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<SEC-DOCUMENT>0001010549-03-000317.txt : 20030613
<SEC-HEADER>0001010549-03-000317.hdr.sgml : 20030613
<ACCEPTANCE-DATETIME>20030613102106
ACCESSION NUMBER:		0001010549-03-000317
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		9
CONFORMED PERIOD OF REPORT:	20030331
FILED AS OF DATE:		20030613

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CAPITAL SOUTHWEST CORP
		CENTRAL INDEX KEY:			0000017313
		IRS NUMBER:				751072796
		STATE OF INCORPORATION:			TX
		FISCAL YEAR END:			0331

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	811-01056
		FILM NUMBER:		03742980

	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>capitalsw10k033103.txt
<TEXT>

                                  UNITED STATES
                       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

For the fiscal year ended March 31, 2003

                                       OR

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

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

Commission File Number: 814-61

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

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

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

                                 (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]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes X  No
                                      ---   ---

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  as of May 1, 2003 was  $97,852,305,  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,  2003 was
3,829,051.
<TABLE>
<CAPTION>

       Documents Incorporated by Reference                                Part of Form 10-K
<S>                                                                 <C>
(1)  Annual Report to Shareholders for the Year Ended                    Parts I and II; and
                March 31, 2003                                      Part IV, Item 14(a)(1) and (2)

(2)  Proxy Statement for Annual Meeting of Shareholders                        Part III
               to be held July 21, 2003
</TABLE>


<PAGE>

                                TABLE OF CONTENTS


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

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 Disclosures About Market Risk....2
      Item 8.   Financial Statements and Supplementary Data...................3
      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
                   and Related Stockholder Matters............................4
      Item 13.  Certain Relationships and Related Transactions................5
      Item 14.  Controls and Procedures.......................................5
      Item 15.  Principal Accountant Fees and Services........................5

PART IV
      Item 16.  Exhibits, Financial Statement Schedules, and Reports
                   on Form 8-K ...............................................5

Signatures ...................................................................6
Certifications..............................................................7-8
Exhibit Index..............................................................9-10

<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
$42,715,312 and a value of $251,201,091,  representing 87.5% of the value of the
Company's  consolidated  investment portfolio at March 31, 2003. For a narrative
description of the twelve largest investments, see "Twelve Largest Investments -
March  31,  2003"  on pages 8  through  10 of the  Company's  Annual  Report  to
Shareholders  for the Year Ended March 31, 2003 (the "2003 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 are 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,  2003 was
seven.

         The Company's internet website address is www.capitalsouthwest.com. You
can  review  the  filings  Capital  Southwest  Corporation  has made  with  U.S.
Securities and Exchange Commission  ("SEC"),  free of charge by linking directly
from our website to NASDAQ,  a database that links to EDGAR, the Electronic Data
Gathering,  Analysis,  and  Retrieval  System of the SEC.  You should be able to
access our annual reports on Form 10-K,  quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports filed or furnished  pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

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  2008.  The Company
believes  that its offices are adequate to meet its current and expected  future
needs.


                                       1
<PAGE>

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, 2003.

                                     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 33 of the 2003 Annual Report
is herein incorporated by reference.

Item 6.  Selected Financial Data

         "Selected  Consolidated  Financial  Data" on page 32 of the 2003 Annual
Report is herein incorporated by reference.

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

         Pages 29  through 31 of the  Company's  2003  Annual  Report are herein
incorporated by reference.

Item 7A. Quantitative and Qualitative Disclosures 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 $3,351,750 at March 31, 2003,  equivalent to 1.17%
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.
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 issuers of
such   restricted   securities   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,  which are valued at the public
market price, are directly exposed to equity price risks, in that a change in an
issuer's  public market equity price would result in an identical  change in the
fair value of the  Company's  investment  in such  security.


                                       2
<PAGE>
<TABLE>
<CAPTION>

Item 8.  Financial Statements and Supplementary Data

         Pages 11  through 28 of the  Company's  2003  Annual  Report are herein
incorporated  by  reference.  See also Item 16 of this  Form  10-K -  "Exhibits,
Financial Statement Schedules, and Reports on Form 8-K".

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

         The   following   presents  a  summary  of  the   unaudited   quarterly
consolidated financial information for the years ended March 31, 2003 and 2002.

                                                   First       Second        Third      Fourth
                                                  Quarter      Quarter      Quarter     Quarter       Total
                                                 ---------    ---------    ---------   ---------    ---------
                                                         (In thousands, except per share amounts)
<S>                                              <C>          <C>          <C>         <C>          <C>
2003
- ----
    Net investment income                        $     475    $     484    $     984   $     356    $   2,299
    Net realized gain (loss) on investments           (318)          37           13       1,614        1,346
    Net increase (decrease) in unrealized
        appreciation of investments                (14,528)     (32,274)       3,478      (2,048)     (45,372)
    Net increase (decrease) in net assets from
       operations                                  (14,371)     (31,754)       4,476         (78)     (41,727)
    Net increase (decrease) in net assets from
       operations per share                          (3.75)       (8.30)        1.17       (0.02)      (10.90)

2002
- ----
    Net investment income                        $     429    $     383    $     921   $     309    $   2,042
    Net realized gain (loss) on investments           --           (450)       1,084      (1,172)        (538)
    Net increase (decrease)  in unrealized
       appreciation of investments                  15,310       (1,139)       7,296       2,707       24,174
    Net increase (decrease) in net assets from
       operations                                   15,739       (1,206)       9,301       1,844       25,678
    Net increase (decrease) in net assets from
       operations per share                           4.11        (0.32)        2.43        0.48         6.70
</TABLE>

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

         On Form 8-K dated May 9, 2003,  the Company  reported the  dismissal of
KPMG LLP as  accountants  for the  fiscal  year  ending  March 31,  2004 and the
appointment of Ernst & Young LLP.


                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

         The  information  set forth under the caption  "Proposal 1: Election of
Directors" in the Company's  definitive  Proxy  Statement for Annual  Meeting of
Shareholders  to be held July 21, 2003,  filed  pursuant to Regulation 14A under
the  Securities  Exchange Act of 1934, on or about June 6, 2003 (the "2003 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:

     William M.  Ashbaugh,  age 48, has served as Vice  President of the Company
         since 2001. He previously  served as Managing Director in the corporate
         finance departments of Hoak Breedlove Wesneski & Co. from 1998 to 2001,
         Principal  Financial   Securities  from  1997  to  1998  and  Southwest
         Securities from 1995 to 1997.


                                       3
<PAGE>

     Patrick F.  Hamner,  age 47, has served as Vice  President  of the  Company
         since 1986 and was an investment  associate  with the Company from 1982
         to 1986.

     Susan K. Hodgson, age 41, has served as  Secretary-Treasurer of the Company
         since 2001 and was the Controller of the Company from 1994.

     Gary L. Martin,  age 56, 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 portfolio company.

     William R. Thomas, age 74, has served as Chairman of the Board of Directors
         of the Company  since 1982 and  President of the Company since 1980. In
         addition,  he has been a  director  of the  Company  since 1972 and was
         previously Senior Vice President of the Company from 1969 to 1980.

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

Item 11.  Executive Compensation

         The information set forth under the caption  "Compensation of Directors
and Executive  Officers" in the 2003 Proxy  Statement is herein  incorporated by
reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and
          Related Stockholder Matters

         The  information  set forth  under the  captions  "Stock  Ownership  of
Certain  Beneficial  Owners" and "Proposal 1: Election of Directors" in the 2003
Proxy Statement is herein incorporated by reference.

         The table  below sets forth  certain  information  as of March 31, 2003
regarding  the shares of our common stock  available  for grant or granted under
stock option plans that (i) were approved by our stockholders, and (ii) were not
approved by our stockholders.
<TABLE>
<CAPTION>

                      Equity Compensation Plan Information

                                                                                      Number of Securities
                          Number of Securities                                       Remaining Available For
                            To Be Issued Upon     Weighted-Average Exercise       Future Issuance Under Equity
Plan Category                  Exercise of         Price Of Outstanding               Compensation Plans
- -------------             Outstanding Options,            Options,               (excluding securities reflected
                           Warrants And Rights       Warrants And Rights                  in column (a)
                           -------------------       -------------------                  -------------

                                   (a)                       (b)                               (c)
                                   ---                       ---                               ---
<S>                              <C>                       <C>                               <C>
Equity                           82,500                    $58.336                           85,500
compensation plans
approved by security
holders(1)

Equity                                -                          -                                -
compensation plans
not approved by
security holders
                               --------                   --------                         --------
       Total                     82,500                    $58.336                           85,500
- ---------
</TABLE>

(1)      Includes the 1984 Incentive Stock Option Plan and the 1999 Stock Option
         Plan.  For a  description  of these  plans,  please refer to Footnote 6
         contained in our consolidated financial statements.


                                       4
<PAGE>

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, 2003 or proposed for the fiscal year
ending March 31, 2004.

Item 14. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

         Our  President and Chairman of the Board and  Secretary-Treasurer  have
reviewed and evaluated the  effectiveness of the Company's  disclosure  controls
and procedures (as defined in Exchange Act Rules  240.13a-14(c) and 15d-14(c) as
of a date within 90 days before the filing date of this annual report.  Based on
that evaluation, the President and Chairman of the Board and Secretary-Treasurer
have concluded that the Company's current disclosure controls and procedures are
effective and timely, providing all material information relating to the Company
required to be disclosed in reports filed or submitted under the Exchange Act.

Changes in Internal Controls

         There have not been any significant  changes in the Company's  internal
controls or in other  factors that could  significantly  affect  these  controls
subsequent to the date of their evaluation.  We are not aware of any significant
deficiencies or material weaknesses, therefore no corrective actions were taken.

Item 15.    Principal Accountant Fees and Services

         The  information set forth under the caption "Audit and Other Fees" and
"Proposal 2:  Ratification  of Appointment of Independent  Auditors" in the 2003
Proxy Statement is herein incorporated by reference.

                                     PART IV

Item 16. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a)(1) The following  financial  statements included in pages 11 through 28
of the Company's 2003 Annual Report are herein incorporated by reference:

         (A) Portfolio of Investments - March 31, 2003
             Consolidated Statements of Financial Condition - March 31, 2003
                and 2002
             Consolidated Statements of Operations - Years Ended March 31, 2003,
                2002 and 2001
             Consolidated Statements of Changes in Net Assets - Years Ended
                March 31, 2003, 2002 and 2001
             Consolidated Statements of Cash Flows - Years Ended March 31, 2003,
                2002 and 2001

         (B) Notes to Consolidated Financial Statements

         (C) Notes to Portfolio of Investments

         (D) Selected Per Share Data and Ratios

         (E) Independent Auditors' Report

         (F) Portfolio Changes During the Year

     (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 9.

     (b) The Company  filed no reports on Form 8-K during the three months ended
March 31, 2003.


                                       5
<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 13, 2003

         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 13, 2003
    William R. Thomas          of the Board and Director
                              (chief executive officer)

  /s/  Gary L. Martin
- ------------------------      Director                             June 13, 2003
     Gary L. Martin


/s/  Graeme W. Henderson
- ------------------------      Director                             June 13, 2003
  Graeme W. Henderson


  /s/ James M. Nolan
- ------------------------      Director                             June 13, 2003
   James M. Nolan


  /s/  John H. Wilson
- ------------------------      Director                             June 13, 2003
    John H. Wilson


  /s/ Susan K. Hodgson
- ------------------------      Secretary-Treasurer                  June 13, 2003
   Susan K. Hodgson           (chief financial/accounting officer)






                                       6
<PAGE>

                   SARBANES-OXLEY SECTION 302(a) CERTIFICATION


I,  William R.  Thomas,  President  and  Chairman  of the Board of the  Company,
certify that:

1.       I have reviewed  this annual  report on Form 10-K of Capital  Southwest
         Corporation;

2.       Based on my  knowledge,  this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this annual report;

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the  consolidated  financial  condition,  results of
         operations and cash flows of the registrant as of, and for, the periods
         presented in this annual report;

4.       The  registrant's  other  certifying  officer and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         a)       designed  such  disclosure  controls and  procedures to ensure
                  that  material   information   relating  to  the   registrant,
                  including its consolidated  subsidiaries,  is made known to us
                  by others  within  those  entities,  particularly  during  the
                  period in which this annual report is being prepared;

         b)       evaluated the  effectiveness  of the  registrant's  disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented  in this  annual  report our  conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

         a)       all  significant  deficiencies  in the design or  operation of
                  internal controls which could aversely affect the registrant's
                  ability to record,  process,  summarize  and report  financial
                  data and have  identified  for the  registrant's  auditors any
                  material weaknesses in internal controls; and

         b)       any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and

6.       The registrant's  other certifying officer and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could  significantly  affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.





Date:  June 13, 2003                            By: /s/ William R. Thomas
       -------------                               -----------------------------
                                                   William R.  Thomas, President
                                                    and Chairman of the Board



                                       7
<PAGE>

                   SARBANES-OXLEY SECTION 302(a) CERTIFICATION


I, Susan K. Hodgson, Secretary-Treasurer of the Company, certify that:

1.       I have reviewed  this annual  report on Form 10-K of Capital  Southwest
         Corporation;

2.       Based on my  knowledge,  this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this annual report;

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the  consolidated  financial  condition,  results of
         operations and cash flows of the registrant as of, and for, the periods
         presented in this annual report;

4.       The  registrant's  other  certifying  officer and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         a)       designed  such  disclosure  controls and  procedures to ensure
                  that  material   information   relating  to  the   registrant,
                  including its consolidated  subsidiaries,  is made known to us
                  by others  within  those  entities,  particularly  during  the
                  period in which this annual report is being prepared;

         b)       evaluated the  effectiveness  of the  registrant's  disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented  in this  annual  report our  conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying  officer and I have disclosed,  based
         on our most recent  evaluation,  to the  registrant's  auditors and the
         audit  committee  of  registrant's   board  of  directors  (or  persons
         performing the equivalent functions):

         a)       all  significant  deficiencies  in the design or  operation of
                  internal controls which could aversely affect the registrant's
                  ability to record,  process,  summarize  and report  financial
                  data and have  identified  for the  registrant's  auditors any
                  material weaknesses in internal controls; and

         b)       any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and

6.       The registrant's  other certifying officer and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could  significantly  affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.





Date:  June 13, 2003                    By:  /s/ Susan K. Hodgson
       -------------                       -------------------------------------
                                           Susan K. Hodgson, Secretary-Treasurer





                                       8
<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  4.1 to Form 10-K for the  fiscal  year ended
                           March 31, 2002).

         10.1              The  RectorSeal   Corporation   and  Jet-Lube,   Inc.
                           Employee Stock Ownership Plan as revised and restated
                           effective  April 1, 1998  (filed as  Exhibit  10.1 to
                           Form 10-K for the fiscal year ended March 31, 2002).

         10.2              Amendment  No. I to The  RectorSeal  Corporation  and
                           Jet-Lube,  Inc.  Employee  Stock  Ownership  Plan  as
                           revised and restated  effective  April 1, 1998 (filed
                           as  Exhibit  10.2 to Form  10-K for the  fiscal  year
                           ended March 31, 2002).

         10.3*             Amendment  No. 2 to The  RectorSeal  Corporation  and
                           Jet-Lube,  Inc.  Employee  Stock  Ownership  Plan  as
                           revised and restated effective April 1, 1998.

         10.4              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).

         10.5              Amendments  One  and  Two  to  Retirement   Plan  for
                           Employees of Capital  Southwest  Corporation  and Its
                           Affiliates as amended and restated effective April 1,
                           1989  (filed  as  Exhibit  10.4 to Form  10-K for the
                           fiscal year ended March 31, 1998).

