Net asset value at September 30, 2008 was $534,078,274, equivalent to $142.74 per share. Assuming reinvestment of all dividends and tax credits on retained long-term capital gains, the September 30, 2008 net asset value reflects a decrease of 7.91% during the past twelve months.

                                           September 30,     September 30,
                                               2008              2007
                                               ----              ----
               Net assets                  $534,078,274     $606,872,698
               Shares outstanding             3,741,638        3,889,151
               Net assets per share             $142.74          $156.04

Results of Operations

The composite measure of our 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 our income from interest, dividends and fees and our 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. 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 our investment portfolio, compared with stated cost. 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 "unrealized" to "realized." Conversely, when a loss is realized on a depreciated portfolio security, an increase in net unrealized appreciation occurs.

Net Investment Income

     Interest  income of $677,023  for the six months ended  September  30, 2008
decreased  from  $1,244,125  in the year-ago  period due to a decrease in excess
cash and  interest  rates.  During the six months ended  September  30, 2008 and
2007, we recorded dividend income from the following sources:


                                                          Six Months Ended
                                                              September
                                                              ---------
                                                        2008            2007
                                                        ----            ----
               Alamo Group Inc.                     $  339,636     $   339,096
               Dennis Tool Company                      25,000          37,499
               Encore Wire Corporation                 163,470         163,470
               Kimberly-Clark Corporation               89,529          81,811
               Lifemark Group                                0         150,000
               PETsMart, Inc.                           18,000          18,000
               The RectorSeal Corporation              480,000         240,000
               TCI Holdings, Inc.                       40,635          40,635
               The Whitmore Manufacturing Company      120,000          60,000
               Other                                    59,209          34,383
                                                    ----------      ----------
                                                    $1,335,479      $1,164,894
                                                    ==========      ==========

Net Increase (Decrease) in Unrealized Appreciation of Investments


     Set  forth  in the  following  table  are  the  significant  increases  and
decreases in unrealized appreciation by portfolio company:


                                       19

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations (continued)

                                     Three Months Ended                 Six Months Ended
                                        September 30                      September 30
                                        ------------                      ------------
                                   2008             2007             2008             2007
                                   ----             ----             ----             ----

Alamo Group Inc.              $(11,321,200)   $        --       $(11,321,200)   $      27,110
All Components, Inc.            (7,200,000)       5,600,000       (7,200,000)       5,600,000
Encore Wire Corporation        (10,216,875)            --          4,086,750        6,130,000
Heelys, Inc.                          --       (130,442,000)            --       (139,760,000)
Media Recovery, Inc.            (5,500,000)      (9,000,000)      (5,500,000)      (9,000,000)
Palm Harbor Homes, Inc.               --         (7,855,000)       3,927,561       (7,855,000)
The RectorSeal Corporation       2,300,000             --        (12,700,000)      10,850,000

During the six months ended September 30, 2008, the value of our investments in The RectorSeal Corporation decreased by $12,700,000, All Components, Inc. decreased $7,200,000 and Media Recovery, Inc decreased $5,500,000, due to decreases in their respective sales resulting from slowdowns in segments of their businesses. Additionally, our investment in Alamo Group Inc. decreased $11,321,200 due primarily to the decrease in their stock price at September 30, 2008.

Offsetting the loss at The RectorSeal Corporation, All Components, Inc., Media Recovery, Inc. and Alamo Group Inc. during the six months ended September 30, 2008, was a $4,086,750 increase in the value of Encore Wire Corporation and a $3,927,561 increase in the value of Palm Harbor Homes, Inc. due to increases in their respective stock prices.

Portfolio Investments

During the quarter ended September 30, 2008, we made investments of $3,651,300 in three new portfolio companies and an investment of $294,938 in an existing portfolio company.

We have agreed, subject to certain conditions, to invest up to $12,578,419 in six portfolio companies.

Financial Liquidity and Capital Resources

At September 30, 2008, we had cash and cash equivalents of approximately $9.4 million. Pursuant to Small Business Administration (SBA) regulations, cash and cash equivalents of $4.6 million held by Capital Southwest Venture Corporation (CSVC) may not be transferred or advanced to us 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 $17.0 million. With the exception of a capital gain distribution made in the form of a distribution of the stock of a portfolio company in the fiscal year ended March 31, 1996, we have elected to retain all gains realized during the past 39 years. Retention of future gains is viewed as an important source of funds to sustain our investment activity. Approximately $48.8 million of our investment portfolio is represented by unrestricted publicly-traded securities, and represent a source of liquidity.

Funds to be used by us for operating or investment purposes may be transferred in the form of dividends, management fees or loans from Lifemark Group, The RectorSeal Corporation and The Whitmore Manufacturing Company, wholly-owned portfolio companies, to the extent of their available cash reserves and borrowing capacities.

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