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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-03-19 compared with 2020-03-20 · 942 added, 4 removed, 5 unchanged (99% of the section changed)

Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including valuation risk, market risk and interest rate risk.

Valuation Risk

We have invested, and plan to continue to invest, primarily in illiquid debt and equity securities of portfolio companies.

During periods of market dislocation, we will seek to invest prudently in the secondary loan market to provide our investors better risk adjusted returns while adhering to our core investment tenants.

Business—Coronavirus Developments.” Most of our investments will not have a readily available market price.

To ensure accurate valuation, our investments are valued at fair value in good faith by our Board of Directors, based on, among other things, the input of the Investment Adviser, our Audit Committee and independent third-party valuation firm engaged at the direction of our Board of Directors, and in accordance with our valuation policy.

There is no single standard for determining fair value.

As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each investment while employing a consistently applied valuation process for the investments we hold.

If we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize amounts that are different from the amounts presented and such differences could be material.

The market value of a security may move up or down, sometimes rapidly and unpredictably.

These fluctuations may cause a security to be worth less than the price originally paid for it, or less than it was worth at an earlier time.

Market risk may affect a single issuer, industry, sector of the economy or the market as a whole.

Global economies and financial markets are increasingly interconnected, which increases the probabilities that conditions in one country or region might adversely impact issuers in a different country or region.

Conditions affecting the general economy, including political, social, or economic instability at the local, regional, or global level, may also affect the market value of a security.

Health crises, such as pandemic and epidemic diseases, as well as other incidents that interrupt the expected course of events, such as natural disasters, war or civil disturbance, acts of terrorism, power outages and other unforeseeable and external events, and the public response to or fear of such diseases or events, have and may in the future have an adverse effect on a company’s investments and net asset value and can lead to increased market volatility.

See “Item 1A.

Risk Factors—General Risk Factors—Risks Relating to Our Business and Structure—We are operating in a period of capital markets disruption and economic uncertainty.

The conditions have materially and adversely affected debt and equity capital markets in the United States, and any future disruptions or instability in capital markets may have a negative impact on our business and operations.” and “Terrorist attacks, acts of war, natural disasters, outbreaks or pandemics, such as the Coronavirus pandemic, may impact our portfolio companies and our Adviser and harm our business, operating results and financial condition.”

Interest Rate Risk

We are subject to financial market risks, most significantly changes in interest rates.

2 unchanged sentences

As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

As of December 31, 2019, our exposure to changes in interest rates was not material.

In addition, any investments we make that are denominated in a foreign currency will be subject to risks associated with changes in currency exchange rates.

These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market.

These risks will vary depending upon the currency or currencies involved.

In addition, the Coronavirus pandemic has resulted in a decrease in LIBOR and a general reduction of certain interest rates by the U.S.

Federal Reserve and other central banks.

A continued decline in interest rates, including LIBOR, could result in a reduction of our gross investment income.

In addition, our net investment income could also decline if such decreases in LIBOR are not offset by, among other things, a corresponding increase in the spread over LIBOR in our portfolio investments, a decrease in our operating expenses, or a decrease in the interest rates of our liabilities that are tied to LIBOR.

See “Item 1A.

Risk Factors—Risks Relating to Our Business and Structure—Changes in LIBOR, or its discontinuation, may adversely affect our business and results of operations.”

As of December 31, 2019, our exposure to changes in interest rates was immaterial.

As of December 31, 2020, 99.8% of our debt investments were at floating rates.

Based on our Consolidated Statements of Assets and Liabilities as of December 31, 2020, the following table shows the annualized impact on net income of hypothetical base rate changes in interest rates (considering interest rate floors and ceilings for floating rate debt instruments assuming no changes in our investments and borrowing structure as of December 31, 2020) (dollar amounts in thousands):

Interest Interest Net

Basis Point Change - Interest Rates Income Expense Income

Up 300 basis points $ 14,584 $ (10,016) $ 4,568

Up 200 basis points $ 8,146 $ (6,677) $ 1,469

Up 100 basis points $ 1,708 $ (3,339) $ (1,631)

Down 100 basis points $ (57) $ 480 $ 423

Down 200 basis points $ (57) $ 480 $ 423

Down 300 basis points $ (57) $ 480 $ 423

We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts or our credit facilities, subject to the requirements of the 1940 Act and applicable commodities laws.

While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates or higher exchange rates with respect to our portfolio of investments with fixed interest rates or investments denominated in foreign currencies.

During the periods covered by this Form 10-K, we did not engage in interest rate hedging activities.

Consolidated Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Assets and Liabilities as of December 31, 2020 and 2019

Consolidated Statements of Operations for the Year ended December 31, 2020 and for the period from May 30, 2019 (inception) to December 31, 2019

Consolidated Statements of Changes in Net Assets for the Year ended December 31, 2020 and for the period from May 30, 2019 (inception) to December 31, 2019

Consolidated Statements of Cash Flows for the Year ended December 31, 2020 and for the period from May 30, 2019 (inception) to December 31, 2019

Consolidated Schedule of Investments as of December 31, 2020

Notes to the Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Morgan Stanley Direct Lending Fund

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of assets and liabilities of Morgan Stanley Direct Lending Fund (the "Company"), including the consolidated schedule of investments, as of December 31, 2020, the related consolidated statements of operations, changes in net assets, and cash flows for the year ended December 31, 2020 and the period from May 30, 2019 (inception) to December 31, 2019, and the financial highlights for the year ended December 31, 2020, and the related notes.

In our opinion, the consolidated financial statements and financial highlights present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations, changes in net assets, cash flows, and financial highlights for the year ended December 31, 2020 and the period from May 30, 2019 (inception) to December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements and financial highlights are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's consolidated financial statements and financial highlights based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements and financial highlights.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and financial highlights.

Our procedures included confirmation of investments owned as of December 31, 2020, by correspondence with the custodian, loan agents, and borrowers;

when replies were not received, we performed other auditing procedures.

We believe that our audits provides a reasonable basis for our opinion.

/s/Deloitte & Touche LLP

March 19, 2021

We have served as the Company's auditor since 2019.

Morgan Stanley Direct Lending Fund

Consolidated Statements of Assets and Liabilities

(In thousands, except share and per share amounts)

December 31, 2020 December 31, 2019

Non-controlled/non-affiliated Investments, at fair value (amortized cost of $631,473 and $0, respectively) $ 636,981 $ —

Cash 11,263 35

Deferred financing costs 5,987 958

Deferred offering costs 18 250

Interest receivable from non-controlled/non-affiliated investments 2,280 —

Receivable for investments sold 79 —

Prepaid expenses and other assets 198 221

Total assets 656,806 1,464

Debt 333,850 —

Payable to affiliate (Note 3) 1,860 1,399

Financing costs payable 3,925 605

Dividends payable 9,165 —

Management fees payable 295 —

Incentive fees payable 2,889 —

Interest payable 1,154 —

Accrued expenses and other liabilities 2,048 581

Total liabilities 355,186 2,585

Commitments and Contingencies (Note 7)

Common stock, par value $0.001 (100,000,000 shares authorized and 15,024,425 and 1,750 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively) 15 —

Paid-in capital in excess of par value 296,903 35

Net distributable earnings (accumulated losses) 4,702 (1,156)

Total net assets $ 301,620 $ (1,121)

Total liabilities and net assets $ 656,806 $ 1,464

Net asset value per share $ 20.08 $ (640.54)

The accompanying notes are an integral part of these consolidated financial statements

Morgan Stanley Direct Lending Fund

Consolidated Statements of Operations

(In thousands, except share and per share amounts)

For the year ended December 31, 2020 From May 30, 2019 (inception) to December 31, 2019

Investment Income:

From non-controlled/non-affiliated investments:

Interest income $ 20,278 $ —

Other income 1,625 —

Total investment income 21,903 —

Interest expense 3,725 —

Management fees 2,238 —

Income based incentive fees 2,517 —

Capital gains incentive fees 1,341 —

Professional fees 1,654 66

Organization and offering costs 676 1,079

Directors' fees 349 43

Administrative service fees 183 —

General and other expenses 493 47

Total expenses 13,176 1,235

Expense waiver (Note 3) (230) (79)

Management fees waiver (Note 3) (1,678) —

Net expenses 11,268 1,156

Net investment income (loss) 10,635 (1,156)

Realized and unrealized gain (loss):

Net realized gain (loss):

Non-controlled/non-affiliated investments 2,154 —

Net change in unrealized appreciation (depreciation):

Non-controlled/non-affiliated investments 5,508 —

Net realized and unrealized gain (loss) 7,662 —

Net increase (decrease) in net assets resulting from operations $ 18,297 $ (1,156)

Per share information—basic and diluted

Net investment income (loss) per share (basic and diluted):

$ 1.41 $ (660.54)

Earnings per share (basic and diluted):

Weighted average shares outstanding (basic and diluted) (Note 9):

7,559,426 1,750

Dividend declared per share:

The accompanying notes are an integral part of these consolidated financial statements

Morgan Stanley Direct Lending Fund

Consolidated Statements of Changes in Net Assets

(In thousands)

For the year ended December 31, 2020 From May 30, 2019 (inception) to December 31, 2019

