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<SEC-DOCUMENT>0001010549-05-000401.txt : 20050611
<SEC-HEADER>0001010549-05-000401.hdr.sgml : 20050611
<ACCEPTANCE-DATETIME>20050527132433
ACCESSION NUMBER:		0001010549-05-000401
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		13
CONFORMED PERIOD OF REPORT:	20050331
FILED AS OF DATE:		20050527
DATE AS OF CHANGE:		20050527

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:		05862833

	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>capital10k033105.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, 2005

                                       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 September  30, 2004 was  $139,165,652,  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,  2005 was
3,857,051.

<TABLE>
<CAPTION>

       Documents Incorzporated by Reference                         Part of Form 10-K
       ------------------------------------                         -----------------
<C>                                                           <C>
(1)  Annual Report to Shareholders for the Year Ended             Parts I and II; and
                March 31, 2005                                Part IV, Item 14(a)(1) and (2)

(2)  Proxy Statement for Annual Meeting of Shareholders                 Part III
               to be held July 18, 2005
</TABLE>

<PAGE>

                                TABLE OF CONTENTS


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

PART II
     Item 5.    Market for Registrant's Common Equity, Related Stockholder
                   Matters and Issuer Purchases of Equity Securities..........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...................................4
     Item 9A.   Controls and Procedures.......................................4
     Item 9B.   Other Information.............................................4

PART III
     Item 10.   Directors and Executive Officers of the Registrant............4
     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.   Principal Accountant Fees and Services........................5

PART IV
     Item 15.   Exhibits and Financial Statement Schedules....................5

Signatures ...................................................................6



<PAGE>

                                     PART I

Item 1.       Business

         We were  organized  as a Texas  corporation  on April 19,  1961.  Until
September  1969, we operated as a licensee under the Small  Business  Investment
Act of 1958.  At that  time,  we  transferred  to our  wholly-owned  subsidiary,
Capital Southwest Venture Corporation  ("CSVC"),  certain assets and our 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,  we
were registered as a closed-end,  non-diversified  investment  company under the
1940 Act.  On that date,  we elected  to become a business  development  company
subject to the  provisions  of the 1940 Act,  as  amended by the Small  Business
Incentive  Act of 1980.  Because  we wholly  own CSVC,  the  portfolios  of both
entities are referred to collectively as "our", "we" and "us".

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

         The  twelve  largest   investments  we  own  had  a  combined  cost  of
$41,744,164 and a value of $362,551,796,  representing 85.9% of the value of our
consolidated investment portfolio at March 31, 2005. For a narrative description
of the twelve largest  investments,  see "Twelve Largest Investments - March 31,
2005" on pages 7 through 9 of our  Annual  Report to  Shareholders  for the Year
Ended March 31, 2005 (our "2005 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.

         We compete 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 us at March 31, 2005 was seven.

         Our  internet  website  address  is  www.capitalsouthwest.com.  You can
review  the  filings  we  have  made  with  the  U.S.  Securities  and  Exchange
Commission,  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.  The  charters  adopted  by the
committees of our board of directors are also available on our website.

Item 2.       Properties

         We  maintain  our offices at 12900  Preston  Road,  Suite 700,  Dallas,
Texas,  75230,  where we rent  approximately  3,700  square feet of office space
pursuant to a lease  agreement  expiring in February  2008.  We believe that our
offices are adequate to meet our current and expected future needs.

Item 3.       Legal Proceedings

         We have no material  pending legal  proceedings to which we are a party
or to which any of our property is subject.



                                       1
<PAGE>

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, 2005.

Item 4A.      Executive Officers

         The  names  and  ages of our  executive  officers  as of June 1,  2005,
together with certain biographical information, are as follows:

     William M. Ashbaugh,  age 50, has served as Vice  President  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.

     Patrick F. Hamner,  age 49, has served as Vice President since 1986 and was
          an Investment Associate from 1982 to 1986.

     Susan K. Hodgson, age 43, has served as Secretary-Treasurer  since 2001 and
          was Controller from 1994 to 2001.

     Gary L. Martin,  age 58, has been a director since July 1988 and has served
          as Vice President  since 1984. He previously  served as Vice President
          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 76, has served as Chairman of the Board of Directors
          since  1982 and  President  since  1980.  In  addition,  he has been a
          director since 1972 and was previously Senior Vice President from 1969
          to 1980.

                                     PART II

Item 5.       Market for Registrant's Common Equity, Related Stockholder Matters
              and Issuer Purchases of Equity Securities

         Information  set forth under the captions  "Shareholder  Information  -
Shareholders,  Market Prices and Dividends" on page 37 of our 2005 Annual Report
is herein incorporated by reference.

Item 6.       Selected Financial Data

         "Selected  Consolidated  Financial  Data" on page 36 of our 2005 Annual
Report is herein incorporated by reference.

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

         Pages 33 through 35 of our 2005 Annual  Report are herein  incorporated
by reference.

Item 7A.      Quantitative and Qualitative Disclosures About Market Risk

         We  are  subject  to  financial  market  risks,  including  changes  in
marketable  equity  security  prices.   We  do  not  use  derivative   financial
instruments to mitigate any of these risks. The return on our investments is not
materially affected by foreign currency fluctuations.

         Our investment performance is a function of our portfolio companies'
profitability, which may be affected by economic cycles, competitive forces and
production costs including labor rates, raw material prices and certain basic
commodity prices. All of these factors may have an adverse effect on the value
of our investments and on our net asset value. Most of the companies in our
investment portfolio do not hedge their exposure to raw material and commodity
price fluctuations.

         Our  investment  in  portfolio   securities  includes  fixed-rate  debt
securities  which totaled  $5,592,145 at March 31, 2005,  equivalent to 1.33% of
the value of our total  investments.  Generally  these debt securities are below
investment  grade and have relatively  high fixed rates of interest,  therefore;



                                       2
<PAGE>
<TABLE>
<CAPTION>

minor changes in market yields of publicly-traded debt securities have little or
no effect on the values of debt  securities  in our  portfolio  and no effect on
interest  income.  Our  investments  in debt  securities  are generally  held to
maturity and their fair values are  determined  on the basis of the terms of the
debt security and the financial condition of the issuer.

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

Item 8.       Financial Statements and Supplementary Data

         Pages 10 through 32 of our 2005 Annual  Report are herein  incorporated
by  reference.  See also  Item 15 of this Form 10-K -  "Exhibits  and  Financial
Statement Schedules".

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

         The   following   presents  a  summary  of  the   unaudited   quarterly
consolidated financial information for the years ended March 31, 2005 and 2004.

                                                   First      Second       Third       Fourth
                                                  Quarter     Quarter     Quarter     Quarter     Total
                                                 --------    --------    --------    --------   --------
                                                         (In thousands, except per share amounts)
<S>                                              <C>         <C>         <C>         <C>        <C>
2005
- ----
    Net investment income                        $    489    $    443    $  1,366    $    108   $  2,406
    Net realized gain (loss) on investments        (1,556)     (2,470)     (3,422)      1,382     (6,066)
    Net increase (decrease) in unrealized
        appreciation of investments                (2,392)     (2,547)     15,025       7,799     17,885
    Net increase (decrease) in net assets
       from operations                             (3,459)     (4,574)     12,969       9,289     14,225
    Net increase (decrease) in net assets
       from operations per share                    (0.90)      (1.18)       3.36        2.41       3.69
2004
- ----
    Net investment income                        $    437    $    382    $  1,459    $    309   $  2,587
    Net realized gain (loss) on investments            (2)      1,935         (92)      6,351      8,192
    Net increase in unrealized appreciation
       of investments                               8,756      13,214      12,964      39,755     74,689
    Net increase in net assets from operations      9,191      15,531      14,331      46,415     85,468
    Net increase in net assets from operations
       per share                                     2.40        4.02        3.71       12.03      22.16
</TABLE>



                                       3
<PAGE>

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

         None.

Item 9A.      Controls and Procedures

Disclosure Controls and Procedures

         As of March 31, 2005, an evaluation was performed under the supervision
and with the  participation  of our  management,  including  the  President  and
Chairman  of the  Board and  Secretary-Treasurer,  of the  effectiveness  of the
design and  operation of our  disclosure  controls and  procedures as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities  Exchange Act of 1934.  Based
on that evaluation, our management,  including the President and Chairman of the
Board  and  Secretary-Treasurer  concluded  that  our  disclosure  controls  and
procedures were effective as of March 31, 2005.

Changes in Internal Control Over Financial Reporting

         There have been no  changes  in our  internal  control  over  financial
reporting that occurred  during our fourth fiscal  quarter that have  materially
affected,  or are reasonably likely to materially  affect,  our internal control
over financial reporting.

Item 9B.      Other Information

         None.
                                    PART III

Item 10.      Directors and Executive Officers of the Registrant

         The  section  of our  2005  Proxy  Statement  captioned  "Nominees  for
Director"  under "Proposal 1. Election of Directors"  identifies  members of our
board  of  directors  and  nominees,  and is  incorporated  in  this  Item 10 by
reference.

         Item 4A of this Form 10-K  identifies  our  executive  officers  and is
incorporated in this Item 10 by reference.

         The  sections  of our 2005  Proxy  Statement  captioned  "Meetings  and
Committees  of the Board of  Directors - Audit  Committee"  under  "Proposal  1.
Election of Directors" and "Report of the Audit Committee" identifies members of
our audit committee of our board of directors and our audit committee  financial
expert, and are incorporated in this Item 10 by reference.

         The  section  of our 2005  Proxy  Statement  captioned  "Section  16(a)
Beneficial  Ownership  Reporting  Compliance" is incorporated in this Item 10 by
reference.

              Code of Ethics

         We have  adopted a code of ethics  that  applies to all our  directors,
officers and employees. We have made the Code of Conduct and Ethics available on
our website at www.capitalsouthwest.com.

Item 11.      Executive Compensation

         The  information in the section of our 2005 Proxy  Statement  captioned
"Executive Compensation" is incorporated in this Item 11 by reference.

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

         The information in the sections of our 2005 Proxy  Statement  captioned
"Stock Ownership of Certain Beneficial Owners" and "Executive  Compensation" are
incorporated in this Item 12 by reference.

         The table  below sets forth  certain  information  as of March 31, 2005
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.



                                       4
<PAGE>
<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
                               Exercise of         Price Of Outstanding               Compensation Plans
                          Outstanding Options,            Options,               (excluding securities reflected
Plan Category              Warrants And Rights       Warrants And Rights                  in column (a))
- -------------             --------------------       -------------------                  --------------

                                   (a)                       (b)                               (c)
                                   ---                       ---                               ---
<S>                              <C>                       <C>                               <C>
Equity                           48,500                    $68.186                           91,500
compensation plans
approved by security
holders(1)

Equity                                -                          -                                -
compensation plans
not approved by
security holders
                               --------                   --------                         --------
       Total                     48,500                    $68.186                           91,500
</TABLE>
- ---------
(1)  Includes the 1999 Stock Option Plan. For a description of this plan, please
     refer to Footnote 5 contained in our consolidated financial statements.

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, 2005 or proposed for the fiscal year
ending March 31, 2006.

Item 14.      Principal Accountant Fees and Services

         The information in the sections of our 2005 Proxy  Statement  captioned
"Proposal 2: Ratification of Appointment of Independent Auditors" and "Audit and
Other Fees" are incorporated in this Item 14 by reference.

                                     PART IV

Item 15.      Exhibits and Financial Statement Schedules

     (a)(1) The  following  information  included  in pages 10 through 32 of our
2005 Annual Report are herein incorporated by reference:

         (A) Portfolio of Investments - March 31, 2005
             Consolidated Statements of Financial Condition - March 31, 2005
                and 2004
             Consolidated Statements of Operations - Years Ended
                March 31, 2005, 2004 and 2003
             Consolidated Statements of Changes in Net Assets - Years Ended
                March 31, 2005, 2004 and 2003
             Consolidated Statements of Cash Flows - Years Ended March 31, 2005,
                2004 and 2003

         (B) Notes to Consolidated Financial Statements

         (C) Notes to Portfolio of Investments

         (D) Selected Per Share Data and Ratios

         (E) Management's Report on Internal Control over Financial Reporting

         (F) Reports of Independent Registered Public Accounting Firms

         (G) 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.




                                       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:  May 27, 2005

         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              May 27, 2005
     William R. Thomas          of the Board and Director
                                (chief executive officer)


    /s/  Gary L. Martin
- -----------------------------   Director                            May 27, 2005
       Gary L. Martin


  /s/  Graeme W. Henderson
- -----------------------------   Director                            May 27, 2005
     Graeme W. Henderson


     /s/ Samuel B. Ligon
- -----------------------------   Director                            May 27, 2005
      Samuel B. Ligon


     /s/  John H. Wilson
- -----------------------------   Director                            May 27, 2005
       John H. Wilson


   /s/ Susan K. Hodgson
- -----------------------------   Secretary-Treasurer                 May 27, 2005
     Susan K. Hodgson           (chief financial/accounting officer)





                                       6
<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. Double asterick denotes exhibits furnished 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. 1 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 (filed
                           as  Exhibit  10.3 to Form  10-K for the  fiscal  year
                           ended March 31, 2003).

         10.4  *           Amendment  No. 3 to The  RectorSeal  Corporation  and
                           Jet-Lube,  Inc.  Employee  Stock  Ownership  Plan  as
                           revised and restated effective April 1, 1998.

         10.5              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).

         10.6              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).

         10.7              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).

         10.8              Amendment  Four to  Retirement  Plan for Employees of
                           Capital  Southwest  Corporation and Its Affiliates as
                           amended and restated  effective  April 1, 1989 (filed
                           as  Exhibit  10.7 to Form  10-K for the  fiscal  year
                           ended March 31, 2003).




<PAGE>

         10.9              Amendment  Five to  Retirement  Plan for Employees of
                           Capital  Southwest  Corporation and Its Affiliates as
                           amended and restated  effective  April 1, 1989 (filed
                           as  Exhibit  10.8 to Form  10-K for the  fiscal  year
                           ended March 31, 2003).

         10.10             Amendment  Six to  Retirement  Plan for  Employees of
                           Capital  Southwest  Corporation and Its Affiliates as
                           amended and restated  effective  April 1, 1989 (filed
                           as  Exhibit  10.9 to Form  10-K for the  fiscal  year
                           ended March 31, 2003).

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

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

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

         10.14             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).

         10.15             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).

         10.16             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).

         10.17             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).

         10.18             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, 2005.

         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  *           Consent of Independent  Registered  Public Accounting
                           Firm - Grant Thornton LLP.

         23.2  *           Consent of Independent  Registered  Public Accounting
                           Firm - Ernst & Young LLP.

         23.3  *           Consent of Independent  Registered  Public Accounting
                           Firm - KPMG LLP.


<PAGE>

         31.1  *           Certification  of President and Chairman of the Board
                           required by Rule  13a-14(a) or Rule  15d-14(a) of the
                           Securities  Exchange  Act of 1934,  as  amended  (the
                           "Exchange Act"), filed herewith.

