What changed in this filing

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Item 1. Business

2023-03-09 compared with 2022-03-18 · 226 added, 290 removed, 642 unchanged (45% of the section changed)

We are an externally managed specialty finance company focused on lending to middle-market companies.

We are a non-diversified, externally managed specialty finance company focused on lending to middle-market companies.

We have elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (the “1940 Act”).

In addition, for U.S.

federal income tax purposes, we have elected to be treated, and intend to comply with the requirements to qualify annually, as a RIC under Subchapter M of the Code.

We are externally managed by MS Capital Partners Adviser Inc., an indirect, wholly owned subsidiary of Morgan Stanley, or the Adviser.

We are not a subsidiary of, or consolidated with, Morgan Stanley.

Our 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.

For the purposes of this Form 10-K, “middle-market companies” refers to companies that, in general, generate annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) in the range of approximately $15 million to $100 million, which we believe is a useful proxy for cash flow although not all of our portfolio companies will meet this criteria.

middle-market companies backed by private equity sponsors.

For the purposes of this report, “middle-market companies” refers to companies that, in general, generate annual earnings before interest, taxes, depreciation and amortization, or EBITDA, in the range of approximately $15 million to $200 million, although not all of our portfolio companies will meet this criteria.

We invest primarily in directly originated senior secured term loans including first lien senior secured term loans (including unitranche loans) and second lien senior secured term loans, with the balance of our investments expected to be in higher-yielding assets such as mezzanine debt, unsecured debt, equity investments and other opportunistic asset purchases.

Typical middle-market senior loans may be issued by middle-market companies in the context of leveraged buyouts (“LBOs”), acquisitions, debt refinancings, recapitalizations, and other similar transactions.

We generally expect our debt investments to have a stated term of five to eight years and typically bear interest at a floating rate usually determined on the basis of a benchmark (historically, the London Inter-bank Offered Rate, or LIBOR, and prospectively alternative reference rates including the Secured Overnight Financing Rate, or SOFR).

Typical middle-market senior loans may be issued by middle-market companies in the context of leveraged buyouts, or LBOs, acquisitions, debt refinancings, recapitalizations, and other similar transactions.

We generally expect our debt investments to have a stated term of five to eight years and typically bear interest at a floating rate usually determined on the basis of a benchmark (historically, the London Inter-bank Offered Rate, or LIBOR, and currently, the Secured Overnight Financing Rate, or SOFR).

We generate revenues primarily in the form of interest income from investments we hold.

In addition, we generate income from dividends on any direct equity investments, capital gains on the sale of loans and debt and equity securities, and various other loan origination and other fees, including commitment, origination, amendment, structuring, syndication or due diligence fees, fees for providing managerial assistance and consulting fees.

In addition, we generate income from dividends or distributions of income on any direct equity investments, capital gains on the sale of loans and debt and equity securities, and various other loan origination and other fees, including commitment, origination, amendment, structuring, syndication or due diligence fees, fees for providing managerial assistance and consulting fees.

The middle-market loans in which we generally invest are typically not rated by any rating agency, but we believe that if they were rated, they would be below investment grade (rated lower than “Baa3” by Moody’s Investors Service, lower than “BBB-” by Fitch Ratings or lower than “BBB-” by Standard & Poor’s Ratings Services), which under the guidelines established by these rating agencies is an indication of having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal.

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Our investment approach is focused on long-term credit performance, risk mitigation and preservation of principal.

Utilizing our proprietary investment approach, we intend to execute on our investment objective by (1) drawing upon the Adviser’s and the Firm’s longstanding and deep relationships with middle-market companies, financial sponsors, commercial and investment banks, industry executives and financial intermediaries to provide a strong pipeline of investment opportunities, (2) implementing the Adviser’s rigorous, fundamentals-driven and disciplined investment and risk management process, (3) drawing on the investment committee’s extensive experience in credit and principal investing, credit analysis and structuring, and (4) accessing Morgan Stanley’s global resources.

Utilizing our proprietary investment approach, we intend to execute on our investment objective by (1) drawing upon the Adviser’s and the Firm’s longstanding and deep relationships with middle-market companies, private equity sponsors, commercial and investment banks, industry executives and financial intermediaries to provide a strong pipeline of investment opportunities, (2) implementing the Adviser’s rigorous, fundamentals-driven and disciplined investment and risk management process, (3) drawing on the investment committee’s extensive experience in credit and principal investing, credit analysis and structuring, and (4) accessing Morgan Stanley’s global resources.

By leveraging the established origination and underwriting capabilities within the MS Private Credit platform and targeting an attractive investing area in the U.S.

middle-market, we believe we will be able to offer attractive risk-adjusted returns to our investors.

Despite the effects of the ongoing Coronavirus pandemic, we believe the middle-market direct lending market environment continues to be attractive.

middle-market, we believe we are able to offer attractive risk-adjusted returns to our investors.

Despite recent market volatility, we believe the middle-market direct lending market environment continues to be attractive.

We remain highly focused on conducting extensive due diligence and leveraging the Morgan Stanley platform.

We continue to seek to invest in companies that are led by strong management teams, generate substantial free cash flow, have leading market positions, benefit from sustainable business models, and are well positioned to perform well despite the impact of the Coronavirus pandemic.

We believe the current market environment offers opportunities to seek compelling risk adjusted returns.

Our investment pace will depend on several factors including the market environment, deal flow, and the impact of Coronavirus.

See “ —Coronavirus Developments ” below.

On December 23, 2019, we completed our initial closing (“Initial Closing”) of capital commitments to purchase shares of our common stock in a private placement pursuant to subscription agreements with investors.

Our investment pace will depend on several factors including the market environment, including the current inflationary economic environment, and deal flow.

The current inflationary environment and uncertainty as to the probability of, and length and depth of a global recession has created stress on the market and could affect our portfolio companies.

Government spending, government policies, including recent increases in certain interest rates by the U.S.

Federal Reserve and other global central banks, volatile energy prices and disruptions in supply chains in the United States and elsewhere, in conjunction with other factors, including those described in this Form 10-K, or this report, could affect our portfolio companies, our financial condition and our results of operations.

We will continue to monitor the evolving market environment.

In these circumstances, developments outside our control could require us to adjust our plan of operations and could impact our financial condition, results of operations or cash flows in the future.

Despite these factors, we believe we and our portfolio are well positioned to manage the current environment.

See “ Risk Factors — General Risk Factors — 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 ” in this report.

On December 23, 2019, we completed our initial closing, or Initial Closing, of capital commitments to purchase shares of our Common Stock in a private placement pursuant to subscription agreements with investors (the “ Subscription Agreements ” ).

Since our Initial Closing, we held additional closings and received aggregate capital commitments to purchase Common Stock.

As of December 31, 2021, total capital commitments were approximately $1,585.5 million.

We may draw down capital commitments to make investments or pay expenses at any time through December 23, 2022, the third anniversary of the Initial Closing, subject to extension for up to an additional one-year period pursuant to the Adviser’s recommendation with the approval of our board of directors (“Board of Directors”) (such period, including any extensions, the

“Investment Period”).

After the end of the Investment Period, we may draw down remaining capital commitments, if any, to the extent necessary to:

As of December 31, 2022, total capital commitments were approximately $1,629.4 million , approximately $1,409.1 million of which had been called as of December 31, 2022 .

We may draw down capital commitments to make investments or pay expenses at any time during our investment period, or Investment Period, which ends on December 23, 2023 after the one-year extension approved by our Board of Directors.

After the end of the Investment Period, we can draw down remaining capital commitments, if any, to the extent necessary to:

(a) pay our expenses, including management fees, incentive fees and any amounts that may become due under any borrowings or other financings or similar obligations, any indemnity obligations and any other liabilities, contingent or otherwise, and/or (b) complete investments or obligations (including guarantees) in any transactions for which we have entered into a letter of intent, memorandum of understanding, written bid letter, written agreement in principle, or binding written agreement as of the end of the Investment Period (including investments that are funded in phases).

We reserve the right to conduct new or additional offerings of securities in the future.

We may pursue a “Liquidity Event,” which is defined as any of:

(1) an Exchange Listing (as defined below) or (2) a Sale Transaction.

A “Sale Transaction” means (a) the sale of all or substantially all of our assets to, or other liquidity event with, another entity or (b) a transaction or series of transactions, including by way of merger, consolidation, recapitalization, reorganization, or sale of stock in each case for consideration of either cash and/or publicly listed securities of the acquirer.

The Company’s term is perpetual.

Subject to market conditions and approval of the Board of Directors, we will target a quotation or listing of our Common Stock on a national securities exchange, including an initial public offering (an “Exchange Listing”), within four years from the Initial Closing.