Increase (decrease) in net assets resulting from operations:

Net investment income (loss) $ 10,635 $ (1,156)

Net realized gain (loss) 2,154 —

Net change in unrealized appreciation (depreciation) 5,508 —

Net increase (decrease) in net assets resulting from operations 18,297 (1,156)

Capital transactions:

Issuance of common stock 297,347 35

Reinvestment of dividends 1,023 —

Dividends declared (13,926) —

Net increase (decrease) in net assets resulting from capital transactions 284,444 35

Total increase (decrease) in net assets 302,741 (1,121)

Net assets at beginning of period (1,121) —

Net assets at end of period $ 301,620 $ (1,121)

The accompanying notes are an integral part of these consolidated financial statements

Morgan Stanley Direct Lending Fund

Consolidated Statements of Cash Flows

(In thousands)

For the year ended December 31, 2020 From May 30, 2019 (inception) to December 31, 2019

Cash flows from operating activities:

Net increase (decrease) in net assets resulting from operations $ 18,297 $ (1,156)

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:

Net unrealized (appreciation) depreciation on investments (5,508) —

Net realized (gain) loss on investments (2,154) —

Net accretion of discount and amortization of premium, including capitalized PIK interest (3,615) —

Amortization of deferred financing costs 1,072 —

Amortization of deferred offering costs 258 —

Purchases of investments and change in payable for investments purchased (714,658) —

Proceeds from sales and repayments of investments and change in receivable for investments sold 88,875 —

Changes in operating assets and liabilities:

(Increase) decrease in interest receivable (2,280) —

(Increase) decrease in deferred offering costs — (212)

(Increase) decrease in prepaid expenses and other assets 23 (221)

(Decrease) increase in payable to affiliate 461 1,037

(Decrease) increase in management fees payable 295 —

(Decrease) increase in incentive fees payable 2,889 —

(Decrease) increase in interest payable 1,154 —

(Decrease) increase in accrued expenses and other liabilities 1,540 552

Net cash provided by (used in) operating activities (613,351) —

Cash flows from financing activities:

Borrowings on credit facility 612,350 —

Repayments on credit facility (278,500) —

Deferred financing costs paid (2,780) —

Dividends paid in cash (3,738) —

Proceeds from issuance of common stock 297,347 35

Offering costs paid (100) —

Net cash provided by (used in) financing activities 624,579 35

Net increase (decrease) in cash and cash equivalents 11,228 35

Cash at beginning of period 35 —

Cash at end of period $ 11,263 $ 35

Supplemental information and non-cash activities:

Interest paid during the period $ 1,094 $ —

Accrued but unpaid deferred financing costs during the period $ 3,425 $ 958

Accrued but unpaid deferred offering costs during the period $ — $ 38

Dividend payable $ 9,165 $ —

Dividend reinvestment during the period $ 1,023 $ —

The accompanying notes are an integral part of these consolidated financial statements

Morgan Stanley Direct Lending Fund

Consolidated Schedule of Investments

(In thousands)

Investments-non-controlled/non-affiliated (1)

Footnotes Reference Rate and Spread Interest Rate (2)

Acquisition Date Maturity Date Par Amount/ Shares Cost (3)

Fair Value Percentage of Net Assets

First Lien Debt

Auto Components

Sonny's Enterprises, Inc.

(4) (5) L + 7.00% 8.00% 12/28/2020 08/05/2026 5,469 $ 5,360 $ 5,360 1.78 %

Sonny's Enterprises, Inc.

(4) (5) (10) L + 7.00% 8.00% 12/28/2020 08/05/2026 — (266) (266) (0.09)

5,094 5,094 1.69

Turbo Buyer, Inc.

(4) (5) (10) L + 5.50% 6.50% 08/21/2020 02/12/2025 — (407) (407) (0.13)

Commercial Services & Supplies

Capstone Acquisition Holdings, Inc.

(5) (6) L + 4.75% 5.75% 11/13/2020 11/12/2027 2,827 2,799 2,845 0.94

Capstone Acquisition Holdings, Inc.

(5) (10) L + 4.75% 5.75% 11/13/2020 11/12/2027 — (2) 3 —

Divisions Holding Corporation (4) (5) L + 6.50% 7.50% 08/14/2020 08/14/2026 29,491 28,931 29,491 9.78

Divisions Holding Corporation (4) (5) (10) L + 6.50% 7.50% 08/14/2020 08/14/2026 1,739 1,593 1,739 0.58

Sweep Purchaser LLC (4) (5) L + 5.75% 6.75% 11/30/2020 11/30/2026 8,859 8,684 8,684 2.88

Sweep Purchaser LLC (4) (5) (10) L + 5.75% 6.75% 11/30/2020 11/30/2026 — (28) (28) (0.01)

US Infra Svcs Buyer LLC (4) (5) L + 6.00% 7.00% 04/10/2020 04/13/2026 17,164 16,854 17,164 5.69

US Infra Svcs Buyer LLC (4) (5) (10) L + 6.00% 7.00% 04/10/2020 04/13/2026 988 802 988 0.33

US Infra Svcs Buyer LLC (4) (5) (10) L + 6.00% 7.00% 04/10/2020 04/13/2026 300 260 300 0.10

Vessco Midco Holdings LLC (4) (5) (6) L + 4.50% 5.50% 10/30/2020 11/02/2026 2,763 2,736 2,736 0.91

Vessco Midco Holdings LLC (4) (5) (10) L + 4.50% 5.50% 10/30/2020 11/02/2026 134 117 117 0.04

Vessco Midco Holdings LLC (4) (5) (10) L + 4.50% 5.50% 10/30/2020 10/18/2026 — (4) (4) 0.00

62,714 64,007 21.22

Containers & Packaging

Brook and Whittle Holding Corp.

(4) (5) L + 6.00% 7.00% 10/27/2020 10/17/2024 12,916 12,730 12,730 4.22

Diversified Financial Services

HighTower Holdings LLC (4) (5) (7) L + 5.00% 6.00% 10/14/2020 01/31/2025 12,549 12,368 12,368 4.10

HighTower Holdings LLC (4) (5) (7) (10) L + 5.00% 6.00% 10/14/2020 01/31/2025 — (17) (17) (0.01)

12,351 12,351 4.09

Food Products

AMCP Pet Holdings, Inc.

(Brightpet) (4) (5) (6) L + 6.25% 7.25% 10/06/2020 10/05/2026 17,500 16,990 16,990 5.63

AMCP Pet Holdings, Inc.

(Brightpet) (4) (5) L + 6.25% 7.25% 12/29/2020 10/05/2026 16,667 16,167 16,167 5.36

AMCP Pet Holdings, Inc.

(Brightpet) (4) (5) (10) L + 6.25% 7.25% 10/06/2020 10/01/2027 — (144) (144) (0.05)

AMCP Pet Holdings, Inc.

(Brightpet) (4) (5) (10) L + 6.25% 7.25% 10/06/2020 10/01/2025 — (172) (172) (0.06)

Nellson Nutraceutical, Inc.

(4) (5) (6) L + 5.25% 6.25% 09/30/2020 12/23/2023 17,623 17,295 17,623 5.84

Nellson Nutraceutical, Inc.

(4) (5) (6) L + 5.25% 6.25% 09/30/2020 12/23/2023 7,246 7,111 7,246 2.40

Teasdale Foods, Inc.

(Teasdale Latin Foods) (4) (5) L + 6.25% 7.25% 12/18/2020 12/18/2025 11,250 11,027 11,027 3.66

68,274 68,737 22.79

Morgan Stanley Direct Lending Fund

Consolidated Schedule of Investments

(In thousands)

Investments-non-controlled/non-affiliated (1)

Footnotes Reference Rate and Spread Interest Rate (2)

Acquisition Date Maturity Date Par Amount/ Shares Cost (3)

Fair Value Percentage of Net Assets

First Lien Debt (continued)

Health Care Providers & Services

Bearcat Buyer, Inc.

(4) (5) L + 4.75% 5.75% 11/18/2020 07/09/2026 6,912 $ 6,741 $ 6,741 2.23 %

Bearcat Buyer, Inc.

(4) (5) (10) L + 4.75% 5.75% 11/18/2020 07/09/2026 1,425 1,256 1,256 0.42

7,997 7,997 2.65

Health Care Technology

Lightspeed Buyer, Inc.

(4) (5) (6) L + 5.50% 6.50% 11/09/2020 02/03/2026 9,375 9,100 9,100 3.02

Lightspeed Buyer, Inc.

(4) (5) (10) L + 5.50% 6.50% 11/09/2020 02/03/2026 — (182) (182) (0.06)

8,918 8,918 2.96

Industrial Conglomerates

(4) (5) (6) L + 5.25% 6.25% 06/30/2020 04/23/2026 1,990 1,962 1,990 0.66

Electrical Source Holdings LLC (4) (5) (6) L + 5.50% 6.50% 05/18/2020 11/25/2025 29,850 29,580 29,850 9.90

31,542 31,840 10.56

Higginbotham Insurance Agency, Inc.

(4) (8) L + 5.75% 6.50% 11/25/2020 11/25/2026 14,632 14,415 14,415 4.78

Higginbotham Insurance Agency, Inc.