         31.2  *           Certification of Secretary-Treasurer required by Rule
                           13a-14(a)  or Rule  15d-14(a)  of the  Exchange  Act,
                           filed herewith.

         32.1  **          Certification  of President and Chairman of the Board
                           required by Rule  13a-14(b) or Rule  15d-14(b) of the
                           Exchange  Act and Section 1350 of Chapter 63 of Title
                           18 of the United States Code, furnished herewith.

         32.2  **          Certification of Secretary-Treasurer required by Rule
                           13a-14(b)  or Rule  15d-14(b) of the Exchange Act and
                           Section  1350 of Chapter 63 of Title 18 of the United
                           States Code, furnished herewith.




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>2
<FILENAME>capital10kex104033105.txt
<DESCRIPTION>AMENDMENT TO EMPLOYEE STOCK OWNERSHIP PLAN
<TEXT>

                                                                    Exhibit 10.4

                                 AMENDMENT NO. 3
                                       TO
                  THE RECTORSEAL CORPORATION AND JET-LUBE, INC.
                          EMPLOYEE STOCK OWNERSHIP PLAN
                (As Revised and Restated Effective April 1, 1998)


         THIS AMENDMENT NO. 3, executed this ____ day of ________________, 2004,
and effective as of August 1, 2004, by The  RectorSeal  Corporation,  a Delaware
corporation, having its principal office in Houston, Texas (hereinafter referred
to as the "Company").


                                   WITNESSETH:

         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");

         WHEREAS,  the  Company  adopted  Amendment  No.  2 to the  revised  and
restated Plan 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


<PAGE>

the  administrator  of the Plan shall process benefit claims of participants and
beneficiaries  pursuant to the 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; and

         WHEREAS,  the Company now desires to adopt this  Amendment No. 3 to the
revised  and  restated  Plan,  effective  as of August 1, 2004,  to exclude  the
Director  of  Business   Development   of  Cargo   Chemical   Corporation   from
participation in the Plan;

         NOW,  THEREFORE,  in  consideration  of the premises and the  covenants
herein contained, the Company hereby adopts the following Amendment No. 3 to the
Plan:

         The last sentence of Section 2.2 of the Plan is hereby  amended to read
as follows:

Notwithstanding the foregoing  provisions of this Section 2.2, William R. Thomas
and the  Director of Business  Development  of Cargo  Chemical  Corporation  are
excluded from participating in the Plan.

         IN  WITNESS  WHEREOF,  the  Company,  acting  by and  through  its duly
authorized  officers,  has caused this  Amendment No. 3 to be executed as of the
day and year first above written.

                                                      THE RECTORSEAL CORPORATION


                                                      By:_______________________
                                                                         COMPANY







                                      -2-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>3
<FILENAME>capital10kex1011033105.txt
<DESCRIPTION>AMENDMENT SEVEN TO RETIREMENT PLAN
<TEXT>

                                                                   EXHIBIT 10.11

                               AMENDMENT SEVEN 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 exclude  the  Director  of  Business  Development  of Cargo  Chemical
Corporation from participation in the Plan; and

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

         NOW,  THEREFORE,  Section  1.1(A)(13)  of the Plan is  hereby  amended,
effective  as of August 1,  2004,  to delete  the word "or" at the end of clause
(c),  to replace  the period at the end of clause (d) with a  semicolon  and the
word  "or",  and to add a new clause (e) which  shall  read in its  entirety  as
follows:

         "(e) the Director of Business Development of Cargo Chemical
Corporation."


         IN WITNESS  WHEREOF,  CAPITAL  SOUTHWEST  CORPORATION  has caused  this
instrument  to be  executed by its duly  authorized  officer on this ____ day of
________________, 2004.

                                                   CAPITAL SOUTHWEST CORPORATION


                                                   By __________________________

                                                   Title: ______________________


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>4
<FILENAME>capital10kex1012033105.txt
<DESCRIPTION>AMENDMENT EIGHT TO RETIREMENT PLAN
<TEXT>

                                                                   EXHIBIT 10.12

                               AMENDMENT EIGHT 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  desirable  that the Plan be  amended  to  provide  for
retroactive annuity starting dates under certain  circumstances and to provide a
temporary  interest  rate for  purposes of applying  benefit  limitations  under
section 415 of the Internal Revenue Code;

         NOW,  THEREFORE,  the Plan is hereby amended,  effective as of April 1,
2004, as follows:

         1.  Section  4.1(A)(2)  of the  Plan is  amended  to add the  following
paragraph at the end thereof:

         "Notwithstanding  the foregoing  provisions of this Section  4.1(A)(2),
for Plan Years  beginning  in 2004 and 2005 the  interest  rate of 5.5% shall be
substituted for the annual rate of interest on 30-year  Treasury  securities for
purposes of this Section  4.1(A),  except that in the case of any Participant or
Beneficiary  receiving a distribution after December 31, 2003 and before January
1,  2005,  the  amount  payable  under any form of  benefit  subject  to Section
417(e)(3) of the Internal  Revenue Code and subject to adjustment  under Section
415(b)(2)(B)  of the Internal  Revenue  Code shall not,  solely by reason of the
interest rate  substitution  described above, be less than the amount that would
have been so payable had the amount  payable  been  determined  using the annual
rate of interest on 30-year Treasury securities  described above in this Section
4.1(A)(2)  in effect as of the last day of the last Plan Year  beginning  before
January 1, 2004."



<PAGE>
                                      -2-



         2.  Section  4.1(C) of the Plan is amended to read in its  entirety  as
follows:

         "(C) Requirement  With Respect to Form of Payment:  The Committee shall
provide each Participant, during the period beginning 90 days before his Annuity
Starting  Date and ending 30 days before his Annuity  Starting  Date (or as soon
after the  expiration  of such  period as is  administratively  practicable),  a
written notification of his optional forms of payment. Such written notification
shall set forth an explanation of:

                  (1)      if the Participant is married:

                           (a)      the terms and  conditions  of the  Qualified
                                    Joint  and  50%  Survivor  Annuity  form  of
                                    payment;

                           (b)      the  Participant's  right to elect,  and the
                                    effect of electing,  to waive the  Qualified
                                    Joint  and  50%  Survivor  Annuity  form  of
                                    payment;

                           (c)      the rights of the Participant's spouse; and

                           (d)      the  right  to  revoke,  and the  effect  of
                                    revoking, an election to waive the Qualified
                                    Joint  and  50%  Survivor  Annuity  form  of
                                    payment;

                  (2)      the eligibility  conditions and material  features of
                           the  optional  forms of payment  available  under the
                           Plan;

                  (3)      the  financial  effect of electing each optional form
                           of payment;

                  (4)      in the event  the  notification  described  herein is
                           required and is provided to the Participant after his
                           Annuity  Starting  Date, the  Participant's  right to
                           elect a retroactive Annuity Starting Date; and

                  (5)      such  other  information  as  may be  required  under
                           applicable regulations.

The written notification described above shall not be required if the single-sum
value of the Participant's retirement income is less than or equal to $5,000.

         In the event the written  notification  described above is required and
is provided to the Participant  after the  Participant's  Annuity Starting Date,
the  Participant's  Annuity Starting Date shall be deemed to be his 'retroactive
Annuity Starting Date,' and the provisions of Section 4.1(J) shall apply.

         Any  provisions of Section 2.1,  2.2, 2.3,  2.4(A) or 3.1 hereof to the
contrary notwithstanding, if a Participant does not elect, in writing filed with
the  Committee  during the  election  period  described  below,  to receive  the
retirement  income payable on his behalf on and after his Annuity  Starting Date
either  (i) under the form of  payment  that is  specified  in  Section  2.1(C),
2.2(C), 2.3(F) or 2.4(A)(2),  whichever is applicable, or (ii) under an optional




<PAGE>
                                      -3-



form of payment  described  in and  subject  to the  provisions  of Section  3.1
hereof,  such  Participant  shall be deemed to have elected,  and the retirement
income  payable on and after his Annuity  Starting Date shall  automatically  be
paid in accordance with the provisions of, either:

                           (1) if he  does  not  have a  spouse  at his  Annuity
                  Starting  Date,  the  form of  payment  that is  specified  in
                  Section  2.1(C),  2.2(C),  2.3(F) or  2.4(A)(2),  whichever is
                  applicable; or

                           (2) if he has a spouse at his Annuity  Starting Date,
                  the Qualified Joint and 50% Survivor Annuity Option.

Any  Participant  may make an election  under this  section at any time (and any
number of times) prior to the  commencement  of his  retirement  income or other
benefit  payments  and during the period  beginning on the date which is 90 days
prior to his Annuity  Starting Date and ending on the latest to occur of (i) his
Annuity Starting Date, (ii) the date which is 90 days after the date on which he
was provided with the general written  explanation  described above or (iii) the
date which is 90 days after the date on which he was provided  with any specific
detailed  information  concerning the payment of his  retirement  income that is
required  to be  furnished  due to the request of the  Participant.  If any such
Participant  does  not  file  his  election  with  the  Committee  prior  to the
expiration of the election  period  described  above,  the  commencement  of his
retirement income will be delayed until the end of such election period,  but he
will be entitled  to a  retroactive  payment  with  respect to those  retirement
income  payments which were delayed.  If any  Participant  has elected a form of
payment other than the automatic form provided  above and his retirement  income
or other benefit payments have not commenced,  he may  subsequently  revoke such
election,  in  writing  filed with the  Committee  within  the  election  period
described above, in order to receive his retirement income payable in accordance
with the automatic form provided above.  Any provisions of Section 3.1 hereof to
the  contrary  notwithstanding,  if any  Participant  is not  provided  with the
written notification described in the first sentence of this section at least 30
days  before  his  Annuity   Starting  Date  but  is  provided  in  the  written
notification  a period of at least 30 days in which to make his  election  under
this  section,  he may waive such notice  period  (with any  applicable  spousal
consent) and file his election with the Committee,  and his retirement income or
other  benefit  may  commence  within  30 days  after  the  date on which he was
provided with such written  notification,  but more than 7 days after such date.
Any provisions  herein to the contrary  notwithstanding,  the written consent of
the Participant's spouse during the applicable election period shall be required
in order for the  Participant to receive his  retirement  income in a form other
than that provided under a Qualified Joint and Survivor Annuity."

         3.  Section  4.1 of the Plan is amended to add at the end thereof a new
Subsection (J), which shall read as follows:

         "(J)  Provisions   Concerning   Retroactive   Annuity  Starting  Dates:
Notwithstanding  any  provision  hereof to the  contrary,  in the event that the
written notification  described in Section 4.1(C) is required and is provided to

<PAGE>
                                      -4-


the Participant after the Participant's Annuity Starting Date, the Participant's
Annuity  Starting Date shall be deemed to be his  'retroactive  Annuity Starting
Date' and payment of the Participant's retirement income under Section 2.1, 2.2,
2.3,  2.4(A) or 3.1 hereof shall be made or commence in accordance  with Section
417(a) of the Internal Revenue Code, and regulations and rulings issued pursuant
thereto, and the following provisions of this Section 4.1(J).

                  (1)  Notification  requirement:  In the event of a retroactive
Annuity Starting Date, the written  notification to the Participant  required by
Section 4.1(C) shall set forth the information  described in Section 4.1(C) both
as of his retroactive  Annuity  Starting Date and as of a date which is not more
than 90 days after the date on which such  written  notification  is provided to
the Participant.

                  (2) Election of  retroactive  Annuity  Starting  Date:  In the
event of a retroactive  Annuity  Starting  Date,  the  Participant's  retirement
income  shall be  determined  and payable as of a date which is not more than 90
days after the date on which the written notification required by Section 4.1(C)
is  provided  to the  Participant,  unless the  Participant  elects to have such
retirement income determined and payable as of such retroactive Annuity Starting
Date. The Participant may make such election on the appropriate form provided by
the Committee and filed with the Committee  within the election period described
in Section 4.1(C).

                  (3)  Spousal  consent  requirement:  In the  event  that (a) a
Participant elects to receive his retirement income under Section 2.1, 2.2, 2.3,
2.4(A), or 3.1 hereof determined as of a retroactive  Annuity Starting Date, and
(b) under the form of payment elected by such  Participant,  the benefit payable
to the Participant's  spouse upon the Participant's death would be less than the
benefit payable to such surviving  spouse after the  Participant's  death if the
Participant  had elected to receive a Qualified  Joint and 50% Survivor  Annuity
determined  and payable as of the date on which his retirement  income  payments
actually commence,  then the Participant's spouse must consent in writing to the
Participant's  election of such retroactive  Annuity Starting Date. Such spousal
consent  requirement shall be satisfied if the Participant's  spouse consents in
the manner provided in Section 4.1(C) to the  Participant's  election to receive
his retirement income in a form other than that provided under a Qualified Joint
and Survivor Annuity.

                  (4)  Make-up  payments  with  interest:  In the  event  that a
Participant  elects  (with  spousal  consent,  if  applicable)  to  receive  his
retirement  income under Section 2.1, 2.2, 2.3, 2.4(A), or 3.1 hereof determined
as of a retroactive  Annuity  Starting  Date,  the  Participant  shall receive a
make-up  payment to reflect any missed  payment or payments  for the period from
the retroactive Annuity Starting Date to the date of the actual make-up payment,
with an appropriate  adjustment for interest from the date the missed payment or
payments  would  have been made  (including,  if  applicable,  a payment  of the
single-sum  value of the  Participant's  retirement  income)  to the date of the
actual make-up payment.

<PAGE>
                                      -5-


                  (5) Future payment  amount:  If the  Participant  elects (with
spousal consent,  if applicable) to receive his retirement  income determined as
of a  retroactive  Annuity  Starting  Date  and  the  Participant  receives  his
retirement  income in a form other than a  single-sum  payment,  the  retirement
income payments that commence after he has received the notification required by
Section 4.1(C),  other than any required make-up payment,  shall be in an amount
that is equal to the amount  that would  have been paid to the  Participant  had
payments actually commenced on his retroactive Annuity Starting Date.

                  (6) Section 415  compliance:  Except in the case where payment
of the  Participant's  retirement  income  (other than a form of payment that is
subject to Section  417(e) of the  Internal  Revenue  Code,  including  lump-sum
distributions  and other forms of distribution that provide payments in the form
of a  decreasing  annuity or for a period  less than the life of the  recipient)
commences no more than 12 months after the  retroactive  Annuity  Starting Date,
payment  of  the  Participant's   retirement  income,   including  any  interest
adjustments,  shall  satisfy the  requirements  of Section  415 of the  Internal
Revenue  Code if the  date  retirement  income  payments  actually  commence  is
substituted  for  the  retroactive  Annuity  Starting  Date  for  all  purposes,
including  for purposes of  determining  the  applicable  interest  rate and the
applicable mortality table described in Section 4.1(A)(2) hereof.