However, if the Company has not consummated a Liquidity Event by the sixth anniversary from Initial Closing, as may be extended by up to an additional one-year period pursuant to the Adviser’s recommendation with the approval of the Board of Directors, the Board of Directors (subject to market conditions and any necessary approvals of our stockholders and applicable requirements of the 1940 Act) will use its commercially reasonable efforts to wind down, sell and/or liquidate and dissolve the Company in an orderly manner.

Our Adviser, a wholly owned subsidiary of Morgan Stanley, was established in 2007 and serves as the investment adviser for various funds, accounts and strategies, including the funds and accounts on the MS Private Credit platform, such as other BDCs, each with a similar investment strategy and investment objective to ours (each an “MS BDC” and, together, the “MS BDCs”).

We have entered into an investment advisory agreement with our Adviser on November 25, 2019 (the “Investment Advisory Agreement”).

Pursuant to the Investment Advisory Agreement, we pay our Adviser a fee for investment advisory and management services consisting of two components — a base management fee and an incentive fee.

The Investment Advisory Agreement had an initial term of two years and continues thereafter from year to year if approved annually by a majority of our stockholders or a majority of the Board of Directors, including a majority of the directors who are not “interested persons” as defined in Section 2(a)(19) of the 1940 Act, or the Independent Directors.

The Investment Advisory Agreement was most recently renewed in August 2022.

For more information, see “ Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investment Advisory Agreement .”

Our Adviser, an indirect, wholly owned subsidiary of Morgan Stanley, was established in 2007 and serves as the investment adviser for various funds, accounts and strategies, including the funds and accounts on the MS Private Credit platform, including the MS BDCs, and managed committed capital 1 of approximately $14.9 billion at fair value as of March 1, 2023.

The MS Private Credit platform was launched in 2010 and includes dedicated strategies targeting different credit products, asset yields and issuer sizes, resulting in a platform that we believe is well positioned to provide scale and flexible financing solutions to borrowers, maximizes deal origination and enhances the ability to generate attractive risk adjusted returns for our investors.

Our Adviser’s investment committee (the “Investment Committee”) servicing the Company is comprised of ten senior investment professionals of IM and is chaired by Jeffrey S.

Our Investment Committee is comprised of ten senior investment professionals of IM and is chaired by Jeffrey S.

Levin, our Chief Executive Officer and President and a member of our Board of Directors.

The Investment Committee members have an average of over 21 years of relevant industry experience and have experience investing across multiple credit cycles and different investing environments.

The Investment Committee members have an average of 23 years of relevant industry experience and have experience investing across multiple credit cycles and different investing environments, including the global financial crisis of 2008.

All investment decisions are reviewed and approved by the Investment Committee, which has principal responsibility for approving new investments and overseeing the management of existing investments.

Our Adviser is served by experienced investment professionals (the “Investment Team”) within the MS Private Credit platform.

Our Adviser is served by the Investment Team within the MS Private Credit platform.

The Investment Team is responsible for origination, due diligence, underwriting, structuring and monitoring each investment throughout its life cycle.

The Adviser’s principal executive offices are located at 1585 Broadway, 39th Floor, New York, New York 10036.

The MS Private Credit platform is supported by numerous professionals in legal, compliance, risk management, finance, accounting and tax who help support the platform by providing guidance on our operations.

In addition, to the Company’s executive officers and their support team, the MS Private Credit platform is supported by numerous professionals in legal, compliance, risk management, finance, accounting and tax who help support the platform by providing guidance on our operations.

MS Private Credit’s primary areas of focus include:

• Direct Lending.

As of December 31, 2022 , the Direct Lending strategy includes the Company and the other MS BDCs advised by our Adviser and other funds and separately managed accounts.

Investments made primarily in directly originated first lien senior secured and second lien senior secured loans, mezzanine notes, unsecured debt, preferred stock, and common stock issued by U.S.

middle-market companies owned by private equity firms, typically, although not always, with annual EBITDA of up to $200 million.

As of December 31, 2021, Direct Lending managed approximately $8.6 billion in investable capital.

Investable capital is calculated as total capital raised and actual or target leverage within each business line.

As of March 1, 2023, Direct Lending managed approximately $13.0 billion in committed capital.

• Opportunistic Credit.

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middle-market companies, typically, although not always, with annual EBITDA of $10 million to $100+ million.

As of January 1, 2022, Opportunistic Credit managed approximately $2.6 billion in investable capital.

Morgan Stanley, the parent of our Adviser, is a global financial services firm whose predecessor companies date back to 1924 and, through its subsidiaries and affiliates, advises, originates, trades, manages and distributes capital for governments, institutions and individuals.

Morgan Stanley maintains a significant market position in each of its business divisions—Institutional Securities (“ISG”), Wealth Management (“WM”) and IM.

As of March 1, 2023, Opportunistic Credit managed approximately $1.9 billion in committed capital.

1 Committed capital is calculated as aggregate capital commitments received and total committed leverage within each of the funds or accounts with exception for funds past their investment period, where committed capital is calculated as invested capital.

Morgan Stanley maintains a significant market position in each of its business divisions-Institutional Securities Group, or ISG, Wealth Management, or WM, and IM.

We are not a subsidiary of or consolidated with Morgan Stanley and Morgan Stanley does not guarantee any of our financial obligations.

IM is a global investment manager, delivering innovative investment solutions across public and private markets.

As of December 31, 2022 , IM managed approximately $1.3 trillion in assets under management across its business lines, which include equity, fixed income, liquidity, real assets and private investment funds.

The Administrator

Our Administrator, a wholly owned subsidiary of Morgan Stanley, provides the administrative services necessary for us to operate.

Our Administrator, an indirect, wholly owned subsidiary of Morgan Stanley, provides the administrative services necessary for us to operate pursuant to an administration agreement, dated November 25, 2019, between us and the Administrator (the “Administration Agreement”).

We do not currently have any employees.

Our day-to-day investment operations are managed by our Adviser, and our Administrator provides services necessary to conduct our business.

We pay no compensation directly to any interested director or executive officer of the Company.

We pay our Administrator our allocable portion of certain expenses incurred by our Administrator in performing its obligations under an administration agreement, dated November 25, 2019, between us and the Administrator (the “Administration Agreement”), including our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer.

Our Administrator will be reimbursed for certain expenses it incurs on our behalf.

We pay our Administrator our allocable portion of certain expenses incurred by our Administrator in performing its obligations under the Administration Agreement, including our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer.

Our Administrator is reimbursed for certain expenses it incurs on our behalf.

Our Board of Directors, including our Independent Directors, reviews the allocable portion of overhead and other expenses incurred by our Administrator in performing its obligations under the Administration Agreement to determine whether such expenses are reasonable and allocated appropriately among us and other funds sponsored or managed by the Administrator and its affiliate.

Our Administrator reserves the right to waive all or part of any reimbursements due from the Company at its sole discretion.

See “ Item 1.

Business — Administration Agreement ” below for a discussion of the expenses (subject to the review and approval of our independent directors) that we reimburse to the Administrator.

Coronavirus Developments

The effect on the U.S.

and global economy of the ongoing Coronavirus pandemic, uncertainty relating to new variants of the Coronavirus that have emerged in the United States and globally, vaccine hesitancy and efficacy, the length of economic recovery, government policies and actions taken or to be taken in response to the pandemic have created stress on the market and could affect our portfolio companies.

In addition, government spending and disruptions in supply chains in the United States and elsewhere in response to the Coronavirus pandemic and otherwise, in conjunction with other factors, including those described above, have led and could continue to lead to inflationary economic environments that could affect our portfolio companies, our financial condition and our results of operations.

We will continue to monitor the evolving situation relating to the Coronavirus pandemic and guidance from U.S.

and international authorities, including federal, state and local public health authorities.

In these circumstances, there may be developments outside our control requiring us to adjust our plan of operation.

As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of Coronavirus on our financial condition, results of operations or cash flows in the future.

Despite these factors, we believe we and our portfolio are well positioned to manage the current environment, and we and our Adviser continue to be fully operational.

See “ Management Agreements - Administration Agreement ” below for a discussion of the expenses that we reimburse to the Administrator (subject to the review and approval of our Independent Directors).

Investment Strategy

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• Access to detailed financial, operational, industry data, and third-party legal and accounting due diligence reports conducted by the sponsor as part of their due diligence;

• Proper oversight and governance provided by a board of directors, coupled with industry and/or operating expertise;

• Proper oversight and governance provided by experienced management teams and a board of directors, as well as other industry and/or operating expertise from the sponsors;

• Natural alignment of interests between lender and sponsor given focus on exit strategy;

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middle-market companies.

