UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2008

                                       OR

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

For the transition period from ...........to  .............

                         Commission File Number: 814-61

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

                       Texas                                     75-1072796
(State or other jurisdiction of incorporation                 (I.R.S. Employer
              or organization)                               Identification No.)

12900 Preston Road, Suite 700, Dallas, Texas                       75230
(Address of principal executive offices)                          (Zip Code)


         Registrant's telephone number, including area code:  (972) 233-8242

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X]  No [ ]

Indicate by check mark whether the registrant is 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.  (Check
One):

Large accelerated filer [ ] Accelerated filer  [X]    Non-accelerated filer [ ]

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


Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

     3,741,638 shares of Common Stock, $1 par value, as of October 31, 2008

<PAGE>


                                TABLE OF CONTENTS

                                                                        Page No.
                                                                        --------
PART I.   FINANCIAL INFORMATION

     ITEM 1. Consolidated Financial Statements

       Consolidated Statements of Financial Condition
                September 30, 2008 (Unaudited) and March 31, 2008..............3

       Consolidated Statements of Operations (Unaudited)
                For the three and six months ended September 30, 2008 and
                September 30, 2007.............................................4

       Consolidated Statements of Changes in Net Assets
                For the six months ended September 30, 2008 (Unaudited) and
                year ended March 31, 2008......................................5

       Consolidated Statements of Cash Flows (Unaudited) For the three and
                six months ended September 30, 2008 and
                September 30, 2007.............................................6

       Portfolio of Investments
                September 30, 2008.............................................7

       Notes to Consolidated Financial Statements.............................14

     ITEM 2.      Management's Discussion and Analysis of Financial
                      Condition and Results of Operations.....................19

     ITEM 3.      Quantitative and Qualitative Disclosure About
                      Market Risk.............................................21

     ITEM 4.      Controls and Procedures.....................................21

PART II.  OTHER INFORMATION

     ITEM 1      Legal Proceedings............................................22

     ITEM 1A.  Risk Factors...................................................22

     ITEM 4.      Submission of Matters to Vote of Security Holders...........22

     ITEM 6.      Exhibits ...................................................23

Signatures ...................................................................24



<PAGE>
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
-------------------------------

Item 1.    Consolidated Financial Statements

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

                                                             September 30,      March 31,
                                                                 2008             2008
                                                             -------------    -------------
                                                              (Unaudited)
<S>                                                          <C>              <C>
Assets

Investments at market or fair value
      Companies more than 25% owned
        (Cost: September 30, 2008 - $28,908,246
         March 31, 2008  - $28,758,246)                       $387,275,539     $410,026,178
      Companies 5% to 25% owned
        (Cost: September 30, 2008 - $20,412,243,
        March 31, 2008 - $20,412,243)                           57,671,133       54,895,381
      Companies less than 5% owned
        (Cost: September 30, 2008 - $35,762,756,
        March 31, 2008 - $31,856,977)                           75,452,373       82,648,943
                                                             -------------    -------------
      Total investments
        (Cost: September 30, 2008- $85,083,245,
        March 31, 2008 - $81,027,466)                          520,399,045      547,570,502
Cash and cash equivalents                                        9,400,652       31,327,758
Receivables                                                        623,338          156,322
Other assets                                                     7,820,058        7,630,486
                                                             -------------    -------------
      Totals                                                  $538,243,093     $586,685,068
                                                             =============    =============

Liabilities and Shareholders' Equity

Other liabilities                                             $  2,323,461     $  1,187,796
Deferred income taxes                                            1,841,358        1,797,058
                                                             -------------    -------------
      Total liabilities                                          4,164,819        2,984,854
                                                             -------------    -------------

Shareholders' equity
      Common stock, $1 par value: authorized,
        5,000,000 shares; issued, 4,326,516 shares
        at September 30, 2008 and March 31, 2008                 4,326,516        4,326,516
      Additional capital                                       115,907,746      115,687,153
      Undistributed net investment income                        5,373,019        7,036,929
      Undistributed net realized loss on investments            (2,908,159)      (2,860,118)
      Unrealized appreciation of investments                   435,315,800      466,543,036
      Treasury stock - at cost 584,878 shares at September
        30, 2008 and 437,365 shares at March 31, 2008          (23,936,648)      (7,033,302)
                                                             -------------    -------------
      Net assets at market or fair value, equivalent
        to $142.74 per share at September 30, 2008 on the
        3,741,638 shares outstanding and $150.09
        per share at March 31, 2008 on the 3,889,151
        shares outstanding                                     534,078,274      583,700,214
                                                             -------------    -------------
Totals                                                        $538,243,093     $586,685,068
                                                             =============    =============


              The accompanying Notes are an integral part of these
                       Consolidated Financial Statements

                                       3
<PAGE>


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

                                                 Three Months Ended                 Six Months Ended
                                                    September 30                      September 30
                                            -----------------------------    ------------------------------
                                                 2008             2007             2008           2007
                                                 ----             ----             ----           ----
Investment income:
     Interest                               $    327,171    $     679,442     $    677,023    $   1,244,129
     Dividends                                   677,999          801,467        1,335,479        1,164,894
     Management and directors' fees              311,108          226,200          542,108          451,400
                                           -------------    -------------    -------------    -------------
                                               1,316,278        1,707,109        2,554,610        2,860,423
                                           -------------    -------------    -------------    -------------
Operating expenses:
     Salaries                                    439,480          291,085          777,919          565,221
     Net pension benefit                         (44,779)        (127,434)        (126,617)        (163,671)
     Other operating expenses                    435,192          288,194          804,437          553,158
                                           -------------    -------------    -------------    -------------
                                                 829,893          451,845        1,455,739          954,708
                                           -------------    -------------    -------------    -------------

Income before income taxes                       486,385        1,255,264        1,098,871        1,905,715
Income tax expense                                57,343           44,400           84,630           54,160
                                           -------------    -------------    -------------    -------------

Net investment income                       $    429,042    $   1,210,864     $  1,014,241    $   1,851,555
                                           =============    =============    =============    =============

Proceeds from disposition of investments    $       --      $     402,777     $       --      $     728,552
Cost of investments sold                          48,041             --             48,041             --
                                           -------------    -------------    -------------    -------------
Net realized gain (loss) on investments          (48,041)         402,777          (48,041)         728,552
                                           -------------    -------------    -------------    -------------

Net decrease in unrealized
   appreciation of investments               (30,970,122)    (138,128,989)     (31,227,236)    (120,980,544)
                                           -------------    -------------    -------------    -------------

Net realized and unrealized loss
   on investments                           $(31,018,163)   $(137,726,212)    $(31,275,277)   $(120,251,992)
                                           =============    =============    =============    =============

Decrease in net assets from operations      $(30,589,121)   $(136,515,348)    $(30,261,036)   $(118,400,437)
                                           =============    =============    =============    =============




              The accompanying Notes are an integral part of these
                       Consolidated Financial Statements



                                       4
<PAGE>


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


                                              Six Months Ended         Year Ended
                                              September 30, 2008     March 31, 2008
                                              ------------------     --------------
                                                 (Unaudited)

Operations
      Net investment income                      $  1,014,241        $   3,715,200
      Net realized gain (loss) on investments         (48,041)             240,024
      Net decrease in unrealized appreciation
        of investments                            (31,227,236)        (142,969,698)
                                                -------------        -------------
      Decrease in net assets from operations      (30,261,036)        (139,014,474)

Distributions from:
      Undistributed net investment income          (2,678,152)          (2,333,291)

Capital share transactions:
      Exercise of employee stock options                 --                231,390
Change in pension plan funded status                     --             (1,178,764)
Stock option expense                                  220,594              263,664
Treasury stock                                    (16,903,346)                --
                                                -------------        -------------
      Decrease in net assets                      (49,621,940)        (142,031,475)

Net assets, beginning of period                   583,700,214          725,731,689
                                                -------------        -------------