                  (7)  Section  417(e)  compliance:  If  the  retirement  income
received by the Participant is in a form of payment that would have been subject
to Section  417(e) of the Internal  Revenue Code if payment had  commenced as of
the  retroactive  Annuity  Starting  Date,  then the amount of payment as of the
actual commencement date shall be no less than the amount of payment produced by
applying  the  applicable  interest  rate  and the  applicable  mortality  table
(described  in Section  4.1(A)(2)  hereof),  determined  as of the date  payment
actually commences, to the annuity form that was used to determine the amount of
retirement income as of the Participant's retroactive Annuity Starting Date."

         IN WITNESS  WHEREOF,  CAPITAL  SOUTHWEST  CORPORATION  has caused  this
instrument  to be  executed by its duly  authorized  officer on this ____ day of
______________, 2004.

                                                   CAPITAL SOUTHWEST CORPORATION



                                                   By __________________________

                                                   Title: ______________________


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>5
<FILENAME>capital10kex1013033105.txt
<DESCRIPTION>AMENDMENT NINE TO RETIREMENT PLAN
<TEXT>

                                                                   EXHIBIT 10.13

                                AMENDMENT NINE 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 desirable  that the Plan be amended to reduce the limit
for mandatory cash-outs of small benefits;

         NOW, THEREFORE, Section 3.2 of the Plan is hereby amended, effective as
of March 27, 2005, to read in its entirety as follows:

         "3.2 - LUMP-SUM PAYMENT OF SMALL RETIREMENT INCOME

                  Notwithstanding any provision of the Plan to the contrary,  if
         the single-sum value of the retirement  income or other benefit payable
         on behalf of any Participant hereunder whose retirement income or other
         benefit  payments  have not  commenced  does  not  exceed  $5,000,  the
         following provisions shall apply. A distribution under this Section 3.2
         will not be permitted  after the Annuity  Starting Date and will not be
         permitted in the case of a  Participant  who is entitled to  disability
         retirement  income  payments.  For the  purposes of the Plan, a payment
         shall not be considered to occur after the Annuity Starting Date merely
         because  actual  payment is reasonably  delayed for  calculation of the
         benefit  amount  if  all  payments  due  are  actually  made.   Once  a
         determination  has been made by the  Committee  as to  whether or not a
         lump-sum  payment may be payable as of the date of  termination  of the
         Participant's  service  under  the  provisions  of  this  Section  3.2,
         calculations  shall  not be  required  as of  any  subsequent  date  to
         determine  whether  or not a  lump-sum  amount is  payable  under  this
         Section 3.2; provided, however, that the Committee shall have the right
         (but shall be under no obligation) to establish, on a nondiscriminatory
         and uniformly applied basis,  subsequent dates as of which calculations
         shall  be made to  determine  whether  or not  (due to  changes  in the
         actuarial assumptions used to compute lump-sum  distributions or due to
         a  change  in the  maximum  permissible  involuntary  cash-out  amount)
         lump-sum  amounts  are  payable  under this  Section 3.2 as of any such
         subsequent date on behalf of those  Participants whose service had been
         terminated  prior to such  date but  whose  retirement  income or other
         benefit payments have not commenced.
<PAGE>
                                      -2-


                  (A)  Involuntary  Cash-Out:  If the  single-sum  value  of the
         benefit  payable on behalf of the  Participant  does not exceed $1,000,
         the actuarial equivalent of such benefit shall be paid in a lump sum.

                  (B) Voluntary Cash-Out: If the single-sum value of the benefit
         payable on behalf of the  Participant  is greater  than $1,000 but does
         not exceed $5,000, the Participant (or his Beneficiary, in the event of
         the Participant's  death) may elect to receive the actuarial equivalent
         (determined using the interest and mortality assumptions that are being
         used  as  of  the  Annuity  Starting  Date  to  determine   actuarially
         equivalent  lump-sum  distributions)  of  such  benefit  in a  lump-sum
         distribution or in such other form of payment as is permitted under the
         Plan, commencing as of the Annuity Starting Date. Such election must be
         in writing  and must be filed with the  Committee  within 90 days after
         the  date as of which  the  Committee  informs  him in  writing  of the
         actuarially  equivalent value of such benefits.  Payment of the elected
         benefit must be made or commence within 90 days after such election.

                  (C) Lump-Sum Cash-Out of Zero Vested Accrued Benefits: For the
         purposes  of the  Plan,  if the  present  value of the  vested  accrued
         benefit that is payable on behalf of any  Participant  whose service is
         or has been terminated  (either before,  on or after the Effective Date
         of the Plan) is zero, the Participant  shall be deemed to have received
         a  distribution  of  such  vested  accrued  benefit  as of the  date of
         termination of his service."


         IN WITNESS  WHEREOF,  CAPITAL  SOUTHWEST  CORPORATION  has caused  this
instrument  to be  executed by its duly  authorized  officer on this ____ day of
March, 2005.

                                                   CAPITAL SOUTHWEST CORPORATION



                                                   By __________________________

                                                   Title: ______________________


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.1
<SEQUENCE>6
<FILENAME>capital10kex131033105.txt
<DESCRIPTION>ANNUAL REPORT TO SHAREHOLDERS
<TEXT>

                                                                    Exhibit 13.1
                   Twelve Largest Investments - March 31, 2005
================================================================================
The RectorSeal Corporation                                           $72,500,000
- --------------------------------------------------------------------------------

     The RectorSeal  Corporation,  Houston, Texas, with facilities in Texas, New
York and Idaho,  manufactures  specialty chemical products including pipe thread
sealants,   firestop  sealants,  plastic  cements  and  other  formulations  for
plumbing, HVAC, electrical and industrial  applications.  The company also makes
special tools for plumbers and systems for containing smoke from building fires.
RectorSeal's  subsidiary,  Jet-Lube,  Inc.,  with  plants in Texas,  England and
Canada,  produces anti-seize compounds,  specialty lubricants and other products
used in  industrial  and oil field  applications.  Another  subsidiary  produces
automotive  chemical  products  sold under the Cargo and Blue Magic trade names.
RectorSeal  owns a 20% equity  interest in The  Whitmore  Manufacturing  Company
(described on page 8).

     During the year ended  March 31,  2005,  RectorSeal  earned  $7,598,000  on
revenues of  $76,072,000,  compared  with  earnings of $6,235,000 on revenues of
$65,883,000 in the previous year.  RectorSeal's  earnings do not reflect its 20%
equity in The Whitmore Manufacturing Company.

     At March 31, 2005,  Capital  Southwest  owned 100% of  RectorSeal's  common
stock having a cost of $52,600 and a value of $72,500,000.

================================================================================
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 18 plants and sold in
32  states  by  121  company-owned  retail  stores  and  builder  locations  and
approximately  375 independent  dealers,  builders and  developers.  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 homes are designed to
meet the need for attractive, affordable housing.

     During the year ended March 25,  2005,  Palm Harbor  reported a net loss of
$3,823,000  ($0.17 per share) on net sales of $610,538,000,  compared with a net
loss of  $6,017,000  ($0.26  per  share)  on net  sales of  $578,465,000  in the
previous  year.  The March 31, 2005  closing  Nasdaq bid price of Palm  Harbor's
common stock was $16.06 per share.

     At March 31, 2005,  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 30.5%.

================================================================================
Alamo Group Inc.                                                     $50,783,000
- --------------------------------------------------------------------------------

     Alamo Group Inc.,  Seguin,  Texas, is a leading designer,  manufacturer and
distributor of heavy-duty, tractor and truck mounted mowing and other vegetation
maintenance equipment,  street-sweeping equipment and replacement parts. Founded
in  1969,   Alamo  Group  operates  14   manufacturing   facilities  and  serves
governmental,  industrial and agricultural  markets in the U.S., Europe,  Canada
and Australia.

     For the year ended December 31, 2004, Alamo reported  consolidated earnings
of  $13,396,000  ($1.36 per share) on net sales of  $342,171,000,  compared with
earnings of  $8,038,000  ($0.82 per share) on net sales of  $279,078,000  in the
previous  year.  The March 31, 2005 closing NYSE market price of Alamo's  common
stock was $24.74 per share.

     At March 31, 2005, the $2,065,047  investment in Alamo by Capital Southwest
and its subsidiary was valued at $50,783,000  ($18.00 per share),  consisting of
2,821,300 restricted shares of common stock, representing a fully-diluted equity
interest of 27.1%.

================================================================================
Skylawn Corporation                                                  $40,000,000
- --------------------------------------------------------------------------------

     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 and Sacramento. The
company  also owns a funeral  home in San Bruno and is 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,  2005,  Skylawn  reported  earnings of
$2,153,000 on revenues of  $24,964,000,  compared with earnings of $2,839,000 on
revenues of $25,227,000 in the previous year.

<PAGE>

     At March 31, 2005,  Capital  Southwest owned 100% of Skylawn  Corporation's
common stock, which had a cost of $4,510,400 and was valued at $40,000,000.

================================================================================
Encore Wire Corporation                                              $32,694,000
- --------------------------------------------------------------------------------

     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,  2004,  Encore  reported  net  income of
$33,360,000  ($1.42 per share) on net sales of  $603,225,000,  compared with net
income of  $14,376,000  ($0.63  per share) on net sales of  $384,750,000  in the
previous year.  The March 31, 2005 closing  Nasdaq bid price of Encore's  common
stock was $10.14 per share.

     At March  31,  2005,  the  $5,800,000  investment  in  4,086,750  shares of
Encore's  restricted  common stock by Capital  Southwest and its  subsidiary was
valued at $32,694,000  ($8.00 per share),  representing a  fully-diluted  equity
interest of 17.1%.

================================================================================
Media Recovery, Inc.                                                 $26,256,000
- --------------------------------------------------------------------------------

     Media  Recovery,  Inc.,  Graham,  Texas,  distributes  computer  and office
automation  supplies and accessories to corporate  customers  through its direct
sales force.  Its Shockwatch  division  manufactures  impact and tilt monitoring
devices used to detect mishandled  shipments and devices for monitoring material
handling equipment.  Media Recovery's subsidiary, The Damage Prevention Company,
Denver,  Colorado,  manufactures  dunnage  products  used to  prevent  damage in
trucking, rail and export container shipments.

     During the year ended  September  30,  2004,  Media  Recovery  reported net
income of $3,943,000 on net sales of  $123,664,000,  compared with net income of
$3,454,000 on net sales of $108,751,000 in the previous year.

     At March 31, 2005, the  $5,415,000  investment in Media Recovery by Capital
Southwest and its subsidiary was valued at $26,256,000,  consisting of 4,800,000
shares of Series A convertible  preferred  stock,  representing a  fully-diluted
equity interest of 76.6%.

================================================================================
The Whitmore Manufacturing Company                                   $18,000,000
- --------------------------------------------------------------------------------

     The Whitmore Manufacturing Company, Rockwall, Texas, manufactures specialty
lubricants  for heavy  equipment  used in surface  mining,  railroads  and other
industries,  and produces  water-based  coatings for the  automotive and primary
metals  industries.   Whitmore's  subsidiary,   Fluid  Protection   Corporation,
manufactures fluid contamination control devices.

     During the year  ended  March 31,  2005,  Whitmore  reported  net income of
$1,475,000 on net sales of $16,469,000,  compared with net income of $376,000 on
net sales of  $13,739,000  in the  previous  year.  The  company is owned 80% by
Capital  Southwest and 20% by Capital  Southwest's  subsidiary,  The  RectorSeal
Corporation (described on page 7).

     At March 31, 2005, the direct  investment in Whitmore by Capital  Southwest
was valued at $18,000,000 and had a cost of $1,600,000.

================================================================================
Texas Capital Bancshares, Inc.                                      $12,365,086
- --------------------------------------------------------------------------------

     Texas Capital Bancshares,  Inc. of Dallas, Texas, formed in 1998, has total
assets of approximately $2.6 billion. With banks in Austin,  Dallas, Fort Worth,
Houston,  Plano and San Antonio,  Texas Capital Bancshares conducts its business
through its  wholly-owned  subsidiary,  Texas Capital Bank,  N.A., which targets
middle market commercial and wealthy private client customers in Texas.

     For the year ended December 31, 2004,  Texas Capital reported net income of
$19,560,000  ($0.75 per share),  compared with net income of $13,834,000  ($0.60
per share) in the previous  year. The March 31, 2005 closing Nasdaq bid price of
Texas Capital's common stock was $20.97 per share.

     At March 31, 2005, Capital Southwest owned 589,656  unrestricted  shares of
common  stock,  having a cost of  $4,275,006  and a market value of  $12,365,086
($20.97 per share).


<PAGE>

================================================================================
Cenveo, Inc.                                                         $11,824,756
- --------------------------------------------------------------------------------

     Cenveo, Inc. (formerly Mail-Well,  Inc.),  Englewood,  Colorado,  is one of
North America's largest providers of visual  communication  solutions  delivered
through print and  electronic  media.  Its products  include  offset and digital
printing, custom and stock envelopes, and business documents.

     For the  year  ended  December  31,  2004,  Cenveo  reported  a net loss of
$19,708,000 ($0.41 per share) on net sales of $1.743 billion,  compared with net
income of  $5,150,000  ($0.11 per  share) on net sales of $1.672  billion in the
previous year.  The March 31, 2005 closing NYSE market price of Cenveo's  common
stock was $5.64 per share.

     At March 31, 2005, the $2,986,870 investment in Cenveo by Capital Southwest
was  valued  at   $11,824,756   ($5.64  per  share),   consisting  of  2,096,588
unrestricted  shares  of  common  stock,  representing  a  fully-diluted  equity
interest of 3.6%.

================================================================================
All Components, Inc.                                                 $11,500,000
- --------------------------------------------------------------------------------

     All Components,  Inc., Addison, Texas,  distributes and produces memory and
other  electronic  components for personal  computer  manufacturers,  retailers,
value-added  resellers and other corporate  customers.  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, 2004, All  Components  reported net income
of  $4,460,000  on net  sales  of  $230,698,000,  compared  with net  income  of
$4,060,000 on net sales of $156,994,000 in the previous year.

     At March 31, 2005, the  $2,650,000  investment in All Components by Capital
Southwest  and its  subsidiary  was valued at  $11,500,000  consisting  of a 12%
subordinated  note valued at its cost of $2,500,000 and 150,000 shares of Series
A  convertible  preferred  stock  valued  at  $9,000,000,  representing  a 56.6%
fully-diluted equity interest.

================================================================================
PETsMART, Inc.                                                        $8,622,000
- --------------------------------------------------------------------------------

     PETsMART,  Inc.,  Phoenix,  Arizona,  is the largest specialty  retailer of
services and solutions for the lifetime needs of pets. The company operates more
than 725 pet  superstores  in the United States and Canada,  many of which offer
pet grooming  services and operate  PETsHOTELS.  It is also a direct marketer of
pet  products  through  its  e-commerce  site  and its pet  and  equine  catalog
businesses.