However, to the extent that we invest in foreign companies, we intend to do so in accordance with the limitations under the 1940 Act and only in jurisdictions with established legal frameworks and a history of respecting creditor rights, including the United Kingdom (the “U.K.”) and countries that are members of the European Union, as well as Canada, Australia and Japan.

Our investment strategy is predicated on seeking to lend to companies with proven management teams in what we believe to be non-cyclical industry sectors and typically avoiding sectors such as retail, restaurants, energy, alcohol, tobacco, pork manufacturing, gaming and gambling, and pornography.

As of December 31, 2021, the Company’s exposure to these industries, and other businesses that the Adviser believes may be subject to business cycle volatility, was 5.9% of gross investment commitments.

However, to the extent that we invest in foreign companies, we intend to do so in accordance with the limitations under the 1940 Act and only in jurisdictions with established legal frameworks and a history of respecting creditor rights, including the United Kingdom (“U.K.”) and countries that are members of the European Union, as well as Canada, Australia and Japan.

Our investment strategy is predicated on seeking to lend to companies with proven management teams in what we believe to be non-cyclical industry sectors.

As of December 31, 2022 , the Company’s exposure to businesses that the Adviser believes may be subject to business cycle volatility, was approximately 6.5% of gross investment commitments.

Additionally, we typically avoid direct exposure to investments in certain sectors such as retail, restaurants, energy, alcohol, tobacco, pork manufacturing, gaming and gambling, and pornography.

Investment Criteria

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• Defensible, leading market positions;

• Niche strategy or other meaningful barriers to entry;

• Unique or specialized strategy or other meaningful barriers to entry;

• Low technology or market risks;

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• Low capital expenditure requirements;

• General avoidance of cyclical industry sectors;

• General avoidance of what we believe to be cyclical industry sectors;

• Predominantly North American base of operations;

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• Experienced management teams with successful track records.

We expect that over the long term and once we are fully invested, our investments will generally comply with the following limits, measured as a percentage of the sum of our aggregate equity commitments and our use of leverage (expected to be 1.0x-1.25x as measured by debt-to-equity, subject to a cap of 2.0x), in each case, at the time the relevant investment is made:

We expect that once we are fully invested, our investments will generally comply with the following limits, measured as a percentage of the sum of our aggregate equity commitments and our use of leverage (expected to be 1.0x – 1.25x as measured by debt-to-equity, subject to a cap of 2.0x), in each case, at the time the relevant investment is made:

• Typical investment to represent between 1% and 3%;

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• Ongoing active management of our portfolio companies through consistent dialogue with management and/or the sponsor, review of financial reporting, monitoring of key performance indicators and evaluation of exit strategies.

Market Opportunity

We believe the middle-market direct lending market environment continues to be attractive, despite the recent market volatility resulting from elevated inflation and broader macroeconomic uncertainty.

Demand for Direct Lending Solutions

We believe that demand has increased for financing from direct lenders relative to other sources because of the attractiveness of the product as well as structural and market factors.

• We believe that when sponsors experience the flexibility of private credit transactions and the speed and certainty of execution, they will continue to seek financing from non-bank lenders.

We believe this presents a compelling opportunity for us to invest in quality companies on attractive terms and conditions.

• Bank participation in middle-market secured loans has continued to decrease, which we believe is primarily a result of changes in banking regulation and deal structures, and the continued supply-demand imbalance that favors non-bank lenders such as ourselves.

• Certain private equity sponsors who historically sought to finance their transactions in the public markets have turned to private credit providers, including us, to finance their transactions.

According to Preqin, private credit’s share of the sub-investment grade credit market, relative to the high yield and syndicated loan markets, has increased from 3% to 17% from 2010 to June 2022.

Large and Growing U.S.

Middle-Market

We believe U.S.

middle-market companies represent a large and growing opportunity set and will likely require additional amounts of private debt financing for various purposes.

• Recent data from Refinitiv LPC, a premier global provider of information on the syndicated loan and high yield bond markets, indicates that there are approximately $627 billion of middle-market loans with maturities between the first quarter of 2023 and the fourth quarter of 2029 that will likely require a refinancing event.

• In addition, data from Preqin, shows that as of December 31, 2022 , there was approximately $1,021 billion of raised, but not yet invested, capital by global private equity managers, representing a sizeable pool of support for both new and existing investments.

We expect that these two important dynamics will provide for significant financing opportunities for lenders like us who have longstanding and deep relationships with middle-market private equity firms.

Attractive Attributes of Middle Market Direct Lending

We believe that focusing on lending to private equity owned middle-market businesses provides for attractive risk adjusted return opportunities.

• Middle-market companies, we believe, typically have less leverage, larger equity contributions, lower rates of default, and achieve higher recoveries as compared to broadly syndicated loans.

We believe middle-market loans also tend to garner more attractive pricing, conservative structures, tighter legal documentation, meaningful financial covenants, and provide for greater access to management than broadly syndicated loans.

Furthermore, we believe middle-market loans often avoid riskier large deal debt characteristics such as covenant-lite structures.

Maintaining financial covenants allows us to diagnose and respond to borrower underperformance typically before value materially erodes.

We believe it is this more conservative loan structuring that also contributes to the better overall performance of middle-market loans.

• We believe that the Company is well positioned in the current rising rate environment.

Approximately 100% of the Company’s debt investments are floating rate and the Company should benefit from higher yields as interest rates rise.

As of December 31, 2022 , 3-month SOFR, a popular benchmark for the loans in the Company, has increased by approximately 4.5% since the start of 2022.

• As of the date of this report, we have generally witnessed an improvement in terms, including higher reference rates, wider spreads, more conservative leverage profiles and increasingly lender-friendly documentation.

Although leveraged buyout activity has declined amidst the market dislocation, the private credit market has continued to present high quality opportunities, that could offer compelling risk-adjusted returns.

Competitive Advantages

We believe we are able to execute on our investment objective and achieve attractive risk-adjusted returns as a result of our competitive strengths.

Currently, we believe that the MS BDCs, including the Company, are the only BDC platform to serve as the primary middle-market loan investment vehicle within a global investment banking firm, which we believe represents a significant differentiating advantage for us.

In addition to the Adviser’s relationships with middle-market private equity firms, the Firm has relationships with many middle-market private equity firms and middle-market companies which may provide significant investment opportunities.

In addition to the Adviser’s relationships with middle- market private equity firms, the Firm has relationships with many middle-market private equity firms and middle-market companies that may provide significant investment opportunities.

MS Private Credit is the primary private credit investment management platform of the Firm.

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Our Adviser utilizes Morgan Stanley’s global resources throughout the life cycle of each investment, subject to its internal policies and procedures and applicable law, rules and regulations.

The investment professionals of the Adviser consult with teams across IM, ISG (and its business units, Investment Banking, Sales and Trading, Commodities and Equity and Fixed Income Research) and WM, subject to, in all cases, applicable law, rules and regulations, information barriers, confidentiality provisions and policies and procedures, to assess potential investments and determine the investment opportunities to which we should devote substantial time and resources.

Upon the consummation of a transaction, our Adviser monitors each portfolio company investment.

assess potential investments and determine the investment opportunities to which we should devote substantial time and resources.

Upon the consummation of a transaction, our Adviser monitors each portfolio company investment in accordance with its established policies and procedures.

We believe that we benefit, where appropriate, from the expertise, infrastructure, track record, relationships and institutional knowledge of Morgan Stanley.

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There can be no assurance that the Adviser will be able to source investments from any one or more parts of the Morgan Stanley network, implement our strategy, achieve our investment objectives, find investments that fit its investment criteria or avoid substantial losses.

See “Item 1A.

Risk Factors—Risks Relating to Our Business and Structure—There are significant potential conflicts of interest that could affect our investment returns.”

Highly Differentiated Deal Sourcing Advantages

We believe the relationships that the Adviser’s investment professionals maintain with sponsors, commercial and investment banks, industry executives and financial intermediaries provides a strong pipeline of proprietary investment opportunities.

We believe the relationships that the Adviser’s Investment Team maintains with sponsors, commercial and investment banks, industry executives and financial intermediaries provides a strong pipeline of proprietary investment opportunities.

However, unlike many other competing alternative lending strategies, our Adviser operates within a global financial institution with multiple groups within the Firm.

We expect the broader Morgan Stanley platform to be a source of potential lending opportunities.

this position within the Firm is a key factor that differentiates us and constitutes a meaningful competitive advantage relative to other private credit funds and BDCs.

We believe this position within the Firm is a key factor that differentiates us and constitutes a meaningful competitive advantage relative to other private credit funds and BDCs.