Net assets, end of period                        $534,078,274        $ 583,700,214
                                                =============        =============









              The accompanying Notes are an integral part of these
                       Consolidated Financial Statements


                                       5
<PAGE>

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


                                                         Three Months Ended                   Six Months Ended
                                                            September 30                       September 30
                                                    ------------------------------    ------------------------------
                                                         2008            2007             2008             2007
                                                         ----            ----             ----             ----
Cash flows from operating activities
Decrease in net assets from
  operations                                         $(30,589,121)   $(136,515,348)    $(30,261,036)   $(118,400,437)
Adjustments to reconcile increase in net
  assets from operations to net cash
  provided  by operating activities:
  Proceeds from disposition of investments                   --            402,777             --            728,552
  Purchases of securities                              (3,994,279)      (1,163,347)      (4,103,820)      (9,215,094)
  Maturities of securities                                   --            150,000             --            154,500
  Depreciation and amortization                            10,638            6,272           19,907           10,681
  Net pension benefit                                     (44,780)        (127,434)        (126,617)        (163,671)
  Realized (gain) loss on investments before
    income taxes                                           48,041         (402,777)          48,041         (728,552)
  Net decrease in unrealized appreciation
    of investments                                     30,970,122      138,128,989       31,227,236      120,980,544
  Stock option expense                                    132,605           44,100          220,594           87,686
  (Increase) decrease in receivables                     (442,880)          50,016         (467,016)         234,936
  Increase in other assets                                (26,325)         (23,679)         (23,747)         (30,408)
  Increase (decrease) in other liabilities               (497,383)          43,779           22,992          (75,384)
  Decrease in accrued pension cost                        (34,467)         (30,266)         (68,934)         (66,834)
  Increase in deferred income taxes                        15,800           44,400           44,300           57,000
                                                    -------------    -------------    -------------    -------------
Net cash provided by (used in) operating
  activities                                           (4,452,029)         607,482       (3,468,100)      (6,426,481)
                                                    -------------    -------------    -------------    -------------

Cash flows from financing activities
Distributions from undistributed net
  investment income                                          --               --         (1,555,660)        (777,630)
Proceeds from exercise of employee
  stock options                                              --               --               --            231,390
Purchase of treasury stock                            (16,178,867)            --        (16,903,346)            --
                                                    -------------    -------------    -------------    -------------
Net cash used in financing activities                 (16,178,867)            --        (18,459,006)        (546,240)
                                                    -------------    -------------    -------------    -------------

Net increase (decrease) in cash and cash
  equivalents                                         (20,630,896)         607,482      (21,927,106)      (6,972,721)
Cash and cash equivalents at beginning
  of period                                            30,031,548       31,264,000       31,327,758       38,844,203
                                                    -------------    -------------    -------------    -------------
Cash and cash equivalents at end of period           $  9,400,652    $  31,871,482     $  9,400,652    $  31,871,482
                                                    =============    =============    =============    =============

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

</TABLE>

              The accompanying Notes are an integral part of these
                       Consolidated Financial Statements



                                       6
<PAGE>
<TABLE>
<CAPTION>


                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                      Consolidated Statement of Investments
                      -------------------------------------
                               September 30, 2008



         Company                                      Investment (a)                                      Cost             Value (b)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                                                   <C>              <C>
+AT&T INC.                                       ++20,770 shares common stock (acquired 3-9-99)        $         12     $    579,898
   San Antonio, Texas
   Global leader in local, long distance,
   Internet and transaction-based  voice
   and data services.

+ALAMO GROUP INC.                                2,830,300 shares common stock
   Seguin, Texas                                   (acquired 4-1-73 thru 5-25-07)                         2,190,937       33,963,600
   Tractor-mounted mowing and mobile
   excavation equipment for governmental,
   industrial and agricultural markets; street-
   sweeping equipment for municipalities.

ALL COMPONENTS, INC.                             8.25% subordinated note due 2012 (acquired 6-27-07)      6,000,000        5,400,000
   Austin, Texas                                 150,000 shares Series A Convertible Preferred Stock,
   Electronics contract manufacturing;             convertible into 600,000 shares of common stock
   distribution and production of memory           at $0.25 per share (acquired 9-16-94)                    150,000             --
   and other components for computer             Warrants to purchase 350,000 shares of common stock
   manufacturers, retailers and value-added        at $11.00 per share, expiring 2017 (acquired 6-27-07)       --               --
   resellers.                                                                                            ----------       ----------
                                                                                                          6,150,000        5,400,000

+ASCENT MEDIA CORPORATION                        ++3,525 shares Series A common stock (acquired 9-26-08)       --             86,045
   Santa Monica, California
   Provider of content production,
   management and distribution services
   for television and film industries.

ATLANTIC CAPITAL
BANCSHARES, INC.                                 300,000 shares common stock (acquired 4-10-07)           3,000,000        3,000,000
   Atlanta, Georgia
   Holding company of Atlantic Capital Bank
   a full service commercial bank.

BALCO, INC.                                      445,000 shares common stock and 60,920 shares
   Wichita, Kansas                                 Class B non-voting common stock
   Specialty architectural products used in        (acquired 10-25-83 and 5-30-02)                          624,920        6,000,000
   the construction and remodeling of
   commercial and institutional buildings.

BOXX TECHNOLOGIES, INC.                          3,125,354 shares Series B Convertible Preferred Stock,
   Austin, Texas                                   convertible into 3,125,354 shares of common stock
   Workstations for computer graphic               at $0.50 per share (acquired 8-20-99 thru 8-8-01)      1,500,000                2
   imaging and design.


                                       7
<PAGE>

                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                     Consolidated Statement of Investments
                     -------------------------------------
                               September 30, 2008
                                   (continued)

         Company                                      Investment (a)                                      Cost             Value (b)
------------------------------------------------------------------------------------------------------------------------------------

CMI HOLDING COMPANY, INC.                        10% convertible subordinated note, due 2009,
   Richardson, Texas                               (acquired 7-2-07 thru 10-9-07)                      $  2,363,347     $  1,000,000
   Owns Chase Medical, which develops            2,327,658 shares Series A Convertible Preferred Stock,
   and sells devices used in cardiac surgery       convertible into 2,327,658 shares of common stock
   to relieve congestive heart failure; develops   at $1.72 per share  (acquired 8-21-02  and  6-4-03)    4,000,000                2
   and supports cardiac imaging systems.         Warrants to purchase 109,012 shares of common stock
                                                   at $1.72 per share, expiring 2012 (acquired 4-7-04)         --               --
                                                 Warrant to purchase 431,982 shares of Series A-1
                                                   Convertible Preferred Stock at $1.72 per share,
                                                   expiring 2017 (acquired 7-2-07)                             --               --
                                                                                                         ----------       ----------
                                                                                                          6,363,347        1,000,002

CINATRA CLEAN TECHNOLOGIES,
INC,                                             10% subordinated secured promissory note                 2,743,000        2,743,000
   Houston, Texas                                   (acquired 7-14-08)
   Cleans above ground oil storage tanks         533,300 shares Series A Convertible Preferred
   with a patented, automated system.              Stock, convertible  into 533,300 shares common           533,300          533,300
                                                   stock at $1.00 per share(acquired 7-14-08)             ----------      ----------
                                                                                                          3,276,300        3,276,300

+COMCAST CORPORATION                             ++64,656 shares common stock (acquired 11-18-02)                21        1,269,197
   Philadelphia, Pennsylvania
   Leading  provider of cable, entertainment
   and communications products and services.