     For the year ended January 30, 2005, PETsMART,  Inc. reported net income of
$171,228,000 ($1.14 per share) on net sales of $3.363 billion, compared with net
income of  $135,402,000  ($0.92 per share) on net sales of $2.993 billion in the
previous year. The March 31, 2005 closing Nasdaq bid price of PETsMART's  common
stock was $28.74 per share.

     At March 31, 2005,  Capital  Southwest  and its  subsidiary  owned  300,000
unrestricted  shares of common stock,  having a cost of $1,318,771  and a market
value of $8,622,000 ($28.74 per share).

================================================================================
Liberty Media Corporation                                             $7,310,954
- --------------------------------------------------------------------------------

     Liberty Media Corporation, Englewood, Colorado, acquired by AT&T as part of
Tele-Communications,  Inc. in 1999 and now an independent  company, is a holding
company  owning  interests  in a broad  range of  electronic  retailing,  media,
communications and entertainment businesses.

     For the year ended December 31, 2004,  Liberty Media reported net income of
$46 million  ($0.02 per share) on net sales of $7.628  billion,  compared with a
net loss of $1.222  billion  ($0.44 per share) on net sales of $3.738 billion in
the  previous  year.  The March 31, 2005  closing  NYSE market price of Series A
common stock was $10.37 per share.

     At March 31, 2005, Capital Southwest owned 705,010  unrestricted  shares of
Series  A  common  stock,  having  a cost of  $138,515  and a  market  value  of
$7,310,954 ($10.37 per share).



<PAGE>
<TABLE>
<CAPTION>

                    Portfolio of Investments - March 31, 2005

         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      $    499,669
   Global leader in local,
   long distance, Internet
   and transaction- based
   voice and data services.
- ------------------------------------------------------------------------------------------------------------------------------------

+ALAMO GROUP INC.                                      27.1%       2,821,300 shares common stock
   Seguin, Texas                                                     (acquired 4-1-73 thru 10-4-99)      2,065,047        50,783,000
   Tractor-mounted mowing and vegetation
   maintenance equipment for governmental,
   industrial and agricultural markets;
   street-sweeping equipment for municipalities.
- ------------------------------------------------------------------------------------------------------------------------------------

ALL COMPONENTS, INC.                                   56.6%       12% subordinated note due 2008
   Addison, Texas                                                    (acquired  10-28-03 and 1-06-04)    2,500,000         2,500,000
   Distribution and production of memory                           150,000 shares Series A convertible
   and other components for personal computer                        preferred  stock, convertible
   manufacturers, retailers and value-added                          into 600,000 shares of common
   resellers; electronics contract manufacturing.                    stock at $0.25 per share
                                                                     (acquired 9-16-94)                    150,000         9,000,000
                                                                                                       -----------      ------------
                                                                                                         2,650,000        11,500,000
- ------------------------------------------------------------------------------------------------------------------------------------

+ALLTEL CORPORATION                                      <1%       ++8,880 shares common stock
   Little Rock, Arkansas                                             (acquired 7-1-98)                     108,355           487,068
   Wireless and wireline local,
   long-distance, network access
   and Internet services.
- ------------------------------------------------------------------------------------------------------------------------------------

AMPRO MORTGAGE CORPORATION                             34.9%       10% subordinated note due 2007
   Dallas, Texas                                                     (acquired 10-19-04 and 1-13-05)       352,646           352,646
   Originator and banker of                                        12% subordinated note due 2005
   residential mortgage loans.                                       (acquired 3-25-05)                    201,252           201,252
                                                                   5,000 shares Series A cumulative
                                                                     preferred stock (acquired
                                                                     2-28-03)                            5,000,000              --
                                                                   1,500 shares Series B cumulative
                                                                     preferred  stock  (acquired
                                                                     3-31-04)                            1,500,000         1,500,000
                                                                   29,167 shares Series A
                                                                     common stock (acquired
                                                                     2-28-03)                               29,167              --
                                                                   Warrant to purchase 375,000
                                                                     shares of Series A common
                                                                     stock at $1.00 per share,
                                                                     expiring 2014 (acquired
                                                                     3-31-04)                                 --                --
                                                                   Warrant to purchase  88,162
                                                                     shares of Series A common
                                                                     stock at $1.00 per share,
                                                                     expiring 2014 (acquired
                                                                     10-19-04 and 1-13-05)                    --                --
                                                                                                       -----------      ------------
                                                                                                         7,083,065         2,053,898
- ------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)


<PAGE>

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

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

BOXX TECHNOLOGIES, INC.                                15.0%       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.                              19.2%       10% subordinated notes due 2007
   Richardson, Texas                                                 (acquired  4-16-04 thru
   Owns Chase Medical, which develops                                12-17-04)                             750,000           750,000
   and sells devices used in cardiac surgery                       2,327,658 shares Series A
   to relieve congestive heart failure;                              convertible preferred stock,
   development of cardiac imaging systems.                           convertible into 2,327,658
                                                                     shares of common stock at $1.72
                                                                     per share (acquired 8-21-02
                                                                     and 6-04-03)                        4,000,000         4,000,000
                                                                   Warrants to purchase 109,012
                                                                     shares of common stock at
                                                                     $1.72 per share, expiring 2012
                                                                     (acquired 4-16-04)                       --                --
                                                                                                       -----------      ------------
                                                                                                         4,750,000         4,750,000
- ------------------------------------------------------------------------------------------------------------------------------------

+CENVEO, INC.                                           3.6%       ++2,096,588 shares common stock
   (formerly Mail-Well, Inc.)                                        (acquired 2-18-94 thru 11-10-98)    2,986,870        11,824,756
   Englewood, Colorado
   Envelopes and commercial printing.
- ------------------------------------------------------------------------------------------------------------------------------------

+COMCAST CORPORATION                                     <1%       ++43,104 shares common stock
   Philadelphia, Pennsylvania                                        (acquired 11-18-02)                        21         1,453,467
   Leading provider of cable, entertainment
   and communications products and services.
- ------------------------------------------------------------------------------------------------------------------------------------

DENNIS TOOL COMPANY                                    67.4%       20,725 shares 5% convertible
   Houston, Texas                                                    preferred stock, convertible
   Polycrystalline diamond compacts (PDCs)                           into 20,725 shares of common
   used in oil field drill bits and in mining                        stock at $48.25 per share
   and industrial applications.                                      (acquired 8-10-98)                    999,981           999,981
                                                                   140,137 shares common  stock
                                                                     (acquired 3-7-94 and 8-10-98)       2,329,963         1,500,000
                                                                                                       -----------      ------------
                                                                                                         3,329,944         2,499,981
- ------------------------------------------------------------------------------------------------------------------------------------

+ENCORE WIRE CORPORATION                               17.1%       4,086,750 shares common stock
   McKinney, Texas                                                    (acquired 7-16-92 thru
   Electric wire and cable for residential                            10-7-98)                           5,800,000        32,694,000
   and commercial use.
- ------------------------------------------------------------------------------------------------------------------------------------

EXOPACK HOLDING CORP.                                   1.4%       5,925 shares common stock
   Spartanburg, South Carolina                                       (acquired 7-27-01 thru
   Paper and plastic flexible packaging                              9-29-03)                              623,790           805,800
   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.                            53.3%       12% subordinated note due
   Sugar Land, Texas                                                 2008, $1,788,247 principal
   Owns Bill Young Productions, Texas                                amount (acquired 9-30-03)         $ 1,157,481      $  1,788,247
   Video and Post, and Extreme Communications,                     39,359.18 shares Series C
   which produce radio and television                                convertible preferred stock,
   commercials and corporate communications videos.                  convertible into 157,436.72
                                                                     shares of common stock at
                                                                     $25.00 per share (acquired
                                                                     9-30-03)                            2,625,000         3,935,918
                                                                   3,750 shares 8% Series A
                                                                     convertible preferred stock,
                                                                     convertible into 15,000
                                                                     shares of common stock at
                                                                     $25.00 per share (acquired
                                                                     9-30-03)                              375,000           375,000
                                                                   Warrants to purchase 13,035
                                                                     shares of common stock at $25.00
                                                                     per share, expiring 2008 (acquired
                                                                     8-11-98 thru 9-30-03)                    --                --
                                                                                                       -----------      ------------
                                                                                                         4,157,481         6,099,165
- ------------------------------------------------------------------------------------------------------------------------------------

+FMC CORPORATION                                         <1%       ++6,430 shares common stock
   Chicago, Illinois                                                 (acquired 6-6-86)                      66,726           343,683
   Chemicals for agricultural,
   industrial and consumer markets.
- ------------------------------------------------------------------------------------------------------------------------------------

+FMC TECHNOLOGIES, INC.                                  <1%       ++11,057 shares common stock
   Chicago, Illinois                                                 (acquired 1-2-02)                      57,051           366,871
   Equipment and systems for the energy,
   food processing and air transportation
   industries.
- ------------------------------------------------------------------------------------------------------------------------------------

HEELING, INC.                                          43.0%       1,745,455 shares Series A
   Carrollton, Texas                                                 preferred stock (acquired
   Heelys stealth skate shoes sold through                           5-26-00)                              480,000           480,000
   specialty skate, lifestyle and sporting                         436,364 shares Series B
   goods stores, footwear chains, department                         convertible preferred stock,
   stores and over the Internet at Heelys.com.                       convertible into 436,364 shares
                                                                     of common stock at $0.275
                                                                     per share (acquired 5-26-00)          120,000         3,000,000
                                                                                                       -----------      ------------
                                                                                                           600,000         3,480,000
- ------------------------------------------------------------------------------------------------------------------------------------

+HOLOGIC, INC.                                           <1%       ++158,205 shares common stock
   Bedford, Massachusetts                                            (acquired 8-27-99)                    220,000         5,040,411
   Medical instruments including bone
   densitometers, mammography devices and
   digital radiography systems.
- ------------------------------------------------------------------------------------------------------------------------------------

+KIMBERLY-CLARK CORPORATION                              <1%       ++77,180 shares common stock
   Dallas, Texas                                                     (acquired 12-18-97)                 2,358,518         5,073,041
   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
   Holding company owning interests in                               thru 12-12-02)                        138,515         7,310,954
   electronic retailing, media, communications
   and entertainment businesses.
- ------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)



<PAGE>

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

+LIBERTY MEDIA INTERNATIONAL                             <1%       ++42,463 shares Series A
   Englewood, Colorado                                                common stock (acquired 6-7-04
   Broadband distribution and video                                    and 8-9-04)                     $   207,423      $  1,854,784
   programming services.
- ------------------------------------------------------------------------------------------------------------------------------------

MEDIA RECOVERY, INC.                                   76.6%       4,800,000 shares Series A
   Graham, Texas                                                     convertible preferred stock,
   Computer and office automation supplies                           convertible into 4,800,000
   and accessories; impact and tilt monitoring                       shares of common stock at
   devices to detect mishandled shipments;                           $1.00 per share (acquired
   dunnage for protecting shipments.                                 11-4-97)                            5,415,000        26,256,000

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

ORGANIZED LIVING, INC.                                  3.9%       3,333,335 shares Series D
   Columbus, Ohio                                                    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%       1,796,850 shares Series A
   Bartow, Florida                                                   preferred stock (acquired
   Wood pallet manufacturer with 14                                  10-18-01)                           1,350,000         1,796,850
   manufacturing facilities.                                       150,000 shares common stock
                                                                     (acquired 10-18-01)                   150,000           150,000
                                                                                                       -----------      ------------
                                                                                                         1,500,000         1,946,850

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

+PALM HARBOR HOMES, INC.                               30.5%       7,855,121 shares common stock
   Dallas, Texas                                                     (acquired 1-3-85 thru 7-31-95)    10,931,955         70,696,000
   Integrated manufacturing, retailing,
   financing and insuring of manufactured
   housing and modular homes.
- ------------------------------------------------------------------------------------------------------------------------------------

+PETSMART, INC.                                          <1%       ++300,000 shares common stock
   Phoenix, Arizona                                                  (acquired 6-1-95)                   1,318,771         8,622,000
   Retail chain of more than 725 stores
   selling pet foods, supplies and services.
- ------------------------------------------------------------------------------------------------------------------------------------

PHARMAFAB, INC.                                        28.6%       35,000 shares Series A
   Grand Prairie, Texas                                              convertible preferred stock,
   Value-added contract manufacturer of                              convertible into 129,506 shares
   branded and generic pharmaceutical drugs.                         common stock at $27.0259 per
                                                                     share (acquired 8-1-03)             3,500,000         3,500,000
                                                                   20,000 shares Series B convertible
                                                                     preferred stock, convertible
                                                                     into 74,004 shares common stock
                                                                     at $27.0259 per share
                                                                     (acquired 8-1-03)                   2,000,000         2,000,000
                                                                                                       -----------      ------------
                                                                                                         5,500,000         5,500,000
- ------------------------------------------------------------------------------------------------------------------------------------

THE RECTORSEAL CORPORATION                            100.0%       27,907 shares common stock
   Houston, Texas                                                    (acquired  1-5-73 and 3-31-73)         52,600        72,500,000
   Specialty chemical products for plumbing,
   HVAC, electrical, construction, industrial,
   oil field and automotive applications;
   owns 20% of Whitmore Manufacturing Company.
- ------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company                                            ++Unrestricted securities as defined in Note (b)





<PAGE>

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

SKYLAWN CORPORATION                                   100.0%       1,449,026 shares common stock
   Hayward, California                                               (acquired 7-16-69)                $ 4,510,400      $ 40,000,000
   Cemeteries, mausoleums and mortuaries located
   in northern California.
- ------------------------------------------------------------------------------------------------------------------------------------

+SPRINT CORPORATION                                      <1%       ++90,000 shares common stock
   Westwood, Kansas                                                  (acquired 6-20-84)                    503,645         2,047,500
   Diversified telecommunications company.
- ------------------------------------------------------------------------------------------------------------------------------------

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

+TEKELEC                                                 <1%       2,936 shares common stock
   Calabasas, California                                             (acquired 9-20-04)                     54,580            37,346
   Network signaling products, switching
   solutions and services for telecommunications
   networks and contact centers.
- ------------------------------------------------------------------------------------------------------------------------------------

+TEXAS CAPITAL BANCSHARES, INC.                         2.3%       ++589,656 shares common stock
   Dallas, Texas                                                     (acquired 5-1-00)                   4,275,006        12,365,086
   Regional bank holding company with banking
   operations in six Texas cities.
- ------------------------------------------------------------------------------------------------------------------------------------

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 and                          stock at  $0.10 per share
   other materials from junk automobiles.                            (acquired 3-6-91)                      75,000         7,000,000

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

THE WHITMORE MANUFACTURING COMPANY                     80.0%       80 shares common stock
   Rockwall, Texas                                                   (acquired 8-31-79)                  1,600,000        18,000,000
   Specialized mining, industrial and
   railroad lubricants; automotive
   transit coatings.
- ------------------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS                                              -       Diamond State Ventures, L.P. -
                                                                     1.9% limited partnership interest
                                                                     (acquired 10-12-99 thru 2-14-05)      190,625           190,625
                                                           -       First Capital Group of Texas III,
                                                                     L.P. - 3.3% limited partnership
                                                                     interest (acquired 12-26-00
                                                                     thru 1-5-05)                          764,604           764,604
                                                      100.0%       Humac Company - 1,041,000 shares
                                                                     common stock (acquired 1-31-75
                                                                     and 12-31-75)                            --             150,000
                                                           -       STARTech Seed Fund I - 12.6%
                                                                     limited partnership interest
                                                                     (acquired  4-17-98 thru 1-5-00)       178,066                 1
                                                           -       STARTech Seed Fund II - 3.2%
                                                                     limited partnership interest
                                                                     (acquired 4-28-00 thru 2-23-05)     1,000,000                 1
                                                           -       Sterling Group Partners I, L.P. -
                                                                     1.7% limited partnership interest
                                                                     (acquired 4-20-01 thru 1-24-05)     1,348,408         1,348,408
- ------------------------------------------------------------------------------------------------------------------------------------

TOTAL INVESTMENTS                                                                                      $84,546,398      $422,022,222
                                                                                                       ===========      ============
- ------------------------------------------------------------------------------------------------------------------------------------
+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 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,  2005,  restricted  securities  represented
approximately 86.4% of the value of the consolidated investment portfolio.

