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<SEC-DOCUMENT>/in/edgar/work/20000616/0001010549-00-000373/0001010549-00-000373.txt : 20000919
<SEC-HEADER>0001010549-00-000373.hdr.sgml : 20000919
ACCESSION NUMBER:		0001010549-00-000373
CONFORMED SUBMISSION TYPE:	10-K405
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20000331
FILED AS OF DATE:		20000616

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CAPITAL SOUTHWEST CORP
		CENTRAL INDEX KEY:			0000017313
		STANDARD INDUSTRIAL CLASSIFICATION:	 [
]		IRS NUMBER:				751072796
		STATE OF INCORPORATION:			TX
		FISCAL YEAR END:			0331
</COMPANY-DATA>

		FILING VALUES:
			FORM TYPE:		10-K405
			SEC ACT:		
			SEC FILE NUMBER:	811-01056
			FILM NUMBER:		656135
</FILING-VALUES>

			BUSINESS ADDRESS:	
				STREET 1:		12900 PRESTON RD STE 700
				CITY:			DALLAS
				STATE:			TX
				ZIP:			75230
				BUSINESS PHONE:		2142338242
</BUSINESS-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>0001.txt
<TEXT>










                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                                    FORM 10-K

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

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

For the Fiscal Year Ended March 31, 2000          Commission File Number: 814-61

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

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

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

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

        Securities registered pursuant to Section 12(b) of the Act: None

Securities  registered pursuant to Section 12(g) of the Act: Common Stock, $1.00
par value

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of May 1, 2000 was  $125,919,954,  based on the last sale price of
such  stock as  quoted  by  Nasdaq  on such  date  (officers,  directors  and 5%
shareholders are considered affiliates for purposes of this calculation).

The  number  of  shares  of  common  stock  outstanding  as of May 15,  2000 was
3,815,051.

       Documents Incorporated by Reference               Part of Form 10-K
       -----------------------------------               -----------------

  (1)  Annual Report to Shareholders for the                 Parts I and II; and
          Year Ended March 31, 2000               Part IV, Item 14(a)(1) and (2)

  (2)  Proxy Statement for Annual Meeting of                    Part III
          Shareholders to be held July 17, 2000

<PAGE>

<TABLE>


                                TABLE OF CONTENTS

                                                                                                      Page
                                                                                                      ----
<S>      <C>          <C>                                                       <C>                     <C>

PART I

         Item 1.      Business..........................................................................1
         Item 2.      Properties........................................................................1
         Item 3.      Legal Proceedings.................................................................1
         Item 4.      Submission of Matters to a Vote of Security Holders...............................1

PART II

         Item 5.      Market for Registrant's Common Equity and Related Stockholder Matters.............2
         Item 6.      Selected Financial Data...........................................................2
         Item 7.      Management's Discussion and Analysis of Financial Condition and Results
                        of Operations...................................................................2
         Item 7A.     Quantitative and Qualitative Disclosure About Market Risk.........................2
         Item 8.      Financial Statements and Supplementary Data.......................................2
         Item 9.      Changes in and Disagreements With Accountants on Accounting and
                        Financial Disclosure............................................................3

PART III

         Item 10.     Directors and Executive Officers of the Registrant................................3
         Item 11.     Executive Compensation............................................................4
         Item 12.     Security Ownership of Certain Beneficial Owners and Management....................4
         Item 13.     Certain Relationships and Related Transactions....................................4

PART IV

         Item 14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K .................4

Signatures .............................................................................................5

Exhibit Index ..........................................................................................6

</TABLE>







<PAGE>



                                     PART I

Item 1.  Business

         Capital Southwest  Corporation (the "Company") was organized as a Texas
corporation on April 19, 1961.  Until September 1969, the Company  operated as a
licensee  under the Small  Business  Investment  Act of 1958. At that time,  the
Company  transferred to its wholly-owned  subsidiary,  Capital Southwest Venture
Corporation ("CSVC"),  certain of its assets and its license as a small business
investment company ("SBIC").  CSVC is a closed-end,  non-diversified  investment
company of the management  type registered  under the Investment  Company Act of
1940 (the "1940 Act").  Prior to March 30, 1988, the Company was registered as a
closed-end, non-diversified investment company under the 1940 Act. On that date,
the  Company  elected to become a business  development  company  subject to the
provisions  of  Sections  55 through 65 of the 1940 Act, as amended by the Small
Business Incentive Act of 1980.

         The Company is a venture capital  investment company whose objective is
to achieve  capital  appreciation  through  long-term  investments in businesses
believed to have  favorable  growth  potential.  The Company's  investments  are
focused on early-stage financings, expansion financings,  management buyouts and
recapitalizations  in a broad range of industry  segments.  The  portfolio  is a
composite  of  companies  in which the Company has major  interests as well as a
number  of  developing  companies  and  marketable   securities  of  established
publicly-owned  companies.  The Company makes available  significant  managerial
assistance  to the  companies  in which it invests and believes  that  providing
material  assistance  to such  investee  companies  is critical to its  business
development activities.

         The twelve  largest  investments  of the Company had a combined cost of
$40,529,940 and a value of $271,976,515,  representing 84.0% of the value of the
Company's  consolidated  investment portfolio at March 31, 2000. For a narrative
description of the twelve largest investments, see "Twelve Largest Investments -
March  31,  2000"  on  pages 7  through  9 of the  Company's  Annual  Report  to
Shareholders  for the Year Ended March 31, 2000 (the "2000 Annual Report") which
is herein incorporated by reference. Certain of the information presented on the
twelve largest investments has been obtained from the respective  companies and,
in  certain  cases,  from  public  filings  of  such  companies.  The  financial
information  presented  on  each  of  the  respective  companies  is  from  such
companies' financial statements, which in some instances is unaudited.

         The Company  competes  for  attractive  investment  opportunities  with
venture capital  partnerships and  corporations,  venture capital  affiliates of
industrial and financial companies, SBICs and wealthy individuals.

         The number of persons  employed  by the  Company at March 31,  2000 was
seven.

Item 2.  Properties

         The Company  maintains its offices at 12900  Preston  Road,  Suite 700,
Dallas,  Texas,  75230, where it rents approximately 3,700 square feet of office
space  pursuant to a lease  agreement  expiring in  February  2003.  The Company
believes  that its offices are adequate to meet its current and expected  future
needs.

Item 3.  Legal Proceedings

         The Company has no material pending legal  proceedings to which it is a
party or to which any of its property is subject.

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

         No matters  were  submitted  to a vote of security  holders  during the
quarter ended March 31, 2000.


                                       1
<PAGE>


                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

         Information  set forth under the captions  "Shareholder  Information  -
Shareholders,  Market Prices and Dividends" on page 32 of the 2000 Annual Report
is herein incorporated by reference.

Item 6.  Selected Financial Data

         "Selected  Consolidated  Financial  Data" on page 31 of the 2000 Annual
Report is herein incorporated by reference.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

         Pages 28  through 30 of the  Company's  2000  Annual  Report are herein
incorporated by reference.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

         The Company is subject to financial market risks,  including changes in
marketable equity security prices. The Company does not use derivative financial
instruments  to  mitigate  any of  these  risks.  The  return  on the  Company's
investments is not affected by foreign currency fluctuations.

         The Company's investment in portfolio securities consists of fixed rate
debt securities which totalled $9,230,972 at March 31, 2000, equivalent to 2.85%
of the value of the Company's  total  investments.  Since these debt  securities
usually have  relatively  high fixed rates of interest,  minor changes in market
yields of publicly-traded debt securities have little or no effect on the values
of debt securities in the Company's  portfolio and no effect on interest income.
On the other hand,  significant  changes in the market yields of publicly-traded
debt  securities may have a material  effect on the values of debt securities in
our portfolio.  The Company's  investments in debt securities are generally held
to maturity  and their fair values are  determined  on the basis of the terms of
the debt security and the financial condition of the issuer.

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

Item 8.  Financial Statements and Supplementary Data

         Pages 10  through 27 of the  Company's  2000  Annual  Report are herein
incorporated  by  reference.  See also Item 14 of this  Form  10-K -  "Exhibits,
Financial Statement Schedules, and Reports on Form 8-K".


                                       2

<PAGE>

<TABLE>

<CAPTION>


         Selected Quarterly Financial Data (Unaudited)
         ---------------------------------

         The   following   presents  a  summary  of  the   unaudited   quarterly
consolidated financial information for the years ended March 31, 2000 and 1999.

                                                            First         Second           Third       Fourth
                                                           Quarter        Quarter         Quarter      Quarter        Total
                                                           -------        -------         -------      -------        -----
                                                                         (In thousands, except per share amounts)
<S>                                                      <C>             <C>            <C>          <C>           <C>

2000
- ----

    Net investment income                                $    547        $   723        $   121      $    272      $  1,663
    Net realized gain on investments                        5,090            910             16             4         6,020
    Net increase (decrease)  in unrealized
       appreciation of investments                            239        (25,423)         3,976        (3,542)      (24,750)
    Net increase (decrease) in net assets
       from operations                                      5,876        (23,790)         4,113        (3,266)      (17,067)
    Net increase (decrease)in net assets from
       operations per share                                  1.54          (6.23)          1.08         (0.86)        (4.47)

1999
- ----

    Net investment income                                $    841        $   386        $   122      $    413      $  1,762
    Net realized gain on investments                          495              -              -           500           995
    Net increase (decrease) in unrealized
        appreciation of investments                         2,999        (31,557)         2,332       (15,007)      (41,233)
    Net increase (decrease) in net assets from
       operations                                           4,335        (31,171)         2,454       (14,094)      (38,476)
    Net increase (decrease) in net assets from
       operations per share                                  1.14          (8.22)           .68         (3.69)       (10.09)

</TABLE>

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

         Not applicable.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

         The information set forth under the caption  "Election of Directors" in
the Company's  definitive  Proxy Statement for Annual Meeting of Shareholders to
be held July 17, 2000,  filed  pursuant to Regulation  14A under the  Securities
Exchange Act of 1934, on or about June 2, 2000 (the "2000 Proxy  Statement")  is
herein incorporated by reference.

Executive Officers of the Registrant

         The officers of the Company,  together  with the offices in the Company
presently held by them, their business experience during the last five years and
their ages are as follows:

     Patrick F. Hamner,  age 44, has served  as Vice  President  of the  Company
           since 1986 and was an investment associate with the Company from 1982
           to 1986.

     Gary L. Martin, age 53, has been a director of the Company since  July 1988
           and has  served as Vice  President  of the  Company  since  1984.  He
           previously served as Vice President of the Company from 1978 to 1980.
           Since  1980,  Mr.  Martin has  served as  President  of The  Whitmore
           Manufacturing Company, a wholly-owned subsidiary of the Company.

                                       3

<PAGE>


     Tim Smith, age 39, has  served as  Vice  President  and  Secretary  of  the
           Company  since 1993,  Treasurer of the Company since January 1990 and
           was an  investment  associate  with the  Company  from  July  1989 to
           January 1990.

     William R. Thomas, age 71, has served as Chairman of the Board of Directors
           of the Company since 1982 and President of the Company since 1980. In
           addition,  he has been a director of the  Company  since 1972 and was
           previously Senior Vice President of the Company from 1969 to 1980.

         No family relationship exists between any of the above-listed officers,
and there are no  arrangements  or  understandings  between  any of them and any
other person  pursuant to which they were  selected as an officer.  All officers
are elected to hold office for one year,  subject to earlier  termination by the
Company's board of directors.

Item 11. Executive Compensation

         The information set forth under the caption  "Compensation of Directors
and Executive  Officers" in the 2000 Proxy  Statement is herein  incorporated by
reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         The  information  set forth  under the  captions  "Stock  Ownership  of
Certain  Beneficial  Owners"  and  "Election  of  Directors"  in the 2000  Proxy
Statement is herein incorporated by reference.

Item 13. Certain Relationships and Related Transactions

         There were no relationships or transactions  within the meaning of this
item during the fiscal year ended March 31, 2000 or proposed for the fiscal year
ending March 31, 2001.

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

    (a)(1) The following financial statements included in pages 10 through 27 of
the Company's 2000 Annual Report are herein incorporated by reference:

         (A)   Portfolio of Investments - March 31, 2000
               Consolidated Statements of Financial Condition - March 31, 2000
               and 1999
               Consolidated Statements of Operations - Years Ended March 31,
               2000, 1999 and 1998
               Consolidated Statements of Changes in Net Assets - Years Ended
               March 31, 2000, 1999 and 1998
               Consolidated  Statements  of Cash Flows - Years  Ended  March 31,
               2000, 1999 and 1998

         (B)   Notes to Consolidated Financial Statements

         (C)   Notes to Portfolio of Investments

         (D)   Selected Per Share Data and Ratios

         (E)   Independent Auditors' Report

    (a)(2) All  schedules  are omitted  because they are not  applicable  or not
required, or the information is otherwise supplied.

    (a)(3) See the Exhibit Index on page 6.

    (b) The Company  filed no reports on Form 8-K during the three  months ended
March 31, 2000.


                                       4

<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                             CAPITAL SOUTHWEST CORPORATION

                                               /s/ William R. Thomas
                                       By:   -----------------------------
                                              (William R. Thomas, President
                                               and Chairman of the Board)

Date:  June 16, 2000

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the date indicated.

         Signature                       Title                         Date
         ---------                       -----                         ----

   /s/  William R. Thomas        President and Chairman            June 16, 2000
   --------------------------    of the Board and Director
       (William R. Thomas)


   /s/  Gary L. Martin           Director                          June 16, 2000
   --------------------------
       (Gary L. Martin)


   /s/  Graeme W. Henderson      Director                          June 16, 2000
  ---------------------------
       (Graeme W. Henderson)


   /s/  James M. Nolan           Director                          June 16, 2000
  ---------------------------
       (James M. Nolan)


   /s/  John H. Wilson           Director                          June 16, 2000
  ---------------------------
       (John H. Wilson)


   /s/  Tim Smith                Vice President and                June 16, 2000
  ---------------------------    Secretary-Treasurer
       (Tim Smith)              (Financial and Accounting Officer)



                                       5

<PAGE>




                                  EXHIBIT INDEX

         The following  exhibits are filed with this report or are  incorporated
herein by reference to a prior filing,  in accordance with Rule 12b-32 under the
Securities  Exchange Act of 1934.  (Asterisk  denotes  exhibits  filed with this
report.)


