
Investment income:
     Interest                                          $   296,204       $   463,764      $   980,906         $1,498,038
     Dividends                                             393,377         1,502,418        1,998,344          2,794,521
     Management and directors' fees                        153,100           149,350          451,300            417,650
                                                        ----------        ----------       ----------         ----------
                                                           842,681         2,115,532        3,430,550          4,710,209
                                                        ----------        ----------       ----------         ----------
Operating expenses:
     Interest                                              103,103           829,393          533,713          1,416,788
     Salaries                                              231,757           221,142          620,639            615,348
     Net pension expense (benefit)                         (87,475)          (52,175)        (262,427)          (156,526)
     Other operating expenses                              122,235           163,226          354,274            394,516
                                                        ----------        ----------       ----------         ----------
                                                           369,620         1,161,586        1,246,199          2,270,126
                                                        ----------        ----------       ----------         ----------
Income before income taxes                                 473,061           953,946        2,184,351          2,440,083
Income tax expense                                          31,000            20,334           96,825             57,448
                                                        ----------        ----------       ----------         ----------

Net investment income                                  $   442,061       $   933,612      $ 2,087,526        $ 2,382,635
                                                        ==========        ==========       ==========         ==========
Proceeds from disposition of
  investments                                          $ 2,273,338       $20,919,308      $ 2,273,338        $20,919,308
Cost of investments sold                                   813,333         2,621,266          813,333          2,621,266
                                                        ----------        ----------       ----------         ----------
Realized gain on investments before
  income taxes                                           1,460,005        18,298,042        1,460,005         18,298,042
Income tax expense                                         568,052         5,940,235          568,052          5,940,235
                                                        ----------        ----------       ----------         ----------

Net realized gain on investments                           891,953        12,357,807          891,953         12,357,807
                                                        ----------        ----------       ----------         ----------

Increase (decrease) in unrealized
  appreciation of investments before
  income taxes and distributions                        17,067,558        (3,353,503)      49,060,139         37,634,523
Increase (decrease) in deferred income
  taxes on appreciation of investments                   5,917,000        (1,174,000)      17,114,000          9,929,000
                                                        ----------        ----------       ----------         ----------
Net increase (decrease) in unrealized
   appreciation of investments 
   before distributions                                 11,150,558        (2,179,503)      31,946,139         27,705,523
                                                        ----------        ----------       ----------         ----------

Net realized and unrealized gain
  on investments                                       $12,042,511       $10,178,304      $32,838,092        $40,063,330
                                                        ==========        ==========       ==========         ==========
 
Increase in net assets from operations
  before distributions                                 $12,484,572       $11,111,916      $34,925,618        $42,445,965
                                                        ==========        ==========       ==========         ==========

</TABLE>


                (See Notes to Consolidated Financial Statements)



                                       3

<PAGE>


                          CAPITAL SOUTHWEST CORPORATION
                                 AND SUBSIDIARY
                Consolidated Statements of Changes in Net Assets
                ------------------------------------------------


<TABLE>
<CAPTION>
<S>                                                                                <C>
                                                           Nine Months Ended            Year Ended
                                                           December 31, 1996          March 31, 1996
                                                           -----------------          --------------
                                                               (Unaudited)

Operations
      Net investment income                                 $  2,087,526              $  2,854,917
      Net realized gain on investments                           891,953                11,174,025
      Net increase in unrealized appreciation
        of investments before distributions                   31,946,139                38,745,668
                                                             -----------               -----------
      Increase in net assets from operations
        before distributions                                  34,925,618                52,774,610

Distributions from:
      Undistributed net investment income                     (2,260,231)               (2,253,831)
      Undistributed net realized gain on investments               -                      (153,376)
      Unrealized appreciation of investments                       -                    (9,264,304)

Capital share transactions
      Exercise of employee stock options                           -                       574,750
                                                             -----------               -----------

      Increase in net assets                                  32,665,387                41,677,849

Net assets, beginning of period                              189,047,753               147,369,904
                                                             -----------               -----------

Net assets, end of period                                   $221,713,140              $189,047,753
                                                             ===========               ===========
                                                             


</TABLE>























                (See Notes to Consolidated Financial Statements)


                                       4

<PAGE>


                          CAPITAL SOUTHWEST CORPORATION
                                 AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                      -------------------------------------
                                   (Unaudited)