(c) Under the  valuation  policy of the  Company,  unrestricted  securities  are
valued at the closing sale price for 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
cover  common  stocks  owned at March 31,  2005 and common  stocks  which may be
acquired  thereafter  through  exercise of warrants and conversion of debentures
and preferred stocks. They apply to restricted  securities of all issuers in the
investment  portfolio of the Company except securities of the following issuers,
which are not  obligated to bear  registration  costs:  Humac  Company,  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,  which may differ from the original  investment dates.
Certain  securities were received in exchange for or upon conversion or exercise
of other securities previously acquired.


<PAGE>

                        Portfolio Changes During the Year

New Investments and Additions to Previous Investments


                                                          Amount
                                                       -----------
AmPro Mortgage Corporation ..................          $   553,898
CMI Holding Company, Inc. ...................              750,000
Diamond State Ventures, L.P. ................               33,750
First Capital Group of Texas III, L.P........              160,000
Liberty Media International, Inc. ...........              180,325
StarTech Seed Fund II .......................              100,000
Sterling Group Partners I, L.P. .............              450,000
Miscellaneous ...............................               52,717
                                                       -----------
                                                       $ 2,280,690
                                                       ===========


Dispositions

                                                                        Amount
                                                           Cost        Received
                                                       -----------   -----------
AT&T Wireless Services, Inc. ................          $        10   $   643,170
CashWorks, Inc. .............................                 --         608,517
Concert Industries Ltd. .....................            9,131,224        34,100
Diamond State Ventures, L.P. ................               40,000        40,000
First Capital Group of Texas III, L.P........               35,396        35,396
Neenah Paper, Inc. ..........................               38,408        82,684
Sterling Group Partners I, L.P. .............              164,692       738,529
Texas Capital Bancshares, Inc. ..............              725,000     2,239,922
Texas Petrochemical Holdings, Inc. ..........            3,000,000          --
VocalData, Inc. .............................            1,489,805       142,914
Miscellaneous ...............................               52,717          --
                                                       -----------   -----------
                                                       $14,677,252   $ 4,565,232
                                                       ===========   ===========

Repayments Received .........................                        $   394,269
                                                                     ===========


<PAGE>
<TABLE>
<CAPTION>

                 Capital Southwest Corporation and Subsidiaries
                 Consolidated Statements of Financial Condition

                                                               March 31
Assets                                                   2005           2004
                                                     ------------   ------------

Investments at market or fair value
   Companies more than 25% owned
     (Cost: 2005 - $23,114,866,
     2004 - $23,114,865) ................            $259,628,981   $237,095,981
   Companies 5% to 25% owned
     (Cost: 2005 - $19,050,000,
     2004 - $30,431,224) ................              44,890,852     70,189,005
   Companies less than 5% owned
     (Cost: 2005 - $42,381,532,
     2004 - $43,736,560) ................             117,502,389     99,663,833
                                                     ------------   ------------

Total investments
     (Cost: 2005 - $84,546,398,
     2004 - $97,282,649) ................             422,022,222    406,948,819
Cash and cash equivalents ...............               5,104,935     10,150,796
Receivables .............................                 136,401         76,477
Other assets ............................               7,120,043      6,802,767
                                                     ------------   ------------





   Totals ...............................            $434,383,601   $423,978,859
                                                     ============   ============




                                                               March 31
Liabilities and Shareholders' Equity                     2005             2004
                                                    -------------    -------------
<S>                                                 <C>              <C>
Note payable to bank ............................   $   8,000,000    $  15,500,000
Note payable to portfolio company ...............       5,000,000        5,000,000
Accrued interest and other liabilities ..........       1,842,587        1,815,996
Income taxes payable ............................            --          2,726,850
Deferred income taxes ...........................     117,007,107      108,312,663
                                                    -------------    -------------
                    Total liabilities ...........     131,849,694      133,355,509
                                                    -------------    -------------

Shareholders' equity
   Common stock, $1 par value: authorized,
     5,000,000 shares; issued, 4,294,416
     shares at March 31, 2005 and March 31,
       2004 .....................................       4,294,416        4,294,416
   Additional capital ...........................       7,904,997        7,904,997
   Undistributed net investment
     income .....................................       3,669,805        3,578,088
   Undistributed net realized gain on
     investments ................................      73,316,166       79,381,980
   Unrealized appreciation of investments -
     net of deferred income taxes ...............     220,381,825      202,497,171
   Treasury stock - at cost
     (437,365 shares) ...........................      (7,033,302)      (7,033,302)
                                                    -------------    -------------
   Net assets at market or fair value, equivalent
     to $78.44 per share at March 31, 2005,
     and $75.35 per share at March 31, 2004
     on the 3,857,051 shares outstanding ........     302,533,907      290,623,350
                                                    -------------    -------------

   Totals .......................................   $ 434,383,601    $ 423,978,859
                                                    =============    =============
</TABLE>




                 See Notes to Consolidated Financial Statements



<PAGE>
<TABLE>
<CAPTION>

                 Capital Southwest Corporation and Subsidiaries
                      Consolidated Statements of Operations

                                                                                                  Years Ended March 31
                                                                                    -----------------------------------------------
                                                                                         2005             2004             2003
                                                                                    -------------    -------------    -------------
<S>                                                                                 <C>              <C>              <C>
Investment income:
   Interest .....................................................................   $     437,753    $     213,987    $     204,490
   Dividends ....................................................................       3,778,190        3,860,937        3,360,990
   Management and directors' fees ...............................................         637,000          632,864          495,900
                                                                                    -------------    -------------    -------------
                                                                                        4,852,943        4,707,788        4,061,380
                                                                                    -------------    -------------    -------------
Operating expenses:
   Salaries .....................................................................       1,132,510          997,079          911,671
   Net pension benefit ..........................................................        (254,872)        (272,912)        (387,923)
   Other operating expenses .....................................................       1,068,313          775,847          626,106
                                                                                    -------------    -------------    -------------
                                                                                        1,945,951        1,500,014        1,149,854
                                                                                    -------------    -------------    -------------
Income before interest expense and income taxes .................................       2,906,992        3,207,774        2,911,526
Interest expense ................................................................         420,351          531,068          476,761
                                                                                    -------------    -------------    -------------
Income before income taxes ......................................................       2,486,641        2,676,706        2,434,765
Income tax expense ..............................................................          80,693           89,646          135,513
                                                                                    -------------    -------------    -------------
Net investment income ...........................................................   $   2,405,948    $   2,587,060    $   2,299,252
                                                                                    =============    =============    =============
Proceeds from disposition of investments ........................................   $   4,565,232    $  16,486,067    $   4,563,763
Cost of investments sold ........................................................      14,677,252        3,883,188        2,556,651
                                                                                    -------------    -------------    -------------
Realized gain (loss) on investments before income taxes .........................     (10,112,020)      12,602,879        2,007,112
Income tax expense (benefit) ....................................................      (4,046,206)       4,411,007          661,384
                                                                                    -------------    -------------    -------------
Net realized gain (loss) on investments .........................................      (6,065,814)       8,191,872        1,345,728
                                                                                    -------------    -------------    -------------
Increase (decrease) in unrealized appreciation of investments before income taxes      27,809,654      114,067,574      (69,688,616)
Increase (decrease) in deferred income taxes on appreciation of investments .....       9,925,000       39,379,000      (24,317,000)
                                                                                    -------------    -------------    -------------
Net increase (decrease) in unrealized appreciation of investments ...............      17,884,654       74,688,574      (45,371,616)
                                                                                    -------------    -------------    -------------

Net realized and unrealized gain (loss) on investments ..........................   $  11,818,840    $  82,880,446    $ (44,025,888)
                                                                                    =============    =============    =============

Increase (decrease) in net assets from operations ...............................   $  14,224,788    $  85,467,506    $ (41,726,636)
                                                                                    =============    =============    =============
</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
                                                                      -----------------------------------------------
                                                                           2005             2004             2003
                                                                      -------------    -------------    -------------
<S>                                                                   <C>              <C>              <C>
Operations
  Net investment income ...........................................   $   2,405,948    $   2,587,060    $   2,299,252
  Net realized gain (loss) on investments .........................      (6,065,814)       8,191,872        1,345,728
  Net increase (decrease) in unrealized appreciation of investments      17,884,654       74,688,574      (45,371,616)
                                                                      -------------    -------------    -------------
  Increase (decrease) in net assets from operations ...............      14,224,788       85,467,506      (41,726,636)

Distributions from:
  Undistributed net investment income .............................      (2,314,231)      (2,308,631)      (2,297,431)

Capital share transactions
  Exercise of employee stock options ..............................            --            997,500             --
                                                                      -------------    -------------    -------------

    Increase (decrease) in net assets .............................      11,910,557       84,156,375      (44,024,067)
Net assets, beginning of year .....................................     290,623,350      206,466,975      250,491,042
                                                                      -------------    -------------    -------------

Net assets, end of year ...........................................   $ 302,533,907    $ 290,623,350    $ 206,466,975
                                                                      =============    =============    =============
</TABLE>




                 See Notes to Consolidated Financial Statements


<PAGE>
<TABLE>
<CAPTION>

                 Capital Southwest Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows


                                                                                         Years Ended March 31
                                                                             --------------------------------------------
                                                                                 2005            2004            2003
                                                                             ------------    ------------    ------------
<S>                                                                          <C>             <C>             <C>
Cash flows from operating activities
Increase (decrease) in net assets from operations ........................   $ 14,224,788    $ 85,467,506    $(41,726,636)
Adjustments to reconcile increase (decrease) in net assets from operations
   to net cash provided by (used in) operating activities:
     Proceeds from disposition of investments ............................      4,510,652      16,486,067       4,563,763
     Purchases of securities .............................................     (2,280,690)    (12,458,840)    (11,904,639)
     Maturities of securities ............................................        394,269       2,754,845          80,000
     Depreciation and amortization .......................................         17,597          19,089          21,668
     Net pension benefit .................................................       (254,872)       (272,912)       (387,923)
     Net realized and unrealized (gain) loss on investments ..............    (11,818,840)    (82,880,446)     44,025,888
     (Increase) decrease in receivables ..................................        (59,924)        221,187       1,455,633
     (Increase) decrease in other assets .................................        (10,477)          5,023         (29,447)
     Increase (decrease) in accrued interest and other liabilities .......        121,196          41,701         (96,188)
     Decrease in accrued pension cost ....................................       (164,129)       (167,281)       (167,280)
     Deferred income taxes ...............................................         88,800          95,600         135,800
                                                                             ------------    ------------    ------------
Net cash provided by (used in) operating activities ......................      4,768,370       9,311,539      (4,029,361)
                                                                             ------------    ------------    ------------
Cash flows from financing activities
Increase (decrease) in note payable to bank ..............................     (7,500,000)           --         9,000,000
Increase (decrease) in notes payable to portfolio company ................           --        (2,500,000)      5,000,000
Decrease in subordinated debenture .......................................           --              --        (5,000,000)
Distributions from undistributed net investment income ...................     (2,314,231)     (2,308,631)     (2,297,431)
Proceeds from exercise of employee stock options .........................           --           997,500            --
                                                                             ------------    ------------    ------------
Net cash provided by (used in) financing activities ......................     (9,814,231)     (3,811,131)      6,702,569
                                                                             ------------    ------------    ------------
Net increase (decrease) in cash and cash equivalents .....................     (5,045,861)      5,500,408       2,673,208
Cash and cash equivalents at beginning of year ...........................     10,150,796       4,650,388       1,977,180
                                                                             ------------    ------------    ------------
Cash and cash equivalents at end of year .................................   $  5,104,935    $ 10,150,796    $  4,650,388
                                                                             ============    ============    ============
Supplemental disclosure of cash flow information:
Cash paid during the year for: Interest ..................................   $    420,446    $    531,194    $    606,722
                               Income taxes ..............................   $       --      $       --      $       --
</TABLE>


Note:
- -----
   On September 20, 2004, the Company received 2,936 shares of Tekelec valued at
   $54,580 ($18.59 per share) related to the sale of VocalData, Inc.

                 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.

     Indemnification.  The Company enters into agreements that contain customary
indemnification  provisions.  The maximum  exposure under these  indemnification
agreements is unknown,  but the Company has had no previous claims or losses and
expects the risk of losses to be remote.

     Related Parties. Several of the Company's directors, officers and employees
serve on the boards of various portfolio companies.

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

     Stock-Based Compensation.  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 FASB  Statement  Nos. 123 and
148.  Accordingly,  the fair value of stock options as determined on the date of
grant using the  Black-Scholes  pricing  model will be expensed over the vesting
period of the related stock options.  On July 19, 2004, 7,500 stock options were
granted to a new investment  associate who resigned on December 31, 2004 with no
options vested.

     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 to stock-based  compensation for options granted prior
to the implementation of FASB Statement No. 123.


<PAGE>

                                                 Years Ended March 31
                                      ------------------------------------------
                                          2005           2004           2003
                                      ------------   ------------   ------------

Net asset value, as reported          $302,533,907   $290,623,350   $206,466,975
Deduct: Total fair value computed
  stock-based compensation                 160,764        179,440        179,440
                                      ------------   ------------   ------------
Pro forma net asset value             $302,373,143   $290,443,910   $206,287,535
                                      ============   ============   ============
Net asset value per share:
  Basic - as reported                       $78.44         $75.35         $53.92
                                            ======         ======         ======
  Basic - pro forma                         $78.39         $75.30         $53.87
                                            ======         ======         ======


  Diluted - as reported                     $78.38         $75.32         $53.79
                                            ======         ======         ======
  Diluted- pro forma                        $78.34         $75.27         $53.74
                                            ======         ======         ======

     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.