         10.6              Amendment  Three to Retirement  Plan for Employees of
                           Capital  Southwest  Corporation and Its Affiliates as
                           amended and restated  effective  April 1, 1989 (filed
                           as  Exhibit  10.5 to Form  10-K for the  fiscal  year
                           ended March 31, 2002).


                                       9
<PAGE>

         10.7*             Amendment  Four to  Retirement  Plan for Employees of
                           Capital  Southwest  Corporation and Its Affiliates as
                           amended and restated effective April 1, 1989.

         10.8*             Amendment  Five to  Retirement  Plan for Employees of
                           Capital  Southwest  Corporation and Its Affiliates as
                           amended and restated effective April 1, 1989.

         10.9*             Amendment  Six to  Retirement  Plan for  Employees of
                           Capital  Southwest  Corporation and Its Affiliates as
                           amended and restated effective April 1, 1989.

         10.10             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).

         10.11             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  (filed  as
                           Exhibit  10.6 to Form 10-K for the fiscal  year ended
                           March 31, 1998).

         10.12             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).

         10.13             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).

         10.14             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).

         10.15             Capital Southwest  Corporation 1999 Stock Option Plan
                           (filed as  Exhibit  10.10 to Form 10-K for the fiscal
                           year ended March 31, 2000).

         13.1*             Annual  Report to  Shareholders  for the fiscal  year
                           ended March 31, 2003.

         16.1              Letter  Regarding  Change  of  Certifying  Accountant
                           (incorporated  by reference to Exhibit 16 to Form 8-K
                           filed on May 9, 2003).

         21.1              List of subsidiaries of the Company (filed as exhibit
                           21 to Form 10-K for the fiscal  year ended  March 31,
                           1998).

         23.1*             Independent Auditors' Consent.

         99.1*             Certificate  Pursuant to 18 U.S.C.  Section  1350, as
                           adopted pursuant to Section 906 of the Sarbanes-Oxley
                           Act of  2002 of the  President  and  Chairman  of the
                           Board of the Corporation.

         99.2*             Certificate  Pursuant to 18 U.S.C.  Section  1350, as
                           adopted pursuant to Section 906 of the Sarbanes-Oxley
                           Act  of  2002  of  the   Secretary-Treasurer  of  the
                           Corporation.


                                       10






</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>3
<FILENAME>capitalsw10kex103033103.txt
<DESCRIPTION>AMENDMENT NO. 2 TO ESOP
<TEXT>

                                                                    Exhibit 10.3

                                 AMENDMENT NO. 2
                                       TO
                  THE RECTORSEAL CORPORATION AND JET-LUBE, INC.
                          EMPLOYEE STOCK OWNERSHIP PLAN
                (As Revised and Restated Effective April 1, 1998)

     THIS AMENDMENT NO. 2, executed this __ day of November, 2002, and effective
as of the dates  specified  herein,  by The RectorSeal  Corporation,  a Delaware
corporation, having its principal office in Houston, Texas (hereinafter referred
to as the "Company").


                              W I T N E S S E T H:

     WHEREAS,  the Company  revised and restated The RectorSeal  Corporation and
Jet-Lube,  Inc.  Employee Stock  Ownership Plan (the "Plan")  effective April 1,
1998,  except  for  certain  provisions  for which  another  effective  date was
subsequently provided elsewhere in the terms of the Plan, to (i) incorporate the
prior  amendment  to the Plan and (ii) bring the Plan into  compliance  with the
Internal Revenue Code of 1986, as amended (the "Code"), as modified by the Small
Business Job Protection Act of 1996, the General  Agreement on Tariffs and Trade
under the Uruguay Round  Agreements Act, the Uniformed  Services  Employment and
Reemployment  Rights Act of 1994, the Taxpayer  Relief Act of 1997, the Internal
Revenue Service  Restructuring and Reform Act of 1998, and the Community Renewal
Tax  Relief  Act of  2000,  as well as all  applicable  rules,  regulations  and
administrative  pronouncements enacted, promulgated or issued since the date the
Plan was last restated;

     WHEREAS,  the Company  adopted  Amendment No. 1 to the revised and restated
Plan,  effective as of April 1, 2002, except as specifically  provided otherwise
in Amendment No. 1, to (i) reflect certain provisions of the Economic Growth and
Tax  Relief  Reconciliation  Act  of  2001  ("EGTRRA")  which  generally  became
applicable to the Plan effective as of April 1, 2002, and (ii)  constitute  good
faith compliance with the requirements of EGTRRA;

     WHEREAS,  final  Treasury  regulations  were  issued  April 17,  2002 under
section  401(a)(9) of the Code relating to  distributions  under Section 11.4 of
the Plan (the "Final Distribution Regulations");

     WHEREAS, the Pension and Welfare Benefits  Administration of the Department
of Labor issued final  regulations  establishing  new standards  for  processing
benefit claims of participants and beneficiaries  under Section 11.6 of the Plan
which have been  clarified  by further  guidance  from the  Pension  and Welfare
Benefits Administration (collectively the "Final Claims Procedure Regulations");
and

     WHEREAS,  the  Company  now  desires to adopt this  Amendment  No. 2 to (i)
revise Section 11.4 of the Plan, effective January 1, 2003, to reflect the Final
Distribution  Regulations  consistent with the Model  Amendment  provided by the
Internal Revenue Service in Rev. Proc. 2002-29,  and (ii) revise Section 11.6 of
the Plan, effective April 1, 2002, to provide that the administrator of the Plan
shall process benefit claims of participants and  beneficiaries  pursuant to the


                                       1
<PAGE>

claims  procedure  specified in the summary plan  description for the Plan which
shall comply with the Final Claims Procedure Regulations, as may be amended from
time to time;

     NOW,  THEREFORE,  in consideration of the premises and the covenants herein
contained, the Company hereby adopts the following Amendment No. 2 to the Plan:

     1. Section 11.4 of the Plan is hereby  amended in its  entirety,  effective
January 1, 2003, to read as follows:

     Sec. 11.4 Additional  Requirements  Relating to Benefit  Payments and Death
Distributions.  Notwithstanding  any other provisions of the Plan, the following
provisions shall be applicable to the Plan for calendar years beginning with the
2003 calendar year:

     (a) General Distribution Deadline.  Distribution of benefits shall be made,
     unless the Participant  otherwise elects, not later than the 60th day after
     the last  day of the  Year in which  the  latest  of the  following  events
     occurs:

          (i)  the  Participant  reaches  the  earlier  of age 65 or his  Normal
          Retirement Date;

          (ii)  the  tenth  anniversary  of the date on  which  the  Participant
          commenced  participation  in the Plan  occurs,  but not later than the
          April 1 of the calendar year  following the calendar year in which the
          Participant  attains age 70 1/2 if such  Participant is a Five-Percent
          Owner; or

          (iii) the date the Participant's  employment with his Employer and all
          Affiliated Companies terminates,  but in no event later than the April
          1 of the  calendar  year  following  the  calendar  year in which  the
          Participant  attains age 70 1/2 if such  Participant is a Five-Percent
          Owner.

     If a Participant is entitled to receive a distribution  of all or a portion
     of his  Individual  Account  pursuant to Article VII, VIII, IX or X, he may
     elect to defer the date of distribution of that amount,  but not beyond his
     Required  Beginning  Date.  If  the  Participant  fails  to  consent  to  a
     distribution  at a time  when any  part of the  balance  of the  Individual
     Account could be distributed prior to the  Participant's  Normal Retirement
     Date,  such failure  shall be deemed to be an election to defer the date of
     distribution of any benefit under this Section 11.4(a); provided that in no
     event shall he receive distribution of the vested portion of his Individual
     Account later than his Required Beginning Date.


                                       2
<PAGE>

     (b)  Required   Compliance   with  Code  and  Treasury   Regulations.   All
     distributions  required  under this Article XI shall be determined and made
     in  accordance  with  Section  401(a)(9)  of  the  Code  and  the  Treasury
     regulations thereunder.

     (c) Time and Manner of Distribution.

          (i) Required  Beginning Date and Election to Defer  Distribution Date.
          The Participant's  entire  Individual  Account shall be distributed to
          the  Participant no later than the  Participant's  Required  Beginning
          Date.  An election of a  Participant  to defer the  distribution  date
          shall be made by submitting to the  Administrator a written  statement
          signed by the  Participant  describing  the  benefits  and the date on
          which the Participant  requests that the  distribution of his benefits
          be made;  provided,  however,  a  Participant  may not  elect to defer
          receipt of benefits beyond his Required Beginning Date.

          (ii)  Death  of  Participant  Before   Distribution  to  Him.  If  the
          Participant dies before  distribution to him of his entire  Individual
          Account  under  Section  11.1,  the  Participant's  entire  Individual
          Account shall be distributed no later than as follows:

               (A) If the  Participant's  surviving spouse is the  Participant's
               sole  Designated  Beneficiary,  then,  except as  elected  by the
               surviving spouse as provided below, distribution to the surviving
               spouse  shall  be  made  by  December  31 of  the  calendar  year
               immediately  following the calendar year in which the Participant
               died,  or by  December  31 of the  calendar  year  in  which  the
               Participant would have attained age 70 1/2, if later.

               (B)  If  the   Participant's   surviving   spouse   is  not   the
               Participant's  sole  Designated  Beneficiary,   then,  except  as
               provided below,  distribution to the Designated Beneficiary shall
               be made by December 31 of the calendar year immediately following
               the calendar year in which the Participant died.

               (C) If there is no Designated  Beneficiary of the  Participant as
               of  September  30  of  the  year   following   the  year  of  the
               Participant's  death, the Participant's entire Individual Account
               shall  be  distributed  by  December  31  of  the  calendar  year
               containing the fifth anniversary of the Participant's death.

               (D) If the  Participant's  surviving spouse is the  Participant's
               sole Designated  Beneficiary and the surviving  spouse dies after
               the Participant but before  distribution to the surviving  spouse
               has been made,  this  Section  11.4(c)(ii),  other  than  Section
               11.4(c)(ii)(A),  shall apply as if the surviving  spouse were the
               Participant.


                                       3
<PAGE>

     If the Participant dies before distribution to him of his entire Individual
     Account  and  there  is  a  Designated  Beneficiary,  distribution  to  the
     Designated  Beneficiary  is not  required to be made by the date  specified
     above in this Section 11.4(c)(ii),  but the Participant's entire Individual
     Account shall be distributed  to the Designated  Beneficiary by December 31
     of the calendar year containing the fifth  anniversary of the Participant's
     death.  If  the   Participant's   surviving  spouse  is  the  Participant's
     Designated  Beneficiary,  the  surviving  spouse  may  elect to  apply  the
     distribution requirement of Section 11.4(c)(ii) without regard to the prior
     sentence.  If the Participant's  surviving spouse is the Participant's sole
     Designated  Beneficiary and the surviving spouse dies after the Participant
     but before  distribution to either the Participant or the surviving  spouse
     has been made,  this election  shall apply as if the surviving  spouse were
     the Participant.  For purposes of this Section 11.4(c)(ii),  unless Section
     11.4(c)(ii)(D)  applies,  distributions  are  considered  to be made on the
     Participant's Required Beginning Date. If Section  11.4(c)(ii)(D)  applies,
     distributions  are  considered  to be made on the  date  distributions  are
     required to be made to the surviving spouse under Section 11.4(c)(ii)(A).

     (d)  Definitions.  For purposes of this Section 11.4,  the following  terms
     shall have the meanings set forth below:

          (i) "Designated Beneficiary" means the individual who is designated as
          the  Beneficiary  under Section 1.7 and is the designated  beneficiary
          under Section 401(a)(9) of the Code and Treas. Reg.  ss.1.401(a)(9)-1,
          Q&A-4.

          (ii)  "Five-Percent  Owner" means a Participant  who is a five-percent
          owner of the Company within the meaning of Section  416(i)(1)(B)(i) of
          the Code  (determined  in accordance  with Section 416 of the Code but
          without  regard to whether  the Plan is top heavy) at any time  during
          the Year ending with or within the  calendar  year in which such owner
          attains age 70 1/2 or any subsequent Year.

          (iii)  "Required  Beginning  Date"  of a  Participant  means  the date
          determined as follows:

               (A) if the  Participant is not a  Five-Percent  Owner and has not
               attained  age 70  1/2  prior  to  April  1,  2002,  his  Required
               Beginning  Date is the April 1 of the calendar year following the
               later of (1) the calendar year in which the  Participant  attains
               age 70 1/2 or (2) the  calendar  year in  which  the  Participant
               retires; or

               (B)  if  the  Participant  is a  Five  Percent-Owner,  or if  the
               Participant  has attained age 70 1/2 prior to April 1, 2002,  his
               Required  Beginning  Date  is the  April 1 of the  calendar  year
               following the calendar year in which the Participant  attains age
               70 1/2 even if he has not retired.


                                       4
<PAGE>

     2.  Section  11.6 of the Plan is hereby  amended in its entirety to read as
follows:

     Sec. 11.6 Claims  Procedure.  The  Administrator  shall process all benefit
claims of Participants,  Former  Participants and Beneficiaries  pursuant to the
claims  procedure  specified  in the summary plan  description  for the Plan and
shall act in a manner which is consistent with  regulations  published from time
to time by the Department of Labor.

     IN WITNESS WHEREOF, the Company,  acting by and through its duly authorized
officers,  has caused this Amendment No. 2 to be executed as of the day and year
first above written.

                                                      THE RECTORSEAL CORPORATION


                                                      By:
                                                         -----------------------

                                                                         COMPANY

























                                       5

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>4
<FILENAME>capitalsw10kex107033103.txt
<DESCRIPTION>AMENDMENT FOUR TO RETIREMENT PLAN
<TEXT>

                                                                    Exhibit 10.7

                                AMENDMENT FOUR TO

                        RETIREMENT PLAN FOR EMPLOYEES OF

                CAPITAL SOUTHWEST CORPORATION AND ITS AFFILIATES

                 As Amended and Restated Effective April 1, 1989



     WHEREAS,  effective as of April 1, 1989, the Retirement  Plan for Employees
of Capital Southwest Corporation and Its Affiliates (the "Plan") was amended and
restated in its entirety;
     WHEREAS,  by the terms of Section 6.4 of the Plan, the Plan may be amended;
and
     WHEREAS,  it is necessary that certain technical  amendments be made to the
Plan in order to comply with the Economic  Growth and Tax Relief  Reconciliation
Act of 2001,  to adopt the 1994 GAR  mortality  table for  purposes of complying
with section  417(e)(3)  and section  415(b) of the Internal  Revenue  Code,  to
eliminate the description of claims  procedures  from the plan document,  and to
include "deemed section 125  compensation" in the definition of compensation for
purposes  of benefit  accrual and  complying  with  section 415 of the  Internal
Revenue Code;
     NOW,  THEREFORE,  the Plan is  hereby  amended,  effective  as of the dates
specified below, as follows:

EXCEPT AS  QUALIFIED BY THE CONTEXT OR  OTHERWISE  INDICATED,  THE TERMS USED IN
THIS AMENDMENT FOUR SHALL HAVE THE MEANINGS ASSIGNED TO THEM IN THE PLAN.

     1.  Effective  as of the dates  specified  below,  the Plan is  amended  to
incorporate the following  provisions  under Internal  Revenue Notice 2001-57 in
compliance with the requirement to adopt good faith EGTRRA plan amendments:

                                AMENDMENT OF THE PLAN FOR EGTRRA

                                            PREAMBLE

          1.   Adoption and Effective  Date of Amendment.  This amendment of the
               Plan is adopted to reflect  certain  provisions  of the  Economic
               Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"). This
               amendment  is  intended  as  good  faith   compliance   with  the
               requirements  of EGTRRA and is to be construed in accordance with
               EGTRRA  and  guidance  issued  thereunder.  Except  as  otherwise


                                       1
<PAGE>

               provided,  this amendment  shall be effective as of the first day
               of the first Plan Year beginning after December 31, 2001.

