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<SEC-DOCUMENT>0001010549-01-500197.txt : 20010618
<SEC-HEADER>0001010549-01-500197.hdr.sgml : 20010618
ACCESSION NUMBER:		0001010549-01-500197
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20010331
FILED AS OF DATE:		20010615

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

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		
		SEC FILE NUMBER:	811-01056
		FILM NUMBER:		1661342

	BUSINESS ADDRESS:	
		STREET 1:		12900 PRESTON RD STE 700
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75230
		BUSINESS PHONE:		9722338242

	MAIL ADDRESS:	
		STREET 1:		12900 PRESTON RD
		STREET 2:		SUITE 700
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75230
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>capital10k33101body.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, 2001          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, 2001 was $115,062,421, 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,  2001 was
3,815,051.

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

(1)  Annual Report to Shareholders for                 Parts I and II; and
       the Year Ended March 31, 2001              Part IV, Item 14(a)(1) and (2)

(2)  Proxy Statement for Annual Meeting of                  Part III
     Shareholders to be held July 16, 2001


<PAGE>

                                TABLE OF CONTENTS


                                                                            Page
                                                                            ----
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


<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
$50,379,546 and a value of $274,620,768,  representing 86.9% of the value of the
Company's  consolidated  investment portfolio at March 31, 2001. For a narrative
description of the twelve largest investments, see "Twelve Largest Investments -
March  31,  2001"  on  pages 7  through  9 of the  Company's  Annual  Report  to
Shareholders  for the Year Ended March 31, 2001 (the "2001 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,  2001 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, 2001.



                                       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 2001 Annual Report
is herein incorporated by reference.


Item 6.       Selected Financial Data

         "Selected  Consolidated  Financial  Data" on page 31 of the 2001 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  2001  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 materially affected by foreign currency fluctuations.

         The Company's investment in portfolio securities consists of fixed rate
debt securities which totaled $12,432,971 at March 31, 2001, equivalent to 3.94%
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  2001  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, 2001 and 2000.

                                                    First      Second       Third      Fourth
                                                   Quarter     Quarter     Quarter     Quarter      Total
                                                  --------    --------    --------    --------    --------
                                                          (In thousands, except per share amounts)
<S>                                               <C>         <C>         <C>         <C>         <C>
2001
- ----
    Net investment income                         $     25    $    987    $    434    $    277    $  1,723
    Net realized gain (loss) on investments          1,442        --          (768)     (3,905)     (3,231)
    Net increase (decrease) in unrealized
        appreciation of investments                 (1,463)     (2,678)     (9,821)      7,492      (6,470)
    Net increase (decrease) in net assets from
       operations                                        4      (1,691)    (10,155)      3,864      (7,978)
    Net increase (decrease) in net assets from
       operations per share                           --         (0.44)      (2.66)       1.01       (2.09)

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)

</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 16, 2001,  filed  pursuant to Regulation  14A under the  Securities
Exchange Act of 1934, on or about June 8, 2001 (the "2001 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  45,  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 54, 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.

     Tim Smith,  age  40,  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 72, 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.


                                       3
<PAGE>

         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 2001 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 2001  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, 2001 or proposed for the fiscal year
ending March 31, 2002.

                                     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 2001 Annual Report are herein incorporated by reference:

         (A) Portfolio of Investments - March 31, 2001
             Consolidated  Statements  of  Financial  Condition - March 31, 2001
              and 2000
             Consolidated Statements of Operations - Years Ended March 31, 2001,
              2000 and 1999
             Consolidated Statements of Changes  in  Net  Assets -  Years  Ended
              March 31, 2001, 2000 and 1999
             Consolidated Statements of Cash Flows - Years Ended March 31, 2001,
              2000 and 1999

         (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, 2001.



                                       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

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

Date:  June 15, 2001

         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 15, 2001
     (William R. Thomas)        of the Board and Director


   /s/ Gary L. Martin
- ---------------------------     Director                           June 15, 2001
      (Gary L. Martin)


 /s/ Graeme W. Henderson
- ---------------------------     Director                           June 15, 2001
    (Graeme W. Henderson)


    /s/ James M. Nolan
- ---------------------------     Director                           June 15, 2001
       (James M. Nolan)


    /s/ John H. Wilson
- ---------------------------     Director                           June 15, 2001
       (John H. Wilson)


       /s/ Tim Smith
- ---------------------------    Vice President and                  June 15, 2001
          (Tim Smith)          Secretary-Treasurer
                               (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, 2001.

      21.                  List of subsidiaries of the Company.

      23.  *               Independent Auditors' Consent.



                                       7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>2
<FILENAME>capital10kex13mar3101.txt
<DESCRIPTION>ANNUAL REPORT TO SHAREHOLDERS
<TEXT>


                   Twelve Largest Investments - March 31, 2001

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

Palm Harbor Homes, Inc.                                              $78,551,000
- --------------------------------------------------------------------------------

   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 28  states by over 150  independent  dealers  and 145  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 30, 2001, Palm Harbor earned  $19,829,000  ($0.87
per share) on net sales of  $650,451,000,  compared with earnings of $38,596,000
($1.66 per share) on net sales of  $777,471,000  in the previous year. The March
30, 2001 closing Nasdaq bid price of Palm Harbor's  common stock was $15.188 per
share.

   At March 31,  2001,  the  $10,931,955  investment  in Palm  Harbor by Capital
Southwest  and its  subsidiary  was valued at  $78,551,000  ($10.00  per share),
consisting  of  7,855,121  restricted  shares of common  stock,  representing  a
fully-diluted equity interest of 34.5%.

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

The RectorSeal Corporation                                           $47,500,000
- --------------------------------------------------------------------------------

   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,  2001,  RectorSeal  earned  $5,669,000  on
revenues of  $56,240,000,  compared  with  earnings of $4,988,000 on revenues of
$53,858,000 in the previous year.  RectorSeal's  earnings do not reflect its 20%
equity in The Whitmore Manufacturing Company.

   At March 31, 2001, Capital Southwest owned 100% of RectorSeal's  common stock
having a cost of $52,600 and a value of $47,500,000.

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

Skylawn Corporation                                                  $38,000,000
- --------------------------------------------------------------------------------

   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,  2001,  Skylawn,  earned  $4,120,000  on
revenues of $25,799,000.  In the previous year, Skylawn, after adopting a change
in accounting  principle,  earned $2,940,000 on revenues of $24,574,000.  Before
this change, fiscal 2000 earnings were $4,163,000.

   At March 31,  2001,  Capital  Southwest  owned 100% of Skylawn  Corporation's
common stock, which had a cost of $4,510,400 and was valued at $38,000,000.

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

Alamo Group Inc.                                                     $28,213,000
- --------------------------------------------------------------------------------

   Alamo Group Inc.,  Seguin,  Texas, is a leading  designer,  manufacturer  and
distributor  of  heavy-duty,   tractor-mounted   mowing  and  other   vegetation
maintenance equipment,  power-sweeping  equipment and replacement parts. 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, 2000, Alamo reported consolidated earnings of
$10,770,000  ($1.11  per  share) on net  sales of  $215,874,000,  compared  with
earnings of  $6,102,000  ($0.63 per share) on net sales of  $176,608,000  in the
previous  year.  The March 30, 2001 closing NYSE market price of Alamo's  common
stock was $14.30 per share.

   At March 31, 2001,  the $2,065,047  investment in Alamo by Capital  Southwest
and its subsidiary was valued at $28,213,000  ($10.00 per share),  consisting of
2,821,300 restricted shares of common stock, representing a fully-diluted equity
interest of 27.2%.

<PAGE>

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

Media Recovery, Inc.                                                 $18,000,000
- --------------------------------------------------------------------------------

   Media  Recovery,   Inc.,  Graham,  Texas,  distributes  computer  and  office
automation  supplies and accessories to corporate  customers  through its direct
sales force with 25 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, 2000, Media Recovery  reported net income
of  $3,139,000  on net  sales  of  $92,705,000,  compared  with  net  income  of
$2,418,000 on net sales of $88,707,000 in the previous year.

   At March 31, 2001,  the  $5,415,000  investment in Media  Recovery by Capital
Southwest and its subsidiary was valued at $18,000,000,  consisting of 4,800,000
shares of Series A convertible  preferred  stock,  representing a  fully-diluted
equity interest of 68.2%.