(4) (8) (10) L + 5.75% 6.50% 11/25/2020 11/25/2026 — (30) (30) (0.01)

Integrity Marketing Acquisition LLC (4) (5) (10) L + 6.25% 7.25% 08/07/2020 08/27/2025 29,386 28,763 29,386 9.74

Majesco (4) (5) L + 7.75% 8.75% 09/21/2020 09/21/2027 14,852 14,420 14,852 4.92

Majesco (4) (5) (10) L + 7.75% 8.75% 09/21/2020 09/21/2026 — (45) — —

Propel Insurance Agency LLC (4) (5) L + 5.00% 6.00% 12/09/2020 06/01/2024 18,427 18,245 18,245 6.05

Propel Insurance Agency LLC (4) (5) (10) L + 5.00% 6.00% 12/09/2020 06/01/2024 — (19) (19) (0.01)

RSC Acquisition, Inc.

(4) (5) (6) L + 5.50% 6.50% 09/11/2020 10/30/2026 2,938 2,853 2,938 0.97

RSC Acquisition, Inc.

(4) (5) (10) L + 5.50% 6.50% 09/11/2020 10/30/2026 703 357 703 0.23

World Insurance Associates LLC (4) (5) L + 5.50% 6.50% 05/22/2020 04/01/2026 10,269 9,658 9,966 3.30

World Insurance Associates LLC (4) (5) L + 5.50% 6.50% 05/22/2020 04/01/2026 4,679 4,404 4,541 1.51

World Insurance Associates LLC (4) (5) L + 5.50% 6.50% 10/15/2020 04/01/2026 19,387 18,814 18,814 6.24

World Insurance Associates LLC (4) (5) (10) L + 5.50% 6.50% 10/15/2020 04/01/2026 10,087 9,758 9,758 3.24

World Insurance Associates LLC (4) (5) (10) L + 5.50% 6.50% 12/23/2020 04/01/2026 — (46) (46) (0.02)

121,547 123,523 40.95

Interactive Media & Services

MSM Acquisitions, Inc.

(4) (5) L + 6.00% 7.00% 12/09/2020 12/09/2026 23,684 23,215 23,215 7.70

MSM Acquisitions, Inc.

(4) (5) (10) L + 6.00% 7.00% 12/09/2020 12/09/2026 — (49) (49) (0.02)

MSM Acquisitions, Inc.

(4) (5) (10) L + 6.00% 7.00% 12/09/2020 12/09/2026 — (78) (78) (0.03)

23,088 23,088 7.65

Morgan Stanley Direct Lending Fund

Consolidated Schedule of Investments

(In thousands)

Investments-non-controlled/non-affiliated (1)

Footnotes Reference Rate and Spread Interest Rate (2)

Acquisition Date Maturity Date Par Amount/ Shares Cost (3)

Fair Value Percentage of Net Assets

First Lien Debt (continued)

Ensono, LP (4) (6) L + 5.75% 5.90% 06/25/2020 06/27/2025 14,925 $ 14,434 $ 14,925 4.95 %

Help/Systems Holdings, Inc.

(5) (6) L + 4.75% 5.75% 06/16/2020 11/19/2026 19,850 19,584 19,701 6.53

Recovery Point Systems, Inc.

(4) (5) L + 6.50% 7.50% 08/12/2020 08/12/2026 41,895 41,100 41,895 13.89

Recovery Point Systems, Inc.

(4) (5) (10) L + 6.50% 7.50% 08/12/2020 08/12/2026 — (75) — —

75,043 76,521 25.37

Leisure Products

GSM Acquisition Corp.

(GSM Outdoors) (4) (5) L + 5.00% 6.00% 11/16/2020 11/16/2026 22,785 22,449 22,449 7.44

GSM Acquisition Corp.

(GSM Outdoors) (4) (5) (10) L + 5.00% 6.00% 11/16/2020 11/16/2026 1,603 1,547 1,547 0.51

GSM Acquisition Corp.

(GSM Outdoors) (4) (5) (10) L + 5.00% 6.00% 11/16/2020 11/16/2026 — (50) (50) (0.02)

23,946 23,946 7.94

Multi-Utilities

AWP Group Holdings, Inc.

(4) (5) L + 4.75% 5.75% 12/22/2020 12/22/2027 711 700 700 0.23

AWP Group Holdings, Inc.

(4) (5) (10) L + 4.75% 5.75% 12/22/2020 12/22/2027 — (1) (1) —

AWP Group Holdings, Inc.

(4) (5) (10) L + 4.75% 5.75% 12/22/2020 12/22/2026 — (2) (2) —

Professional Services

Bullhorn, Inc.

(4) (5) L + 5.75% 6.75% 09/11/2020 09/30/2026 7,427 7,320 7,427 2.46

Bullhorn, Inc.

(4) (5) (10) L + 5.75% 6.75% 09/11/2020 09/30/2026 — (8) — —

IQN Holding Corp., dba Beeline (4) (5) L + 5.50% 6.50% 02/10/2020 08/20/2024 38,079 37,922 37,721 12.51

IQN Holding Corp., dba Beeline (4) (5) (10) L + 5.50% 6.50% 02/10/2020 08/21/2023 — (17) (43) (0.01)

45,217 45,105 14.95

Real Estate Management & Development

MRI Software LLC (4) (5) L + 5.50% 6.50% 01/31/2020 02/10/2026 31,639 31,379 31,639 10.49

MRI Software LLC (4) (5) (10) L + 5.50% 6.50% 01/31/2020 02/10/2026 — (11) — —

MRI Software LLC (4) (5) (10) L + 5.50% 6.50% 01/31/2020 02/10/2026 — (19) — —

MRI Software LLC (4) (5) (10) L + 5.50% 6.50% 08/28/2020 02/10/2026 1,899 1,727 1,899 0.63

33,076 33,538 11.12

GS AcquisitionCo, Inc.

(4) (5) L + 5.75% 6.75% 10/27/2020 05/24/2024 23,673 23,323 23,323 7.73

GS AcquisitionCo, Inc.

(4) (5) (10) L + 5.75% 6.75% 12/11/2020 05/24/2024 6,848 6,663 6,663 2.21

GS AcquisitionCo, Inc.

(4) (5) (10) L + 5.75% 6.75% 12/11/2020 05/24/2024 — (20) (20) (0.01)

Gurobi Optimization LLC (4) (5) L + 5.25% 6.25% 11/12/2020 12/19/2023 13,359 13,231 13,231 4.39

Gurobi Optimization LLC (4) (5) (10) L + 5.25% 6.25% 11/12/2020 12/19/2023 — (15) (15) —

43,182 43,182 14.32

Total First Lien Debt $ 575,009 $ 580,867 192.58

Morgan Stanley Direct Lending Fund

Consolidated Schedule of Investments

(In thousands)

Investments-non-controlled/non-affiliated (1)

Footnotes Reference Rate and Spread Interest Rate (2)

Acquisition Date Maturity Date Par Amount/ Shares Cost (3)

Fair Value Percentage of Net Assets

Second Lien Debt

Energy Equipment & Services

QBS Parent, Inc.

(4) L + 8.50% 8.75% 02/10/2020 09/21/2026 15,000 $ 14,731 $ 14,381 4.77 %

Diversified Consumer Services

Cambium Learning Group, Inc.

(4) (5) L + 8.50% 9.50% 10/08/2020 12/18/2026 10,000 9,610 9,610 3.19

Diversified Financial Services

HighTower Holdings LLC (4) (5) (7) L + 8.75% 9.75% 10/09/2020 01/31/2026 5,000 4,903 4,903 1.63

Auto Components

PAI Holdco, Inc.

(4) (5) L + 6.25%;

2.00% PIK 9.25% 10/28/2020 10/28/2028 25,000 24,261 24,261 8.04

Total Second Lien Debt $ 53,505 $ 53,155 17.62

Other Securities

Unsecured Debt

Familia Intermediate Holdings I Corp.

(Teasdale Latin Foods) (4) (9) N/A 16.25% PIK 12/18/2020 06/18/2026 1,509 1,509 1,509 0.50

Total Unsecured Debt 1,509 1,509 0.50

Common Equity

Pet Holdings, Inc.

(Brightpet) (4) 10,000 1,000 1,000 0.33

GSM Equity Investors, LP (GSM Outdoors) (4) 4,500 450 450 0.15

Total Common Equity 1,450 1,450 0.48

Total Other Securities $ 2,959 $ 2,959 0.98

Total Portfolio Investments $ 631,473 $ 636,981 $ 211.19 %

Morgan Stanley Direct Lending Fund

Consolidated Schedule of Investments

(In thousands)

(1) Unless otherwise indicated, issuers of debt and equity investments held by the Company (which such term “Company” shall include the Company’s consolidated subsidiaries for purposes of this Consolidated Schedule of Investments) are denominated in dollars.

All debt investments are income producing unless otherwise indicated.

All equity investments are non-income producing unless otherwise noted.

Certain portfolio company investments are subject to contractual restrictions on sales.

Under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “1940 Act”), the Company would be deemed to “control” a portfolio company if the Company owned more than 25% of its outstanding voting securities and/or held the power to exercise control over the management or policies of the portfolio company.