          2.   Supersession  of  Inconsistent  Provisions.  This amendment shall
               supersede  the  provisions  of  the  Plan  to  the  extent  those
               provisions   are   inconsistent   with  the  provisions  of  this
               amendment.

          3.   Definition  of "Code."  When used  herein,  the term "Code" shall
               mean the Internal Revenue Code of 1986, as amended.

          4.   Expiration of Amendment.  Notwithstanding any provision hereof to
               the  contrary,  this  amendment  of the Plan to  reflect  certain
               provisions of EGTRRA shall expire and cease to be effective after
               December 31, 2010,  unless such provisions of EGTRRA are extended
               by law.


          SECTION A. LIMITATIONS ON BENEFITS

          1.   Effective  Date.  This section shall be effective for  limitation
               years ending after December 31, 2001.

          2.   Effect on  Participants.  Benefit  increases  resulting  from the
               increase in the limitations of section 415(b) of the Code will be
               provided to all Employees  participating in the Plan who have one
               hour of service on or after the first day of the first limitation
               year ending after December 31, 2001.

          3.   Definitions.

          3.1  Defined Benefit Dollar  Limitation.  The "defined  benefit dollar
               limitation" is $160,000, as adjusted, effective January 1 of each
               year,  under  section  415(d)  of the Code in such  manner as the
               Secretary shall prescribe,  and payable in the form of a straight
               life annuity.  A limitation as adjusted under section 415(d) will
               apply to limitation years ending with or within the calendar year
               for which the adjustment applies.

          3.2  Maximum Permissible Benefit. The "maximum permissible benefit" is
               the  lesser  of the  defined  benefit  dollar  limitation  or the
               defined  benefit  compensation  limitation  (both  adjusted where
               required,  as provided in (a) and, if  applicable,  in (b) or (c)
               below).

               (a)  If the Participant has fewer than 10 years of  participation
                    in the Plan, the defined benefit dollar  limitation shall be
                    multiplied by a fraction,  (i) the numerator of which is the
                    number of years (or part  thereof) of  participation  in the
                    Plan and (ii) the denominator of which is 10. In the case of
                    a  Participant  who has fewer than 10 years of service  with
                    Controlled Group Members,  the defined benefit  compensation
                    limitation  shall  be  multiplied  by a  fraction,  (i)  the
                    numerator of which is the number of years (or part  thereof)
                    of service with the  Controlled  Group  Members and (ii) the
                    denominator of which is 10.



                                       2
<PAGE>


               (b)  If the benefit of a Participant  begins prior to age 62, the
                    defined   benefit  dollar   limitation   applicable  to  the
                    Participant at such earlier age is an annual benefit payable
                    in the form of a  straight  life  annuity  beginning  at the
                    earlier age that is the actuarial  equivalent of the defined
                    benefit dollar  limitation  applicable to the Participant at
                    age 62 (adjusted under (a) above, if required).  The defined
                    benefit dollar limitation  applicable at an age prior to age
                    62  is  determined  as  the  lesser  of  (i)  the  actuarial
                    equivalent  (at  such  age) of the  defined  benefit  dollar
                    limitation  computed  using the interest  rate and mortality
                    table  (or  other  tabular  factor)   specified  in  Section
                    1.1(B)(1) of the Plan and (ii) the actuarial  equivalent (at
                    such age) of the defined benefit dollar limitation  computed
                    using a 5 percent interest rate and the applicable mortality
                    table as  defined  in  Section  4.1(A)(2)  of the Plan.  Any
                    decrease in the defined benefit dollar limitation determined
                    in  accordance  with this  paragraph (b) shall not reflect a
                    mortality  decrement if benefits are not forfeited  upon the
                    death of the Participant. If any benefits are forfeited upon
                    death, the full mortality decrement is taken into account.

               (c)  If the benefit of a Participant begins after the Participant
                    attains  age  65,  the  defined  benefit  dollar  limitation
                    applicable to the Participant at the later age is the annual
                    benefit  payable  in the  form of a  straight  life  annuity
                    beginning at the later age that is actuarially equivalent to
                    the defined  benefit  dollar  limitation  applicable  to the
                    Participant  at  age  65  (adjusted   under  (a)  above,  if
                    required).  The actuarial  equivalent of the defined benefit
                    dollar  limitation  applicable  at an  age  after  age 65 is
                    determined as (i) the lesser of the actuarial equivalent (at
                    such age) of the defined benefit dollar limitation  computed
                    using  the  interest  rate and  mortality  table  (or  other
                    tabular factor)  specified in Section  1.1(B)(1) of the Plan
                    and  (ii) the  actuarial  equivalent  (at  such  age) of the
                    defined benefit dollar limitation computed using a 5 percent
                    interest rate assumption and the applicable  mortality table
                    as  defined  in  Section  4.1(A)(2)  of the Plan.  For these
                    purposes,  mortality  between  age 65 and the  age at  which
                    benefits commence shall be ignored.

               (d)  For  purposes  of  applying  the  compensation  limit  under
                    section   415(b)(1)(B)   of  the   Code  to  the   Plan,   a
                    multiemployer  plan  to  which  a  Controlled  Group  Member
                    contributes  shall not be  combined or  aggregated  with the
                    Plan.


                                       3
<PAGE>


               SECTION B.  INCREASE IN COMPENSATION LIMIT

               1.   Increase  in  Limit.   The  annual   Compensation   of  each
                    Participant  taken  into  account  in  determining   benefit
                    accruals in any Plan Year beginning after December 31, 2001,
                    shall  not  exceed  $200,000.   Annual   Compensation  means
                    Compensation  during the Plan Year or such other consecutive
                    12-month   period  over  which   Compensation  is  otherwise
                    determined under the Plan (the  determination  period).  For
                    purposes  of  determining  benefit  accruals  in a Plan Year
                    beginning   after  December  31,  2001,   Compensation   for
                    determination  periods  beginning  before  January  1, 2002,
                    shall  be  $200,000.

               2.   Cost-of-living  Adjustment.  The  $200,000  limit on  annual
                    Compensation   in   paragraph  1  shall  be   adjusted   for
                    cost-of-living   increases   in   accordance   with  section
                    401(a)(17)(B) of the Code. The cost-of-living  adjustment in
                    effect for a calendar  year  applies to annual  Compensation
                    for the determination period that begins with or within such
                    calendar year.


               SECTION C.  MODIFICATION OF TOP-HEAVY RULES

               1.   Effective  Date.  This  section  shall apply for purposes of
                    determining  whether  the  Plan is a  top-heavy  plan  under
                    section  416(g) of the Code for Plan Years  beginning  after
                    December  31,  2001,  and  whether  the Plan  satisfies  the
                    minimum benefits  requirements of section 416(c) of the Code
                    for such years. This section amends Section 4.6 of the Plan.

               2.   Determination of Top-heavy Status.

               2.1  Key  Employee.  Key  employee  means any  Employee or former
                    Employee  (including any deceased  Employee) who at any time
                    during the Plan Year that  includes the  determination  date
                    was an officer of a Controlled  Group Member  having  annual
                    compensation   greater  than  $130,000  (as  adjusted  under
                    section 416(i)(1) of the Code for Plan Years beginning after
                    December 31, 2002), a 5-percent owner of a Controlled  Group
                    Member,  or a 1-percent  owner of a Controlled  Group Member
                    having annual  compensation of more than $150,000.  For this
                    purpose,  annual  compensation means compensation within the
                    meaning of section  415(c)(3) of the Code. The determination
                    of who is a key  employee  will be made in  accordance  with
                    section 416(i)(1) of the Code and the applicable regulations
                    and  other   guidance   of  general   applicability   issued
                    thereunder.

               2.2  Determination  of Present  Values and Amounts.  This section
                    2.2 shall  apply for  purposes  of  determining  the present
                    values  of  accrued  benefits  and the  amounts  of  account
                    balances of employees as of the determination date.


               2.2.1Distributions  During Year Ending on the Determination Date.
                    The present  values of accrued  benefits  and the amounts of
                    account balances of an employee as of the determination date
                    shall be increased by the distributions made with respect to
                    the employee under the Plan and any plan aggregated with the
                    Plan under  section  416(g)(2) of the Code during the 1-year
                    period  ending  on the  determination  date.  The  preceding
                    sentence   shall  also  apply  to   distributions   under  a
                    terminated  plan which,  had it not been  terminated,  would
                    have   been   aggregated   with  the  Plan   under   section
                    416(g)(2)(A)(i)  of the Code. In the case of a  distribution
                    made for a reason other than separation from service, death,
                    or   disability,   this   provision   shall  be  applied  by
                    substituting "5-year period" for "1-year period."

               2.2.2Employees Not Performing  Services During Year Ending on the
                    Determination Date. The accrued benefits and accounts of any
                    individual  who has not performed  services for a Controlled
                    Group  Member   during  the  1-year  period  ending  on  the
                    determination date shall not be taken into account.


                                       4
<PAGE>


               3.   Minimum  Benefits.  For purposes of  satisfying  the minimum
                    benefit  requirements  of section  416(c)(1) of the Code and
                    the Plan, in determining  years of service with a Controlled
                    Group  Member,  any service with a  Controlled  Group Member
                    shall be  disregarded to the extent that such service occurs
                    during  a Plan  Year  when  the Plan  benefits  (within  the
                    meaning of section  410(b) of the Code) no key  employee  or
                    former key employee.


                SECTION D.  DIRECT ROLLOVERS OF PLAN DISTRIBUTIONS

               1.   Effective  Date.  This section shall apply to  distributions
                    made after December 31, 2001.

               2.   Modification of Definition of Eligible  Retirement Plan. For
                    purposes of the direct rollover provisions in Section 4.1(I)
                    of the Plan, an eligible  retirement plan shall also mean an
                    annuity contract described in section 403(b) of the Code and
                    an eligible plan under  section  457(b) of the Code which is
                    maintained by a state,  political subdivision of a state, or
                    any  agency  or  instrumentality  of a  state  or  political
                    subdivision  of a  state  and  which  agrees  to  separately
                    account  for  amounts  transferred  into such plan from this
                    Plan. The definition of eligible  retirement plan shall also
                    apply in the case of a distribution  to a surviving  spouse,
                    or to a spouse or former spouse who is the  alternate  payee
                    under a qualified  domestic  relation  order,  as defined in
                    section 414(p) of the Code.


                                       5
<PAGE>

     2.  Effective as of December 31, 2002,  the Plan is amended to  incorporate
the following  provisions  to comply with section 415 and section  417(e) of the
Internal Revenue Code, as required under Rev. Rul. 2001-62:


               ADOPTION OF 1994 GAR MORTALITY TABLE



               1.   Effective  Date.  This section shall apply to  distributions
                    with Annuity Starting Dates on or after December 31, 2002.

               2.   Notwithstanding  any other Plan  provisions to the contrary,
                    the  applicable   mortality   table  used  for  purposes  of
                    adjusting any benefit or limitation under ss.  415(b)(2)(B),
                    (C),  or (D) of the  Internal  Revenue  Code as set forth in
                    Section  4.1(A)  of the  Plan and the  applicable  mortality
                    table used for purposes of satisfying  the  requirements  of
                    ss.  417(e)  of the  Internal  Revenue  Code as set forth in
                    Section  1.1(B)(2)  of the Plan is the table  prescribed  in
                    Rev. Rul. 2001-62.


     3. Effective as of January 1, 2002,  Section 5.11 of the Plan is amended to
read in its entirety as follows:

               "5.11 - APPEAL TO COMMITTEE

                    A Participant  or  Beneficiary  who feels he is being denied
               any benefit or right  provided under the Plan must file a written
               claim with the Committee. All such claims shall be submitted on a
               form  provided  by the  Committee  which  shall be  signed by the
               claimant and shall be  considered  filed on the date the claim is
               received by the Committee.

                    The  Committee   shall   establish   claims   procedures  in
               compliance with applicable law, and such claims  procedures shall
               be set forth in the summary plan description for the Plan."


     4. Effective as of January 1, 1998, the Plan is amended to incorporate  the
following provisions to comply with Rev. Rul. 2002-27 concerning "deemed section
125 compensation":

               INCLUSION OF "DEEMED SECTION 125 COMPENSATION"

               1.   Effective  Date.  This section shall apply to plan years and
                    limitation years beginning on and after January 1, 1998.

               2.   For purposes of the definition of compensation under Section
                    1.1(A)(6)  and  Section  4.1(A)(4)(b)  of the plan,  amounts


                                       6
<PAGE>


                    under  section 125 include  any amounts not  available  to a
                    participant in cash in lieu of group health coverage because
                    the  participant  is  unable to  certify  that he or she has
                    other  health  coverage.  An amount  will be  treated  as an
                    amount  under  section  125  only if the  Employer  does not
                    request or collect  information  regarding the participant's
                    other health coverage as part of the enrollment  process for
                    the health plan.



     IN  WITNESS  WHEREOF,   CAPITAL  SOUTHWEST   CORPORATION  has  caused  this
instrument  to be  executed by its duly  authorized  officer on this ____ day of
__________________, 20___.

                                                   CAPITAL SOUTHWEST CORPORATION



                                                   By___________________________

                                                   Title:_______________________























                                       7















</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>5
<FILENAME>capitalsw10kex108033103.txt
<DESCRIPTION>AMENDMENT FIVE TO RETIREMENT PLAN
<TEXT>

                                                                    Exhibit 10.8

                                AMENDMENT FIVE TO

                        RETIREMENT PLAN FOR EMPLOYEES OF

                CAPITAL SOUTHWEST CORPORATION AND ITS AFFILIATES

                 As Amended and Restated Effective April 1, 1989


     WHEREAS,  effective as of April 1, 1989, the Retirement  Plan for Employees
of Capital Southwest Corporation and Its Affiliates (the "Plan") was amended and
restated in its entirety;

     WHEREAS, by the terms of Section 6.4 of the amended and restated Plan, said
Plan  may  be  amended  by  Capital   Southwest   Corporation  (the  "Sponsoring
Employer");

     WHEREAS,  the  Sponsoring  Employer has  determined  that the Plan shall be
amended  to  reduce  the  amount of bonus to be  included  in  compensation  for
purposes of computing final average monthly compensation; and

     WHEREAS, the Board of Directors of the Sponsoring Employer has approved and
adopted this Amendment Five to the Plan;

     NOW,  THEREFORE,  the last  paragraph of Section  1.1(A)(15) of the Plan is
hereby  amended,  effective  as of January 1, 2003,  to read in its  entirety as
follows:

     "Notwithstanding  any provision of this Section 1.1(A)(15) to the contrary,
     for  purposes  of  determining  a  Participant's  average  monthly  rate of
     Compensation on or after April 1, 1998, the Participant's  Compensation for
     a calendar  year shall not include  the portion of any bonus or  aggregated
     bonuses  paid  in  such   calendar  year  which  exceeds  (a)  40%  of  the
     Participant's total base pay in the calendar year, for years prior to 2003,
     and (b) 25% of the  Participant's  total base pay in the calendar year, for
     years after 2002.  Provided,  however,  that the  Participant's  retirement
     benefits under the Plan on and after January 1, 2003 shall not be less than
     the  Accrued  Deferred  Monthly  Retirement  Income  Commencing  at  Normal
     Retirement  Date that the  Participant  has accrued as of December 31, 2002
     using  'Final  Average  Monthly  Compensation'  determined  as of such date
     without regard to clause (b) of the preceding sentence."