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

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,  2000,  Encore  reported  net  income  of
$8,050,000  ($0.52 per share) on net sales of  $283,689,000,  compared  with net
income of  $6,594,000  ($0.42  per  share) on net sales of  $229,670,000  in the
previous year.  The March 30, 2001 closing  Nasdaq bid price of Encore's  common
stock was $7.813 per share.

   At March 31, 2001, 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
17.1%.

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

Concert Industries Ltd.                                              $11,162,000
- --------------------------------------------------------------------------------

   Concert Industries Ltd.,  Vancouver,  British Columbia,  manufactures  latex,
thermal  and  multi-bonded   air-laid  materials  produced  in  state-of-the-art
facilities in Thurso, Quebec; Falkenhagen,  Germany; Charleston, South Carolina;
and Gatineau,  Quebec (to be launched in 2001). Its air-laid  materials are used
as absorbent cores in feminine hygiene, specialty diapers and adult incontinence
products.  Other  applications are wet wipes,  industrial  wipes, food packaging
pads and disposable medical products.

   During the year ended  December  31,  2000,  Concert  reported  net income of
C$7,375,000  (C$0.31 per share) on net sales of C$86,606,000,  compared with net
income of  C$5,388,000  (C$0.30 per share) on net sales of  C$47,658,000  in the
previous year. The March 30, 2001 closing Toronto Stock Exchange market price of
Concert's common stock was C$6.30 (US$4.00) per share.

   At March 31, 2001, the US$10,867,649  investment by Capital Southwest and its
subsidiary  in a junior  secured  note,  exchangeable  subordinated  debentures,
787,286  shares of common stock and a warrant to acquire 83,643 shares of common
stock was valued at US$11,162,000,  representing a fully-diluted equity interest
of 9.8%.

<PAGE>

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

AT&T Corp. - Liberty Media Group                                      $9,483,768
- --------------------------------------------------------------------------------

   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 year ended December 31, 2000, Liberty Media Group reported net income
of $1.488 billion ($0.58 per share) on net sales of $1.526 billion compared with
a net loss of $2.081 billion ($0.80 per share) on net sales of $1.011 billion in
the  previous  year.  The March 30, 2001  closing  NYSE market price of Series A
Liberty Media Group common (tracking) stock was $14.00 per share.

   At March 31, 2001,  Capital  Southwest owned 677,412  unrestricted  shares of
Series A Liberty Media Group  tracking  stock,  having a total cost of $25 and a
market value of $9,483,768 ($14.00 per share).

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

All Components, Inc.                                                  $8,750,000
- --------------------------------------------------------------------------------

   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 contract  manufacturing  plants in Austin,  Texas and Boise,  Idaho, the
company serves over 2,000 customers throughout the United States.

   During the year ended August 31, 2000, All Components  reported net income of
$4,025,000 on net sales of $220,835,000,  compared with net income of $2,542,000
on net sales of $157,932,000 in the previous year.

   At March 31,  2001,  the $150,000  investment  in All  Components  by Capital
Southwest's  subsidiary was valued at $8,750,000 consisting of 150,000 shares of
Series A convertible preferred stock,  representing a 29.0% fully-diluted equity
interest.

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

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, 2001, Whitmore reported net income of $41,000
on net sales of $11,536,000, compared with a net loss of $10,600 on net sales of
$13,176,000 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, 2001, the direct investment in Whitmore by Capital Southwest was
valued at $8,000,000 and had a cost of $1,600,000.

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

Mail-Well, Inc.                                                       $7,338,000
- --------------------------------------------------------------------------------

   Mail-Well, Inc., Englewood,  Colorado, is a consolidator of companies engaged
in producing  envelopes and labels and in printing for  commercial  applications
and for distributors.  Mail-Well has approximately 15,000 employees and operates
more than 140 plants and numerous sales offices throughout North America and the
United Kingdom.

   For the  year  ended  December  31,  2000,  Mail-Well  reported  earnings  of
$27,618,000  ($0.56 per  share) on net sales of  $2,425,215,000,  compared  with
earnings of $64,482,000  ($1.20 per share) on net sales of $1,887,230,000 in the
previous  year.  The March 30, 2001  closing  NYSE market  price of  Mail-Well's
common stock was $4.87 per share.

   At March  31,  2001,  the  $2,986,870  investment  in  Mail-Well  by  Capital
Southwest  was valued at $7,338,000  ($3.50 per share),  consisting of 2,096,588
restricted shares of common stock,  representing a fully-diluted equity interest
of 3.5%.

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

Organized Living, Inc.                                                $6,000,000
- --------------------------------------------------------------------------------

   Organized Living,  Inc.,  Lenexa,  Kansas, is a leading specialty retailer of
high quality products designed to provide storage and organization solutions for
customers' home and office needs. The company's  superstores  provide a one-stop
shopping destination for storage and organization products for every area of the
home including closets, kitchens, laundry rooms, pantries, bathrooms,  bedrooms,
playrooms,   garages  and  offices.   Organized  Living  currently  operates  14
superstores in retail areas in 12 states.

   During the year ended March 31, 2001, Organized Living reported a net loss of
$3,483,000 on net sales of  $49,408,000,  compared with a net loss of $4,141,000
on net sales of $31,261,000 in the previous year.

   At March 31, 2001, the investment by Capital Southwest in 2,500,001 shares of
Series D convertible  preferred  stock, was valued at its cost of $6,000,000 and
represented a fully-diluted equity interest of 10.0% to 12.7%.

<PAGE>
<TABLE>
<CAPTION>

                    Portfolio of Investments - March 31, 2001

               Company                        Equity (a)          Investment (b)                         Cost            Value (c)
- -----------------------------------------------------------------------------------------------------------------------------------
<S>            <C>                            <C>              <C>                                     <C>            <C>
+AT&T CORP.                                      <1%           ++133,245 shares Series A
   New York, New York                                            common stock (acquired 3-9-99)        $        43    $  2,838,119
   Major provider of telecommunications
   services in four segments:  business
   long distance, consumer long distance,
   broadband (cable) and wireless.
- -----------------------------------------------------------------------------------------------------------------------------------

+AT&T CORP. - Liberty Media Group                <1%           ++677,412 shares Series A
   New York, New York                                            common stock (acquired 3-9-99)                 25       9,483,768
   Production and distribution of cable
   television programming services and wireless
   and wireline communications services.
- -----------------------------------------------------------------------------------------------------------------------------------

+ALAMO GROUP INC.                                27.2%         2,821,300 shares common stock
   Seguin, Texas                                                 (acquired 4-1-73, 7-18-78 and
   Tractor-mounted mowing and vegetation                         9-9-99 thru 10-4-99)                    2,065,047      28,213,000
   maintenance equipment for governmental,
   industrial and agricultural markets;
   power-sweeping equipment for municipalities.
- -----------------------------------------------------------------------------------------------------------------------------------

ALL COMPONENTS, INC.                             29.0%         150,000 shares Series A convertible
   Farmers Branch, Texas                                         preferred stock, convertible into
   Distribution and production of memory and                     600,000 shares of common stock at
   other components for personal computer                        $0.25 per share (acquired 9-16-94)        150,000       8,750,000
   manufacturers, retailers and value-added
   resellers.
- -----------------------------------------------------------------------------------------------------------------------------------

+ALLTEL CORPORATION                              <1%           ++8,880 shares common stock
   Little Rock, Arkansas                                         (acquired 7-1-98)                         108,355         465,845
   Wireline and wireless communications and
   information services.
- -----------------------------------------------------------------------------------------------------------------------------------

BALCO, INC.                                      89.7%         14% subordinated debentures, payable
   Wichita, Kansas                                               2001 to 2002 (acquired 8-13-91)           160,000         160,000
   Specialty architectural products used in                    14% subordinated debenture, payable
   the construction and remodeling of                            2001 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)                         320,000         820,000
                                                               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
                                                                                                       -----------    ------------
                                                                                                           650,920       1,543,760

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


<PAGE>

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

BOXX TECHNOLOGIES, INC.                           9.6%         10% convertible promissory notes due
   Austin, Texas                                                 2001 (acquired 4-26-00)               $   500,000    $    500,000
   Workstations for computer graphics                          1,000,000 shares Series B convertible
   imaging and design.                                           preferred stock, convertible into
                                                                 1,000,000 shares of common stock at
                                                                 $0.50 per share (acquired 8-20-99)        500,000               -
                                                               Warrants to purchase 80,000 shares of
                                                                 series B preferred stock at $0.50
                                                                 per share, expiring 2005
                                                                 (acquired 4-26-00)                              -               -
                                                                                                       -----------    ------------
                                                                                                         1,000,000         500,000
- -----------------------------------------------------------------------------------------------------------------------------------