Distinctive Approach to Credit Investing and Due Diligence

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Collectively, the investment professionals of the Adviser have substantial leveraged lending experience, and we believe the Investment Team is well positioned to generate attractive risk-adjusted returns.

The Investment Committee members servicing the Company have an average of over 21 years of relevant industry experience.

The Investment Committee members servicing the Company have an average of 23 years of relevant industry experience.

The Investment Committee is comprised of senior members of IM and provides guidance to the Investment Team throughout the investment process.

Morgan Stanley Equity Investment

MS Credit Partners Holdings, Inc., a wholly owned subsidiary of Morgan Stanley and an affiliate of the Adviser (“MS Credit Partners Holdings”), invested seed capital of $35,000 in the Company as of December 31, 2019.

Pursuant to the terms of MS Credit Partners Holdings’ subscription agreement, MS Credit Partners Holdings has made an aggregate capital commitment of $200 million to the Company.

As of December 31, 2021 and December 31, 2020, MS Credit Partners Holdings’ total capital commitment represented approximately 13% and 14% of aggregate capital commitments received, respectively.

Morgan Stanley has no obligation, contractual or otherwise, to financially support us beyond the equity commitment entered into by MS Credit Partners Holdings to purchase our common stock described above.

Morgan Stanley has no history of financially supporting any of the MS BDCs, even during periods of financial distress..

Market Opportunity

Despite the ongoing effects of the Coronavirus pandemic, we believe the middle-market direct lending market environment continues to be attractive.

We believe that uncertainty remains as a result of the Coronavirus pandemic, including uncertainty relating to more contagious strains of the Coronavirus that have emerged in the United States and globally, vaccine hesitancy and efficacy, the length of economic recovery, and government policies and actions taken or to be taken in response to the pandemic that have created stress on the market and could affect our portfolio companies.

In addition, government spending and disruptions in supply chains in the United States and elsewhere in response to the Coronavirus pandemic and otherwise, in conjunction with other factors, including those described above, have led and could continue to lead to inflationary economic environments that will affect our portfolio companies and could affect our financial condition and results of operations.

Despite these factors and while we cannot predict the full impact of the Coronavirus pandemic, we believe we are very well positioned to manage the current environment.

We are well capitalized as of December 31, 2021, with over $1.2 billion of available capital (approximately $74.2 million of cash, which taken together with our approximately $89.7 million, $136.5 million and $499.0 million of availability under the CIBC Subscription Facility, the BNP Funding Facility and the Truist Credit Facility (each a “Credit Facility” as further defined below and subject to borrowing base availability), respectively, and our approximately $425.7 million of uncalled capital commitments to purchase shares of Common Stock, or capital commitments, we expect to be sufficient for our investing activities and to conduct our operations in the near term.

In addition, we believe the middle-market direct lending market environment continues to provide attractive risk adjusted returns due to several historical factors.

Advantageous Market Landscape

We believe that the middle-market senior secured loan asset class remains a highly attractive investment area due to its significant size and historically strong risk adjusted returns.

Bank participation in middle-market secured loans has continued to decrease, which we believe is primarily as a result of changes in banking regulation and deal structure, and the continued supply-demand imbalance that favors non-bank lenders such as ourselves.

We believe that focusing on lending to private equity owned middle-market businesses provides for an attractive risk adjusted return, with demonstrated stability of leverage multiples and attractive loan to value ratios due to significant equity contributions from the private equity owners.

Large and Growing U.S.

Middle-Market with Favorable Market Trends

We believe U.S.

middle-market companies represent a large and growing opportunity set and will likely require significant capital if these companies continue their growth.

Recent data from Refinitiv LPC, a premier global provider of information on the syndicated loan and high yield bond markets, indicates that there are over $595 billion of middle-market loans with maturities between the fourth quarter of 2021 and the third quarter of 2028 that will likely require a refinancing event.

In addition, data from Preqin, Ltd., a provider of financial data and information on the alternative assets market, shows that as of December 31, 2021, there was approximately $530 billion of raised, but not yet invested, capital by North American private equity firms.

Risk Adjusted Returns

Middle-market companies, we believe, typically have less leverage, larger equity contributions, lower rates of default, and achieve higher recoveries as compared to broadly syndicated loans.

Furthermore, we believe middle-market loans typically maintain shorter maturities, and often avoid riskier large deal debt characteristics such as covenant-lite structures.

Maintaining financial covenants allows us to diagnose and respond to borrower underperformance typically before value materially erodes.

We believe it is this more conservative loan structuring that also contributes to the better overall performance of middle-market loans.

Additionally, we believe the floating-rate nature of senior secured middle-market loans provides a natural hedge against inflation and mitigates interest rate risk while providing for increased returns in a rising interest rate environment.

Benefits of Middle-Market Focus

Middle-market companies, with EBITDA between $15 million and $100 million, are generally less levered than companies with EBITDA in excess of $100 million.

We believe middle-market loans generally tend to be illiquid in exchange for many other benefits, including more attractive economics in the form of upfront fees, spreads, and prepayment penalties.

We believe, senior secured middle-market loans typically have strong defensive characteristics, including priority in payment among a portfolio company’s security holders which generally means they carry the least risk among investments in the capital structure.

Senior secured middle-market loans that are secured by the portfolio company’s assets typically contain carefully structured covenant packages that allow lenders to take early action in situations where obligors underperform.

These characteristics can provide protection against credit deterioration.

Middle-market lenders are often able to complete more thorough due diligence investigations prior to investment than lenders in the broadly syndicated loan asset class.

MS Credit Partners Holdings Investment

MS Credit Partners Holdings, Inc., or MS Credit Partners Holdings, an indirect, wholly owned subsidiary of Morgan Stanley and an affiliate of the Investment Adviser, made an aggregate capital commitment of $200.0 million to us pursuant to a subscription agreement initially entered into in December 2019.

As of December 31, 2022 and December 31, 2021, MS Credit Partners Holdings held approximately 11.9% and 12.5% of our outstanding shares of Common Stock, respectively.

Morgan Stanley has no other obligation, contractual or otherwise, to financially support us beyond the equity commitment to purchase our common stock pursuant to a subscription agreement entered into by MS Credit Partners Holdings.

Morgan Stanley has no history of financially supporting any of the BDCs on the MS Private Credit platform, even during periods of financial distress.

Investment Process

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The Adviser’s investment process has five stages:

Origination, Preliminary Screen, Due Diligence & Structuring, Investment Committee Approval & Closing and Portfolio Management, and it employs the same rigorous and disciplined investment process to all types of investments.

Origination, Preliminary Screen, Due Diligence & Structuring, Investment Committee Approval & Closing and Portfolio Management, and it employs the same rigorous and disciplined investment process to

all types of investments.

The Investment Team works on a particular transaction from origination to close and continues to monitor each investment throughout its life cycle.

We believe we benefit from the Adviser’s highly differentiated direct origination platform.

The origination platform is complemented by opportunities sourced by the existing Morgan Stanley divisions and businesses.

The MS Private Credit origination platform is complemented by opportunities sourced by other Morgan Stanley divisions and businesses.

The Firm has deep relationships with many middle-market private equity firms and middle-market companies that provide significant investment opportunities.

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We seek to capitalize on a significant number of lending opportunities with middle-market companies that the Firm has longstanding relationships with.

We believe the large volume of untapped potential lending opportunities sourced by the Firm and the scale of the Morgan Stanley origination platform should allow us to increase investment selectivity and potentially enhance risk-adjusted returns.

We believe the large volume of untapped potential lending opportunities sourced by the Firm and the scale of the MS Private Credit origination platform should allow us to increase investment selectivity and potentially enhance risk-adjusted returns.

Preliminary Screen

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The identification of a material ESG risk will not necessarily be determinative in our Adviser’s decision to lend to a potential borrower.

In addition, material ESG issues are reported and discussed as part of the Adviser’s ongoing portfolio management processes on a quarterly basis.

In addition, material ESG issues are reported and discussed as part of the Adviser’s ongoing portfolio management processes on a regular basis.

Investment Committee Approval & Closing

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We believe that proactive monitoring of our portfolio companies is an important part of the investment process.

The Adviser engages in formal and informal dialogue with portfolio company management teams, financial sponsors, suppliers and customers, as appropriate, through conversations facilitated, in part, by the Firm’s global network in an attempt to give us an ongoing advantage relative to other investors.

The Adviser engages in formal and informal dialogue with portfolio company management teams, private equity sponsors, suppliers and customers, as appropriate, through conversations facilitated, in part, by the Firm’s global network in an attempt to give us an ongoing advantage relative to other investors.