As of December 31, 2020, the Company does not “control” any of these portfolio companies.

Under the 1940 Act, the Company would be deemed an “affiliated person” of a portfolio company if the Company owns 5% or more of the portfolio company’s outstanding voting securities.

As of December 31, 2020, the Company is not an “affiliated person” of any of its portfolio companies.

(2) Variable rate loans to the portfolio companies bear interest at a rate that is determined by reference to either LIBOR (“L”) or an alternate base rate (commonly based on the Federal Funds Rate (“F”) or the U.S.

Prime Rate (“P”)), which generally resets periodically.

For each loan, the Company has indicated the reference rate used and provided the spread and the interest rate in effect as of December 31, 2020.

As of December 31, 2020, the reference rates for our variable rate loans were the 30-day L at 0.14%, the 90-day L at 0.24% and the 180-day L at 0.26%.

(3) The cost represents the original cost adjusted for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method.

(4) These investments were valued using unobservable inputs and are considered Level 3 investments.

Fair value was determined in good faith by or under the direction of the Board of Directors (see Note 2 and Note 5), pursuant to the Company’s valuation policy.

(5) The interest rate floor on these investments as of December 31, 2020 was 1%.

(6) Assets or a portion thereof are pledged as collateral for the BNP Funding Facility.

See Note 6 “Debt”.

(7) The investment is not a qualifying asset under Section 55(a) of the 1940 Act.

The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company’s total assets.

As of December 31, 2020, non-qualifying assets represented 3% of total assets as calculated in accordance with regulatory requirements.

(8) The interest rate floor on these investments as of December 31, 2020 was 0.75%.

(9) Represents a senior unsecured note, which is subordinated to senior secured term loans of the portfolio company.

(10) Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion, although the investment may earn unused commitment fees.

Negative cost and fair value, if any, results from unamortized fees, which are capitalized to the cost of the investment.

The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated.

See below for more information on the Company’s unfunded commitments as of December 31, 2020:

Investments-non-controlled/non-affiliated Unused Fee Rate Commitment Type Commitment Expiration Date Unfunded Commitment Fair Value

First Lien Debt

AMCP Pet Holdings, Inc.

1.00% Delayed Draw Term Loan 04/06/2022 5,000 $ (144)

AMCP Pet Holdings, Inc.

0.50% Revolver 10/01/2025 5,833 (172)

AWP Group Holdings, Inc.

1.00% Delayed Draw Term Loan 12/22/2022 132 (1)

AWP Group Holdings, Inc.

0.50% Revolver 12/22/2026 158 (2)

Bearcat Buyer, Inc.

1.00% Delayed Draw Term Loan 11/18/2022 5,413 (134)

Bullhorn, Inc.

0.50% Revolver 09/30/2026 554 —

Capstone Acquisition Holdings, Inc.

1.00% Delayed Draw Term Loan 05/13/2022 507 3

Divisions Holding Corporation 1.00% Delayed Draw Term Loan 08/14/2022 5,217 —

Divisions Holding Corporation 0.50% Revolver 08/14/2026 3,478 —

GS AcquisitionCo, Inc.

0.50% Delayed Draw Term Loan 10/17/2021 11,235 (109)

GS AcquisitionCo, Inc.

0.50% Revolver 05/24/2024 1,370 (20)

GSM Acquisition Corp.

1.00% Delayed Draw Term Loan 11/16/2022 2,195 (32)

GSM Acquisition Corp.

0.50% Revolver 11/16/2026 3,418 (50)

Gurobi Optimization LLC 0.50% Revolver 12/19/2023 1,607 (15)

Higginbotham Insurance Agency, Inc.

1.00% Delayed Draw Term Loan 11/25/2022 4,119 (31)

Morgan Stanley Direct Lending Fund

Consolidated Schedule of Investments

(In thousands)

Investments-non-controlled/non-affiliated Unused Fee Rate Commitment Type Commitment Expiration Date Unfunded Commitment Fair Value

First Lien Debt (continued)

HighTower Holdings LLC 1.00% Delayed Draw Term Loan 10/14/2022 2,419 $ (17)

Integrity Marketing Acquisition LLC 1.00% Delayed Draw Term Loan 02/07/2022 15,540 —

IQN Holding Corp., dba Beeline 0.50% Revolver 08/21/2023 4,545 (43)

Lightspeed Buyer, Inc.

1.00% Delayed Draw Term Loan 05/09/2022 9,375 (182)

Majesco 0.50% Revolver 09/21/2026 1,575 —

MRI Software LLC 0.50% Delayed Draw Term Loan 02/10/2022 908 —

MRI Software LLC 1.00% Incremental Delayed Draw Term Loan 08/24/2022 15,096 —

MRI Software LLC 0.50% Revolver 02/10/2026 2,215 —

MSM Acquisitions, Inc.

0.00% Delayed Draw Term Loan 06/09/2022 9,869 (49)

MSM Acquisitions, Inc.

0.00% Revolver 12/09/2026 3,947 (78)

Propel Insurance Agency LLC 1.00% Delayed Draw Term Loan 12/09/2022 3,874 (19)

Recovery Point Systems, Inc.

0.50% Revolver 08/12/2026 4,000 —

RSC Acquisition, Inc.

1.00% Delayed Draw Term Loan 03/31/2022 11,353 —

Sonny's Enterprises, Inc.

1.00% Delayed Draw Term Loan 12/28/2021 13,281 (266)

Sweep Purchaser LLC 0.00% Delayed Draw Term Loan 11/30/2022 2,813 (28)

Sweep Purchaser LLC 0.50% Revolver 11/30/2026 1,406 (28)

Turbo Buyer, Inc.

1.00% Incremental Delayed Draw Term Loan 02/21/2022 35,000 (407)

US Infra Svcs Buyer LLC 1.00% Delayed Draw Term Loan 04/13/2022 9,510 —

US Infra Svcs Buyer LLC 0.50% Revolver 04/13/2026 1,950 —

Vessco Midco Holdings LLC 5.50% Delayed Draw Term Loan 10/30/2022 1,655 (16)

Vessco Midco Holdings LLC 0.50% Revolver 10/18/2026 447 (4)

World Insurance Associates LLC 1.00% Delayed Draw Term Loan 10/15/2022 2,438 (64)

World Insurance Associates LLC 0.50% Delayed Draw Term Loan 12/23/2022 3,088 (46)

Total First Lien Debt Unfunded Commitments 206,540 (1,954)

Total Unfunded Commitments 206,540 $ (1,954)

Morgan Stanley Direct Lending Fund

Notes to Consolidated Financial Statements

December 31, 2020

(In thousands, except shares and per share amounts)

(1) Organization

Morgan Stanley Direct Lending Fund (the “Company”) is an externally managed specialty finance company that is focused on lending to middle-market companies.

The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940 Act, as amended (the “1940 Act”).

In addition, for U.S.

federal income tax purposes, the Company has elected to be treated, and intends to comply with the requirements to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

The Company was formed as a Delaware limited liability company on May 30, 2019 with the name Morgan Stanley BDC LLC, and its name was changed to Morgan Stanley Direct Lending Fund LLC on August 8, 2019.

On November 25, 2019, pursuant to BDC conversion, the Company was converted into a corporation and succeeded to the business of the Morgan Stanley Direct Lending Fund LLC (the “BDC Conversion”).

The Company was formed to make investments in middle-market companies and commenced investing operations in January 2020.

Pursuant to the Company’s operating agreement, the Company has delegated the right to manage the assets of the Company to MS Capital Partners Adviser Inc., as the investment adviser to the Company (the “Adviser” or “Investment Adviser”).

The Investment Adviser is an indirect wholly owned subsidiary of Morgan Stanley.

The Company’s investment objective is to achieve attractive risk-adjusted returns via current income and, to a lesser extent, capital appreciation by investing primarily in directly originated senior secured term loans issued by U.S.

middle-market companies backed by financial sponsors.

The Company is conducting private offerings of shares of the common stock of the Company, par value $0.001 per share (the “Common Stock”), to investors in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended.

At the closing of any private offering, each investor makes a capital commitment (a “Capital Commitment”) to purchase shares of Common Stock pursuant to a subscription agreement entered into with the Company.

Investors are required to fund drawdowns to purchase shares of Common Stock up to the amount of their respective Capital Commitments each time the Company delivers a notice to the investors.

DLF CA SPV LLC (“CA SPV”) is a Delaware limited liability company that was formed on February 26, 2020.

CA SPV expects to hold investments in first and second lien senior secured loans.

CA SPV is a wholly owned subsidiary of the Company and is consolidated in these consolidated financial statements commencing from the date of its formation.

DLF SPV LLC (“DLF SPV”) is a Delaware limited liability company that was formed on August 7, 2020.

DLF SPV expects to hold investments in first and second lien senior secured loans.

DLF SPV is a wholly owned subsidiary of the Company and is consolidated in these consolidated financial statements commencing from the date of its formation.

DLF Financing SPV LLC (“DLF LLC”) is a Delaware limited liability company that was formed on September 17, 2020.

DLF LLC expects to hold investments in first and second lien senior secured loans.

DLF LLC is a wholly owned subsidiary of the Company and is consolidated in these consolidated financial statements commencing from the date of its formation.

(2) Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.