+CISCO SYSTEMS, INC.                             <1%           ++17,217 shares common stock
   (distributed by STARTech Seed Fund I)                         (acquired 3-19-01)                        257,400         272,252
   San Jose, California
   Networking hardware, software and
   services for the Internet.
- -----------------------------------------------------------------------------------------------------------------------------------

+CONCERT INDUSTRIES LTD.                          9.8%         Junior secured note, due 2004
   Vancouver, British Columbia                                   (acquired 5-31-00)                      1,500,000       1,500,000
   Manufacture and sale of latex, thermal                      8% subordinated debentures due 2008,
   and multi-bonded air-laid nonwoven fabrics                    $8,471,263 principal amount,
   having superabsorbent properties.                             exchangeable for 2,046,199 shares of
                                                                 common stock at $4.14 (C$6.525) per
                                                                 share (acquired 5-31-00)                7,143,000       6,785,000
                                                               ++365,000 shares common stock
                                                                 (acquired 11-10-00, 11-14-00 and
                                                                 12-1-00)                                1,299,649       1,459,000
                                                               422,286 shares common stock
                                                                 (acquired 5-31-00)                        877,475       1,350,000
                                                               Warrant to purchase 83,643 shares of
                                                                 common stock at C$6.00 (U$3.807) per
                                                                 share, expiring 2002 (acquired
                                                                 5-31-00)                                   47,525          68,000
                                                                                                       -----------    ------------
                                                                                                        10,867,649      11,162,000
- -----------------------------------------------------------------------------------------------------------------------------------

+CYBERSOURCE CORPORATION                         <1%           ++138,027 shares common stock
   Mountain View, California                                     (acquired 7-9-00)                       1,000,000         241,547
   Provides traditional and e-commerce
   businesses with systems for processing
   electronic payments.
- -----------------------------------------------------------------------------------------------------------------------------------

DENNIS TOOL COMPANY                              66.2%         20,725 shares 5% convertible preferred
   Houston, Texas                                                stock, convertible into 20,725
   Polycrystalline diamond compacts (PDCs)                       shares of common stock at $48.25 per
   used in oil field drill bits and in                           share (acquired 8-10-98)                  999,981         500,000
   mining and industrial applications.                         140,137 shares common stock (acquired
                                                                 3-7-94 and 8-10-98)                     2,329,963       2,830,000
                                                                                                       -----------    ------------
                                                                                                         3,329,944       3,330,000
- -----------------------------------------------------------------------------------------------------------------------------------

+DREW SCIENTIFIC GROUP PLC                       <1%           ++539,925 shares common stock
   (formerly CDC Technologies, Inc.)                             (acquired 3-21-01)                      3,139,161         546,620
   Cumbria, England
   Diagnostic medical equipment and
   consumables.
- -----------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                        ++Unrestricted securities as defined in Note (b)


<PAGE>

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

+ENCORE WIRE CORPORATION                         17.1%         2,724,500 shares common stock
   McKinney, Texas                                               (acquired 7-16-92, 3-15-94, 4-28-94
   Electrical wire and cable for                                 and 10-7-98)                          $ 5,800,000    $ 13,623,000
   residential and commercial use.
- -----------------------------------------------------------------------------------------------------------------------------------

+FMC CORPORATION                                 <1%           ++6,430 shares common stock
   Chicago, Illinois                                             (acquired 6-6-86)                         123,777         473,505
   Machinery and chemicals in diversified
   product areas.
- -----------------------------------------------------------------------------------------------------------------------------------

+GLOBAL CROSSING LTD.                            <1%           ++64,242 shares common stock
   Hamilton, Bermuda                                             (acquired 9-28-99)                         78,346         866,625
   Diversified telecommunications company.
- -----------------------------------------------------------------------------------------------------------------------------------

HEELING, INC.                                    43.0%         10% subordinated debenture due 2006
   Carrollton, Texas                                             (acquired 10-30-00, 11-10-00
   Heelys stealth skate shoes ("one wheel in                     and 12-7-00)                            1,800,000       1,800,000
   the heel") sold through specialty skate,                    1,745,455 shares Series A preferred
   lifestyle and sporting goods stores,                          (acquired 5-26-00)                        480,000         480,000
   footwear chains and over the Internet at                    436,364 shares Series B convertible
   Heelys.com.                                                   preferred stock, convertible into
                                                                 436,364 shares of common stock at
                                                                 $0.275 per share (acquired 5-26-00)       120,000         120,000
                                                                                                       -----------    ------------
                                                                                                         2,400,000       2,400,000
- -----------------------------------------------------------------------------------------------------------------------------------

+HOLOGIC, INC.                                   <1%           ++158,205 shares common stock
   Bedford, Massachusetts                                        (acquired 8-27-99)                        220,000         632,820
   Medical instruments including bone
   densitometers, mammography devices and
   digital radiography systems.
- -----------------------------------------------------------------------------------------------------------------------------------

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

+KIMBERLY-CLARK CORPORATION                      <1%           ++77,180 shares common stock
   Irving, Texas                                                 (acquired 12-18-97)                     2,396,926       5,235,119
   Manufacturer of tissue, personal care and
   health care products.
- -----------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                        ++Unrestricted securities as defined in Note (b)


<PAGE>

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

+MAIL-WELL, INC.                                  3.5%         2,096,588 shares common stock
   Englewood, Colorado                                           (acquired 2-18-94, 12-14-94, 7-27-95
   Envelopes, labels and commercial printing.                    and 11-10-98)                         $ 2,986,870    $  7,338,000
- -----------------------------------------------------------------------------------------------------------------------------------

MEDIA RECOVERY, INC.                             68.2%         4,800,000 shares Series A convertible
   Graham, Texas                                                 preferred stock, convertible into
   Computer and office automation supplies                       4,800,000 shares of common stock at
   and accessories; impact and tilt                              $1.00 per share (acquired 11-4-97)      5,415,000      18,000,000
   monitoring devices to detect mishandled
   shipments; dunnage for protecting
   shipments.
- -----------------------------------------------------------------------------------------------------------------------------------

+MYLAN LABORATORIES, INC.                        <1%           ++128,286 shares common stock
   Pittsburgh, Pennsylvania                                      (acquired 11-20-91)                       400,000       3,316,193
   Proprietary and generic pharmaceutical
   products.
- -----------------------------------------------------------------------------------------------------------------------------------

ORGANIZED LIVING, INC.                        10.0%-12.7%      2,500,001 shares Series D convertible
   Lenexa, Kansas                                                preferred stock, convertible into
   Specialty retailer of products designed                       2,500,000 to 3,333,334 shares of
   to provide home and office storage and                        common stock at $1.80 to $2.40 per
   organization solutions.                                       share (acquired  1-7-00 and
                                                                 10-30-00)                               6,000,000       6,000,000
- -----------------------------------------------------------------------------------------------------------------------------------

+PALM HARBOR HOMES, INC.                         34.5%         7,855,121 shares common stock
   Dallas, Texas                                                 (acquired 1-3-85, 3-31-88 and
   Integrated manufacturing, retailing,                           7-31-95)                              10,931,955      78,551,000
   financing and insuring of manufactured
   housing produced in 15 plants.
- -----------------------------------------------------------------------------------------------------------------------------------

+PETSMART, INC.                                  <1%           ++654,220 shares common stock
   Phoenix, Arizona                                              (acquired 6-1-95)                       2,878,733       2,616,880
   Retail chain of more than 500 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      47,500,000
   Chemical specialty products for
   industrial, construction, oil field and
   automotive applications; owns 20% of
   Whitmore Manufacturing.
- -----------------------------------------------------------------------------------------------------------------------------------
REWIND HOLDINGS, INC.                            37.5%         12% subordinated notes, payable 2001
   Sugar Land, Texas                                             to 2004 (acquired 10-21-96, 8-13-97,
   Owns Bill Young Productions, Texas Video                       8-11-98 and 2-15-01)                   3,948,750       1,000,000
   and Post, and Extreme Communications,                       375 shares 8% Series A convertible
   which produce radio and television                            preferred stock, convertible into
   commercials and corporate communications                      1,500,000 shares of common stock at
   videos.                                                       $0.25 per share (acquired 10-21-96)       375,000               -
                                                               Warrants to purchase  723,750  shares
                                                                 of common stock at $0.25 per share,
                                                                 expiring 2005 and 2008 (acquired
                                                                 8-11-98 and 2-15-01)                            -               -
                                                                                                       -----------    ------------
                                                                                                         4,323,750       1,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                        ++Unrestricted securities as defined in Note (b)