     IN  WITNESS  WHEREOF,   CAPITAL  SOUTHWEST   CORPORATION  has  caused  this
instrument  to be  executed by its duly  authorized  officer on this ____ day of
________________, 2002, to be effective January 1, 2003.

                                                   CAPITAL SOUTHWEST CORPORATION


                                                   By___________________________

                                                   Title:_______________________



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>6
<FILENAME>capital10kex109033103.txt
<DESCRIPTION>AMENDMENT SIX TO RETIREMENT PLAN
<TEXT>

                                                                    Exhibit 10.9

                                AMENDMENT SIX TO

                        RETIREMENT PLAN FOR EMPLOYEES OF

                CAPITAL SOUTHWEST CORPORATION AND ITS AFFILIATES

                 As Amended and Restated Effective April 1, 1989



     WHEREAS,  effective as of April 1, 1989, the Retirement  Plan for Employees
of Capital Southwest Corporation and Its Affiliates (the "Plan") was amended and
restated in its entirety;

     WHEREAS,  by the terms of Section 6.4 of the Plan, the Plan may be amended;
and

     WHEREAS,  it is necessary that certain technical  amendments be made to the
Plan in order to obtain approval of the Internal  Revenue Code for the continued
qualification of the Plan;

     NOW,  THEREFORE,  the Plan is  hereby  amended,  effective  as of the dates
specified below, as follows:

     1.  Effective  as of April 1, 1997,  Section  1.6 is amended to read in its
entirety as follows:

     "1.6 - PARTICIPATION AND BENEFITS FOR FORMER LEASED EMPLOYEES

          A "Leased  Employee" as defined under  Section  414(n) of the Internal
     Revenue Code is any person  (other than an employee of the  recipient)  who
     pursuant  to an  agreement  between  the  recipient  and any  other  person
     ("leasing  organization")  has performed services for the recipient (or for
     the recipient and related  persons  determined in accordance  with Internal
     Revenue Code Section  414(n)(6)) on a  substantially  full-time basis for a
     period  of at least 1 year,  and such  services  are  performed  under  the
     recipient's  primary  direction or control.  Any such Leased Employee of an
     Employer or Designated  Nonparticipating  Employer  shall not be deemed for
     any purposes of the Plan to be an employee of such  Employer or  Designated
     Nonparticipating  Employer.  However,  in the  event  that any such  former
     Leased Employee  qualifies as an Employee as defined herein on or after the
     Effective  Date of the  Plan,  unless  the Plan is  otherwise  excluded  by
     applicable  regulations  from the  requirements  of  Section  414(n) of the
     Internal  Revenue Code,  the total period that he provided  services to the
     Employer or Designated Nonparticipating Employer as a Leased Employee shall
     be treated under the Plan in determining  his  nonforfeitable  right to his
     accrued benefits and his eligibility to become a Participant in the Plan in
     the  manner  described  in Section  1.5(A)  hereof as though he had been an
     employee of a Designated  Nonparticipating  Employer  during such period of
     service (but such service shall not be included in the service that is used
     to calculate any benefits that he accrues under the Plan)."


                                       1
<PAGE>

     2. Effective as of January 1, 1995, the first sentence of Section 4.1(A)(2)
of the Plan is amended to read as follows:

          "The mortality  assumptions  that are used to compute the  actuarially
     equivalent maximum amount of retirement income permitted under this Section
     4.1(A) on and after January 1, 1995 shall be based upon the mortality table
     prescribed by the Secretary of Treasury pursuant to Section  415(b)(2(E) of
     the  Internal  Revenue  Code  (which as of  January 1, 1995 is based upon a
     fixed  blend  of 50% of the  male  mortality  rates  and 50% of the  female
     mortality rates from the 1983 Group Annuity Mortality Table)."


     IN  WITNESS  WHEREOF,   CAPITAL  SOUTHWEST   CORPORATION  has  caused  this
instrument  to be  executed by its duly  authorized  officer on this ____ day of
________________, 20___.

                                                   CAPITAL SOUTHWEST CORPORATION


                                                   By___________________________

                                                   Title:_______________________




















                                       2

















</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.1
<SEQUENCE>7
<FILENAME>capitalsw10kex131033103.txt
<DESCRIPTION>ANNUAL REPORT TO SHAREHOLDERS
<TEXT>

                                                                    EXHIBIT 13.1

                   Twelve Largest Investments - March 31, 2003

================================================================================
Palm Harbor Homes, Inc.                                     $70,696,000
- --------------------------------------------------------------------------------

     Palm  Harbor  Homes,  Dallas,  Texas,  is an  integrated  manufacturer  and
retailer of manufactured  and modular housing  produced in 19 plants and sold in
29 states by 153 company-owned  retail stores and over 100 independent  dealers.
The company provides  financing through its subsidiary,  CountryPlace  Mortgage,
and through its jointly-owned mortgage banking company, BSM Financial, and sells
insurance through its subsidiary,  Standard Casualty. Palm Harbor's high-quality
homes are designed to meet the need for attractive, affordable housing.

     During the year ended March 28, 2003, Palm Harbor earned  $3,221,000 ($0.14
per share) on net sales of  $573,130,000,  compared with earnings of $19,448,000
($0.85 per share) on net sales of  $627,380,000  in the previous year. The March
31, 2003 closing  Nasdaq bid price of Palm Harbor's  common stock was $14.19 per
share.

     At March 31, 2003,  the  $10,931,955  investment  in Palm Harbor by Capital
Southwest  and its  subsidiary  was valued at  $70,696,000  ($9.00  per  share),
consisting  of  7,855,121  restricted  shares of common  stock,  representing  a
fully-diluted equity interest of 34.1%.

================================================================================
The RectorSeal Corporation                                  $55,000,000
- --------------------------------------------------------------------------------

     The RectorSeal Corporation,  Houston, Texas, with two plants in Texas and a
plant in New York,  manufactures  specialty  chemical  products  including  pipe
thread sealants,  firestop sealants,  plastic cements and other formulations for
plumbing and industrial applications.  RectorSeal's subsidiary,  Jet-Lube, Inc.,
with  plants  in Texas,  England  and  Canada,  produces  anti-seize  compounds,
specialty  lubricants  and  other  products  used in  industrial  and oil  field
applications. Another subsidiary produces a line of automotive chemical products
sold  under the Cargo and Blue Magic  trade  names.  RectorSeal  also owns a 20%
equity interest in The Whitmore Manufacturing Company (described on page 9).

     During the year ended  March 31,  2003,  RectorSeal  earned  $6,799,000  on
revenues of  $63,161,000,  compared  with  earnings of $5,277,000 on revenues of
$57,338,000 in the previous year.  RectorSeal's  earnings do not reflect its 20%
equity in The Whitmore Manufacturing Company.

     At March 31, 2003,  Capital  Southwest  owned 100% of  RectorSeal's  common
stock having a cost of $52,600 and a value of $55,000,000.

================================================================================
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 major cemetery in San Mateo,  a mausoleum and an adjacent  mortuary in
Oakland and  cemeteries,  mausoleums and  mortuaries in Hayward,  Sacramento and
Napa.  The company  recently  acquired a funeral home in San Bruno and will soon
begin  building a major  funeral  home on the  grounds  of its San Mateo  County
cemetery. Its insurance company and funeral and cemetery trusts enable Skylawn's
clients to make pre-need arrangements.

     For the fiscal year ended March 31,  2003,  Skylawn  earned  $3,299,000  on
revenues of  $24,871,000,  compared  with  earnings of $3,772,000 on revenues of
$26,928,000 in the previous year.

     At March 31, 2003,  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.                                            $22,570,000
- --------------------------------------------------------------------------------

     Alamo Group Inc.,  Seguin,  Texas, is a leading designer,  manufacturer and
distributor  of  heavy-duty,   tractor-mounted   mowing  and  other   vegetation
maintenance equipment,  street-sweeping equipment and replacement parts. Founded
in  1969,   Alamo  Group  operates  13   manufacturing   facilities  and  serves
governmental,  industrial and agricultural  markets in the U.S., Europe,  Canada
and Australia.

     For the year ended December 31, 2002, Alamo reported  consolidated earnings
of  $6,382,000  ($0.65 per share) on net sales of  $259,435,000,  compared  with
earnings of $10,812,000  ($1.11 per share) on net sales of  $246,047,000  in the
previous  year.  The March 31, 2003 closing NYSE market price of Alamo's  common
stock was $11.66 per share.

     At March 31, 2003, the $2,065,047  investment in Alamo by Capital Southwest
and its subsidiary was valued at  $22,570,000  ($8.00 per share),  consisting of
2,821,300 restricted shares of common stock, representing a fully-diluted equity
interest of 27.2%.

<PAGE>

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

     Encore Wire  Corporation,  McKinney,  Texas,  manufactures  a broad line of
copper  electrical  building  wire and cable  including  non-metallic  sheathed,
underground  feeder  and THHN  wire and cable 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,  2002,  Encore  reported  net  income of
$5,964,000  ($0.39 per share) on net sales of  $285,207,000,  compared  with net
income of  $9,130,000  ($0.60  per  share) on net sales of  $281,010,000  in the
previous year.  The March 31, 2003 closing  Nasdaq bid price of Encore's  common
stock was $8.50 per share.

     At March  31,  2003,  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%.

================================================================================
Media Recovery, Inc.                                        $10,000,000
- --------------------------------------------------------------------------------

     Media  Recovery,  Inc.,  Graham,  Texas,  distributes  computer  and office
automation  supplies and accessories to corporate  customers  through its direct
sales force with 27 offices in 22 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,  2002,  Media  Recovery  reported net
income of  $1,817,000 on net sales of  $97,866,000,  compared with net income of
$3,007,000 on net sales of $110,840,000 in the previous year.

     At March 31, 2003, the  $5,415,000  investment in Media Recovery by Capital
Southwest and its subsidiary was valued at $10,000,000,  consisting of 4,800,000
shares of Series A convertible  preferred  stock,  representing a  fully-diluted
equity interest of 71.2%.

================================================================================
The Whitmore Manufacturing Company                          $10,000,000
- --------------------------------------------------------------------------------

     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,  2003,  Whitmore  reported  net income of
$149,000 on net sales of $12,521,000, compared with net income of $88,000 on net
sales of  $12,151,000  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 8).

     At March 31, 2003, the direct  investment in Whitmore by Capital  Southwest
was valued at $10,000,000 and had a cost of $1,600,000.

================================================================================
All Components, Inc.                                         $8,700,000
- --------------------------------------------------------------------------------

     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, 2002, All  Components  reported net income
of  $1,605,000  on net  sales  of  $135,936,000,  compared  with net  income  of
$5,220,000 on net sales of $152,757,000 in the previous year.

     At March 31, 2003,  the $150,000  investment  in All  Components by Capital
Southwest's  subsidiary was valued at $8,700,000 consisting of 150,000 shares of
Series A convertible preferred stock,  representing a 29.0% fully-diluted equity
interest.

<PAGE>

================================================================================
Liberty Media Corporation                                    $6,859,747
- --------------------------------------------------------------------------------

     Liberty Media Corporation, Englewood, Colorado, acquired by AT&T as part of
Tele-Communications,  Inc.  in 1999 and now an  independent  company,  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, 2002,  Liberty Media reported a net loss of
$5.330 billion ($2.06 per share) on net sales of $2.084 billion, compared with a
net loss of $6.203  billion  ($2.40 per share) on net sales of $2.059 billion in
the  previous  year.  The March 31, 2003  closing  NYSE market price of Series A
common stock was $9.73 per share.

     At March 31, 2003, Capital Southwest owned 705,010  unrestricted  shares of
Series A common  stock,  having a total cost of $165,613  and a market  value of
$6,859,747 ($9.73 per share).


================================================================================
PETsMART, Inc.                                               $5,723,171
- --------------------------------------------------------------------------------

     PETsMART,  Inc.,  Phoenix,  Arizona,  is the largest specialty  retailer of
services and solutions for the lifetime needs of pets. The company operates more
than 500 pet  superstores  in the United  States  and Canada and is the  leading
direct  marketer of pet  products  through its  e-commerce  site and its pet and
equine catalog business.

     For the year ended February 2, 2003, PETsMART,  Inc. reported net income of
$88,855,000 ($0.63 per share) on net sales of $2.695 billion,  compared with net
income of  $39,567,000  ($0.35 per share) on net sales of $2.501  billion in the
previous year. The March 31, 2003 closing Nasdaq bid price of PETsMART's  common
stock was $12.60 per share.

     At March 31, 2003,  Capital  Southwest  and its  subsidiary  owned  454,220
unrestricted  shares of common stock,  having a cost of $1,995,524  and a market
value of $5,723,171 ($12.60 per share).

================================================================================
AmPro Mortgage Corporation                                   $5,029,167
- --------------------------------------------------------------------------------

     AmPro Mortgage Corporation,  Dallas, Texas, is a newly formed company which
acquired the  production  facility (but not the servicing  operations) of Matrix
Financial   Services   Corporation   ("Matrix")  on  February  28,  2003.  AmPro
originates, acquires, sells and services residential mortgage loans through nine
traditional  wholesale offices and one wholesale  sub-prime office in Santa Ana,
California.  The wholesale offices are located in Sacramento,  Dallas,  Houston,
Chicago, St Louis, Phoenix,  Denver,  Atlanta and Jacksonville.  In 2002, Matrix
originated over $3.6 billion in mortgages.

     At March 31, 2003, the investment in AmPro by Capital  Southwest was valued
at its cost of  $5,029,167  and consisted of 5,000 shares of Series A cumulative
preferred  stock and  29,167  shares of Series A common  stock,  representing  a
fully-diluted equity interest of 29.2%.

================================================================================
Texas Capital Bancshares, Inc.                               $5,000,006
- --------------------------------------------------------------------------------

     Texas Capital Bancshares, Inc. of Dallas, Texas, formed in 1998, has raised
a total of $133.2  million  through three private  placements  and now has total
assets of approximately $1.8 billion.  With banks in Dallas,  Fort Worth, Austin
and San Antonio,  Texas  Capital  Bancshares  conducts its business  through its
wholly-owned  subsidiary,  Texas Capital Bank,  N.A.,  which  primarily  targets
middle market commercial and wealthy private client customers in Texas.

     For the year ended December 31, 2002,  Texas Capital reported net income of
$7,343,000 ($0.32 per share),  compared with net income of $5,844,000 ($0.30 per
share) in the previous year.

     At March 31, 2003,  the  investment in Texas Capital  Bancshares by Capital
Southwest was valued at its cost of $5,000,006,  consisting of 689,656 shares of
common stock, representing a fully-diluted equity interest of 2.9%.