DENNIS TOOL COMPANY                              20,725 shares 5% Convertible Preferred Stock,
   Houston, Texas                                  convertible into 20,725 shares of common stock
   Polycrystalline diamond compacts (PDCs)         at $48.25 per share (acquired 8-10-98)                   999,981          999,981
   used in oil field drill bits and in mining    140,137 shares common stock (acquired 3-7-94
   and industrial applications.                    and 8-10-98)                                           2,329,963        3,200,000
                                                                                                         ----------       ----------
                                                                                                          3,329,944        4,199,981


+DISCOVERY COMMUNICATIONS, INC.                  ++35,250 shares Series A common stock (acquired 9-26-08)    10,131          502,313
   Silver Spring, MD                             ++35,250 shares Series A common stock (acquired 9-26-08)    10,131          488,918
   Provider of creative content, media                                                                     --------         --------
   management and network services                                                                           20,262          991,231
   worldwide.

+EMBARQ CORPORATION                              ++4,500  shares common stock (acquired 5-17-06)             46,532          182,475
   Overland Park, Kansas
   Local exchange carrier that provides
   voice and data services, including
   high-speed Internet.

+ENCORE WIRE CORPORATION                         4,086,750 shares common stock (acquired 7-16-92
   McKinney, Texas                                 thru 10-7-98)                                          5,800,000       55,171,125
   Electric wire and cable for residential
   and commercial use.


                                       8
<PAGE>

                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                     Consolidated Statement of Investments
                     -------------------------------------
                               September 30, 2008
                                   (continued)

         Company                                      Investment (a)                                      Cost             Value (b)
------------------------------------------------------------------------------------------------------------------------------------

EXTREME INTERNATIONAL, INC.                      11,797.5 shares Series A common stock
   Sugar Land, Texas                               (acquired 9-26-08)                                  $    294,938     $    526,000
   Owns Bill Young Productions, Texas            39,359.18 shares Series C Convertible Preferred Stock,
   Video and Post, and Extreme Communi-            convertible into 157,436.72 shares of common stock
   cations, which produce radio and television     at $25.00 per share (acquired 9-30-03)                 2,625,000        7,026,000
   commercials and corporate communica-          3,750 shares 8% Series A Convertible Preferred Stock,
   tions videos.                                   convertible into 15,000 shares of common stock at
                                                   $25.00 per share (acquired 9-30-03)                      375,000          669,000
                                                 Warrants to purchase 1,237.50 shares of common stock at
                                                   $25.00 per share, expiring 2008 (acquired 1-15-02)          --             28,000
                                                                                                         ----------       ----------
                                                                                                          3,294,938        8,249,000

 +FMC CORPORATION                                ++12,860 shares common stock (acquired 6-6-86
   Philadelphia, Pennsylvania                      and 9-13-07)                                              66,727          660,875
   Chemicals for agricultural, industrial
   and consumer markets.

+FMC TECHNOLOGIES, INC.                          ++22,114 shares common stock (acquired 1-2-02
   Houston, Texas                                  and 8-31-07)                                              57,051        1,029,407
   Equipment and systems for the energy,
   food processing and air transportation
   industries.

+HEELYS, INC.                                    9,317,310 shares common stock (acquired 5-26-00)           102,490       34,939,913
   Carrollton, Texas
   Heelys stealth skate shoes, equipment
   and apparel sold through sporting goods
   chains, department stores and footwear
   retailers.

+HOLOGIC, INC.                                   ++632,820 shares common stock (acquired 8-27-99)           220,000       12,143,816
   Bedford, Massachusetts
   Medical instruments including bone
   densitometers, mammography devices
   and digital radiography systems.

+JOHNBEAN TECHNOLOGIES CORP                      ++4,776 shares common stock (acquired 7-31-08)                --             60,464
   Chicago, Illinois
   Global technology solutions provider
   to high-value segments of the food
   processing and air transportation
   industry.

+KIMBERLY-CLARK CORPORATION                      ++77,180 shares common stock (acquired 12-18-97)         2,358,518        5,004,351
   Dallas, Texas
   Manufacturer of tissue, personal care
   and health care products.

+LIBERTY GLOBAL, INC.                            ++42,463 shares Series A common stock (acquired 6-15-05)   106,553        1,285,355
   Englewood, Colorado                           ++42,463 shares Series C common stock (acquired 9-6-05)    100,870        1,192,786
   Owns interests in broadband, distribution                                                             ----------       ----------
   and content companies.                                                                                   207,423        2,478,141

                                       9
<PAGE>

                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                     Consolidated Statement of Investments
                     -------------------------------------
                               September 30, 2008
                                   (continued)

         Company                                      Investment (a)                                      Cost             Value (b)
------------------------------------------------------------------------------------------------------------------------------------

+LIBERTY MEDIA CORPORATION                       ++35,250 shares of Liberty Capital Series A common
   Englewood, Colorado                             stock (acquired 5-9-06)                             $      7,833     $    470,588
   Holding company owning interests in           ++176,252 shares of Liberty Interactive Series A
   electronic retailing, media, communica-         common stock (acquired 5-9-06)                            66,423        2,275,413
   tions and entertainment businesses.           ++141,000 shares of Liberty Entertainment Series A
                                                   common stock (acquired 3-3-08)                            43,996        3,513,720
                                                                                                         ----------       ----------
                                                                                                            118,252        6,259,721

LIFEMARK GROUP                                   1,449,026 shares common stock (acquired 7-16-69)         4,510,400       71,000,000
   Hayward, California
   Cemeteries, mausoleums and mortuaries
   located in northern California.

MEDIA RECOVERY, INC.                             800,000 shares Series A Convertible Preferred Stock,
   Dallas, Texas                                   convertible into 800,000 shares of common stock at
   Computer datacenter and office automation       $1.00 per share (acquired 11-4-97)                       800,000        5,333,000
   supplies and accessories; impact, tilt        4,000,002 shares common stock (acquired 11-4-97)         4,615,000       26,667,000
   monitoring and temperature sensing                                                                    ----------       ----------
   devices to detect mishandling shipments;                                                               5,415,000       32,000,000
   dunnage for protecting shipments.


PALLETONE, INC.                                  12.3% senior subordinated notes due 2012
   Bartow, Florida                                 (acquired  9-25-06)                                    1,553,150        1,500,000
   Manufacturer of wooden pallets and            150,000 shares common stock (acquired 10-18-01)            150,000                2
   pressure-treated lumber.                      Warrant to purchase 15,294 shares of common stock at
                                                   $1.00 per share, expiring 2011 (acquired 2-17-06)         45,746             --
                                                                                                         ----------       ----------
                                                                                                          1,748,896        1,500,002

+PALM HARBOR HOMES, INC.                         7,855,121 shares common stock (acquired 1-3-85
   Dallas, Texas                                   thru 7-31-95)                                         10,931,955       35,348,045
   Integrated manufacturing, retailing,
   financing and insuring of manufactured
   housing and modular homes.

+PETSMART, INC.                                  ++300,000 shares common stock (acquired 6-1-95)          1,318,771        7,410,000
   Phoenix, Arizona
   Retail chain of more than 928 stores
   selling pet foods, supplies and services.

THE RECTORSEAL CORPORATION                       27,907 shares common stock (acquired 1-5-73
   Houston, Texas                                  and 3-31-73)                                              52,600      131,500,000
   Specialty chemicals for plumbing, HVAC,
   electrical, construction, industrial,
   oil field and  automotive  applications;
   smoke  containment systems for building
   fires; also owns 20% of The Whitmore
   Manuacturing Company.

+SPRINT NEXTEL CORPORATION                       ++90,000 shares common stock (acquired 6-20-84)            457,113          549,000
   Reston, Virginia
   Diversified telecommunications company.


                                       10
<PAGE>


                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                     Consolidated Statement of Investments
                     -------------------------------------
                               September 30, 2008
                                   (continued)

         Company                                      Investment (a)                                      Cost             Value (b)
------------------------------------------------------------------------------------------------------------------------------------

TCI  HOLDINGS, INC.                              21 shares 12% Series C Cumulative Compounding Preferred
   Denver, Colarodo                                stock (acquired 1-30-90)                            $       --       $    677,250
   Cable television systems and microwave
   relay systems.