<PAGE>

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

SKYLAWN CORPORATION                             100.0%         1,449,026 shares common stock
   Hayward, California                                           (acquired 7-16-69)                    $ 4,510,400    $ 38,000,000
   Cemeteries, mausoleums and mortuaries
   located in northern California.
- -----------------------------------------------------------------------------------------------------------------------------------

+SPRINT CORPORATION - FON Group                  <1%           ++72,000 shares common stock
   Westwood, Kansas                                              (acquired 6-20-84)                        449,654       1,583,280
   Diversified telecommunications company.
- -----------------------------------------------------------------------------------------------------------------------------------

+SPRINT CORPORATION - PCS Group                  <1%           ++36,000 shares common stock
   Overland Park, Kansas                                         (acquired 11-23-98)                        53,991         684,000
   Domestic wireless telephony services.
- -----------------------------------------------------------------------------------------------------------------------------------

SPROCKETS.COM, INC.                               7.0%         10% subordinated convertible
   Boston, Massachusetts                                         promissory notes due 2001 and 2002
   Provides web-based file transfer and                          (acquired 9-15-00, 11-3-00 and
   collaboration platforms to facilitate the                     3-20-01)                                  544,371               1
   creation of visual media from multiple                      2,192,982 shares Series A-2 redeemable
   locations.                                                    convertible preferred stock,
                                                                 convertible into 2,192,982 shares of
                                                                 common stock at $0.342 per share
                                                                 (acquired 5-11-00)                        750,000               -
                                                               Warrants to purchase 562,866 shares of
                                                                 common stock at $0.342 per share,
                                                                 expiring 2005 and 2006 (acquired
                                                                 9-15-00, 11-3-00 and 3-20-01)               5,629               -
                                                                                                       -----------    ------------
                                                                                                         1,300,000               1
- -----------------------------------------------------------------------------------------------------------------------------------

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

TEXAS CAPITAL BANCSHARES, INC.                    3.3%         344,828 shares common stock
   Dallas, Texas                                                 (acquired 5-1-00)                       5,000,006       5,000,006
   Owns both Texas Capital Bank, NA, which
   serves middle market clients, and Bank
   Direct, an Internet bank.
- -----------------------------------------------------------------------------------------------------------------------------------

TEXAS PETROCHEMICAL HOLDINGS, INC.                5.0%         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.
- -----------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                        ++Unrestricted securities as defined in Note (b)



<PAGE>

               Company                        Equity (a)          Investment (b)                         Cost            Value (c)
- -----------------------------------------------------------------------------------------------------------------------------------
TEXAS SHREDDER, INC.                             53.3%         14% subordinated debentures, payable
   San Antonio, Texas                                            2001 (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       3,187,500
                                                                                                       -----------    ------------
                                                                                                         1,022,570       4,135,070
- -----------------------------------------------------------------------------------------------------------------------------------

VOCALDATA, INC.                                    2.8%        650,001 shares Series A convertible
   Richardson, Texas                                             preferred stock, convertible into
   Hardware and software for customer premises                   1,300,002 shares of common stock at
   telephony equipment based on Voice Over                       $0.875 per share (acquired 11-4-99
   Internet Protocol.                                            and 12-3-99)                            1,137,500       1,290,918
                                                               200,287 shares Series B convertible
                                                                 preferred  stock, convertible into
                                                                 200,287 shares of common stock at
                                                                 $1.759 per share (acquired 10-26-00)      352,305         198,887
                                                                                                       -----------    ------------
                                                                                                         1,489,805       1,489,805
- -----------------------------------------------------------------------------------------------------------------------------------

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

MISCELLANEOUS                                     -            Diamond State Ventures, L.P. - 1.9%
                                                                 limited partnership interest
                                                                 (acquired 10-12-99)                       119,196         119,196
                                                  -            First Capital Group of Texas III,
                                                                 L.P. - 3.3% limited partnership
                                                                 interest (acquired 12-26-00)              100,000         100,000
                                                100.0%         Humac Company - 1,041,000 shares
                                                                 common stock (acquired 1-31-75 and
                                                                 12-31-75)                                       -         136,000
                                                 <1%           +Liberty Satellite & Technology,
                                                                 Inc. - ++18,000 shares Series A
                                                                 common stock (acquired 12-4-96)                 -          29,812
                                                  -            STARTech Seed Fund I - 12.6% limited
                                                                 partnership interest (acquired
                                                                 4-17-98)                                  242,600         500,000
                                                  -            STARTech Seed Fund II - 3.1% limited
                                                                 partnership interest (acquired
                                                                 4-28-00)                                  450,000         450,000
                                                 <1%           +Triton Energy Limited - ++6,022
                                                                 shares common stock (acquired
                                                                 12-15-86)                                 144,167         113,033
- -----------------------------------------------------------------------------------------------------------------------------------

TOTAL INVESTMENTS                                                                                      $87,601,646    $315,917,509
                                                                                                       ===========    ============
- -----------------------------------------------------------------------------------------------------------------------------------
+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,  2001,  restricted  securities  represented
approximately 90% 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  Nasdaq  securities  on the  valuation  date.  Restricted  securities,
including   securities  of   publicly-owned   companies  which  are  subject  to
restrictions  on resale,  are valued at fair value as determined by the Board of
Directors.  Fair value is  considered  to be the amount  which the  Company  may
reasonably  expect to receive for portfolio  securities if such  securities were
sold on the valuation date.  Valuations as of any particular date, however,  are
not  necessarily  indicative  of amounts  which may  ultimately be realized as a
result of future sales or other dispositions of securities.

     Among the factors  considered by the Board of Directors in determining  the
fair value of restricted  securities  are the 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, 2001 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. ............................   $    500,000
Amfibe, Inc............................................          5,210
BOXX Technologies, Inc. ...............................        500,000
CDC Technologies, Inc. ................................         40,003
Concert Industries Ltd. ...............................      3,799,649
Diamond State Ventures, L.P. ..........................         47,321
Dyntec, Inc. ..........................................          3,835
First Capital Group of Texas III, L.P. ................        100,000
Heeling, Inc. .........................................      2,700,000
Organized Living, Inc. ................................      1,000,000
Rewind Holdings, Inc. .................................        123,750
Sprockets.com, Inc. ...................................      1,300,000
STARTech Seed Fund II .................................        450,000
Texas Capital Bancshares, Inc.  .......................      5,000,006
VocalData, Inc. .......................................        352,305
                                                          ------------

                                                          $ 15,922,079
                                                          ============

Dispositions and Write-offs

                                                               Amount
                                                Cost          Received
                                           -------------   -------------
All Components, Inc. ...................   $     450,000   $     450,000
American Homestar Corporation ..........       3,405,824          12,922
Amfibe, Inc.  ..........................         205,210       6,179,200
Dyntec, Inc. ...........................       4,503,835         174,000
iChoose, Inc. ..........................       1,100,001               -
SDI Investments Liquidating Trust ......         118,000         841,255
Vonova Corporation (formerly International
  Talk.com, Inc.).......................       3,000,000               -
                                           -------------   -------------

                                           $  12,782,870   $   7,657,377
                                           =============   =============


Repayments Received.....................                   $     540,000
                                                           =============






<PAGE>

                  Capital Southwest Corporation and Subsidiary
                 Consolidated Statements of Financial Condition

                                                           March 31
                                                 ---------------------------
Assets                                                2001           2000
                                                 ------------   ------------

Investments at market or fair value (Notes
   1, 2 and 10)
   Companies more than 25% owned
     (Cost: 2001 - $23,140,865,
     2000 - $23,380,865)...................      $205,273,759   $200,608,759
   Companies 5% to 25% owned
     (Cost: 2001 - $17,642,756,
     2000 - $22,579,414)...................        19,623,004     22,760,506
   Companies less than 5% owned
     (Cost: 2001 - $46,818,025,
     2000 - $39,042,158)...................        91,020,746    100,259,870
                                                 ------------   ------------