<TABLE>
<CAPTION>
<S>                                                                            <C>           <C>             <C>
                                                             Three Months Ended                 Nine Months Ended
                                                                 December 31                       December 31
                                                             ------------------                 -----------------
                                                            1996              1995             1996             1995
                                                            ----              ----             ----             ----
Cash flows from operating activities
Increase in net assets from operations before
  distributions                                         $ 12,484,572     $ 11,111,916      $ 34,925,618     $ 42,445,965
Adjustments to reconcile increase in net
  assets from operations before distributions
  to net cash provided  by operating activities:
  Depreciation and amortization                                5,710            8,147            21,890           23,361
  Net pension benefit                                        (87,475)         (52,175)         (262,427)        (156,526)
  Net realized and unrealized gain
     on investments                                      (12,042,511)     (10,178,304)      (32,838,092)     (40,063,330)
  Increase in receivables                                   (353,656)        (429,008)         (221,033)        (519,638)
 (Increase) decrease in other assets                           5,165           57,832            (8,531)          40,282
 Increase (decrease) in accrued interest
     and other liabilities                                   (96,948)         602,499          (271,450)         546,326
  Deferred income taxes                                       31,000           18,000            92,000           55,000
                                                         -----------      -----------       -----------      -----------
Net cash provided (used) by operating activities             (54,143)       1,138,907         1,437,975        2,371,440
                                                         -----------      -----------       -----------      -----------

Cash flows from investing activities
Proceeds from disposition of investments                   2,273,338          964,708         2,273,338          964,708
Purchases of securities                                   (3,000,000)      (1,101,684)       (6,000,000)     (11,978,816)
Maturities of securities                                     928,000        4,941,155           928,000        5,051,824
                                                         -----------      -----------       -----------      -----------
Net cash provided (used) by investing activities             201,338        4,804,179        (2,798,662)      (5,962,284)
                                                         -----------      -----------       -----------      ----------- 
 
Cash flows from financing activities
Increase (decrease) in notes payable to bank                    -         (25,075,000)      (50,000,000)      54,425,000
Increase in note payable to Skylawn Corp.                       -               -                 -            2,500,000
Repayment of subordinated debenture                             -               -            (6,000,000)           -
Distributions from undistributed net                     
  investment income                                       (1,506,821)      (1,506,821)       (2,260,231)      (2,253,831)      
Distributions from undistributed net realized
  gain on investments                                           -                -                 -             (15,842)
Proceeds from exercise of employee
  stock options                                                 -                -                 -             574,750
                                                         -----------      -----------       -----------      ----------- 
Net cash provided (used) by financing activities          (1,506,821)     (26,581,821)      (58,260,231)      55,230,077
                                                         -----------      -----------       -----------      -----------

Net increase (decrease) in cash and cash
  equivalents                                             (1,359,626)     (20,638,735)      (59,620,918)      51,639,233
Cash and cash equivalents at beginning
  of period                                                8,783,893       80,650,944        67,045,185        8,372,976
                                                         -----------      -----------       -----------       ----------
Cash and cash equivalents at end of period              $  7,424,267     $ 60,012,209      $  7,424,267     $ 60,012,209
                                                         ===========      ===========       ===========      ===========

</TABLE>




                                   (Continued)




                (See Notes to Consolidated Financial Statements)


                                       5

<PAGE>


                          CAPITAL SOUTHWEST CORPORATION
                                 AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                      -------------------------------------
                                   (Unaudited)


Continued
- ---------

<TABLE>
<CAPTION>
<S>                                                                               <C>               <C>
                                                         Three Months Ended             Nine Months Ended
                                                            December 31                     December 31
                                                         ------------------             -----------------
                                                       1996              1995         1996             1995
                                                       ----              ----         ----             ----

Supplemental disclosure of cash flow information:
Cash paid during the period for:
  Interest                                           $200,548          $233,360     $691,397         $787,117
  Income taxes                                       $   -             $      9     $      9         $    123

</TABLE>



Supplemental  disclosure  of financing  activities:
On July 31, 1995, Capital Southwest Corporation  distributed to its shareholders
940,184  shares of common  stock of Palm Harbor  Homes,  Inc.,  which had a fair
market value of $10.00 per share, or $9,401,838, as adjusted for a 5-for-4 stock
split on August 2, 1996.