+TEXAS CAPITAL BANCSHARES, INC.                  ++489,656 shares common stock (acquired 5-1-00)          3,550,006        9,969,396
   Dallas, Texas
   Regional bank holding company with
   banking operations in six Texas cities.

VIA HOLDINGS, INC.                               9,118 shares Series B Preferred Stock
   Sparks, Nevada                                  (acquired 9-19-05)                                     4,559,000                2
   Designer, manufacturer and distributor        1,118 shares Series C Preferred Stock
   of high-quality office seating.                 (acquired 11-01-07)                                      281,523                2
                                                                                                         ----------       ----------
                                                                                                          4,840,523                4


WELLOGIX, INC.                                   4,788,371 shares Series A-1 Convertible Participating
   Houston, Texas                                  Preferred Stock, convertible into 4,788,371 shares
   Developer and supporter of software             of common stock at $1.0441 per share
   used by the oil and gas industry to             (acquired 8-19-05 thru 6-15-08)                        5,000,000                2
   control drilling and maintenance
   expenses.

THE WHITMORE MANUFACTURING
COMPANY                                          80 shares common stock (acquired 8-31-79)                1,600,000       38,000,000
   Rockwall, Texas
   Specialized mining, railroad and industrial
   lubricants; coatings for automobiles and
   primary metals; fluid contamination control
   devices.


+WINDSTREAM CORPORATION                          ++9,181 shares common stock (acquired 7-17-06)              19,656          100,440
   Little Rock, Arkansas
   Provider of voice, broadband and
   entertainment services.

MISCELLANEOUS                                    - Ballast Point Ventures II, L.P. - 2.6% limited
                                                     partnership interest(acquired 8-4-08)                  225,000          225,000
                                                 - BankCap Partners Fund I, L.P. - 6.0% limited
                                                     partnership interest (acquired 7-14-06 thru 6-23-08) 2,566,681        2,566,681
                                                 - CapitalSouth Partners Fund III, L.P. - 2.8% limited
                                                     partnership interest (acquired 1-22-08)                701,256          701,256
                                                 - Diamond State Ventures, L.P. - 1.9% limited partnership
                                                     interest (acquired 10-12-99 thru 8-26-05)              111,000          111,000
                                                 - Discovery Alliance, LLC - 90.0% limited liability
                                                     company (acquired  9-12-08)                            150,000          150,000
                                                 - First Capital Group of Texas III, L.P. - 3.3% limited
                                                     partnership interest (acquired 12-26-00 thru 8-12-05)  964,604          964,604
                                                 - Humac Company - 1,041,000 shares common stock
                                                     (acquired 1-31-75 and 12-31-75)                           --            174,000
                                                 - PharmaFab, Inc. - contingent payment agreement
                                                     (acquired 2-15-07)                                           2                2
                                                 - STARTech Seed Fund I - 12.1% limited partnership
                                                      interest (acquired 4-17-98 thru 1-5-00)               178,066                1
                                                 - STARTech Seed Fund II - 3.2% limited partnership
                                                      interest (acquired 4-28-00 thru 2-23-05)              950,000                1
                                                 - Sterling Group Partners I, L.P. - 1.7% limited
                                                      partnership interest (acquired 4-20-01
                                                      thru 1-24-05)                                       1,064,042        1,506,817
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS                                                                                       $85,083,245     $520,399,045
                                                                                                        ===========     ============
------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                          ++Unrestricted securities as defined in Note (a)
</TABLE>

                                       11
<PAGE>

                 Notes to Consolidated Statement of Investments
                 ----------------------------------------------


(a)  Definitions
     Unrestricted securities (indicated by +/-) are freely marketable securities
having readily available market quotations.  All other securities are restricted
securities,  which are subject to one or more  restriction on resale and are not
freely  marketable.  At September 30, 2008,  restricted  securities  represented
approximately 90.6% of the value of the consolidated investment portfolio.

(b)  Investment Valuation Policy
     Our investments are carried at fair value in accordance with the Investment
Company Act of 1940 (the "1940 Act") and SFAS No. 157,  Fair Value  Measurements
("SFAS No. 157"). In accordance with the 1940 Act,  unrestricted  minority-owned
publicly  traded  securities,  for  which  the  market  quotations  are  readily
available,  are valued at the closing sale price for the NYSE listed  securities
and the  lower of the  closing  bid  price or the last  sale  price  for  NASDAQ
securities on the valuation date; and restricted  publicly traded securities and
other  privately  held  securities are valued as determined in good faith by our
Board of Directors.

     We  adopted  SFAS No.  157 on April 1,  2008 (see  footnote  1 in "Notes to
Consolidated  Financial Statements," page 13). SFAS No. 157 provides a framework
for  measuring  the fair  value of assets  and  liabilities.  SFAS No.  157 also
provides   guidance   regarding  a  fair  value  hierarchy,   which  prioritizes
information used to measure fair value and the effect of fair value measurements
on earnings and provides for enhanced disclosures determined by the level within
the hierarchy of information  used for valuation.  SFAS No. 157 applies whenever
other standards require (or permit) assets or liabilities to be measured at fair
value but does not expand the use of fair value in any new circumstances.

     SFAS No.  157  defines  fair  value in terms  of the  price  that  would be
received upon the sale of an asset or paid to transfer a liability in an orderly
transaction  between  market  participants  at the  measurement  date (the "exit
price") and  excludes  transaction  costs.  Under SFAS No.  157,  the fair value
measurement  also  assumes that the  transaction  to sell an asset occurs in the
principal  market for the asset or, in the  absence of a principal  market,  the
most  advantageous  market for the asset.  The principal market is the market in
which the  reporting  entity  would sell or transfer the asset with the greatest
volume and level of activity for the asset. In determining the principal  market
for an asset or liability  under SFAS No. 157, it is assumed that the  reporting
entity has access to the market as of the measurement date.

(c)  Valuation Methodologies
     Debt Securities are generally valued on the basis of the price the security
would command in order to provide a yield-to-maturity  equivalent to the present
yield of comparable debt instruments of similar quality.

     Partnership Interests and Common Equity including  unrestricted  marketable
securities,  which are  valued at the  closing  sale  price for the NYSE  listed
securities  and the lower of the  closing  bid price or the last sale  price for
NASDAQ  securities on the valuation date; and restricted  marketable  securities
for which there is a public market, are valued at the closing sale price for the
NYSE listed  securities  and the lower of the closing bid price or the last sale
price for NASDAQ  securities on the valuation date adjusted in good faith by our
Board of  Directors  if they  deem a  discount  or  premium  would be  likely or
obtainable  upon a sale  or  transfer  of our  interest,  for  those  without  a
principal market, the Board of Directors  considers the financial  condition and
operating results of the issuer; the long-term  potential of the business of the
issuer; the market for and recent sales prices of the issuer's  securities;  the
values of similar  securities  issued by  companies in similar  businesses;  the
proportion  of the  issuer's  securities  owned by the Company;  protective  put
analysis  based on the  Black-Scholes  option  pricing  model,  the  nature  and
duration  of resale  restrictions  and the  nature of any  rights  enabling  the
Company to require the issuer to register restricted securities under applicable
securities  laws. In determining  the fair value of restricted  securities,  the
Board of Directors  considers  the  inherent  value of such  securities  without


                                       12
<PAGE>
Notes to Consolidated Statement of Investments
(continued)


regard to the  restrictive  feature  and  adjusts  for any  diminution  in value
resulting from restrictions on resale.

     Preferred  Equity is valued on the  basis of the  price  (bond  value)  the
security  would carry in the absence of the  conversion  feature  plus the value
allocable to the conversion feature (conversion value).