The Adviser receives monthly or quarterly financial reports from portfolio companies.

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Our Adviser holds quarterly portfolio reviews.

In conjunction with the quarterly portfolio reviews, the Adviser also compiles a quarterly risk report that examines, among other things, migration in portfolio and loan level investment mix, industry diversification, ESG review, internal risk ratings, revenue, EBITDA and leverage.

Frequency of review of individual loans is determined on a case-by-case basis, based on Internal Risk Rating, total exposure and other criteria set forth by the Investment Committee.

In conjunction with the quarterly portfolio reviews, the Adviser compiles a quarterly risk report that examines, among other things, migration in portfolio and loan level investment mix, industry diversification, ESG review, Internal Risk Ratings, revenue, EBITDA and leverage.

Frequency of review of individual loans is determined on a case-by-case basis, based on an Internal Risk Rating, total exposure and other criteria set forth by the Investment Committee.

Performing loans, or loans on which the borrower has historically made payments of principal and interest on time, are typically discussed every quarter, while any loan that has been downgraded under our Internal Risk Rating scale is typically discussed quarterly at a minimum and more frequently as appropriate.

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Beyond the policies and protocols detailed above, our Adviser’s Investment Team servicing the Company performs analysis and projections in response to market conditions to assess potential exposure to our portfolio.

Sample analysis includes evaluation of the impact from rise in energy prices, volatility in foreign currency exchange rates, market impacts of responses to the COVID-19 pandemic, inflation expectation and interest rate sensitivity.

Sample analysis includes evaluation of the impact from a rise in energy prices, volatility in foreign currency exchange rates, interruptions in the supply chain, inflation expectations and interest rate sensitivity.

The Internal Risk Ratings do not constitute any rating of investments by a nationally recognized statistical rating organization or represent or reflect any third-party assessment of any of our investments.

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In the ordinary course of its business, Morgan Stanley is a full-service investment banking and financial services firm and therefore engages in activities where Morgan Stanley’s interests or the interests of its clients may conflict with the interests of our investors.

Morgan Stanley has advised and may advise clients with a wide variety of investment objectives that in some instances may overlap or conflict with our investment objectives and present conflicts of interest.

Certain members of the Investment Team and the Investment Committee will make investment decisions on behalf of both Morgan Stanley and other entities, including those with investment objectives that overlap with ours.

For instance, the Adviser serves as the investment adviser to the other MS BDCs, whose investment objectives overlap with our investment objectives.

Morgan Stanley has advised and may advise clients and has sponsored, managed or advised Affiliated Investment Accounts (as defined below) with a wide variety of investment objectives that in some instances may overlap or conflict with our investment objectives and present conflicts of interest.

Certain members of the Investment Team and the Investment Committee will make investment decisions on behalf of Affiliated Investment Accounts, including Affiliated Investment Accounts with investment objectives that overlap with ours.

The term “Affiliated Investment Accounts” includes certain alternative investment funds, regulated funds and investment programs, accounts and businesses that are advised by or affiliated with the Adviser or its affiliates or through which IM otherwise conducts its business, together with any new or successor to such funds, programs, accounts or businesses.

For instance, the Adviser serves as the investment adviser to the other MS BDCs.

For the avoidance of doubt, we are not a subsidiary of or consolidated with Morgan Stanley.

Furthermore, Morgan Stanley has no obligation, contractual or otherwise, to financially support us beyond the equity commitment to purchase our common stock pursuant to a subscription agreement entered into by MS Credit Partners Holdings described above.

Morgan Stanley has no history of financially supporting any of the MS BDCs, even during periods of financial distress

These activities create potential conflicts in allocating investment opportunities among us and other investment funds, accounts and similar arrangements sponsored and/or advised by the Adviser and its affiliates.

As a BDC regulated under the 1940 Act, we are subject to certain limitations relating to co-investments and joint transactions with affiliates, which likely will, in certain circumstances, limit our ability to make investments or enter into other transactions alongside the Adviser and other investment funds,

accounts and similar arrangements sponsored and/or advised by the Adviser and its affiliates.

Furthermore, Morgan Stanley has no obligation, contractual or otherwise, to financially support us.

See “ Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — MS Credit Partners Holdings Investment .” Morgan Stanley has no history of financially supporting any of the BDCs on the MS Private Credit platform, even during periods of financial distress.

These activities create potential conflicts in allocating investment opportunities among us and other Affiliated Investment Accounts.

Although the Adviser has implemented allocation policies and procedures, there can be no assurance that such regulatory restrictions will not adversely affect our ability to capitalize on attractive investment opportunities.

We may, however, invest alongside our Adviser’s and/or its affiliates’ other clients, in certain circumstances where doing so is consistent with our Adviser’s allocation policies and procedures, applicable law and SEC staff interpretations, guidance and exemptive relief orders.

The SEC has granted our Adviser exemptive relief that, allows us to enter into certain negotiated co-investment transactions alongside certain Affiliated Investment Accounts (as defined below), which are managed by the Adviser or its affiliates, in a manner consistent with our investment objective, positions, policies, strategies, and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions specified thereunder (the “Order”).

We may, however, invest alongside the Affiliated Investment Accounts in certain circumstances where doing so is consistent with our Adviser’s allocation policies and procedures, applicable law and SEC staff interpretations, guidance and any exemptive relief order applicable to us and/or the Adviser.

The SEC has granted our Adviser an exemptive order (as amended, the “Order”) that, allows us to enter into certain negotiated co-investment transactions alongside certain Affiliated Investment Accounts, in a manner consistent with our investment objective, positions, policies, strategies, and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with the Order.

Pursuant to the Order, we are permitted to co-invest with our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our eligible directors makes certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.

For a description of the potential conflicts of interest of the Company as well as the allocation of investments among entities advised by the Adviser and its affiliates, see “Item 13 — Certain Relationships and Related Transactions, and Director Independence” and in particular, the section titled “Investments by Morgan Stanley and Its Affiliated Investment Accounts.”

As of December 31, 2021, the fair value of our investments was approximately $2,387.4 million in 98 portfolio companies.

As of December 31, 2020, the fair value of our investments was approximately $637.0 million in 36 portfolio companies.

During the year ended December 31, 2021, we made new investment commitments (prior to any sale/repayments) of approximately $2,486.6 million and new investment fundings of approximately $2,113.5 million.

Approximately $384.7 million of investments were sold or repaid, of which $103.7 million of investments were sold and realized net gains of $1.9 million.

During the year ended December 31, 2020, we made new investment commitments (prior to any sale/repayments) of approximately $948.7 million and new investment fundings of approximately $714.7 million.

Approximately $89.0 million of investments were sold or repaid, of which $33.5 million of investments were sold and realized net gains of $2.2 million.

As of December 31, 2021, 75% of our investments, calculated as a percentage of gross commitments (funded and unfunded), were loans in support of LBOs and acquisitions of portfolio companies by private equity sponsors.

In addition, our portfolio displayed the following characteristics, in each case as of the closing date of each of our investments 1 :

• Weighted average yield on debt investments of 7.2% 2 ;

• Weighted average last 12-month EBITDA of approximately $100 million of our portfolio companies;

• Weighted average of 6.0x net leverage through tranche of our portfolio companies 3 ;

• Approximately 5.9% of the portfolio is in loans that the Adviser believes may be subject to business cycle volatility.

Our primary competitors in providing financing to middle-market companies include public and private investment funds, other BDCs, commercial finance companies and, to the extent they provide an alternative form of financing, private equity, mezzanine and hedge funds, as well as issuers of CLOs and other structured loan funds, and to a lesser extent, commercial and investment banks.

Some of our potential competitors may be more experienced and may have more resources than we do.

For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us.

Our competitors have incurred, or may in the future incur, leverage to finance their debt investments at levels or on terms more favorable than those available to us.

In addition, some of our competitors may have higher risk tolerances or different risk assessments than we do, which could allow them to consider a wider variety of investments and establish more relationships than us.

Among other factors, the returns on investments available in the marketplace are a function of the supply of investment opportunities and the amount of capital investing in such opportunities.

Strong competition for investments, including from new competitors, could result in fewer investment opportunities and less favorable pricing for us, as our competitors target the same or similar investments that we intend to purchase.

Moreover, identifying attractive investment opportunities is difficult and involves a high degree of uncertainty.

For additional information concerning the competitive risks we face, see “ Item 1A.

Risk Factors — Risks Relating to Our Business and Structure — We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses.