<PAGE>
<TABLE>
<CAPTION>

                    Portfolio of Investments - March 31, 2003


         Company                                     Equity (a)        Investment (b)                      Cost           Value (c)
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>       <C>                                 <C>              <C>
+AT&T CORP.                                              <1%       ++26,649 shares common
   New York, New York                                                stock (acquired 3-9-99)           $        12      $    431,714
   Major provider of voice
   and data communications services
   including business and consumer
   long distance and Internet.
- ------------------------------------------------------------------------------------------------------------------------------------

+AT&T WIRELESS SERVICES, INC.                            <1%       ++42,878 shares common stock
   Redmond, Washington                                               (acquired 7-9-01)                          10           282,995
   Provider of wireless voice and data
   services and products in the cellular
   and PCS markets.
- ------------------------------------------------------------------------------------------------------------------------------------

+ALAMO GROUP INC.                                      27.2%       2,821,300 shares common stock
   Seguin, Texas                                                     (acquired 4-1-73 thru 10-4-99)      2,065,047        22,570,000
   Tractor-mounted mowing and vegetation
   maintenance equipment for governmental,
   industrial and agricultural markets;
   street-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
   other components for personal computer                            at $0.25 per share
   manufacturers, retailers and value-added                          (acquired 9-16-94)                    150,000         8,700,000
   resellers; electronics contract manufacturing.
- ------------------------------------------------------------------------------------------------------------------------------------

+ALLTEL CORPORATION                                      <1%       ++8,880 shares common stock
   Little Rock, Arkansas                                             (acquired 7-1-98)                     108,355           397,469
   Wireline and wireless communications
   and  information services.
- ------------------------------------------------------------------------------------------------------------------------------------

AMPRO MORTGAGE CORPORATION                             29.2%       5,000 shares Series A cumulative
   Dallas, Texas                                                     preferred stock
   Originator and banker of residential                              (acquired 2-28-03)                  5,000,000         5,000,000
   mortgage loans.                                                 29,167 shares Series A common stock
                                                                     (acquired 2-28-03)                    29,167            29,167
                                                                                                         ---------         ---------
                                                                                                         5,029,167         5,029,167
- ------------------------------------------------------------------------------------------------------------------------------------

BALCO, INC.                                            89.7%       445,000 shares common stock
   Wichita, Kansas                                                   and 60,920 shares Class B
   Specialty architectural products                                  non-voting common stock
   used in the construction and remodeling                           (acquired 10-25-83 and 5-30-02)       624,920         5,000,000
   of commercial and institutional buildings.
- ------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)


<PAGE>


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

BOXX TECHNOLOGIES, INC.                                16.3%       3,125,354 shares Series B
   Austin, Texas                                                     convertible preferred stock,
   Workstations for computer graphics                                convertible into 3,125,354
   imaging and design.                                               shares of common stock at
                                                                     $0.50 per share (acquired
                                                                     8-20-99 thru 8-8-01)              $ 1,500,000      $         2
                                                                   Warrants to purchase 80,000
                                                                     shares of Series B preferred
                                                                     stock at $0.50 per share,
                                                                     expiring 2005 (acquired 8-24-00)         --                --
                                                                                                       -----------      ------------
                                                                                                         1,500,000                 2
- ------------------------------------------------------------------------------------------------------------------------------------

CMI HOLDING COMPANY, INC.                              14.0%       1,745,744 shares Series
   Richardson, Texas                                                 A preferred stock
   Owns Chase Medical, which develops                                (acquired 8-21-02)                  3,000,000         3,000,000
   and sells devices used in cardiac surgery
   including proprietary devices for surgical
   intervention to relieve congestive
   heart failure.
- ------------------------------------------------------------------------------------------------------------------------------------

CASHWORKS, INC.                                        33.8%       1,500,000 shares Series
   Dallas, Texas                                                     B convertible preferred stock,
   Provides an ATM based system to convenience                       convertible into 1,500,000
   stores and other retail outlets for paycheck                      shares of common stock at $2.00
   cashing and other financial  services.                            per share (acquired 1-31-03)        3,000,000         3,000,000
                                                                   Warrant to purchase 375,000 shares
                                                                     of Series B preferred
                                                                     stock at $0.85 per share,
                                                                     expiring 2007
                                                                     (acquired 1-31-03)                       --                --
                                                                                                       -----------      ------------
                                                                                                         3,000,000         3,000,000
- ------------------------------------------------------------------------------------------------------------------------------------

+COMCAST CORPORATION                                     <1%       ++43,104 shares common stock                 21         1,234,068
   Philadelphia, PA                                                  (acquired 11-18-02)
   Development, management and operation of
   broadband cable networks, electronic
   retailing and programming.
- ------------------------------------------------------------------------------------------------------------------------------------

+CONCERT INDUSTRIES LTD.                                7.5%       2,833,485 shares common stock
   Vancouver, British Columbia                                       (acquired 5-31-00 thru 6-1-01)      9,131,224           443,000
   Manufacture and sale of latex,                                  Warrants to purchase 373,758 shares
   thermal and multi-bonded air-laid                                 of common stock at C$8.00
   nonwoven fabrics having superabsorbent                            (US$5.442) per share, expiring
   properties.                                                       2003 (acquired 6-1-01)                188,900              --
                                                                                                       -----------      ------------
                                                                                                         9,320,124           443,000
- ------------------------------------------------------------------------------------------------------------------------------------

DENNIS TOOL COMPANY                                    66.8%       20,725 shares 5% convertible preferred
   Houston, Texas                                                    stock, convertible into 20,725 shares
   Polycrystalline diamond compacts                                  of common stock at $48.25 per share
   (PDCs) used in oil field drill                                    (acquired 8-10-98)                    999,981           999,981
   bits and in mining and industrial                               140,137 shares common stock
   applications.                                                     (acquired 3-7-94 and 8-10-98)       2,329,963           500,000
                                                                                                       -----------      ------------
                                                                                                         3,329,944         1,499,981
- ------------------------------------------------------------------------------------------------------------------------------------

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

EXOPACK HOLDING CORP.                                   1.5%       5,190 shares common stock
   Spartanburg, South Carolina                                       (acquired 7-27-01 and 8-8-02)         523,830           523,830
   Paper and plastic flexible packaging for products
   such as pet food, building  materials, chemicals
   and other commodities.
- ------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)

<PAGE>

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

EXTREME INTERNATIONAL, INC.                            43.6%       12% subordinated notes,
   Sugar Land, Texas                                                 payable 2003 to 2004
   Owns Bill Young Productions, Texas                                (acquired 10-21-96 thru 4-30-01)  $ 4,176,750      $  1,551,750
   Video and Post, and Extreme Communications,                     375 shares 8% Series A convertible
   which produce radio and television                                preferred stock, convertible into
   commercials and corporate communications videos.                  1,500,000 shares of common stock at
                                                                     $0.25 per share (acquired 10-21-96)   375,000              --
                                                                   Warrants to purchase 1,303,500 shares
                                                                     of common stock at $0.25 per share,
                                                                     expiring 2005 and 2008 (acquired
                                                                     8-11-98 thru 12-31-01)                   --                --
                                                                                                       -----------         ---------
                                                                                                         4,551,750         1,551,750
- ------------------------------------------------------------------------------------------------------------------------------------

+FMC CORPORATION                                         <1%       ++6,430 shares common stock
   Chicago, Illinois                                                 (acquired 6-6-86)                      66,726           100,821
   Chemicals for agricultural, industrial
   and consumer markets.
- ------------------------------------------------------------------------------------------------------------------------------------

+FMC TECHNOLOGIES, INC.                                  <1%       ++11,057 shares common stock
   Chicago, Illinois                                                 (acquired 1-2-02)                      57,051           212,294
   Equipment and systems for the energy,
   food processing and air transportation
   industries.
- ------------------------------------------------------------------------------------------------------------------------------------

HEELING, INC.                                          43.0%       10% subordinated debenture due 2006
   Carrollton, Texas                                                 (acquired 10-30-00 thru 12-7-00)    1,800,000         1,800,000
   Heelys stealth skate shoes ("one wheel in                       1,745,455 shares Series A preferred
   the heel") sold through specialty skate,                          stock (acquired 5-26-00)              480,000           480,000
   lifestyle and sporting goods stores,                            436,364 shares Series B convertible
   footwear chains, department stores                                preferred stock, convertible into
   and over the Internet at Heelys.com.                              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         1,370,055
   Medical instruments including bone
   densitometers, mammography devices
   and digital radiography systems.
- ------------------------------------------------------------------------------------------------------------------------------------

+KIMBERLY-CLARK CORPORATION                              <1%       ++77,180 shares common stock
   Dallas, Texas                                                     (acquired 12-18-97)                 2,396,926         3,508,603
   Manufacturer of tissue, personal care
   and health care products.
- ------------------------------------------------------------------------------------------------------------------------------------

+LIBERTY MEDIA CORPORATION                               <1%       ++705,010 shares Series A
   Englewood, Colorado                                               common  stock (acquired 3-9-99
   Global media and entertainment company                            thru 12-12-02)                        165,613         6,859,747
   owning interests in video programming
   and communications businesses.
- ------------------------------------------------------------------------------------------------------------------------------------

+MAIL-WELL, INC.                                        3.8%       ++2,096,588 shares common stock
   Englewood, Colorado                                               (acquired 2-18-94 thru 11-10-98)    2,986,870         4,256,074
   Envelopes and commercial printing.
- ------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)

<PAGE>


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

MEDIA RECOVERY, INC.                                   71.2%       4,800,000 shares Series A convertible
   Graham, Texas                                                     preferred stock, convertible
   Computer and office automation supplies                           into 4,800,000 shares of common
   and accessories; impact and tilt monitoring                       stock at $1.00 per share
   devices to detect mishandled                                      (acquired 11-4-97)                $ 5,415,000      $ 10,000,000
   shipments; dunnage for protecting shipments.
- ------------------------------------------------------------------------------------------------------------------------------------

ORGANIZED LIVING, INC.                                  6.1%       3,333,335 shares Series D
   Lenexa, Kansas                                                    convertible preferred stock,
   Specialty retailer of products designed                           convertible into 3,333,335
   to provide home and office storage and                            shares of common stock at
   organization solutions.                                           $1.80 per share
                                                                     (acquired 1-7-00 and 10-30-00)      6,000,000                 1
- ------------------------------------------------------------------------------------------------------------------------------------

PALLET ONE, INC.                                        8.8%       150,000 shares common stock
   Bartow, Florida                                                   (acquired 10-18-01)                   150,000           150,000
   Wood pallet manufacturer with 12                                1,485,000 shares Series A
   manufacturing facilities.                                         preferred stock
                                                                     (acquired 10-18-01)                 1,350,000         1,350,000
                                                                                                       -----------      ------------
                                                                                                         1,500,000         1,500,000
- ------------------------------------------------------------------------------------------------------------------------------------

+PALM HARBOR HOMES, INC.                               34.1%       7,855,121 shares common stock
   Dallas, Texas                                                     (acquired 1-3-85 thru 7-31-95)     10,931,955        70,696,000
   Integrated manufacturing, retailing,
   financing and insuring of manufactured
   housing and modular homes.
- ------------------------------------------------------------------------------------------------------------------------------------

+PETSMART, INC.                                          <1%       ++454,220 shares common stock
   Phoenix, Arizona                                                  (acquired 6-1-95)                   1,995,524         5,723,171
   Retail chain of more than 500 stores selling
   pet foods, supplies and services.
- ------------------------------------------------------------------------------------------------------------------------------------

THE RECTORSEAL CORPORATION                            100.0%       27,907 shares common stock
   Houston, Texas                                                    (acquired 1-5-73 and 3-31-73)          52,600        55,000,000
   Specialty chemical products for plumbing,
   HVAC, electrical, construction, industrial,
   oil field and automotive applications;
   owns 20% of Whitmore Manufacturing Company.

- ------------------------------------------------------------------------------------------------------------------------------------
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           846,000
   Diversified telecommunications  company.
- ------------------------------------------------------------------------------------------------------------------------------------

+SPRINT CORPORATION - PCS Group                          <1%       ++36,000 shares common stock
   Overland Park, Kansas                                             (acquired 11-23-98)                    53,991           156,960
   Domestic wireless telephony services.
- ------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)

<PAGE>

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

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

TEXAS CAPITAL BANCSHARES, INC.                          2.9%       689,656 shares common stock
   Dallas, Texas                                                     (acquired 5-1-00)                   5,000,006         5,000,006
   Regional bank holding company with
   banking operations in four Texas cities.
- ------------------------------------------------------------------------------------------------------------------------------------

TEXAS PETROCHEMICAL HOLDINGS, INC.                      5.1%       30,000 shares common stock
   Houston, Texas                                                    (acquired 6-27-96)                  3,000,000                 1
   Butadiene for synthetic rubber, MTBE for
   gasoline octane enhancement and
   butylenes for varied applications.
- ------------------------------------------------------------------------------------------------------------------------------------

TEXAS SHREDDER, INC.                                   53.3%       750 shares Series B convertible
   San Antonio, Texas                                                preferred stock, convertible
   Design and manufacture of heavy-duty                              into 750,000 shares  of common
   shredder systems for recycling steel                              stock at $0.10 per share
   and other materials from junk automobiles.                        (acquired 3-6-91)                      75,000         1,800,000
- ------------------------------------------------------------------------------------------------------------------------------------

VOCALDATA, INC.                                         2.8%       1,300,002 shares Series A convertible
   Richardson, Texas                                                 preferred stock, convertible into
   Hardware and software for customer                                1,300,002 shares of common
   premises telephony  equipment based                               stock at $0.875 per share
   on Voice Over Internet Protocol.                                  (acquired 11-4-99 and 12-3-99)      1,137,500                 1
                                                                   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                 1
                                                                                                       -----------      ------------
                                                                                                         1,489,805                 2
- ------------------------------------------------------------------------------------------------------------------------------------

THE WHITMORE MANUFACTURING COMPANY                     80.0%       80 shares common stock
   Rockwall, Texas                                                   (acquired 8-31-79)                  1,600,000        10,000,000
   Specialized mining and industrial lubricants;
   automotive transit coatings.
- ------------------------------------------------------------------------------------------------------------------------------------

MISCELLANEOUS                                            --        Diamond State Ventures, L.P.
                                                                     - 1.9% limited partnership
                                                                     interest (acquired 10-12-99
                                                                     thru 1-3-03)                          184,375           184,375
                                                         --        First Capital Group of Texas III,
                                                                     L.P. - 3.3% limited partnership
                                                                     interest (acquired 12-26-00
                                                                     thru 11-14-02)                        400,000           400,000
                                                      100.0%      Humac Company - 1,041,000 shares
                                                                     common stock (acquired 1-31-75
                                                                     and 12-31-75)                           --             128,000
                                                         --        STARTech Seed Fund I - 12.6% limited
                                                                     partnership interest
                                                                     (acquired 4-17-98 thru 1-5-00)        178,066                 1
                                                         --        STARTech Seed Fund II - 3.1% limited
                                                                     partnership interest
                                                                     (acquired 4-28-00 thru 2-28-02)       750,000           375,000
                                                         --        Sterling Group Partners I, L.P. -
                                                                     1.7% limited partnership
                                                                     interest (acquired 4-20-01
                                                                     thru 2-19-03)                         579,100           579,100
- ------------------------------------------------------------------------------------------------------------------------------------

TOTAL INVESTMENTS                                                                                      $91,461,842      $287,060,437
                                                                                                       ===========      ============
- ------------------------------------------------------------------------------------------------------------------------------------
+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,  2003,  restricted  securities  represented
approximately 91.2% 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 lower of the
closing bid price or the last sale price for Nasdaq  securities on the valuation
date. Restricted  securities,  including securities of publicly-owned  companies
which are  subject  to  restrictions  on  resale,  are  valued at fair  value as
determined by the Board of Directors.  Fair value is considered to be the amount
which the Company may reasonably  expect to receive for portfolio  securities if
such securities were sold on the valuation date. Valuations as of any particular
date, however, are not necessarily indicative of amounts which may ultimately be
realized as a result of future sales or other dispositions of securities.