As an investment company, the Company applies the accounting and reporting guidance in Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies (“ASC 946”) issued by the Financial Accounting Standards Board (“FASB”).

The carrying value for all assets and liabilities approximates their fair value.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and disclosure of contingent assets and liabilities at the date of the consolidated financial statements.

Such amounts could differ from those estimates and such differences could be material.

Management’s estimates are based on historical experiences and other factors, including expectations of future events that management believes to be reasonable under the circumstances.

Assumptions and estimates regarding the valuation of investments involve a higher degree of judgment and complexity and these assumptions and estimates may be significant to the consolidated financial statements.

Consolidation

As provided under ASC 946, the Company will not consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company.

Accordingly, the Company consolidated the results of the Company’s wholly-owned subsidiaries.

As of December 31, 2020, the Company's consolidated subsidiaries were CA SPV, DLF SPV and DLF LLC (collectively, the “SPVs”).

Cash is carried at cost, which approximates fair value.

The Company deposits its cash with multiple financial institutions and, at times, may exceed the Federal Deposit Insurance Corporation insured limit.

Investment transactions are recorded on the trade date.

Realized gains or losses are measured by the difference between the net proceeds received (excluding prepayment fees, if any) and the amortized cost basis of the investment using the specific identification method without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries.

The net change in unrealized gains or losses primarily reflects the change in investment values, including the reversal of previously recorded unrealized gains or losses with respect to investments realized during the period.

See Note 5 for further information about fair value measurements.

Revenue Recognition

Interest Income

Interest income is recorded on an accrual basis and includes the accretion of discounts and amortizations of premiums.

Discounts from and premiums to par value on debt investments purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method.

The amortized cost of debt investments represents the original cost, including loan origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion of discounts and amortization of premiums, if any.

Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts are recorded as interest income in the current period.

The Company has loans in its portfolio that contain payment-in-kind (“PIK”) provisions.

PIK represents interest that is accrued and recorded as interest income at the contractual rates, increases the loan principal on the respective capitalization dates, and is generally due at maturity.

Such income is included in interest income in the Consolidated Statement of Operations.

If at any point the Company believes PIK is not expected to be realized, the investment generating PIK will be placed on non-accrual status.

PIK investment is placed on non-accrual status, the accrued, uncapitalized interest is generally reversed through interest income.

To maintain the Company’s status as a RIC, this non-cash source of income must be paid out to stockholders in the form of dividends, even though the Company has not yet collected cash.

The Company may receive various fees in the ordinary course of business such as structuring, consent, waiver, amendment and syndication fees as well as fees for managerial assistance rendered by the Company to the portfolio companies.

Such fees are recognized in income when earned or when the services are rendered and there is no uncertainty or contingency related to the amount to be received.

Non-Accrual Income

Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected in full.

Accrued interest is generally reversed when a loan is placed on non-accrual status.

Additionally, any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on non-accrual status.

Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability.

Non-accrual loans are restored to accrual status when past due principal and interest are paid current and, in management’s judgment, are likely to remain current.

Management may determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection.

Realized Gains/Losses

Realized gains or losses on investments are measured by the difference between the net proceeds received (excluding prepayment fees, if any) and the amortized cost basis of the investment using the specific identification method.

Organization and Offering Costs

Costs associated with the organization of the Company are expensed as incurred, subject to the limitations discussed below.

These costs consist primarily of legal fees and other costs of organizing the Company.

Costs associated with the offering of Common Stock are capitalized as “deferred offering costs” on the Consolidated Statements of Assets and Liabilities and amortized over a twelve-month period from the initial capital call, subject to the limitation described in Note 3 below.

These costs consist primarily of legal fees and other costs incurred in connection with the Company’s continuous private offerings of its Common Stock.

The Company is responsible for investment expenses, legal expenses, auditing fees and other expenses related to the Company’s operations.

Such fees and expenses, including expenses incurred by the Adviser on behalf of the Company, will be reimbursed by the Company, subject to contractual thresholds.

The Company pays the Investment Adviser a base management fee and an incentive fee under the Investment Advisory Agreement as described in Note 3 below.

The fees are recorded in the Consolidated Statements of Operations.

Deferred Financing Costs

Deferred financing costs represent upfront fees, legal and other direct incremental costs incurred in connection with the Company’s borrowings.

These costs are deferred and will be amortized over the life of the related borrowings using the straight-line method.

Deferred financing costs related to revolving credit facilities are presented separately as an asset on the Company’s Consolidated Statements of Assets and Liabilities.

The Company intends to elect to be treated as a RIC under Subchapter M of the Code.

So long as the Company maintains its status as a RIC, it generally will not pay corporate U.S.

federal income taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends.

In order to qualify as a RIC, the Company must meet certain minimum distribution, source-of-income and asset diversification requirements.

If such requirements are met, then the Company is generally required to pay income taxes only on the portion of its taxable income and gains it does not distribute.

The minimum distribution requirements applicable to RICs require the Company to distribute to its stockholders at least 90% of its investment company taxable income (the “ICTI”), as defined by the Code, each year.

Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year distributions into the next tax year.

Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.

In addition, based on the excise distribution requirements, the Company is subject to a 4% nondeductible federal excise tax on undistributed income unless the Company distributes in a timely manner an amount at least equal to the sum of (1) 98% of its ordinary income for each calendar year, (2) 98.2% of capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year and (3) any income realized, but not distributed, in the preceding year.

For this purpose, however, any ordinary income or capital gain net income retained by the Company that is subject to corporate income tax is considered to have been distributed.

The Company intends to make sufficient distributions each taxable year to satisfy the excise distribution requirements.

The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more likely than not” to be sustained by the applicable tax authority.

All penalties and interest associated with income taxes, if any, are included in income tax expense.

Each of the SPVs is a disregarded entity for tax purposes and will be consolidated with the tax return of the Company.

New Accounting Standards

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update 2020-04 (“ASU 2020-04”) “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This accounting update provides optional accounting relief to entities with contracts, hedge accounting relationships or other transactions that reference LIBOR or other interest rate benchmarks for which the referenced rate is expected to be discontinued or replaced.

This optional relief generally allows for contract modifications solely related to the replacement of the reference rate to be accounted for as a continuation of the existing contract instead of as an extinguishment of the contract, and would therefore not trigger certain accounting impacts that would otherwise be required.

The optional relief can be applied beginning January 1, 2020 and ending December 31, 2022.

We plan to apply the accounting relief as relevant contract relationship modifications are made during the course of the reference rate reform transition period.

Other than the accounting guidance described above, management does not believe any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company's consolidated financial statements.

(3) Related Party Transactions

Placement Agent Agreement

On August 30, 2019, the Company entered into a placement agent agreement (the “Placement Agent Agreement”) with Morgan Stanley Distribution Inc.

(the “Paying Agent”), Morgan Stanley Smith Barney LLC (the “Placement Agent”) and the Investment Adviser.

Under the terms of the Placement Agent Agreement, the Placement Agent and certain of its affiliates will assist in the placement of common stock in the Company’s private offerings.

The Company is not liable for any payments to the Placement Agent pursuant to the Placement Agent Agreement.

Payments will be made by the Investment Adviser to the Placement Agent.

To the extent the Paying Agent receives any payments it will remit the payment to the Placement Agent.

Investment Advisory Agreement

On November 25, 2019, the Company’s Board of Directors (the “Board of Directors”), including a majority of the directors who are not “interested persons” as defined in Section 2(a)(19) of the Investment Company Act (the “Independent Directors”), approved the Investment Advisory Agreement in accordance with, and on the basis of an evaluation satisfactory to such directors as required by, Section 15(c) of the Investment Company Act.

The Company pays the Investment Adviser a fee for its services under the Investment Advisory Agreement consisting of two components:

a base management fee (the "Base Management Fee") and an incentive fee.

The cost of both the Base Management Fee and the incentive fee will ultimately be borne by the stockholders.

Base Management Fee

The Base Management Fee is calculated at an annual rate of 1.0% of the Company’s average gross assets at the end of the two most recently completed calendar quarters, including assets purchased with borrowed funds or other forms of leverage but excluding cash and cash equivalents.

Prior to listing the Company on an exchange, the Adviser has agreed to irrevocably waive the portion of the Base Management Fee in excess of 0.25% of the Company’s average gross assets calculated in accordance with the Investment Advisory Agreement.

Any waived Base Management Fees are not subject to recoupment by the Adviser.

The Base Management Fee is payable quarterly in arrears and no management fee will be charged on committed but undrawn Capital Commitments.

For the year ended December 31, 2020, base management fees were $2,238 and $560 net of waiver pursuant to the Expense Support and Waiver Agreement described below.

There were no management fees recorded from May 30, 2019 (inception) to December 31, 2019.

As of December 31, 2020, $295 was payable to the Investment Adviser relating to base management fees.

As of December 31, 2019, no base management fee was payable to the Investment Adviser.

Incentive Fee

The incentive fee consists of two components that are determined independently of each other, with the result that one component may be payable even if the other is not.

One component is based on income and the other component is based on capital gains.

