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 June 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 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.

       3,749,939 shares of Common Stock, $1 Par Value as of July 31, 2008


<PAGE>


                                TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

     ITEM 1. Consolidated Financial Statements                          Page No.
                                                                        --------
             Consolidated Statements of Financial Condition
                      June 30, 2008 (Unaudited) and March 31, 2008.............3

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

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

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

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

             Notes to Consolidated Financial Statements.......................13

     ITEM 2. Management's Discussion and Analysis of Financial
                 Condition and Results of Operations..........................17

     ITEM 3. Quantitative and Qualitative Disclosure About
                 Market Risk..................................................19

     ITEM 4. Controls and Procedures..........................................20

PART II. OTHER INFORMATION

     ITEM 1  Legal Proceedings................................................20

     ITEM 1A. Risk Factors....................................................21

     ITEM 6. Exhibits and Reports on Form 8-K.................................21

Signatures ...................................................................22






<PAGE>
<TABLE>
<CAPTION>

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

Item 1. Consolidated Financial Statements

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

Assets                                               June 30, 2008   March 31, 2008
                                                     -------------   --------------
                                                      (Unaudited)
<S>                                                  <C>             <C>
Investments at market or fair value
    Companies more than 25% owned
     (Cost: June 30, 2008 - $28,758,246
     March 31, 2008 - $28,758,246)                   $ 400,144,739    $ 410,026,178
    Companies 5% to 25% owned
     (Cost: June 30, 2008 - $20,412,243,
     March 31, 2008 - $20,412,243)                      68,538,006       54,895,381
    Companies less than 5% owned
     (Cost: June 30, 2008 - $31,966,518,
     March 31, 2008 - $31,856,977)                      78,740,184       82,648,943
                                                     -------------    -------------
    Total investments
     (Cost: June 30, 2008- $81,137,007,
     March 31, 2008 - $81,027,466)                     547,422,929      547,570,502
Cash and cash equivalents                               30,031,548       31,327,758
Receivables                                                180,460          156,322
Other assets                                             7,713,448        7,630,486
                                                     -------------    -------------
    Totals                                           $ 585,348,385    $ 586,685,068
                                                     =============    =============

Liabilities and Shareholders' Equity

Other liabilities                                    $   1,686,678    $   1,187,796
Deferred income taxes                                    1,825,558        1,797,058
                                                     -------------    -------------
    Total liabilities                                    3,512,236        2,984,854
                                                     -------------    -------------

Shareholders' equity
    Common stock, $1 par value: authorized,
     5,000,000 shares; issued, 4,326,516 shares
     at June 30, 2008 and March 31, 2008                 4,326,516        4,326,516
    Additional capital                                 115,775,142      115,687,153
    Undistributed net investment income                  6,066,467        7,036,929
    Undistributed net realized loss on investments      (2,860,118)      (2,860,118)
    Unrealized appreciation of investments             466,285,923      466,543,036
    Treasury stock - at cost 443,850 shares at June
     30, 2008 and 437,365 shares at March 31, 2008      (7,757,781)      (7,033,302)
                                                     -------------    -------------
    Net assets at market or fair value, equivalent
     to $149.85 per share at June 30, 2008 on the
     3,882,666 shares outstanding and $150.09
     per share at March 31, 2008 on the 3,889,151
     shares outstanding                                581,836,149      583,700,214
                                                     -------------    -------------
Totals                                               $ 585,348,385    $ 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
                                                                    June 30
                                                                    -------
                                                             2008            2007
                                                         ------------    ------------
Investment income:
   Interest                                              $    349,852    $    564,687
   Dividends                                                  657,480         363,427
   Management and directors' fees                             231,000         225,200
                                                         ------------    ------------
                                                            1,238,332       1,153,314
                                                         ------------    ------------

Operating expenses:
   Salaries                                                   250,450         274,136
   Net pension benefit                                        (81,837)        (36,237)
   Other operating expenses                                   457,233         264,964
                                                         ------------    ------------
                                                              625,846         502,863
                                                         ------------    ------------

Income before income taxes                                    612,486         650,451
Income tax expense                                             27,287           9,760
                                                         ------------    ------------

Net investment income                                    $    585,199    $    640,691
                                                         ============    ============

Proceeds from disposition of investments                 $       --      $    325,775
                                                         ------------    ------------
Net realized gain on investments                                 --           325,775
                                                         ------------    ------------


Net increase (decrease) in unrealized appreciation
  of investments                                             (257,114)     17,148,445
                                                         ------------    ------------

Net realized and unrealized gain (loss) on investments   $   (257,114)   $ 17,474,220
                                                         ============    ============

Increase in net assets from operations                   $    328,085    $ 18,114,911
                                                         ============    ============





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


                                                     Three Months Ended        Year Ended
                                                       June 30, 2008        March 31, 2008
                                                       -------------        --------------
                                                        (Unaudited)

Operations
   Net investment income                               $     585,199        $   3,715,200
   Net realized gain on investments                             --                240,024
   Net decrease in unrealized appreciation
    of investments                                          (257,114)        (142,969,698)
                                                       -------------        -------------
   Increase (decrease) in net assets from operations         328,085         (139,014,474)

Distributions from:
   Undistributed net investment income                    (1,555,660)          (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                                          87,989              263,664
Treasury stock                                              (724,479)                --
                                                       -------------        -------------
   Decrease in net assets                                 (1,864,065)        (142,031,475)

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

Net assets, end of period                              $ 581,836,149        $ 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
                                                                    June 30
                                                                    -------
                                                              2008            2007
                                                         ------------    ------------
Cash flows from operating activities
Increase in net assets from operations                   $    328,085    $ 18,114,911
Adjustments to reconcile increase in net
 assets from operations to net cash
 provided by (used in) operating activities:
  Proceeds from disposition of investments                       --           325,775
  Purchases of securities                                    (109,541)     (8,051,747)
  Maturities of securities                                       --             4,500
  Depreciation and amortization                                 9,269           4,409
  Net pension benefit                                         (81,837)        (36,237)
  Realized gain on investments before income taxes               --          (325,775)
  Net (increase) decrease in unrealized appreciation
   of investments                                             257,114     (17,148,445)
  Stock option expense                                         87,989          43,586
  (Increase) decrease in receivables                          (24,136)        184,920
  (Increase) decrease in other assets                           2,578          (6,729)
  Increase (decrease) in other liabilities                    520,375        (119,163)
  Decrease in accrued pension liability                       (34,467)        (36,568)
  Increase in deferred income taxes                            28,500          12,600
                                                         ------------    ------------
Net cash provided by (used in) operating activities           983,929      (7,033,963)
                                                         ------------    ------------


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                                   (724,479)           --
                                                         ------------    ------------
Net cash used in financing activities                      (2,280,139)       (546,240)
                                                         ------------    ------------

Net decrease in cash and cash equivalents                  (1,296,210)     (7,580,203)
Cash and cash equivalents at beginning of period           31,327,758      38,844,203
                                                         ------------    ------------
Cash and cash equivalents at end of period               $ 30,031,548    $ 31,264,000
                                                         ============    ============

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



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



                                        6


<PAGE>


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

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

+AT&T INC.                                       ++20,770 shares common stock (acquired 3-9-99)        $         12     $    699,741
   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       45,284,800
   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        6,000,000
   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        6,600,000
   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       12,600,000
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        4,500,000
   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.

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





                                       7
<PAGE>

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

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

+COMCAST CORPORATION                             ++64,656 shares common stock (acquired 11-18-02)      $         21     $  1,224,585
   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 HOLDING COMPANY                       ++70,501 shares Series A common stock (acquired 7-21-05)    20,262        1,545,382
   Englewood, Colorado
   Provider of creative content, media
   management and network services
   worldwide.

+EMBARQ CORPORATION                              ++4,500  shares common stock (acquired 5-17-06)             46,532          212,715
   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       65,388,000
   Electric wire and cable for residential
   and commercial use.

EXTREME INTERNATIONAL, INC.                      39,359.18 shares Series C Convertible Preferred Stock,
   Sugar Land, Texas                               convertible into 157,436.72 shares of common stock
   Owns Bill Young Productions, Texas              at $25.00 per share (acquired 9-30-03)                 2,625,000        7,026,000
   Video and Post, and Extreme Communi-          3,750 shares 8% Series A Convertible Preferred Stock,
   cations, which produce radio and television     convertible into 15,000 shares of common stock at
   commercials and corporate communica-            $25.00 per share (acquired 9-30-03)                      375,000          669,000
   tions videos.                                 Warrants to purchase 13,035 shares of common stock at
                                                   $25.00 per share, expiring 2008 (acquired 8-11-98
                                                   thru 9-30-03)                                               --            290,000
                                                                                                         ----------       ----------
                                                                                                          3,000,000        7,985,000

 +FMC CORPORATION                                ++12,860 shares common stock (acquired 6-6-86
   Philadelphia, Pennsylvania                      and 9-13-07)                                              66,727          995,878
   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        1,701,230
   Equipment and systems for the energy,
   food processing and air transportation
   industries.



                                       8
<PAGE>

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


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

+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       13,795,476
   Bedford, Massachusetts
   Medical instruments including bone
   densitometers, mammography devices
   and digital radiography systems.

+KIMBERLY-CLARK CORPORATION                      ++77,180 shares common stock (acquired 12-18-97)         2,358,518        4,613,820
   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        1,334,187
   Englewood, Colorado                           ++42,463 shares Series C common stock (acquired 9-6-05)    100,870        1,289,177
   Owns interests in broadband, distribution                                                             ----------       ----------
   and content companies.                                                                                   207,423        2,623,364


+LIBERTY MEDIA CORPORATION                       ++35,250 shares of Liberty Capital Series A common
   Englewood, Colorado                             stock (acquired 5-9-06)                                    7,833          506,895
   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        2,599,717
   tions and entertainment businesses.           ++141,000 shares of Liberty Entertainment Series A
                                                   common stock (acquired 3-3-08)                            43,996        3,410,790
                                                                                                         ----------       ----------
                                                                                                            118,253        6,517,402

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        6,250,000
   supplies and accessories; impact, tilt        4,000,002 shares common stock (acquired 11-4-97)         4,615,000       31,250,000
   monitoring and temperature sensing                                                                    ----------       ----------
   devices to detect mishandling shipments;                                                               5,415,000       37,500,000
   dunnage for protecting shipments.


PALLETONE, INC.                                  12.3% senior subordinated notes due 2012
   Bartow, Florida                                 (acquired  9-25-06)                                    1,553,150        2,000,000
   Manufacturer of wooden pallets and            150,000 shares common stock (acquired 10-18-01)            150,000          150,000
   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        2,150,000



                                       9
<PAGE>


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

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

+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        5,976,000
   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      129,200,000
   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          855,000
   Reston, Virginia
   Diversified telecommunications company.

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        7,834,496
   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          281,523
                                                                                                         ----------       ----------
                                                                                                          4,840,523          281,525


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.



                                       10
<PAGE>


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

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

+WINDSTREAM CORPORATION                          ++9,181 shares common stock (acquired 7-17-06)        $     19,656     $    113,294
   Little Rock, Arkansas
   Provider of voice, broadband and
   entertainment services.

MISCELLANEOUS                        - 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
                                     - 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)                                                        --            172,000
                                     - 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        1,144,481
------------------------------------------------------------------------------------------------------------------------------------

TOTAL INVESTMENTS                                                                                      $ 81,137,007     $547,422,929
                                                                                                        ===========     ============
------------------------------------------------------------------------------------------------------------------------------------

+Publicly-owned company              ++Unrestricted securities as defined in Note (a)
</TABLE>


                        Notes to Portfolio 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  June  30,  2008,  restricted  securities
represented  approximately  91.1% of the  value of the  consolidated  investment
portfolio.

(b)      Investment Valuation Policy
         Our  investments  are carried at fair value in accordance with 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.



                                       11
<PAGE>

Notes to Portfolio of Investments
(continued)


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

         Preferred  Equity are valued  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 apply such
formulas,  the market  price of the stock is usually  discounted  to reflect the
fact that the stock is  restricted  and the  calculated  value is 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.



                                       12
<PAGE>


                          CAPITAL SOUTHWEST CORPORATION
                                AND SUBSIDIARIES
                   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 to sell 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.



                                       13
<PAGE>
<TABLE>
<CAPTION>

Notes to Consolidated Financial Statements
(continued)

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 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 June 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 June 30, 2008 (in millions):

                                       Level 1       Level 2         Level 3          Total
                                       -------       -------         -------          -----
<S>                                    <C>           <C>             <C>              <C>
        Debt                                  $-            $-            $9.0             $9.0
        Partnership Interests                  -             -             9.2              9.2
        Preferred Equity                       -             -            21.8             21.8
        Common Equity                       48.7             -           458.4            507.1
        Equity Warrants                        -             -              .3               .3
                                      -----------   -----------    ------------    -------------
             Total Investments             $48.7            $-          $498.7           $547.4
                                      ===========   ===========    ============    =============


         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
three month period ended June 30, 2008 (in millions):



                                       14
<PAGE>

Notes to Consolidated Financial Statements
(continued)
                                                                               Purchases,
                                                                                 Sales,
                                             Beginning       Unrealized        Issuance &          Ending
                                              Balance        gain (loss)       Settlement         Balances
                                              -------        -----------       ----------         --------
        Debt                                        $9.0               $-                $-             $9.0
        Partnership Interests                        9.1                -               0.1              9.2
        Preferred Equity                            21.8                -                 -             21.8
        Common Equity                              507.3            (0.2)                 -            507.1
        Equity Warrants                              0.4            (0.1)                 -              0.3
                                           --------------    -------------    --------------    -------------
             Total Investments                    $547.6           ($0.3)              $0.1           $547.4
                                           ==============    =============    ==============    =============
</TABLE>


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 ended
June 30, 2008, we recognized compensation expense of $87,989.

         As of June 30, 2008, the total remaining unrecognized compensation cost
related to non-vested stock options was $1,707,846, which will be amortized over
the weighted-average service period of approximately 5.7 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 June 30, 2008,  there were 37,500  shares  available for grant under
the Plan. The per share weighted-average fair value of the stock options granted
on May 15, 2006 was $31.28 per option using the Black-Scholes pricing model with
the following  assumptions:  expected dividend yield of .64%, risk-free interest
rate of 5.08%,  expected  volatility of 21.1%, and expected life of 7 years. The
per share  weighted-average  fair value of the stock options granted on July 17,
2006 was  $33.05  per  option  using the  Black-Scholes  pricing  model with the
following assumptions:  expected dividend yield of .61%, risk-free interest rate
of 5.04%,  expected  volatility of 21.2%,  and expected life of 7 years. The per
share  weighted-average fair value of the stock options granted on July 16, 2007
was $41.78 per option using the  Black-Scholes  pricing model with the following
assuptions:  expected dividend yield of .39%,  risk-free interest rate of 4.95%,
expected volatility of 19.9%, and expected life of 5 years.

         The following  summarizes  activity in the stock option plan since June
30, 2008:

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

Balance at March 31, 2008                        70,400                $109.99
   Granted                                            -                      -
   Exercised                                          -                      -
   Canceled                                           -                      -
                                                -------                -------
Balance at June 30, 2008                         70,400                $109.99
                                                 ======                =======



                                       15
<PAGE>

Notes to Consolidated Financial Statements
(continued)

         At June 30,  2008,  the range of exercise  prices and  weighted-average
remaining contractual life of outstanding options was $65.00 to $152.98 and 5.66
years,  respectively.  No options were  exercised  during the three months ended
June 30, 2008.

         At June 30, 2008, the number of options  exercisable was 13,445 and the
weighted-average exercise price of those options was $83.17.

5.      Summary of Per Share Information

                                              Three Months Ended
                                                    June 30
                                                    -------
                                               2008         2007
                                            ---------    ---------

Investment income                           $     .32    $     .30
Operating expenses                               (.16)        (.13)
Interest expense                                  --           --
Income taxes                                     (.01)         --
                                            ---------    ---------
Net investment income                             .15          .17
Distributions from undistributed
  net investment income                          (.40)        (.20)
Net realized gain on investments                  --           .08
Net increase (decrease) in unrealized
  appreciation of investments                    (.07)        4.41
Treasury stock repurchase *                       .06          --
Exercise of employee stock options **             --          (.09)
Stock option expense                              .02          .01
                                            ---------    ---------
Increase (decrease) in net asset value           (.24)        4.38

Net asset value:
  Beginning of period                          150.09       186.75
                                            ---------    ---------
  End of period                             $  149.85    $  191.13
                                            =========    =========
Shares outstanding at end of period
  (000s omitted)                               3,882        3,886

* 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 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 June 30, 2008,  the Company  purchased a
total of 6,485  shares of its Common Stock on the open market for $724,479 at an
average price of $111.72 per share.



                                       16
<PAGE>

Notes to Consolidated Financial Statements
(continued)


7.  Subsequent Events

         In July 2008, Gary L. Martin was named Chairman of the Board,  Tracy L.
Morris was named  Treasurer and Chief Financial  Officer,  and William R. Thomas
III was named Assistant Vice President.

         In July 2008, the Company  purchased 132,727 shares of its Common Stock
on the open  market  for  $15,141,572  at an  average  price of  $114.08,  which
resulted in cummulative year-to-date purchases of 139,212 shares or 35.8% of the
388,915 shares approved by its Board of Directors on June 12, 2008.

8.   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.

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

         Net  asset  value at June  30,  2008 was  $581,836,149,  equivalent  to
$149.85 per share.  Assuming  reinvestment  of all  dividends and tax credits on
retained  long-term  capital gains, the June 30, 2008 net asset value reflects a
decrease of 21.2% during the past twelve months.

                                                 June 30,         June 30,
                                                    2008             2007
                                                    ----             ----

          Net assets                           $581,836,149     $743,343,946
          Shares outstanding                      3,882,666        3,889,151
          Net assets per share                      $149.85          $191.13


                                       17



<PAGE>

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

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 $349,852  for the three  months ended June 30, 2008
decreased  from  $564,687 in the year-ago  period due to an decrease in interest
rates.  During  the three  months  ended  June 30,  2008 and 2007,  we  recorded
dividend income from the following sources:

                                                             Three Months Ended
                                                                   June
                                                                   ----
                                                              2008       2007
                                                              ----       ----
          Alamo Group Inc.                                 $169,818   $169,278
          Dennis Tool Company                                12,500     25,000
          Encore Wire Corporation                            81,735     81,735
          Kimberly-Clark Corporation                         44,764     40,905
          The RectorSeal Corporation                        240,000       --
          TCI Holdings, Inc.                                 20,318     20,318
          The Whitmore Manufacturing Company                 60,000       --
          Other                                              28,345     26,191
                                                           --------   --------
                                                           $657,480   $363,427
                                                           ========   ========
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:

                                                    Three Months Ended
                                                           June
                                                           ----
                                                  2008               2007
                                                  ----               ----
 Encore Wire Corporation                     $14,303,625       $ 6,130,000
 Heelys, Inc.                                       --          (9,318,000)
 Palm Harbor Homes, Inc.                       3,927,561              --
 The RectorSeal Corporation                  (15,000,000)       10,850,000

         During  the  three  months  ended  June  30,  2008,  the  value  of our
investment in The RectorSeal  Corporation  was decreased by  $15,000,000  due to
decreased  sales  resulting  from slow downs in the  residential  and commercial
construction segments of its business.

         Offsetting  the loss at  RectorSeal  during the three months ended June
30, 2008, was a $14,303,625 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.



                                       18
<PAGE>


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

Portfolio Investments

         During the quarter ended June 30, 2008, we made additional  investments
of $109,541 in an existing portfolio company.

         We  have  agreed,  subject  to  certain  conditions,  to  invest  up to
$19,318,963 in five portfolio companies.

Financial Liquidity and Capital Resources

         At June 30, 2008,  we had cash and cash  equivalents  of  approximately
$30.0 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 $48.7 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.

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 $9,000,000 at June 30, 2008,  equivalent to 1.6% 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.



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<PAGE>

Item 3.   Quantitative and Qualitative Disclosure About Market Risk
          (continued)

         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 stocks 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 stocks 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 June 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.

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.



                                       20
<PAGE>

Item 1. Legal Proceedings
        (continued)

         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. These lawsuits have been transferred to a
single  judge,  and we expect  that all the cases  will be  consolidated  into a
single action, with a consolidated complaint filed shortly thereafter.

         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

         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 6.    Exhibits and Reports on Form 8-K

         (a)      Exhibits
                  Exhibit  31.1-  Certification  of  President  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  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.

         (b)      Reports on Form 8-K

                  Current report on Form 8-K filed with the SEC on June 12, 2008
                  relating  to the  share  repurchase  plan  that  was  recently
                  approved by the Company's Board of Directors. Under this Plan,
                  the  Company  may  repurchase  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 prices
                  prevailing in the over-the-counter  market at the time of such
                  purchases.













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<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



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




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























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