     Equity Warrants are valued on the basis of accepted  formulas  derived from
empirical  studies which define the market value of a warrant in relation to the
market price of its common stock. These formulas measure the "option value" of a
warrant as well as its "exercise value" (the amount,  if any, by which the value
of the stock  exceeds the  exercise  price of the  warrant).  In  applying  such
formulas,  the market  price of the stock is usually  discounted  to reflect the
fact that the stock is restricted and the calculated value of the warrant itself
may be discounted (if deemed  appropriate)  to reflect its  restrictive  nature.
Generally, the option value is excluded if the formula indicates (i) the warrant
expires within six months,  (ii) the market price of the stock  (discounted)  is
less than  one-half of the exercise  price of the  warrant,  or (iii) the market
price of the  stock  (discounted)  is more  than two  times  the  amount  of the
exercise price of the warrant.











                                       13
<PAGE>


                   Notes to Consolidated Financial Statements
                   ------------------------------------------
                                   (Unaudited)

1.       Basis of Presentation

     Principles of  Consolidation.  The consolidated  financial  statements have
been prepared in accordance with accounting principles generally accepted in the
United  States of America  ("GAAP") for  investment  companies.  Under rules and
regulations   applicable  to  investment   companies,   we  are  precluded  from
consolidating any entity other than another investment  company. An exception to
this general principle occurs if the investment  company has an investment in an
operating  company  that  provides  services  to  the  investment  company.  Our
consolidated financial statements include our management company.

     The financial  statements  included herein have been prepared in accordance
with accounting  principles  generally accepted in the United States 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 our Form 10-K
for the year ended March 31, 2008.  Certain  information and footnotes  normally
included  in  financial   statements  prepared  in  accordance  with  accounting
principles  generally  accepted  in the United  States  have been  condensed  or
omitted,  although  we believe  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.

     Fair Value  Measurements.  The Company  adopted  SFAS No.  157,  Fair Value
Measurements  ("SFAS  157"),  on April 1,  2008.  SFAS 157 (1)  creates a single
definition of fair value,  (2) establishes a framework for measuring fair value,
and (3) expands disclosure  requirements about items measured at fair value. The
Statement  applies to both items  recognized  and  reported at fair value in the
financial  statements  and  items  disclosed  at fair  value in the notes to the
financial  statements.  The Statement does not change existing  accounting rules
governing  what can or what must be recognized and reported at fair value in the
Company's  financial  statements,  or disclosed  at fair value in the  Company's
notes to the  financial  statements.  Additionally,  SFAS 157 does not eliminate
practicability  exceptions  that exist in accounting  pronouncements  amended by
this Statement when measuring fair value.  As a result,  the Company will not be
required to recognize any new assets or liabilities at fair value.

     Prior to SFAS 157,  certain  measurements  of fair  value were based on the
price that would be paid to acquire an asset,  or received to assume a liability
(an entry price).  SFAS 157 clarifies the  definition of fair value as the price
that  would be  received  from  the  sale of an  asset,  or paid to  transfer  a
liability,  in  an  orderly  transaction  between  market  participants  at  the
measurement date (that is, an exit price). The exit price is based on the amount
that the  holder of the asset or  liability  would  receive or need to pay in an
actual  transaction (or in a hypothetical  transaction if an actual  transaction
does not exist) at the measurement  date. In some  circumstances,  the entry and
exit price may be the same; however, they are conceptually different.

     Fair value is generally  determined  based on quoted  market  prices in the
active markets for identical assets or liabilities.  If quoted market prices are
not available, the Company uses valuation techniques that place greater reliance
on observable inputs and less reliance on unobservable inputs. In measuring fair
value, the Company may make adjustments for risks and uncertainties, if a market
participant would include such an adjustment in its pricing.

2.       Investments

     We fair value our investments in accordance with GAAP as determined in good
faith by our Board of Directors.  When available,  we base the fair value of our
investments on directly  observable  market prices or on market data derived for


                                       14
<PAGE>
<TABLE>
<CAPTION>

Notes to Consolidated Financial Statements
(continued)


comparable assets. For all other investments,  inputs used to measure fair value
reflect  management's  best estimate of assumptions that would be used by market
participants in pricing the investments in a hypothetical transaction.

     The  levels of fair  value  inputs  used to  measure  our  investments  are
characterized  in accordance with the fair value  hierarchy  established by SFAS
No. 157,  Fair Value  Measurements  ("SFAS  157").  Where inputs for an asset or
liability  fall  in more  than  one  level  in the  fair  value  hierarchy,  the
investment is classified in its entirety based on the lowest level input that is
significant to that  investment's  fair value  measurement.  We use judgment and
consider  factors  specific to the investment in determining the significance of
an input  to a fair  value  measurement.  The  three  levels  of the fair  value
hierarchy and investments that fall into each of the levels are described below:

     o    Level 1: Level 1 inputs are unadjusted quoted prices in active markets
          that  are   accessible  at  the   measurement   date  for   identical,
          unrestricted assets or liabilities. We use Level 1 inputs for publicly
          traded unrestricted  securities for which we do not have a controlling
          interest.  Such investments are valued at the closing price for listed
          securities  and at the lower of the  closing  bid price or the closing
          sale price for  over-the-counter  (NASDAQ) securities on the valuation
          date.

     o    Level 2:  Level 2 inputs  are  inputs  other  than the  quoted  prices
          included  within  Level  1  that  are  observable  for  the  asset  or
          liability,  either directly or indirectly. We did not value any of our
          investments using level 2 inputs as of September 30, 2008.

     o    Level 3: Level 3 inputs are unobservable and cannot be corroborated by
          observable  market data.  We use Level 3 inputs for measuring the fair
          value of substantially all of our investments. See "Notes to Portfolio
          of  Investments"  (c) on  page 12 for the  investment  policy  used to
          determine the fair value of these investments.

     The  following  fair  value  hierarchy  table  sets  forth  our  investment
portfolio by level as of September 30, 2008 (in millions):

                                       Level 1   Level 2  Level 3     Total
                                       -------   -------  -------    -------
        Debt                             $ --     $  --    $ 10.6     $ 10.6
        Partnership Interests              --        --       9.9        9.9
        Preferred Equity                   --        --      14.6       14.6
        Common Equity                     48.8       --     436.5      485.3
        Equity Warrants                    --        --       --         --
                                       -------   -------  -------    -------
             Total Investments           $48.8    $  --    $471.6     $520.4
                                       =======   =======  =======    =======

     The  following  table  sets forth a summary of changes in the fair value of
investment  assets and  liabilities  measured  using  Level 3 inputs  during the
quarter ended September 30, 2008 (in millions):
                                                                 Purchases,
                                                                   Sales,
                                      Beginning   Unrealized     Issuance &     Ending
                                       Balance    gain (loss)    Settlement    Balances
                                       -------    -----------    ----------    --------
<S>                                    <C>        <C>            <C>           <C>

        Debt                           $  9.0       $( 1.1)        $ 2.7        $ 10.6
        Partnership Interests             9.2          0.4           0.4           9.9
        Preferred Equity                 20.5         (6.4)          0.5          14.6
        Common Equity                   459.8        (23.9)          0.6         436.5
        Equity Warrants                   0.3          --           (0.3)          --
                                       ------       ------        ------        ------
             Total Investments         $498.7       $(31.0)        $ 3.9        $471.6
                                       ======       ======        ======        ======


                                       15
<PAGE>

Notes to Consolidated Financial Statements
(continued)

     The  following  table  sets forth a summary of changes in the fair value of
investment  assets and liabilities  measured using Level 3 inputs during the six
months ended September 30, 2008 (in millions):
                                                                Purchases,
                                                                  Sales,
                                     Beginning   Unrealized     Issuance &     Ending
                                      Balance    gain (loss)    Settlement    Balances
                                      -------    -----------    ----------    --------

        Debt                          $  9.0       $ (1.1)       $ 2.7        $ 10.6
        Partnership Interests            9.1          0.4          0.4           9.9
        Preferred Equity                20.4         (6.3)         0.5          14.6
        Common Equity                  456.0        (20.2)         0.7         436.5
        Equity Warrants                  0.4         (0.1)        (0.3)          --
                                      ------       ------       ------        ------
             Total Investments        $494.8       $(27.3)       $ 4.1        $471.6
                                      ======       ======       ======        ======


3.       Stock-Based Compensation

     Effective   April  1,  2006,  we  adopted  SFAS  123R  using  the  modified
prospective   transition  method.  We  recognize   compensation  cost  over  the
straight-line  method for all share-based payments granted on or after that date
and for all  awards  granted  to  employees  prior to April 1, 2006 that  remain
unvested on that date.  The fair value of stock  options are  determined  on the
date of grant using the  Black-Scholes  pricing  model and are expensed over the
vesting  period of the related stock options.  Accordingly,  for the quarter and
six months ended  September  30, 2008,  we  recognized  compensation  expense of
$132,605 and $220,594, respectively.