     In December 2004,  the FASB issued a revised SFAS No. 123(R),  "Share-Based
Payment."  It  requires   the  Company  to  measure  all  employee   stock-based
compensation  awards  using a fair value  method and record such  expense in our
consolidated financial statements. In addition it requires additional accounting
and  disclosure  related to the cash flow  effects  resulting  from  share-based
payment  arrangements.  It is effective at the beginning of the fiscal year that
begins after June 15,  2005.  The Company  expects  that the adoption  effective
April 1,  2006,  will not have a  material  effect on our  financial  condition,
results of operations  and cash flows and that the effect on our net asset value
will be comparable to the pro forma disclosures presented above.

2.   Valuation of Investments

     The consolidated financial statements as of March 31, 2005 and 2004 include
securities  valued  at  $364,732,932  (86.4%  of the  value of the  consolidated
investment  portfolio) and $357,538,427  (87.9% of the value of the consolidated
investment  portfolio),  respectively,  whose values have been determined by the
Board of  Directors  in the  absence of  readily  ascertainable  market  values.
Because  of the  inherent  uncertainty  of  valuation,  these  values may differ
significantly  from the values that would have been used had a ready  market for
the securities existed, and the differences could be material.

3.   Income Taxes

     For the tax years ended  December  31,  2004,  2003 and 2002,  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.

     For the year  ended  December  31,  2004,  CSC and CSVC had net  investment
income for book and tax purposes of $2,314,231 and $527,647,  respectively,  all
of which has been distributed.  During 2004, CSC and CSVC had a net capital loss
for book purposes of $434,183 and  $2,032,537,  respectively,  and a net capital
loss for tax purposes of $773,674 and $2,262,703,  respectively.  As of December
31, 2004,  CSC and CSVC had capital loss  carryforwards  of $2,989,796  (expires
2009-2012) and $2,351,473 (expires 2009-2012),  respectively,  which may be used
to offset future taxable capital gains.

     The aggregate  cost of  investments  for federal  income tax purposes as of
March 31, 2005 was $87,467,764.  Such investments had unrealized appreciation of
$352,030,249  and unrealized  depreciation of $14,554,425 for book purposes,  or
net unrealized appreciation of $337,475,824. They had unrealized appreciation of
$349,728,725 and unrealized depreciation of $15,174,267 for tax purposes, or net
unrealized  appreciation  of  $334,554,458  at March 31,  2005.  The  difference
between book basis and tax basis net  unrealized  appreciation  is  attributable
primarily to interest income that was accrued for tax purposes, but not for book
purposes.

     CSC and CSVC may not qualify or elect to be taxed as RICs in future  years.
Therefore,  consolidated  deferred  Federal  income  taxes of  $117,094,000  and
$107,169,000 have been provided on net unrealized appreciation of investments of
$337,475,824  and  $309,666,170 at March 31, 2005 and 2004,  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, 2005 and 2004.

<PAGE>

4.   Notes Payable

     The note  payable to bank at March 31, 2005 and 2004 was from an  unsecured
revolving line of credit of $25,000,000 of which  $8,000,000 and $15,500,000 had
been  drawn at March 31,  2005 and 2004,  respectively.  The  revolving  line of
credit bears  interest at the bank's base rate less .50% or LIBOR plus 1.25% and
matures on August 31, 2007.

     The note  payable  to  portfolio  company  is a demand  promissory  note to
Skylawn  Corporation with interest payable at the greater of prime minus 2.0% or
the  Applicable  Federal  Rate  established  by the  Internal  Revenue  Service.
Interest expense on this portfolio  company note was $134,542 in 2005,  $151,089
in 2004 and $75,531 in 2003.

5.   Employee Stock Option Plan

     Under the 1984  Incentive  Stock Option Plan,  options to purchase -0-, -0-
and 28,000  shares of common stock at $35.625 per share (the market price at the
time of grant) were  outstanding  and  exercisable  at March 31, 2005,  2004 and
2003,  respectively.  During the three years  ended  March 31, -0- options  were
exercised in 2005, 28,000 were exercised in 2004 and -0- were exercised in 2003.
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.

     At March 31, 2005,  there were 91,500 shares  available for grant under the
Plan. The per share weighted  average fair value of stock options granted during
2005 was  $23.53 on the date of grant  using the  Black  Scholes  option-pricing
model with the following assumptions: expected dividend yield of .79%, risk-free
interest rate of 4.07%,  expected  volatility  of 22.6%,  and expected life of 7
years.

     The following  summarizes  activity in the stock option plans for the years
ended March 31, 2005, 2004 and 2003:

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

Balance at April 1, 2002                 82,500               $58.336
     Granted                               --                    --
     Exercised                             --                    --
     Forfeited                             --                    --
     Expired                               --                    --
                                        -------               -------
Balance at March 31, 2003                82,500                58.336
     Granted                               --                    --
     Exercised                          (28,000)               35.625
     Forfeited                             --                    --
     Expired                               --                    --
                                        -------               -------
Balance at March 31, 2004                54,500                70.004
     Granted                              7,500                76.000
     Exercised                             --                    --
     Forfeited                           (7,500)               76.000
     Expired                             (6,000)               84.700
                                        -------               -------
Balance at March 31, 2005                48,500               $68.186
                                        =======               =======

     At March 31,  2005,  the range of  exercise  prices  and  weighted  average
remaining  contractual life of outstanding  options was $65.00 - $77.00 and 5.84
years, respectively.

     At March 31, 2005,  2004 and 2003,  the number of options  exercisable  was
25,650, 24,200 and 44,750,  respectively and the weighted average exercise price
of those options was $68.98, $73.24 and $50.61, respectively.

6.   Employee Stock Ownership Plan

     The  Company  and one of its  wholly-owned  portfolio  companies  sponsor a
qualified  employee  stock  ownership  plan ("ESOP") in which certain  employees
participate. Contributions to the plan, which are invested in Company stock, are
made at the discretion of the Board of Directors.  A  participant's  interest in
contributions to the ESOP fully vests after five years of active service. During
the three years ended March 31,  2005,  the Company  made  contributions  to the
ESOP,  which were charged  against net  investment  income,  of $93,588 in 2005,
$88,937 in 2004 and $44,417 in 2003.



<PAGE>
<TABLE>
<CAPTION>

7.   Retirement Plans

     The Company sponsors a qualified  defined benefit pension plan which covers
its employees and employees of certain of its wholly-owned  portfolio companies.
The following  information  about the plan  represents  amounts and  information
related to the  Company's  participation  in the plan and is presented as though
the Company  sponsored a  single-employer  plan.  Benefits are based on years of
service and an average of the highest  five  consecutive  years of  compensation
during the last 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, 2005.

     The following tables set forth the qualified plan's benefit obligations and
fair value of plan assets at March 31, 2005, 2004 and 2003:

                                                     Years Ended March 31
                                         --------------------------------------------
                                             2005            2004            2003
                                         ------------    ------------    ------------
<S>                                      <C>             <C>             <C>
Change in benefit obligation
Benefit obligation at beginning
     of  year ........................   $  3,799,113    $  3,676,599    $  3,284,463
Service cost .........................         92,434          81,309          41,142
Interest cost ........................        214,076         215,511         202,424
Amendments ...........................           --              --           346,882
Actuarial loss .......................         94,812         189,566         165,560
Benefits paid ........................       (367,024)       (363,872)       (363,872)
                                         ------------    ------------    ------------
Benefit obligation at end of year ....   $  3,833,411    $  3,799,113    $  3,676,599
                                         ============    ============    ============

Change in plan assets
Fair value of plan assets at beginning
     of  year ........................   $ 10,030,763    $  6,881,723    $  9,410,320
Actual return on plan assets .........       (337,485)      3,512,912      (2,164,725)
Benefits paid ........................       (367,024)       (363,872)       (363,872)
                                         ------------    ------------    ------------
Fair value of plan assets at end of
     year ............................   $  9,326,254    $ 10,030,763    $  6,881,723
                                         ============    ============    ============
</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
                                                       ----------------------------
                                                           2005            2004
                                                       ------------    ------------
<S>                                                    <C>             <C>
Actuarial present value of benefit obligations:
     Accumulated benefit obligation ................   $ (3,392,308)   $ (3,403,639)
                                                       ============    ============
Projected benefit obligation for service rendered to
     date ..........................................   $ (3,833,411)   $ (3,799,113)
Plan assets at fair value* .........................      9,326,254      10,030,763
Excess of plan assets over the projected benefit       ------------    ------------
     obligation ....................................      5,492,843       6,231,650
Unrecognized net loss from past experience
     different from that assumed and effects of
     changes in assumptions ........................      1,272,655         275,731
Unrecognized prior service costs ...................        202,816         210,351
Unrecognized net assets being amortized over
     20 years ......................................           --           (73,815)
                                                       ------------    ------------
Prepaid pension cost included in other assets ......   $  6,968,314    $  6,643,917
                                                       ============    ============
</TABLE>
- ------------
*Primarily  equities and bonds including  approximately  28,000 shares of common
stock of the Company.


<PAGE>

     Components of net pension benefit related to the qualified plan include the
following:
                                                    Years Ended March 31
                                            -----------------------------------
                                               2005         2004         2003
                                            ---------    ---------    ---------
Service cost - benefits earned during
     the year .........................     $  92,434    $  81,309    $  41,142
Interest cost on projected benefit
     obligation .......................       214,076      215,511      202,424
Expected return on assets .............      (564,627)    (576,020)    (641,722)
Net amortization and deferral .........       (66,280)     (66,296)    (104,087)
                                            ---------    ---------    ---------
Net pension benefit from qualified plan     $(324,397)   $(345,496)   $(502,243)
                                            =========    =========    =========

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

     The following  table sets forth the Retirement  Restoration  Plan's benefit
obligations at March 31, 2005, 2004 and 2003:


                                                 Years Ended March 31
                                      -----------------------------------------
                                          2005           2004           2003
                                      -----------    -----------    -----------
Change in benefit obligation
Benefit obligation at beginning
     of  year ...................     $ 1,414,091    $ 1,353,386    $ 1,778,496
Service cost ....................          10,380          5,464          5,389
Interest cost ...................          74,711         82,683        104,436
Amendments ......................            --             --         (347,147)
Actuarial (gain) loss ...........         (32,685)       139,839        (20,507)
Benefits paid ...................        (164,129)      (167,281)      (167,281)
                                      -----------    -----------    -----------
Benefit obligation at end of year     $ 1,302,368    $ 1,414,091    $ 1,353,386
                                      ===========    ===========    ===========

     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
                                                     --------------------------
                                                        2005           2004
                                                     -----------    -----------

Projected benefit obligation .....................   $(1,302,368)   $(1,414,091)
Unrecognized net gain from past ex-
     perience different from that assumed
     and effects of changes in assumptions .......        52,182         84,867
Unrecognized prior service costs .................      (255,136)      (270,699)
                                                     -----------    -----------
Accrued pension cost included in other liabilities   $(1,505,322)   $(1,599,923)
                                                     ===========    ===========

     The Retirement  Restoration Plan expenses recognized during the years ended
March 31, 2005,  2004 and 2003 of $69,528,  $72,584 and $114,320,  respectively,
are offset against the net pension benefit from the qualified plan.

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

                                                       Years Ended March 31
                                                 -------------------------------
                                                   2005        2004        2003
                                                 --------    --------    -------

Discount rate ............................         5.75%       5.75%       6.0%
Rate of compensation increases............          5.0%        5.0%        5.0%


<PAGE>

     The  following  assumptions  were  used  in  estimating  the  net  periodic
(income)/expense:

                                                       Years Ended March 31
                                                 -------------------------------
                                                   2005        2004        2003
                                                 --------    --------    -------
Discount rate......................                 5.75%        6.0%       6.5%
Expected return on plan assets.....                  6.0%        6.0%       6.0%
Rate of compensation increases.....                  5.0%        5.0%       5.0%

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

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

                                                       Percentage of plan assets
                                                             at March 31
                                                       -------------------------
Asset Category                                           2005             2004
- --------------                                         --------         --------

Equity securities...........................             78.6%            81.5%
Debt securities.............................             16.2%            17.2%
Cash .......................................              5.2%             1.3%
                                                        ------           ------
                                                        100.0%           100.0%
                                                        ======           ======

     The Company's pension plan is administered by a  board-appointed  committee
that has fiduciary responsibility for the plan's management.  The trustee of the
plan is JPMorgan Asset Management. Currently approximately 25% of the assets are
selected and managed by the trustee and the  remainder of the assets are managed
by the committee, invested mostly in equity securities,  including the Company's
stock.

     Following are the expected  benefit payments for the next five years and in
the aggregate for the years 2011-2015:

                                            Years Ended March 31
                             ---------------------------------------------------
                                                                           2011-
(In Thousands)                2006     2007     2008     2009     2010     2015
                             ------   ------   ------   ------   ------   ------
                              $342     $327     $310     $293     $275    $1,132

8.   Commitments

     The  Company  has agreed,  subject to certain  conditions,  to invest up to
$1,407,527 in five portfolio companies.

     The Company  leases  office space under an operating  lease which  requires
base annual rentals of  approximately  $76,000 through  February,  2008. For the
three years ended March 31, total rental  expense  charged to investment  income
was $75,248 in 2005, $74,122 in 2004 and $60,482 in 2003.