         Exhibit No.                       Description
         -----------                       -----------

            3.1(a)      Articles of  Incorporation  and Articles of Amendment to
                        Articles of Incorporation, dated June 25, 1969 (filed as
                        Exhibit 1(a) and 1(b) to Amendment No. 3 to Form N-2 for
                        the fiscal year ended March 31, 1979).

            3.1(b)      Articles of  Amendment  to  Articles  of  Incorporation,
                        dated July 20,  1987  (filed as an exhibit to Form N-SAR
                        for the six month period ended September 30, 1987).

            3.2         By-Laws of the Company,  as amended  (filed as Exhibit 2
                        to  Amendment  No.  11 to Form N-2 for the  fiscal  year
                        ended March 31, 1987).

            4.1         Specimen of Common Stock certificate (filed as Exhibit 4
                        to Amendment No. 3 to Form N-2 for the fiscal year ended
                        March 31, 1979).

            4.2         Subordinated  debenture of CSVC  guaranteed by the Small
                        Business  Administration  (filed as Exhibit  4.3 to Form
                        10-K for the fiscal year ended March 31, 1993).

            10.1        The RectorSeal  Corporation and Jet-Lube,  Inc. Employee
                        Stock  Ownership Plan as revised and restated  effective
                        April 1, 1989  (filed as  Exhibit  10.1 to Form 10-K for
                        the fiscal year ended March 31, 1996).

            10.2        Amendment  No.  I  to  The  RectorSeal  Corporation  and
                        Jet-Lube,  Inc. Employee Stock Ownership Plan as revised
                        and restated effective April 1, 1989.

            10.3        Retirement  Plan  for  Employees  of  Capital  Southwest
                        Corporation  and Its  Affiliates as amended and restated
                        effective  April 1, 1989 (filed as Exhibit  10.3 to Form
                        10-K for the fiscal year ended March 31, 1995).

            10.4        Amendments One and Two to Retirement  Plan for Employees
                        of Capital  Southwest  Corporation and Its Affiliates as
                        amended and restated effective April 1, 1989.

            10.5        Capital   Southwest   Corporation   and  Its  Affiliates
                        Restoration  of  Retirement   Income  Plan  for  certain
                        highly-compensated    superseded    plan    participants
                        effective  April 1, 1993 (filed as Exhibit  10.4 to Form
                        10-K for the fiscal year ended March 31, 1995).

            10.6        Amendment One to Capital  Southwest  Corporation and Its
                        Affiliates  Restoration  of  Retirement  Income Plan for
                        certain highly-compensated  superceded plan participants
                        effective April 1, 1993.


                                       6

<PAGE>


            10.7        Capital   Southwest   Corporation    Retirement   Income
                        Restoration Plan as amended and restated effective April
                        1,  1989  (filed  as  Exhibit  10.5 to Form 10-K for the
                        fiscal year ended March 31, 1995).

            10.8        Form  of   Indemnification   Agreement  which  has  been
                        established with all directors and executive officers of
                        the  Company  (filed as  Exhibit  10.9 to Form 8-K dated
                        February 10, 1994).

            10.9        Capital  Southwest   Corporation  1984  Incentive  Stock
                        Option Plan as amended and restated as of April 20, 1987
                        (filed as Exhibit 10.10 to Form 10-K for the fiscal year
                        ended March 31, 1990).

            10.10*      Capital Southwest Corporation 1999 Stock Option Plan.


         Exhibit No.                       Description
         -----------                       -----------

            13.*        Annual  Report to  Shareholders  for the  fiscal  year
                        ended March 31, 2000.

            21.         List of subsidiaries of the Company.

            23.*        Independent Auditors' Consent.

            27.*        Financial Data Schedule.









                                       7


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>1999 STOCK OPTION PLAN
<TEXT>





                          CAPITAL SOUTHWEST CORPORATION
                             1999 STOCK OPTION PLAN

1.       Objective of the Plan.
         ---------------------
         The 1999 Stock  Option  Plan (the  "Plan") is  intended  to further the
established  policy of Capital  Southwest  Corporation  (the  "Corporation")  of
encouraging  ownership  of its  Common  Stock,  $1.00 par  value per share  (the
"Common Stock"),  by key employees of the Corporation and its management company
subsidiary,  Capital Southwest Management  Corporation,  and by its officers who
are  employees  of its  subsidiaries  and of  providing  incentives  for them to
enhance the value of the Corporation's  stock. By extending to key employees the
opportunity  to  acquire  proprietary   interests  in  the  Corporation  and  to
participate in its success,  the Plan may be expected to benefit the Corporation
and its shareholders and to be in their best interests by making it possible for
the Corporation to attract and retain the best available talent.

2.       Stock Reserved for the Plan.
         ----------------------------

         One hundred  forty  thousand  (140,000)  shares of the  authorized  but
unissued  Common  Stock are  reserved  for  issuance  and may be issued upon the
exercise of options granted under the Plan. In lieu of such unissued shares, the
Corporation  may,  in its  discretion,  transfer  upon the  exercise of options,
reacquired  shares or shares  bought in the market for the  purposes of the Plan
provided  that  (subject to the  provisions  of Section 14) the total  number of
shares which may be sold  pursuant to the exercise of options  granted under the
Plan shall not exceed one  hundred  forty  thousand  (140,000).  If any  options
granted under the Plan shall for any reason  terminate or expire  without having
been exercised in full, the Common Stock not purchased  under such options shall
again be available for the purposes of the Plan.


3.       Administration of the Plan.
         --------------------------

         The Plan  shall  be  administered  by the  Board  of  Directors  of the
Corporation  through actions  approved by the "required  majority" as defined in
Section 57(o) of the Investment Company Act of 1940, as amended (the "Investment
Company  Act").  The Board of  Directors  shall have  plenary  authority  in its
discretion,  but subject to the express provisions of the Plan, to determine the
employees to whom, and the time or times at which, options shall be granted, the
term of each such option, and the number of shares to be covered by each option;
to determine  whether an option shall be an "incentive  stock option" within the
meaning of Section 422 of the  Internal  Revenue  Code of 1986,  as amended (the
"Code"),  or a non-qualified  stock option; to interpret the Plan; to prescribe,
amend and rescind rules and  regulations  relating to the Plan; to determine the
employees to whom, and the time or times at which,  dividend  equivalent  rights
shall be granted, and the terms of such dividend equivalent rights; to determine
the terms  (which  need not be  identical)  of option  agreements  and  dividend
equivalent right  agreements  executed and delivered under the Plan; and to make
all other determinations deemed necessary or advisable for the administration of
the Plan.

4.       Eligibility Factors to be Considered in Making Grants.
         -----------------------------------------------------

         An option and/or dividend equivalent right may be granted to any person
who,  at the time of grant,  is either (i) a regular  salaried  employee  of the
Corporation or its management company subsidiary,  Capital Southwest  Management
Corporation;  or (ii) an officer of the  Corporation  who is a regular  salaried
employee  of one of its  subsidiaries  (such  person or persons  referred  to in
clauses  (i) and (ii) above  being  singularly  hereinafter  referred to as "Key
Employee," or, if more than one, as "Key Employees").  No incentive stock option
may be granted to an  individual  who  immediately  after such option is granted
owns,  within the meaning of Section 422(b) of the Code,  stock  possessing more
than 10% of the  total  combined  voting  power of all  classes  of stock of the
Corporation (or its subsidiaries) (hereinafter called a "l0% Holder"), except in
compliance  with the provisions of Sections 6 and 7 hereof.  In determining  the
Key Employees to whom options and/or dividend equivalent rights shall be granted
and the number of shares to be covered by each  option,  the Board of  Directors
shall  take into  account  the duties of the  respective  Key  Employees,  their
present and potential contributions to the success of the Corporation (or one of
its subsidiaries), the anticipated number of years of service remaining and such
other factors as they shall deem relevant in connection with  accomplishing  the
purpose of the Plan.  Subject to the provisions of Section 5, a Key Employee who
has been granted an option may be granted an additional option or options if the
Board of Directors shall so determine.

<PAGE>


5.       Types of Options; Maximum Allotment of Options.
         ----------------------------------------------

         The Board of Directors  may grant  either  incentive  stock  options or
non-qualified  stock  options under the Plan.  In addition,  the aggregate  fair
market  value  (determined  at the time of grant in  accordance  with  Section 6
hereof) of the shares of Common Stock which any Key  Employee is first  eligible
to purchase in any calendar year by exercise of incentive  stock options granted
under the Plan and all incentive  stock option plans of the  Corporation  or its
subsidiaries shall not exceed $100,000.  For this purpose, the fair market value
(determined  at the  respective  date of  grant  of each  option)  of the  stock
purchasable by exercise of an incentive stock option (or an installment thereof)
shall be counted against the $100,000 annual  limitation for a Key Employee only
for the  calendar  year such stock is first  purchasable  under the terms of the
option.

6.       Option Prices.
         -------------

         The purchase price of Common Stock covered by each option shall be 100%
of the fair market  value of the Common Stock at the time the option is granted,
except with respect to incentive  stock options  granted to any 10% Holder,  the
purchase  price shall be not less than 110% of the fair market  value.  The fair
market value shall be (i) if the Common Stock is listed on a national securities
exchange  (which term shall include the Nasdaq Stock Market),  the last reported
sale price of the Common Stock on such  exchange on the date on which the option
is granted  (or if there  shall be no  trading  on such  date,  then on the next
previous date on which there shall have been trading of the Common Stock);  (ii)
if the Common Stock is not listed on a national securities exchange, the average
of the  highest  bid and the lowest ask prices at the close of  business  in the
over-the-counter  market on the date on which the option is granted; or (iii) if
the Common Stock is neither listed on a national  securities exchange nor traded
in the  over-the-counter  market, as determined by the Board of Directors of the
Corporation in good faith on the basis of financial  information and information
regarding  recent  sales of Common Stock  available to it, using any  reasonable
valuation  method.  The Board's  determination of the fair market value shall be
conclusive  and the  purchase  price of shares of Common Stock under each option
shall be set forth in the minutes of the meeting of the Board of Directors.

7.       Term of Option.
         --------------

         The  term of each  option  shall  be for such  period  as the  Board of
Directors  shall  determine,  but not more than ten (10)  years from the date of
granting thereof,  except that in the case of incentive stock options granted to
10% Holders,  the term of each option shall not exceed five (5) years,  and each
option shall be subject to earlier termination as hereinafter provided.

8.       Exercise of Options and Withholding Taxes.
         -----------------------------------------

         (a) Unless otherwise determined by the Board of Directors,  each option
shall be exercisable on and after the first  anniversary of the date of grant in
five (5) equal annual  installments  of 20% of the shares subject to such option
and,  except as may be so  specified,  any annual  installment  of an option not
exercised  shall  accumulate  and thereafter may be exercised as to all, or from
time to time any part of, the shares  then  currently  exercisable  prior to the
expiration  of the option.  Fractional  shares will not be issued.  The purchase
price of the shares as to which an option  shall be  exercised  shall be paid in
full in cash  in  currency  of the  United  States  of  America  at the  time of
exercise,  except  that,  subject to the  receipt of  appropriate  orders of the
Securities  and  Exchange  Commission  which  may be  required  pursuant  to the
Investment  Company Act, the Board of Directors may, in its discretion,  provide
that payment of the purchase price of such shares may be made with shares of the
Corporation's  Common Stock. Except as provided in Sections 11 and 12 hereof, no
option  may be  exercised  at any time  unless  the  holder  thereof  is then an
employee of the Corporation or one of its subsidiaries.  The holder of an option
shall not have any of the  rights of a  shareholder  with  respect to the shares
covered by his  option  until  such  shares  shall be issued to him upon the due
exercise of the  option.  Proceeds  from the sale of stock  pursuant to the Plan
shall be used for general corporate purposes.

         (b) At the  time of  exercise  of a  non-qualified  stock  option  or a
disqualifying  disposition of shares issued under an incentive stock option, the
employee shall remit to the Corporation in cash all applicable federal and state
withholding taxes.

<PAGE>


9.       Non-Transferability.
         -------------------

         An option  granted under the Plan shall not be  transferable  otherwise
than by a will or the laws of  descent  and  distribution,  and an option may be
exercised  during the lifetime of the holder only by him. A dividend  equivalent
right  granted  under  the  Plan  shall  not be  transferable  unless  otherwise
expressly provided by the Board of Directors.

10.      Dividend Equivalent Rights.
         --------------------------

         Upon the declaration of any capital gain dividend, the Board shall have
the authority to grant dividend  equivalent rights with respect to such dividend
to eligible  employees  upon such terms and  conditions  as it shall  establish,
subject in all events to the  following  limitations  and  provisions of general
application set forth in the Plan. Each dividend  equivalent right shall entitle
a holder to receive a payment (cash or  otherwise)  equal to the market value on
the dividend  payment date of any specified  capital gain dividend  declared and
paid by the Corporation on one share of Common Stock. The Corporation shall make
payments  pursuant to each right within five (5) business days after the payment
of the specified capital gain dividend to holders of Common Stock.

         Each  dividend  equivalent  right shall be granted  independent  of any
option.

         In the event of termination of employment for any reason,  any dividend
equivalent  right  held by such  employee  on the date of  termination  shall be
forfeited, unless otherwise expressly provided by the Board of Directors.

11.      Termination of Employment.
         -------------------------

         In the event that the employment of any employee of the  Corporation or
one of its  subsidiaries to whom an option has been granted under the Plan shall
be  terminated  (otherwise  than by reason of death or for  "cause"  as  defined
below) such option may be exercised, to the extent that the holder of the option
was entitled to do so at the termination of his  employment,  at any time within
one (1) month after such  termination (six (6) months in the case of termination
of employment  at a time when the employee is  "disabled"  within the meaning of
Section 105 (d)(4) of the Code) but in no event after the expiration of the term
of the option. As used herein,  "cause" shall mean gross negligence,  dishonesty
or breach of fiduciary  obligations to the Corporation or its  subsidiaries.  In
the event of termination  of the employment of any option holder for cause,  all
outstanding  options held by such terminated  employee shall terminate effective
as of the date of notice of  termination.  Options  granted under the Plan shall
not be  affected  by any  change  of duties or  position  so long as the  holder
continues to be an employee of the Corporation or one of its  subsidiaries or is
employed by a corporation (or a related corporation of such corporation) issuing
or  assuming  an option in a  transaction  to which  Section  424(a) of the Code
applies. Retirement pursuant to any pension plan provided by the Corporation and
its  subsidiaries  shall be deemed to be a  termination  of  employment  for the
purposes of this  Section  11.  Nothing in the Plan or in any option or dividend
equivalent right granted pursuant to the Plan shall confer upon any employee any
right to continue in the employ of the Corporation or of the subsidiary by which
he is employed.