Implications of Being an Emerging Growth Company

We currently are and expect to remain an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), until the earliest of:

• the last day of our fiscal year in which the fifth anniversary of an Exchange Listing (as defined below) occurs;

• the end of the fiscal year in which our total annual gross revenues first exceed $1.235 billion;

• the date on which we have, during the prior three-year period, issued more than $1.0 billion in non-convertible debt;

• the last day of a fiscal year in which we (1) have an aggregate worldwide market value of shares of our Common Stock held by non-affiliates of $700 million or more, computed at the end of each fiscal year as of the last business day of our most recently completed second fiscal quarter and (2) have been an Exchange Act reporting company for at least one year (and filed at least one annual report under the Exchange Act).

Under the JOBS Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), we are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, which would require that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting, until such time as we cease to be an emerging growth company and become an accelerated filer as defined in Rule 12b-2 under the Exchange Act.

This may increase the risk that material weaknesses or other deficiencies in our internal control over financial reporting go undetected.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies.

We have made an irrevocable election not to take advantage of this exemption from new or revised accounting standards.

We therefore are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

As of December 31, 2022, we had investments in 150 portfolio companies across 30 industries.

Based on fair value as of December 31, 2022, approximately 100% of our debt portfolio was invested in debt bearing a floating interest rate, which floating rate debt investments primarily are subject to interest rate floors.

A pproximately 99.4% of our debt portfolio at fair value had an interest rate floor denoted in LIBOR or SOFR.

O ur weighted average total yield of investments in debt securities at amortized cost was 10.9%.

Weighted average yields include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of December 31, 2022.

The composition of our investment portfolio at cost and fair value is as follows (dollar amounts in thousands):

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Total $ 2,939,646 $ 2,873,588 100.0 %

1 Excludes recurring revenue investments, which are investments in portfolio companies in which the Company lends on a multiple of recurring revenue generated by the portfolio company as opposed to on a multiple of EBITDA of the portfolio company.

Calculated as a percentage of gross commitments (funded and unfunded).

2 Weighted average yield includes the effect of accretion of discounts and amortization of premiums and are based on interest rates as of December 31, 2021.

3 Net leverage is the ratio of total debt minus cash divided by EBITDA and taking into account leverage through the tranche that we are a lender to.

December 31, 2021

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December 31, 2022 December 31, 2021

Aerospace and Defense 1.7 % — %

Air Freight and Logistics 0.5 —

Aerospace & Defense 1.8 % 1.7 %

Air Freight & Logistics 1.1 0.5

Auto Components 3.8 3.3

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Biotechnology 0.5 0.6

Chemicals 0.6 —

Commercial Services & Supplies 11.2 13.0

Construction and Engineering 1.5 —

Construction & Engineering 1.3 1.5

Containers & Packaging 1.6 1.6

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Industrial Conglomerates 0.2 1.8

Insurance 17.1 19.4

Insurance Services 15.7 17.1

Interactive Media & Services 3.5 3.8

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Multi-Utilities 0.6 0.4

Oil, Gas & Consumable Fuels 0.0 (1) —

Pharmaceuticals 0.4 —

Professional Services 3.2 4.0

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Total 100.0 % 100.0 %

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

(1) Amount rounds to 0.0%.

The geographic composition of our investments at cost and fair value is as follows (dollar amounts in thousands):

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Investments at

Australia $ 10,187 $ 9,870 0.3 % $ — $ — — %

Canada 108,820 105,764 3.7 81,935 81,386 3.4

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Additionally, we are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of shares senior to our Common Stock if our asset coverage, as defined in the 1940 Act, is at least equal to 150% immediately after each such issuance.

As of December 31, 2021, our asset coverage ratio was 195.1%.

As of December 31, 2020, our asset coverage ratio was 190.3%.

As of December 31, 2022 and December 31, 2021, our asset coverage ratio was 191.2% and 195.1%.

While any indebtedness and senior securities remain outstanding, we must take provisions to prohibit any distribution to our stockholders (which may cause us to fail to distribute amounts necessary to avoid entity-level taxation under the Code), or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase.

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Investment Advisory Agreement

We have entered into an investment advisory agreement, dated November 25, 2019 (the “Investment Advisory Agreement”), with our Adviser.

Pursuant to the Investment Advisory Agreement with our Adviser, we pay our Adviser a fee for investment advisory and management services consisting of two components—a base management fee and an incentive fee.

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The Adviser agreed to waive any reimbursement by us of offering and organizational expenses the Adviser incurs on the Company’s behalf in excess of the greater of (i) one million dollars ($1,000,000), and (ii) one-tenth of one percent (0.10%) of the aggregate capital commitments raised in the initial and subsequent closings of our initial private offering during the three-year period commencing on the date of the Initial Closing.

The Investment Advisory Agreement had an initial term of two years and continues thereafter from year to year if approved annually by the Board of Directors or our stockholders, including, in each case, a majority of including a majority of the directors who are not “interested persons” as defined in Section 2(a)(19) of the 1940 Act (the “Independent Directors”).

The Investment Advisory Agreement was most recently renewed in November 2021.

The Investment Advisory Agreement was most recently renewed in August 2022.

Base Management Fee

The base management fee is calculated at an annual rate of 1.0% of our 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 an Exchange Listing, the Adviser has agreed to irrevocably waive the portion of the base management fee in excess of 0.25% of our average gross assets calculated in accordance with the Investment Advisory Agreement, which waived base management fees are not subject to recoupment by the Adviser.

Prior to a quotation or listing of our Common Stock on a national securities exchange, including an initial public offering (an “Exchange Listing”), the Adviser has agreed to irrevocably waive the portion of the base management fee in excess of 0.25% of our average gross assets calculated in accordance with the Investment Advisory Agreement, which waived base management fees are not subject to recoupment by the Adviser.

For services rendered under the Investment Advisory Agreement, the base management fee is payable quarterly in arrears.

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The first part is determined and paid quarterly based on our pre-incentive fee net investment income and the second part is determined and payable in arrears based on net capital gains as of the end of each calendar year or upon termination of the Investment Advisory Agreement.

Pre-incentive fee net investment income is defined as interest income, dividend income and any other income accrued during the calendar quarter, minus operating expenses for the quarter, including the base management fee, expenses payable under the Administration Agreement, any interest expense and distributions paid on any issued and outstanding preferred stock, but excluding

the incentive fee.

Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as debt instruments with pay-in-kind interest and zero coupon securities), accrued income that we have not yet received in cash.

Our Adviser is not obligated to return to us the incentive fee it receives on payment-in-kind (“PIK”) interest that is later determined to be uncollectible in cash.

Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as debt instruments with pay-in-kind (“PIK”) interest and zero coupon securities), accrued income that we have not yet received in cash.

Our Adviser is not obligated to return to us the incentive fee it receives on PIK interest that is later determined to be uncollectible in cash.

Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

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• 100% of pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 1.8182% in any calendar quarter (7.2728% annualized).

We refer to this portion of the pre-incentive fee net investment income (which exceeds the hurdle rate but is less than 1.8182%) as the “catch-up.” The “catch-up” is meant to provide the Adviser with approximately 17.5% of our pre-incentive fee net investment income as if a hurdle rate did not apply if this net investment income exceeds 1.8182% in any calendar quarter;

to this portion of the pre-incentive fee net investment income (which exceeds the hurdle rate but is less than 1.8182%) as the “catch-up.” The “catch-up” is meant to provide the Adviser with approximately 17.5% of our pre-incentive fee net investment income as if a hurdle rate did not apply if this net investment income exceeds 1.8182% in any calendar quarter;

• 17.5% of the pre-incentive fee net investment income, if any, that exceeds 1.8182% in any calendar quarter (7.2728% annualized), which reflects that once the hurdle rate is reached and the catch-up is achieved, 17.5% of all pre-incentive fee net investment income is paid to the Adviser.

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Our pre-incentive fee net investment income used to calculate this part of the incentive fee is also included in the amount of our total assets (other than cash and cash equivalents but including assets purchased with borrowed amounts) used to calculate the base management fee.

Under the Investment Advisory Agreement, we pay the Adviser an incentive fee on 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 our 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”).

Under the Investment Advisory Agreement, we pay the Adviser an incentive fee on 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 our realized capital gains, if any, on a cumulative basis from the date of our election to be regulated as a BDC 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”).

For the purpose of computing the incentive fee on capital gains, the calculation methodology looks through derivative financial instruments or swaps as if we owned the reference assets directly.

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In addition, our Administrator assists us in determining and publishing our net asset value, overseeing the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, our internal control assessment under the Sarbanes-Oxley Act and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others.

The Administration Agreement had an initial term of two years and continues thereafter from year to year if approved annually by our Board of Directors, which most recently approved the renewal of the Administration Agreement in November 2021.