     As of September 30, 2008,  the total  remaining  unrecognized  compensation
cost related to non-vested stock options was $2,645,978, which will be amortized
over the weighted-average service period of approximately 5.2 years.

4.        Employee Stock Option Plan

     On July 19, 1999,  shareholders  approved  the 1999 Stock Option  ("Plan"),
which  provides for the granting of stock  options to employees  and officers of
the Company and  authorizes  the issuance of common stock upon  exercise of such
options for up to 140,000  shares.  All  options are granted at or above  market
price,  generally  expire  ten years  from the date of grant  and are  generally
exercisable  on or after the first  anniversary  of the date of grant in five to
ten annual installments.

     At September 30, 2008,  there were no shares  available for grant under the
Plan.  The following  table  summarizes the price per option at grant date using
the Black-Scholes pricing model:

                                                            Black-Scholes Pricing Model Assumptions
                                                   -----------------------------------------------------------
                                     Weighted        Expected       Risk-Free                       Expected
                                     Average         Dividend       Interest       Expected           Life
         Date of Issuance           Fair Value        Yield           Rate        Volatility       (in years)
        -----------------------    ------------    ------------    -----------    ------------    ------------
        May 15, 2006                $  31.28          0.64%          5.08%           21.1%             7
        July 17, 2006               $  33.05          0.61%          5.04%           21.2%             7
        July 16, 2007               $  41.78          0.39%          4.95%           19.9%             5
        July 21, 2008               $  27.35          0.67%          3.41%           20.2%             5
        July 30, 2008               $  29.93          0.62%          3.36%           20.2%             5



                                       16
<PAGE>

Notes to Consolidated Financial Statements
(continued)

     The  following  table  summarizes  activity in the Plan as of September 30,
2008:

                                              Number            Weighted-Average
                                             of shares           Exercise Price
                                             ---------           --------------

Balance at March 31, 2008                      70,400                $109.99
   Granted                                     37,500                $123.72
   Exercised                                      --                    --
   Canceled                                       --                    --
                                              -------                -------
Balance at September 30, 2008                 107,900                $114.78
                                              =======                =======

     At September 30, 2008,  the range of exercise  prices and  weighted-average
remaining  contractual life of outstanding options was $65.00 to $152.98 and 5.2
years,  respectively.  No options  were  exercised  during the six months  ended
September 30, 2008.

     At September 30, 2008, the number of options exercisable was 21,445 and the
weighted-average exercise price of those options was $97.00.

5.      Summary of Per Share Information
                                           Three Months Ended     Six Months Ended
                                              September 30          September 30
                                           -----------------     -----------------
                                             2008       2007       2008       2007
                                             ----       ----       ----       ----

Investment income                         $   .35    $   .44    $   .68    $   .74
Operating expenses                           (.22)      (.12)      (.39)      (.25)
Interest expense                             --         --         --         --
Income taxes                                 (.02)      (.01)      (.02)      (.01)
                                          -------    -------    -------    -------
Net investment income                         .11        .31        .27        .48
Distributions from undistributed
  net investment income                      (.30)      --         (.72)      (.20)
Net realized gain (loss) on investments      (.01)       .10       (.01)       .19
Net decrease in unrealized appreciation
  of investments                            (8.28)    (35.52)     (8.35)    (31.11)
Treasury stock repurchase *                  1.33       --         1.40       --
Exercise of employee stock options **        --         --         --         (.09)
Stock option expense                          0.4        .01        .06        .02
                                          -------    -------    -------    -------
Decrease in net asset value                 (7.11)    (35.10)     (7.35)    (30.71)

Net asset value:
      Beginning of period                  149.85     191.13     150.09     186.75
                                          -------    -------    -------    -------
      End of period                       $142.74    $156.04    $142.74    $156.04
                                          =======    =======    =======    =======

Shares outstanding at end of period
  (000s omitted)                            3,742      3,889      3,742      3,889

</TABLE>

* Net increase is due to purchases of Common Stock at prices less than beginning
period net asset value.

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

6.       Share Repurchase Plan

     On June  12,  2008,  the  Company  announced  that its  Board of  Directors
authorized a share  repurchase plan, which allows for the repurchase of up to 10
percent (or 388,915 shares) of its Common Stock at prices not above the lower of
the net asset value per share of its Common Stock, or


                                       17
<PAGE>

Notes to Consolidated Financial Statements
(continued)

prices prevailing in the over-the-counter  market at the time of such purchases.
The Company  anticipates  that share  purchases  will be made from time to time,
depending  upon market  conditions.  Shares may be purchased on the open market,
including block repurchases,  or through privately negotiated transactions.  The
Company does not intend to purchase any shares from its  directors,  officers or
other  affiliates.  The  repurchase  program  does not  obligate  the Company to
acquire any specific  number of shares and may be  discontinued at any time. The
Company  intends to fund the purchases  with  available  cash and/or the sale of
marketable  securities  readily  available for sale. The  repurchase  program is
expected to be in effect through December 10, 2008, or until the approved number
of shares has been repurchased. During the quarter ended September 30, 2008, the
Company  purchased  a total of 141,028  shares of its  Common  Stock on the open
market for  $16,178,867  at an average price of $114.72 per share,  which brings
the  total  shares  of its  Common  Stock  purchased  on the open  market  since
announcing  its plan to 147,513  shares for  $16,903,346  at an average price of
$114.59 per share.

7.   Recent Accounting Pronouncements

     In  September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standard No. 157, "Fair Value  Measurements"  (SFAS 157).  The standard  defines
fair  value,  outlines a framework  for  measuring  fair value,  and details the
required  disclosures about fair value  measurements.  The standard is effective
for financial  statements  issued for fiscal years  beginning after November 15,
2007,  and interim  periods  within those fiscal years.  The Company has adopted
this  statement on a prospective  basis  beginning in the quarter ended June 30,
2008. Adoption of this statement did not have a material effect on the Company's
consolidated  financial  statements for the period ended June 30, 2008. However,
the impact on its consolidated  financial  statements for the periods subsequent
to the  period  of  adoption  cannot  be  determined  at this time as it will be
influenced  by the  estimates  of fair value for those  periods,  the number and
amount of investments the Company originates,  acquires or exits, and the effect
of  any  additional  guidance  or any  changes  in the  interpretation  of  this
statement.

     In February  2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial  Assets  and  Financial  Liabilities"  (SFAS  159).  SFAS 159  permits
entities to choose to measure many financial instruments and certain other items
at fair value and establishes  presentation and disclosure requirements designed
to facilitate  comparisons  between entities that choose  different  measurement
attributes  for similar types of assets and  liabilities.  SFAS 159 is effective
for us  beginning  April  1,  2008.  We did not  elect  the  fair  value  option
provisions upon adoption of SFAS 159 on April 1, 2008.

     In February 2008,  the FASB issued FASB Staff Position  ("FSP") SFAS 157-2,
"Effective  Date of FASB  Statement  No.  157" (FSP  157-2),  which  defers  the
effective  date of SFAS 157 to fiscal years  beginning  after November 15, 2008,
and interim periods within those fiscal years, for all  nonfinancial  assets and
nonfinancial  liabilities,  except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually).
We are currently  evaluating  the impact of our adoption of FSP 157-2  effective
April 1, 2009 on our consolidated financial statements.

     In October 2008, the FASB issued Staff  Position  157-3,  "Determining  the
Fair Value of a Financial  Asset in a Market That Is Not Active" ("FSP  157-3"),
which  clarifies the  application of SFAS 157 in an inactive market and provides
an  illustrative  example to demonstrate how the fair value of a financial asset
is  determined  when the  market for that  financial  asset is not  active.  The
guidance provided by FSP 157-3 is consistent with Capital  Southwest's  approach
to valuing financial assets for which there are no active markets.


                                       18
<PAGE>


Item 2. Managements  Discussion and Analysis of Financial  Condition and Results
        of Operations

     Net asset value at  September  30,  2008 was  $534,078,274,  equivalent  to
$142.74 per share.  Assuming  reinvestment  of all  dividends and tax credits on
retained  long-term  capital  gains,  the  September  30,  2008 net asset  value
reflects a decrease of 7.91% during the past twelve months.


                                           September 30,     September 30,
                                               2008              2007
                                               ----              ----
               Net assets                  $534,078,274     $606,872,698
               Shares outstanding             3,741,638        3,889,151
               Net assets per share             $142.74          $156.04


Results of Operations

     The composite  measure of our  financial  performance  in the  Consolidated
Statements of Operations  is captioned  "Increase  (decrease) in net assets from
operations"  and  consists  of three  elements.  The  first  is "Net  investment
income," which is the difference between our income from interest, dividends and
fees and our combined operating and interest expenses,  net of applicable income
taxes. The second element is "Net realized gain (loss) on investments", which is
the  difference  between the proceeds  received  from  disposition  of portfolio
securities  and their  stated  cost.  The  third  element  is the "Net  increase
(decrease) in unrealized  appreciation of investments,"  which is the net change
in the market or fair value of our  investment  portfolio,  compared with stated
cost. It should be noted that the "Net realized gain (loss) on investments"  and
"Net increase (decrease) in unrealized appreciation of investments" are directly
related  in that when an  appreciated  portfolio  security  is sold to realize a
gain,  a  corresponding  decrease  in  net  unrealized  appreciation  occurs  by
transferring  the gain  associated  with the  transaction  from  "unrealized" to
"realized."  Conversely,  when a loss is  realized  on a  depreciated  portfolio
security, an increase in net unrealized appreciation occurs.

Net Investment Income

     Interest  income of $677,023  for the six months ended  September  30, 2008
decreased  from  $1,244,125  in the year-ago  period due to a decrease in excess
cash and  interest  rates.  During the six months ended  September  30, 2008 and
2007, we recorded dividend income from the following sources:


                                                          Six Months Ended
                                                              September
                                                              ---------
                                                        2008            2007
                                                        ----            ----
               Alamo Group Inc.                     $  339,636     $   339,096
               Dennis Tool Company                      25,000          37,499
               Encore Wire Corporation                 163,470         163,470
               Kimberly-Clark Corporation               89,529          81,811
               Lifemark Group                                0         150,000
               PETsMart, Inc.                           18,000          18,000
               The RectorSeal Corporation              480,000         240,000
               TCI Holdings, Inc.                       40,635          40,635
               The Whitmore Manufacturing Company      120,000          60,000
               Other                                    59,209          34,383
                                                    ----------      ----------
                                                    $1,335,479      $1,164,894
                                                    ==========      ==========


Net Increase (Decrease) in Unrealized Appreciation of Investments


     Set  forth  in the  following  table  are  the  significant  increases  and
decreases in unrealized appreciation by portfolio company:


                                       19
<PAGE>
<TABLE>
<CAPTION>

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations (continued)

                                     Three Months Ended                 Six Months Ended
                                        September 30                      September 30
                                        ------------                      ------------
                                   2008             2007             2008             2007
                                   ----             ----             ----             ----
<S>                                <C>              <C>              <C>              <C>

Alamo Group Inc.              $(11,321,200)   $        --       $(11,321,200)   $      27,110
All Components, Inc.            (7,200,000)       5,600,000       (7,200,000)       5,600,000
Encore Wire Corporation        (10,216,875)            --          4,086,750        6,130,000
Heelys, Inc.                          --       (130,442,000)            --       (139,760,000)
Media Recovery, Inc.            (5,500,000)      (9,000,000)      (5,500,000)      (9,000,000)
Palm Harbor Homes, Inc.               --         (7,855,000)       3,927,561       (7,855,000)
The RectorSeal Corporation       2,300,000             --        (12,700,000)      10,850,000
</TABLE>


     During  the  six  months  ended  September  30,  2008,  the  value  of  our
investments  in  The  RectorSeal  Corporation  decreased  by  $12,700,000,   All
Components,   Inc.  decreased  $7,200,000  and  Media  Recovery,  Inc  decreased
$5,500,000,  due to decreases in their respective sales resulting from slowdowns
in segments of their  businesses.  Additionally,  our  investment in Alamo Group
Inc. decreased $11,321,200 due primarily to the decrease in their stock price at
September 30, 2008.

     Offsetting the loss at The RectorSeal  Corporation,  All Components,  Inc.,
Media Recovery,  Inc. and Alamo Group Inc. during the six months ended September
30, 2008, was a $4,086,750  increase in the value of Encore Wire Corporation and
a $3,927,561  increase in the value of Palm Harbor Homes,  Inc. due to increases
in their respective stock prices.

Portfolio Investments

     During the  quarter  ended  September  30,  2008,  we made  investments  of
$3,651,300 in three new portfolio  companies and an investment of $294,938 in an
existing portfolio company.

     We have agreed, subject to certain conditions,  to invest up to $12,578,419
in six portfolio companies.

Financial Liquidity and Capital Resources

     At September 30, 2008, we had cash and cash  equivalents  of  approximately
$9.4 million. Pursuant to Small Business Administration (SBA) regulations,  cash
and  cash  equivalents  of  $4.6  million  held  by  Capital  Southwest  Venture
Corporation  (CSVC) may not be transferred or advanced to us without the consent
of the SBA. Under current SBA  regulations  and subject to SBA's approval of its
credit application,  CSVC would be entitled to borrow up to $17.0 million.  With
the exception of a capital gain  distribution made in the form of a distribution
of the stock of a portfolio  company in the fiscal year ended March 31, 1996, we
have elected to retain all gains realized during the past 39 years. Retention of
future gains is viewed as an important source of funds to sustain our investment
activity. Approximately $48.8 million of our investment portfolio is represented
by unrestricted publicly-traded securities, and represent a source of liquidity.

     Funds  to be  used  by us  for  operating  or  investment  purposes  may be
transferred  in the form of  dividends,  management  fees or loans from Lifemark
Group,  The  RectorSeal  Corporation  and The  Whitmore  Manufacturing  Company,
wholly-owned portfolio companies, to the extent of their available cash reserves
and borrowing capacities.

     Management  believes that our cash and cash  equivalents and cash available
from  other  sources   described   above  are  adequate  to  meet  our  expected
requirements.  Consistent  with  our  long-term  strategy,  the  disposition  of
investments  from  time to time may also be an  important  source  of funds  for
future investment activities.


                                       20
<PAGE>

Item 3. Quantitative and Qualitative Disclosure About Market Risk

     We are subject to financial market risks,  including  changes in marketable
equity  security  prices.  We do not use  derivative  financial  instruments  to
mitigate any of these risks.

     Our  investment  performance  is a  function  of our  portfolio  companies'
profitability,  which may be affected by economic  cycles,  competitive  forces,
foreign  currency  fluctuations  and production costs including labor rates, raw
material  prices and certain  commodity  prices.  Most of the  companies  in our
investment  portfolio do not hedge their  exposure to raw material and commodity
price fluctuations. However, the portfolio company with the greatest exposure to
foreign  currency  fluctuations  generally  hedges  its  exposure.  All of these
factors may have an adverse  effect on the value of our  investments  on our net
asset value.

     Our investment in portfolio  securities includes fixed-rate debt securities
which totaled $10,643,000 at September 30, 2008, equivalent to 2.0% of the value
of our total investments.  Generally, these debt securities are below investment
grade and have relatively high fixed rates of interest; therefore, minor changes
in market yields of publicly-traded  debt securities have little or no effect on
the values of debt securities in our portfolio and no effect on interest income.
Our investments in debt securities are generally held to maturity and their fair
values are  determined  on the basis of the terms of the debt  security  and the
financial condition of the issuer.

     A  portion  of  our  investment  portfolio  consists  of  debt  and  equity
securities of private companies. We anticipate little or no effect on the values
of these  investments  from modest  changes in public market equity  valuations.
Should  significant  changes in market  valuations of comparable  publicly-owned
companies  occur,  there may be a corresponding  effect on valuations of private
companies,  which  would  affect the value and the amount and timing of proceeds
eventually  realized  from  these  investments.  A  portion  of  our  investment
portfolio also consists of restricted common stock of publicly-owned  companies.
The fair values of these  restricted  securities are influenced by the nature of
applicable resale restrictions,  the underlying earnings and financial condition
of the  issuers  of such  restricted  securities  and the market  valuations  of
comparable  publicly-owned companies. A portion of our investment portfolio also
consists of  unrestricted,  freely  marketable  common  stock of  publicly-owned
companies.  These freely marketable investments,  which are valued at the public
market price, are directly exposed to equity price risks, in that a change in an
issuer's  public market equity price would result in an identical  change in the
fair value of our investment in such security.

Item 4. Controls and Procedures

     As of the end of the  period  covered by this  report,  an  evaluation  was
performed under the supervision  and with the  participation  of our management,
including the President and Chairman of the Board and Chief  Financial  Officer,
of the effectiveness of the design and operation of our disclosure  controls and
procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act
of 1934). Based on that evaluation,  the President and Chairman of the Board and
Chief Financial  Officer  concluded that our disclosure  controls and procedures
are  effective  to ensure  that the  information  required  to be  disclosed  is
recorded,  processed,  summarized and reported within the time periods specified
in the Securities and Exchange  Commission's rules and forms, and is accumulated
and  communicated  to  management,  including  the President and Chairman of the
Board and Chief Financial  Officer,  as appropriate,  to allow timely  decisions
regarding such required disclosure.

     During the fiscal quarter ended  September 30, 2008,  there were no changes
to the internal controls over financial reporting that have materially affected,
or are  reasonably  likely to  materially  affect  our  internal  controls  over
financial reporting.


                                       21
<PAGE>
<TABLE>
<CAPTION>

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

Item 1. Legal Proceedings

     We are  currently the subject of certain  legal  actions.  In our judgment,
none of the lawsuits currently pending against us, either individually or in the
aggregate, is likely to have a material adverse effect on our business,  results
of operations, or financial position.

     We,  Capital   Southwest   Corporation   and  Capital   Southwest   Venture
Corporation, have been named in a lawsuit filed on August 27, 2007 in the United
States  District  Court of the  Northern  District  of Texas,  Dallas  Division,
against Heelys, Inc and its Chief Executive Officer, Chief Financial Officer and
the directors who signed its  registration  statement  with the  Securities  and
Exchange  Commission  in  connection  with its December 7, 2006  initial  public
offering  ("IPO"),  and its  underwriters  for the IPO.  The  complaint  alleges
violations  of  Sections  11 and 15 of  the  Securities  Act  of  1933  and  the
plaintiffs are seeking compensatory damages in an unspecified amount, as well as
reasonable costs and expenses incurred in the action, including counsel fees and
expert fees.

     Similar  suits  were  also  filed  in 2007 and  2008 in the  United  States
District Court of the Northern  District of Texas making  substantially  similar
allegations  under  Sections 11, 12 and 15 of the  Securities  Act of 1933,  and
seeking substantially similar damages.

     We believe  that the  plaintiffs'  claims are  without  merit,  we deny the
allegations in the complaints, and we intend to vigorously defend the lawsuits.

Item 1A. Risk Factors

     Deterioration in economic conditions could impair our portfolio  companies,
as a  result,  could  reduce  valuations  and  adversely  affect  our  financial
condition.

     Changes in national  and local  economic  conditions  could have a negative
impact on our business. Many of the companies in which we have made or will make
investments may be susceptible to economic slowdowns or recessions.  An economic
slowdown  may affect the  ability  of a company to operate  profitably,  acquire
other companies, or engage in a liquidity event such as a sale.

     Our business of making private equity  investments  also may be affected by
current and future market  conditions.  As a result,  the pace of our investment
activity may slow. In addition, significant changes in the capital markets could
have a  negative  effect on the  valuations  of our  investments.  This could an
adverse affect on our net asset value.

     There have been no material  changes to our risk  factors as  disclosed  in
Item 1A, "Risk  Factors",  in our Annual Report on Form 10-K for the fiscal year
ended March 31, 2008.

Item 4. Submission of Matters to a Vote of Security Holders

     Our Annual  Meeting of  Stockholders  was held on July 21,  2008,  with the
following results of elections and approval:
                                                                         Votes Cast
                                                      -------------------------------------------
<S>                                                                                     <C>
                                                                         Against/    Abstentions/
                                                          For            Withheld     Non-Votes
a.   The following Directors were elected to serve      -------          --------     ---------
     until the next Annual Meeting of Stockholders:

           Donald W. Burton                            2,831,910         592,506      464,735
           Graeme W. Henderson                         2,720,798         703,618      464,735
           Samuel B. Ligon                             2,734,283         690,133      464,735
           Gary L. Martin                              2,811,850         612,566      464,735
           William R. Thomas                           2,691,304         733,112      464,735
           John H. Wilson                              2,722,722         701,694      464,735


                                       22
<PAGE>


Item 4. Submission of Matters to a Vote of Security Holders
        (continued)
                                                                        Votes Cast
                                                     -------------------------------------------
                                                                        Against/    Abstentions/
                                                         For            Withheld     Non-Votes
                                                       -------          --------     ---------
b.   Grant Thornton LLP was approved as our
     independent registered accounting firm
     for the 2009 fiscal year.                         2,797,197         627,219      464,735
</TABLE>


Item 6. Exhibits

     (a)  Exhibits

               Exhibit  31.1-  Certification  of  President  and Chairman of the
               Board  required  by  Rule  13a-14(a)  or  Rule  15d-14(a)  of the
               Securities Exchange Act of 1934, as amended (the "Exchange Act"),
               filed herewith.

               Exhibit 31.2-  Certification of Chief Financial  Officer required
               by Rule  13a-14(a) or Rule  15d-14(a) of the Exchange Act,  filed
               herewith.

               Exhibit  32.1-  Certification  of  President  and Chairman of the
               Board  required  by  Rule  13a-14(b)  or  Rule  15d-14(b)  of the
               Exchange  Act and  Section  1350 of Chapter 63 of Title 18 of the
               United States Code, furnished herewith.

               Exhibit 32.2-  Certification of Chief Financial  Officer required
               by Rule  13a-14(b)  or Rule  15d-14(b)  of the  Exchange  Act and
               Section 1350 of Chapter 63 of Title 18 of the United States Code,
               furnished herewith.













                                       23
<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


                                     /s/ Gary L. Martin
Date:   November 7, 2008       By:
       ---------------------         -------------------------------------------
                                     Gary L. Martin, President
                                     and Chairman of the Board



                                       /s/ Tracy L. Morris
Date:   November 7, 2008         By:
       ---------------------          ------------------------------------------
                                      Tracy L. Morris, Chief Financial Officer





                                       24