<PAGE>
<TABLE>
<CAPTION>

9.   Sources of Income

     Income was derived from the following sources:

                                      Investment Income
                               --------------------------------   Realized Gain
Years Ended                                                          (Loss) on
March 31                                                           Investments
- --------                                                 Other    Before Income
2005                           Interest    Dividends    Income        Taxes
- ----                           --------------------------------   -------------
<S>                            <C>        <C>          <C>        <C>
Companies more than
   25% owned .........         $   --     $3,361,345   $637,000   $        --
Companies 5% to 25%
   owned .............           55,236       80,858       --       (12,097,124)
Companies less than
   5% owned ..........          346,396      335,987       --         1,985,104
Other sources,
   including temporary
   investments .......           36,121         --         --              --
                               ------------------------------------------------
                               $437,753   $3,778,190   $637,000   $ (10,112,020)
                               ================================================
2004
- ----
Companies more than
   25% owned .........         $   --     $3,577,800   $629,000   $        --
Companies 5% to 25%
   owned .............             --           --        3,864        (188,900)
Companies less than
   5% owned ..........          203,304      283,137       --        12,791,779
Other sources,
   including temporary
   investments .......           10,683         --         --              --
                               ------------------------------------------------
                               $213,987   $3,860,937   $632,864   $  12,602,879
                               ================================================

2003
- ----
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
                               ================================================
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                       Selected Per Share Data and Ratios


                                                                                Years Ended March
                                                                 -----------------------------------------------
Per Share Data                                                    2005      2004       2003      2002      2001
                                                                 -----------------------------------------------
<S>                                                              <C>       <C>       <C>        <C>       <C>
Investment income ............................................   $ 1.26    $ 1.22    $  1.06    $ 1.08    $ 1.06
Operating expenses ...........................................     (.51)     (.39)      (.30)     (.27)     (.26)
Interest expense .............................................     (.11)     (.14)      (.12)     (.24)     (.30)
Income taxes .................................................     (.02)     (.02)      (.04)     (.04)     (.05)
                                                                 -----------------------------------------------
Net investment income ........................................      .62       .67        .60       .53       .45
Distributions from undistributed net investment income .......     (.60)     (.60)      (.60)     (.60)     (.60)
Net realized gain (loss) on investments ......................    (1.57)     2.13        .35      (.14)     (.85)
Net increase (decrease) in unrealized appreciation of
    investments after deferred taxes .........................     4.64     19.37     (11.85)     6.31     (1.69)
Exercise of employee stock options* ..........................     --        (.14)      --        (.08)     --
                                                                 -----------------------------------------------


Increase (decrease) in net asset value .......................     3.09     21.43     (11.50)     6.02     (2.69)
Net asset value
  Beginning of year ..........................................    75.35     53.92      65.42     59.40     62.09
                                                                 -----------------------------------------------
  End of year ................................................   $78.44    $75.35    $ 53.92    $65.42    $59.40
                                                                 ===============================================

Increase (decrease) in deferred taxes on unrealized
    appreciation .............................................   $ 2.57    $10.09    $ (6.35)   $ 3.26    $(1.01)
Deferred taxes on unrealized appreciation:
  Beginning of year ..........................................    27.79     17.70      24.05     20.79     21.80
                                                                 -----------------------------------------------
  End of year ................................................   $30.36    $27.79    $ 17.70    $24.05    $20.79
                                                                 ===============================================

Ratios and Supplemental Data
Ratio of operating expenses to average net assets ............      .67%      .63%       .52%      .42%      .42%
Ratio of operating expenses to average net assets plus average
    deferred taxes on unrealized appreciation ................      .49%      .47%       .39%      .31%      .31%
Ratio of net investment income to average net assets .........      .83%     1.09%      1.04%      .85%      .74%
Portfolio turnover rate ......................................      .56%     3.74%      1.53%     1.05%     2.56%

Net asset value total return .................................     4.90%    41.16%    (16.75%)   11.18%    (3.25%)

Shares outstanding at end of period (000s omitted) ...........    3,857     3,857      3,829     3,829     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>

Management's Report on Internal Control Over Financial Reporting

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

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

     The Company has assessed  the  effectiveness  of its internal  control over
financial reporting as of March 31, 2005. In making this assessment, it used the
criteria  described in  "Internal  Control-Integrated  Framework"  issued by the
Committee of Sponsoring  Organizations of the Treadway Commission (COSO).  Based
on this  assessment,  management  believes  that,  as of  March  31,  2005,  the
Company's internal control over financial reporting is effective.

     Grant  Thornton  LLP has  issued  its  attestation  report on  management's
assessment  and on the  effectiveness  of the  Company's  internal  control over
financial reporting. That report appears on the next page.

Date:    May 23, 2005

/s/ William R. Thomas
- ---------------------
William R. Thomas
President & Chairman of the Board


/s/ Susan K. Hodgson
- --------------------
Susan K. Hodgson
Secretary-Treasurer
(chief financial/accounting officer)


<PAGE>

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of
Capital Southwest Corporation

     We have audited management's assessment, included in Management's Report on
Internal Control Over Financial Reporting, that Capital Southwest Corporation (a
Texas corporation) and subsidiaries,  maintained effective internal control over
financial  reporting  as of March 31,  2005  based on  criteria  established  in
Internal  Control-Integrated  Framework  issued by the  Committee of  Sponsoring
Organizations  of  the  Treadway   Commission.   The  Company's   management  is
responsible for maintaining  effective internal control over financial reporting
and for its assessment of the  effectiveness  of internal control over financial
reporting.   Our  responsibility  is  to  express  an  opinion  on  management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.

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

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

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

     In our opinion,  management's assessment that Capital Southwest Corporation
and subsidiaries  maintained effective internal control over financial reporting
as of March 31,  2005,  is fairly  stated,  in all material  respects,  based on
criteria  established  in Internal  Control-Integrated  Framework  issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in
our opinion Capital Southwest  Corporation and subsidiaries  maintained,  in all
material  respects,  effective  internal control over financial  reporting as of
March 31, 2005,  based on criteria  established  in Internal  Control-Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission (COSO).

     We have also audited in accordance with the standards of the Public Company
Accounting  Oversight  Board  (United  States  of  America),   the  consolidated
statement  of  financial   condition  of  Capital   Southwest   Corporation  and
subsidiaries,  including the portfolio of investments on pages 10-15 as of March
31, 2005, and the related  statements of operations,  changes in net assets, and
cash flows,  and the  selected per share data and ratios on page 27 for the year
then ended,  and our report dated May 23, 2005 expressed an unqualified  opinion
on those financial statements and per share data and ratios.


/s/Grant Thornton LLP
- ---------------------
Grant Thornton LLP
Dallas, Texas
May 23, 2005


<PAGE>

Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders
   Capital Southwest Corporation:


     We have  audited  the  accompanying  consolidated  statement  of  financial
condition  of  Capital   Southwest   Corporation  (a  Texas   corporation)   and
subsidiaries, including the portfolio of investments on pages 10-15, as of March
31, 2005, and the related consolidated statements of operations,  changes in net
assets,  and cash flows,  and the  selected per share data and ratios on page 27
for the year then  ended.  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 audit.

     We  conducted  our audit in  accordance  with the  standards  of the Public
Company Accounting  Oversight Board (United States of America).  Those standards
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial statements. Our procedures included verification by
examination  of  securities  held by the  custodian  as of  March  31,  2005 and
confirmation  of  securities  not held by the custodian by  correspondence  with
others.  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  audit  provides  a
reasonable basis for our opinion.

     In our opinion the consolidated  financial  statements and the selected per
share data and ratios  referred to above  present  fairly,  in all  material re-
spects, the consolidated financial position of Capital Southwest Corporation and
subsidiaries at March 31, 2005, the consolidated results of operations,  changes
in net assets,  and cash flows,  and the  selected per share data and ratios for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.

     We also have  audited,  in  accordance  with the  standards  of the  Public
Company  Accounting  Oversight  Board (United  States of America),  management's
assessment  that  Capital  Southwest  Corporation  and  subsidiaries  maintained
effective internal control over financial  reporting as of March 31, 2005, based
on criteria established in Internal  Control-Integrated  Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
accompanying  report  dated May 23, 2005  expressed  an  unqualified  opinion on
management's  assessment  of, and the effective  operation of Capital  Southwest
Corporation and subsidiaries' internal control over financial reporting.




                                                              GRANT THORNTON LLP
Dallas, Texas
May 23, 2005



<PAGE>

Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders
   Capital Southwest Corporation:


     We have  audited  the  accompanying  consolidated  statement  of  financial
condition of Capital  Southwest  Corporation  and  subsidiaries,  including  the
portfolio  of  investments  as of March 31, 2004,  and the related  consolidated
statements  of  operations,  changes  in net  assets,  and cash  flows,  and the
selected  per share  data and ratios for the year then  ended.  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 audit.

     We  conducted  our audit in  accordance  with the  standards  of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the financial statements. Our procedures included verification by examination of
securities  held by the  custodian  as of March  31,  2004 and  confirmation  of
securities  not held by the custodian by  correspondence  with others.  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 audit  provides a  reasonable  basis for our
opinion.

     In our opinion the consolidated  financial  statements and the selected per
share  data  and  ratios  referred  to above  present  fairly,  in all  material
respects,  the consolidated  financial position of Capital Southwest Corporation
and subsidiaries at March 31, 2004, the consolidated  results of its operations,
changes in its net assets,  and its cash flows,  and the selected per share data
and ratios for the year then ended, in conformity with U.S.  generally  accepted
accounting principles.





                                                               ERNST & YOUNG LLP
Dallas, Texas
May 12, 2004



<PAGE>


Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders
   Capital Southwest Corporation:


     We have audited the  accompanying  consolidated  statements of  operations,
changes  in net  assets,  and cash flows of Capital  Southwest  Corporation  and
subsidiaries  for the year ended March 31, 2003, and the selected per share data
and ratios for each of the years in the three-year  period ended March 31, 2003.
These  consolidated  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 consolidated financial statements and per share data and ratios
based on our audits.

     We  conducted  our audits in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  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  results of  operations,  and the  changes in net assets and cash
flows for the year ended March 31,  2003,  and the  selected  per share data and
ratios for each of the years in the  three-year  period ended March 31, 2003, of
Capital Southwest Corporation and subsidiaries in conformity with U.S. generally
accepted accounting principles.




                                                                        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 $35,048 in 2005, $10,247 in 2004 and $17,346 in 2003. The Company
also receives  management fees from its wholly-owned  portfolio  companies which
aggregated  $597,000  in 2005 and 2004 and  $458,400  in 2003.  During the three
years  ended  March 31,  2005,  the Company  recorded  dividend  income from the
following sources:

                                                    Years Ended March 31
                                            ------------------------------------
                                               2005         2004         2003
                                            ----------   ----------   ----------
Alamo Group Inc. ...................        $  677,112   $  677,112   $  677,112
Balco, Inc. ........................           252,960      252,960         --
Dennis Tool Company ................            25,000       49,999       49,999
Kimberly-Clark Corporation .........           127,347      109,596       95,703
PalletOne, Inc. ....................            80,858         --           --
The RectorSeal Corporation .........           960,000    1,407,729      960,000
Skylawn Corporation ................           600,000      950,000    1,146,659
Sprint Corporation .................            45,000       36,000       36,000
TCI Holdings, Inc. .................            81,270       81,270       81,270
The Whitmore Manufacturing Company .           846,273      240,000      240,000
Other ..............................            82,370       56,271       74,247
                                            ----------   ----------   ----------
                                            $3,778,190   $3,860,937   $3,360,990
                                            ==========   ==========   ==========

     Total operating expenses, excluding interest expense, increased by $445,937
or 29.7% and by  $350,160  or 30.5%  during the years  ended  March 31, 2005 and
2004,  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 $110,717 during the year ended March 31, 2005 primarily due
to a decrease in notes payable.

Net Realized Gain (Loss) on Investments

     Net realized loss on investments  was $6,065,814  (after income tax benefit
of  $4,046,206)  during the year ended March 31, 2005,  compared  with a gain of
$8,191,872  (after income tax expense of  $4,411,007)  during 2004 and a gain of
$1,345,728  (after income tax expense of $661,384) during 2003.  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
$27,809,654,   $114,067,574   and   $(69,688,616)   in  2005,   2004  and  2003,
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
                                   --------------------------------------------
                                       2005            2004            2003
                                   ------------    ------------    ------------

Alamo Group Inc. ..............    $ 19,749,000    $  8,464,000    $ (8,464,000)
Cenveo, Inc. ..................       2,453,008       5,115,674      (2,557,926)
Concert Industries Ltd. .......            --          (442,998)     (5,479,000)
Encore Wire Corporation .......     (27,245,000)     46,316,000     (10,898,000)
Extreme  International, Inc. ..         375,000       4,613,661         551,750
Media Recovery, Inc. ..........       9,256,000       7,000,000            --
Palm Harbor Homes, Inc. .......     (15,710,000)     15,710,000     (39,275,000)
PETsMART, Inc. ................         507,000       4,335,000        (436,051)
The RectorSeal Corporation ....      12,500,000       5,000,000       5,000,000
Texas Capital Bancshares, Inc.        2,865,728       6,110,352            --
The Whitmore Manufacturing
   Company ....................       6,000,000       2,000,000       1,200,000

     As shown in the above table for the year ended March 31, 2005, the value of
our  investment in Alamo Group Inc. was increased  from our March 31, 2004 value
by  $19,749,000  due to the  escalation in sales and earnings  during 2004 which
reflected  the  favorable  performance  of Alamo's  European  operations  and an
improved U.S. climate for industrial mowers and agricultural  equipment.  During
the year  ended  March 31,  2005,  the value of our  investment  in Encore  Wire
Corporation  was  reduced  by  $27,245,000  due to the  cyclical  variations  in
Encore's   profitability  and  the  effect  of  copper  price  fluctuations  and
competitive market conditions on Encore's  earnings.  In the year ago period, we
increased  our  value of  Encore  by  $46,316,000  reflecting  increases  in the
company's  sales and earnings  which stemmed  partly from higher copper  prices.
During the year ended March 31, 2005, the value of our investment in Palm Harbor
Homes,  Inc.  decreased by  $15,710,000  due to the  unfavorable  pattern of the
company's  earnings and the  continuing  negative  outlook for the  manufactured
housing industry.  In the year ago period, we increased our value of Palm Harbor
due to anticipated  improvement of the manufactured  housing industry  resulting
from substantially  reduced  inventories of foreclosed homes and reappearance of
sources of chattel mortgage financing.

     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, 2005."

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, 2005  consolidated  deferred Federal income taxes of
$117,094,000  were provided on net  unrealized  appreciation  of  investments of
$337,475,824  compared with deferred  taxes of  $107,169,000  on net  unrealized
appreciation of  $309,666,170 at March 31, 2004.  Deferred income taxes at March
31, 2005 and 2004 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, 2005,  the Company  invested  $2,280,690 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 2004 and 2003 fiscal years, the Company invested a total
of $12,458,840 and $11,904,639, respectively.


<PAGE>
<TABLE>
<CAPTION>

Financial Liquidity and Capital Resources

     At  March  31,  2005,  the  Company  had  cash  and  cash   equivalents  of
approximately $5.1 million.  Pursuant to Small Business  Administration  ("SBA")
regulations,  cash and cash  equivalents of $0.3 million held by CSVC may not be
transferred or advanced to CSC without the consent of the SBA. Under current SBA
regulations and subject to SBA's approval of its credit application,  CSVC would
be entitled to borrow up to $65.0  million.  The Company  also has an  unsecured
$25.0 million  revolving  line of credit from a commercial  bank, of which $17.0
million was  available at March 31, 2005.  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 37 years. Retention of future gains is
viewed as an  important  source of funds to  sustain  the  Company's  investment
activity.  Approximately $57.3 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, 2005, the Company
owed $5.0 million 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.

Contractual Obligations

     As shown below, the Company had the following contractual obligations as of
March  31,  2005.  For  further  information  see  Note  4  and  Note  8 of  the
Consolidated Financial Statements.