The Company pays its Adviser an income based incentive fee with respect to the Company’s pre-incentive fee net investment income in each calendar quarter as follows:

• No income based incentive fee if the Company’s pre-incentive fee net investment income, expressed as a return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, does not exceed the hurdle rate of 1.5% (6.0% annualized);

• 100% of the Company’s pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 1.8182% (7.2728% annualized).

This portion of the pre-incentive fee net investment income (which exceeds the Hurdle Rate but is less than 1.8182%) is referred to as the “catch-up”.

This “catch-up” portion is meant to provide the Adviser with approximately 17.5% of the Company’s pre-incentive fee net investment income as if a hurdle rate did not apply if the “catch up” is achieved;

• 17.5% of the Company’s pre-incentive fee net investment income, if any, that exceeds the rate of return of 1.8182% (7.2728% annualized)

The second part of the incentive fee is determined on realized capital gains calculated and payable in arrears in cash as of the end of each calendar year or upon the termination of the Investment Advisory Agreement in an amount equal to 17.5% of the realized capital gains, if any, on a cumulative basis from the date of our election to be regulated as a business development company through the end of a given calendar year or upon the termination of the Investment Advisory Agreement, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees (the "Cumulative Capital Gains").

GAAP, the Company is required to accrue an incentive fee on capital gains, including unrealized capital appreciation even though such unrealized capital appreciation is not included in calculating the incentive fee payable under the Investment Advisory Agreement.

If such amount is positive at the end of a period, then the Company will record an incentive fee on capital gain incentive fee equal to 17.5% of such amount, less the aggregate amount of any previously paid capital gain incentive fees.

If such amount is negative, no accrual will be recorded for such period.

For the year ended December 31, 2020, $2,517 of income based incentive fees and $1,341 of capital gains incentive fees accrued to the Investment Adviser.

The Investment Advisory Agreement does not permit unrealized capital appreciation for purposes of calculating the amount payable to the Investment Adviser.

Amounts due related to unrealized capital appreciation, if any, will not be paid to the Investment Adviser until realized under the terms of the Investment Advisory Agreement and determined based on the calculation.

Incentive fees on Cumulative Capital Gains crystallize at calendar year-end.

As of December 31, 2020, $1,548 and $1,341 were payable to the Investment Adviser relating to income based incentive fees and capital gains incentive fees, respectively.

As of December 31, 2019, no incentive fee was payable to the Investment Adviser.

Administration Agreement

MS Private Credit Administrative Services LLC, f/k/a MS BDC Administrative Services LLC (the “Administrator”), is the administrator of the Company pursuant to an administration agreement (the “Administration Agreement”).

Pursuant to the Administration Agreement, the Administrator provides services and receives reimbursements from the Company equal to an amount that reimburses the Administrator for its costs and expenses and the Company’s allocable portion of certain expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including the Company’s allocable portion of the compensation paid to the Company’s Chief Compliance Officer and Chief Financial Officer.

Reimbursement under the Administration Agreement occurs quarterly in arrears.

For the year ended December 31, 2020, the Company incurred $183 in expenses under the Administration Agreement, which were recorded in administrative service expenses in the Company’s Consolidated Statements of Operations.

As of December 31, 2020, $60 was unpaid and included in payable to affiliate in the Consolidated Statement of Assets and Liabilities.

As of December 31, 2019, there were no administrative fees incurred by the Company.

Expense Support and Waiver Agreement

On December 31, 2019, the Company entered into an expense support and waiver agreement (the “Expense Support and Waiver Agreement”) with the Investment Adviser.

Under the terms of the Expense Support and Waiver Agreement, the Investment Adviser agreed to waive any reimbursement by the Company of offering and organizational expenses to be incurred by the Investment Adviser on behalf of the Company in excess of $1,000 or 0.10% of the aggregate Capital Commitments of the Company, whichever is greater.

If actual organization and offering costs incurred exceed the greater of $1,000 or 0.10% of the Company’s total Capital Commitments, the Investment Adviser or its affiliate will bear the excess costs.

The Company shall reimburse the Investment Adviser for payments of any excess costs borne by the Investment Adviser on the Company's behalf within three years of December 23, 2019 (the "Initial Closing Date").

As of December 31, 2020 and December 31, 2019, the Investment Adviser has not recaptured any previously waived amounts from the Company since actual offering and organizational expenses incurred from May 30, 2019 (inception) to December 31, 2020 exceeded the greater of $1,000 or 0.10% of the Company's total Capital Commitments.

For the year ended December 31, 2020, the Company incurred $676 towards organization cost and amortization of offering cost.

These costs exceeded the Investment Adviser reimbursement threshold, and as a result, the excess organization and offering costs of $230 were waived.

For the year ended December 31, 2019, the Company incurred $1,079 towards organization cost.

These costs exceeded the Investment Adviser reimbursement threshold, and as a result, the excess organization cost of $79 was waived.

As of December 31, 2020 and December 31, 2019, organization cost and offering cost are included in payable to affiliate and accrued expenses and other liabilities in the Consolidated Statements of Assets and Liabilities.

MS Credit Partners Holdings Investment

MS Credit Partners Holdings, Inc., a wholly owned subsidiary of Morgan Stanley and an affiliate of the Investment Adviser has made an aggregate capital commitment of $200.0 million to the Company as of December 31, 2020.

As of December 31, 2020 and December 31, 2019, MS Credit Partners Holdings’ total capital commitment represented approximately 14% and 20% of aggregate capital commitments received, respectively.

(4) Investments

The composition of the Company’s investment portfolio as of December 31, 2020 at cost and fair value was as follows:

December 31, 2020

Cost Fair Value % of Total Investments at Fair Value

First Lien Debt $ 575,009 $ 580,867 91.2 %

Second Lien Debt 53,505 53,155 8.3

Other Securities 2,959 2,959 0.5

Total $ 631,473 $ 636,981 100.0 %

The industry composition of investments as of December 31, 2020 at fair value was as follows:

December 31, 2020 (1)

Auto Components 4.6 %

Automobiles (0.1)

Commercial Services & Supplies 10.0

Containers & Packaging 2.0

Diversified Consumer Services 1.5

Diversified Financial Services 2.7

Energy Equipment & Services 2.3

Food Products 11.2

Health Care Providers & Services 1.3

Health Care Technology 1.4

Industrial Conglomerates 5.0

Insurance 19.4

Interactive Media & Services 3.6

IT Services 12.0

Leisure Products 3.8

Multi-Utilities 0.1

Professional Services 7.1

Real Estate Management & Development 5.3

Total 100.0 %

(1) Negative percentage is resulted from negative fair value of an unfunded loan commitment.

The geographic composition of investments as of December 31, 2020 at cost and fair value was as follows:

December 31, 2020

Cost Fair Value % of Total

Investments at

United States $ 631,473 $ 636,981 100.0 %

Total $ 631,473 $ 636,981 100.0 %

(5) Fair Value Measurements

ASC 820 establishes a hierarchical disclosure framework which ranks the observability of inputs used in measuring financial instruments at fair value.

The observability of inputs is impacted by a number of factors, including the type of financial instruments and their specific characteristics.

Financial instruments with readily available quoted prices, or for which fair value can be measured from quoted prices in active markets, generally will have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value.

The three-level hierarchy for fair value measurements is defined as follows:

Level 1 —inputs to the valuation methodology are quoted prices available in active markets for identical financial instruments as of the measurement date.

The types of financial instruments in this category include unrestricted securities, including equities and derivatives, listed in active markets.

The Company will not adjust the quoted price for these instruments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

Level 2 —inputs to the valuation methodology are quoted prices in markets that are not active or for which all significant inputs are either directly or indirectly observable as of the measurement date.

The types of financial instruments in this category include less liquid and restricted securities listed in active markets, securities traded in markets that are not active, and certain over-the-counter derivatives where the fair value is based on observable inputs.

Level 3 —inputs to the valuation methodology are unobservable and significant to the overall fair value measurement, and include situations where there is little, if any, market activity for the investment.

The inputs into the determination of fair value require significant management judgment or estimation.

The types of financial instruments in this category include investments in privately held entities, non-investment grade residual interests in securitizations and certain over-the-counter derivatives where the fair value is based on unobservable inputs.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.

In such cases, the determination of which category within the fair value hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement.

Assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.

Pursuant to the framework set forth above, the Company values securities traded in active markets on the measurement date by multiplying the exchange closing price of such traded securities/instruments by the quantity of shares or amount of the instrument held.

The Company may also obtain quotes with respect to certain of the investments from pricing services, brokers or dealers' quotes, or counterparty marks in order to value liquid assets that are not traded in active markets.

Pricing services aggregate, evaluate and report pricing from a variety of sources including observed trades of identical or similar securities, broker or dealer quotes, model-based valuations and internal fundamental analysis and research.

When doing so, the Company will determine whether the quote obtained is sufficient according to U.S.

GAAP to determine the fair value of the security.

If determined adequate, the Company will use the quote obtained.

As of December 31, 2019, the Company did not hold any investments.