Payments under the Administration Agreement are equal to an amount that reimburses our Administrator for its costs and expenses and our allocable portion of certain expenses incurred by our Administrator in performing its obligations under the Administration Agreement, including our allocable portion of the compensation paid to our Chief Compliance Officer and Chief Financial Officer.

Our Board of Directors, including our Independent Directors, reviews the allocable portion of certain expenses incurred by our Administrator in performing its obligations under the Administration Agreement to determine whether such expenses are reasonable and allocated appropriately among the Company and other funds sponsored or managed by the Administrator and its affiliates.

The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.

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Our Administrator reserves the right to waive all or part of any reimbursements due from the Company at its sole discretion.

The Administration Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, our Administrator and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it will be entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in

settlement) arising from the rendering of our Administrator’s services under the Administration Agreement or otherwise as an administrator for us, subject to the provisions of the 1940 Act.

arising from the rendering of our Administrator’s services under the Administration Agreement or otherwise as an administrator for us, subject to the provisions of the 1940 Act.

In addition, our Administrator has, pursuant to a sub-administration agreement, engaged State Street Bank and Trust Company ( “ State Street ” ), to act on behalf of our Administrator in the performance of certain other administrative services for us.

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• We depend upon our Adviser and Administrator for our success and upon their access to the investment professionals and partners of Morgan Stanley and its affiliates.

• Our business model depends to a significant extent upon strong referral relationships with sponsors.

• We are dependent on the Adviser’s key personnel in seeking to achieve our investment objectives.

• We may not replicate the historical results achieved by other entities managed or sponsored by members of the Investment Committee, or by the Adviser or its affiliates.

• Our financial condition and results of operation depend on our ability to manage future growth effectively.

• Our business model depends to a significant extent upon strong referral relationships with private equity sponsors.

• We may not replicate the historical results achieved by other entities advised by or sponsored by members of the Investment Committee or by the Adviser or its affiliates.

• The Adviser may frequently be required to make investment analyses and decisions on an expedited basis.

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• Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital.

As a BDC, the necessity of raising additional capital exposes us to risks, including the typical risks associated with leverage.

• We intend to finance our investments with borrowed money, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us.

• We are subject to risks associated with our Credit Facilities.

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• Failure to qualify as a BDC would decrease our operating flexibility.

• The majority of our portfolio investments are recorded at fair value as determined in good faith by our Board of Directors and, as a result, there may be uncertainty as to the value of our portfolio investments.

• Certain investors are limited in their ability to make significant investments in us

• The majority of our portfolio investments are recorded at fair value as determined in good faith by our Valuation Designee, and, as a result, there may be uncertainty as to the value of our portfolio investments.

• Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval, and we may temporarily deviate from our regular investment strategy.

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• Defaults by our portfolio companies will harm our operating results.

• We may invest in distressed or highly leveraged companies, which could cause you to lose all or part of your investment.

• Our investments in private and middle-market portfolio companies are risky, and you could lose all or part of your investment.

• Economic recessions or downturns could impair our portfolio companies and defaults by our portfolio companies will harm our operating results.

• Subordinated liens on collateral securing debt investments that we will make to our portfolio companies may be subject to control by senior creditors with first priority liens.

• Covenant-lite loans may expose us to different risks, including with respect to liquidity, ability to restructure loans, credit risks and less protective loan documentation, than is the case with loans that contain financial maintenance covenants.

• Covenant-lite loans may expose us to different risks.

• The lack of liquidity in our investments may adversely affect our business.

• Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation.

• Our portfolio companies may repay loans, which may reduce our yields if capital returned cannot be invested in transactions with equal or greater expected yields.

• Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.

• Because we generally do not hold controlling equity interests in our portfolio companies, we may not be able to exercise control over our portfolio companies.

• We can offer no assurance that portfolio company management will be able to operate their companies in accordance with our expectations.

• Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies and such portfolio companies may not generate sufficient cash flow to service their debt obligations to us.

• We may not realize gains from our equity investments.

• Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.

Risks Relating to Our Common Stock

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• There are restrictions on holders of our Common Stock.

• There is a risk that you may not receive distributions.

• Investing in our Common Stock may involve an above average degree of risk.

• We have not established any limit on the amount of funds we may use from available sources to fund dividends (which may reduce the amount of capital we ultimately invest in assets).

• The net asset value of our Common Stock may fluctuate significantly.

• Our stockholders may experience dilution in their ownership percentage.

• Our stockholders may receive shares of our Common Stock as dividends, which could result in adverse tax consequences to them.

• There is a risk you may not receive distributions.

• Investing in our Common Stock may involve an above average degree of risk.

• We have not established any limit on the amount of funds we may use from available sources to fund dividends.

Risks Relating to the Notes

• The Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we may incur.

• The Company’s 4.50% notes due 2027, or the 2027 Notes, and the Company’s 7.55% Series A Senior Notes due September 13, 2025, or the 2025 Notes and, together with the 2027 Notes, the Notes, are unsecured and therefore are effectively subordinated to any secured indebtedness we may incur.

Additionally, the Notes are not guaranteed by Morgan Stanley.

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• A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or the Notes, if any, could cause the liquidity or market value of the Notes to decline significantly.

• An increase in market interest rates could result in a decrease in the market value of the Notes.

• An increase in market interest rates could result in a decrease in the value of the Notes.

General Risk Factors

• We are operating in a period of capital markets disruption and economic uncertainty.

• We are operating in a period of capital markets volatility and economic uncertainty.

• New or modified laws or regulations governing our or Morgan Stanley’s operations may adversely affect our business.

• We are highly dependent on information systems, and systems failures could significantly disrupt our business.

• 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.

• Economic recessions or downturns could impair our portfolio companies and defaults by our portfolio companies will harm our operating results.

• Risks relating to compliance with the AIFMD.

• Terrorist attacks, acts of war, natural disasters, outbreaks, or pandemics, may impact our portfolio companies and our Adviser and harm our business, operating results, and financial condition.

Regulation as a Business Development Company

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however, we may pursue a Liquidity Event, including an Exchange Listing, in the future.

We define a “Liquidity Event” as any of:

(1) an Exchange Listing, (2) the sale of all or substantially all of our assets to, or other liquidity event with, another entity or (3) a transaction or series of transactions, including by way of merger, consolidation, recapitalization, reorganization, or sale of stock in each case for consideration of either cash and/or publicly listed securities of the acquirer.

BDCs are also eligible to elect to be treated as a RIC under Subchapter M of the Code.

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We have elected to be treated and intend to qualify annually as a RIC.

See “ Item 1.

Business—Certain U.S.

See “Certain Material U.S.

Federal Income Tax Considerations.”

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On December 16, 2019, our sole stockholder approved the application of the reduced asset coverage requirements in Section 61(a)(2) to us, effective as of December 17, 2019.

As a result of the stockholder approval, effective December 17, 2019, the asset coverage ratio under the 1940 Act applicable to us decreased to 150% from 200%, so long as we meet certain disclosure requirements.

As defined in the 1940 Act, asset coverage of 150% means that for every $100 of net assets we hold, we may raise $200 from borrowing and issuing senior securities as compared to $100 from borrowing and issuing senior securities for every $100 of net assets under 200% asset coverage.

As a result of stockholder approval, effective December 17, 2019, the asset coverage ratio under the 1940 Act applicable to us decreased to 150% from 200%, so long as we meet certain disclosure requirements, which means that for every $100 of net assets we hold, we may raise $200 from borrowing and issuing senior securities as compared to $100 from borrowing and issuing senior securities for every $100 of net assets under 200% asset coverage.

In addition, while any senior securities remain outstanding, we will be required to make provisions to prohibit any dividend distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase.

We are also permitted to borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage, which borrowings would not be considered senior securities, provided that any such borrowings in excess of 5% of the value of our total assets would be subject to the asset coverage ratio requirements of the 1940 Act, even if for temporary or emergency purposes.

ratio requirements of the 1940 Act, even if for temporary or emergency purposes.

Regulations governing our operations as a BDC will affect our ability to raise, and the method of raising, additional capital, which may expose us to risks.

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These policies and procedures are reviewed periodically by our Adviser and our Independent Directors, and, accordingly, are subject to change.

For purposes of these Proxy Voting Policies and Procedures described below, “we” “our” and “us” refers to our Adviser”.

An investment adviser registered under the Investment Advisers Act of 1940 (the “Advisers Act”) has a fiduciary duty to act solely in the best interests of its clients.

As part of this duty, we recognize that we must vote the Company securities in a timely manner free of conflicts of interest and in our best interests and the best interests of our stockholders.

These policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.

We vote proxies relating to our portfolio securities in what we believe to be the best interest of our stockholders.