Total investments
     (Cost: 2001 - $87,601,646,
     2000 - $85,002,437)...................       315,917,509    323,629,135
Cash and cash equivalents..................         1,137,767     63,986,715
Receivables................................           264,377        238,594
Other assets (Note 8)......................         5,348,315      4,731,360
                                                 ------------   ------------





   Totals..................................      $322,667,968   $392,585,804
                                                 ============   ============



                                                          March 31
                                                 ---------------------------
Liabilities and Shareholders' Equity                  2001           2000
                                                 ------------   ------------

Note payable to bank (Note 4) .............      $  5,000,000   $ 60,000,000
Notes payable to portfolio companies (Note 4)       6,000,000      5,000,000
Accrued interest and other liabilities (Note 8)     2,135,052      2,220,753
Deferred income taxes (Note 3).............        77,924,303     83,489,085
Subordinated debenture (Note 5)............         5,000,000      5,000,000
                                                 ------------   ------------
                    Total liabilities .....        96,059,355    155,709,838
                                                 ------------   ------------

Shareholders' equity (Notes 3 and 6)
   Common stock, $1 par value: authorized,
     5,000,000 shares; issued, 4,252,416
     shares at March 31, 2001 and
     March 31, 2000........................         4,252,416      4,252,416
   Additional capital......................         6,450,747      6,450,747
   Undistributed net investment
     income................................         3,550,573      4,117,104
   Undistributed net realized gain on
     investments...........................        70,382,314     73,613,301
   Unrealized appreciation of investments -
     net of deferred income taxes..........       149,005,865    155,475,700
   Treasury stock - at cost
     (437,365 shares)......................        (7,033,302)    (7,033,302)
                                                 ------------   ------------
   Net assets at market or fair value, equivalent
     to $59.40 per share at March 31, 2001,
     and $62.09 per share at March 31, 2000
     on the 3,815,051 shares outstanding...       226,608,613    236,875,966
                                                 ------------   ------------


   Totals..................................      $322,667,968   $392,585,804
                                                 ============   ============



                 See Notes to Consolidated Financial Statements



<PAGE>
<TABLE>
<CAPTION>

                  Capital Southwest Corporation and Subsidiary
                      Consolidated Statements of Operations

                                                                                                 Years Ended March 31
                                                                                     --------------------------------------------
                                                                                          2001            2000            1999
                                                                                     ------------    ------------    ------------
<S>                                                                                  <C>             <C>             <C>
Investment income (Note 9):
   Interest ........................................................................ $    542,241    $    884,152    $  1,307,668
   Dividends .......................................................................    2,955,833       1,878,853       1,966,360
   Management and directors' fees ..................................................      530,400         525,400         538,650
                                                                                     ------------    ------------    ------------
                                                                                        4,028,474       3,288,405       3,812,678
                                                                                     ------------    ------------    ------------

Operating expenses:
   Interest ........................................................................    1,144,337         456,262         416,174
   Salaries ........................................................................      850,959         804,933       1,109,699
   Net pension expense (benefit) (Note 8) ..........................................     (486,174)       (435,984)       (311,625)
   Other operating expenses (Notes 7 and 11) .......................................      614,861         657,770         727,612
                                                                                     ------------    ------------    ------------
                                                                                        2,123,983       1,482,981       1,941,860
                                                                                     ------------    ------------    ------------
Income before income taxes .........................................................    1,904,491       1,805,424       1,870,818
Income tax expense (Note 3) ........................................................      181,991         142,494         109,100
                                                                                     ------------    ------------    ------------
Net investment income .............................................................. $  1,722,500    $  1,662,930    $  1,761,718
                                                                                     ============    ============    ============

Proceeds from disposition of investments ........................................... $  7,657,377    $ 14,893,442    $  1,530,691
Cost of investments sold (Note 1) ..................................................   12,782,870       5,662,000            --
                                                                                     ------------    ------------    ------------
Realized gain (loss) on investments before income taxes (Note 9) ...................   (5,125,493)      9,231,442       1,530,691
Income tax expense (benefit) .......................................................   (1,894,506)      3,211,550         535,742
                                                                                     ------------    ------------    ------------
Net realized gain (loss) on investments ............................................   (3,230,987)      6,019,892         994,949
                                                                                     ------------    ------------    ------------
Decrease in unrealized appreciation of investments before income taxes .............  (10,310,835)    (38,071,790)    (63,433,545)
Decrease in deferred income taxes on appreciation of investments (Note 3) ..........   (3,841,000)    (13,322,000)    (22,201,000)
                                                                                     ------------    ------------    ------------
Net decrease in unrealized appreciation of investments .............................   (6,469,835)    (24,749,790)    (41,232,545)
                                                                                     ------------    ------------    ------------

Net realized and unrealized loss on investments .................................... $ (9,700,822)   $(18,729,898)   $(40,237,596)
                                                                                     ============    ============    ============

Decrease in net assets from operations.............................................. $ (7,978,322)   $(17,066,968)   $(38,475,878)
                                                                                     ============    ============    ============

</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
                                                          -----------------------------------------------
                                                                2001             2000             1999
                                                          -------------    -------------    -------------
<S>                                                       <C>              <C>              <C>
Operations
   Net investment income ................................ $   1,722,500    $   1,662,930    $   1,761,718
   Net realized gain (loss) on investments ..............    (3,230,987)       6,019,892          994,949
   Net decrease in unrealized appreciation of investments    (6,469,835)     (24,749,790)     (41,232,545)
                                                          -------------    -------------    -------------
   Decrease in net assets from operations ...............    (7,978,322)     (17,066,968)     (38,475,878)

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

Capital share transactions
   Exercise of employee stock options ...................          --               --            965,438
                                                          -------------    -------------    -------------
   Decrease in net assets ...............................   (10,267,353)     (19,355,999)     (39,790,851)

Net assets, beginning of year ...........................   236,875,966      256,231,965      296,022,816
                                                          -------------    -------------    -------------

Net assets, end of year ................................. $ 226,608,613    $ 236,875,966    $ 256,231,965
                                                          =============    =============    =============

</TABLE>



                 See Notes to Consolidated Financial Statements






<PAGE>
<TABLE>
<CAPTION>

                  Capital Southwest Corporation and Subsidiary
                      Consolidated Statements of Cash Flows

                                                                                                   Years Ended March 31
                                                                                     ---------------------------------------------
                                                                                           2001            2000            1999
                                                                                     -------------   -------------   -------------
<S>                                                                                  <C>             <C>             <C>
Cash flows from operating activities
Decrease in net assets from operations ............................................. $  (7,978,322)  $ (17,066,968)  $ (38,475,878)
Adjustments to reconcile decrease in net assets from operations to net cash provided
   by operating activities:
   Depreciation and amortization ...................................................        29,891          31,976          24,667
   Net pension benefit .............................................................      (486,174)       (435,984)       (311,625)
   Net realized and unrealized loss on investments .................................     9,700,822      18,729,898      40,237,596
   (Increase) decrease in receivables ..............................................       (25,783)         77,113          17,166
   Increase in other assets ........................................................        (8,923)        (44,754)        (47,315)
   Increase (decrease) in accrued interest and other liabilities ...................       (27,179)         41,504         (74,670)
   Decrease in accrued pension cost ................................................      (209,947)           --              --
   Deferred income taxes ...........................................................       170,400         152,600         109,100
                                                                                     -------------   -------------   -------------
Net cash provided by operating activities ..........................................     1,164,785       1,485,385       1,479,041
                                                                                     -------------   -------------   -------------
Cash flows from investing activities
Proceeds from disposition of investments ...........................................     7,657,377      14,893,442       1,530,691
Purchases of securities ............................................................   (15,922,079)    (21,924,423)    (13,170,132)
Maturities of securities ...........................................................       540,000       4,840,000         744,539
Income taxes paid on realized gain on investments ..................................          --        (4,069,101)       (266,643)
                                                                                     -------------   -------------   -------------
Net cash used by investing activities ..............................................    (7,724,702)     (6,260,082)    (11,161,545)
                                                                                     -------------   -------------   -------------
Cash flows from financing activities
Increase (decrease) in notes payable to bank .......................................   (55,000,000)     60,000,000    (100,000,000)
Increase in notes payable to portfolio companies ...................................     1,000,000       5,000,000            --
Distributions from undistributed net investment income .............................    (2,289,031)     (2,289,031)     (2,280,411)
Proceeds from exercise of employee stock options ...................................          --              --           965,438
                                                                                     -------------   -------------   -------------
Net cash provided (used) by financing activities ...................................   (56,289,031)     62,710,969    (101,314,973)
                                                                                     -------------   -------------   -------------
Net increase (decrease) in cash and cash equivalents ...............................   (62,848,948)     57,936,272    (110,997,477)
Cash and cash equivalents at beginning of year .....................................    63,986,715       6,050,443     117,047,920
                                                                                     -------------   -------------   -------------
Cash and cash equivalents at end of year ........................................... $   1,137,767   $  63,986,715   $   6,050,443
                                                                                     =============   =============   =============
Supplemental disclosure of cash flow information:
Cash paid during the year for: Interest ............................................ $   1,144,558   $     436,023   $     424,926
                               Income taxes ........................................ $      11,591   $   4,092,891   $     288,838

</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  accounting
principles  generally  accepted in the United  States of America 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, 2001 and 2000 include
securities  valued  at  $285,059,091  (90%  of the  value  of  the  consolidated
investment  portfolio) and  $272,736,962  (84% 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,  2000,  1999 and 1998,  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 material  provision was made for Federal  income taxes on the investment
company taxable income of CSC and CSVC for the 2001, 2000 and 1999 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, 2001
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  $79,310,000  and
$83,151,000 have been provided on net unrealized  appreciation of investments of
$228,315,863  and  $238,626,698 at March 31, 2001 and 2000,  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, 2001 and 2000.



<PAGE>
<TABLE>
<CAPTION>

4.   Notes Payable

     The note  payable to bank at March 31,  2001 was an  unsecured  $15,000,000
revolving line of credit, of which $5,000,000 had been drawn. The revolving line
of credit  bears  interest at the bank's base rate less .50% or LIBOR plus 1.25%
and matures on July 31, 2002.  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 portfolio  companies were demand  promissory  notes to
Skylawn Corporation and The Whitmore Manufacturing Company with interest payable
at prime minus 2.25%.  Interest expense on these notes were $421,870 in 2001 and
$14,218 in 2000.

5.   Subordinated Debenture

     The subordinated  debenture of $5,000,000 outstanding at March 31, 2001 and
2000 is payable to others and  guaranteed by the Small  Business  Administration
("SBA"), bears interest at 8.0% and matures June 1, 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, 2001
and expire in 2003. The 1984 Incentive Stock Option Plan expired in 1994.

     Under the 1999  Stock  Option  Plan,  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 ended
March 31, 2000 and remain outstanding at March 31, 2001, 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,
2001, 7,750 shares were exercisable.

     At March 31, 2001 and 2000,  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  portfolio  companies  sponsor a
qualified  employee  stock  ownership  plan ("ESOP") in which certain  employees
participate. Contributions to the plan, which are invested in Company stock, are
made at the  discretion of the 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 $42,997 in
2001, $43,862 in 2000 and $35,079 in 1999.

8.   Retirement Plans

     The Company sponsors a qualified  defined benefit pension plan which covers
its employees and employees of certain of its wholly-owned  portfolio companies.
The following  information  about the plan  represents  amounts and  information
related to the  Company's  participation  in the plan and is presented as though
the Company  sponsored a  single-employer  plan.  Benefits are based on years of
service and an average of the highest  five  consecutive  years of  compensation
during the last 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, 2001.

     The  following  tables set forth the plan's  benefit  obligations  and fair
value of plan assets at March 31, 2001, 2000 and 1999:



                                                   Years Ended March 31
                                       --------------------------------------------
                                            2001            2000            1999
                                       ------------    ------------    ------------
<S>                                    <C>             <C>             <C>
Change in benefit obligation
Benefit obligation at beginning
     of  year ........................ $  3,260,366    $  3,315,119    $  3,059,555
Service cost .........................       50,961          43,818          68,710
Interest cost ........................      205,976         193,397         199,301
Amendments ...........................         --              --          (149,171)
Actuarial gain (loss) ................       59,571        (201,158)        205,810
Benefits paid ........................     (321,205)        (90,810)        (69,086)
                                       ------------    ------------    ------------
Benefit obligation at end of year .... $  3,255,669    $  3,260,366    $  3,315,119
                                       ============    ============    ============



Change in plan assets
Fair value of plan assets at beginning
     of  year ........................ $  9,837,547    $ 10,074,598    $ 11,314,714
Actual return on plan assets .........     (758,307)       (146,241)     (1,171,030)
Benefits paid ........................     (321,205)        (90,810)        (69,086)
                                       ------------    ------------    ------------
Fair value of plan assets at end of
     year ............................ $  8,758,035    $  9,837,547    $ 10,074,598
                                       ============    ============    ============

</TABLE>



<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
                                                     --------------------------
                                                         2001           2000
                                                     -----------    -----------
Actuarial present value of benefit obligations:
     Accumulated benefit obligation ................ $(2,938,747)   $(2,965,576)
                                                     ===========    ===========

Projected benefit obligation for service rendered to
     date .......................................... $(3,255,669)   $(3,260,366)
Plan assets at fair value* .........................   8,758,035      9,837,547
                                                     -----------    -----------
Excess of plan assets over the projected benefit
     obligation ....................................   5,502,366      6,577,181
Unrecognized net (gain) loss from past experience
     different from that assumed and effects of
     changes in assumptions ........................     109,379     (1,518,207)
Prior service costs not yet recognized .............    (151,642)      (162,965)
Unrecognized net assets being amortized over
     19 years ......................................    (295,308)      (369,139)
                                                     -----------    -----------
Prepaid pension cost included in other assets ...... $ 5,164,795    $ 4,526,870
                                                     ===========    ===========


- -------------
*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
                                      -----------------------------------------
                                          2001           2000           1999
                                      -----------    -----------    -----------
Service cost - benefits earned during
     the year ....................... $    50,961    $    43,818    $    68,710
Interest cost on projected benefit
     obligation .....................     205,976        193,397        199,301
Actual return on assets .............     758,307        146,241      1,171,030
Net amortization and deferral .......  (1,653,169)      (960,903)    (1,901,221)
                                      -----------    -----------    -----------
Net pension expense (benefit) from
     qualified plan ................. $  (637,925)   $  (577,447)   $  (462,180)
                                      ===========    ===========    ===========

     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, 2001, 2000 and 1999:

                                                 Years Ended March 31
                                      -----------------------------------------
                                          2001           2000           1999
                                      -----------    -----------    -----------
Change in benefit obligation
Benefit obligation at beginning
     of  year ....................... $ 2,026,495    $ 2,166,180    $ 2,051,899
Service cost ........................       4,945          4,089         13,087
Interest cost .......................     113,497        117,541        117,635
Amendments ..........................        --             --           83,360
Actuarial gain (loss) ...............    (176,776)      (261,315)       (99,801)
Benefits paid .......................    (209,947)          --             --
                                      -----------    -----------    -----------
Benefit obligation at end of year.... $ 1,758,214    $ 2,026,495    $ 2,166,180
                                      ===========    ===========    ===========

     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
                                                     --------------------------
                                                         2001           2000
                                                     -----------    -----------

Projected benefit obligation ....................... $(1,758,214)   $(2,026,495)
Unrecognized net (gain) loss from past ex-
     perience different from that assumed
     and effects of changes in assumptions .........    (131,675)        45,101
Unrecognized prior service costs ...................      69,875         83,360
Unrecognized net obligation ........................        --           19,823
                                                     -----------    -----------
Accrued pension cost included in other liabilities.. $(1,820,014)   $(1,878,211)
                                                     ===========    ===========

     The Retirement  Restoration Plan expenses recognized during the years ended
March 31, 2001, 2000 and 1999 of $151,751, $141,463 and $150,555,  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 March 31,
2001,  March 31, 2000 and March 31, 1999. The expected  long-term rate of return
used to project  estimated  earnings on plan assets for the  qualified  plan was
7.5% for the years ended March 31, 2001 and March 31, 2000 and 8.5% for the year
ended March 31, 1999.  The  calculations  also assume  retirement at age 65, the
normal retirement age.