12.      Death of Employee.
         -----------------

         If an employee of the Corporation or one of its subsidiaries to whom an
option has been  granted  under the Plan shall die while he is  employed  by the
Corporation or one of its subsidiaries or within one (1) month after termination
of his employment,  such option may be exercised to the extent that the employee
was entitled to do so at the date of his death by his executor or  administrator
or other person at the time entitled by law to the  employee's  rights under the
option,  at any time within such period not  exceeding  six (6) months after the
date of the  termination  of his  employment by death or otherwise,  as shall be
prescribed in the option agreement,  but in no event after the expiration of the
term of the option.

<PAGE>


13.      Definitions.
         -----------

         For purposes of the Plan, a "subsidiary" of the Corporation  shall mean
a corporation,  whether domestic or foreign, in which the Corporation shall own,
directly or indirectly,  50% or more of the issued and outstanding capital stock
thereof,  and  "Corporation"  shall mean Capital  Southwest  Corporation and any
division thereof.

         For purposes of the Plan, employment with the Corporation or one of its
subsidiaries  shall mean  continuous  regular  employment as an employee,  or an
uninterrupted  chain of  continuous  regular  employment  as an employee or by a
corporation (or a related  corporation of such corporation)  issuing or assuming
an option in a transaction to which Section 424(a) of the Code applies.

         Military,  sick  leave,  or other bona fide leave of  absence,  such as
temporary employment by the government, shall not be considered a termination of
employment nor an  interruption of employment with the Corporation or one of its
subsidiaries  hereunder if the period of such leave does not exceed 90 days, or,
if longer, so long as the employee's right to re-employment is guaranteed either
by statute or by contract.

14.      Change in Control; Antidilution.
         -------------------------------

         (a)      Notwithstanding  any  provision  of the Plan to the  contrary,
                  each  outstanding  option granted  hereunder  shall become and
                  remain exercisable in full and each dividend  equivalent right
                  granted  hereunder shall  immediately  vest and remain in full
                  force and effect for its term,

                  (i)      on the date 10 days  prior to the  record  date for a
                           meeting of shareholders of the Corporation called for
                           the purpose of voting upon any  transaction or series
                           of  transactions  (other than a transaction  to which
                           only  the   Corporation   and  one  or  more  of  its
                           subsidiaries  are  parties)  pursuant  to  which  the
                           Corporation  would  become a  subsidiary  of  another
                           corporation or would be merged or  consolidated  with
                           or into  another  corporation,  or would engage in an
                           exchange  of  shares  with  another  corporation,  or
                           substantially  all of the  assets of the  Corporation
                           would  be  sold to or  acquired  by  another  person,
                           corporation or group of associated  persons acting in
                           concert; or

                  (ii)     on the date upon  which any  person,  corporation  or
                           group  of  associated   persons  acting  in  concert,
                           excluding  any  persons  who have then been owners of
                           10% or more of the  Common  Stock of the  Corporation
                           for a  continuous  period of at least ten (10) years,
                           becomes  a direct  or  indirect  beneficial  owner of
                           shares of stock of the  Corporation  representing  an
                           aggregate of more than 25% of the votes then entitled
                           to be cast at a meeting  for the  purpose of electing
                           Directors of the Corporation; or

                  (iii)    on the date upon which the persons  who were  members
                           of the Board of  Directors of the  Corporation  as of
                           March 31, 1999 (the "Original  Directors"),  cease to
                           constitute  a  majority  of the  Board of  Directors,
                           provided,   however,  that  any  new  Director  whose
                           nomination  or  selection  has been  approved  by the
                           affirmative  vote of at least  three of the  Original
                           Directors  then in  office  shall  also be  deemed an
                           Original  Director  for all  purposes of this Section
                           14(a)(iii).

         The Corporation  shall use its best efforts to notify each holder of an
         option  and/or  dividend  equivalent  right of his  rights  under  this
         Section  14(a) within a reasonable  period of time prior to the date or
         effective date of any transaction or event described above.

<PAGE>


         (b)      In the event that the Common Stock of the Corporation  subject
                  to options  granted  hereunder  is  hereafter  changed into or
                  exchanged  for a  different  number or kind of shares or other
                  securities of the  Corporation  or of another  corporation  by
                  reason of merger,  consolidation,  exchange  of shares,  other
                  reorganization,      recapitalization,       reclassification,
                  combination of shares, stock split-ups or stock dividends,

                  (i)      the  aggregate  number and kind of shares  subject to
                           outstanding  options and dividend  equivalent  rights
                           granted hereunder shall be adjusted appropriately;

                  (ii)     rights   under   outstanding   options  and  dividend
                           equivalent rights granted  hereunder,  both as to the
                           number  of  subject  shares,   and  with  respect  to
                           options,   the  option   price,   shall  be  adjusted
                           appropriately;

                  (iii)    where  dissolution or liquidation of the  Corporation
                           is  involved,  each  dividend  equivalent  right  and
                           outstanding option granted hereunder shall terminate,
                           but the  holder of an option  shall  have the  right,
                           immediately  prior to such dissolution or liquidation
                           to exercise his option in full,  notwithstanding  the
                           provisions  of  Section 8 (but  subject  to the other
                           terms   and   conditions   of  this   Plan)  and  the
                           Corporation  shall notify each holder of an option of
                           such right within a  reasonable  period of time prior
                           to any such dissolution or liquidation; and

                  (iv)     where any merger, consolidation or exchange of shares
                           is involved from and after the effective time of such
                           merger,  consolidation  or exchange  of shares,  each
                           dividend  equivalent right shall remain in full force
                           and effect and become the obligation of any successor
                           entity  and  each  holder  of  an  option   shall  be
                           entitled,  upon  exercise of his option in accordance
                           with all of the terms and conditions of this Plan, to
                           receive in lieu of Common  Stock of the  Corporation,
                           shares  of  such   stock  or  other   securities   or
                           consideration  as the holders of Common  Stock of the
                           Corporation  received  pursuant  to the  terms of the
                           merger,  consolidation  or  exchange  of shares.

         The adjustments  contained in clauses (i), (ii), (iii) and (iv) of this
         subsection (b) and the manner of application of such  provisions  shall
         be determined  solely by the Board of Directors and any such adjustment
         may provide for the elimination of fractional share interests.

15.      Time of Grant.
         -------------

         Nothing contained in the Plan or in any resolution to be adopted by the
Board of  Directors  or the  holders of Common  Stock of the  Corporation  shall
constitute the granting of any option or dividend equivalent right hereunder. An
option or dividend equivalent right pursuant to the Plan shall be deemed to have
been granted on the date on which the name of the recipient and the terms of the
option or dividend equivalent right, as applicable,  are determined by the Board
of Directors in accordance with Section 3.

16.      Termination and Amendment of the Plan.
         --------------------------------------

         Unless the Plan shall  theretofore  have been terminated as hereinafter
provided in this  Section 16, no option or  dividend  equivalent  right shall be
granted  hereunder  after  April  19,  2009.  The  Board  of  Directors  of  the
Corporation  may at any time prior to that date  terminate the Plan or make such
modification  or  amendment  of the Plan as it shall  deem  advisable;  provided
however,  that no amendment may be made which will disqualify an incentive stock
option  granted  hereunder as an "incentive  stock option" within the meaning of
Section  422 of the Code,  and  provided  that the Board of  Directors  may not,
without further  approval by the holders of Common Stock,  except as provided in
Section 14 hereof,  increase the maximum  number of shares for which options may
be granted  under the Plan,  either in the  aggregate or to any  individual,  or
change the manner of determining  the minimum option prices or extend the period
during which an option may be granted or exercised or amend the  requirements as
to  the  class  of  employees  eligible  to  receive  options.  No  termination,
modification  or  amendment  of the Plan may  adversely  affect the rights of an
option holder under an option  previously  granted to such option holder without
the consent of such option holder.

<PAGE>


17.      Government Regulations.
         -----------------------

         The Plan, the granting of dividend  equivalent rights, the granting and
exercise of options  thereunder,  and the obligation of the  Corporation to sell
and deliver shares under such options shall be subject to all  applicable  laws,
rules and regulations.

18.      Shareholder Approval.
         --------------------
         The Plan shall be  submitted  to the  shareholders  for approval at the
next annual meeting of shareholders or a special meeting of shareholders  called
for the purpose of such  approval,  but in no event more than one (1) year after
the date of its adoption by the Board of Directors. No grants will be made under
the Plan until it is approved by the shareholders of the Corporation.

19.      Severability.
         ------------
         If any  provision  of the Plan is held to be illegal or invalid for any
reason, that illegality or invalidity shall not affect the remaining portions of
the Plan,  but such  provision  shall be fully  severable  and the Plan shall be
construed  and  enforced as if the illegal or invalid  provision  had never been
included in this Plan. Such an illegal or invalid provision shall be replaced by
a revised provision that most nearly comports to the substance of the illegal or
invalid  provision.  If  any of the  terms  or  provisions  of the  Plan  or any
agreement  conflict  with the  requirements  of Rule  16b-3 (as  those  terms or
provisions  are applied to eligible  persons who are subject to Section 16(b) of
the  Securities  Exchange  Act of 1934,  as amended,  or Section 422 of the Code
(with  respect  to  incentive  stock  options)),   those  conflicting  terms  or
provisions  shall be deemed  inoperative  to the extent they conflict with those
requirements.  With respect to  incentive  stock  options,  if the Plan does not
contain any provision required to be included in a plan under Section 422 of the
Code, that provision  shall be deemed to be incorporated  into the Plan with the
same force and effect as if it had been expressly set out in the Plan; provided,
however,  that,  to the  extent  any option  that is  intended  to qualify as an
incentive stock option cannot so qualify,  that option (to that extent) shall be
deemed to be a non-qualified option for all purposes of the Plan.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>


                   Twelve Largest Investments - March 31, 2000

Palm Harbor Homes, Inc.                                     $86,406,000
- --------------------------------------------------------------------------------

   Palm Harbor  Homes,  Dallas,  Texas,  is an integrated  manufactured  housing
company, building, retailing, financing and insuring homes produced in 15 plants
in Alabama,  Arizona,  Florida,  Georgia, North Carolina, Ohio, Oregon and Texas
and sold in 30  states by over 200  independent  dealers  and 133  company-owned
retail  superstores.  Palm Harbor  manufactures  high-quality,  energy-efficient
homes  designed  to meet the need for  affordable  housing,  particularly  among
retirees and newly-formed families.

   During the year ended March 31, 2000, Palm Harbor earned  $38,596,000  ($1.66
per share) on net sales of  $777,471,000,  compared with earnings of $40,177,000
($1.69 per share) on net sales of  $761,374,000  in the previous year. The March
31, 2000 closing  Nasdaq bid price of Palm Harbor's  common stock was $15.00 per
share.

   At March 31,  2000,  the  $10,931,955  investment  in Palm  Harbor by Capital
Southwest  and its  subsidiary  was  valued at  $86,406,000  ($11.00  per share)
consisting  of  7,855,121  restricted  shares of common  stock,  representing  a
fully-diluted equity interest of 34.2%.


================================================================================

The RectorSeal Corporation                                  $42,000,000
- --------------------------------------------------------------------------------

   The RectorSeal  Corporation,  Houston,  Texas, with two plants in Texas and a
plant in New York,  manufactures  chemical  specialty  products  including  pipe
thread  sealants,   firestop   sealants,   plastic  solvent  cements  and  other
formulations  for  plumbing  and  industrial  applications.  RectorSeal's  major
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,  Cargo  Chemical,  produces a
limited line of automotive chemical products.  RectorSeal also owns a 20% equity
interest in The Whitmore Manufacturing Company (described subsequently).

   During  the year  ended  March 31,  2000,  RectorSeal  earned  $4,988,000  on
revenues of  $53,858,000,  compared  with  earnings of $3,801,000 on revenues of
$47,555,000 in the previous year.  RectorSeal's  earnings do not reflect its 20%
equity in The Whitmore Manufacturing Company.

   At March 31, 2000, Capital Southwest owned 100% of RectorSeal's  common stock
having a cost of $52,600 and a value of $42,000,000.


================================================================================

Skylawn Corporation                                         $35,000,000
- --------------------------------------------------------------------------------

   Skylawn  Corporation,  Hayward,  California  owns  and  operates  cemeteries,
mausoleums and mortuaries. Skylawn's operations, all of which are in California,
include a mausoleum  and an adjacent  mortuary  in Oakland  and  cemeteries  and
mausoleums in San Mateo, Hayward, Sacramento and Napa, the latter three of which
also have  mortuaries  at the  cemetery  sites.  These  entities  have  provided
cemetery and funeral services to their respective  communities for many years. A
captive  insurance  company and funeral and  cemetery  trusts  enable  Skylawn's
clients to make pre-need arrangements.

   For the fiscal year ended March 31, 2000, Skylawn, after adopting a change in
accounting principle, earned $2,940,000 on revenues of $24,574,000.  Before this
change,  earnings  were  $4,163,000.   In  the  previous  year,  Skylawn  earned
$2,069,000 on revenues of $21,922,000.

   At March 31,  2000,  Capital  Southwest  owned 100% of Skylawn  Corporation's
common stock, which had a cost of $4,510,400 and was valued at $35,000,000.


================================================================================

Alamo Group Inc.                                            $25,392,000
- --------------------------------------------------------------------------------

   Alamo Group Inc.,  Seguin,  Texas, is a leading  designer,  manufacturer  and
distributor  of  heavy-duty,   tractor-mounted   mowing  and  other   vegetation
maintenance  equipment and replacement parts.  Recently,  the company acquired a
manufacturer of power-sweeping equipment.  Founded in 1969, Alamo Group operates
11 manufacturing facilities and serves governmental, industrial and agricultural
markets in the U.S. and Europe.

   For the year ended December 31, 1999, Alamo reported consolidated earnings of
$6,102,000  ($0.63  per  share)  on net  sales of  $176,608,000,  compared  with
earnings of  $4,115,000  ($0.42 per share) on net sales of  $200,553,000  in the
previous  year.  The March 31, 2000 closing NYSE market price of Alamo's  common
stock was $11.625 per share.

   At March 31, 2000,  the $2,065,047  investment in Alamo by Capital  Southwest
and its  subsidiary was valued at  $25,392,000  ($9.00 per share)  consisting of
2,821,300 restricted shares of common stock, representing a fully-diluted equity
interest of 27.2%.

<PAGE>

AT&T Corp. - Liberty Media Group                            $20,089,500
- --------------------------------------------------------------------------------

   AT&T Corp. - Liberty  Media Group,  New York,  New York,  acquired by AT&T as
part  of  Tele-Communications,  Inc.  in  March  1999,  produces,  acquires  and
distributes  entertainment,  sports and informational  programming  services and
electronic  retailing  services,  which are delivered via cable  television  and
other technologies to viewers in the United States and overseas.

   For the ten months ended December 31, 1999,  AT&T Corp. - Liberty Media Group
reported  a net  loss of  $2,022,000,000  ($1.61  per  share)  on net  sales  of
$729,000,000.  The March 31,  2000  closing  NYSE market  price of AT&T Corp.  -
Series A Liberty Media Group common (tracking) stock was $59.3125 per share.

   At March 31, 2000,  Capital  Southwest owned 338,706  unrestricted  shares of
Series A Liberty Media Group  tracking  stock,  having a total cost of $25 and a
market value of $20,089,500 ($59.3125 per share).


================================================================================

Mail-Well, Inc.                                             $13,628,000
- --------------------------------------------------------------------------------

   Mail-Well,  Inc.,  Englewood,  Colorado,  is a  leading  consolidator  in the
fragmented printing industry, specializing in customized envelopes,  high-impact
printing,  consumer  products  labels  and  business  communications  documents.
Mail-Well  has more than 15,800  employees  and operates 140 plants and numerous
sales offices throughout North America and the United Kingdom.

   For the  year  ended  December  31,  1999,  Mail-Well  reported  earnings  of
$64,482,000  ($1.20 per  share) on net sales of  $1,848,041,000,  compared  with
earnings of $21,709,000  ($0.45 per share) on net sales of $1,504,686,000 in the
previous  year.  The March 31, 2000  closing  NYSE market  price of  Mail-Well's
common stock was $8.6875 per share.

   At March  31,  2000,  the  $2,986,870  investment  in  Mail-Well  by  Capital
Southwest was valued at  $13,628,000  ($6.50 per share)  consisting of 2,096,588
restricted shares of common stock,  representing a fully-diluted equity interest
of 3.4%.


================================================================================

Encore Wire Corporation                                     $13,623,000
- --------------------------------------------------------------------------------

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

   For the  year  ended  December  31,  1999,  Encore  reported  net  income  of
$6,594,000  ($0.42 per share) on net sales of  $229,670,000,  compared  with net
income of  $17,567,000  ($1.07  per share) on net sales of  $244,044,000  in the
previous year.  The March 31, 2000 closing  Nasdaq bid price of Encore's  common
stock was $7.0625 per share.

   At March 31, 2000, the $5,800,000  investment in 2,724,500 shares of Encore's
restricted  common stock by Capital  Southwest and its  subsidiary was valued at
$13,623,000 ($5.00 per share),  representing a fully-diluted  equity interest of
16.6%.


================================================================================

Media Recovery, Inc.                                         $8,000,000
- --------------------------------------------------------------------------------

   Media  Recovery,   Inc.,  Graham,  Texas,  distributes  computer  and  office
automation  supplies and accessories to corporate  customers  through its direct
sales force with 24 offices in 18 states. Its Shockwatch  division  manufactures
impact and tilt monitoring  devices used to detect mishandled  shipments.  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, 1999, Media Recovery  reported net income
of  $2,418,000  on net  sales  of  $88,707,000,  compared  with  net  income  of
$1,028,000  on net  sales of  $62,351,000  for the  eleven  month  period  ended
September 30, 1998.

   At March 31, 2000,  the  $5,415,000  investment in Media  Recovery by Capital
Southwest and its  subsidiary  was valued at $8,000,000  consisting of 4,800,000
shares of Series A convertible  preferred  stock,  representing a  fully-diluted
equity interest of 68.2%.

<PAGE>

The Whitmore Manufacturing Company                           $8,000,000
- --------------------------------------------------------------------------------

   The  Whitmore  Manufacturing  Company,  with  plants in  Rockwall,  Texas and
Cleveland,  Ohio,  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
subsidiary,  Fluid  Protection  Corporation,  manufactures  fluid  contamination
control devices.

   During the year ended March 31, 2000, Whitmore reported a net loss of $10,600
on net sales of $13,176,000, compared with net income of $1,151,000 on net sales
of  $13,949,000  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 7).

   At March 31, 2000, the direct investment in Whitmore by Capital Southwest was
valued at $8,000,000 and had a cost of $1,600,000.


================================================================================

AT&T Corp.                                                   $7,520,015
- --------------------------------------------------------------------------------

   AT&T Corp., New York, New York, is among the world's  communications  leaders
telecommunications  services.  In March  1999,  AT&T  Corp.  acquired  Tele-Comm
operates one of the nation's largest cable television systems.

   During the year ended  December 31, 1999,  AT&T Corp.  reported net income of
$3,428,000,000 ($1.74 per share) on net sales of $62,391,000,000.  The March 31,
2000  closing  NYSE  market  price of AT&T  Corp.  - Series A common  stock  was
$56.4375 per share.

   At March 31, 2000,  Capital  Southwest  owned 133,245 shares of  unrestricted
AT&T  Corp.  - Series A common  stock,  having a total  cost of $43 and a market
value of $7,520,015 ($56.4375 per share).


================================================================================
Airformed Composites, Inc.                                   $6,568,000

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

   Airformed  Composites,  Inc.,  Charleston,  South Carolina,  manufactures and
markets  airformed  composites  composed of wood pulp, latex binders and various
specialized fibers and super-absorbent compounds. Its airlaid materials are used
in the production of baby diapers and wet wipes,  adult  incontinence  products,
feminine hygiene products, food packaging materials and industrial wipes.

   During the year ended  December  31, 1999,  Airformed  reported a net loss of
$4,461,000 on net sales of $3,465,000.

   At March 31, 2000, the investment by Capital  Southwest and its subsidiary in
a demand promissory note, subordinated debentures and 425,000 shares of Series A
convertible preferred stock was valued at its cost of $6,568,000 and represented
a fully-diluted equity interest of 65.9%.


================================================================================

All Components, Inc.                                         $5,750,000
- --------------------------------------------------------------------------------

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

   During the year ended August 31, 1999, All Components  reported net income of
$2,542,000 on net sales of $157,932,000,  compared with net income of $2,109,000
on net sales of $114,522,000 in the previous year.

   At March 31,  2000,  the $600,000  investment  in All  Components  by Capital
Southwest's  subsidiary was valued at $5,750,000 consisting of 450,000 shares of
Series B preferred  stock and 150,000  shares of  convertible  preferred  stock,
representing a 29.1% fully-diluted equity interest.


<PAGE>

<TABLE>

<CAPTION>

                    Portfolio of Investments - March 31, 2000


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

+AT&T CORP.                                     <1%        ++133,245 shares Series A common stock
   New York, New York                                        (acquired 3-9-99)                       $        43     $ 7,520,015
   World communications leader, providing
   voice, data and video telecommunications
   services and cable television systems.

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

+AT&T CORP. - Liberty Media Group               <1%        ++338,706 shares Series A common stock
   New York, New York                                        (acquired 3-9-99)                                 25     20,089,500
   Production and distribution of cable
   television programming services and
   wireless and wireline communications
   services.
- --------------------------------------------------------------------------------------------------------------------------------

AIRFORMED COMPOSITES, INC.                    65.9%        12% demand promissory notes (acquired
   Charleston, South Carolina                               2-1-00 thru  3-31-00)                       1,000,000      1,000,000
   Airformed composite materials for use                   12% subordinated debenture, due 2004
   in absorbent specialty applications such                 (acquired 12-22-99)                         2,000,000      2,000,000
   as diapers and feminine hygiene products.               10% subordinated debentures, due 2007
                                                            (acquired 12-12-97 and 5-6-98)              3,143,000      3,143,000
                                                           425,000 shares Series A convertible
                                                            preferred stock, convertible into
                                                            425,000 shares of common stock
                                                            at $1.00 per share (acquired 12-12-97)        425,000        425,000
                                                           Warrants to purchase 770,506 shares of
                                                            common stock at $1.00 per share,
                                                            expiring 9-30-09 (acquired 12-22-99)                -              -
                                                                                                     ------------    -----------
                                                                                                        6,568,000      6,568,000
- --------------------------------------------------------------------------------------------------------------------------------

+ALAMO GROUP INC.                             27.2%        2,821,300 shares common stock (acquired
   Seguin, Texas                                            4-1-73, 7-18-78 and 9-9-99 thru 10-4-99)    2,065,047     25,392,000
   Tractor-mounted mowing and vegetation
   maintenance equipment for governmental,
   industrial and agricultural markets;
   power-sweeping equipment for
   municipalities.
- --------------------------------------------------------------------------------------------------------------------------------

ALL COMPONENTS, INC.                          29.1%        150,000 shares Series A convertible
   Farmers Branch, Texas                                    preferred stock, convertible into
   Distribution and production of memory                    600,000 shares of common stock at $0.25
   and other components for personal computer               per share (acquired 9-16-94)                  150,000      5,300,000
   manufacturers, retailers and value-added                 450,000 shares Series B preferred stock
   resellers.                                               (acquired 9-16-94)                            450,000        450,000
                                                                                                     ------------    -----------
                                                                                                          600,000      5,750,000
- --------------------------------------------------------------------------------------------------------------------------------

+ALLTEL CORPORATION                             <1%        ++8,880 shares common stock (acquired
   Little Rock, Arkansas                                    7-1-98)                                       108,355        559,995
   Wireline and wireless communications
   and information services.

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


<PAGE>





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

+AMERICAN HOMESTAR CORPORATION                 3.3%        ++751,059 shares common stock
   League City, Texas                                        (acquired 8-31-93, 7-12-94
   Integrated manufacturing, retailing                        and 3-28-96)                           $  3,405,824    $ 1,220,471
   and financing of manufactured
   housing produced in 12 plants.
- --------------------------------------------------------------------------------------------------------------------------------

AMFIBE, INC.                                  40.0%        2,000 shares Class B non-voting
   Martinsville, Virginia                                   common stock (acquired  6-15-94)              200,000      5,500,000
   Nylon monofilament yarns for the
   textile industry.

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

BALCO, INC.                                   89.7%        14% subordinated debentures,
   Wichita, Kansas                                          payable 2000 to 2002 (acquired 8-13-91)       240,000        240,000
   Specialty architectural products used                   14% subordinated debenture, payable 2000
   in the construction and remodeling of                    to 2002, last maturing $250,000
   commercial and institutional buildings.                  convertible into 250,000 shares of
                                                            common stock at $1.00 per share
                                                            (acquired 6-1-91)                             480,000        980,000
                                                           110,000 shares common stock and 60,920
                                                            shares Class B non-voting common stock
                                                            (acquired 10-25-83)                           170,920        512,760
                                                           Warrants to purchase  85,000 shares of
                                                            common stock at $2.40 per share, expiring
                                                            2001  (acquired 8-13-91)                            -         51,000
                                                                                                     ------------    -----------
                                                                                                          890,920      1,783,760
- --------------------------------------------------------------------------------------------------------------------------------

BOXX TECHNOLOGIES, INC.                        9.8%        1,000,000 shares Series B convertible
   Austin, Texas                                            preferred stock, convertible into
   Workstations for computer graphics                       1,000,000 shares of common stock at
   imaging and design.                                      $0.50 per share (acquired 8-20-99)          500,000        500,000

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

CDC TECHNOLOGIES, INC.                        23.6%        12% subordinated debentures, payable
   Oxford, Connecticut                                      2000 (acquired 8-26-99 thru 3-31-00)          600,000              1
   Hematology and blood chemistry analyzers                3,388 shares Series C convertible
   and reagents for veterinary  and                         preferred stock, convertible into 7,218
   medical applications.                                    shares of common stock at $346.24 per
                                                            share (acquired 10-15-97 and 9-10-98)       2,499,158              1
                                                           Warrants  to  purchase  339 shares of
                                                            Series C convertible preferred stock at
                                                            $737.65 per share, expiring 2007
                                                            (acquired 12-17-97)                                 -              -
                                                           Warrant to purchase 3,000 shares of common
                                                            stock at $166.66 per share, expiring 2009
                                                            (acquired 8-26-99 thru 9-29-99)                     -              -
                                                                                                     ------------    -----------
                                                                                                        3,099,158              2
- ---------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                    ++Unrestricted securities as defined in Note (b)



<PAGE>


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

DENNIS TOOL COMPANY                           66.2%         20,725 shares 5% convertible preferred
   Houston, Texas                                            stock, convertible into 20,725 shares
   Polycrystalline diamond compacts (PDCs)                   of common stock at $48.25 per share
   used in oil field drill bits and in                       (acquired 8-10-98)                      $    999,981    $   400,000
   mining and industrial applications.                      140,137 shares common stock  (acquired
                                                             3-7-94 and 8-10-98)                        2,329,963      1,500,000
                                                                                                     ------------    -----------
                                                                                                        3,329,944      1,900,000
- --------------------------------------------------------------------------------------------------------------------------------

DYNTEC, INC.                                  51.7%        14% senior secured promissory note,
   Louisville, Kentucky                                     $1,125,000 principal amount, payable
   Multi-specialty dental services provided                 11-10-02 (acquired 9-10-99)                   750,000              1
   through Dentistry Plus Centers located                  1,710,766 shares Series A redeemable
   in major shopping malls.                                 preferred stock (acquired 6-24-98)          3,743,156              1
                                                           1,710,766 shares Series B convertible
                                                            preferred stock, convertible into
                                                            1,710,766 shares of common stock at
                                                            $0.004 per share (acquired 6-24-98)             6,844              -
                                                           Warrants to purchase 1,829,517 shares of
                                                            common stock at $0.004 per share expiring
                                                            7-7-02 and 8-30-02 (acquired 9-10-99)               -              -
                                                                                                     ------------    -----------
                                                                                                        4,500,000              2
- --------------------------------------------------------------------------------------------------------------------------------

+ENCORE WIRE CORPORATION                      16.6%        2,724,500 shares common stock (acquired
    McKinney, Texas                                          7-16-92, 3-15-94, 4-28-94 and 10-7-98)     5,800,000     13,623,000
    Electrical wire and cable for
    residential and commercial use.
- --------------------------------------------------------------------------------------------------------------------------------

+FMC CORPORATION                                <1%        ++6,430 shares common stock
   Chicago, Illinois                                        (acquired 6-6-86)                             123,777        363,294
   Machinery and chemicals in
   diversified product areas.
- --------------------------------------------------------------------------------------------------------------------------------

+GLOBAL CROSSING LTD.                           <1%        ++64,242 shares common stock
   Hamilton, Bermuda                                        (acquired 9-28-99)                             78,346      2,629,907
   Diversified telecommunications company.
- --------------------------------------------------------------------------------------------------------------------------------

+HOLOGIC, INC.                                  <1%        ++158,205 shares common stock
   Bedford, Massachusetts                                   (acquired 8-27-99)                            220,000      1,245,864
   Medical instruments including bone
   densitometers and digital radiography
   systems.
- --------------------------------------------------------------------------------------------------------------------------------

iCHOOSE, INC.                                  4.1%        240,000 shares Series A convertible
   Carrollton, Texas                                        preferred stock, convertible into
   Online marketing platform to enable                      240,000 shares of common stock at
   e-commerce merchants to deliver competing                $0.4167 per share (acquired 4-9-99)
   offers to consumers at point of purchase                729,928 shares Series B convertible           100,000        100,000
   on competitors' websites.                                preferred stock, convertible into
                                                            729,928 shares of common stock at
                                                            $1.37 per share (acquired 10-29-99)
                                                                                                        1,000,001      1,000,001
                                                                                                     ------------    -----------
                                                                                                        1,100,001      1,100,001

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


<PAGE>



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

INTELLIGENT REASONING SYSTEMS, INC.            4.4%        705,128 shares Series B convertible
   Austin, Texas                                            preferred stock, convertible into
   Automated optical inspection systems                     705,128  shares  of common stock at
   used in the production of printed                        $0.60 per share (acquired 5-28-97)       $    423,077    $         -
   wired assemblies and high density                       1,513,081 shares Series C convertible
   interconnects.                                           preferred stock, convertible into
                                                            1,513,081 shares of common stock at
                                                            $0.74  per share (acquired 6-11-98)         1,119,679              2
                                                           Warrant to purchase 70,513 shares of
                                                            Series B convertible preferred stock
                                                            at $.60 per share, expiring 2004
                                                            (acquired 11-21-97)                                 -              -
                                                                                                     ------------    -----------
                                                                                                        1,542,756              2
- --------------------------------------------------------------------------------------------------------------------------------

INTERNATIONAL TALK.COM, INC.                  18.3%        8,333,334 shares Series A convertible
   Austin, Texas                                            preferred stock,convertible into
   Internet-based retail and wholesale                      8,333,334 shares of common stock at
   long distance communications to and                      $0.36 per share (acquired 9-23-99 and
   from foreign countries.                                  3-3-00)                                     3,000,000      3,000,000
- --------------------------------------------------------------------------------------------------------------------------------

+KIMBERLY-CLARK CORPORATION                     <1%        ++77,180 shares common stock (acquired
   Irving, Texas                                            12-18-97)                                   2,396,926      4,322,080
   Manufacturer of tissue, personal
   care and health care products.
- --------------------------------------------------------------------------------------------------------------------------------

+MAIL-WELL, INC.                               3.4%        2,096,588 shares common stock (acquired
   Englewood, Colorado                                      2-18-94, 12-14-94, 7-27-95 and 11-10-98)    2,986,870     13,628,000
   Customized envelopes, labels and
   high-impact printing.


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

MEDIA RECOVERY, INC.                          68.2%        4,800,000 shares Series A convertible
   Graham, Texas                                            preferred stock, convertible into
   Computer and office automation                           4,800,000 shares of common stock at
   supplies and accessories; impact                         $1.00 per share (acquired 11-4-97)          5,415,000      8,000,000
   and tilt monitoring devices to detect
   mishandled shipments; dunnage
   for protecting shipments.
- --------------------------------------------------------------------------------------------------------------------------------

+MYLAN LABORATORIES, INC.                       <1%        ++128,286 shares common stock (acquired
   Pittsburgh, Pennsylvania                                 11-20-91)                                     400,000      3,527,865
   Proprietary and generic pharmaceutical
   products.
- --------------------------------------------------------------------------------------------------------------------------------

ORGANIZED LIVING, INC.                       8.5%-10.8%    2,083,334 shares Series D convertible
   Lenexa, Kansas                                           preferred stock, convertible into
   Specialty retailer of products                           2,083,334 to 2,777,778 shares of common
   designed to provide home and                             stock at $1.80 to $2.40 per share
   office storage and organization                          (acquired 1-7-00)                           5,000,000      5,000,000
   solutions.
- --------------------------------------------------------------------------------------------------------------------------------

+PALM HARBOR HOMES, INC.                      34.2%         7,855,121 shares common stock (acquired
   Dallas, Texas                                             1-3-85, 3-31-88 and 7-31-95)              10,931,955     86,406,000
   Integrated manufacturing, retailing,
   financing and insuring of manufactured
   housing produced in 15 plants.
- --------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                    ++Unrestricted securities as defined in Note (b)


<PAGE>


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

PAYLINX CORPORATION                            1.3%        127,803 shares Series B convertible
   Reston, Virginia                                         preferred stock, convertible into
   Provides traditional and e-commerce                      127,803 shares of common stock at $7.82
   businesses with a single,                                per share (acquired 1-21-00)              $ 1,000,000    $ 1,000,000
   enterprise-wide resource for
   processing electronic payments.
- --------------------------------------------------------------------------------------------------------------------------------

+PETSMART, INC.                                 <1%        ++654,220 shares common stock
   Phoenix, Arizona                                         (acquired 6-1-95)                           2,878,733      1,962,660
   Retail chain of 484 stores selling
   pet foods, supplies and services.


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

THE RECTORSEAL CORPORATION                   100.0%        27,907 shares common stock (acquired
   Houston, Texas                                           1-5-73 and 3-31-73)                            52,600     42,000,000
   Chemical specialty products for
   industrial, construction, oil
   field and automotive applications;
   owns 20% of Whitmore Manufacturing.



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

REWIND HOLDINGS, INC.                         38.3%        12% subordinated notes, payable 2000
   Sugar Land, Texas                                        to 2004 (acquired 10-21-96, 8-13-97
   Owns Bill Young Productions, Texas                       and 8-11-98)                                3,825,000      2,000,000
   Video and Post, and Extreme                             375 shares 8% Series A convertible
   Communications, which produce radio                      preferred stock, convertible into
   and television commercials and                           1,500 shares of common stock at $250.00
   corporate communications videos.                         per share (acquired 10-21-96)                 375,000              -
                                                           Warrant to purchase 600 shares of common
                                                            stock at $250 per share, expiring 2005
                                                            (acquired 8-11-98)                                  -              -
                                                                                                     ------------    -----------
                                                                                                        4,200,000      2,000,000
- --------------------------------------------------------------------------------------------------------------------------------

SDI INVESTMENTS LIQUIDATING TRUST               -          11.4% non-voting trust interest (acquired
   Houston, Texas                                           5-17-99)                                      118,000        500,000
   Trust formed to complete the liquidation
   of SDI Holding Corp., former owner of
   Sterling Diagnostic Imaging.
- --------------------------------------------------------------------------------------------------------------------------------

SKYLAWN CORPORATION                          100.0%        1,449,026 shares common stock (acquired
   Hayward, California                                      7-16-69)                                    4,510,400     35,000,000
   Cemeteries, mausoleums and mortuaries
   located in northern California.
- --------------------------------------------------------------------------------------------------------------------------------

+SPRINT CORPORATION - FON Group                 <1%        ++72,000 shares common stock (acquired
   Kansas City, Missouri                                    6-20-84)                                      449,654      4,536,000
   Diversified telecommunications company.
- --------------------------------------------------------------------------------------------------------------------------------

+SPRINT CORPORATION - PCS Group                 <1%        ++36,000 shares common stock (acquired
   Kansas City, Missouri                                    11-23-98)                                      53,991      2,358,000
   Domestic wireless telephony services.
- --------------------------------------------------------------------------------------------------------------------------------

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


<PAGE>



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

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

TEXAS PETROCHEMICAL HOLDINGS, INC.             5.4%        30,000 shares common stock
   Houston, Texas                                           (acquired 6-27-96)                          3,000,000              1
   Butadiene for synthetic rubber,
   MTBE for gasoline octane enhancement
   and butylenes for varied applications.
- --------------------------------------------------------------------------------------------------------------------------------

TEXAS SHREDDER, INC.                          53.3%        14% subordinated debentures, payable
   San Antonio, Texas                                       2000 (acquired 3-6-91 and 6-1-98)             617,970        617,970
   Design and manufacture of heavy-duty                    3,296 shares Series A preferred stock
   shredder systems for recycling steel and                 (acquired 3-6-91 and 6-1-98)                  329,600        329,600
   other materials from junk automobiles.                  750 shares Series B convertible
                                                            preferred stock, convertible into
                                                            750,000 shares of common stock at $0.10
                                                            per share(acquired 3-6-91)                     75,000      2,625,000
                                                                                                     ------------    -----------
                                                                                                        1,022,570      3,572,570
- --------------------------------------------------------------------------------------------------------------------------------

VOCALDATA, INC.                                4.1%        650,000 shares Series A convertible
   Richardson, Texas                                        stock, convertible into 650,000 shares
   Hardware and software for customer                       of common stock at $1.75  per share
   premises telephony equipment based                       (acquired 11-4-99 and 12-3-99)              1,137,500      1,137,500
   on Voice Over Internet Protocol.
- --------------------------------------------------------------------------------------------------------------------------------

THE WHITMORE MANUFACTURING COMPANY            80.0%        80 shares common stock (acquired 8-31-79)    1,600,000      8,000,000
   Rockwall, Texas
   Specialized mining and industrial
   lubricants; automotive transit coatings.
- --------------------------------------------------------------------------------------------------------------------------------

MISCELLANEOUS                                   -          Diamond  State  Ventures  L.P. - 1.9%
                                                            limited partnership interest
                                                            (acquired 10-12-99)                            71,875         71,875
                                             100.0%        Humac Company - 1,041,000 shares
                                                            common stock (acquired 1-31-75 and
                                                            12-31-75)                                           -        127,000
                                                -          STARTech Seed Fund I-12.1% limited
                                                            partnership interest (acquired 4-17-98)       500,000        500,000
                                                <1%        +TCI Satellite Entertainment, Inc.-++18,000
                                                            shares Series A common stock
                                                            (acquired 12-4-96)                                  -        345,375
                                                <1%        +Triton Energy Corporation-++6,022 shares
                                                            common stock (acquired 12-15-86)              144,167        211,146
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS                                                                                     $85,002,437   $323,629,135
                                                                                                      ===========   ============
 --------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                    ++Unrestricted securities as defined in Note (b)

</TABLE>



<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 shares, plus shares reserved
for all outstanding warrants, convertible securities and employee stock options.
The symbol "<1%" indicates that the Company holds a potential equity interest of
less than one percent.

(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,  2000,  restricted  securities  represented
approximately 84% 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 listed  securities  and at the closing bid
price  for  over-the-counter   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 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.

(d) Agreements  between certain issuers and the Company provide that the issuers
will bear  substantially  all costs in connection with the disposition of common
stocks,  including those costs involved in registration under the Securities Act
of 1933 but excluding underwriting discounts and commissions.  These agreements,
which cover common stocks owned at March 31, 2000 and common stocks which may be
acquired  thereafter  through  exercise of warrants and conversion of debentures
and  preferred  stocks,  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,  Skylawn
Corporation 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
independent  auditors.  Acquisition  dates  indicated  are  the  dates  specific
securities  were acquired.  Certain  securities were received in exchange for or
upon conversion or exercise of other securities previously acquired.


<PAGE>


                        Portfolio Changes During the Year



New Investments and Additions to Previous Investments

                                                               Amount
                                                           -----------
Airformed Composites, Inc. ...............................$  3,000,000
Alamo Group Inc. .........................................   1,490,047
All Components, Inc.......................................   4,000,000
BOXX Technologies, Inc. ..................................     500,000
CDC Technologies, Inc. ...................................     600,000
Diamond State Ventures L.P. ..............................      71,875
Dyntec, Inc. .............................................     750,000
iChoose, Inc. ............................................   1,100,001
International Talk.com, Inc...............................   3,000,000
Organized Living, Inc. ...................................   5,000,000
PaylinX Corporation ......................................   1,000,000
STARTech Seed Fund I .....................................     275,000
VocalData, Inc. ..........................................   1,137,500
                                                           -----------
                                                          $ 21,924,423
                                                          ============
Dispositions

                                                            Amount
                                            Cost            Received
                                          -----------     ------------
MESC Holdings, Inc. ....................  $         -     $    302,501
PTS Holdings, Inc.......................            -          347,780
SDI Holding Corp. ......................    5,054,000       12,885,369
SDI Investments Liquidating Trust ......      608,000        1,356,863
Miscellaneous...........................            -              929
                                          -----------     ------------
                                          $ 5,662,000     $ 14,893,442
                                          ===========     ============


Repayments Received.....................                  $  4,840,000
                                                          ============




<PAGE>

<TABLE>

<CAPTION>

                  Capital Southwest Corporation and Subsidiary
                 Consolidated Statements of Financial Condition


                                                                       March 31
                                                            -----------------------------
Assets                                                          2000             1999
                                                            -------------    ------------
<S>                                                         <C>              <C>

Investments at market or fair value (Notes
 1, 2 and 10)
   Companies more than 25% owned
     (Cost: 2000 - $23,380,865,
     1999 - $22,130,818) ................................   $ 200,608,759    $ 231,819,359
   Companies 5% to 25% owned
     (Cost: 2000 - $22,579,414,
     1999 - $18,841,914) ................................      22,760,506       31,596,160
   Companies less than 5% owned
     (Cost: 2000 - $39,042,158,
     1999 - $32,607,282) ................................     100,259,870       86,862,983
                                                            -------------    -------------

Total investments
     (Cost: 2000 - $85,002,437,
     1999 - $73,580,014) ................................     323,629,135      350,278,502
Cash and cash equivalents ...............................      63,986,715        6,050,443
Receivables .............................................         238,594          315,707
Other assets (Note 8) ...................................       4,731,360        4,141,136
                                                            -------------    -------------








   Totals................................................   $392,585,804    $ 360,785,788
                                                            =============    =============


                                                                       March 31,
                                                            ------------------------------
Liabilities and Shareholders' Equity                            2000             1999
                                                            -------------    -------------

Note payable to bank (Note 4) ...........................   $  60,000,000    $        --
Notes payable to subsidiary (Note 4) ....................       5,000,000             --
Accrued interest and other liabilities (Note 8)..........       2,220,753        2,306,366
Deferred income taxes (Note 3) ..........................      83,489,085       97,247,457
Subordinated debenture (Note 5) .........................       5,000,000        5,000,000
                                                            -------------    -------------
                    Total liabilities ...................     155,709,838      104,553,823
                                                            -------------    -------------

Shareholders' equity (Notes 3 and 6)
   Common stock, $1 par value: authorized,
     5,000,000 shares; issued, 4,252,416
     shares at March 31, 2000 and March 31, 1999 ........       4,252,416        4,252,416
   Additional capital ...................................       6,450,747        6,450,747
   Undistributed net investment
     income .............................................       4,117,104        4,743,205
   Undistributed net realized gain on
     investments ........................................      73,613,301       67,593,409
   Unrealized appreciation of investments -
     net of deferred income taxes .......................     155,475,700      180,225,490
   Treasury stock - at cost
     (437,365 shares) ...................................      (7,033,302)      (7,033,302)
                                                            -------------    -------------
   Net assets at market or fair value, equivalent
     to $62.09 per share at March 31, 2000,
     and $67.16 per share at March 31, 1999
     on the 3,815,051 shares outstanding ................     236,875,966      256,231,965
                                                            -------------    -------------

                       Totals ...........................   $ 392,585,804    $ 360,785,788
                                                            =============    =============
</TABLE>


                 See Notes to Consolidated Financial Statements


<PAGE>

<TABLE>

<CAPTION>

                  Capital Southwest Corporation and Subsidiary
                      Consolidated Statements of Operations

                                                                                                    Years Ended March 31
                                                                                      ----------------------------------------------
                                                                                            2000           1999             1998
                                                                                      -------------   -------------   -------------
<S>                                                                                   <C>             <C>             <C>

Investment income (Note 9):

   Interest...........................................................................$     884,152   $   1,307,668   $   2,025,024
   Dividends .........................................................................    1,878,853       1,966,360       2,237,293
   Management and directors' fees ....................................................      525,400         538,650         569,900
                                                                                      -------------   -------------   -------------
                                                                                          3,288,405       3,812,678       4,832,217
                                                                                      -------------   -------------   -------------

Operating expenses:
   Interest ..........................................................................      456,262         416,174         426,962
   Salaries ..........................................................................      804,933       1,109,699       1,206,478
   Net pension expense (benefit) (Note 8) ............................................     (435,984)       (311,625)       (313,511)
   Other operating expenses (Note 7) .................................................      657,770         727,612         674,466
                                                                                      -------------   -------------   -------------
                                                                                          1,482,981       1,941,860       1,994,395
                                                                                      -------------   -------------   -------------
Income before income taxes ...........................................................    1,805,424       1,870,818       2,837,822
Income tax expense (Note 3) ..........................................................      142,494         109,100         111,678
                                                                                      -------------   -------------   -------------
Net investment income ................................................................$   1,662,930   $   1,761,718   $   2,726,144
                                                                                      =============   =============   =============

Proceeds from disposition of investments .............................................$  14,893,442   $   1,530,691   $  16,669,892
Cost of investments sold (Note 1) ....................................................    5,662,000            --         6,764,823
                                                                                      -------------   -------------   -------------
Realized gain on investments before income taxes (Note 9) ............................    9,231,442       1,530,691       9,905,069
Income tax expense ...................................................................    3,211,550         535,742       3,420,177
                                                                                      -------------   -------------   -------------
Net realized gain on investments .....................................................    6,019,892         994,949       6,484,892
                                                                                      -------------   -------------   -------------
Increase (decrease) in unrealized appreciation of investments before income taxes ....  (38,071,790)    (63,433,545)    106,748,923
Increase (decrease) in deferred income taxes on appreciation of investments (Note 3) .  (13,322,000)    (22,201,000)     37,361,000
                                                                                      -------------   -------------   -------------
Net increase (decrease) in unrealized appreciation of investments ....................  (24,749,790)    (41,232,545)     69,387,923
                                                                                      -------------   -------------   -------------

Net realized and unrealized gain (loss) on investments ...............................$ (18,729,898)  $ (40,237,596)  $  75,872,815
                                                                                      =============   =============   =============

Increase (decrease) in net assets from operations ....................................$ (17,066,968)  $ (38,475,878)  $  78,598,959
                                                                                      =============   =============   =============
</TABLE>




                 See Notes to Consolidated Financial Statements


<PAGE>

<TABLE>

<CAPTION>

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

                                                                                           Years Ended March 31
                                                                            -----------------------------------------------
                                                                                 2000             1999              1998
                                                                            -------------    -------------    -------------
<S>                                                                         <C>              <C>              <C>

Operations
   Net investment income.................................................   $   1,662,930    $   1,761,718    $   2,726,144
   Net realized gain on investments .....................................       6,019,892          994,949        6,484,892
   Net increase (decrease) in unrealized appreciation of investments ....     (24,749,790)     (41,232,545)      69,387,923
                                                                            -------------    -------------    -------------
   Increase (decrease) in net assets from operations ....................     (17,066,968)     (38,475,878)      78,598,959

Distributions from:
   Undistributed net investment income ..................................      (2,289,031)      (2,280,411)      (2,268,451)

Capital share transactions
   Exercise of employee stock options ...................................            --            965,438          720,188
                                                                            -------------    -------------    -------------
   Increase (decrease) in net assets ....................................     (19,355,999)     (39,790,851)      77,050,696
Net assets, beginning of year ...........................................     256,231,965      296,022,816      218,972,120
                                                                            -------------    -------------    -------------
Net assets, end of year .................................................   $ 236,875,966    $ 256,231,965    $ 296,022,816
                                                                            =============    =============    =============
</TABLE>




                 See Notes to Consolidated Financial Statements


<PAGE>

<TABLE>

<CAPTION>

                  Capital Southwest Corporation and Subsidiary
                      Consolidated Statements of Cash Flows

                                                                                            Years Ended March 31
                                                                                  -----------------------------------------------
                                                                                        2000             1999             1998
                                                                                  -------------    -------------    -------------
<S>                                                                               <C>              <C>              <C>

Cash flows from operating activities
Increase (decrease) in net assets from operations................................ $ (17,066,968)   $ (38,475,878)   $  78,598,959
Adjustments to reconcile increase (decrease) in net assets from operations to
  net cash provided by operating activities:
   Depreciation and amortization ................................................        31,976           24,667           23,770
   Net pension benefit ..........................................................      (435,984)        (311,625)        (313,511)
   Net realized and unrealized (gain) loss on investments .......................    18,729,898       40,237,596      (75,872,815)
   (Increase) decrease in receivables ...........................................        77,113           17,166          (53,058)
   Increase in other assets .....................................................       (44,754)         (47,315)          (7,035)
   Increase (decrease) in accrued interest and other liabilities ................        41,504          (74,670)          46,649
   Deferred income taxes ........................................................       152,600          109,100          109,729
                                                                                  -------------    -------------    -------------
Net cash provided by operating activities .......................................     1,485,385        1,479,041        2,532,688
                                                                                  -------------    -------------    -------------
Cash flows from investing activities
Proceeds from disposition of investments ........................................    14,893,442        1,530,691       16,669,892
Purchases of securities .........................................................   (21,924,423)     (13,170,132)      (9,709,195)
Maturities of securities ........................................................     4,840,000          744,539        1,697,866
Income taxes paid on realized gain on investments ...............................    (4,069,101)        (266,643)      (6,604,549)
                                                                                  -------------    -------------    -------------
Net cash provided (used) by investing activities ................................    (6,260,082)     (11,161,545)       2,054,014
                                                                                  -------------    -------------    -------------
Cash flows from financing activities
Increase (decrease) in notes payable ............................................    65,000,000     (100,000,000)     100,000,000
Distributions from undistributed net investment income ..........................    (2,289,031)      (2,280,411)      (2,268,451)
Proceeds from exercise of employee stock options ................................          --            965,438          720,188
                                                                                  -------------    -------------    -------------
Net cash provided (used) by financing activities ................................    62,710,969     (101,314,973)      98,451,737
                                                                                  -------------    -------------    -------------
Net increase (decrease) in cash and cash equivalents ............................    57,936,272     (110,997,477)     103,038,439
Cash and cash equivalents at beginning of year ..................................     6,050,443      117,047,920       14,009,481
                                                                                  -------------    -------------    -------------
Cash and cash equivalents at end of year ........................................ $  63,986,715    $   6,050,443    $ 117,047,920
                                                                                  =============    =============    =============
Supplemental disclosure of cash flow information:
Cash paid during the year for: Interest ......................................... $     436,023    $     424,926    $     400,000
                               Income taxes...................................... $   4,092,891    $     288,838    $   6,621,499
</TABLE>




                 See Notes to Consolidated Financial Statements


<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. The following
is a summary of significant  accounting  policies followed in the preparation of
the consolidated financial statements of CSC and CSVC (together, the "Company"):

     Principles of  Consolidation.  The consolidated  financial  statements have
been prepared on the value method of accounting  in  accordance  with  generally
accepted  accounting  principles  for  investment  companies.   All  significant
intercompany accounts and transactions have been eliminated in consolidation.

     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.

2.   Valuation of Investments

     The consolidated financial statements as of March 31, 2000 and 1999 include
securities  valued  at  $272,736,962  (84%  of the  value  of  the  consolidated
investment  portfolio) and  $309,498,090  (88% 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.

3.   Income taxes

     For the tax years ended  December  31,  1999,  1998 and 1997,  CSC and CSVC
qualified  to  be  taxed  as  regulated   investment  companies  ("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).  Both CSC and CSVC intend to meet
the  applicable  qualifications  to be taxed as RICs in future  years;  however,
either company's ability to meet certain portfolio diversification  requirements
of RICs in future years may not be controllable by such company.

     No provision was made for Federal  income taxes on the  investment  company
taxable  income of CSC and CSVC for the 2000,  1999 and 1998 fiscal years.  Such
income was  distributed to  shareholders in the form of cash dividends for which
CSC and CSVC receive a tax deduction. With respect to net investment income, the
income tax expense  for each of the three years ended March 31, 2000  includes a
deferred tax provision related to the net pension benefit.

     CSC and CSVC may not qualify or elect to be taxed as RICs in future  years.
Therefore,  consolidated  deferred  Federal  income  taxes  of  $83,151,000  and
$96,473,000 have been provided on net unrealized  appreciation of investments of
$238,626,698  and  $276,698,488 at March 31, 2000 and 1999,  respectively.  Such
appreciation is not included in taxable income until  realized.  Deferred income
taxes on net unrealized  appreciation  of investments  have been provided at the
then currently  effective maximum Federal corporate tax rate on capital gains of
35% at March 31, 2000 and 1999.


<PAGE>

4.   Notes Payable

     The note  payable  to bank at March  31,  2000 was an  unsecured  note with
interest payable at 6.48%. The note was paid in full on April 3, 2000. The notes
payable to subsidiary were demand  promissory notes to Skylawn  Corporation with
interest payable at prime minus 2.25%.

5.   Subordinated Debenture

     The subordinated  debenture of $5,000,000 outstanding at March 31, 2000 and
1999 is payable to others and  guaranteed by the Small  Business  Administration
("SBA"), bears interest at 8.0% and matures in 2002.

6.   Employee Stock Option Plan

     Under the 1984  Incentive  Stock  Option Plan,  options to purchase  42,000
shares of the Company's  common stock at $35.625 per share (the adjusted  market
price at the time of grant) were  outstanding  and exercisable at March 31, 2000
and expire in 2003. The 1984 Incentive  Stock Option Plan expired in 1994 and no
options have been authorized or granted thereunder since that date.

     On July 19, 1999  shareholders  approved  the 1999 Stock  Option Plan under
which 140,000 shares of common stock were reserved for issuance to employees and
officers of the Company.  Options to purchase 32,000 shares at a price of $77.00
per share (the  market  price at the time of grant)  and 6,000  shares at $84.70
were granted  during the year and remain  outstanding  at March 31,  2000,  thus
leaving a total of 102,000  options  available  for future  grant.  Such options
expire  ten years  from the date of grant and are  generally  exercisable  on or
after the first anniversary of the date of grant in eight annual installments.

     At March 31, 2000 and 1999,  the  dilution of net assets per share  arising
from options outstanding was not material.

7.   Employee Stock Ownership Plan

     The Company and one of its  wholly-owned  subsidiaries  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  Company's  Board of Directors.  A  participant's  interest in
contributions to the ESOP fully vests after five years of active service. During
the three  years ended March 31, the  Company  made  contributions  to the ESOP,
which were charged against net investment income, of $43,862 in 2000, $35,079 in
1999 and $67,763 in 1998.

8.   Retirement Plans

     The Company sponsors a qualified  defined benefit pension plan which covers
its  employees and employees of certain of its  wholly-owned  subsidiaries.  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 ten 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, 2000.

     The  following  tables set forth the plan's  benefit  obligations  and fair
value of plan assets at March 31, 2000, 1999 and 1998:
<TABLE>
                                                            Years Ended March 31
                                               --------------------------------------------
                                                    2000            1999           1998
                                               ------------    ------------    ------------
<S>                                            <C>             <C>             <C>
Change in benefit obligation
Benefit obligation at beginning
     of  year...............................   $  3,315,119    $  3,059,555    $  2,376,257
Service cost ...............................         43,818          68,710          52,388
Interest cost ..............................        193,397         199,301         204,328
Amendments .................................           --          (149,171)           --
Actuarial gain (loss) ......................       (201,158)        205,810         495,668
Benefits paid ..............................        (90,810)        (69,086)        (69,086)
                                               ------------    ------------    ------------
Benefit obligation at end of year ..........   $  3,260,366    $  3,315,119    $  3,059,555
                                               ============    ============    ============

Change in plan assets
Fair value of plan assets at beginning
     of  year...............................    $10,074,598   $  11,314,714    $  7,820,401
Actual return on plan assets ...............       (146,241)     (1,171,030)      3,563,399
Benefits paid ..............................        (90,810)        (69,086)        (69,086)
                                               ------------    ------------    ------------
Fair value of plan assets at end of
     year...................................   $  9,837,547    $ 10,074,598    $ 11,314,714
                                               ============    ============    ============


<PAGE>

     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
                                                                        ----------------------------
                                                                             2000           1999
                                                                        ------------    ------------
Actuarial present value of benefit obligations:
     Accumulated benefit obligation, including
     vested benefits of  $2,928,376 in 2000
     and $2,915,453 in 1999 .........................................   $ (2,965,576)   $ (2,990,205)
                                                                        ============    ============

Projected benefit obligation for service rendered to
     date ...........................................................   $ (3,260,366)   $ (3,315,119)
Plan assets at fair value* ..........................................      9,837,547      10,074,598
                                                                        ------------    ------------
Excess of plan assets over the projected benefit
     obligation .....................................................      6,577,181       6,759,479
Unrecognized net (gain) loss from past experience
     different from that assumed and effects of
     changes in assumptions .........................................     (1,518,207)     (2,192,798)
Prior service costs not yet recognized ..............................       (162,965)       (174,288)
Unrecognized net assets being amortized over
     19 years .......................................................       (369,139)       (442,970)
                                                                        ------------    ------------
Prepaid pension cost included in other assets                            $ 4,526,870    $  3,949,423
                                                                        ============    ============
</TABLE>

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

*Primarily  equities and bonds including  approximately  30,000 shares of common
stock of the Company.

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

                                                  Years Ended March 31
                                        ---------------------------------------
                                            2000          1999          1998
                                        -----------   -----------   -----------
Service cost - benefits earned during
     the year .......................   $    43,818   $    68,710   $    52,388
Interest cost on projected benefit
     obligation .....................       193,397       199,301       204,328
Actual return on assets .............       146,241     1,171,030    (3,563,399)
Net amortization and deferral .......      (960,903)   (1,901,221)    2,813,811
                                        -----------   -----------   -----------
Net pension expense (benefit) from
     qualified plan .................   $  (577,447)  $   462,180)  $  (492,872)
                                        ===========   ===========   ===========

     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
obligation at March 31, 2000, 1999 and 1998:

                                                 Years Ended March 31
                                      -----------------------------------------
                                          2000           1999           1998
                                      -----------    -----------    -----------
Change in benefit obligation
Benefit obligation at beginning
     of  year ...................     $ 2,166,180    $ 2,051,899    $ 1,474,701
Service cost ....................           4,089         13,087          5,958
Interest cost ...................         117,541        117,635        142,735
Amendments ......................            --           83,360           --
Actuarial gain (loss) ...........        (261,315)       (99,801)       428,505
                                      -----------    -----------    -----------
Benefit obligation at end of year     $ 2,026,495    $ 2,166,180    $ 2,051,899
                                      ===========    ===========    ===========

     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
                                                     --------------------------
                                                         2000          1999
                                                     -----------    -----------

Projected benefit obligation .....................   $(2,026,495)   $(2,166,180)
Unrecognized net (gain) loss from past ex-
     perience different from that assumed
     and effects of changes in assumptions .......        45,101        306,416
Unrecognized prior service costs .................        83,360         83,360
Unrecognized net obligation ......................        19,823         39,656
                                                     -----------    -----------
Accrued pension cost included in other liabilities   $(1,878,211)   $(1,736,748)
                                                     ===========    ===========

     The Retirement  Restoration Plan expenses recognized during the years ended
March 31, 2000, 1999 and 1998 of $141,463, $150,555 and $179,361,  respectively,
are offset against the net pension benefit from the qualified plan.

     The  weighted-average   discount  rate  and  rate  of  increase  in  future
compensation  levels used in  determining  the  actuarial  present  value of the
projected benefit obligation were 6.5% and 5.0%, respectively, at both March 31,
2000 and March 31, 1999 and 7.0% and 5.0%, respectively,  at March 31, 1998. The
expected  long-term  rate of return used to project  estimated  earnings on plan
assets for the  qualified  plan was 7.5% for the year ended  March 31,  2000 and
8.5% for the years ended March 31, 1999 and 1998. The  calculations  also assume
retirement at age 65, the normal retirement age.


<PAGE>

<TABLE>

<CAPTION>

 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
2000                     Interest       Dividends      Income              Taxes
- ----                     ------------------------------------------    ------------
<S>                      <C>            <C>            <C>             <C>

Companies more than
   25% owned .........   $    106,400   $  1,440,755   $    487,400    $       --
Companies 5% to 25%
   owned .............           --             --           (1,500)      8,133,870
Companies less than
   5% owned ..........        173,105        438,098         39,500       1,097,572
Other sources,
   including temporary
   investments .......        604,647           --             --              --
                         ----------------------------------------------------------
                         $    884,152   $  1,878,853   $    525,400    $  9,231,442
                         ==========================================================


1999
- ----
Companies more than
   25% owned .........   $    140,000   $  1,644,270   $    490,900    $       --
Companies 5% to 25%
   owned .............          3,495           --           34,750            --
Companies less than
   5% owned ..........        688,210        322,090         13,000       1,530,691
Other sources,
   including temporary
   investments .......        475,963           --             --              --
                         ----------------------------------------------------------
                         $  1,307,668   $  1,966,360   $    538,650    $  1,530,691
                         ==========================================================

1998
- ----
Companies more than
   25% owned .........   $    168,000   $  1,985,200   $    518,900    $       --
Companies 5% to 25%
   owned .............          8,706           --           35,500      (3,990,894)
Companies less than
   5% owned ..........        609,187        252,093         15,500      13,895,963
Other sources,
   including temporary
   investments .......      1,239,131           --             --              --
                         ----------------------------------------------------------
                         $  2,025,024   $  2,237,293   $    569,900    $  9,905,069
                         ==========================================================
</TABLE>


10.  Summarized Financial Information of Unconsolidated Subsidiaries

     The  Company  has  three  significant   wholly-owned   subsidiaries  -  The
RectorSeal   Corporation,   The  Whitmore   Manufacturing  Company  and  Skylawn
Corporation - which are neither  investment  companies nor business  development
companies.  Accordingly, the accounts of such subsidiaries are not included with
those of the Company.  Summarized  combined  financial  information of the three
subsidiaries is as follows:

(all figures in thousands)                             March 31
                                            ------------------------------
                                              2000                  1999
                                            --------              --------
Condensed Balance Sheet Data
   Assets
   Cash and temporary
     investments.........................   $ 12,547              $ 12,130
   Receivables ..........................     30,022                26,350
   Inventories ..........................     36,523                34,373
   Property, plant and equipment ........     34,604                33,152
   Other assets .........................     19,671                18,549
                                            --------              --------
     Totals .............................   $133,367              $124,554
                                            ========              ========

   Liabilities and Shareholder's Equity

   Long-term debt........................   $  9,669              $ 11,685
   Other liabilities ....................     17,205                14,086
   Shareholder's equity .................    106,493                98,783
                                            --------              --------
     Totals .............................   $133,367              $124,554
                                            ========              ========

Condensed Statements of Income
                                              2000        1999      1998
                                            --------   --------   --------
   Revenues .............................   $ 91,608   $ 83,426   $ 77,275
   Costs and operating expenses .........   $ 79,237   $ 72,566   $ 66,223
   Net income...............................$  7,917   $  7,021   $  8,066

11.  Commitments

     The  Company  has agreed,  subject to certain  conditions,  to invest up to
$3,053,125 in five portfolio companies.

     The Company  leases  office space under an operating  lease which  requires
base annual rentals of  approximately  $58,000 through  February,  2003. For the
three years ended March 31, total rental  expense  charged to investment  income
was $57,479 in 2000, $58,798 in 1999 and $44,285 in 1998.


<PAGE>

<TABLE>

<CAPTION>

                       Selected Per Share Data and Ratios

                                                                                       Years Ended March
                                                                      -----------------------------------------------------
                                                                          2000       1999       1998       1997       1996
                                                                      -----------------------------------------------------
<S>                                                                   <C>        <C>        <C>        <C>        <C>


Investment income ..................................................  $     .86  $    1.00  $    1.28  $    1.26  $    1.64
Operating expenses .................................................       (.27)      (.40)      (.42)      (.37)      (.41)
Interest expense ...................................................       (.12)      (.11)      (.11)      (.17)      (.45)
Income taxes .......................................................       (.03)      (.03)      (.03)      (.03)      (.02)
                                                                      -----------------------------------------------------
Net investment income ..............................................        .44        .46        .72        .69        .76
Distributions from undistributed net investment income .............       (.60)      (.60)      (.60)      (.60)      (.60)
Net realized gain on investments ...................................       1.58        .26       1.71       1.81       2.97
Distributions from undistributed net realized gain on investments ..         --         --        --         --        (.04)
Net increase (decrease) in unrealized appreciation of investments
 before distributions...............................................      (6.49)    (10.81)     18.32       6.05      10.28
Distributions from unrealized appreciation of investments ..........         --         --         --         --      (2.46)
Exercise of employee stock options* ................................         --       (.30)      (.13)        --       (.19)
                                                                      -----------------------------------------------------
Increase (decrease) in net asset value .............................      (5.07)    (10.99)     20.02       7.95      10.72
Net asset value:
  Beginning of year ................................................      67.16      78.15      58.13      50.18      39.46
                                                                      -----------------------------------------------------
  End of year ......................................................  $   62.09  $   67.16  $   78.15  $   58.13  $   50.18
                                                                      =====================================================

Ratio of operating expenses to average net assets ..................        .4%        .6%        .6%        .7%        .9%
Ratio of net investment income to average net assets ...............        .7%        .6%       1.1%       1.2%       1.7%
Portfolio turnover rate ............................................       4.3%        .2%       2.5%       1.6%       4.5%

Shares outstanding at end of period (000s omitted) .................      3,815      3,815      3,788      3,767      3,767
</TABLE>

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


<PAGE>


Independent Auditors' Report

The Board of Directors and Shareholders
   Capital Southwest Corporation:

   We  have  audited  the  accompanying  consolidated  statements  of  financial
condition of Capital  Southwest  Corporation and subsidiary as of March 31, 2000
and 1999,  including the portfolio of  investments as of March 31, 2000, and the
related consolidated  statements of operations,  changes in net assets, and cash
flows for each of the years in the  three-year  period  ended March 31, 2000 and
the  selected  per share data and ratios for each of the years in the  five-year
period ended March 31, 2000.  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.

   We conducted  our audits in  accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and 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 of
securities  owned  as of  March  31,  2000  and  1999,  by  examination  of such
securities  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 selected per share
data and ratios referred to above present fairly, in all material respects,  the
financial  position of Capital Southwest  Corporation and subsidiary as of March
31, 2000 and 1999, and the results of their operations, the changes in their net
assets and their cash flows for each of the years in the three-year period ended
March 31, 2000, and the selected per share data and ratios for each of the years
in the  five-year  period ended March 31, 2000, in  conformity  with  accounting
principles generally accepted in the United States of America.

                                                                        KPMG LLP

Dallas, Texas
April 21, 2000


<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  (decrease) 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 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.  The third  element  is the "Net  increase  (decrease)  in
unrealized  appreciation of investments",  which is the net change in the market
or fair value of the Company's investment portfolio,  compared with stated cost,
net of an  increase or decrease  in  deferred  income  taxes which would  become
payable if the unrealized  appreciation  were realized through the sale or other
disposition  of the  investment  portfolio.  It  should  be noted  that the "Net
realized  gain on  investments"  and  "Net  increase  (decrease)  in  unrealized
appreciation  of investments"  are directly  related in that when an appreciated
portfolio  security is sold to realize a gain, a  corresponding  decrease in net
unrealized  appreciation  occurs by  transferring  the gain  associated with the
transaction from 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 $599,000 in 2000,  $476,000 in 1999 and  $1,239,000 in 1998. The
Company also receives  management fees from its wholly-owned  subsidiaries which
aggregated  $458,400 in the years ended March 31, 2000 and March 31,  1999,  and
$494,400  in the year ended March 31,  1998.  During the three years ended March
31, 2000, the Company recorded dividend income from the following sources:

                                             Years Ended March 31
                                     ----------------------------------
                                       2000        1999        1998
                                     ----------  ----------  ----------
AT&T Corp........................... $  146,570  $        -  $        -
Alamo Group Inc. ...................    790,756   1,170,400   1,064,000
Dennis Tool Company.................     49,999           -           -
Kimberly - Clark Corporation........     81,039      77,952      19,295
The RectorSeal Corporation..........    240,000     240,000     501,200
Skylawn Corporation.................    300,000     150,000     300,000
TCI Holdings, Inc./Westmarc
   Communications...................     81,270      81,270      81,270
Texas Shredder, Inc. ...............     40,460      40,460      37,500
The Whitmore Manufacturing Company..     60,000      60,000     120,000
Other...............................     88,759     146,278     114,028
                                     ----------  ----------  ----------
                                     $1,878,853  $1,966,360  $2,237,293
                                     ==========  ==========  ==========

   Total operating expenses,  excluding interest expense,  decreased by $498,967
or 32.7% and  decreased by $41,747 or 2.7% during the years ended March 31, 2000
and 1999,  respectively.  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 and accounting fees and the net pension benefit. Interest
expense,  the  majority of which is related to the  SBA-guaranteed  subordinated
debenture,  increased by $40,088 and decreased by $10,788 during the years ended
March 31, 2000 and 1999, respectively.

Net Realized Gain on Investments

   Net realized gain on investments was $6,019,892  (after income tax expense of
$3,211,550)  during  the year  ended  March 31,  2000,  compared  with a gain of
$994,949  (after  income tax  expense  of  $535,742)  during  1999 and a gain of
$6,484,892 (after income tax expense of $3,420,177) during 1998. 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  through the  disposition  of certain  portfolio
investments.

<PAGE>


Net Increase (Decrease) in Unrealized Appreciation of Investments

   For the three  years  ended  March  31,  the  Company  recorded  an  increase
(decrease)  in unrealized  appreciation  of  investments  before income taxes of
$(38,071,790),   $(63,433,545)   and   $106,748,923  in  2000,  1999  and  1998,
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  (before the related change in deferred  income taxes and 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
                                ---------------------------------------
                                    2000          1999         1998
                                -----------    -----------  -----------

AT&T Corp......................$    430,271    $ 3,532,591  $ 1,419,678
AT&T Corp.-Liberty Media Group.  11,183,260      3,131,973    4,432,679
Alamo Group Inc. ..............   7,276,953    (20,615,000)   5,463,000
American Homestar Corporation..  (4,224,707)   (11,547,532)   8,480,708
Amfibe, Inc....................   3,900,000     (2,400,000)   2,400,000
Balco, Inc.....................  (2,529,600)     3,422,440            -
CDC Technologies, Inc..........  (3,099,156)             -            -
Dennis Tool Company............    (600,000)    (3,299,944)     495,000
Dyntec, Inc....................  (4,499,998)             -            -
Encore Wire Corporation.......   (2,724,000)   (19,013,000)  17,279,000
Mail-Well, Inc. ...............  (5,241,000)    (6,214,860)  14,020,000
Media Recovery, Inc............   2,585,000        615,000      241,486
Palm Harbor Homes, Inc......... (39,276,000)   (12,568,000)  53,792,000
PETsMART, Inc. ................  (3,271,100)    (1,758,216)  (6,092,424)
The RectorSeal Corporation.....   3,500,000              -    3,500,000
Rewind Holdings, Inc...........  (2,200,000)             -            -
SDI Holding Corp...............           -      6,000,000            -
Skylawn Corporation............           -     (7,000,000)           -
The Whitmore Manufacturing
       Company.................    (800,000)     2,800,000            -


     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, 2000."

Deferred Taxes on Unrealized Appreciation of Investments

     The Company  provides for deferred  Federal  income taxes on net unrealized
appreciation  of  investments.  Such taxes would become  payable at such time as
unrealized  appreciation  is realized  through the sale or other  disposition of
those  components  of the  investment  portfolio  which would  result in taxable
transactions.  At March 31, 2000  consolidated  deferred Federal income taxes of
$83,151,000  were provided on net  unrealized  appreciation  of  investments  of
$238,626,698  compared  with deferred  taxes of  $96,473,000  on net  unrealized
appreciation of  $276,698,488 at March 31, 1999.  Deferred income taxes at March
31, 2000 and 1999 were provided at the then currently  effective maximum Federal
corporate tax rate on capital gains of 35%.

Portfolio Investments

     During the year ended March 31, 2000, the Company  invested  $21,924,423 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 1999 and 1998 fiscal years, the Company invested a total
of $13,170,132 and $9,709,195, respectively.

Financial Liquidity and Capital Resources

     At March 31,  2000,  the Company had net cash  equivalent  assets (cash and
cash  equivalents  less the note payable to bank) of $4.0  million.  Pursuant to
Small Business Administration ("SBA") regulations,  cash and cash equivalents of
$0.3 million held by CSVC may not be  transferred or advanced to CSC without the
consent of the SBA. Under current SBA  regulations and subject to SBA's approval
of its credit application,  CSVC would be entitled to borrow up to $50.8 million
in addition to the $5 million  presently  outstanding.  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 32 years.  Retention  of
future gains is viewed as an important  source of funds to sustain the Company's
investment  activity.  Approximately  $50.9 million of the Company's  investment
portfolio is represented by unrestricted  publicly-traded securities, which have
an ascertainable market value and represent a primary source of liquidity.


<PAGE>


     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  Skylawn
Corporation,  The RectorSeal Corporation and The Whitmore Manufacturing Company,
wholly-owned  subsidiaries of the Company, to the extent of their available cash
reserves and borrowing capacities.

    Management  believes  that the  Company's  net cash  equivalent  assets  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.

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.


<PAGE>

<TABLE>

<CAPTION>

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



                                                1990        1991        1992        1993        1994        1995        1996
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>         <C>         <C>         <C>         <C>         <C>         <C>

Financial Position  (as of March 31)
Investments at cost ........................ $  32,212   $  31,593   $  34,929   $  33,953   $  41,993   $  49,730   $  58,544
Unrealized appreciation ....................    99,903     107,120     100,277     113,153     132,212     153,031     198,386
                                              --------    --------    --------    --------    --------    --------    --------
Investments at market or
   fair value ..............................   132,115     138,713     135,206     147,106     174,205     202,761     256,930
Total assets ...............................   185,231     149,975     208,871     176,422     270,874     213,811     326,972
Subordinated debentures ....................    15,000      15,000      11,000      15,000      15,000      11,000      11,000
Deferred taxes on
   unrealized appreciation .................    33,608      36,063      33,761      38,112      45,932      53,247      69,121
Net assets .................................    94,610      97,139     107,522     121,455     133,053     147,370     189,048
Shares outstanding .........................     3,617       3,617       3,644       3,681       3,715       3,735       3,767
- ------------------------------------------------------------------------------------------------------------------------------
Changes in Net Assets (years ended March 31)
Net investment income ...................... $   1,737   $   2,090   $   2,363   $   2,189   $   2,870   $   2,447   $   2,855
Net realized gain (loss) on
   investments .............................    12,722      (2,515)     14,313       5,099        (475)        142      11,174
Net increase (decrease) in
   unrealized appreciation
   before distributions ....................     1,780       4,762      (4,541)      8,524      11,160      13,584      38,746
                                              --------    --------    --------    --------    --------    --------    --------
Increase (decrease) in net
   assets from operations
   before distributions ....................    16,239       4,337      12,135      15,812      13,555      16,173      52,775
Cash dividends paid ........................    (5,197)     (1,809)     (2,181)     (2,202)     (2,228)     (2,241)     (2,270)
Securities dividends .......................      --          --          --          --          --          --        (9,402)
Employee stock options
   exercised ...............................       444        --           429         322         272         385         575
                                              --------    --------    --------    --------    --------    --------    --------
Increase (decrease) in net assets ..........    11,486       2,528      10,383      13,932      11,599      14,317      41,678
- ------------------------------------------------------------------------------------------------------------------------------
Per Share Data (as of March 31)
Deferred taxes on
   unrealized appreciation ................. $    9.29   $    9.97   $    9.27   $   10.35   $   12.36   $   14.26   $   18.35
Net assets .................................     26.16       26.86       29.51       32.99       35.81       39.46       50.18
Closing market price .......................     21.375      20.75       24.25       36.50       38.125      38.00       60.00
Cash dividends paid ........................      1.44         .50         .60         .60         .60         .60         .60
Securities dividends .......................      --          --          --          --          --          --          2.50



                                                1997        1998        1999         2000
                                             ----------------------------------------------

Financial Position (as of March 31)
Investments at cost ........................ $  59,908   $  61,154   $  73,580    $  85,002
Unrealized appreciation ....................   233,383     340,132     276,698      238,627
                                              --------    --------   ---------    ---------
Investments at market or
   fair value ..............................   293,291     401,286     350,278      323,629
Total assets ...............................   310,760     522,324     360,786      392,586
Subordinated debentures ....................     5,000       5,000       5,000        5,000
Deferred taxes on
   unrealized appreciation .................    81,313     118,674      96,473       83,151
Net assets .................................   218,972     296,023     256,232      236,876
Shares outstanding .........................     3,767       3,788       3,815        3,815
- -------------------------------------------------------------------------------------------

Changes in Net Assets (years ended March 31)
Net investment income ...................... $   2,574   $   2,726   $   1,762    $   1,663
Net realized gain (loss) on
   investments .............................     6,806       6,485         995        6,020
Net increase (decrease) in
   unrealized appreciation
   before distributions ....................    22,804      69,388     (41,233)     (24,750)
                                              --------    --------   ---------    ---------
Increase (decrease) in net
   assets from operations
   before distributions ....................    32,184      78,599     (38,476)     (17,067)
Cash dividends paid ........................    (2,260)     (2,268)     (2,280)      (2,289)
Securities dividends .......................      --          --          --           --
Employee stock options
   exercised ...............................      --           720         965         --
                                              --------    --------   ---------    ---------

Increase (decrease) in net assets ..........    29,924      77,051     (39,791)     (19,356)
- -------------------------------------------------------------------------------------------
Per Share Data (as of March 31)
Deferred taxes on
   unrealized appreciation ................. $   21.59      $31.33   $   25.29    $   21.80
Net assets .................................     58.13       78.15       67.16        62.09
Closing market price .......................     67.875      94.00       73.00        54.75
Cash dividends paid ........................       .60         .60         .60          .60
Securities dividends .......................      --          --          --           --

</TABLE>


<PAGE>


                             Shareholder Information


Stock Transfer Agent

   American Stock Transfer & Trust Company,  40 Wall Street,  New York, NY 10005
(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 900 record holders of its common stock at March
31,  2000.  This total does not include an  estimated  2,000  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 is traded on The Nasdaq  Stock Market  (National
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, 1998....................................      $106       $92
September 30, 1998...............................       103        81 3/8
December 31, 1998...............................         88 3/4    55
March 31, 1999...................................        89        67 1/2

Quarter Ended                                         High        Low
- -------------------------------------------------------------------------
June 30, 1999....................................       $82      $ 71 1/8
September 30, 1999...............................        81        71
December 31, 1999................................        70 7/8    56
March 31, 2000...................................        60        44


Dividends

   The payment dates and amounts of cash dividends per share since April 1, 1998
are as follows:

Payment Date                                              Cash Dividend
- -----------------------------------------------------------------------
May 29, 1998..............................................    $0.20
November 30, 1998.........................................     0.40
May 28, 1999..............................................     0.20
November 30, 1999.........................................     0.40
May 31, 2000..............................................     0.20

   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 17,  2000,  at 10:00 a.m.  in the North  Dallas Bank Tower
Meeting Room (first floor), 12900 Preston Road, Dallas, Texas.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>INDEPENDENT AUDITORS' CONSENT
<TEXT>


                          Independent Auditors' Consent

The Board of Directors
Capital Southwest Corporation:



We consent to  incorporation  by reference in the  registration  statement  (No.
33-43881) on Form S-8 of Capital Southwest Corporation of our report dated April
21, 2000, with respect to the consolidated  statements of financial condition of
Capital Southwest  Corporation and subsidiary as of March 31, 2000 and 1999, the
portfolio  of  investments  as of March 31, 2000,  and the related  consolidated
statements of operations,  changes in net assets, and cash flows for each of the
years in the three-year  period ended March 31, 2000, and the selected per share
data and ratios for each of the years in the  five-year  period  ended March 31,
2000,  which report  appears in the annual report to  shareholders  for the year
ended March 31, 2000, and is  incorporated  by reference in the annual report on
Form 10-K of Capital Southwest Corporation.




                                                                        KPMG LLP

Dallas, Texas
June 15, 2000




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>FDS --
<TEXT>

<TABLE> <S> <C>


<ARTICLE>                     6
<LEGEND>
         This schedule contains summary financial information extracted from the
         Consolidated  Statement  of  Financial  Condition  at  March  31,  2000
         (audited) and the  Consolidated  Statement of  Operations  for the year
         ended March 31, 2000  (audited)  and is  qualified  in its  entirety by
         reference to such financial statements.
</LEGEND>
<CIK>                        0000017313
<NAME>                       Capital Southwest Corporation
<MULTIPLIER>                                    1
<CURRENCY>                                      US DOLLARS

<S>                           <C>
<PERIOD-TYPE>                 Year
<FISCAL-YEAR-END>                              MAR-31-2000
<PERIOD-START>                                 APR-01-1999
<PERIOD-END>                                   MAR-31-2000
<EXCHANGE-RATE>                                 1
<INVESTMENTS-AT-COST>                           85,002,437
<INVESTMENTS-AT-VALUE>                         323,629,135
<RECEIVABLES>                                      238,594
<ASSETS-OTHER>                                   4,731,360
<OTHER-ITEMS-ASSETS>                            63,986,715
<TOTAL-ASSETS>                                 392,585,804
<PAYABLE-FOR-SECURITIES>                                 0
<SENIOR-LONG-TERM-DEBT>                          5,000,000
<OTHER-ITEMS-LIABILITIES>                      150,709,838
<TOTAL-LIABILITIES>                            155,709,838
<SENIOR-EQUITY>                                          0
<PAID-IN-CAPITAL-COMMON>                         3,669,861
<SHARES-COMMON-STOCK>                            3,815,051
<SHARES-COMMON-PRIOR>                            3,815,051
<ACCUMULATED-NII-CURRENT>                        4,117,104
<OVERDISTRIBUTION-NII>                                   0
<ACCUMULATED-NET-GAINS>                         73,613,301
<OVERDISTRIBUTION-GAINS>                                 0
<ACCUM-APPREC-OR-DEPREC>                       155,475,700
<NET-ASSETS>                                   236,875,966
<DIVIDEND-INCOME>                                1,878,853
<INTEREST-INCOME>                                  884,152
<OTHER-INCOME>                                     525,400
<EXPENSES-NET>                                   1,482,981
<NET-INVESTMENT-INCOME>                          1,662,930
<REALIZED-GAINS-CURRENT>                         6,019,892
<APPREC-INCREASE-CURRENT>                      (24,749,790)
<NET-CHANGE-FROM-OPS>                          (17,066,968)
<EQUALIZATION>                                           0
<DISTRIBUTIONS-OF-INCOME>                        2,289,031
<DISTRIBUTIONS-OF-GAINS>                                 0
<DISTRIBUTIONS-OTHER>                                    0
<NUMBER-OF-SHARES-SOLD>                                  0
<NUMBER-OF-SHARES-REDEEMED>                              0
<SHARES-REINVESTED>                                      0
<NET-CHANGE-IN-ASSETS>                         (19,355,999)
<ACCUMULATED-NII-PRIOR>                          4,743,205
<ACCUMULATED-GAINS-PRIOR>                       67,593,409
<OVERDISTRIB-NII-PRIOR>                                  0
<OVERDIST-NET-GAINS-PRIOR>                               0
<GROSS-ADVISORY-FEES>                                    0
<INTEREST-EXPENSE>                                 456,262
<GROSS-EXPENSE>                                  1,482,981
<AVERAGE-NET-ASSETS>                                     0
<PER-SHARE-NAV-BEGIN>                                67.16
<PER-SHARE-NII>                                        .44
<PER-SHARE-GAIN-APPREC>                              (4.91)
<PER-SHARE-DIVIDEND>                                  (.60)
<PER-SHARE-DISTRIBUTIONS>                                0
<RETURNS-OF-CAPITAL>                                     0
<PER-SHARE-NAV-END>                                  62.09
<EXPENSE-RATIO>                                          0



</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