The following table presents the fair value hierarchy of the investments as of December 31, 2020:

December 31, 2020

Level 1 Level 2 Level 3 Total

First Lien Debt $ — $ 22,549 $ 558,318 $ 580,867

Second Lien Debt — — 53,155 53,155

Other Securities — — 2,959 2,959

Total $ — $ 22,549 $ 614,432 $ 636,981

The following table presents changes in the fair value of the investments for which Level 3 inputs were used to determine the fair value for the year ended December 31, 2020:

First Lien Debt Second Lien Debt Other Securities Total Investments

Fair value, beginning of period $ — $ — $ — $ —

Purchases of investments 594,502 53,450 2,950 650,902

Proceeds from principal repayments and sales of investments (43,241) — — (43,241)

Accretion of discount/amortization of premium, including capitalized PIK interest 1,368 55 9 1,432

Net change in unrealized appreciation (depreciation) 5,689 (350) — 5,339

Net realized gains (losses) — — — —

Transfers into/out of Level 3 — — — —

Fair value, end of period $ 558,318 $ 53,155 $ 2,959 $ 614,432

Net change in unrealized appreciation (depreciation) from investments still held as of December 31, 2020 $ 5,689 $ (350) $ — $ 5,339

The following table presents quantitative information about the significant unobservable inputs of the Company’s Level 3 financial instruments.

The table is not intended to be all-inclusive but instead captures the significant unobservable inputs relevant to the Company’s determination of fair value.

Value Valuation Technique Unobservable

Input Low High Weighted

Investments in first lien debt $ 558,318 Yield Analysis Discount Rate 5.75 % 8.86 % 7.18 %

Investments in second lien debt 53,155 Yield Analysis Discount Rate 10.35 % 10.95 % 10.52 %

Investments in other securities 2,959 Market Approach EBITDA Multiple 9.15x 10.01x 9.71x

Total $ 614,432

The significant unobservable input used in yield analysis is discount rate based on comparable market yields.

Significant increases in discount rates in isolation would result in a significantly lower fair value measurement.

The significant unobservable input used in the market approach is the comparable company multiple.

The multiple is used to estimate the enterprise value of the underlying investment.

An increase/decrease in the multiple would result in an increase/decrease, respectively, in the fair value.

Financial instruments disclosed but not carried at fair value

The carrying value and fair value of the Company’s secured borrowings disclosed but not carried at fair value as of December 31, 2020 were as follows:

Carrying Value Fair Value

CIBC Subscription Facility $ 333,850 $ 333,850

Total $ 333,850 $ 333,850

The above fair value measurements were based on significant unobservable inputs and thus represent Level 3 measurements as defined under ASC 820.

As of December 31, 2019, the Company had no secured borrowings outstanding.

The carrying amounts of the Company’s assets and liabilities, other than investments at fair value and the CIBC Subscription Facility, approximate fair value.

These financial instruments are categorized as Level 3 within the hierarchy.

CIBC Subscription Facility

On December 31, 2019, the Company entered into a revolving credit agreement (the “CIBC Subscription Facility”) with CIBC Bank USA as administrative agent and arranger, which was subsequently amended on February 3, 2020 and November 17, 2020.

The maximum principal amount of the CIBC Subscription Facility, which was $100.0 million as of December 31, 2019, was increased to $400.0 million on November 17, 2020.

The CIBC Subscription Facility allows the Company to borrow up to $400.0 million at any one time outstanding, subject to certain restrictions, including availability under the borrowing base, which is based on unused Capital Commitments.

The amount of permissible borrowings under the CIBC Subscription Facility may be increased to up to an aggregate amount of $500.0 million with the consent of the lenders.

The CIBC Subscription Facility has a maturity date of December 31, 2022.

The CIBC Subscription Facility bears interest at a rate at the Company’s election of either (i) the per annum one-, two-, or three-month LIBOR, divided by a number determined by subtracting from 1.00 the then stated maximum reserve percentage for determining reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency funding or liabilities, plus 1.65% or (ii) the prime rate plus 0.65%, as calculated under the CIBC Subscription Facility.

The CIBC Subscription Facility is secured by the unfunded commitments of certain stockholders of the Company.

The Company has made customary representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities.

Borrowings under the CIBC Subscription Facility are subject to the leverage restrictions contained in the 1940 Act.

As of December 31, 2020 and December 31, 2019, the Company was in compliance with all covenants and other requirements of the CIBC Subscription Facility.

The summary information of the CIBC Subscription Facility is as follows:

For the year ended December 31, 2020 From May 30, 2019 (inception) to December 31, 2019

Borrowing interest expense $ 2,247 $ —

Facility unused commitment fees 406 —

Amortization of deferred financing costs 1,072 —

Total $ 3,725 $ —

Weighted average interest rate (excluding unused fees and financing costs) 1.93 % — %

Weighted average outstanding balance $ 114,431 $ —

During the year ended December 31, 2020, the Company borrowed $612,350 and repaid $278,500 under the CIBC Subscription Facility.

During the period from May 30, 2019 (inception) to December 31, 2019, the Company had no amount borrowed under the CIBC Subscription Facility.

As of December 31, 2020 and December 31, 2019, the Company had $333,850 and $0 outstanding under the CIBC Subscription Facility, respectively.

As of December 31, 2020 and December 31, 2019, the Company had $66,150 and $100,000, respectively, of available capacity under the CIBC Subscription Facility.

BNP Funding Facility

On October 14, 2020, DLF LLC entered into a Revolving Credit and Security Agreement (the “Credit and Security Agreement”, which was subsequently amended on December 11, 2020) with DLF LLC, as the borrower, BNP Paribas (“BNP”), as the administrative agent and lender, the Company, as the equity holder and as the servicer, and U.S.

Bank National Association, as collateral agent, pursuant to which BNP has agreed to extend credit to DLF LLC in an aggregate principal amount up to $300.0 million at any one time outstanding (the “BNP Funding Facility”).

The BNP Funding Facility is a revolving funding facility with a reinvestment period ending October 14, 2023 and a final maturity date of October 14, 2025.

Subject to certain conditions, the reinvestment period and final maturity are both subject to a one-year extension.

Advances under the BNP Funding Facility are available in U.S.

dollars, pound sterling, Euro or Canadian dollars, and subject to certain exceptions, the interest charged on the BNP Funding Facility is based on LIBOR (Dollar), LIBOR (GBP), EURIBOR or CDOR, as applicable (or, if LIBOR (Dollar) is not available, a benchmark replacement or a “base rate” (which is the greater of a prime rate and the federal funds rate plus 0.50%), as applicable), plus a margin that generally ranges between 2.25% and 3.25% (depending on the types of assets such advances relate to), with a weighted average margin floor for all classes of advances of (i) 2.80% during the reinvestment period and (ii) 3.30% following the reinvestment period, with specific margins for non-U.S.

dollar advances as set forth in the Credit and Security Agreement.

Borrowings under the BNP Funding Facility are subject to various covenants under the Agreements as well as the leverage restrictions contained in the 1940 Act.

As of December 31, 2020, the Company was in compliance with all covenants and other requirements of the BNP Funding Facility.

The summary information of the BNP Funding Facility is as follows:

For the year ended December 31, 2020 From May 30, 2019 (inception) to December 31, 2019

Borrowing interest expense $ — $ —

Facility unused commitment fees — —

Amortization of deferred financing costs 147 —

Total $ 147 $ —

Weighted average interest rate (excluding unused fees and financing costs) — % — %

Weighted average outstanding balance $ — $ —

During the year ended December 31, 2020, the Company had no amount borrowed under the BNP Funding Facility.

As of December 31, 2020, the Company had $0 outstanding under the BNP Funding Facility.

As of December 31, 2020, the Company had $300,000 of committed capacity under the BNP Funding Facility.

(7) Commitments and Contingencies

In the normal course of business, the Company may enter into contracts that provide a variety of general indemnifications.

Any exposure to the Company under these arrangements could involve future claims that may be made against the Company.

Currently, no such claims exist or are expected to arise and, accordingly, the Company has not accrued any liability in connection with such indemnifications.

As of December 31, 2020, the Company had $206,540 unfunded commitments to fund delayed draw and revolving senior secured loans.

As of December 31, 2019, the Company had no unfunded commitments to fund delayed draw and revolving senior secured loans.

A summary of the Company’s contractual payment obligations under the CIBC Subscription Facility as of December 31, 2020 is as follows.

The Company did not have any outstanding payment obligations under the BNP Funding Facility as of December 31, 2020.

Payments Due by Period

1 year 1-3 years 3-5

years After 5

CIBC Subscription Facility $ 333,850 $ — $ 333,850 $ — $ —

Total Contractual Obligations $ 333,850 $ — $ 333,850 $ — $ —

As of December 31, 2020 and December 31, 2019, the Company had $1,445,809 and $755,370, respectively, in total capital commitments from stockholders, of which $1,148,427 and $755,335, respectively, were unfunded.

(8) Net Assets

Pursuant to the BDC Conversion, the Company has the authority to issue 100,000,000 common stock shares at $0.001 per share par value and 1,000,000 preferred stock shares at $0.001 per share par value.

The following table shows the components of distributable earnings as shown on the Consolidated Statements of Assets and Liabilities:

December 31, 2020 As of

December 31, 2019

Net distributable earnings (accumulated losses), beginning of period $ (1,156) $ —

Net investment income (loss) 10,635 (1,156)

Accumulated realized gain (loss) 2,154 —

Net unrealized appreciation (depreciation) 5,508 —

Dividend declared (13,926) —

Tax reclassification of stockholders' equity (Note 10) 1,487 —

Net distributable earnings (accumulated losses), end of period $ 4,702 $ (1,156)

MS Credit Partners Holding, Inc.