<PAGE>

 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
2001                     Interest     Dividends       Income         Taxes
- ----                   -----------   -----------   -----------   -------------

Companies more than
   25% owned ......... $    72,800   $ 2,585,386   $   494,900    $      --
Companies 5% to 25%
   owned .............        --            --            --       (3,000,000)
Companies less than
   5% owned ..........     217,080       370,447        35,500     (2,125,493)
Other sources,
   including temporary
   investments .......     252,361          --            --             --
                       -----------   -----------   -----------    -----------
                       $   542,241   $ 2,955,833   $   530,400    $(5,125,493)
                       ===========   ===========   ===========    ===========

2000
- ----

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


10.      Summarized Financial Information of Wholly-Owned Portfolio Companies

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

(all figures in thousands)                         March 31
                                        ------------------------------
                                         2001                  2000
                                        --------              --------
Condensed Balance Sheet Data
   Assets
   Cash and temporary
     investments ...................... $ 14,815              $ 12,547
   Receivables ........................   30,504                30,022
   Inventories ........................   37,536                36,523
   Property, plant and equipment ......   38,609                34,604
   Other assets .......................   19,781                19,671
                                        --------              --------
     Totals ........................... $141,245              $133,367
                                        ========              ========

   Liabilities and Shareholder's Equity
   Long-term debt ..................... $  8,334              $  9,669
   Other liabilities ..................   19,412                17,205
   Shareholder's equity ...............  113,499               106,493
                                        --------              --------
     Totals ........................... $141,245              $133,367
                                        ========              ========

Condensed Statements of Income           2001       2000       1999
                                        --------   --------   --------
   Revenues............................ $ 93,575   $ 91,608   $ 83,426
   Costs and operating expenses........ $ 81,087   $ 79,237   $ 72,566
   Net income.......................... $  9,830   $  7,917   $  7,021

11.  Commitments

     The  Company  has agreed,  subject to certain  conditions,  to invest up to
$3,881,154 in six 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 $58,145 in 2001, $57,479 in 2000 and $58,798 in 1999.




<PAGE>
<TABLE>
<CAPTION>

                       Selected Per Share Data and Ratios


                                                                                            Years Ended March
                                                                  -----------------------------------------------------------------
                                                                    2001          2000          1999          1998          1997
                                                                  ---------     ---------     ---------     ---------     ---------
<S>                                                               <C>           <C>           <C>           <C>           <C>
Investment income ............................................... $    1.06     $     .86     $    1.00     $    1.28     $    1.26
Operating expenses ..............................................      (.26)         (.27)         (.40)         (.42)         (.37)
Interest expense ................................................      (.30)         (.12)         (.11)         (.11)         (.17)
Income taxes ....................................................      (.05)         (.03)         (.03)         (.03)         (.03)
                                                                  ---------     ---------     ---------     ---------     ---------
Net investment income ...........................................       .45           .44           .46           .72           .69
Distributions from undistributed net investment income ..........      (.60)         (.60)         (.60)         (.60)         (.60)
Net realized gain (loss) on investments .........................      (.85)         1.58           .26          1.71          1.81
Net increase (decrease) in unrealized appreciation of investments     (1.69)        (6.49)       (10.81)        18.32          6.05
Exercise of employee stock options* .............................      --            --            (.30)         (.13)         --
                                                                  ---------     ---------     ---------     ---------     ---------



Increase (decrease) in net asset value ..........................     (2.69)        (5.07)       (10.99)        20.02          7.95
Net asset value:
  Beginning of year .............................................     62.09         67.16         78.15         58.13         50.18
                                                                  ---------     ---------     ---------     ---------     ---------
  End of year ................................................... $   59.40     $   62.09     $   67.16     $   78.15     $   58.13
                                                                  =========     =========     =========     =========     =========

Ratio of operating expenses to average net assets ...............       .4%           .4%           .6%           .6%           .7%
Ratio of net investment income to average net assets ............       .7%           .7%           .6%          1.1%          1.2%
Portfolio turnover rate .........................................      2.6%          4.3%           .2%          2.5%          1.6%
Shares outstanding at end of period (000s omitted) ..............     3,815         3,815         3,815         3,788         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, 2001
and 2000,  including the portfolio of  investments as of March 31, 2001, 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, 2001 and
the  selected  per share data and ratios for each of the years in the  five-year
period ended March 31, 2001.  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,  2001  and  2000,  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,  2001 and 2000,  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, 2001, and the selected per share data and ratios for each of the years
in the  five-year  period ended March 31, 2001, in  conformity  with  accounting
principles generally accepted in the United States of America.




                                                                        KPMG LLP
Dallas, Texas
April 20, 2001




<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 "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 (loss) on
investments",  which  is the  difference  between  the  proceeds  received  from
disposition  of portfolio  securities  and their stated cost,  net of applicable
income  tax  expense.  The third  element  is the "Net  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 a
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 (loss) on
investments"  and "Net 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 $249,000 in 2001,  $599,000  in 2000 and  $476,000 in 1999.  The
Company also receives management fees from its wholly-owned  portfolio companies
which  aggregated  $458,400 in each of the years ended March 31, 2001, March 31,
2000 and March 31,  1999.  During the three  years  ended  March 31,  2001,  the
Company recorded dividend income from the following sources:

                                                Years Ended March 31
                                       ------------------------------------
                                          2001         2000         1999
                                       ----------   ----------   ----------
AT&T Corp. .........................   $   68,621   $  146,570   $     --
Alamo Group Inc. ...................      677,112      790,756    1,170,400
Dennis Tool Company ................       49,999       49,999         --
Kimberly-Clark Corporation .........       84,126       81,039       77,952
The RectorSeal Corporation .........      960,000      240,000      240,000
Skylawn Corporation ................      658,275      300,000      150,000
TCI Holdings, Inc./Westmarc
   Communications ..................       81,270       81,270       81,270
Texas Shredder, Inc. ...............       40,460       40,460       40,460
The Whitmore Manufacturing Company .      240,000       60,000       60,000
Other ..............................       95,970       88,759      146,278
                                       ----------   ----------   ----------
                                       $2,955,833   $1,878,853   $1,966,360
                                       ==========   ==========   ==========

     Total operating expenses,  excluding interest expense, decreased by $47,073
or 4.6% and by $498,967 or 32.7% during the years ended March 31, 2001 and 2000,
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  increased by $688,075  and by $40,088  during the years ended March 31,
2001 and 2000, respectively, due to increased borrowings.

Net Realized Gain (Loss) on Investments

     Net realized loss on investments  was $3,230,987  (after income tax benefit
of  $1,894,506)  during the year ended March 31, 2001,  compared  with a gain of
$6,019,892  (after income tax expense of  $3,211,550)  during 2000 and a gain of
$994,949 (after income tax expense of $535,742) during 1999. 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 Decrease in Unrealized Appreciation of Investments

     For the three  years  ended  March 31, the  Company  recorded a decrease in
unrealized  appreciation  of  investments  before  income taxes of  $10,310,835,
$38,071,790 and $63,433,545 in 2001, 2000 and 1999,  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
                                  --------------------------------------------
                                       2001            2000            1999
                                  ------------    ------------    ------------

AT&T Corp. ....................   $ (4,681,896)   $    430,271    $  3,532,591
AT&T Corp.-Liberty Media Group     (10,605,732)     11,183,260       3,131,973
Alamo Group Inc. ..............      2,821,000       7,276,953     (20,615,000)
All Components, Inc. ..........      3,450,000       1,975,000       1,225,000
American Homestar Corporation .           --        (4,224,707)    (11,547,532)
Amfibe, Inc. ..................           --         3,900,000      (2,400,000)
Balco, Inc. ...................           --        (2,529,600)      3,422,440
CDC Technologies, Inc/Drew
       Scientific Group PLC ...     (2,592,541)     (3,099,156)           --
Dennis Tool Company ...........      1,430,000        (600,000)     (3,299,944)
Dyntec, Inc. ..................           --        (4,499,998)           --
Encore Wire Corporation .......           --        (2,724,000)    (19,013,000)
Global Crossing Ltd./Frontier
       Corporation ............     (1,763,282)      1,004,248         605,215
Mail-Well, Inc. ...............     (6,290,000)     (5,241,000)     (6,214,860)
Media Recovery, Inc. ..........     10,000,000       2,585,000         615,000
Palm Harbor Homes, Inc. .......     (7,855,000)    (39,276,000)    (12,568,000)
PETsMART, Inc. ................        654,220      (3,271,100)     (1,758,216)
The RectorSeal Corporation ....      5,500,000       3,500,000            --
Rewind Holdings, Inc. .........     (1,123,750)     (2,200,000)           --
SDI Holding Corp. .............           --              --         6,000,000
Skylawn Corporation ...........      3,000,000            --        (7,000,000)
Sprint Corporation-FON Group ..     (2,952,720)      1,003,500       1,149,741
Sprint Corporation-PCS Group ..     (1,674,000)      1,560,375         743,634
Sprockets.com, Inc. ...........     (1,299,999)           --              --
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, 2001."

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, 2001  consolidated  deferred Federal income taxes of
$79,310,000  were provided on net  unrealized  appreciation  of  investments  of
$228,315,863  compared  with deferred  taxes of  $83,151,000  on net  unrealized
appreciation of  $238,626,698 at March 31, 2000.  Deferred income taxes at March
31, 2001 and 2000 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, 2001, the Company  invested  $15,922,079 in
various  portfolio  securities listed elsewhere in this report under the caption
"Portfolio   Changes  During  the  Year,"  which  also  lists  dispositions  and
write-offs of portfolio  securities.  During the 2000 and 1999 fiscal years, the
Company invested a total of $21,924,423 and $13,170,132, respectively.

Financial Liquidity and Capital Resources

     At March  31,  2001,  the  Company  had cash and cash  equivalents  of $1.1
million. Pursuant to Small Business Administration ("SBA") regulations, cash and
cash equivalents of $0.1 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 $58.3  million in  addition  to the $5  million  presently  outstanding.  The
Company  also has an  unsecured  $15,000,000  revolving  line of  credit  from a
commercial bank, of which  $10,000,000 was available at March 31, 2001. 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 33 years.
Retention of future  gains is viewed as an important  source of funds to sustain
the Company's investment activity.  Approximately $30.9 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  portfolio  companies  of the  Company,  to  the  extent  of  their
available cash reserves and borrowing capacities.

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

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)


                                              1991       1992       1993       1994       1995       1996       1997       1998
- -------------------------------------------- --------   --------   --------   --------   --------   --------   --------   --------
<S>                                          <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Financial Position  (as of March 31)
Investments at cost ........................ $ 31,593   $ 34,929   $ 33,953   $ 41,993   $ 49,730   $ 58,544   $ 59,908   $ 61,154
Unrealized appreciation ....................  107,120    100,277    113,153    132,212    153,031    198,386    233,383    340,132
                                             --------   --------   --------   --------   --------   --------   --------   --------
Investments at market or
   fair value ..............................  138,713    135,206    147,106    174,205    202,761    256,930    293,291    401,286
Total assets ...............................  149,975    208,871    176,422    270,874    213,811    326,972    310,760    522,324
Subordinated debentures ....................   15,000     11,000     15,000     15,000     11,000     11,000      5,000      5,000
Deferred taxes on
   unrealized appreciation .................   36,063     33,761     38,112     45,932     53,247     69,121     81,313    118,674
Net assets .................................   97,139    107,522    121,455    133,053    147,370    189,048    218,972    296,023
Shares outstanding .........................    3,617      3,644      3,681      3,715      3,735      3,767      3,767      3,788
- ----------------------------------------------------------------------------------------------------------------------------------
Changes in Net Assets (years ended March 31)
Net investment income ...................... $  2,090   $  2,363   $  2,189   $  2,870   $  2,447   $  2,855   $  2,574   $  2,726
Net realized gain (loss) on
   investments .............................   (2,515)    14,313      5,099       (475)       142     11,174      6,806      6,485
Net increase (decrease) in
   unrealized appreciation
   before distributions ....................    4,762     (4,541)     8,524     11,160     13,584     38,746     22,804     69,388
                                             --------   --------   --------   --------   --------   --------   --------   --------
Increase (decrease) in net
   assets from operations
   before distributions ....................    4,337     12,135     15,812     13,555     16,173     52,775     32,184     78,599
Cash dividends paid ........................   (1,809)    (2,181)    (2,202)    (2,228)    (2,241)    (2,270)    (2,260)    (2,268)
Securities dividends .......................     --         --         --         --         --       (9,402)      --         --
Employee stock options
   exercised ...............................     --          429        322        272        385        575       --          720
                                             --------   --------   --------   --------   --------   --------   --------   --------
Increase (decrease) in net assets ..........    2,528     10,383     13,932     11,599     14,317     41,678     29,924     77,051
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Data (as of March 31)
Deferred taxes on
   unrealized appreciation ................. $   9.97   $   9.27   $  10.35   $  12.36   $  14.26   $  18.35   $  21.59   $  31.33
Net assets .................................    26.86      29.51      32.99      35.81      39.46      50.18      58.13      78.15
Closing market price .......................    20.75      24.25      36.50     38.125      38.00      60.00     67.875      94.00
Cash dividends paid ........................      .50        .60        .60        .60        .60        .60        .60        .60
Securities dividends .......................     --         --         --         --         --         2.50       --         --


                                              1999       2000       2001
- -------------------------------------------- --------   --------   --------

Financial Position  (as of March 31)
Investments at cost ........................ $ 73,580   $ 85,002   $ 87,602
Unrealized appreciation ....................  276,698    238,627    228,316
                                             --------   --------   --------
Investments at market or
   fair value ..............................  350,278    323,629    315,918
Total assets ...............................  360,786    392,586    322,668
Subordinated debentures ....................    5,000      5,000      5,000
Deferred taxes on
   unrealized appreciation .................   96,473     83,151     79,310
Net assets .................................  256,232    236,876    226,609
Shares outstanding .........................    3,815      3,815      3,815
- ---------------------------------------------------------------------------
Changes in Net Assets (years ended March 31)
Net investment income ...................... $  1,762   $  1,663   $  1,723
Net realized gain (loss) on
   investments .............................      995      6,020     (3,231)
Net increase (decrease) in
   unrealized appreciation
   before distributions ....................  (41,233)   (24,750)    (6,470)
                                             --------   --------   --------
Increase (decrease) in net
   assets from operations
   before distributions ....................  (38,476)   (17,067)    (7,978)
Cash dividends paid ........................   (2,280)    (2,289)    (2,289)
Securities dividends .......................     --         --         --
Employee stock options
   exercised ...............................      965       --         --
                                             --------   --------   --------
Increase (decrease) in net assets ..........  (39,791)   (19,356)   (10,267)
- ---------------------------------------------------------------------------
Per Share Data (as of March 31)
Deferred taxes on
   unrealized appreciation ................. $  25.29   $  21.80   $  20.79
Net assets .................................    67.16      62.09      59.40
Closing market price .......................    73.00      54.75      65.00
Cash dividends paid ........................      .60        .60        .60
Securities dividends .......................     --         --         --

</TABLE>

<PAGE>


                             Shareholder Information


Stock Transfer Agent

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

Shareholders

     The Company had  approximately  900 record  holders of its common  stock at
March 31, 2001. This total does not include an estimated 1,800 shareholders with
shares held under beneficial  ownership in nominee name or within  clearinghouse
positions of brokerage firms or banks.

Market Prices

     The  Company's  common  stock  trades on The Nasdaq  Stock 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, 1999....................................     $82        $71 1/8
September 30, 1999...............................      81         71
December 31, 1999................................      70 7/8     56
March 31, 2000...................................      60         44

Quarter Ended                                         High       Low
- ------------------------------------------------------------------------
June 30, 2000....................................     $61 1/4    $53
September 30, 2000...............................      62 1/2     57
December 31, 2000...............................       59 3/4     50 5/8
March 31, 2001...................................      68 1/8     52


Dividends

     The payment  dates and amounts of cash  dividends  per share since April 1,
1999 are as follows:

Payment Date                                              Cash Dividend
- -----------------------------------------------------------------------
May 28, 1999..............................................    $0.20
November 30, 1999.........................................     0.40
May 31, 2000..............................................     0.20
November 30, 2000.........................................     0.40
May 31, 2001..............................................     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 16,  2001,  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>3
<FILENAME>capital10kex23mar3101.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
20, 2001,  relating to the  consolidated  statements  of financial  condition of
Capital Southwest  Corporation and subsidiary as of March 31, 2001 and 2000, the
portfolio  of  investments  as of March 31, 2001,  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, 2001, and the selected per share
data and ratios for each of the years in the  five-year  period  ended March 31,
2001,  which report  appears in the annual report to  shareholders  for the year
ended March 31, 2001, and is  incorporated  by reference in the annual report on
Form 10-K of Capital Southwest Corporation.



                                                    KPMG LLP

Dallas, Texas
June 14, 2001

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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