Exhibit 13.1
            Twelve Largest Investments - March 31, 2008

--------------------------------------------------------------------------------
The RectorSeal Corporation                                 $144,200,000
--------------------------------------------------------------------------------

   The RectorSeal  Corporation,  Houston,  Texas,  with facilities in Texas, New
York and Idaho,  manufactures  specialty chemical products including pipe thread
sealants,   firestop  sealants,  plastic  cements  and  other  formulations  for
plumbing, HVAC, electrical and industrial  applications.  The company also makes
special tools for plumbers and systems for containing smoke from building fires.
RectorSeal's  subsidiary,  Jet-Lube,  Inc.,  with  plants in Texas,  England and
Canada,  produces anti-seize compounds,  specialty lubricants and other products
used in industrial and oil field  applications.  Another subsidiary produces and
sells automotive  chemical products.  RectorSeal also owns a 20% equity interest
in The Whitmore Manufacturing Company (described on page 9).

   During  the year ended  March 31,  2008,  RectorSeal  earned  $11,264,000  on
revenues of  $112,029,000,  compared  with earnings of $9,676,000 on revenues of
$103,922,000 in the previous year.  RectorSeal's earnings do not reflect its 20%
equity in The Whitmore Manufacturing Company.

   At March 31, 2008, Capital Southwest owned 100% of RectorSeal's  common stock
having a cost of $52,600 and a value of $144,200,000.

--------------------------------------------------------------------------------
Lifemark Group                                              $71,000,000
--------------------------------------------------------------------------------

   Lifemark Group, Hayward,  California,  owns and operates cemeteries,  funeral
homes,  mausoleums and mortuaries.  Lifemark's  operations,  all of which are in
California,  include a major cemetery and funeral home in San Mateo, a mausoleum
and an adjacent mortuary in Oakland and cemeteries, mausoleums and mortuaries in
Hayward and Sacramento.  The company also owns a funeral home in San Bruno.  Its
funeral  and  cemetery  trusts  enable  Lifemark's   clients  to  make  pre-need
arrangements. The company's assets also include excess real estate holdings.

   For the fiscal  year ended  March 31,  2008,  Lifemark  reported  earnings of
$529,000 on revenues of  $29,682,000,  compared  with  earnings of $2,239,000 on
revenues of $28,727,000 in the previous year.

   At March 31, 2008,  Capital  Southwest owned 100% of Lifemark  Group's common
stock, which had a cost of $4,510,400 and was valued at $71,000,000.

--------------------------------------------------------------------------------
Encore Wire Corporation                                     $51,084,375
--------------------------------------------------------------------------------

   Encore Wire Corporation, McKinney, Texas, manufactures a broad line of copper
electrical building wire and cable including non-metallic sheathed,  underground
feeder  and  THHN  wire and  cable as well as  armored  cable  for  residential,
commercial  and  industrial  construction.  Encore's  products  are sold through
distributors and building materials retailers.

   For the  year  ended  December  31,  2007,  Encore  reported  net  income  of
$30,796,000 ($1.32 per share) on net sales of $1,184,786,000,  compared with net
income of $115,133,000  ($4.86 per share) on net sales of  $1,249,330,000 in the
previous year.  The March 31, 2008 closing  Nasdaq bid price of Encore's  common
stock was $18.18 per share.

   At March 31, 2008, the $5,800,000  investment in 4,086,750 shares of Encore's
restricted  common stock by Capital  Southwest and its  subsidiary was valued at
$51,084,375 ($12.50 per share),  representing a fully-diluted equity interest of
16.9%.

--------------------------------------------------------------------------------
Alamo Group Inc.                                            $45,284,800
--------------------------------------------------------------------------------

   Alamo Group Inc.,  Seguin,  Texas, is a leading  designer,  manufacturer  and
distributor of heavy-duty, tractor and truck mounted mowing and other vegetation
maintenance  equipment,  mobile  excavators,  street-sweeping  and snow  removal
equipment  and  replacement  parts.  Founded in 1969,  Alamo  Group  operates 16
manufacturing  facilities and serves  governmental,  industrial and agricultural
markets in North America, Europe, and Australia.

   For  the  year  ended  December  31,  2007,  Alamo  reported  net  income  of
$12,365,000  ($1.24 per share) on net sales of  $504,386,000,  compared with net
income of  $11,488,000  ($1.16  per share) on net sales of  $456,494,000  in the
previous  year.  The March 31, 2008 closing NYSE market price of Alamo's  common
stock was $21.27 per share.

   At March 31, 2008,  the $2,190,937  investment in Alamo by Capital  Southwest
and its subsidiary was valued at $45,284,800  ($16.00 per share),  consisting of
2,830,300 restricted shares of common stock, representing a fully-diluted equity
interest of 26.2%.

                                       1
<PAGE>

--------------------------------------------------------------------------------
The Whitmore Manufacturing Company                          $38,000,000
--------------------------------------------------------------------------------

   The Whitmore Manufacturing Company,  Rockwall,  Texas, manufactures specialty
lubricants  for heavy  equipment  used in surface  mining,  railroads  and other
industries,  and produces  water-based  coatings for the  automotive and primary
metals   industries.   Whitmore's  Air  Sentry   division   manufactures   fluid
contamination  control  devices.  The  company's  assets  also  include  several
commercial real estate interests.

   During  the year  ended  March 31,  2008,  Whitmore  reported  net  income of
$2,879,000 on net sales of  $23,148,000,  compared with net income of $2,848,000
on net sales of  $20,863,000  in the previous  year. The company is owned 80% by
Capital  Southwest and 20% by Capital  Southwest's  subsidiary,  The  RectorSeal
Corporation (described on page 6).

   At March 31,  2008,  the  direct  investment  in 80% of  Whitmore  by Capital
Southwest was valued at $38,000,000 and had a cost of $1,600,000.

--------------------------------------------------------------------------------
Media Recovery, Inc.                                        $37,500,000
--------------------------------------------------------------------------------

   Media Recovery, Inc. (MRI) is a holding company of three operating divisions,
Media Recovery,  ShockWatch and Damage  Prevention  Company.  Its Media Recovery
division  provides  datacenter  supplies  and  services to  corporate  customers
through its direct sales force. Its ShockWatch division manufactures  monitoring
devices used to detect mishandled  shipments and devices for monitoring material
handling equipment.  Media Recovery's subsidiary, The Damage Prevention Company,
Denver,  Colorado,  manufactures  dunnage  products  used to  prevent  damage in
trucking, rail and export container shipments.

   During the year ended September 30, 2007, Media Recovery  reported net income
of  $4,744,000  on net  sales  of  $134,180,000,  compared  with net  income  of
$5,164,000 on net sales of $137,040,000 in the previous year.

   At March 31, 2008,  the  $5,415,000  investment in Media  Recovery by Capital
Southwest and its  subsidiary was valued at  $37,500,000,  consisting of 800,000
shares of Series A convertible  preferred  stock and 4,000,000  shares of common
stock, representing a fully-diluted equity interest of 96.9%.

--------------------------------------------------------------------------------
Heelys, Inc.                                                $34,939,913
--------------------------------------------------------------------------------

   Heelys, Inc.,  Carrollton,  Texas, markets and distributes  specialty stealth
skate footwear,  equipment and apparel under the brand name Heelys.  The company
manufactures  its  products  in China  and Korea and  distributes  them  through
domestic and  international  sporting  goods  chains,  department  and lifestyle
stores and specialty footwear retailers.

   During  the year ended  December  31,  2007,  Heelys  reported  net income of
$22,317,000  ($0.79 per share) on net sales of  $183,472,000,  compared with net
income of  $29,174,000  ($1.16  per share) on net sales of  $188,208,000  in the
previous  year. The March 31, 2008 closing Nasdaq market price of Heely's common
stock was $4.29 per share.

   At March 31, 2008, the $102,490  investment in Heelys by Capital  Southwest's
subsidiary was valued at $34,939,913 ($3.75 per share),  consisting of 9,317,310
restricted shares of common stock,  representing a fully-diluted equity interest
of 31.8%.

--------------------------------------------------------------------------------
Palm Harbor Homes, Inc.                                     $31,420,484
--------------------------------------------------------------------------------

   Palm Harbor Homes, Dallas, Texas, is an integrated  manufacturer and retailer
of manufactured  and modular housing produced in 12 plants and sold in 29 states
by 87 company-owned  retail stores and builder  locations and  approximately 275
independent dealers, builders and developers.

   During the year ended  March 31,  2008,  Palm  Harbor  reported a net loss of
$124,262,000  ($5.44 per share) on net sales of $555,096,000,  compared with net
loss of  $11,565,000  ($0.51  per  share)  on net sales of  $661,247,000  in the
previous  year.  The March 31, 2008 closing Nasdaq market price of Palm Harbor's
common stock was $5.25 per share.

   At March 31,  2008,  the  $10,931,955  investment  in Palm  Harbor by Capital
Southwest  and its  subsidiary  was valued at  $31,420,484  ($4.00  per  share),
consisting  of  7,855,121  restricted  shares of common  stock,  representing  a
fully-diluted equity interest of 30.5%.



                                       2
<PAGE>


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Hologic, Inc.                                               $17,586,068
--------------------------------------------------------------------------------

   Hologic, Inc., Bedford, Massachusetts,  is a leading developer,  manufacturer
and  supplier of bone  densitometers,  mammography  and breast  biopsy  devices,
direct-to-digital  x-ray  systems and other x-ray based imaging  systems.  These
products  are  generally  targeted  to address  women's  healthcare  and general
radiographic applications.

   For the year  ended  September  29,  2007,  Hologic  reported  net  income of
$94,578,000  ($1.72 per share) on net sales of  $738,368,000,  compared with net
income of  $27,423,000  ($0.56  per share) on net sales of  $462,680,000  in the
previous year.  The March 31, 2008 closing Nasdaq bid price of Hologic's  common
stock was $55.58 per share.

   At March  31,  2008,  Capital  Southwest  and its  subsidiary  owned  316,410
unrestricted  shares of common  stock,  having a cost of  $220,000  and a market
value of $17,586,068 ($55.58 per share).


--------------------------------------------------------------------------------
   All Components, Inc.                                     $12,600,000
--------------------------------------------------------------------------------

   All  Components,  Inc.,  Austin,  Texas,  distributes and produces memory and
other  electronic  components for personal  computer  manufacturers,  retailers,
value-added  resellers and other corporate  customers.  Through its Austin-based
sales and distribution center and its contract  manufacturing  plants in Austin,
Texas and Boise,  Idaho, the company serves over 2,000 customers  throughout the
United States.

   During the year ended August 31, 2007, All Components  reported net income of
$134,000 on net sales of  $239,565,000,  compared with net income of $968,000 on
net sales of $275,449,000 in the previous year.

   At March 31, 2008,  the  $6,150,000  investment in All  Components by Capital
Southwest and its subsidiary  was valued at  $12,600,000  consisting of an 8.25%
subordinated  note valued at its cost of $6,000,000 and 150,000 shares of Series
A  Convertible  Preferred  Stock  valued  at  $6,600,000,  representing  a 79.9%
fully-diluted equity interest.

--------------------------------------------------------------------------------
Texas Capital Bancshares, Inc.                               $8,265,393
--------------------------------------------------------------------------------

   Texas Capital  Bancshares,  Inc. of Dallas,  Texas, formed in 1998, has total
assets of approximately $4.3 billion. With branch banks in Austin,  Dallas, Fort
Worth,  Houston,  Plano and San Antonio,  Texas Capital Bancshares  conducts its
business through its subsidiary,  Texas Capital Bank, N.A., which targets middle
market commercial and wealthy private client customers in Texas.

   For the year ended  December 31, 2007,  Texas Capital  reported net income of
$29,422,000  ($1.10 per share),  compared with net income of $28,924,000  ($1.09
per share) in the  previous  year.  The March 30, 2008  closing  Nasdaq price of
Texas Capital's common stock was $16.88 per share.

   At March 31, 2008,  Capital  Southwest owned 489,656  unrestricted  shares of
common  stock,  having a cost of  $3,550,006  and a market  value of  $8,265,393
($16.88 per share).

--------------------------------------------------------------------------------
Extreme International, Inc.                                  $7,985,000
--------------------------------------------------------------------------------

   Extreme International,  Inc., Sugar Land, Texas, owns Bill Young Productions,
Texas  Video and Post,  and  Extreme  Communications,  which  produce  radio and
television commercials and corporate communications videos.

   During the year ended  September  30,  2007,  Extreme  reported net income of
$1,688,000 on net sales of  $12,470,000,  compared with net income of $1,203,000
on net sales of $10,342,000 in the previous year.

   At March 31, 2008,  Capital  Southwest and its subsidiary owned 39,359 shares
of Series C Convertible Preferred Stock, 3,750 shares of 8% Series A Convertible
Preferred  Stock and warrants to purchase  13,035  shares of common stock at $25
per  share,  having  a cost of  $3,000,000  and a market  value  of  $7,985,000,
representing a fully-diluted equity interest of 53.6%.






                                       3
<PAGE>
<TABLE>
<CAPTION>



                                                Portfolio of Investments - March 31, 2008

         Company                                     Equity (a)        Investment (b)                      Cost           Value (c)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>               <C>                                 <C>            <C>

+AT&T, INC.                                              <1%       ++20,770 shares common stock        $         12     $    795,491
   San Antonio, Texas                                                (acquired 3-9-99)
   Global leader in local, long distance,
   Internet and transaction- based voice
   and data services.
------------------------------------------------------------------------------------------------------------------------------------

+ALAMO GROUP INC.                                       26.2%      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.                                    79.9%      8.25% subordinated note due 2012       6,000,000        6,000,000
   Austin, Texas                                                     (acquired 6-27-07)
   Electronics contract manufacturing; distribution                150,000 shares Series A Convertible
   and production of memory and other components for                 Preferred Stock, convertible into
   computer manufacturers, retailers and value-added                 600,000 shares of common stock at
   resellers.                                                        $0.25 per share (acquired 9-16-94)     150,000        6,600,000
                                                                   Warrants to purchase 350,000 shares
                                                                     of common stock at $11.00 per share,
                                                                     expiring 2017 (acquired 6-27-07)            --               --
                                                                                                          ---------       ----------
                                                                                                          6,150,000       12,600,000
------------------------------------------------------------------------------------------------------------------------------------

+ATLANTIC CAPITAL BANCSHARES, INC.                       2.0%      300,000 shares common stock
   Atlanta, Georgia                                                  (acquired 4-10-07)                   3,000,000        3,000,000
   Holding company of Atlantic Capital Bank
   a full service commercial bank.
------------------------------------------------------------------------------------------------------------------------------------

BALCO, INC.                                             88.5%      445,000 shares common stock
   Wichita, Kansas                                                   and 60,920 shares Class B
   Specialty architectural products used                             non-voting common stock
   in the construction and remodeling of                             (acquired 10-25-83 and 5-30-02)        624,920        4,500,000
   commercial and institutional buildings.
------------------------------------------------------------------------------------------------------------------------------------

BOXX TECHNOLOGIES, INC.                                 15.2%      3,125,354 shares Series B Convertible
   Austin, Texas                                                     Preferred Stock, convertible into
   Workstations for computer graphics                                3,125,354 shares of common stock
   imaging and design.                                               at $0.50 per share (acquired 8-20-99
                                                                     thru 8-8-01)                         1,500,000                2
------------------------------------------------------------------------------------------------------------------------------------

CMI HOLDING COMPANY, INC.                               15.3%      10% convertible subordinated note,
   Richardson, Texas                                                 due 2009 (acquired 7-2-07
   Owns Chase Medical, which develops and sells                      thru 10-9-07)                        2,363,347        1,000,000
   devices used  in cardiac surgery to relieve                     2,327,658 shares Series A Convertible
   congestive heart failure; develops and                            Preferred Stock, convertible into
   supports cardiac imaging systems.                                 2,327,658 shares of common stock
                                                                     at $1.72 per share (acquired 8-21-02
                                                                     and 6-4-03)                          4,000,000                2
                                                                   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
------------------------------------------------------------------------------------------------------------------------------------

+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)



                                       4
<PAGE>


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

+COMCAST CORPORATION                                     <1%       ++64,656 shares common stock
   Philadelphia, Pennsylvania                                        (acquired 11-18-02)               $         21     $  1,248,508
   Leading  provider of cable, entertainment
   and communications products and services.

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

DENNIS TOOL COMPANY                                     67.4%      20,725 shares 5% convertible preferred
   Houston, Texas                                                    stock, convertible into 20,725 shares
   Polycrystalline diamond compacts                                  of common stock at $48.25 per share
   (PDCs) used in oil field drill                                    (acquired 8-10-98)                    999,981           999,981
   bits and in mining and industrial                               140,137 shares common stock
   applications.                                                     (acquired 3-7-94 and 8-10-98)        2,329,963        2,000,000
                                                                                                          ---------        ---------
                                                                                                          3,329,944        2,999,981
------------------------------------------------------------------------------------------------------------------------------------

+DISCOVERY HOLDING COMPANY                               <1%       ++70,501 shares Series A common stock
   Englewood, Colorado                                               (acquired 7-21-05)                      20,262        1,492,506
   Provider of creative content,
   media management and network
   services worldwide.
------------------------------------------------------------------------------------------------------------------------------------

+EMBARQ CORPORATION                                      <1%       ++4,500 shares common stock
   Overland Park, Kansas                                             (acquired 5-17-06)                      46,532          180,450
   Local exchange carrier that provides voice
   and data services, including high-speed
   Internet.
------------------------------------------------------------------------------------------------------------------------------------

+ENCORE WIRE CORPORATION                                16.9%      4,086,750 shares common stock
   McKinney, Texas                                                   (acquired 7-16-92 thru 10-7-98)      5,800,000       51,084,375
   Electric wire and cable for
   residential and commercial use.
------------------------------------------------------------------------------------------------------------------------------------

EXTREME INTERNATIONAL, INC.                             53.6%      39,359.18 shares Series C Convertible
   Sugar Land, Texas                                                 Preferred Stock, convertible into
   Owns Bill Young Productions, Texas Video                          157,436.72 shares of common stock at
   and Post, and Extreme Communications,                             $25.00 per share (acquired 9-30-03)  2,625,000        7,026,000
   which produce radio and television                              3,750 shares 8% Series A Convertible
   commercials  and  corporate                                       Preferred Stock, convertible into
   communications videos.                                            15,000 shares of common stock at
                                                                     $25.00 per share (acquired 9-30-03)     375,000         669,000
                                                                   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                                         <1%       ++12,860 shares common stock
   Philadelphia, Pennsylvania                                        (acquired 6-6-86 and 9-13-07)           66,726          713,601
   Chemicals for agricultural,
   industrial and consumer markets.
------------------------------------------------------------------------------------------------------------------------------------

+FMC TECHNOLOGIES, INC.                                  <1%       ++22,114 shares common stock
   Houston, Texas                                                    (acquired 1-2-02 and 8-31-07)           57,051        1,258,065
   Equipment and systems for the energy,
   food processing and air transportation
   industries.
------------------------------------------------------------------------------------------------------------------------------------

+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)



                                       5
<PAGE>



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

+HEELYS, INC.                                          31.8%       9,317,310 shares common stock
   Carrollton, Texas                                                 (acquired 5-26-00)                $    102,490     $ 34,939,913
   Heelys stealth skate shoes, equipment
   and apparel sold through sporting goods
   chains, department stores and footwear retailers.
------------------------------------------------------------------------------------------------------------------------------------

+HOLOGIC, INC.                                           <1%       ++316,410 shares common stock
   Bedford, Massachusetts                                            (acquired 8-27-99)                     220,000       17,586,068
   Medical instruments including bone
   densitometers, mammography devices
   and digital radiography systems.
------------------------------------------------------------------------------------------------------------------------------------

+KIMBERLY-CLARK CORPORATION                              <1%       ++77,180 shares common stock
   Dallas, Texas                                                     (acquired 12-18-97)                  2,358,518        4,981,969
   Manufacturer of tissue, personal care
   and health care products.
------------------------------------------------------------------------------------------------------------------------------------

+LIBERTY GLOBAL, INC.                                    <1%       ++42,463 shares Series A common stock
   Englewood, Colorado                                               (acquired 6-15-05)                     106,553        1,446,714
   Owns interests in broadband,                                    ++42,463 shares Series C common stock
   distribution and content companies.                               (acquired 9-6-05)                      100,870        1,377,500
                                                                                                           --------        ---------
                                                                                                            207,423        2,824,214
------------------------------------------------------------------------------------------------------------------------------------

+LIBERTY MEDIA CORPORATION                               <1%       ++35,250 shares Liberty Capital Series
   Englewood, Colorado                                               A common stock (acquired 5-9-06)         7,833          554,130
   Holding company owning interests in                             ++176,252 shares Liberty Interactive
   electronic retailing, media, communi-                             Series A common stock
   cations and entertainment businesses.                             (acquired 5-9-06)                       66,424        2,842,945
                                                                   ++141,000 shares Liberty Entertainment
                                                                     Series A common stock
                                                                     (acquired 3-3-08)                       43,996        3,148,530
                                                                                                           --------        ---------
                                                                                                            118,253        6,545,605

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

LIFEMARK GROUP                                         100.0%      1,449,026 shares common stock          4,510,400       71,000,000
   Hayward, California                                               (acquired 7-16-69)
   Cemeteries, mausoleums and mortuaries
   located in northern California.
------------------------------------------------------------------------------------------------------------------------------------

MEDIA RECOVERY, INC.                                    96.9%      800,000 shares Series A Convertible
   Dallas, Texas                                                     Preferred Stock, convertible into
   Computer datacenter and office automation                         800,000 shares of common stock at
   supplies and accessories; impact, tilt                            $1.00 per share (acquired 11-4-97)     800,000        6,250,000
   monitoring and temperature sensing devices                      4,000,000 shares common stock
   to detect mishandled shipments; dunnage                           (acquired 11-4-97)                   4,615,000       31,250,000
   for protecting shipments.                                                                              ---------       ----------
                                                                                                          5,415,000       37,500,000
------------------------------------------------------------------------------------------------------------------------------------

PALLETONE, INC.                                          8.4%      12.3% senior subordinated notes due
   Bartow, Florida                                                   2012 (acquired 9-25-06)              1,553,150        2,000,000
   Manufacturer of wooden pallets                                  150,000 shares common stock
   and pressure-treated lumber.                                      (acquired 10-18-01)                    150,000          750,000
                                                                   Warrant to purchase 15,294 shares of
                                                                     common stock at $1.00 per share,
                                                                     expiring 2011 (acquired 2-17-06)        45,746           61,000
                                                                                                          ---------        ---------
                                                                                                          1,748,896        2,811,000
------------------------------------------------------------------------------------------------------------------------------------

+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)



                                       6
<PAGE>

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

+PALM HARBOR HOMES, INC.                                30.5%      7,855,121 shares common stock
   Dallas, Texas                                                     (acquired 1-3-85 thru 7-31-95)    $ 10,931,955     $ 31,420,484
   Integrated manufacturing, retailing,
   financing and insuring of manufactured
   housing and modular homes.
------------------------------------------------------------------------------------------------------------------------------------

+PETSMART, INC.                                          <1%       ++300,000 shares common stock
   Phoenix, Arizona                                                  (acquired 6-1-95)                    1,318,771        6,123,000
   Retail  chain of more than 928 stores
   selling pet foods, supplies and services.
------------------------------------------------------------------------------------------------------------------------------------

THE RECTORSEAL CORPORATION                             100.0%      27,907 shares common stock
   Houston, Texas                                                    (acquired 1-5-73 and 3-31-73)          52,600       144,200,000
   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
   Manufacturing Company.
------------------------------------------------------------------------------------------------------------------------------------

+SPRINT NEXTEL CORPORATION                               <1%       ++90,000 shares common stock
   Reston, Virginia                                                  (acquired 6-20-84)                     457,113          602,100
   Diversified telecommunications  company.
------------------------------------------------------------------------------------------------------------------------------------

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

+TEXAS CAPITAL BANCSHARES, INC.                          1.6%      ++489,656 shares common stock
   Dallas, Texas                                                     (acquired 5-1-00)                    3,550,006        8,265,393
   Regional bank holding company with
   banking operations in six Texas cities.
------------------------------------------------------------------------------------------------------------------------------------

VIA HOLDINGS, INC.                                      28.1%      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 11-1-07)                     281,523          281,523
                                                                                                          ---------         --------
                                                                                                          4,840,523          281,525
------------------------------------------------------------------------------------------------------------------------------------

WELLOGIX, INC.                                          19.7%      4,726,161 shares Series A-1 Convertible
   Houston, Texas                                                    Participating Preferred Stock, con-
   Developer and supporter of software                               vertible into 4,726,161 shares of
   used by the oil and gas industry to                               common stock at $1.0579 per share
   control drilling and maintenance expenses.                        (acquired 8-19-05 thru 3-15-08)      5,000,000                2
------------------------------------------------------------------------------------------------------------------------------------

THE WHITMORE MANUFACTURING COMPANY                      80.0%      80 shares common stock
   Rockwall, Texas                                                   (acquired 8-31-79)                   1,600,000       38,000,000
   Specialized  mining, railroad and
   industrial lubricants; coatings for
   automobiles and primary metals;
   fluid contamination control devices.
------------------------------------------------------------------------------------------------------------------------------------

+WINDSTREAM CORPORATION                                  <1%       ++9,181 shares common stock
   Little Rock, Arkansas                                             (acquired 7-17-06)                      19,656          109,713
   Provider of voice, broadband
   and entertainment services.
------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)



                                       7
<PAGE>

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

MISCELLANEOUS                                             -        BankCap Partners Fund I, L.P. - 6.0%
                                                                     limited partnership interest
                                                                     (acquired 7-14-06 thru 12-21-07)  $  2,457,140     $  2,457,140
                                                          -        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
                                                       100.0%      Humac Company - 1,041,000 shares
                                                                     common stock (acquired 1-31-75
                                                                     and 12-31-75)                              --           181,000
                                                          -        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                                                                                      $ 81,027,466     $547,570,502
                                                                                                       ============     ============
------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)

</TABLE>












                                       8
<PAGE>


                        Notes to Portfolio of Investments


(a)  The  percentages  in the  "Equity"  column  express  the  potential  equity
interests held by Capital  Southwest  Corporation and Capital  Southwest Venture
Corporation (together, the "Company") in each issuer. Each percentage represents
the amount of the  issuer's  common  stock the Company  owns or can acquire as a
percentage of the issuer's total  outstanding  common stock, plus stock reserved
for all warrants,  convertible securities and employee stock options. The symbol
"<1%" indicates that the Company holds a potential  equity interest of less than
1%.

(b) 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  restrictions on resale and are not
freely  marketable.   At  March  31,  2008,  restricted  securities  represented
approximately 90.4% of the value of the consolidated investment portfolio.

(c) Under the  valuation  policy of the  Company,  unrestricted  securities  are
valued at the closing sale price for NYSE listed  securities and at the lower of
the  closing  bid price or the last  sale  price for  Nasdaq  securities  on the
valuation date.  Restricted  securities,  including securities of publicly-owned
companies which are subject to restrictions on resale,  are valued at fair value
as  determined  by the Board of  Directors.  Fair value is  considered to be the
amount  which the  Company  may  reasonably  expect  to  receive  for  portfolio
securities if such securities were sold on the valuation date.  Valuations as of
any particular date,  however,  are not necessarily  indicative of amounts which
may ultimately be realized as a result of future sales or other  dispositions of
securities.

   Among the factors  considered  by the Board of Directors in  determining  the
fair value of restricted  securities are the logic and  methodology of SFAS 157,
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,  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.  The values of the
Company's  top four wholly or majority  owned assets  determined by our Board of
Directors,  were reviewed by a nationally-recognized  valuation firm as of March
31, 2008.

(d) Agreements  between certain issuers and the Company provide that the issuers
will bear  substantially  all costs in connection with the disposition of common
stock,  including those costs involved in registration  under the Securities Act
of 1933 but excluding underwriting  discounts and commissions.  These agreements
cover  common  stock  owned at March  31,  2008 and  common  stock  which may be
acquired   thereafter  through  the  exercise  of  warrants  and  conversion  of
debentures  and  preferred  stock.  They apply to  restricted  securities of all
issuers in the  investment  portfolio of the Company  except  securities  of the
following  issuers,  which are not obligated to bear registration  costs:  Humac
Company, Lifemark Group and The Whitmore Manufacturing Company.

(e) The  descriptions  of the companies and ownership  percentages  shown in the
portfolio of investments were obtained from published  reports and other sources
believed to be reliable,  are  supplemental and are not covered by the report of
our independent  registered public accounting firm.  Acquisition dates indicated
are the dates  specific  securities  were  acquired,  which may differ  from the
original  investment dates.  Certain securities were received in exchange for or
upon conversion or exercise of other securities previously acquired.



                                       9
<PAGE>


                        Portfolio Changes During the Year




New Investments and Additions to Previous Investments


                                                               Amount
                                                               ------
Alamo Group Inc...........................................$    125,890
All Components, Inc.......................................   3,000,000
Atlantic Capital Bancshares, Inc..........................   3,000,000
BankCap Partners Fund I, L.P..............................   1,861,521
CapitalSouth Partners Fund III, L.P.......................     701,255
CMI Holding Company, Inc..................................   1,763,347
VIA Holdings, Inc.........................................     281,523
                                                          ------------
                                                           $10,733,536
                                                          ============
Dispositions

                                                              Amount
                                               Cost          Received
                                               ----          --------
Alltel Corporation .....................   $   88,699      $  634,920
Diamond State Ventures, L.P.............       35,000          35,000
Exopack, Inc............................            -         245,950
Hic-Star Corporation....................    1,070,168               1
Sterling Group Partners I, L.P..........            -         518,020
                                           ----------      ----------
                                           $1,193,867      $1,433,891
                                           ==========      ==========
Repayments Received.....................                     $154,500
                                                             ========




























                                       10
<PAGE>

                 Capital Southwest Corporation and Subsidiaries
                 Consolidated Statements of Financial Condition




                                                       March 31
                                            ---------------------------
Assets                                           2008          2007
                                            ------------   ------------

Investments at market or fair value
   Companies more than 25% owned
     (Cost: 2008 - $28,758,246,
     2007 - $28,632,356)................... $410,026,178   $526,993,983
   Companies 5% to 25% owned
     (Cost: 2008 - $20,412,243,
     2007 - $18,798,896)...................   54,895,381     76,398,002
   Companies less than 5% owned
     (Cost: 2008 - $31,856,977,
     2007 - $24,211,045)...................   82,648,943     77,763,048
                                           ------------- --------------

Total investments
     (Cost: 2008 - $81,027,466,
     2007 - $71,642,297)...................  547,570,502    681,155,033
Cash and cash equivalents..................   31,327,758     38,844,203
Receivables................................      156,322        337,892
Other assets...............................    7,630,486      9,170,185
                                           ------------- --------------




   Totals..................................  $586,685,068  $729,507,313
                                             ============  ============




                                                       March 31
                                            ---------------------------
Liabilities and Shareholders' Equity             2008          2007
                                            ------------   ------------

Other liabilities..........................  $  1,187,796  $  1,457,847
Deferred income taxes......................     1,797,058     2,317,777
                                           ----------------------------
                    Total liabilities .....     2,984,854     3,775,624
                                           ----------------------------

Shareholders' equity
   Common stock, $1 par value: authorized,
     5,000,000 shares; issued, 4,326,516
     shares at March 31, 2008 and 4,323,416
     shares at March 31, 2007..............    4,326,516      4,323,416
   Additional capital......................  115,687,153    116,373,960
   Undistributed net investment income.....    7,036,929      5,655,020
   Undistributed net realized loss on
     investments...........................   (2,860,118)    (3,100,142)
   Unrealized appreciation of investments..  466,543,036    609,512,737
   Treasury stock - at cost
     (437,365 shares)......................   (7,033,302)    (7,033,302)
                                           --------------  ---------------
   Net assets at market or fair value, equivalent
     to $150.09 per share at March 31, 2008 on
     the 3,889,151 shares outstanding and
     $186.75 per share at March 31, 2007 on the
     3,886,051 shares outstanding..........  583,700,214    725,731,689
                                           -------------  -------------


   Totals.................................. $586,685,068   $729,507,313
                                            ============   ============





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




                                       11
<PAGE>
<TABLE>
<CAPTION>


                 Capital Southwest Corporation and Subsidiaries
                      Consolidated Statements of Operations

                                                                                 Years Ended March 31
                                                                    -----------------------------------------------
                                                                         2008             2007             2006
                                                                    -------------    -------------    -------------
<S>                                                                 <C>              <C>              <C>

Investment income:
   Interest ........................................................$   2,255,550    $   2,308,660    $     505,536
   Dividends .......................................................    3,656,833        3,954,875        3,485,430
   Management and directors' fees ..................................      882,300          708,900          848,070
                                                                    -------------    -------------    -------------
                                                                        6,794,683        6,972,435        4,839,036
                                                                    -------------    -------------    -------------
Operating expenses:
   Salaries ........................................................    1,619,008        1,356,062        1,211,584
   Net pension benefit .............................................     (327,345)        (144,945)        (116,747)
   Other operating expenses ........................................    1,676,660        1,014,255          859,702
                                                                    -------------    -------------    -------------
                                                                        2,968,323        2,225,372        1,954,539
                                                                    -------------    -------------    -------------
Income before interest expense and income taxes ....................    3,826,360        4,747,063        2,884,497
Interest expense ...................................................         --            460,399          436,021
                                                                    -------------    -------------    -------------
Income before income taxes .........................................    3,826,360        4,286,664        2,448,476
Income tax expense .................................................      111,160           53,324           59,220
                                                                    -------------    -------------    -------------
Net investment income ..............................................$   3,715,200    $   4,233,340    $   2,389,256
                                                                    =============    =============    =============
Proceeds from disposition of investments ...........................$   1,433,891    $  42,919,988    $  30,802,552
Cost of investments sold ...........................................    1,193,867       16,872,993       10,523,986
                                                                    -------------    -------------    -------------
Realized gain on investments before income taxes ...................      240,024       26,046,995       20,278,566
Income tax expense .................................................         --         11,080,699        4,827,663
                                                                    -------------    -------------    -------------
Net realized gain on investments ...................................      240,024       14,966,296       15,450,903
                                                                    -------------    -------------    -------------
Net increase (decrease) in unrealized appreciation of investments .. (142,969,698)     147,681,609      124,355,303
                                                                    -------------    -------------    -------------

Net realized and unrealized gain (loss) on investments .............$(142,729,674)   $ 162,647,905    $ 139,806,206
                                                                    =============    =============    =============

Increase (decrease) in net assets from operations ..................$(139,014,474)   $ 166,881,245    $ 142,195,462
                                                                    =============    =============    =============


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





                                       12
<PAGE>

                 Capital Southwest Corporation and Subsidiaries
                Consolidated Statements of Changes in Net Assets

                                                                                           Years Ended March 31
                                                                             -----------------------------------------------
                                                                                  2008             2007             2006
                                                                             -------------    -------------    -------------
 Operations:
  Net investment income .....................................................$   3,715,200    $   4,233,340    $   2,389,256
  Net realized gain on investments ..........................................      240,024       14,966,296       15,450,903
  Net increase (decrease) in unrealized appreciation of investments ......... (142,969,698)     147,681,609      124,355,303
                                                                             -------------    -------------    -------------
  Increase (decrease) in net assets from operations ......................... (139,014,474)     166,881,245      142,195,462

Distributions from:
  Undistributed net investment income .......................................   (2,333,291)      (2,323,150)      (2,314,231)
  Net realized gains deemed distributed to shareholders .....................         --        (11,417,283)     (13,573,139)

Capital share transactions:
  Allocated increase in share value for deemed distribution .................         --         11,417,283       13,573,139
  Exercise of employee stock options ........................................      231,390        1,794,850          208,000
  Adjustment to initially apply FASB No. 158, net of tax ....................         --          1,173,751             --

Change in pension plan funded status ........................................   (1,178,764)            --               --
Stock option expense ........................................................      263,664          169,003             --
                                                                             -------------    -------------    -------------
    Increase (decrease) in net assets ....................................... (142,031,475)     167,695,699      140,089,231
Net assets, beginning of year ...............................................  725,731,689      558,035,990      417,946,759
                                                                             -------------    -------------    -------------

Net assets, end of year .....................................................$ 583,700,214    $ 725,731,689    $ 558,035,990
                                                                             =============    =============    =============




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











                                       13
<PAGE>



                 Capital Southwest Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows


                                                                                              Years Ended March 31
                                                                                   -----------------------------------------------
                                                                                       2008              2007            2006
                                                                                   -------------    -------------    -------------
Cash flows from operating activities
Increase (decrease) in net assets from operations .................................$(139,014,474)   $ 166,881,245    $ 142,195,462
Adjustments to reconcile increase in net assets from operations
   to net cash provided by (used in) operating activities:
     Proceeds from disposition of investments .....................................    1,433,891       42,919,988       30,802,552
     Purchases of securities ......................................................  (10,733,536)        (803,269)     (15,054,741)
     Maturities of securities .....................................................      154,500          884,935          480,197
     Depreciation and amortization ................................................       32,756           16,808           16,136
     Net pension benefit ..........................................................     (327,345)        (144,945)        (116,747)
     Realized gain on investments before income taxes .............................     (240,024)     (14,966,296)     (15,450,905)
     Net (increase) decrease in unrealized appreciation of investments ............  142,969,698     (147,681,609)    (124,355,303)
     Stock option expense .........................................................      263,664          169,003             --
     (Increase) decrease in receivables ...........................................      181,570         (202,005)             514
     Increase in other assets .....................................................      (80,195)         (39,982)          (3,226)
     Increase (decrease) in other liabilities .....................................      (33,281)           8,934          (67,245)
     Decrease in accrued pension liability ........................................     (135,768)        (144,171)        (154,673)
     Increase in deferred income taxes ............................................      114,000           50,700           40,800
                                                                                   -------------    -------------    -------------
Net cash provided by (used in) operating activities ...............................   (5,414,544)      46,949,336       18,332,821
                                                                                   -------------    -------------    -------------
Cash flows from financing activities
Decrease in note payable to bank ..................................................         --         (8,000,000)            --
Decrease in note payable to portfolio company .....................................         --               --         (5,000,000)
Distributions from undistributed net investment income ............................   (2,333,291)      (2,323,150)      (2,314,231)
Proceeds from exercise of employee stock options ..................................      231,390        1,794,850          208,000
Payment of federal income tax for deemed capital gains distribution ...............         --        (11,080,699)      (4,827,659)
                                                                                   -------------    -------------    -------------
Net cash used in financing activities .............................................   (2,101,901)     (19,608,999)     (11,933,890)
                                                                                   -------------    -------------    -------------
Net increase (decrease) in cash and cash equivalents ..............................   (7,516,445)      27,340,337        6,398,931
Cash and cash equivalents at beginning of year ....................................   38,844,203       11,503,866        5,104,935
                                                                                   -------------    -------------    -------------
Cash and cash equivalents at end of year...........................................$  31,327,758    $  38,844,203    $  11,503,866
                                                                                   =============    =============    =============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
                               Interest ...........................................$        --      $     460,399    $     436,920
                               Income taxes .......................................$        --      $      20,000    $      18,420


</TABLE>

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



                                       14
<PAGE>

                   Notes to Consolidated Financial Statements


1.   Summary of Significant Accounting Policies

   Capital  Southwest  Corporation  ("CSC")  is a business  development  company
subject  to  regulation  under  the  Investment  Company  Act of  1940.  Capital
Southwest Venture Corporation  ("CSVC"), a wholly-owned  subsidiary of CSC, is a
Federal  licensee  under  the Small  Business  Investment  Act of 1958.  Capital
Southwest Management Corporation ("CSMC"), a wholly-owned  subsidiary of CSC, is
the  management  company  for  CSC and  CSVC.  The  following  is a  summary  of
significant  accounting policies followed in the preparation of the consolidated
financial statements of CSC, CSVC and CSMC (together, the "Company"):

   Principles of Consolidation.  The consolidated financial statements have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States of America 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, CSMC.

   Cash and Cash Equivalents.  All temporary cash investments  having a maturity
of three months or less when purchased are considered to be cash equivalents.

   Investments. Investments are stated at market or fair value determined by the
Board of Directors as  described  in the Notes to Portfolio of  Investments  and
Note 2 below. The average cost method is used in determining cost of investments
sold.  Investments are recorded on a trade date basis.  Dividends are recognized
on the ex-dividend date and interest income is accrued daily.

   Segment  Information.  The Company  operates  and  manages its  business in a
singular  segment.  As an investment  company,  the Company invests in portfolio
companies  in  various  industries  and  geographic  areas as  presented  in the
portfolio of investments.

   Use of Estimates.  The preparation of financial statements in conformity with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and  assumptions  that affect the amounts
reported in the financial  statements  and  accompanying  notes.  Actual results
could differ from those estimates.

   Federal Income Taxes.  CSC and CSVC intend to comply with the requirements of
the Internal Revenue Code necessary to qualify as regulated investment companies
(RICs).  By meeting  these  requirements,  they will not be subject to corporate
federal  income  taxes on  ordinary  income  distributed  to  shareholders.  The
Company's  policy  is to  retain  and  pay  the 35%  corporate  tax on  realized
long-term capital gains. For investment companies that qualify as RICs under the
IRC,  federal  income taxes payable on security gains that the company elects to
retain are accrued only on the last day of the tax year, December 31. Therefore,
CSC and CSVC made no  provision  for federal  income taxes on such gains and net
investment income in their financial statements.

   CSMC, a wholly owned  subsidiary  of CSC, is not a RIC and is required to pay
taxes at the current corporate rate.

   In June 2006,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Interpretation No. 48 ("FIN 48"), which clarifies the accounting for uncertainty
in income taxes  recognized  in an entity's  financial  statements in accordance
with FASB Statement  109,  "Accounting  for Income  Taxes".  FIN 48 prescribes a
recognition  threshold and  measurement  attribute  for the financial  statement
recognition and measurement of a tax position taken or expected to be taken in a



                                       15
<PAGE>


tax return.  The Company adopted FIN 48 on April 1, 2007, which had no effect on
the Company's financial statements.

Deferred Taxes.  The Company  sponsors a qualified  defined benefit pension plan
which  covers  its  employees  and  employees  of  certain  of its  wholly-owned
portfolio  companies.  Deferred taxes related to the qualified  defined  benefit
pension plan are recorded as incurred.

   Stock-Based   Compensation.   In  December  2004,  the  Financial  Accounting
Standards Board (FASB) issued SFAS No. 123 (revised 2004),  Share-Based  Payment
(SFAS 123R), which revised SFAS 123. SFAS 123R also supersedes APB 25 and amends
SFAS No. 95,  Statement of Cash Flows.  SFAS 123R  eliminates the alternative to
account for employee stock options under APB 25 and requires that the fair value
of all share-based payments to employees,  including the fair value of grants of
employee stock options,  be recognized in the income  statement,  generally over
the vesting period.

   In March 2005, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 107, which provides  additional  implementation  guidance for
SFAS 123R. Among other things, SAB 107 provides guidance on share-based  payment
valuations, income statement classification and presentation,  capitalization of
costs and related income tax accounting.

   Effective  April 1, 2006,  the Company  adopted  SFAS 123R using the modified
prospective transition method. The Company recognizes 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 years ended
March 31, 2008 and March 31, 2007, the Company recognized  compensation  expense
of $263,664 and $169,003, respectively.

   As of March 31, 2008,  the total  remaining  unrecognized  compensation  cost
related to non-vested  stock options was $1,795,834 which will be amortized over
the weighted-average service period of approximately 5.90 years.

Defined Pension Benefits and Other Postretirement Plans
-------------------------------------------------------

   Effective  March  31,  2007,  the  Company  adopted  Statement  of  Financial
Accounting  Standards (SFAS) No. 158, Employers'  Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements Nos. 87,
88, 106 and 132R (SFAS 158). SFAS 158 is required to be adopted on a prospective
basis and prior  year  financial  statements  and  related  disclosures  are not
permitted to be restated.  SFAS 158  requires an employer  that  sponsors one or
more postretirement defined benefit plan(s) to:

     o    Recognize the funded status of postretirement  defined benefit plans -
          measured as the  difference  between the fair value of plan assets and
          the benefit obligations - in its balance sheet.

     o    Recognize  changes  in the  funded  status of  postretirement  defined
          benefit plans in shareholder's equity in the year in which the changes
          occur.

     o    Measure  postretirement defined benefit plan assets and obligations as
          of the date of the employer's  fiscal year-end.  The Company presently
          uses March 31 as the  measurement  date for all of its  postretirement
          defined benefit plans.

Recent Accounting Pronouncements
--------------------------------

   In  September   2006,   the  FASB  issued   Statement  No.  157,  Fair  Value
Measurements,  ("SFAS 157").  Effective  April 1, 2008, the Company adopted SFAS
157. In February 2008, the FASB issued Staff Position No. 157-2,  Effective Date
of FASB  Statement No. 157 ("FSP  157-2"),  which delayed the effective  date of
SFAS 157 for certain  nonfinancial assets and liabilities,  including fair value



                                       16
<PAGE>

measurements  under  SFAS 141 and  SFAS 142 of  goodwill  and  other  intangible
assets,  to fiscal years  beginning  after  November 15,  2008.  Therefore,  the
Company has adopted the  provisions  of SFAS 157 with  respect to its  financial
assets  and  liabilities  only.  SFAS 157  defines  fair  value,  establishes  a
framework for measuring fair value in generally accepted accounting  principles,
and expands  disclosures  about fair value  measurements.  Fair value is defined
under SFAS 157 as the exchange price that would be received for an asset or paid
to transfer a liability  (an exit price) in the  principal or most  advantageous
market for the asset or  liability  in an  orderly  transaction  between  market
participants on the measurement date.  Valuation techniques used to measure fair
value under SFAS 157 must maximize the use of observable inputs and minimize the
use of unobservable  inputs. The standard describes a fair value hierarchy based
on the following  three levels of inputs,  of which the first two are considered
observable  and the last  unobservable,  that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical  assets or  liabilities;
Level 2 - Inputs  other than Level 1 that are  observable,  either  directly  or
indirectly,  such as quoted  prices for similar  assets or  liabilities;  quoted
prices in markets that are not active;  or other inputs that are  observable  or
can be corroborated by observable market data for substantially the full term of
the assets or liabilities;  and Level 3 - Unobservable inputs that are supported
by little or no market  activity and that are  significant  to the fair value of
the assets or  liabilities.  The Company is currently  evaluating this statement
and does not  anticipate  that the  adoption  of SFAS 157 will  have a  material
impact on our consolidated financial statements.

   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. The Company is currently
evaluating this statement and has made elections.  However,  our investments are
carried at fair value, the Company does not anticipate that this Statement would
have a significant impact on the consolidated financial statements.

2.   Valuation of Investments

   The consolidated  financial  statements as of March 31, 2008 and 2007 include
restricted  securities  valued  at  $494,843,820  (90.4%  of  the  value  of the
consolidated  investment  portfolio) and $619,207,702 (90.9% of the value of the
consolidated  investment  portfolio),   respectively,  whose  values  have  been
determined  by the Board of  Directors  in the absence of readily  ascertainable
market values.  Because of the inherent  uncertainty of valuation,  these values
may differ  significantly  from the values that would have been used had a ready
market  for the  securities  existed,  and the  differences  could be  material.
Unrestricted  securities  are valued at the  closing  sale price for NYSE listed
securities  and at the lower of the closing bid price or the last sale price for
Nasdaq securities on the valuation date.

3.   Income Taxes

   For the tax years ended December 31, 2007 and 2006, CSC and CSVC qualified to
be taxed as RICs under  applicable  provisions of the Internal  Revenue Code. As
RICs, CSC and CSVC must  distribute at least 90% of their taxable net investment
income  (investment  company taxable income) and may either distribute or retain
their taxable net realized gain on investments  (capital  gains).  To the extent
that we retain capital gains and declare a deemed dividend to  shareholders,  at
the corporate rate, on the  distribution,  and the shareholders  would receive a
tax credit equal to their proportionate share of the tax paid.

   We  intend  to meet  the  applicable  qualifications  to be taxed as a RIC in
future  years;  management  feels it is probable  that we will  maintain our RIC
status for a period longer than one year;  however,  either company's ability to
meet certain portfolio diversification  requirements of RICs in future years may
not be controllable by such company.



                                       17
<PAGE>

   As permitted by the Internal Revenue Code, a RIC can designate dividends paid
in the  subsequent  tax year as dividends of the current year  ordinary  taxable
income and long-term  capital gains if those  dividends are both declared by the
extended  due  date  of  the  RIC's  federal  income  tax  return  and  paid  to
shareholders by the last day of the subsequent tax year. For the tax years ended
December  31, 2007 and 2006 we  declared  and paid  dividends  in the amounts of
$2,333,291 and $2,323,150, respectively.

   Additionally, we are also subject to a nondeductible federal excise tax of 4%
if we do not distribute at least 98% of our investment  company ordinary taxable
income during our tax year.  For the tax years ended December 31, 2007 and 2006,
we distributed  100% of our investment  company  ordinary  taxable income.  As a
result,  we have made no provision for income taxes on ordinary  taxable  income
for the tax years ended December 31, 2007 and 2006.

   For the tax year ended  December 31, 2007, we have an estimated net long-term
capital loss of $961,655 for tax purposes and $860,118 for book purposes,  which
will be carried  forward and offset by future net long-term  capital gains.  For
the tax year ended  December 31, 2006,  we had net  long-term  capital  gains of
$31,659,140 for tax purposes and $31,932,775 for book purposes, which we elected
to retain and treat as a deemed  distribution to our  shareholders.  In order to
make the election to retain capital gains, we incurred and paid a federal tax on
behalf of our  shareholders  of $11,080,699  for the tax year ended December 31,
2006.

   CSMC, a wholly owned  subsidiary  of CSC, is not a RIC and is required to pay
taxes at the current  corporate rate. The Company  sponsors a qualified  defined
benefit  pension plan which covers its employees and employees of certain of our
wholly  owned  portfolio  companies.  Deferred  taxes  related to the  qualified
defined pension plan are recorded as incurred.


4.   Undistributed Net Realized Gains (Losses) on Investments

   Distributions   made  by  RICs  often   differ  from   aggregate   GAAP-basis
undistributed  net investment  income and  accumulated net realized gains (total
GAAP-basis net realized  gains).  The principal  cause is that required  minimum
fund distributions are based on income and gain amounts determined in accordance
with federal income tax regulations,  rather than GAAP. The differences  created
can be temporary,  meaning that they will reverse in the future,  or they can be
permanent.  In  subsequent  periods,  when  all  or a  portion  of  a  temporary
difference  becomes  a  permanent  difference,   the  amount  of  the  permanent
difference will be reclassified to "additional capital."

   For income tax  purposes,  the  $11,417,283  and  $13,573,139  are treated as
deemed  distributions  to our  shareholders for the tax years ended December 31,
2006 and 2005. We  reclassified  the deemed  distribution,  net of tax, from our
undistributed  net realized earnings capital in excess of par value. For the tax
year ended  December 31,  2004,  to the extent we had capital  gains,  they were
fully offset by either capital losses or capital loss carry forwards.

   As of March 31, 2008 and 2007, our  undistributed net realized gains (losses)
on  investments   determined  in  accordance  with  GAAP  as  reflected  on  our
consolidated statement of financial condition were comprised of the following:

     As of March 31,                          2008               2007
     --------------------------------      -----------       -----------

     Undistributed net realized gains
     (losses) on investments               ($2,860,118)      ($3,100,142)

5.   Employee Stock Option Plan

   On July 19, 1999, shareholders approved the 1999 Stock Option


                                       18
<PAGE>

Plan ("Plan"), which provided for the granting of stock options to employees and
officers  of the  Company  and  authorized  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 10 years from the date of grant and are
generally  exercisable on or after the first anniversary of the date of grant in
5 to 10 annual installments.

   At March 31, 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 $31.276 per option using the  Black-Scholes  pricing model with
the following assumptions:  expected dividend yield of 0.64%, 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  $33.045  per option  using the  Black-Scholes  pricing  model with the
following assumptions: expected dividend yield of 0.61%, 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
assumptions: expected dividend yield of 0.39%, 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 plans for the years
ended March 31, 2008, 2007 and 2006:

                                    Number       Weighted Average
                                    of shares      Exercise Price
                                    ---------      --------------
Balance at March 31, 2006            45,300           $  68.411
     Granted                         57,500              94.136
     Exercised                      (25,800)             69.568
     Canceled                       (24,500)             89.482
                                    --------          ---------
Balance at March 31, 2007            52,500              86.184
     Granted                         25,000             152.980
     Exercised                       (3,100)             74.642
     Canceled                        (4,000)             93.490
                                     -------          ---------
Balance at March 31, 2008            70,400            $109.998
                                     ======            ========


                                  Weighted Average        Aggregate Intrinsic
                             Remaining Contractual Term         Value
                             --------------------------         -----
March 31, 2008
     Outstanding                    5.9 years               $2,184,883
     Exercisable                    5.5 years               $  241,320

   At  March  31,  2008,  the  range of  exercise  prices  and  weighted-average
remaining contractual life of outstanding options was $65.00 to $152.98 and 5.91
years,  respectively.  The total intrinsic value of options exercised during the
years ended March 31, 2008,  2007 and 2006 were  $75,129,  $571,565 and $66,147,
respectively. The exercise prices ranged from $65.00 to $93.49 per share for the
year  ended  March 31,  2008 and  $65.00 to $77.00 per share for the each of the
years ended March 31,  2007 and 2006.  New shares were issued for the  $231,390,
$1,794,850 and $208,000 cash received from option  exercises for the years ended
March 31, 2008, 2007 and 2006, respectively.

   At March 31,  2008,  2007 and 2006,  the  number of options  exercisable  was
9,930, 8,515 and 29,500, respectively and the weighted-average exercise price of
those options was $79.01, $78.51 and $69.01, respectively.

6.   Employee Stock Ownership Plan

   The  Company  and  one of its  wholly-owned  portfolio  companies  sponsor  a
qualified  employee  stock  ownership  plan ("ESOP") in which certain  employees
participate. Contributions to the plan, which are invested in Company stock, are
made at the discretion of the Board of Directors.  A  participant's  interest in
contributions to the ESOP fully vests after five years of active service.

   Effective  April 1, 2007,  the  vesting  period for the ESOP is three  years.
During the 3 years ended March 31, 2008, the Company made  contributions  to the
ESOP,  which were charged  against net  investment  income,  of $94,210 in 2008,
$84,488 in 2007 and $99,167 in 2006.



                                       19
<PAGE>

7.   Retirement Plans

   The Company  sponsors a qualified  defined  benefit pension plan which covers
its employees and employees of certain of its wholly-owned  portfolio companies.
The following  information  about the plan  represents  amounts and  information
related to the  Company's  participation  in the plan and is presented as though
the Company  sponsored a  single-employer  plan.  Benefits are based on years of
service and an average of the highest  five  consecutive  years of  compensation
during the last 10 years of  employment.  The  funding  policy of the plan is to
contribute  annual  amounts  that are  currently  deductible  for tax  reporting
purposes.  No  contribution  was made to the plan  during the three  years ended
March 31, 2008.

   The following tables set forth the qualified  plan's benefit  obligations and
fair value of plan assets at March 31, 2008, 2007 and 2006:

                                               Years Ended March 31
                                               --------------------
                                         2008          2007         2006
                                      ----------    ----------   ----------
Change in benefit obligation
Benefit obligation at beginning
   of  year...........................$3,965,100    $4,004,017   $3,833,411
Service cost..........................    67,514       103,342       95,590
Interest cost.........................   222,895       230,711      223,374
Actuarial loss........................  (160,840)       68,854      228,122
Benefits paid.........................  (395,384)     (386,982)    (376,480)
Plan change...........................       --        (54,842)         --
                                      ----------    ----------   ----------
Benefit obligation at end of year ....$3,699,285    $3,965,100   $4,004,017
                                      ==========    ==========   ==========

Change in plan assets
Fair value of plan assets at beginning
   of  year..........................$12,973,292   $11,640,693  $ 9,326,254
Actual return on plan assets......... (1,457,571)    1,719,581    2,690,919
Benefits paid........................  ( 395,384)     (386,982)    (376,480)
                                     -----------   -----------  -----------
Fair value of plan assets at end of
   year............................. $11,120,337   $12,973,292  $11,640,693
                                     ===========   ===========  ===========

   The following table sets forth the qualified plan's funded status and amounts
recognized in the Company's consolidated statements of financial condition:

                                                           March 31
                                                           --------
                                                      2008          2007
                                                  -----------   -----------
Actuarial present value of benefit obligations:
     Accumulated benefit obligation.............. $(3,387,397)  $(3,435,396)
                                                  ===========   ===========
Projected benefit obligation for service
     rendered to date............................ $(3,699,285)  $(3,965,100)
Plan assets at fair value*.......................  11,120,337    12,973,292
                                                  -----------   -----------
Funded status....................................   7,421,052     9,008,192
Unrecognized net (gain) loss from past experience
     different from that assumed and effects of
     changes in assumptions......................     209,044    (1,761,054)
Unrecognized prior service costs.................     129,179       132,904
Additional asset, FAS 158........................    (338,223)    1,628,150
                                                  -----------   -----------
Prepaid pension cost included in other assets ... $ 7,421,052   $ 9,008,192
                                                  ===========   ===========

-------------
*Primarily  equities and bonds including  approximately  25,000 shares of common
stock of the Company.

   Components of net pension  benefit  related to the qualified plan include the
following:

                                                  Years Ended March 31
                                                  --------------------
                                            2008          2007         2006
                                         ----------    ----------  -----------
Service cost - benefits earned during
     the year .......................... $   67,514    $  103,342  $    95,590
Interest cost on projected benefit
     obligation ........................    222,895       230,711      223,374
Expected return on assets ..............   (673,366)     (580,104)    (551,026)
Net amortization .......................      3,725        27,487       38,897
                                         ----------    ----------  -----------
Net pension benefit from qualified plan  $ (379,232)   $ (218,564) $  (193,165)
                                         ==========    ==========  ===========



                                       20
<PAGE>
   The Company also sponsors an unfunded Retirement Restoration Plan, which is a
nonqualified  plan  that  provides  for the  payment,  upon  retirement,  of the
difference  between the maximum annual payment  permissible  under the qualified
retirement  plan  pursuant  to Federal  limitations  and the amount  which would
otherwise have been payable under the qualified plan.

   The following  table sets forth the  Retirement  Restoration  Plan's  benefit
obligations at March 31, 2008, 2007 and 2006:
                                               Years Ended March 31
                                               --------------------
                                         2008          2007         2006
                                      ----------    ----------   ----------
Change in benefit obligation
Benefit obligation at beginning
     of  year........................ $1,178,891    $1,280,542   $1,302,368
Service cost.........................     10,483        20,245       19,094
Interest cost........................     57,588        68,937       72,886
Actuarial (gain) loss................   (169,072)      (36,529)      40,867
Benefits paid........................   (135,768)     (144,170)    (154,673)
Plan change..........................        --        (10,134)         --
                                      ----------    ----------   ----------
Benefit obligation at end of year ... $  942,122    $1,178,891   $1,280,542
                                      ===========   ==========   ==========

   The following table sets forth the status of the Retirement  Restoration Plan
and  the  amounts  recognized  in  the  consolidated   statements  of  financial
condition:
                                                               March 31
                                                               --------
                                                          2008         2007
                                                       ---------   -----------
Projected benefit obligation ........................ $(942,122)  $(1,178,891)
Unrecognized net loss from past ex-
   perience different from that assumed
   and effects of changes in assumptions ............  (112,552)       56,523
Unrecognized prior service costs ....................  (217,958)     (234,144)
Additional asset, FAS 158 ...........................   330,510       177,621
                                                      ---------   -----------
Accrued pension cost included in other liabilities .. $(942,122)  $(1,178,891)
                                                      =========   ===========

   The Retirement  Restoration Plan expenses  recognized  during the years ended
March 31, 2008, 2007 and 2006 of $51,885, $73,619 and $76,417, respectively, are
offset against the net pension benefit from the qualified plan.

   The following assumptions were used in estimating the actuarial present value
of the projected benefit obligations:

                                             Years Ended March 31
                                             --------------------
                                       2008          2007         2006
                                     ---------    ----------   ----------
Discount rate......................    6.25%          6.0%        5.75%
Rate of compensation increases.....     5.0%          5.0%         5.0%

   The  following   assumptions   were  used  in  estimating  the  net  periodic
(income)/expense:
                                             Years Ended March 31
                                             --------------------
                                       2008          2007         2006
                                     ---------    ----------   ----------
Discount rate......................     6.0%         5.75%        5.75%
Expected return on plan assets.....     6.5%          6.0%         6.0%
Rate of compensation increases.....     5.0%          5.0%         5.0%

   The expected rate of return on assets  assumption was determined based on the
anticipated performance of the various asset classes in the plan's portfolio and
the allocation of assets to each class.  The  anticipated  asset class return is
developed using historical and predicted asset return  performance,  considering
the investments  underlying each asset class and expected investment performance
based on forecasts of  inflation,  interest  rates and market  indices for fixed
income and equity securities.

   The Company's pension plan asset allocations are as follows:

                                                Percentage of plan assets
                                                      at March 31
                                                  -------------------
Asset Category                                      2008       2007
--------------                                    --------   --------
Equity securities...........................        75.0%      79.1%
Debt securities.............................        13.8%      11.4%
Cash .......................................        11.2%       9.5%
                                                  --------   --------
                                                   100.0%     100.0%

   The Company's pension plan is administered by a board-appointed  committee of
that has fiduciary responsibility for the plan's management.  The trustee of the

                                       21
<PAGE>

plan is JPMorgan Asset  Management.  Currently,  approximately 18% of the assets
are  selected  and managed by the trustee  and the  remainder  of the assets are
managed by the committee,  invested mostly in equity  securities,  including the
Company's stock.

   Following  are the expected  benefit  payments for the next five years and in
the aggregate for the years 2014-2018:

                              Years Ended March 31
                 ----------------------------------------------
                                                          2014-
(In Thousands)   2009    2010    2011    2012    2013     2018
                 ----    ----    ----    ----    ----     ----
                 $362    $339    $316    $301    $277    $1,143

   Incremental  effect of applying FASB  Statement  No. 158 on  individual  line
items in the Statement of Financial Condition:

                                          March 31, 2007
                          Before Application                 After application
                           Of Statement 158   Adjustments     of Statement 158
                           ----------------   -----------     ----------------

Other assets..............  $  7,542,035      $1,628,150         $  9,170,185
Other liabilities.........     1,635,468        (177,621)           1,457,847
Deferred income taxes.....     1,144,026       1,173,751            2,317,777
Additional capital........   115,741,940         632,020          116,373,960
Net assets at market or
  fair value..............  $724,557,938      $1,173,751         $725,731,689

8.   Commitments

   The  Company  has  agreed,  subject  to certain  conditions,  to invest up to
$5,429,760 in 3 portfolio companies.

   The Company leases office space under an operating  lease which requires base
annual rentals of approximately  $80,000 through  February,  2013. For the three
years ended March 31,  total rental  expense  charged to  investment  income was
$80,569 in 2008, $79,979 in 2007 and $76,877 in 2006.

9.   Sources of Income

   Income was derived from the following sources:

                                Investment Income
                                -----------------
                                                                 Realized Gain
Years Ended                                                        (Loss) on
March 31                                                          Investments
--------                                               Other     Before Income
2008                        Interest    Dividends      Income        Taxes
----                       ----------   ----------   ----------   ----------
Companies more than
   25% owned ............. $     --     $2,979,631   $  839,800   $     --
Companies 5% to 25%
   owned .................    364,762      326,940       42,500         --
Companies less than
   5% owned ..............    469,066      350,262         --        240,024
Other sources, including
 temporary investments ...  1,421,722         --           --           --
                           ----------   ----------   ----------   ----------
                           $2,255,550   $3,656,833   $  882,300   $  240,024
                           ==========   ==========   ==========   ==========


                                Investment Income
                                -----------------
                                                                   Realized Gain
Years Ended                                                          (Loss) on
March 31                                                            Investments
--------                                              Other        Before Income
2007                    Interest      Dividends       Income          Taxes
----                  ------------   ------------   ------------   ------------
Companies more than
   25% owned .........$       --     $  3,449,558   $    659,500   $ 31,070,149
Companies 5% to 25%
   owned .............     125,733        171,578         20,000           --
Companies less than
   5% owned ..........     938,761        333,739         29,400     (5,023,154)
Other sources,
   including temporary
   investments .......   1,244,166           --             --             --
                      ------------   ------------   ------------   ------------
                      $  2,308,660   $  3,954,875   $    708,900   $ 26,046,995
                      ============   ============   ============   ============



                                       22
<PAGE>


                                Investment Income
                                -----------------

                                                                   Realized Gain
Years Ended                                                          (Loss) on
March 31                                                            Investments
--------                                                Other      Before Income
2006                      Interest       Dividends      Income         Taxes
----                     -----------    -----------   -----------   -----------
Companies more than
   25% owned ........... $      --      $ 2,926,964   $   642,500   $      --
Companies 5% to 25
   owned ...............     (55,236)       188,233        10,000          --
Companies less than
   5% owned ............     302,622        370,233       195,570    20,278,566
Other sources,
   including temporary
   investments .........     258,150           --            --            --
                         -----------    -----------   -----------   -----------
                         $   505,536    $ 3,485,430   $   848,070   $20,278,566
                         ===========    ===========   ===========   ===========





                                       23















<PAGE>
<TABLE>
<CAPTION>


                       Selected Per Share Data and Ratios


                                                                                       Years Ended March
                                                                       ---------------------------------------------------
                                                                        2008       2007       2006       2005       2004
                                                                       -------    -------    -------    -------    -------
<S>                                                                    <C>        <C>        <C>        <C>        <C>

Per Share Data
Investment income .....................................................$  1.75    $  1.79    $  1.25    $  1.26    $  1.22
Operating expenses ....................................................   (.76)      (.57)      (.51)      (.51)      (.39)
Interest expense ......................................................    --        (.12)      (.11)      (.11)      (.14)
Income taxes ..........................................................   (.03)      (.01)      (.01)      (.02)      (.02)
                                                                       -------    -------    -------    -------    -------
Net investment income .................................................    .96       1.09        .62        .62        .67
Distributions from undistributed net investment income ................   (.60)      (.60)      (.60)      (.60)      (.60)
Net realized gain (loss) on investments ...............................    .06       3.85       4.00      (2.62)      3.27
Net increase (decrease) in unrealized appreciation of investments ..... (36.76)     38.00      32.22       7.21      29.57
Exercise of employee stock options* ...................................   (.09)      (.49)      (.04)       --        (.25)

Stock option expense ..................................................    .07        .04        --         --         --
Net change in pension plan funded status ..............................   (.30)        --        --         --         --
Adjustment to initially apply FASB No. 158, net of tax ................    --         .30        --         --         --
                                                                       -------    -------    -------    -------    -------

Increase (decrease) in net asset value ................................ (36.66)     42.19      36.20       4.61      32.66
Net asset value
  Beginning of year ................................................... 186.75     144.56     108.36     103.75      71.09
                                                                       -------    -------    -------    -------    -------
  End of year .........................................................$150.09    $186.75    $144.56    $108.36    $103.75
                                                                       =======    =======    =======    =======    =======



Ratios and Supplemental Data
Ratio of operating expenses to average net assets .....................    .46%       .36%       .42%       .49%       .47%
Ratio of net investment income to average net assets ..................    .58%       .68%       .51%       .60%       .81%
Portfolio turnover rate ...............................................    .22%       .13%      2.36%       .56%      3.74%

Net asset value total return ..........................................  19.27%     29.85%     34.31%      5.25%     47.42%

Shares outstanding at end of period (000s omitted) ....................  3,889      3,886      3,860      3,857      3,857
</TABLE>

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



                                       24
<PAGE>



Management's Report on Internal Control Over Financial Reporting



   Management is responsible for establishing and maintaining  adequate internal
control over financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f)  under the  Securities  Exchange Act of 1934.  The Company's  internal
control over  financial  reporting is designed to provide  reasonable  assurance
regarding  the  reliability  of  financial  reporting  and  the  preparation  of
financial  statements  for  external  purposes  in  accordance  with  accounting
principles generally accepted in the United States.

   Because  of  its  inherent  limitations,  internal  controls  over  financial
reporting  may not prevent or detect  misstatements.  Also,  projections  of any
evaluation of  effectiveness to future periods are subject to risk that controls
may become  inadequate  because of changes in conditions,  or that the degree of
compliance with the policies or procedures may deteriorate.

   The Company has  assessed  the  effectiveness  of its  internal  control over
financial reporting as of March 31, 2008. In making this assessment, it used the
criteria  described in  "Internal  Control-Integrated  Framework"  issued by the
Committee of Sponsoring  Organizations of the Treadway Commission (COSO).  Based
on this  assessment,  management  believes  that,  as of  March  31,  2008,  the
Company's internal control over financial reporting was effective.

   During the fiscal quarter ended March 31, 2008, the Company  implemented  the
following  control in order to remediate the material  weakness we identified in
our  internal  controls  over  accounting  for  taxes,  which  resulted  in  the
restatement of our  consolidated  financial  statements for the year ended March
31,  2007 and years  represented  in our Form 10-K for the year ended  March 31,
2007.

     o    On a quarterly  basis the Company will  consult with a RIC  compliance
          expert, on our current RIC status and the potential impact of proposed
          transactions  and  scenarios on the  Company's  future RIC  compliance
          status. The Company has engaged KPMG, LLP to serve in this capacity.

   There were no other changes to our internal controls over financial reporting
that have materially affected, or are reasonably likely to materially affect our
internal controls over financial reporting.

   Grant Thornton LLP, the independent  registered  public  accounting firm that
audited our consolidated  financial statements included in this annual report on
Form 10-K for the year ended March 31, 2008, has issued an attestation report on
our internal control over financial  reporting as of March 31, 2008. That report
appears on the next page.

Date:    May 23, 2008

/s/ Gary L. Martin
------------------
Gary L. Martin
President & Chief Executive Officer

/s/ Tracy L. Morris
-------------------
Tracy L. Morris
Controller
(chief financial/accounting officer)


                                       25
<PAGE>

Report of Independent Registered Public Accounting Firm


Board of Directors and Shareholders
Capital Southwest Corporation

   We have audited  Capital  Southwest  Corporation  (a Texas  Corporation)  and
subsidiaries',  (the "Company")  internal control over financial reporting as of
March 31, 2008,  based on criteria  established in Internal  Control--Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission  (COSO).  The Company's  management is  responsible  for  maintaining
effective  internal  control over financial  reporting and for its assessment of
the effectiveness of internal control over financial reporting,  included in the
accompanying  Management's Report on Internal Control Over Financial  Reporting.
Our  responsibility  is to express an opinion on the Company's  internal control
over financial reporting based on our audit.

   We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain  reasonable  assurance  about whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating  effectiveness of internal control based
on the assessed  risk,  and  performing  such other  procedures as we considered
necessary in the circumstances.  We believe that our audit provides a reasonable
basis for our opinion.

   A company's  internal control over financial  reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

   Because  of  its  inherent  limitations,   internal  control  over  financial
reporting  may not prevent or detect  misstatements.  Also,  projections  of any
evaluation  of  effectiveness  to future  periods  are  subject to the risk that
controls may become  inadequate  because of changes in  conditions,  or that the
degree of compliance with the policies or procedures may deteriorate.

   In our opinion, the Company maintained,  in all material respects,  effective
internal  control  over  financial  reporting  as of March  31,  2008,  based on
criteria established in Internal Control--Integrated Framework issued by COSO.

   We also have audited,  in accordance with the standards of the Public Company
Accounting  Oversight  Board  (United  States),  the  consolidated  statement of
financial condition of the Company as of March 31, 2008 and 2007,  including the
portfolio  of  investments  as of March 31, 2008,  and the related  consolidated
statements of operations,  changes in net assets,  cash flows,  and the selected
per share data and ratios for each of the three years in the period  ended March
31, 2008, and our report dated May 23, 2008 expressed an unqualified opinion.


/s/Grant Thornton LLP

Dallas, Texas
May 23, 2008



                                       26
<PAGE>

Report of Independent Registered Public Accounting Firm


Board of Directors and Shareholders
Capital Southwest Corporation

   We  have  audited  the  accompanying  consolidated  statements  of  financial
condition  of  Capital   Southwest   Corporation  (a  Texas   Corporation)   and
subsidiaries  (the  "Company")  as of March  31,  2008 and 2007,  including  the
portfolio  of  investments  as of March 31, 2008,  and the related  consolidated
statements  of  operations,  changes in net  assets,  cash flows for each of the
three years in the period ended March 31, 2008,  and the selected per share data
and ratios for each of the four years in the period ended March 31, 2008.  These
financial statements and per share data and ratios are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial  statements  and per share data and ratios  based on our  audits.  The
selected  per share  data and ratios for the year  ended  March 31,  2004,  were
audited by another  independent  registered  public accounting firm whose report
dated May 12, 2004,  except for Note 2, which is as of January 9, 2008 expressed
an unqualified opinion.

   We  conducted  our  audits in  accordance  with the  standards  of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial statements and selected per share data and ratios are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
verification  by examination of securities held by the custodian as of March 31,
2008 and 2007, and  confirmation  of securities  not held by the  custodian.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

   In our opinion,  the consolidated  financial  statements and the selected per
share  data  and  ratios  referred  to above  present  fairly,  in all  material
respects,  the consolidated  financial position of Capital Southwest Corporation
and subsidiaries as of March 31, 2008 and 2007, and the consolidated  results of
its operations,  changes in its net assets, its cash flows for each of the three
years in the period  ended March 31,  2008,  and the selected per share data and
ratios  for each of the four  years in the  period  ended  March  31,  2008,  in
conformity with accounting principles generally accepted in the United States of
America.

   As described in Note 5 to the consolidated financial statements,  the Company
adopted the provisions of Financial  Accounting Standards Board (FASB) Statement
of Financial Accounting  Standards No. 123 (revised 2004),  Share-Based Payment,
effective  April 1, 2006. As described in Note 7 to the  consolidated  financial
statements,  the  Company  also  adopted the  provisions  of FASB  Statement  of
Financial  Accounting  Standards  No.  158,  Employers'  Accounting  for Defined
Benefit Pension and Other Postretirement  Plans: An Amendment of FASB Statements
No. 87, 88, 106, and 132(R), effective March 31, 2008.

   We also have audited,  in accordance with the standards of the Public Company
Accounting  Oversight Board (United States),  Capital Southwest  Corporation and
subsidiaries'  internal  control over financial  reporting as of March 31, 2008,
based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring  Organizations  of the Treadway  Commission  and our
report dated May 23, 2008, expressed an unqualified opinion thereon.


/s/Grant Thornton LLP



Dallas, Texas
May 23, 2008



                                       27
<PAGE>

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


Results of Operations

   The  composite  measure  of  the  Company's  financial   performance  in  the
Consolidated  Statements of Operations is captioned "Increase in net assets from
operations"  and  consists  of three  elements.  The  first  is "Net  investment
income,"  which is the  difference  between the Company's  income from interest,
dividends  and fees and its 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,  net of applicable
income tax expense  based on the  Company's  tax year.  The third element is the
"Net  increase in  unrealized  appreciation  of  investments,"  which is the net
change  in the  market  or fair  value of the  Company's  investment  portfolio,
compared with stated cost. It should be noted that the "Net realized gain (loss)
on investments" and "Net increase 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 being "unrealized"
to  being  "realized."  Conversely,  when a loss is  realized  on a  depreciated
portfolio security, an increase in net unrealized appreciation occurs.

Net Investment Income

    The  Company's  principal  objective  is to  achieve  capital  appreciation.
Therefore,  a significant  portion of the investment  portfolio is structured to
maximize the potential  return from equity  participation  and provides  minimal
current  yield in the form of interest  or  dividends.  The  Company  also earns
interest  income from the  short-term  investment of cash funds,  and the annual
amount of such  income  varies  based upon the average  level of funds  invested
during the year and fluctuations in short-term  interest rates. During the three
years  ended  March 31, the Company had  interest  income  from  temporary  cash
investments of $1,421,048 in 2008,  $1,187,676 in 2007 and $257,374 in 2006. The
Company also receives management fees primarily from its wholly-owned  portfolio
companies which  aggregated  $784,800 in 2008,  $626,400 in 2007 and $792,570 in
2006. During the three years ended March 31, 2008, the Company recorded dividend
income from the following sources:

                                             Years Ended March 31
                                     ----------------------------------
                                         2008        2007        2006
                                     ----------  ----------  ----------
Alamo Group Inc. ................... $  678,732  $  677,112  $  677,112
Balco, Inc..........................    224,400        --       252,960
Dennis Tool Company.................     62,499      62,499      49,999
Encore Wire Corporation.............    326,940        --          --
Kimberly-Clark Corporation..........    167,481     154,360     142,011
Lifemark Group......................    571,333     600,000     600,000
PalletOne, Inc......................       --        89,842     179,685
The RectorSeal Corporation..........  1,154,133   1,869,947   1,106,893
Sprint Nextel Corporation...........      6,750       9,000      18,000
TCI Holdings, Inc...................     81,270      81,270      81,270
The Whitmore Manufacturing Company..    288,533     240,000     240,000
Other...............................     94,762     170,845     137,500
                                     ----------  ----------  ----------
                                     $3,656,833  $3,954,875  $3,485,430
                                     ==========  ==========  ==========

   Total operating expenses,  excluding interest expense,  increased by $742,951
or 33.4%  during  the year  ended  March  31,  2008.  Due to the  nature  of its
business,  the  majority  of the  Company's  operating  expenses  are related to
employee and director  compensation,  office expenses,  legal,  professional and
accounting fees and the net pension benefit.

Net Realized Gain (Loss) on Investments

   Net realized gain on investments was $240,024 during the year ended March 31,
2008,  compared  with a  gain  of  $14,966,296  (after  income  tax  expense  of



                                       28
<PAGE>

$11,080,699)  during  2007  and a  gain  of  $15,450,903  (after  income  tax of
$4,827,663)  during 2006.  Management  does not attempt to maintain a comparable
level of  realized  gains from year to year,  but  instead  attempts to maximize
total  investment  portfolio  appreciation.  This  strategy  often  dictates the
long-term  holding of portfolio  securities  in pursuit of increased  values and
increased unrealized appreciation,  but may at opportune times dictate realizing
gains or losses through the disposition of certain portfolio investments.

Net Increase in Unrealized Appreciation of Investments

   For the three  years  ended  March 31, the  Company  recorded  a decrease  in
unrealized appreciation of investments of $142,969,698,  in 2008 and an increase
of $147,681,609 and $124,355,303,  in 2007 and 2006, respectively.  As explained
in the first paragraph of this discussion and analysis, the realization of gains
or  losses  results  in a  corresponding  decrease  or  increase  in  unrealized
appreciation  of  investments.   Set  forth  in  the  following  table  are  the
significant  increases and decreases in  unrealized  appreciation  excluding the
effect of gains or losses  realized  during the year by  portfolio  company  for
securities held at the end of each year.

                                           Years Ended March 31
                                ---------------------------------------
                                    2008          2007         2006
                                -----------    -----------  -----------

Alamo Group Inc. ..............$ (2,803,090)  $  2,821,000 $ (5,642,000)
Encore Wire Corporation.......  (18,390,625)   (12,260,000)  49,041,000
Heelys, Inc....................(160,724,088)   170,040,908   27,000,000
The Whitmore Manufacturing
  Company......................  12,000,000      4,000,000    4,000,000
Lifemark Group.................  31,000,000     (2,000,000)   2,000,000
Media Recovery, Inc............  (7,500,000)     3,000,000   15,744,000
Palm Harbor Homes, Inc......... (39,275,516)   (27,493,000)  27,493,000
The RectorSeal Corporation.....  46,200,000     10,500,000   15,000,000

    As shown in the table above for the year ended March 31, 2008,  we sustained
major increases in The RectorSeal  Corporation,  LifeMark Group and The Whitmore
Manufacturing   Company.   The  $46,200,000   increase  in  RectorSeal  and  the
$12,000,000  increase in Whitmore were  attributable to strong earnings  derived
from organic growth and the performance of recent acquisitions. LifeMark Group's
$31,000,000 increase is attributable to an increase in value of its cemetery and
funeral  home  operations  including  the new Lifemark  Center  Funeral Home and
continued escalations in non-business land values.

   Offsetting these major increases were significant decreases in Heely's, Inc.,
Palm  Harbor  Homes,  Inc.,  and  Encore  Wire  Corporation.  While the  Heely's
investment  represented  our largest  holding at March 31, 2007,  the market for
Heely's stock  declined  during the year to a level that  decreased our value by
$160,724,088.  Palm Harbor's  decrease of $39,275,516 is attributable to several
financial  setbacks as the residual real estate  markets eroded during the year.
Additionally,  Encore Wire experienced adversity related to the eroding residual
markets and severe  competition  that had  negative  impact on its market  price
prompting us to decrease our value by $18,390,625.

   A description of the investments  listed above and other material  components
of the  investment  portfolio  is included  elsewhere  in this report  under the
caption "Portfolio of Investments - March 31, 2008."

Portfolio Investments

   During the year ended March 31, 2008,  the Company  invested  $10,733,536  in
various  portfolio  securities listed elsewhere in this report under the caption
"Portfolio  Changes During the Year," which also lists dispositions of portfolio
securities.  During the 2007 and 2006 fiscal years, the Company invested a total
of $803,269 and $15,054,741, respectively.

Financial Liquidity and Capital Resources

   At March 31, 2008, the Company had cash and cash equivalents of approximately
$31.3 million. Pursuant to Small Business Administration (SBA) regulations, cash
and cash  equivalents  of $4.7  million held by CSVC may not be  transferred  or



                                       29
<PAGE>

advanced to CSC without the consent of the SBA.  Under  current SBA  regulations
and  subject  to the SBA's  approval  of its credit  application,  CSVC would be
entitled to borrow up to $16.4 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, the Company has 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 the Company's  investment  activity.  Approximately $52.7 million of the
Company's  investment  portfolio is represented by unrestricted  publicly-traded
securities and represent a source of liquidity.

   Funds to be used by the Company 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  of the  Company,  to  the  extent  of  their
available cash reserves and borrowing capacities.

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

Contractual Obligations

     As shown below, the Company had the following contractual obligations as of
March 31, 2008. For further information see Note 8 of the Consolidated Financial
Statements.

                                     Payments Due By Period ($ in Thousands)
                                     ---------------------------------------

                                          Less than    1-3      3-5   More Than
Contractual Obligations            Total   1 Year     Years    Years   5 Years
--------------------------------------------------------------------------------
Operating lease obligations        $393      $80      $240       $73     --
                                   ---------------------------------------------
Total                              $393      $80      $240       $73     --
                                   ---------------------------------------------


Critical Accounting Policies

Valuation of Investments

   In  accordance  with  the  Investment  Company  Act of 1940,  investments  in
unrestricted  securities (freely marketable  securities having readily available
market quotations) are valued at market and investments in restricted securities
(securities subject to one or more resale restrictions) are valued at fair value
determined  in good  faith  by the  Company's  Board  of  Directors.  Under  the
valuation  policy of the  Company,  unrestricted  securities  are  valued at the
closing  sale price for NYSE listed  securities  and at the lower of the closing
bid price or the last sale price for Nasdaq  securities on the  valuation  date.
Restricted  securities,  including securities of publicly-owned  companies which
are  subject to  restrictions  on resale,  are  valued at fair  value,  which is
considered to be the amount the Company may reasonably expect to receive if such
securities  were sold on the valuation  date.  Valuations  as of any  particular
date, however, are not necessarily indicative of amounts which may ultimately be
realized as a result of future sales or other dispositions of securities.



                                       30
<PAGE>

   Among the factors  considered  by the Board of Directors in  determining  the
fair value of restricted  securities  are 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,  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.

Impact of Inflation

   The Company  does not believe  that its  business is  materially  affected by
inflation,  other than the impact  which  inflation  may have on the  securities
markets,  the valuations of business  enterprises  and the  relationship of such
valuations to underlying earnings,  all of which will influence the value of the
Company's investments.

Risks

   Pursuant to Section 64(b)(1) of the Investment Company Act of
1940,  a business  development  company is required to describe the risk factors
involved in an investment in the securities of such company due to the nature of
the company's investment portfolio. Accordingly the Company states that:

   The  Company's   objective  is  to  achieve  capital   appreciation   through
investments in businesses  believed to have  favorable  growth  potential.  Such
businesses are often  undercapitalized  small  companies  which lack  management
depth and have not yet attained profitability. The Company's venture investments
often  include  securities  which do not yield  interest  or  dividends  and are
subject  to legal or  contractual  restrictions  on resale,  which  restrictions
adversely affect the liquidity and marketability of such securities.

   Because of the speculative  nature of the Company's  investments and the lack
of any market for the securities initially purchased by the Company,  there is a
significantly greater risk of loss than is the case with traditional  investment
securities. The high-risk,  long-term nature of the Company's venture investment
activities  may  prevent  shareholders  of  the  Company  from  achieving  price
appreciation and dividend distributions.

















                                       31
<PAGE>
<TABLE>
<CAPTION>


                      Selected Consolidated Financial Data
                (all figures in thousands except per share data)


                                        1998         1999         2000         2001         2002         2003         2004
--------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>          <C>          <C>          <C>          <C>          <C>          <C>
Financial Position  (as of March 31)
Investments at cost .................$  61,154    $  73,580    $  85,002    $  87,602    $  82,194    $  91,462    $  97,283
Unrealized appreciation .............  340,132      276,698      238,627      228,316      265,287      195,598      309,666
                                     ---------    ---------    ---------    ---------    ---------    ---------    ---------
Investments at market or
   fair value .......................  401,286      350,278      323,629      315,918      347,481      287,060      406,949
Total assets ........................  522,324      360,786      392,586      322,668      357,183      298,490      423,979
Notes payable * .....................    5,000        5,000       10,000       16,000       14,000       23,000       20,500
Net assets ..........................  414,697      352,974      319,438      303,436      339,891      272,211      400,157
Shares outstanding ..................    3,788        3,815        3,815        3,815        3,829        3,829        3,857
--------------------------------------------------------------------------------------------------------------------------------
Changes in Net Assets (years ended March 31)
Net investment income ...............$   2,726    $   1,762    $   1,663    $   1,723    $   2,042    $   2,299    $   2,587
Net realized gain (loss) on
   investments ......................    3,301        1,264        5,162       (5,126)        (762)       2,007       12,603
Net increase (decrease) in
   unrealized appreciation
   before distributions .............  106,749      (63,434)     (38,072)     (10,311)      36,971      (69,689)     114,068
                                     ---------    ---------    ---------    ---------    ---------    ---------    ---------
Increase (decrease) in net
   assets from operations
   before distributions .............  112,776      (60,408)     (31,247)     (13,714)      38,251      (65,383)     129,258
Cash dividends paid .................   (2,268)      (2,280)      (2,289)      (2,289)      (2,295)      (2,297)      (2,309)
Employee stock options
   exercised ........................      720          965         --           --            499         --            997
Stock option expense ................     --           --           --           --           --           --           --
Change in pension plan
   funded status ....................     --           --           --           --           --           --           --
Adjustment to initially apply FASB
   Statement No. 158, net of tax ....     --           --           --           --           --           --           --
                                     ---------    ---------    ---------    ---------    ---------    ---------    ---------
Increase (decrease) in net assets ...  111,228      (61,723)     (33,536)     (16,003)      36,455      (67,680)     127,946
--------------------------------------------------------------------------------------------------------------------------------
Per Share Data (as of March 31)
Net assets...........................$  109.48    $   92.52    $   83.73    $   79.54    $   88.77    $   71.09    $  103.75
Closing market price.................    94.00        73.00        54.75        65.00        68.75        48.15        75.47

Cash dividends paid..................      .60          .60          .60          .60          .60          .60          .60

o Excludes quarter-end borrowing which is repaid on the first business day after
  year end.




                                       32
<PAGE>


                      Selected Consolidated Financial Data
                (all figures in thousands except per share data)




                                                   2005         2006         2007         2008
------------------------------------------------------------------------------------------------

Financial Position  (as of March 31)
Investments at cost ............................$  84,546    $  88,597    $  71,642    $  81,027
Unrealized appreciation ........................  337,476      461,831      609,513      466,544
                                                ---------    ---------    ---------    ---------
Investments at market or
   fair value ..................................  422,022      550,428      681,155      547,571
Total assets ...................................  434,384      569,368      729,507      586,685
Notes payable * ................................   13,000        8,000         --           --
Net assets .....................................  417,947      558,036      725,732      583,700
Shares outstanding .............................    3,857        3,860        3,886        3,889
------------------------------------------------------------------------------------------------
Changes in Net Assets (years ended March 31)
Net investment income ..........................$   2,406    $   2,389    $   4,233    $   3,715
Net realized gain (loss) on
   investments .................................  (10,112)      15,451       14,966          240
Net increase (decrease) in
   unrealized appreciation
   before distributions ........................   27,810      124,355      147,682     (142,969)
                                                ---------    ---------    ---------    ---------
Increase (decrease) in net
   assets from operations
   before distributions ........................   20,104      142,195      166,881     (139,014)
Cash dividends paid ............................   (2,314)      (2,314)      (2,323)      (2,333)
Employee stock options
   exercised ...................................     --            208        1,795          231
Stock option expense ...........................     --           --            169          263
Change in pension plan
   funded status ...............................     --           --           --         (1,178)
Adjustment to initially apply FASB
   Statement No. 158, net of tax ...............     --           --          1,173         --
                                                ---------    ---------    ---------    ---------
Increase (decrease) in net assets ..............   17,790      140,089      167,695     (142,031)
------------------------------------------------------------------------------------------------
Per Share Data (as of March 31)
Net assets......................................$  108.36    $  144.56    $  186.75    $  150.09
Closing market price............................    79.10        95.50       153.67       123.72

Cash dividends paid.............................      .60          .60          .60          .60


</TABLE>

o Excludes quarter-end borrowing which is repaid on the first business day after
  year end.








                                       33
<PAGE>


                             Shareholder Information


Stock Transfer Agent

   American Stock  Transfer & Trust Company,  59 Maiden Lane, New York, NY 10038
(telephone  800-937-5449)  serves as  transfer  agent for the  Company's  common
stock.  Certificates to be transferred should be mailed directly to the transfer
agent, preferably by registered mail.

Shareholders

   The Company had approximately 700 record holders of its common stock at March
31,  2008.  This total does not include an  estimated  4,000  shareholders  with
shares held under beneficial  ownership in nominee name or within  clearinghouse
positions of brokerage firms or banks.

Market Prices

   The  Company's  common  stock  trades on The Nasdaq  Global  Market under the
symbol CSWC.  The  following  high and low selling  prices for the shares during
each quarter of the last two fiscal years were taken from quotations provided to
the Company by Nasdaq:

Quarter Ended                                            High     Low
-----------------------------------------------------------------------
June 30, 2006....................................      $104.45  $  90.65
September 30, 2006...............................       121.00     96.47
December 31, 2006...............................        154.36    115.33
March 31, 2007...................................       155.99    122.05

Quarter Ended                                            High     Low
-------------------------------------------------------------------------
June 30, 2007....................................      $190.33   $144.50
September 30, 2007...............................       162.13    110.00
December 31, 2007...............................        130.00    105.16
March 31, 2008...................................       127.49    100.00

Dividends

   The payment dates and amounts of cash dividends per share since April 1, 2006
are as follows:

Payment Date                                              Cash Dividend
-----------------------------------------------------------------------
May 31, 2006..............................................    $0.20
November 30, 2006.........................................     0.40
May 31, 2007..............................................     0.20
November 30, 2007.........................................     0.40
May 31, 2008..............................................     0.40

   The amounts and timing of cash dividend payments have generally been dictated
by  requirements  of the Internal  Revenue Code  regarding the  distribution  of
taxable  net  investment  income  (ordinary  income)  of  regulated   investment
companies.   Instead  of  distributing   realized  long-term  capital  gains  to
shareholders,  the Company has  ordinarily  elected to retain such gains to fund
future investments.

Automatic Dividend Reinvestment and Optional Cash Contribution Plan

   As a service to its  shareholders,  the Company offers an Automatic  Dividend
Reinvestment and Optional Cash  Contribution Plan for shareholders of record who
own a minimum of 25 shares.  The Company pays all costs of administration of the
Plan except brokerage  transaction  fees. Upon request,  shareholders may obtain
information on the Plan from the Company, 12900 Preston Road, Suite 700, Dallas,
Texas 75230. Telephone (972) 233-8242.  Questions and answers about the Plan are
on the next page.

Annual Meeting

   The Annual Meeting of Shareholders of Capital  Southwest  Corporation will be
held on Monday,  July 21,  2008,  at 10:00 a.m.  in the North  Dallas Bank Tower
Meeting Room (second floor), 12900 Preston Road, Dallas, Texas.



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