(“MS Investor”), an affiliate of the Investment Adviser, had made aggregate equity contributions of $35 to the Company as of December 31, 2019.

In connection with the Company's conversion to a corporation, on November 25, 2019, the Company issued 1,750 shares of Common Stock to MS Investor for this seed capital investment.

On December 23, 2019, the Company completed its initial closing of Capital Commitments of $755,335 of which $150,000 represents the commitment of MS Investor.

During the year ended December 31, 2020, the Company completed seven closings.

As of December 31, 2020, the Company received aggregate Capital Commitments of $1,445,809, of which $200,000 was from MS Investor.

As a result, the total shares issued and proceeds received related to capital drawdowns delivered pursuant to the Subscription Agreements for the year ended December 31, 2020 are set forth below (dollar amounts in millions):

Share Issuance Date Shares Issued Amount

February 5, 2020 2,874,810 $ 57.50

March 27, 2020 2,410,313 44.95

June 26, 2020 769,194 14.95

August 11, 2020 2,002,070 39.98

September 28, 2020 3,504,634 69.99

December 1, 2020 3,410,138 69.98

Total 14,971,159 $ 297.35

The Company’s weighted average number of shares outstanding from November 25, 2019 to December 31, 2019 and the year ended December 31, 2020 were 1,750 and 7,559,426 shares, respectively.

As of December 31, 2020 and December 31, 2019, the Company had $1,445,809 and $755,370, respectively, in total capital commitments from stockholders, of which approximately $1,148,427 and $755,335, respectively, were unfunded.

The following table summarizes the Company's dividends declared and payable for the year ended December 31, 2020 (dollar amounts in thousands):

Date Declared Record Date Payment Date Per Share Amount Total Amount

June 19, 2020 June 19, 2020 July 15, 2020 $ 0.29 $ 1,533

September 24, 2020 September 24, 2020 October 22, 2020 0.40 3,228

December 29, 2020 December 29, 2020 January 27, 2021 0.61 (1) 9,165

Total Distributions $ 1.30 $ 13,926

(1) Includes a special distribution of $0.18 per share.

(9) Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

For the year ended

December 31, 2020

Numerator for basic and diluted earnings per share - net increase/(decrease) in net assets resulting from operations $ 18,298

Denominator for basic and diluted earnings per share - weighted average shares outstanding (1)

Basic and diluted earnings per share $ 2.42

(1) Calculated for the period from February 5, 2020, the date of first external issuance of shares through December 31, 2020.

(10) Income Taxes

For income tax purposes, distributions made to the Company's stockholders are reported as ordinary income, capital gains, or a combination thereof.

The tax character of distributions made during the year ended December 31, 2020 were as follows:

For the year ended December 31, 2020

Distributions paid from:

Ordinary income (including net short-term capital gains) $ 13,926

Net long-term capital gains —

Total taxable distributions $ 13,926

Taxable income generally differs from net increase in net assets resulting from operations for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized gains or losses, and incentive fee accrual associated with any unrealized gains, as unrealized gains or losses are generally not included in taxable income until they are realized.

For the year ended December 31, 2020, the Company estimated U.S.

federal taxable income exceeded its distributions made from such taxable income during the year;

consequently, the Company has elected to carry forward the excess for distribution to stockholders in 2021.

The amount carried forward to 2021 is estimated to be approximately $409, all of which is expected to be ordinary income, although these amounts will not be finalized until the 2020 tax returns are filed in 2021.

The Company makes certain adjustments to the classification of net assets as a result of permanent book-to-tax differences, which include differences in the book-to-tax treatment of net operating losses, dividend re-designations and timing of the deductibility of certain business expenses, as applicable.

To the extent these differences are permanent, they are charged or credited to additional paid-in capital, undistributed net investment income or undistributed net realized gains on investments, as appropriate.

The book-to-tax differences relating to distributions made to the Company's stockholders resulted in reclassifications among certain capital accounts as follows:

As of December 31, 2020

Paid-in capital in excess of par value $ (1,487)

Net distributable earnings (accumulated losses) $ 1,487

The cost and unrealized gain (loss) on the Company’s financial instruments, as calculated on a tax basis, at December 31, 2020 are as follows (amounts calculated using book-to-tax differences as of the most recent fiscal year ended December 31, 2020):

As of December 31, 2020

Gross unrealized appreciation $ 5,121

Gross unrealized depreciation (577)

Net unrealized appreciation (depreciation) $ 4,544

Tax cost of investments at year end $ 632,437

(11) Consolidated Financial Highlights

The Company commenced investment operations on January 31, 2020.

Net asset value, at the beginning of period represents the initial offering price per share.

The following are the financial highlights (dollar amounts in thousands, except per share amounts):

ended December 31, 2020

Per Share Data:

Net asset value, beginning of period $ 20.00

Net investment income (loss)

Net unrealized and realized gain (loss) (2)

Net increase (decrease) in net assets resulting from operations 1.13

Distributions declared (1.30)

Issuance of common stock 0.25

Total increase (decrease) in net assets 0.08

Net asset value, end of period $ 20.08

Shares outstanding, end of period 15,024,425

Total return based on net asset value (3)

Ratio/Supplemental Data (all amounts in thousands except ratios):

Net assets, end of period $ 301,620

Weighted average shares outstanding (4)

Ratio of net expenses to average net assets

Ratio of expenses before waivers to average net assets

Ratio of net investment income to average net assets

Total capital commitments, end of period $ 1,445,809

Ratios of total contributed capital to total committed capital, end of period 20.57 %

Asset coverage ratio 190.35 %

Portfolio turnover rate 31.11 %

(1) The per share data was derived by using the weighted average shares outstanding during the period, except otherwise noted.

(2) For the year ended December 31, 2020, the amount shown does not correspond with the aggregate amount for the period as it includes the effect of the timing of capital transactions.

(3) Total return is calculated assuming a purchase of common stock at the opening of the first day of the period and a sale on the closing of the last business day of the period.

Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under the Company's dividend reinvestment plan.

(4) Calculated for the period from February 5, 2020, the date of first external issuance of shares through December 31, 2020.

(12) Selected Quarterly Data (Unaudited)

As of and For the Three Months Ended

December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020

Total investment income $ 11,431 $ 5,659 $ 3,890 $ 923

Total expenses 5,698 4,294 2,212 972

Expense reimbursement from Adviser (92) (5) (24) (109)

Waived management fees (884) (478) (267) (49)

Net expenses 4,722 3,811 1,921 814

Net investment income 6,709 1,848 1,969 109

Net realized and unrealized gains (losses) 3,375 4,771 3,306 (3,790)

Net increase in net assets resulting from operations $ 10,084 $ 6,619 $ 5,275 $ (3,681)

Net investment income per share (basic and diluted) $ 0.53 $ 0.25 $ 0.37 $ 0.04

Earnings per share (basic and diluted) $ 0.79 $ 0.91 $ 0.99 $ (1.19)

Weighted average shares outstanding 12,754,260 7,290,085 5,329,136 3,091,766

Distributions declared per share $ 0.61 $ 0.40 $ 0.29 $ —

Net asset value per share $ 20.08 $ 19.87 $ 19.21 $ 18.47

(13) Subsequent Events

Subsequent events have been evaluated through the date the consolidated financial statements were issued.

There have been no subsequent events that require recognition or disclosure through the date the consolidated financial statements were issued, except as disclosed below.

On January 7, 2021 and March 2, 2021, we delivered capital drawdown notices to our investors relating to the sale of shares of our Common Stock for an aggregate offering price of approximately $35.0 million and approximately $45.0 million, respectively.

The sale of approximately 1,726,689 and 2,171,816 shares of our Common Stock closed on January 20, 2021 and March 12, 2021, respectively.

On February 1, 2021, we closed new capital commitments of $50.0 million, which brings our total capital commitments to $1,495.8 million.

On March 2, 2021, DLF LLC entered into (i) an amendment (the “Second Amendment to CSA”) to the Revolving Credit and Security Agreement, dated as of October 14, 2020, as amended from time to time (the “BNP Funding Facility”), by and among DLF LLC, as the borrower, the Company, as the equityholder and servicer, BNP Paribas, as the administrative agent, U.S.

Bank National Association, as the collateral agent, and the lenders party thereto and (ii) amendments to various supporting documentation, including certain fee letters (together with the Second Amendment to CSA, the “Second Amendment”).

The Second Amendment, among other things, increased the borrowing capacity under the BNP Funding Facility from $300 million to $600 million, made certain adjustments to the borrowing base calculations, reduced the applicable margin on borrowings to a range during the reinvestment period between 1.95% and 2.75% and, after the reinvestment period, between 2.45% and 3.25%, and reduced the LIBOR (Dollar) floor on borrowings to 0.00%.

The other material terms of the BNP Funding Facility remain unchanged.

On March 18, 2021, our Board of Directors declared a distribution of $0.45 per share payable on April 22, 2021 to stockholders on record as of March 18, 2021.

Changes and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk