Tax Information

For Shareholders on December 31, 2009

Capital Southwest Corporation met the applicable requirements of the Internal Revenue Code for Federal income tax treatment as a regulated investment company.  Shareholders should consider the following when preparing 2009 tax returns. 

Cash Dividends.  The IRS Form 1099 reflects the $0.40 per share dividend paid on May 29, 2009 and the $0.40 per share dividend paid on November 30, 2009 which are qualified dividends and taxable at a maximum rate of 15% for individuals, estates or trusts.

Retained Long-Term Capital Gains.  During the year ended December 31, 2009, Capital Southwest realized taxable long-term capital gains of $2,327,150 ($0.622 per share) and will pay federal income taxes of 35%, equivalent to $814,502 ($0.2177 per share).  Capital Southwest elected to retain these gains and, as a regulated investment company, has designated them to shareholders of record on December 31, 2009.  The tax effect is the same as if the capital gains had been distributed to Capital Southwest shareholders, who then elected to reinvest 65% of the amount received.  The 35% capital gains tax paid by Capital Southwest is considered to have been paid on behalf of the shareholders.

For Shareholders from 1968 through 2009

In certain years from 1968 through 2009, Capital Southwest made elections to retain taxable net long–term capital gains. The table below shows the record dates for all years for which Capital Southwest made such elections and the per share amounts of the retained long–term capital gains, the Federal income taxes paid and the amounts by which shareholders on each record date are entitled to increase the tax basis of each share (adjusted for stock splits in 1976, 1981 and 1987):

Record Date	Retained capital gains per share	Federal income taxes paid per share	Increase in tax basis per share
Mar 31, 1968	$0.5041	$0.1292	$0.3749
Mar 31, 1969	$0.3102	$0.0852	$0.2250
Mar 31, 1970	$0.2366	$0.0662	$0.1704
Mar 31, 1983	$1.2106	$0.3390	$0.8716
Mar 31, 1984	$0.1797	$0.0503	$0.1294
Mar 31, 1985	$0.3469	$0.0971	$0.2498
Dec 31, 1986	$3.2523	$0.9106	$2.3417
Dec 31, 1989	$3.2378	$1.1008	$2.1370
Dec 31, 1991	$5.9375	$2.0187	$3.9188
Dec 31, 1992	$2.0823	$0.7080	$1.3743
Dec 31, 1996	$4.7546	$1.6641	$3.0905
Dec 31, 1997	$4.9821	$1.7437	$3.2384
Dec 31, 1998	$0.2001	$0.0700	$0.1301
Dec 31, 1999	$3.0474	$1.0666	$1.9808
Dec 31, 2005	$3.5761	$1.2516	$2.3245
Dec 31, 2006	$8.1469	$2.8514	$5.2955
Dec 31, 2008	$3.9883	$1.3959	$2.5924
Dec 31, 2009	$0.622	$0.2177	$0.4043

Shareholders who owned shares on each of the above record dates should increase the tax basis of such shares by an aggregate of $30.8494 per share.