                                      Payments Due By Period ($ in Thousands)
                                      ---------------------------------------
                                          Less than                        More Than
Contractual Obligations          Total      1 Year   1-3 Years  3-5 Years   5 Years
- -----------------------------------------------------------------------------------
<S>                             <C>        <C>        <C>        <C>        <C>
Long-term debt obligations      $13,000    $ 5,000    $ 8,000       --         --
Capital  lease obligations         --         --         --         --         --
Operating lease obligations          76       --      $    76       --         --
Purchase obligations               --         --         --         --         --
Other long-term liabilities
   reflected on the Company's
   balance sheet under GAAP        --         --         --         --         --
                                ---------------------------------------------------
Total                           $13,076    $ 5,000    $ 8,076       --         --
                                ===================================================
</TABLE>

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.


<PAGE>

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.

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)



                                                  1995         1996         1997         1998         1999         2000
- -------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>          <C>          <C>          <C>          <C>
Financial Position  (as of March 31)
Investments at cost ........................   $  49,730    $  58,544    $  59,908    $  61,154    $  73,580    $  85,002
Unrealized appreciation ....................     153,031      198,386      233,383      340,132      276,698      238,627
                                               ---------    ---------    ---------    ---------    ---------    ---------

Investments at market or
   fair value ..............................     202,761      256,930      293,291      401,286      350,278      323,629
Total assets ...............................     213,811      326,972      310,760      522,324      360,786      392,586
Notes payable * ............................      11,000       11,000        5,000        5,000        5,000       10,000

Deferred taxes on
   unrealized appreciation .................      53,247       69,121       81,313      118,674       96,473       83,151
Net assets .................................     147,370      189,048      218,972      296,023      256,232      236,876
Shares outstanding .........................       3,735        3,767        3,767        3,788        3,815        3,815
- -------------------------------------------------------------------------------------------------------------------------

Changes in Net Assets (years ended March 31)
Net investment income ......................   $   2,447    $   2,855    $   2,574    $   2,726    $   1,762    $   1,663
Net realized gain (loss) on
   investments .............................         142       11,174        6,806        6,485          995        6,020
Net increase (decrease) in
   unrealized appreciation
   before distributions ....................      13,584       38,746       22,804       69,388      (41,233)     (24,750)
                                               ---------    ---------    ---------    ---------    ---------    ---------
Increase (decrease) in net
   assets from operations
   before distributions ....................      16,173       52,775       32,184       78,599      (38,476)     (17,067)
Cash dividends paid ........................      (2,241)      (2,270)      (2,260)      (2,268)      (2,280)      (2,289)
Securities distributed .....................        --         (9,402)        --           --           --           --
Employee stock options
   exercised ...............................         385          575         --            720          965         --
                                               ---------    ---------    ---------    ---------    ---------    ---------

Increase (decrease) in net assets ..........      14,317       41,678       29,924       77,051      (39,791)     (19,356)
- -------------------------------------------------------------------------------------------------------------------------

Per Share Data (as of March 31)
Deferred taxes on
   unrealized appreciation .................   $   14.26    $   18.35    $   21.59    $   31.33    $   25.29    $   21.80
Net assets .................................       39.46        50.18        58.13        78.15        67.16        62.09
Closing market price .......................       38.00        60.00       67.875        94.00        73.00        54.75

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)

                                                  2001         2002         2003         2004         2005
- ------------------------------------------------------------------------------------------------------------

Financial Position  (as of March 31)
Investments at cost ........................   $  87,602    $  82,194    $  91,462    $  97,283    $  84,546
Unrealized appreciation ....................     228,316      265,287      195,598      309,666      337,476
                                               ---------    ---------    ---------    ---------    ---------

Investments at market or
   fair value ..............................     315,918      347,481      287,060      406,949      422,022
Total assets ...............................     322,668      357,183      298,490      423,979      434,384
Notes payable * ............................      16,000       14,000       23,000       20,500       13,000

Deferred taxes on
   unrealized appreciation .................      79,310       92,107       67,790      107,169      117,094
Net assets .................................     226,609      250,491      206,467      290,623      302,534
Shares outstanding .........................       3,815        3,829        3,829        3,857        3,857
- ------------------------------------------------------------------------------------------------------------

Changes in Net Assets (years ended March 31)
Net investment income ......................   $   1,723    $   2,042    $   2,299    $   2,587        2,406
Net realized gain (loss) on
   investments .............................      (3,231)        (538)       1,346        8,192       (6,066)
Net increase (decrease) in
   unrealized appreciation
   before distributions ....................      (6,470)      24,174      (45,372)      74,689       17,885
                                               ---------    ---------    ---------    ---------    ---------
Increase (decrease) in net
   assets from operations
   before distributions ....................      (7,978)      25,678      (41,727)      85,468       14,225
Cash dividends paid ........................      (2,289)      (2,295)      (2,297)      (2,309)      (2,314)
Securities distributed .....................        --           --           --           --           --
Employee stock options
   exercised ...............................        --            499         --            997         --
                                               ---------    ---------    ---------    ---------    ---------

Increase (decrease) in net assets ..........     (10,267)      23,882      (44,024)      84,156       11,911
- ------------------------------------------------------------------------------------------------------------

Per Share Data (as of March 31)
Deferred taxes on
   unrealized appreciation .................   $   20.79    $   24.05    $   17.70    $   27.79    $   30.36
Net assets .................................       59.40        65.42        53.92        75.35        78.44
Closing market price .......................       65.00        68.75        48.15        75.47        79.10

Cash dividends paid ........................         .60          .60          .60          .60          .60
Securities distributed .....................        --           --           --           --           --
</TABLE>






<PAGE>


                             Shareholder Information

Stock Transfer Agent

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

Shareholders

     The Company had  approximately  700 record  holders of its common  stock at
March 31, 2005. This total does not include an estimated 2,400 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, 2003....................................               $66.75    $47.26
September 30, 2003...............................                60.00     53.31
December 31, 2003................................                64.75     56.35
March 31, 2004...................................                78.00     61.15

Quarter Ended                                                    High     Low
- --------------------------------------------------------------------------------
June 30, 2004....................................               $84.28    $72.68
September 30, 2004...............................                81.40     69.55
December 31, 2004................................                80.44     73.00
March 31, 2005...................................                79.87     74.25



Dividends

   The payment dates and amounts of cash dividends per share since April 1, 2003
are as follows:

Payment Date                                                       Cash Dividend
- --------------------------------------------------------------------------------
May 30, 2003.....................................                      $0.20
November 28, 2003................................                       0.40
May 28, 2004.....................................                       0.20
November 30, 2004................................                       0.40
May 31, 2005.....................................                       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 18,  2005,  at 10:00 a.m.  in the North  Dallas Bank Tower
Meeting Room (second floor), 12900 Preston Road, Dallas, Texas.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>7
<FILENAME>capital10kex231033105.txt
<DESCRIPTION>CONSENT OF GRANT THORNTON LLP
<TEXT>

                                                                    Exhibit 23.1


                          Consent of Grant Thornton LLP
                  Independent Registered Public Accounting Firm


We have issued our reports  dated May 23, 2005,  accompanying  the  consolidated
financial  statements  and  management's  assessment  of  the  effectiveness  of
internal  control  over  financial  reporting  included in the Annual  Report to
Shareholders of Capital Southwest  Corporation for the year ended March 31, 2005
and  incorporated by reference in the March 31, 2005 annual report on Form 10-K.
We hereby  consent to the  incorporation  by  reference  of said  reports in the
Registration  Statement of Capital  Southwest  Corporation on Form S-8 (File No.
33-43881).

/s/ GRANT THORNTON LLP


May 23, 2005
Dallas, Texas

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>8
<FILENAME>capital10kex232033105.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP
<TEXT>

                                                                    Exhibit 23.2




            Consent of Independent Registered Public Accounting Firm


We consent to the incorporation by reference in the Registration Statement (Form
S-8 No.  33-43881)  pertaining to Capital  Southwest  Corporation  of our report
dated May 12, 2004,  with respect to the  consolidated  financial  statements of
Capital Southwest  Corporation for the year ended March 31, 2004 included in the
March 31, 2005 Annual Report to  Shareholders of Capital  Southwest  Corporation
and  incorporated  by reference  in this Annual  Report (Form 10-K) for the year
ended March 31, 2005.


                                                     Ernst & Young LLP


May 24, 2005
Dallas, Texas

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.3
<SEQUENCE>9
<FILENAME>capital10kex233033105.txt
<DESCRIPTION>CONSENT OF KPMG LLP
<TEXT>

                                                                    Exhibit 23.3





            Consent of Independent Registered Public Accounting Firm



The Board of Directors
Capital Southwest Corporation:


We consent to the  incorporation by reference in the  registration  statement on
Form S-8 of Capital  Southwest  Corporation  of our report dated April 25, 2003,
with  respect  to the  consolidated  statements  of  operations,  changes in net
assets,  and cash flows for the year ended March 31, 2003,  and the selected per
share data and ratios for each of the years in the three-year period ended March
31,  2003,  of Capital  Southwest  Corporation  and  subsidiaries,  which report
appears in the annual report to shareholders  for the year ended March 31, 2005,
and is  incorporated  by reference  in the March 31, 2005 annual  report on Form
10-K of Capital Southwest Corporation.

                                           KPMG LLP

Dallas, Texas
May 27, 2005
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>10
<FILENAME>capital10kex311033105.txt
<DESCRIPTION>SECTION 302 CERTIFICATION OF PRESIDENT
<TEXT>

                                                                    Exhibit 31.1

                                 CERTIFICATIONS

I, William R. Thomas,  President and Chairman of the Board of Capital  Southwest
Corporation, certify that:

1.       I have reviewed  this annual  report on Form 10-K of Capital  Southwest
         Corporation (the "registrant");

2.       Based  on my  knowledge,  this  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 report;

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included in this  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 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-15(e)  and  15d-15(e))  and internal
         control  over  financial  reporting  (as defined in Exchange  Act Rules
         13a-15(f) and 15d-15(f)) for the registrant and have:

         a)       Designed such disclosure  controls and  procedures,  or caused
                  such  disclosure  controls and procedures to be designed under
                  our supervision,  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 report is being prepared;

         b)       Designed such internal  control over financial  reporting,  or
                  caused such internal  control over  financial  reporting to be
                  designed  under  our   supervision,   to  provide   reasonable
                  assurance regarding the reliability of financial reporting and
                  the preparation of financial  statements for external purposes
                  in accordance with generally accepted accounting principles;

         c)       Evaluated the  effectiveness  of the  registrant's  disclosure
                  controls  and  procedures  and  presented  in this  report our
                  conclusions about the effectiveness of the disclosure controls
                  and  procedures,  as of the end of the period  covered by this
                  report based on such evaluation; and

         d)       Disclosed  in  this  report  any  change  in the  registrant's
                  internal control over financial reporting that occurred during
                  the registrant's  most recent fiscal quarter (the registrant's
                  fourth  fiscal  quarter in the case of an annual  report) that
                  has materially affected, or is reasonably likely to materially
                  affect,  the  registrant's  internal  control  over  financial
                  reporting; and

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

         a)       All significant  deficiencies  and material  weaknesses in the
                  design  or  operation  of  internal   control  over  financial
                  reporting which are reasonably  likely to adversely affect the
                  registrant's ability to record, process,  summarize and report
                  information; and

         b)       Any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal control over financial reporting.





Date:  May 27, 2005                          By: /s/ William R. Thomas
       ------------------                       --------------------------------
                                                William R. Thomas, President and
                                                Chairman of the Board

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>11
<FILENAME>capital10kex312033105.txt
<DESCRIPTION>SECTION 302 CERTIFICATION OF TREASURER
<TEXT>

                                                                    Exhibit 31.2

                                 CERTIFICATIONS


I,  Susan K.  Hodgson,  Secretary-Treasurer  of Capital  Southwest  Corporation,
certify that:

1.       I have reviewed  this annual  report on Form 10-K of Capital  Southwest
         Corporation (the "registrant");

2.       Based  on my  knowledge,  this  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 report;

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included in this  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 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-15(e)  and  15d-15(e))  and internal
         control  over  financial  reporting  (as defined in Exchange  Act Rules
         13a-15(f) and 15d-15(f)) for the registrant and have:

         a)       Designed such disclosure  controls and  procedures,  or caused
                  such  disclosure  controls and procedures to be designed under
                  our supervision,  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 report is being prepared;

         b)       Designed such internal  control over financial  reporting,  or
                  caused such internal  control over  financial  reporting to be
                  designed  under  our   supervision,   to  provide   reasonable
                  assurance regarding the reliability of financial reporting and
                  the preparation of financial  statements for external purposes
                  in accordance with generally accepted accounting principles;

         c)       Evaluated the  effectiveness  of the  registrant's  disclosure
                  controls  and  procedures  and  presented  in this  report our
                  conclusions about the effectiveness of the disclosure controls
                  and  procedures,  as of the end of the period  covered by this
                  report based on such evaluation; and

         d)       Disclosed  in  this  report  any  change  in the  registrant's
                  internal control over financial reporting that occurred during
                  the registrant's  most recent fiscal quarter (the registrant's
                  fourth  fiscal  quarter in the case of an annual  report) that
                  has materially affected, or is reasonably likely to materially
                  affect,  the  registrant's  internal  control  over  financial
                  reporting; and

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

         a)       All significant  deficiencies  and material  weaknesses in the
                  design  or  operation  of  internal   control  over  financial
                  reporting which are reasonably  likely to adversely affect the
                  registrant's ability to record, process,  summarize and report
                  financial information; and

         b)       Any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal control over financial reporting.





Date:  May 27, 2005                     By: /s/ Susan K. Hodgson
       ---------------                     -------------------------------------
                                           Susan K. Hodgson, Secretary-Treasurer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>12
<FILENAME>capital10kex321033105.txt
<DESCRIPTION>SECTION 906 CERTIFICATION OF PRESIDENT
<TEXT>

                                                                    Exhibit 32.1

              Certification of President and Chairman of the Board

  Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code


         I,  William R. Thomas,  President  and Chairman of the Board of Capital
Southwest Corporation, certify that, to my knowledge:

         1. the Form 10-K, filed with the Securities and Exchange  Commission on
May 27, 2005  ("accompanied  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 accompanied report fairly presents,
in all material respects,  the consolidated  financial  condition and results of
operations of Capital Southwest Corporation.


Date:   May 27, 2005                         By: /s/ William R. Thomas
        ------------                            --------------------------------
                                                William R. Thomas, President and
                                                Chairman of the Board



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>13
<FILENAME>capital10kex322033105.txt
<DESCRIPTION>SECTION 906 CERTIFICATION OF TREASURER
<TEXT>

                                                                    Exhibit 32.2

                      Certification of Secretary-Treasurer

  Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code




         I,  Susan  K.  Hodgson,   Secretary-Treasurer   of  Capital   Southwest
Corporation, certify that, to my knowledge:

         1. the Form 10-K, filed with the Securities and Exchange  Commission on
May 27, 2005  ("accompanied  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 accompanied report fairly presents,
in all material respects,  the consolidated  financial  condition and results of
operations of Capital Southwest Corporation.


Date:  May 27, 2005                         /s/ Susan K. Hodgson
       ------------                        -------------------------------------
                                           Susan K. Hodgson, Secretary-Treasurer


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