                (See Notes to Consolidated Financial Statements)



                                       6

<PAGE>



                      CAPITAL SOUTHWEST VENTURE CORPORATION
           (wholly-owned subsidiary of Capital Southwest Corporation)
                        Statement of Financial Condition
                        --------------------------------
                                December 31, 1996
                                -----------------
                                   (Unaudited)



Assets

Investments at market or fair value
     Companies more than 25% owned (Cost - $3,367,737)              $48,257,782
     Companies 5% to 25% owned (Cost - $3,001,483)                   12,048,001
     Companies less than 5% owned (Cost - $12,260,983)               33,346,522
                                                                     ----------
       Total investments (Cost - $18,630,203)                        93,652,305
Cash and cash equivalents                                             3,594,240
Interest and dividends receivable                                       132,123
Other assets                                                             49,432
                                                                     ----------
              Total                                                 $97,428,100
                                                                     ==========

Liabilities and Shareholder's Equity

Accrued interest and other liabilities                              $    81,401
Deferred income taxes                                                26,185,000
Subordinated debenture                                                5,000,000
                                                                     ----------
         Total liabilities                                           31,266,401
                                                                     ----------

Shareholder's equity
     Common stock, $1 par value: authorized 5,000,000 shares;
       issued and outstanding, 1,000,000 shares                       1,000,000
     Additional capital                                              16,011,904
     Undistributed net investment income                                642,163
     Accumulated net realized loss on investments                      (329,470)
     Unrealized appreciation of investments - net of deferred
       income taxes                                                  48,837,102
                                                                     ----------
         Shareholder's equity                                        66,161,699
                                                                     ----------
              Total                                                 $97,428,100
                                                                     ==========



















                (See Notes to Consolidated Financial Statements)


                                       7

<PAGE>

                      CAPITAL SOUTHWEST VENTURE CORPORATION
           (wholly-owned subsidiary of Capital Southwest Corporation)
                             Statement of Operations
                             -----------------------
                       Nine Months Ended December 31, 1996
                       -----------------------------------
                                   (Unaudited)


<TABLE>
<CAPTION>
<S>                                                                            <C> 
Investment income:
    Interest                                                                    $    750,787
    Dividends                                                                        941,372
                                                                                 -----------
                                                                                   1,692,159
                                                                                 -----------
Operating expenses:
    Interest                                                                         533,713
    Management fee                                                                   107,844
    Miscellaneous                                                                     10,917
                                                                                 -----------
                                                                                     652,474
                                                                                 -----------
Net investment income                                                           $  1,039,685
                                                                                 ===========
                                                                                 

Proceeds from disposition of investments                                        $  2,273,338
Cost of investments sold                                                             813,333
                                                                                 -----------
Realized gain on investments before income taxes                                   1,460,005
Income tax expense                                                                   350,000
                                                                                 -----------
Net realized gain on investments                                                   1,110,005
                                                                                 -----------

Net increase in unrealized appreciation of investments before distribution
    (net of increase in deferred income taxes of $4,719,000)                    $  8,927,766
                                                                                 -----------

Net realized and unrealized gain on investments                                 $ 10,037,771
                                                                                 -----------
                                                                                 
                                                                                 
Increase in shareholder's equity from operations before distribution            $ 11,077,456
                                                                                 ===========
</TABLE>


                  Statements of Changes in Shareholder's Equity
                  ---------------------------------------------

<TABLE>
<CAPTION>
<S>                                                                            <C>                 
                                                         Nine Months Ended        Year Ended
                                                          December 31, 1996      March 31, 1996
                                                          -----------------      --------------
                                                             (Unaudited)
Net investment income                                       $ 1,039,685         $  1,508,704
Net realized gain (loss) on investments                       1,110,005             (552,240)
Net increase in unrealized appreciation
  of investments before distribution                          8,927,766           12,662,525
                                                             ----------          -----------
Increase in shareholder's equity from
  operations before distribution                             11,077,456           13,618,989
Capital contribution by Capital Southwest Corporation           404,955            2,500,000
Distributions to Capital Southwest Corporation from:
  Undistributed net investment income                        (1,129,184)          (1,089,251)
  Accumulated net realized loss on investments                 (623,008)            (137,765)
  Unrealized appreciation of investments                           -              (9,279,873)
                                                             ----------          -----------
Increase in shareholder's equity                              9,730,219            5,612,100

Shareholder's equity, beginning of period                    56,431,480           50,819,380
                                                             ----------          -----------

Shareholder's equity, end of period                         $66,161,699         $ 56,431,480
                                                             ==========          ===========                  
</TABLE>

                (See Notes to Consolidated Financial Statements)
                                       8

<PAGE>


                      CAPITAL SOUTHWEST VENTURE CORPORATION
           (wholly-owned subsidiary of Capital Southwest Corporation)
                             Statement of Cash Flows
                             -----------------------
                       Nine Months Ended December 31, 1996
                       -----------------------------------
                                   (Unaudited)



<TABLE>
<CAPTION>
<S>                                                                            <C>
Cash flows from operating activities
Increase in shareholder's equity from operations before distribution            $ 11,077,456
Adjustments to reconcile increase in shareholder's equity from
  operations before distribution to net cash provided by operating activities:
  Net realized and unrealized gain on investments                                (10,037,771)
  Increase in interest and dividends receivable                                      (28,841)
  Decrease in other assets                                                            12,317
  Decrease in accrued interest and other liabilities                                (258,817)
                                                                                 ----------- 

Net cash provided by operating activities                                            764,344
                                                                                 -----------


Cash flows from investing activities
Proceeds from disposition of investments                                           2,273,338
Purchase of securities                                                            (3,000,000)
Maturities of securities                                                             928,000
                                                                                 -----------
Net cash provided by investing activities                                            201,338
                                                                                 -----------

Cash flows from financing activities
Repayment of subordinated debenture                                               (6,000,000)
Capital contribution by Capital Southwest Corporation                                404,955
Distributions from undistributed net investment income                            (1,129,184)
Distributions from accumulated net realized loss on investments                     (623,008)
                                                                                 ----------- 
                                                                                  (7,347,237)
                                                                                 ----------- 

Net increase in cash and cash equivalents                                         (6,381,555)
Cash and cash equivalents at beginning of period                                   9,975,795
                                                                                 -----------
Cash and cash equivalents at end of period                                      $  3,594,240
                                                                                 ===========

Supplemental disclosure of cash flow information:
Cash paid during the period for:
  Interest                                                                      $    665,753
  Income taxes                                                                  $       -

</TABLE>









                (See Notes to Consolidated Financial Statements)



                                       9

<PAGE>


                          CAPITAL SOUTHWEST CORPORATION
                                 AND SUBSIDIARY

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.      Basis of Presentation

     The  accompanying  consolidated  financial  statements,  which  include the
accounts of Capital  Southwest  Corporation and its wholly-owned  small business
investment company  subsidiary (the "Company"),  have been prepared on the value
basis in accordance with generally accepted accounting principles for investment
companies.  All significant  intercompany  accounts and  transactions  have been
eliminated in consolidation.

     The financial  statements  included herein have been prepared in accordance
with generally accepted accounting  principles for interim financial information
and the instructions to Form 10-Q and Article 6 of Regulation S-X. The financial
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements  and notes thereto  included in the  Company's  annual report on Form
10-K for the year  ended  March 31,  1996.  Certain  information  and  footnotes
normally included in financial  statements prepared in accordance with generally
accepted  accounting  principles  have been  condensed or omitted,  although the
Company believes that the disclosures are adequate for a fair presentation.  The
information   reflects  all   adjustments   (consisting   of  normal   recurring
adjustments)  which are,  in the  opinion of  management,  necessary  for a fair
presentation of the results of operations for the interim periods.


2.      Summary of Per Share Information

<TABLE>
<CAPTION>
<S>                                                                            <C>   <C>    
                                                Three Months Ended       Nine Months Ended
                                                      December 31             December 31
                                                  ------------------       -----------------
                                                  1996          1995       1996         1995
                                                  ----          ----       ----         ----
                                                   
     Investment income                          $  .22        $  .56     $  .91      $  1.25
     Operating expenses                           (.07)         (.09)      (.19)        (.23)
     Interest expense                             (.03)         (.22)      (.14)        (.38)
     Income taxes                                   -             -        (.02)        (.01)
                                                 -----         -----      -----       ------ 
     Net investment income                         .12           .25        .56          .63
     Net realized gain on investments              .24          3.28        .24         3.28
     Net increase (decrease) in unrealized
       appreciation of investments before
       distributions                              2.96          (.58)      8.48         7.36
     Distributions from undistributed
       net investment income                      (.40)         (.40)      (.60)        (.60)
     Distributions from undistributed net
       realized gain on investments                 -             -         -           (.04)
     Distributions from unrealized appreciation
       of investments                               -             -         -          (2.46)
     Exercise of employee stock options (1)         -             -         -           (.19)
                                                 -----         -----      -----       ------ 
     Net increase in net asset value              2.92          2.55       8.68         7.98
     Net asset value:
       Beginning of period                       55.94         44.89      50.18        39.46
                                                 -----         -----      -----       ------
       End of period                            $58.86        $47.44     $58.86       $47.44
                                                 =====         =====      =====        =====
 
     Shares outstanding at end of period
       (000s omitted)                            3,767         3,767      3,767        3,767
</TABLE>



(1)  Net  decrease is due to the  exercise of employee  stock  options at prices
     less than beginning of period net asset value.



                                       10

<PAGE>



I
tem 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

     Interest  income in the nine months ended  December 31, 1996 decreased from
the  year-ago  period  primarily  because  of the  repayment  of  debentures  by
portfolio  companies  offset  somewhat by an  increase  in invested  idle funds.
During the nine months ended  December 31, 1996 and 1995,  the Company  recorded
dividend income from the following sources:

                                                        Nine Months Ended
                                                           December 31
                                                        -----------------
                                                    1996                 1995
                                                    ----                 ----
             Alamo Group Inc.                 $  798,000           $  798,000
             The RectorSeal Corporation          640,895            1,229,019
             Skylawn Corporation                 300,000              150,000   
             Cherokee   Communications, Inc.     108,000              108,000
             Westmarc Communications, Inc.        60,953               60,953
             Humac Company                          -                 208,200
             Texas Shredder, Inc.                 28,125              168,750   
             Other                                62,371               71,599
                                               ---------            ---------
                                              $1,998,344           $2,794,521
                                               =========            =========

     Interest  expense in the nine months ended December 31, 1996 decreased from
the  year-ago  period  due to the  repayment  of bank  debt  and a  subordinated
debenture  and due to the accrual of interest in the prior year on the  deferred
tax related to the installment sale of MESC Holdings, Inc.

     During the nine months  ended  December 31,  1996,  the Company  reported a
realized  gain  before  income  taxes of  $1,460,005.  It should be noted that a
realized  gain before  income  taxes and a decrease in  unrealized  appreciation
before income taxes are directly  related in that when an appreciated  portfolio
security  is sold to realize a gain,  a  corresponding  decrease  in  unrealized
appreciation  occurs by  transferring  the gain  associated with the transaction
from being unrealized to being realized. Conversely, when a loss is realized
on a depreciated  portfolio  security,  an increase in  unrealized  appreciation
occurs.

     Set  forth  in the  following  table  are  the  significant  increases  and
decreases  in  unrealized  appreciation  (before the related  change in deferred
taxes and excluding the effect of gains or losses  realized  during the periods)
by portfolio company:


<TABLE>
<CAPTION>
<S>                                                                            <C>               <C>
                                               Three Months Ended                        Nine Months Ended
                                                   December 31                              December 31
                                               ------------------                        -----------------                
                                             1996              1995                    1996             1995
                                             ----              ----                    ----             ----
  Alamo Group Inc.                    $ 5,359,000          $      -             $(1,609,000)       $ 3,920,000
  All Components, Inc.                  1,000,000                 -               1,000,000              -
  American Homestar Corporation          (500,704)        1,266,255               1,051,481          2,524,368 
  Cherokee Communications, Inc.         5,752,958         1,000,000               5,752,938          1,000,000
  Data Race, Inc.                       5,259,721           223,900               5,764,886         (1,585,400)   
  Encore Wire Corporation               1,539,000        (2,789,000)              6,865,000         (6,356,000) 
  LiL'Things, Inc.                          -              (318,284)             (1,835,670)          (318,284)
  Mail-Well, Inc.                       3,123,000          (607,000)              4,956,000          3,062,990
  PTS Holdings, Inc.                        -                 -                   3,000,000              -  
  Palm Harbor Homes, Inc.                   -            14,461,000              21,918,000         31,751,777
  PETsMART, Inc.                       (2,535,101)         (899,000)              2,371,549          5,434,755  
  The RectorSeal Corporation                -             1,000,000               2,000,000          1,000,000
  Skylawn Corporation                  (3,000,000)            -                  (3,000,000)             -
  The Whitmore Manufacturing Co.        1,200,000          (800,000)              1,200,000           (800,000)
 
</TABLE>



                                       11

<PAGE>
 

On July 31, 1995,  Capital  Southwest  Corporation  distributed  940,184  shares
(adjusted for the 8/96 stock split) of common stock of Palm Harbor  Homes,  Inc.
on the basis of 1.25  shares for each five  shares of Capital  Southwest  common
stock of record on July 17, 1995. Cash payments were made in lieu of Palm Harbor
common  stock to record  holders of fewer  than 50 shares of  Capital  Southwest
common  stock and in lieu of  fractional  shares.  The fair market value of Palm
Harbor common stock on the July 31, 1995  distribution date was determined to be
$10.00 per share (adjusted for the 8/96 stock split).

     During  the  quarter  ended  December  31,  1996,  the  Company  made a new
investment of $3,000,000.



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


Item 6.   Exhibits and Reports on Form 8-K
 
          (a)  Exhibits
                Exhibit 27 - Financial Data Schedule

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































                                       12

<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.

                                          CAPITAL SOUTHWEST CORPORATION

     February 10, 1997                /s/William R. Thomas
Date:_________________      By:_________________________________________________
                               William R. Thomas, President

     February 10, 1997                    /s/Tim Smith  
Date:_________________      By:_________________________________________________
                               Tim Smith, Vice President and Secretary-Treasurer





























                                       13

<PAGE>



                                  EXHIBIT INDEX
                                  -------------



              
         Exhibit Number           Description
         --------------           -----------

              27                  Financial Data Schedule































WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.


<TABLE> <S> <C>
   


                                  

<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of financial condition at December 31. 1996 (unaudited)
and the consolidated statement of operations for the nine months ended December
31, 1996 (unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000017313
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
       
<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          MAR-31-1996
<PERIOD-START>                             APR-01-1996
<PERIOD-END>                               DEC-31-1996
<EXCHANGE-RATE>                                      1
<INVESTMENTS-AT-COST>                       62,802,768
<INVESTMENTS-AT-VALUE>                     310,249,268
<RECEIVABLES>                                  506,035
<ASSETS-OTHER>                               3,059,790
<OTHER-ITEMS-ASSETS>                         7,424,267
<TOTAL-ASSETS>                             321,239,360
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                      5,000,000
<OTHER-ITEMS-LIABILITIES>                   94,526,220
<TOTAL-LIABILITIES>                         99,526,220
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     1,984,235
<SHARES-COMMON-STOCK>                        3,767,051
<SHARES-COMMON-PRIOR>                        3,767,051
<ACCUMULATED-NII-CURRENT>                    4,317,669
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                     54,199,736
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                   161,211,500
<NET-ASSETS>                               221,713,140
<DIVIDEND-INCOME>                            1,998,344
<INTEREST-INCOME>                              980,906

<OTHER-INCOME>                                 451,300
<EXPENSES-NET>                               1,246,199
<NET-INVESTMENT-INCOME>                      2,087,526
<REALIZED-GAINS-CURRENT>                       891,953
<APPREC-INCREASE-CURRENT>                   31,946,139
<NET-CHANGE-FROM-OPS>                       34,925,618
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                    2,260,231
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                              0
<NUMBER-OF-SHARES-REDEEMED>                          0
<SHARES-REINVESTED>                                  0
<NET-CHANGE-IN-ASSETS>                      32,665,387
<ACCUMULATED-NII-PRIOR>                      4,490,374
<ACCUMULATED-GAINS-PRIOR>                   53,307,782
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                                0
<INTEREST-EXPENSE>                             533,713
<GROSS-EXPENSE>                              1,246,199
<AVERAGE-NET-ASSETS>                                 0
<PER-SHARE-NAV-BEGIN>                            50.18
<PER-SHARE-NII>                                    .56
<PER-SHARE-GAIN-APPREC>                           8.72
<PER-SHARE-DIVIDEND>                             (.60)
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              58.86
<EXPENSE-RATIO>                                      0
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        



</TABLE>