     Among the factors  considered by the Board of Directors in determining  the
fair value of restricted  securities  are the 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, 2003 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
                                                              -----------
AmPro Mortgage Corporation ................................   $ 5,029,167
CMI Holding Company, Inc. .................................     3,000,000
CashWorks, Inc. ...........................................     3,000,000
Diamond State Ventures, L.P. ..............................        18,750
Exopack Holding Corp. .....................................        73,830
First Capital Group of Texas III, L.P. ....................       152,071
Liberty Media Corporation .................................       165,588
Sterling Group Partners I, L.P. ...........................       260,000
StarTech Seed Fund II .....................................       150,000
Miscellaneous .............................................        55,233
                                                              -----------

                                                              $11,904,639
                                                              ===========


Dispositions

                                                                        Amount
                                                            Cost       Received
                                                         ----------   ----------
Concert Industries Ltd. .........                        $   47,525   $     --
Drew Scientific Group PLC........                           182,689       11,168
MESC Holdings ...................                              --         56,678
Mylan Laboratories, Inc.........                            200,000    2,697,985
PETsMART, Inc. ..................                           441,604    1,448,052
Photon Dynamics, Inc. ...........                              --         20,280
Sprockets.com, Inc. .............                         1,300,000         --
Texas Shredder, Inc. ............                           329,600      329,600
Miscellaneous ...................                            55,233         --
                                                         ----------   ----------
                                                         $2,556,651   $4,563,763
                                                         ==========   ==========

Repayments Received .............                                     $   80,000
                                                                      ==========


<PAGE>

                 Capital Southwest Corporation and Subsidiaries
                 Consolidated Statements of Financial Condition

                                                               March 31
                                                     ---------------------------
Assets                                                   2003           2002
                                                     ------------   ------------

Investments at market or fair value (Notes
  1, 2 and 10)
  Companies more than 25% owned
     (Cost: 2003 - $23,114,865,
     2002 - $23,194,865) ........................    $202,893,981   $243,024,999
   Companies 5% to 25% owned
     (Cost: 2003 - $30,120,124,
     2002 - $27,167,649) ........................      18,566,004     34,943,003
   Companies less than 5% owned
     (Cost: 2003 - $38,226,853,
     2002 - $31,831,341) ........................      65,600,452     69,513,064
                                                     ------------   ------------

Total investments
     (Cost: 2003 - $91,461,842,
     2002 - $82,193,855) ........................     287,060,437    347,481,066
Cash and cash equivalents .......................       4,650,388      1,977,180
Receivables .....................................         297,664      1,753,297
Other assets (Note 8) ...........................       6,481,383      5,971,361
                                                     ------------   ------------




   Totals........................................    $298,489,872   $357,182,904
                                                     ============   ============



<TABLE>
<CAPTION>

                                                               March 31
                                                    ------------------------------
Liabilities and Shareholders' Equity                    2003              2002
                                                    -------------    -------------
<S>                                                 <C>              <C>
Note payable to bank (Note 4) ...................   $  15,500,000    $   6,500,000
Notes payable to portfolio company (Note 4) .....       7,500,000        2,500,000
Accrued interest and other liabilities (Note 8) .       1,868,991        2,018,140
Deferred income taxes (Note 3) ..................      67,153,906       90,673,722
Subordinated debenture (Note 5) .................            --          5,000,000
                                                    -------------    -------------
                    Total liabilities ...........      92,022,897      106,691,862
                                                    -------------    -------------

Shareholders' equity (Notes 3 and 6)
   Common stock, $1 par value: authorized,
     5,000,000 shares; issued, 4,266,416
     shares at March 31, 2003 and
     March 31, 2002 .............................       4,266,416        4,266,416
   Additional capital ...........................       6,935,497        6,935,497
   Undistributed net investment
     income .....................................       3,299,659        3,297,838
   Undistributed net realized gain on
     investments ................................      71,190,108       69,844,380
   Unrealized appreciation of investments -
     net of deferred income taxes ...............     127,808,597      173,180,213
   Treasury stock - at cost
     (437,365 shares) ...........................      (7,033,302)      (7,033,302)
                                                    -------------    -------------
   Net assets at market or fair value, equivalent
     to $53.92 per share at March 31, 2003,
     and $65.42 per share at March 31, 2002,
     on the 3,829,051 shares outstanding ........     206,466,975      250,491,042
                                                    -------------    -------------


   Totals .......................................   $ 298,489,872    $ 357,182,904
                                                    =============    =============
</TABLE>

                 See Notes to Consolidated Financial Statements


<PAGE>
<TABLE>
<CAPTION>

                 Capital Southwest Corporation and Subsidiaries
                      Consolidated Statements of Operations

                                                                                                  Years Ended March 31
                                                                                       --------------------------------------------
                                                                                           2003            2002            2001
                                                                                       ------------    ------------    ------------
<S>                                                                                    <C>             <C>             <C>
Investment income (Note 9):
   Interest ........................................................................   $    204,490    $    322,521    $    542,241
   Dividends .......................................................................      3,360,990       3,293,633       2,955,833
   Management and directors' fees ..................................................        495,900         530,400         530,400
                                                                                       ------------    ------------    ------------
                                                                                          4,061,380       4,146,554       4,028,474
                                                                                       ------------    ------------    ------------

Operating expenses:
   Salaries ........................................................................        911,671         894,612         850,959
   Net pension benefit (Note 8) ....................................................       (387,923)       (504,536)       (486,174)
   Other operating expenses (Notes 7 and 11) .......................................        626,106         633,254         614,861
                                                                                       ------------    ------------    ------------
                                                                                          1,149,854       1,023,330         979,646
                                                                                       ------------    ------------    ------------
Income before interest expense and income taxes ....................................      2,911,526       3,123,224       3,048,828
Interest expense ...................................................................        476,761         929,372       1,144,337
                                                                                       ------------    ------------    ------------
Income before income taxes .........................................................      2,434,765       2,193,852       1,904,491
Income tax expense (Note 3) ........................................................        135,513         151,956         181,991
                                                                                       ------------    ------------    ------------
Net investment income ..............................................................   $  2,299,252    $  2,041,896    $  1,722,500
                                                                                       ============    ============    ============

Proceeds from disposition of investments ...........................................   $  4,563,763    $  5,923,165    $  7,657,377
Cost of investments sold (Note 1) ..................................................      2,556,651       6,685,279      12,782,870
                                                                                       ------------    ------------    ------------
Realized gain (loss) on investments before income taxes (Note 9) ...................      2,007,112        (762,114)     (5,125,493)
Income tax expense (benefit) .......................................................        661,384        (224,180)     (1,894,506)
                                                                                       ------------    ------------    ------------
Net realized gain (loss) on investments ............................................      1,345,728        (537,934)     (3,230,987)
                                                                                       ------------    ------------    ------------
Increase (decrease) in unrealized appreciation of investments before income taxes ..    (69,688,616)     36,971,348     (10,310,835)
Increase (decrease) in deferred income taxes on appreciation of investments (Note 3)    (24,317,000)     12,797,000      (3,841,000)
                                                                                       ------------    ------------    ------------
Net increase (decrease) in unrealized appreciation of investments ..................    (45,371,616)     24,174,348      (6,469,835)
                                                                                       ------------    ------------    ------------

Net realized and unrealized gain (loss) on investments .............................   $(44,025,888)   $ 23,636,414    $ (9,700,822)
                                                                                       ============    ============    ============

Increase (decrease) in net assets from operations ..................................   $(41,726,636)   $ 25,678,310    $ (7,978,322)
                                                                                       ============    ============    ============
</TABLE>

                 See Notes to Consolidated Financial Statements

<PAGE>
<TABLE>
<CAPTION>

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

                                                                                    Years Ended March 31
                                                                      -----------------------------------------------
                                                                           2003             2002             2001
                                                                      -------------    -------------    -------------
<S>                                                                   <C>              <C>              <C>
Operations
  Net investment income ...........................................   $   2,299,252    $   2,041,896    $   1,722,500
  Net realized gain (loss) on investments .........................       1,345,728         (537,934)      (3,230,987)
  Net increase (decrease) in unrealized appreciation of investments     (45,371,616)      24,174,348       (6,469,835)
                                                                      -------------    -------------    -------------
  Increase (decrease) in net assets from operations ...............     (41,726,636)      25,678,310       (7,978,322)

Distributions from:
  Undistributed net investment income .............................      (2,297,431)      (2,294,631)      (2,289,031)

Capital share transactions
  Exercise of employee stock options ..............................            --            498,750             --
                                                                      -------------    -------------    -------------


    Increase (decrease) in net assets .............................     (44,024,067)      23,882,429      (10,267,353)
Net assets, beginning of year .....................................     250,491,042      226,608,613      236,875,966
                                                                      -------------    -------------    -------------

Net assets, end of year ...........................................   $ 206,466,975    $ 250,491,042    $ 226,608,613
                                                                      =============    =============    =============
</TABLE>




                 See Notes to Consolidated Financial Statements


<PAGE>
<TABLE>
<CAPTION>

                 Capital Southwest Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows

                                                                                     Years Ended March 31
                                                                        --------------------------------------------
                                                                            2003            2002            2001
                                                                        ------------    ------------    ------------
<S>                                                                     <C>             <C>             <C>
Cash flows from operating activities
Increase (decrease) in net assets from operations ...................   $(41,726,636)   $ 25,678,310    $ (7,978,322)
Adjustments to reconcile increase (decrease) in net assets from
   operations to net cash provided by (used in) operating activities:
   Depreciation and amortization ....................................         21,668          26,258          29,891
   Net pension benefit ..............................................       (387,923)       (504,536)       (486,174)
   Net realized and unrealized (gain) loss on investments ...........     44,025,888     (23,636,414)      9,700,822
   (Increase) decrease in receivables ...............................      1,455,633      (1,488,920)        (25,783)
   Increase in other assets .........................................        (29,447)        (17,922)         (8,923)
   Decrease in accrued interest and other liabilities ...............        (96,188)        (44,479)        (27,179)
   Decrease in accrued pension cost .................................       (167,280)       (199,280)       (209,947)
   Deferred income taxes ............................................        135,800         176,600         170,400
                                                                        ------------    ------------    ------------
Net cash provided by (used in) operating activities .................      3,231,515         (10,383)      1,164,785
                                                                        ------------    ------------    ------------
Cash flows from investing activities
Proceeds from disposition of investments ............................      4,563,763       5,923,165       7,657,377
Purchases of securities .............................................    (11,904,639)     (3,545,458)    (15,922,079)
Maturities of securities ............................................         80,000       2,267,970         540,000
                                                                        ------------    ------------    ------------
Net cash provided by (used in) investing activities .................     (7,260,876)      4,645,677      (7,724,702)
                                                                        ------------    ------------    ------------
Cash flows from financing activities
Increase (decrease) in notes payable to bank ........................      9,000,000       1,500,000     (55,000,000)
Increase (decrease) in notes payable to portfolio companies .........      5,000,000      (3,500,000)      1,000,000
Decrease in subordinated debenture ..................................     (5,000,000)           --              --
Distributions from undistributed net investment income ..............     (2,297,431)     (2,294,631)     (2,289,031)
Proceeds from exercise of employee stock options ....................           --           498,750            --
                                                                        ------------    ------------    ------------
Net cash provided by (used in) financing activities .................      6,702,569      (3,795,881)    (56,289,031)
                                                                        ------------    ------------    ------------
Net increase (decrease) in cash and cash equivalents ................      2,673,208         839,413     (62,848,948)
Cash and cash equivalents at beginning of year ......................      1,977,180       1,137,767      63,986,715
                                                                        ------------    ------------    ------------
Cash and cash equivalents at end of year ............................   $  4,650,388    $  1,977,180    $  1,137,767
                                                                        ============    ============    ============
Supplemental disclosure of cash flow information:
Cash paid during the year for: Interest .............................   $    606,722    $    922,011    $  1,144,558
                               Income taxes .........................   $       --      $        287    $     11,591
</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.  Capital
Southwest Management Corporation ("CSMC"), a wholly-owned  subsidiary of CSC, is
the  management  company  for  CSC and  CSVC.  The  following  is a  summary  of
significant  accounting policies followed in the preparation of the consolidated
financial statements of CSC, CSVC and CSMC (together, the "Company"):

     Principles of  Consolidation.  The consolidated  financial  statements have
been prepared 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.

     Stock-Based   Compensation.   The  Company  accounts  for  its  stock-based
compensation   plans  under  the  recognition  and  measurement   principles  of
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees",  and related  Interpretations.  No stock-based  compensation cost is
reflected in net asset value,  as all options  granted  under those plans had an
exercise price equal to the market value of the  underlying  common stock on the
date of grant.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation  - Transition  and  Disclosure - an amendment of FASB Statement No.
123." SFAS No. 148 provides  alternative  methods of transition  for a voluntary
change to the fair value based method of  accounting  for  stock-based  employee
compensation and amends the related existing disclosure requirements.  Since the
Company  accounts for its  stock-based  compensation  under the  recognition and
measurement  principles of Accounting  Principles Board Opinion No. 25, SFAS 148
does not have an impact on the Company's operating results or financial position
for the years ended March 31, 2003, 2002 and 2001.

     The following table illustrates the effect on net asset value and net asset
value per share if the Company had applied the fair value recognition provisions
of FASB  Statement  No.  123,  "Accounting  for  Stock-Based  Compensation",  to
stock-based compensation.

                                                 Years Ended March 31
                                   ---------------------------------------------
                                        2003            2002            2001
                                   -------------   -------------   -------------

Net asset value, as reported       $ 206,466,975   $ 250,491,042   $ 226,608,613
Deduct: Total fair value computed
  stock-based compensation               179,440          59,216          59,216
                                   -------------   -------------   -------------

Pro forma net asset value          $ 206,287,535   $ 250,431,826   $ 226,549,397
                                   =============   =============   =============

Net asset value per share:
  Basic - as reported              $       53.92   $       65.42   $       59.40
                                   =============   =============   =============
  Basic - pro forma                $       53.87   $       65.40   $       59.38
                                   =============   =============   =============

  Diluted - as reported            $       53.79   $       65.20   $       59.14
                                   =============   =============   =============
  Diluted- pro forma               $       53.74   $       65.19   $       59.12
                                   =============   =============   =============

     The  diluted  net asset  value per share  calculation  assumes  all  vested
outstanding  options for which the market price exceeds the exercise  price have
been exercised.


<PAGE>

     Effective  April 1, 2003,  the  Company  adopted  the fair value  method of
recording  compensation expense related to all stock options granted after March
31, 2003, in accordance with SFAS Nos. 123 and 148. Accordingly,  the fair value
of stock  options as  determined  on the date of grant  using the  Black-Scholes
option-pricing  model will be expensed  over the  vesting  period of the related
stock options.

2.   Valuation of Investments

     The consolidated financial statements as of March 31, 2003 and 2002 include
securities  valued  at  $261,680,466  (91.2%  of the  value of the  consolidated
investment  portfolio) and $317,137,082  (91.3% 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,  2002,  2001 and 2000,  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 2003, 2002 and 2001 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, 2003
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  $67,790,000  and
$92,107,000 have been provided on net unrealized  appreciation of investments of
$195,598,595  and  $265,287,211 at March 31, 2003 and 2002,  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, 2003 and 2002.

4.   Notes Payable

     The note  payable to bank at March 31, 2003 and 2002 was from an  unsecured
revolving line of credit of $25,000,000 and $15,000,000,  respectively, of which
$15,500,000 and $6,500,000,  respectively, 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, 2004.

     The notes  payable to  portfolio  company were demand  promissory  notes to
Skylawn Corporation with interest payable at the greater of prime minus 2.25% or
the  Applicable  Federal  Rate  established  by the  Internal  Revenue  Service.
Interest  expense  on these  portfolio  company  notes was  $75,531  in 2003 and
$216,280 in 2002.

5.   Subordinated Debenture

     The subordinated  debenture of $5,000,000 outstanding at March 31, 2002 was
payable to others and guaranteed by the Small Business  Administration  ("SBA"),
bore interest at 8.0% and was repaid June 3, 2002.

6.   Employee Stock Option Plan

     Under the 1984  Incentive  Stock Option Plan,  options to purchase  28,000,
28,000 and 42,000  shares of common stock at $35.625 per share (the market price
at the time of grant) were  outstanding  and exercisable at March 31, 2003, 2002
and 2001, respectively, and expire July 2003. During the three years ended March
31, -0- options were  exercised in 2003,  14,000 were  exercised in 2002 and -0-
were exercised in 2001. The 1984 Incentive Stock Option Plan expired in 1994.

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

<PAGE>

     At March 31, 2003, there were 85,500  additional shares available for grant
under the Plan.  The per share  weighted  average  fair  value of stock  options
granted  during  2002 was  $20.76 on the date of grant  using the Black  Scholes
option-pricing model with the following assumptions:  expected dividend yield of
..92%,  risk-free  interest  rate of 5.14%,  expected  volatility  of 20.6%,  and
expected life of 7 years.

     The following  summarizes  activity in the stock option plans for the years
ended March 31, 2003, 2002 and 2001:

                                       Number     Weighted Average
                                     of shares     Exercise Price
                                     ---------     --------------
Balance at April 1, 2000               80,000         $55.856
     Granted                             --              --
     Exercised                           --              --
     Forfeited                           --              --
     Expired                             --              --
                                      -------         -------
Balance at March 31, 2001              80,000          55.856
     Granted                           44,000          65.239
     Exercised                        (14,000)         35.625
     Forfeited                        (27,500)         65.000
     Expired                             --              --
                                      -------         -------
Balance at March 31, 2002              82,500          58.336
     Granted                             --              --
     Exercised                           --              --
     Forfeited                           --              --
     Expired                             --              --
                                      -------         -------
Balance at March 31, 2003              82,500         $58.336
                                      =======         =======

     At March 31,  2003,  the range of  exercise  prices  and  weighted  average
remaining  contractual life of outstanding options was $35.625 - $84.70 and 4.80
years, respectively.

     At March 31, 2003,  2002 and 2001,  the number of options  exercisable  was
44,750, 36,100 and 49,750,  respectively and the weighted average exercise price
of those options was $50.61, $45.93, $42.63, respectively.

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 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 $44,417 in 2003, $28,322 in
2002 and $42,997 in 2001.

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, 2003.

     The following tables set forth the qualified plan's benefit obligations and
fair value of plan assets at March 31, 2003, 2002 and 2001:

                                                Years Ended March 31
                                    -----------------------------------------
                                        2003           2002           2001
                                    -----------    -----------    -----------
Change in benefit obligation
Benefit obligation at beginning
     of  year ...................   $ 3,284,463    $ 3,255,669    $ 3,260,366
Service cost ....................        41,142         58,428         50,961
Interest cost ...................       202,424        207,940        205,976
Amendments ......................       346,882           --             --
Actuarial loss ..................       165,560         94,298         59,571
Benefits paid ...................      (363,872)      (331,872)      (321,205)
                                    -----------    -----------    -----------
Benefit obligation at end of year   $ 3,676,599    $ 3,284,463    $ 3,255,669
                                    ===========    ===========    ===========


<PAGE>
<TABLE>
<CAPTION>

                                                    Years Ended March 31
                                         -----------------------------------------
                                             2003           2002           2001
                                         -----------    -----------    -----------
<S>                                      <C>            <C>            <C>
Change in plan assets
Fair value of plan assets at beginning
     of  year ........................   $ 9,410,320    $ 8,758,035    $ 9,837,547
Actual return on plan assets .........    (2,164,725)       984,157       (758,307)
Benefits paid ........................      (363,872)      (331,872)      (321,205)
                                         -----------    -----------    -----------
Fair value of plan assets at end of
     year ............................   $ 6,881,723    $ 9,410,320    $ 8,758,035
                                         ===========    ===========    ===========
</TABLE>

     The  following  table sets forth the  qualified  plan's  funded  status and
amounts  recognized  in  the  Company's  consolidated  statements  of  financial
condition:
<TABLE>
<CAPTION>
                                                                 March 31
                                                       --------------------------
                                                           2003           2002
                                                       -----------    -----------
<S>                                                    <C>            <C>
Actuarial present value of benefit obligations:
     Accumulated benefit obligation ................   $(3,346,711)   $(2,906,821)
                                                       ===========    ===========
Projected benefit obligation for service rendered to
     date ..........................................   $(3,676,599)   $(3,284,463)
Plan assets at fair value* .........................     6,881,723      9,410,320
                                                       -----------    -----------
Excess of plan assets over the projected benefit
     obligation ....................................     3,205,124      6,125,857
Unrecognized net loss from past experience
     different from that assumed and effects of
     changes in assumptions ........................     3,023,057         32,117
Unrecognized prior service costs ...................       217,886       (140,319)
Unrecognized net assets being amortized over
     19 years ......................................      (147,646)      (221,477)
                                                       -----------    -----------
Prepaid pension cost included in other assets ......   $ 6,298,421    $ 5,796,178
                                                       ===========    ===========
</TABLE>
- -----------
*Primarily  equities and bonds including  approximately  30,000 shares of common
stock of the Company.

     Components of net pension benefit related to the qualified plan include the
following:
                                                     Years Ended March 31
                                            -----------------------------------
                                               2003         2002         2001
                                            ---------    ---------    ---------
Service cost - benefits earned during
     the year .........................     $  41,142    $  58,428    $  50,961
Interest cost on projected benefit
     obligation .......................       202,424      207,940      205,976
Expected return on assets .............      (641,722)    (783,467)    (762,897)
Net amortization and deferral .........      (104,087)    (114,284)    (131,965)
                                            ---------    ---------    ---------
Net pension benefit from qualified plan     $(502,243)   $(631,383)   $(637,925)
                                            =========    =========    =========

     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.



<PAGE>

     The following  table sets forth the Retirement  Restoration  Plan's benefit
obligations at March 31, 2003, 2002 and 2001:
                                                Years Ended March 31
                                      -----------------------------------------
                                          2003           2002           2001
                                      -----------    -----------    -----------
Change in benefit obligation
Benefit obligation at beginning
     of  year ...................     $ 1,778,496      1,758,214    $ 2,026,495
Service cost ....................           5,389          8,573          4,945
Interest cost ...................         104,436        113,779        113,497
Amendments ......................        (347,147)          --             --
Actuarial (gain) loss ...........         (20,507)        97,210       (176,776)
Benefits paid ...................        (167,281)      (199,280)      (209,947)
                                      -----------    -----------    -----------
Benefit obligation at end of year     $ 1,353,386    $ 1,778,496    $ 1,758,214
                                      ===========    ===========    ===========

     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
                                                     --------------------------
                                                         2003           2002
                                                     -----------    -----------

Projected benefit obligation .....................   $(1,353,386)   $(1,778,496)
Unrecognized net gain from past ex-
     perience different from that assumed
     and effects of changes in assumptions .......       (54,972)       (34,465)
Unrecognized prior service costs .................      (286,262)        65,380
                                                     -----------    -----------
Accrued pension cost included in other liabilities   $(1,694,620)   $(1,747,581)
                                                     ===========    ===========

     The Retirement  Restoration Plan expenses recognized during the years ended
March 31, 2003, 2002 and 2001 of $114,320, $126,847 and $151,751,  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 6.0% and 5.0%, respectively, at March 31, 2003
and 6.5% and 5.0%, respectively,  at both March 31, 2002 and March 31, 2001. The
expected  long-term  rate of return used to project  estimated  earnings on plan
assets for the  qualified  plan was 6.0% for the year ended  March 31,  2003 and
7.5% for the years  ended March 31, 2002 and March 31,  2001.  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
2003                       Interest     Dividends       Income         Taxes
- ----                     ---------------------------------------   ------------
Companies more than
   25% owned .........   $     5,600   $ 3,073,770   $   494,900    $      --
Companies 5% to 25%
   owned .............          --            --            --          (47,525)
Companies less than
   5% owned ..........       180,000       287,220         1,000      2,054,637
Other sources,
   including temporary
   investments .......        18,890          --            --             --
                         ------------------------------------------------------
                         $   204,490   $ 3,360,990   $   495,900    $ 2,007,112
                         ======================================================
2002
- ----
Companies more than
   25% owned .........   $    39,200   $ 2,996,591   $   487,400    $      --
Companies 5% to 25%
   owned .............        99,041          --            --             --
Companies less than
   5% owned ..........       133,549       297,042        43,000       (762,114)
Other sources,
   including temporary
   investments .......        50,731          --            --
                         ------------------------------------------------------
                         $   322,521   $ 3,293,633   $   530,400    $  (762,114)
                         ======================================================

2001
- ----
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)
                         ======================================================

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:

<PAGE>


(all figures in thousands)                                   March 31
                                                  ------------------------------
                                                    2003                  2002
                                                  --------              --------
Condensed Balance Sheet Data
   Assets
   Cash and temporary
     investments ......................           $ 14,885              $ 21,884
   Receivables ........................             31,675                28,092
   Inventories ........................             40,854                38,721
   Property, plant and equipment ......             38,035                38,109
   Other assets .......................             24,598                21,072
                                                  --------              --------
     Totals ...........................           $150,047              $147,878
                                                  ========              ========

   Liabilities and Shareholder's Equity
   Long-term debt .....................           $  5,182              $ 10,594
   Other liabilities ..................             16,319                16,926
   Shareholder's equity ...............            128,546               120,358
                                                  --------              --------
     Totals ...........................           $150,047              $147,878
                                                  ========              ========

Condensed Statements of Income ........             2003       2002       2001
                                                  --------   --------   --------
   Revenues ...........................           $100,553   $ 96,417   $ 93,575
   Costs and operating expenses .......             88,861     83,475     80,952
   Income before income taxes .........             13,105     14,722     14,659
   Income taxes .......................              2,858      5,585      4,829
   Net income .........................             10,247      9,137      9,830

11.  Commitments

     The  Company  has agreed,  subject to certain  conditions,  to invest up to
$2,408,525 in five portfolio companies.

     The Company  leases  office space under an operating  lease which  requires
base annual rentals of  approximately  $74,000 through  February,  2008. For the
three years ended March 31, total rental  expense  charged to investment  income
was $60,482 in 2003, $58,984 in 2002 and $58,145 in 2001.

<PAGE>
<TABLE>
<CAPTION>

                       Selected Per Share Data and Ratios


                                                                                           Years Ended March
                                                                  -----------------------------------------------------------------
                                                                     2003          2002          2001          2000          1999
                                                                  -----------------------------------------------------------------
<S>                                                               <C>           <C>           <C>           <C>           <C>
Per Share Data
Investment income ..............................................  $    1.06     $    1.08     $    1.06     $     .86     $    1.00
Operating expenses .............................................       (.30)         (.27)         (.26)         (.27)         (.40)
Interest expense ...............................................       (.12)         (.24)         (.30)         (.12)         (.11)
Income taxes ...................................................       (.04)         (.04)         (.05)         (.03)         (.03)
                                                                  -----------------------------------------------------------------
Net investment income ..........................................        .60           .53           .45           .44           .46
Distributions from undistributed net investment income .........       (.60)         (.60)         (.60)         (.60)         (.60)
Net realized gain (loss) on investments ........................        .35          (.14)         (.85)         1.58           .26
Net increase (decrease) in unrealized appreciation of
    investments after deferred taxes ...........................     (11.85)         6.31         (1.69)        (6.49)       (10.81)
Exercise of employee stock options* ............................       --            (.08)         --            --            (.30)
                                                                  -----------------------------------------------------------------


Increase (decrease) in net asset value .........................     (11.50)         6.02         (2.69)        (5.07)       (10.99)
Net asset value
  Beginning of year ............................................      65.42         59.40         62.09         67.16         78.15
                                                                  -----------------------------------------------------------------
  End of year ..................................................  $   53.92     $   65.42     $   59.40     $   62.09     $   67.16
                                                                  =================================================================

Increase (decrease) in deferred taxes on unrealized
    appreciation ...............................................  $   (6.35)    $    3.26     $   (1.01)    $   (3.49)    $   (6.04)
Deferred taxes on unrealized appreciation:
  Beginning of year ............................................      24.05         20.79         21.80         25.29         31.33
                                                                  -----------------------------------------------------------------
  End of year ..................................................  $   17.70     $   24.05     $   20.79     $   21.80     $   25.29
                                                                  =================================================================

Ratios and Supplemental Data
Ratio of operating expenses to average net assets ..............        .52%          .42%          .42%          .42%          .55%
Ratio of operating expenses to average net assets plus average
    deferred taxes on unrealized appreciation ..................        .39%          .31%          .31%          .31%          .39%
Ratio of net investment income to average net assets ...........       1.04%          .85%          .74%          .67%          .63%
Portfolio turnover rate ........................................       1.53%         1.05%         2.56%         4.26%          .19%

Shares outstanding at end of period (000s omitted) .............      3,829         3,829         3,815         3,815         3,815
</TABLE>
- ---------
* Net decrease is due to the exercise of employee  stock  options at prices 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 subsidiaries as of March 31, 2003
and 2002,  including the portfolio of  investments as of March 31, 2003, 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, 2003 and
the  selected  per share data and ratios for each of the years in the  five-year
period ended March 31, 2003.  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 the physical
examination  of  securities  owned as of March 31,  2003 and  2002,  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 subsidiaries as of March
31,  2003 and 2002,  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, 2003, and the selected per share data and ratios for each of the years
in the  five-year  period ended March 31, 2003, in  conformity  with  accounting
principles generally accepted in the United States of America.




                                                                        KPMG LLP
Dallas, Texas
April 25, 2003

<PAGE>

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


Results of Operations

     The  composite  measure  of  the  Company's  financial  performance  in the
Consolidated  Statements of Operations is captioned "Increase  (decrease) in net
assets  from  operations"  and  consists  of three  elements.  The first is "Net
investment  income",  which is the difference  between the Company's income from
interest,  dividends and fees and its combined  operating and interest expenses,
net of applicable  income taxes. The second element is "Net realized gain (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  increase  (decrease)  in
unrealized  appreciation of investments",  which is the net change in the market
or fair value of the Company's investment portfolio,  compared with stated cost,
net of an  increase or decrease  in  deferred  income  taxes which would  become
payable if the unrealized  appreciation  were realized through the sale or other
disposition  of the  investment  portfolio.  It  should  be noted  that the "Net
realized gain (loss) on investments" and "Net increase  (decrease) in unrealized
appreciation  of investments"  are directly  related in that when an appreciated
portfolio  security is sold to realize a gain, a  corresponding  decrease in net
unrealized  appreciation  occurs by  transferring  the gain  associated with the
transaction from 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  $17,346  in 2003,  $48,877 in 2002 and  $249,000  in 2001.  The
Company also receives management fees from its wholly-owned  portfolio companies
which  aggregated  $458,400 in each of the years ended March 31, 2003, March 31,
2002 and March 31,  2001.  During the three  years  ended  March 31,  2003,  the
Company recorded dividend income from the following sources:

                                                    Years Ended March 31
                                            ------------------------------------
                                               2003         2002         2001
                                            ----------   ----------   ----------
AT&T Corp. .........................        $   19,987   $   19,987   $   68,621
Alamo Group Inc. ...................           677,112      677,112      677,112
Dennis Tool Company ................            49,999       49,999       49,999
Kimberly-Clark Corporation .........            95,703       87,985       84,126
The RectorSeal Corporation .........           960,000      960,000      960,000
Skylawn Corporation ................         1,146,659    1,069,480      658,275
TCI Holdings, Inc. .................            81,270       81,270       81,270
Texas Shredder, Inc. ...............            33,667       44,506       40,460
The Whitmore Manufacturing Company .           240,000      240,000      240,000
Other ..............................            56,593       63,294       95,970
                                            ----------   ----------   ----------
                                            $3,360,990   $3,293,633   $2,955,833
                                            ==========   ==========   ==========

     Total operating expenses, excluding interest expense, increased by $126,524
or 12.4% and by $43,684 or 4.5%  during the years ended March 31, 2003 and 2002,
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  decreased  by  $452,611  during the year ended  March 31, 2003 due to a
decrease in interest rates and the payoff of the subordinated  debenture on June
3, 2002.  For the year ended  March 31,  2002,  interest  expense  decreased  by
$214,965 due to a decrease in interest rates.

Net Realized Gain (Loss) on Investments

     Net realized gain on investments  was $1,345,728  (after income tax expense
of  $661,384)  during the year ended  March 31,  2003,  compared  with a loss of
$537,934  (after  income tax  benefit  of  $224,180)  during  2002 and a loss of
$3,230,987 (after income tax benefit of $1,894,506) during 2001. Management does
not attempt to maintain a comparable  level of realized gains from year to year,
but instead attempts to maximize total investment portfolio  appreciation.  This
strategy often dictates the long-term holding of portfolio securities in pursuit
of increased values and increased unrealized appreciation,  but may at opportune
times  dictate  realizing  gains or losses  through the  disposition  of certain
portfolio investments.

<PAGE>

Net Increase (Decrease) in Unrealized Appreciation of Investments

     For the three  years  ended  March 31, the  Company  recorded  an  increase
(decrease)  in unrealized  appreciation  of  investments  before income taxes of
$(69,688,616),   $36,971,348   and   $(10,310,835)   in  2003,  2002  and  2001,
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
                                    2003          2002         2001
                               ------------    ------------     ------------

AT&T Corp. .................   $   (426,165)   $   (746,162)    $ (4,681,896)
Alamo Group Inc. ...........     (8,464,000)      2,821,000        2,821,000
All Components, Inc. .......           --           (50,000)       3,450,000
Balco, Inc. ................      2,000,000       1,482,240             --
CDC Technologies, Inc./Drew
     Scientific Group PLC ..           --           (38,098)      (2,592,541)
Concert Industries Ltd. ....     (5,479,000)     (3,740,000)         294,351
Encore Wire Corporation ....    (10,898,000)     10,898,000             --
Liberty Media Corporation ..     (1,868,329)       (921,280)     (10,605,732)
Mail-Well, Inc. ............     (2,557,926)       (524,000)      (6,290,000)
Media Recovery, Inc. .......           --        (8,000,000)      10,000,000
Organized Living, Inc. .....     (2,999,999)     (3,000,000)            --
Palm Harbor Homes, Inc. ....    (39,275,000)     31,420,000       (7,855,000)
PETsMART, Inc. .............       (436,051)      5,298,343          654,220
The RectorSeal Corporation .      5,000,000       2,500,000        5,500,000
Skylawn Corporation ........           --              --          3,000,000
Sprint Corporation-FON Group       (254,880)       (482,400)      (2,952,720)

     As shown in the above table for the year ended March 31, 2003, we sustained
a major  $39,275,000  decrease  in the value of our  investment  in Palm  Harbor
Homes, Inc. This 35.7% decrease in value reflects Palm Harbor's vulnerability to
the  unfavorable   condition  of  the  manufactured   housing  industry  as  the
availability of floor plan financing for retailers has declined and lenders have
withdrawn from manufactured  housing mortgage  financing for retail  purchasers.
The hostile industry  climate has created intense price  competition and reduced
sales volume.  We also  experienced  a  significant  decline in the value of our
investment  in Encore Wire  Corporation,  which was  reduced  during the year by
$10,898,000, equivalent to 44.4%, as overcapacity in the electric wire and cable
industry led to intense  price  competition  and lower profit  margins.  Another
large  decline was in the value of our  investment  in Alamo  Group Inc.,  which
decreased by $8,464,000 - a 27.3% decline  during the year - due to the weakness
of mower sales to  governmental  agencies and the  unfavorable  condition of the
agricultural  equipment  market.  Another  large decline was in the value of our
investment in Concert  Industries  Ltd., which decreased by $5,479,000 - a 92.5%
decline  during  the  year  -  as  the  company  experienced  continuing  losses
attributable to production problems in its new Canadian  manufacturing  facility
and to increased competition in the air-laid nonwoven fabrics market.

     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, 2003."

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, 2003  consolidated  deferred Federal income taxes of
$67,790,000  were provided on net  unrealized  appreciation  of  investments  of
$195,598,595  compared  with deferred  taxes of  $92,107,000  on net  unrealized
appreciation of  $265,287,211 at March 31, 2002.  Deferred income taxes at March
31, 2003 and 2002 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, 2003, the Company  invested  $11,904,639 in
various  portfolio  securities listed elsewhere in this report under the caption
"Portfolio  Changes During the Year," which also lists dispositions of portfolio
securities.  During the 2002 and 2001 fiscal years, the Company invested a total
of $3,545,458 and $15,922,079, respectively.

<PAGE>

Financial Liquidity and Capital Resources

     At  March  31,  2003,  the  Company  had  cash  and  cash   equivalents  of
approximately $4.7 million.  Pursuant to Small Business  Administration  ("SBA")
regulations,  cash and cash  equivalents of $0.5 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 $63.8  million.  The Company  also has an  unsecured
$25,000,000 revolving line of credit from a commercial bank, of which $9,500,000
was  available  at  March  31,  2003.  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 35 years. Retention of future gains is
viewed as an  important  source of funds to  sustain  the  Company's  investment
activity.  Approximately $25.4 million of the Company's  investment portfolio is
represented  by   unrestricted   publicly-traded   securities,   which  have  an
ascertainable market value and represent a source of liquidity.

     Funds to be used by the Company for operating or investment purposes may be
transferred  in the form of  dividends,  management  fees or loans from  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. At March 31, 2003, the Company
owed $7,500,000 to Skylawn Corporation.

     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.

Critical Accounting Policies

Valuation of Investments

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

     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.

Deferred Income Taxes

     In future  years,  the  Company  may not  qualify or elect to be taxed as a
regulated investment company ("RIC") under applicable provisions of the Internal
Revenue Code. Therefore, deferred Federal income taxes have been provided on net
unrealized appreciation of investments at the then currently effective corporate
tax rate on capital gains.

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.

<PAGE>

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)


                                       1993         1994         1995         1996         1997         1998
- --------------------------------------------------------------------------------------------------------------
<S>                                 <C>          <C>          <C>          <C>          <C>          <C>
Financial Position  (as of March 31)
Investments at cost .............   $  33,953    $  41,993    $  49,730    $  58,544    $  59,908    $  61,154
Unrealized appreciation .........     113,153      132,212      153,031      198,386      233,383      340,132
                                    ---------    ---------    ---------    ---------    ---------    ---------
Investments at market or
   fair value ...................     147,106      174,205      202,761      256,930      293,291      401,286
Total assets ....................     176,422      270,874      213,811      326,972      310,760      522,324
Notes payable * .................      15,000       15,000       11,000       11,000        5,000        5,000
Deferred taxes on
   unrealized appreciation ......      38,112       45,932       53,247       69,121       81,313      118,674
Net assets ......................     121,455      133,053      147,370      189,048      218,972      296,023
Shares outstanding ..............       3,681        3,715        3,735        3,767        3,767        3,788

- --------------------------------------------------------------------------------------------------------------
Changes in Net Assets (years ended March 31)
Net investment income ...........   $   2,189    $   2,870    $   2,447    $   2,855    $   2,574    $   2,726
Net realized gain (loss) on
   investments ..................       5,099         (475)         142       11,174        6,806        6,485
Net increase (decrease) in
   unrealized appreciation
   before distributions .........       8,524       11,160       13,584       38,746       22,804       69,388
                                    ---------    ---------    ---------    ---------    ---------    ---------
Increase (decrease) in net
   assets from operations
   before distributions .........      15,812       13,555       16,173       52,775       32,184       78,599
Cash dividends paid .............      (2,202)      (2,228)      (2,241)      (2,270)      (2,260)      (2,268)
Securities distributed ..........        --           --           --         (9,402)        --           --
Employee stock options
   exercised ....................         322          272          385          575         --            720
                                    ---------    ---------    ---------    ---------    ---------    ---------
Increase (decrease) in net assets      13,932       11,599       14,317       41,678       29,924       77,051

- --------------------------------------------------------------------------------------------------------------
Per Share Data (as of March 31)
Deferred taxes on
   unrealized appreciation ......   $   10.35    $   12.36    $   14.26    $   18.35    $   21.59    $   31.33
Net assets ......................       32.99        35.81        39.46        50.18        58.13        78.15
Closing market price ............       36.50       38.125        38.00        60.00       67.875        94.00
Cash dividends paid .............         .60          .60          .60          .60          .60          .60
Securities distributed ..........        --           --           --           2.50         --           --


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


<PAGE>

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




                                       1999         2000         2001         2002         2003
- -------------------------------------------------------------------------------------------------

Financial Position  (as of March 31)
Investments at cost .............   $  73,580     $ 85,002    $  87,602    $  82,194    $  91,462
Unrealized appreciation .........     276,698      238,627      228,316      265,287      195,598
                                    ---------    ---------    ---------    ---------    ---------
Investments at market or
   fair value ...................     350,278      323,629      315,918      347,481      287,060
Total assets ....................     360,786      392,586      322,668      357,183      298,490
Notes payable * .................       5,000       10,000       16,000       14,000       23,000
Deferred taxes on
   unrealized appreciation ......      96,473       83,151       79,310       92,107       67,790
Net assets ......................     256,232      236,876      226,609      250,491      206,467
Shares outstanding ..............       3,815        3,815        3,815        3,829        3,829

- -------------------------------------------------------------------------------------------------
Changes in Net Assets (years ended March 31)
Net investment income ...........   $   1,762    $   1,663    $   1,723    $   2,042    $   2,299
Net realized gain (loss) on
   investments ..................         995        6,020       (3,231)        (538)       1,346
Net increase (decrease) in
   unrealized appreciation
   before distributions .........     (41,233)     (24,750)      (6,470)      24,174      (45,372)
                                    ---------    ---------    ---------    ---------    ---------
Increase (decrease) in net
   assets from operations
   before distributions .........     (38,476)     (17,067)      (7,978)      25,678      (41,727)
Cash dividends paid .............      (2,280)      (2,289)      (2,289)      (2,295)      (2,297)
Securities distributed ..........        --           --           --           --           --
Employee stock options
   exercised ....................         965         --           --            499         --
                                    ---------    ---------    ---------    ---------    ---------
Increase (decrease) in net assets     (39,791)     (19,356)     (10,267)      23,882      (44,024)

- -------------------------------------------------------------------------------------------------
Per Share Data (as of March 31)
Deferred taxes on
   unrealized appreciation ......   $   25.29    $   21.80    $   20.79    $   24.05    $   17.70
Net assets ......................       67.16        62.09        59.40        65.42        53.92
Closing market price ............       73.00        54.75        65.00        68.75        48.15
Cash dividends paid .............         .60          .60          .60          .60          .60
Securities distributed ..........        --           --           --           --           --
</TABLE>


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


<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  800 record  holders of its common  stock at
March 31, 2003. This total does not include an estimated 2,300 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, 2001....................................       $69.00   $ 59.00
September 30, 2001...............................        68.20     60.25
December 31, 2001................................        67.19     57.35
March 31, 2002...................................        69.01     63.28

Quarter Ended                                            High     Low
- -------------------------------------------------------------------------
June 30, 2002....................................       $79.24  $  66.31
September 30, 2002...............................        70.25     58.00
December 31, 2002...............................         60.24     45.35
March 31, 2003...................................        53.00     43.00


Dividends

     The payment  dates and amounts of cash  dividends  per share since April 1,
2001 are as follows:

Payment Date                                              Cash Dividend
- -----------------------------------------------------------------------
May 31, 2001..............................................    $0.20
November 30, 2001.........................................     0.40
May 31, 2002..............................................     0.20
November 29, 2002.........................................     0.40
May 30, 2003..............................................     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 21,  2003,  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-23.1
<SEQUENCE>8
<FILENAME>capitalsw10kex231033103.txt
<DESCRIPTION>INDEPENDENT AUDITOR'S CONSENT
<TEXT>

                                                                    Exhibit 23.1










                          Independent Auditors' Consent



The Board of Directors
Capital Southwest Corporation:


We consent to the incorporation by reference in the registration  statement (No.
33-43881) on Form S-8 of Capital Southwest Corporation of our report dated April
25, 2003, with respect to the consolidated  statements of financial condition of
Capital  Southwest  Corporation  and  subsidiary  as of March 31, 2003 and 2002,
including the  portfolio of  investments  as of March 31, 2003,  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,  2003,  and the
selected per share data and ratios for each of the years in the five-year period
ended March 31, 2003,  which report appears in the annual report to shareholders
for the year ended March 31, 2003, and is incorporated by reference in the March
31, 2003 annual report on Form 10-K of Capital Southwest Corporation.

                                    KPMG LLP


Dallas, Texas
June 12, 2003



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>9
<FILENAME>capital10kex991033103.txt
<DESCRIPTION>CERTIFICATION OF PRESIDENT & CHAIRMAN
<TEXT>

                                                                    Exhibit 99.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection with the Annual Report of Capital Southwest  Corporation (the
"Company")  on Form 10-K for the year  ended  March 31,  2003 as filed  with the
Securities and Exchange Commission on the date hereof (the "Report"), I, William
R. Thomas, President and Chairman of the Board of the Company, certify, pursuant
to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the  Sarbanes-Oxley Act
of 2002, that:

1.   The Report fully complies with the  requirements  of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and

2.   The information  contained in the Report fairly  presents,  in all material
respects,  the consolidated financial condition and results of operations of the
Company.




Date:  June 13, 2003                             By: /s/ William R. Thomas
       -------------                                ----------------------------
                                                    William R. Thomas, President
                                                    and Chairman of the Board



A signed  original of this  written  statement  required by Section 906 has been
provided  to  Capital  Southwest  Corporation  and will be  retained  by Capital
Southwest Corporation and furnished to the Securities and Exchange Commission or
its staff upon request.



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>10
<FILENAME>capitalsw10kex992033103.txt
<DESCRIPTION>CERTIFICATION OF SECRETARY-TREASURER
<TEXT>

                                                                    Exhibit 99.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection with the Annual Report of Capital Southwest  Corporation (the
"Company")  on Form 10-K for the year  ended  March 31,  2003 as filed  with the
Securities and Exchange  Commission on the date hereof (the "Report"),  I, Susan
K. Hodgson,  Secretary-Treasurer of the Company,  certify, pursuant to 18 U.S.C.
ss.  1350,  as adopted  pursuant to ss. 906 of the  Sarbanes-Oxley  Act of 2002,
that:

1.   The Report fully complies with the  requirements  of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and

2.   The information  contained in the Report fairly  presents,  in all material
respects,  the consolidated financial condition and results of operations of the
Company.



Date:  June 13, 2003                    By: /s/ Susan K. Hodgson
       -------------                       -------------------------------------
                                           Susan K. Hodgson, Secretary-Treasurer



A signed  original of this  written  statement  required by Section 906 has been
provided  to  Capital  Southwest  Corporation  and will be  retained  by Capital
Southwest Corporation and furnished to the Securities and Exchange Commission or
its staff upon request.


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