To ensure that our vote is not the product of a conflict of interest, we require that:

(1) anyone involved in the decision making process disclose to our chief compliance officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote;

and (2) employees involved in the decision making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interested parties.

A copy of our policies and procedures with respect to the voting of proxies relating to our portfolio securities is available without charge, upon request.

Stockholders may obtain information regarding how we voted proxies by making a written request for proxy voting information to:

An investment adviser registered under the Investment Advisers Act of 1940, or the Advisers Act, has a fiduciary duty to act solely in the best interests of its clients.

As part of this duty, the Adviser recognizes that it must vote the Company’s securities in a timely manner free of conflicts of interest and in our best interests and the best interests of the Company’s stockholders.

These policies and procedures for voting proxies are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.

The Adviser votes proxies relating to the Company’s portfolio securities in what it believes to be the best interest of the Company’s stockholders.

To ensure that our vote is not the product of a conflict of interest, the Adviser requires that:

(1) anyone involved in the decision making process disclose to the Company’s Chief Compliance Officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote;

and (2) employees involved in the decision making process or vote administration are prohibited from revealing how the Company intends to vote on a proposal in order to reduce any attempted influence from interested parties.

A copy of the Adviser’s policies and procedures with respect to the voting of proxies relating to the Company’s portfolio securities is available without charge, upon request.

Stockholders may obtain information regarding how the Adviser voted proxies by making a written request for proxy voting information to:

Morgan Stanley Direct Lending Fund c/o Morgan Stanley 1585 Broadway, New York, NY 10036 Attn:

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We and our Adviser are each required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws, review these policies and procedures annually for their adequacy and the effectiveness of their implementation, and designate a chief compliance officer to be responsible for administering the policies and procedures.

We currently are and expect to remain an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), until the earliest of:

• the last day of our fiscal year in which the fifth anniversary of an Exchange Listing occurs;

• the end of the fiscal year in which our total annual gross revenues first exceed $1.07 billion;

• the date on which we have, during the prior three-year period, issued more than $1.0 billion in non-convertible debt;

Under the JOBS Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), we are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which would require that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting, until such time as we cease to be an emerging growth company and become an accelerated filer as defined in Rule 12b-2 under the Exchange Act.

This may increase the risk that material weaknesses or other deficiencies in our internal control over financial reporting go undetected.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies.

We have made an irrevocable election not to take advantage of this exemption from new or revised accounting standards.

We therefore are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Sarbanes-Oxley Act

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Bank Holding Company Act

As a bank holding company (“BHC”) that has elected Financial Holding Company (“FHC”) status under the Bank Holding Company Act of 1956, as amended (the “BHCA”), Morgan Stanley and its affiliates are subject to comprehensive, consolidated supervision and regulation by the U.S.

Board of Governors of the Federal Reserve System (the “Federal Reserve”).

As a bank holding company (“BHC”) that has elected Financial Holding Company, or FHC, status under the Bank Holding Company Act of 1956, as amended (the “BHCA”), Morgan Stanley and its affiliates are subject to comprehensive, consolidated supervision and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).

Because a Morgan Stanley affiliate is acting as our Adviser and Morgan Stanley has a 5% or greater voting investment in us, we are subject to the certain federal banking and financial requirements, including the BHCA, regulations of the Federal Reserve, and certain provisions of the Dodd-Frank Act.

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Such restrictions may place certain limitations on our ability to engage in activities or make investments in companies.

For instance, the BHCA permits a bank holding company, or BHC, as well as any non-bank affiliate of such BHC, to make investment representing less than 5% of any class of voting shares of another company so long as that investment is otherwise non-controlling under the BHCA.

For instance, the BHCA permits a BHC as well as any non-bank affiliate of such BHC, to make investment representing less than 5% of any class of voting shares of another company so long as that investment is otherwise non-controlling under the BHCA.

The BHCA also permits well-capitalized, well-managed BHCs that have elected to be treated as an FHC to engage in expanded “financial in nature” activities without prior approval of the Federal Reserve.

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A significant focus of the regulatory framework that applies to Morgan Stanley is to ensure that Morgan Stanley and its subsidiaries operate in a safe and sound manner, with sufficient capital, earnings and liquidity to allow Morgan Stanley to serve as a source of financial and managerial strength to Morgan Stanley Bank, N.A.

and Morgan Stanley Private Bank, National Association (the “Banks”).

and Morgan Stanley Private Bank, National Association, or the Banks.

These Banks must remain well capitalized and well managed if Morgan Stanley is to maintain its FHC status and continue to engage in the widest range of permissible financial activities.

In addition, the general exercise by the Federal Reserve of its regulatory, supervisory and enforcement authority with respect to Morgan Stanley and certain provisions of Dodd-Frank could result in the need for Morgan Stanley to change its business practices or the scope of its current lines of business, including certain limited

divestitures.

Although such changes could have an impact on and consequences for Morgan Stanley and the Adviser, any limited divestiture should not directly involve the Adviser.

Each investor should carefully review and familiarize itself with these rules and regulations and consult with its own counsel on how the Volcker Rule (as defined herein), Dodd-Frank and the BHCA may impact the investor.

Dodd-Frank and Volcker Rule Disclosure

Section 619 of Dodd-Frank, commonly known as the “Volcker Rule,” and regulations to implement the Volcker Rule issued by the U.S.

federal financial regulators in December 2013 (Implementing Regulations), generally restrict any “banking entity” (which includes Morgan Stanley and most affiliates of Morgan Stanley) from engaging in “proprietary trading” as well as from acquiring or retaining any “ownership interest” in a “covered fund”, in each case unless the investment or activity is conducted in accordance with an exclusion or exemption.

federal financial regulators in December 2013, referred to as the Implementing Regulations, generally restrict any “banking entity” (which includes Morgan Stanley and most affiliates of Morgan Stanley) from engaging in “proprietary trading” as well as from acquiring or retaining any “ownership interest” in a “covered fund”, in each case unless the investment or activity is conducted in accordance with an exclusion or exemption.

The Volcker Rule also generally prohibits certain transactions between a banking entity and any of its affiliates, on the one hand, and a covered fund for which the banking entity or any of its affiliates serves, directly or indirectly, as the investment manager, investment adviser, or that the banking entity or any of its affiliates sponsors in connection with organizing and offering that fund (or with any other covered fund that is controlled by such fund, on the other hand.

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In such event, we, the Adviser and/or Morgan Stanley may agree to make certain amendments or changes to the extent necessary to permit the Adviser to continue to provide services to us, while enabling us to continue to achieve our purposes and objectives.

Each prospective investor should consult its own legal counsel to determine how it could be impacted by the Volcker Rule, the Implementing Regulations and other aspects of Dodd-Frank.

Exclusion of the Adviser from Commodity Pool Operator Definition

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On January 24, 2020, the Adviser claimed an exclusion from the definition of the term “commodity pool operator” under the CEA and the CFTC regulations in connection with its management of us (the “Exclusion”) and, therefore, the Adviser is not subject to CFTC registration or regulation under the CEA as a commodity pool operator with respect to its management of us.

The Adviser intends to affirm the Exclusion on an annual basis, and as of the date of this report, has affirmed the Exclusion through the fiscal year ending December 31, 2022.

The Adviser intends to affirm the Exclusion on an annual basis, which current annual affirmation was filed by the Adviser on February 24, 2023.

Reporting Obligations and Available Information

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The SEC also maintains a website that contains annual reports, quarterly reports, current reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us, which can be accessed at www.sec.gov.

Anti-Money Laundering, U.S.

Department of the Treasury’s Office of Foreign Assets Control, and Foreign Corrupt Practices Act and Related Requirements.

The Adviser and the Company comply with policies and procedures consistent with the requirements of Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (including the implementing regulations thereunder, the “USA PATRIOT Act”), and may become subject to the requirements of the USA PATRIOT Act.

Accordingly, to allow the Adviser and the Company to comply with such policies and procedures and any applicable U.S.

and other anti-money laundering laws and regulations (including rules of the Financial Crimes Enforcement Network of the U.S.

Department of the Treasury), the Adviser and the Company may require investors to provide information regarding their identity, the identity of any of their beneficial owners, the sources of funds used to subscribe for shares in the Company and other information.

The Company may decline to accept a subscription if this information is not provided or on the basis of such information that is provided.

The Adviser and the Company also reserve the right to refuse to make any dividend or other payment to a stockholder if they suspect or are advised that payment of such proceeds may be non-compliant with applicable laws or regulations, or if such refusal is considered necessary or appropriate to ensure the compliance by the Adviser and/or the Company with any applicable laws or regulations.

The Adviser and the Company may request such additional information from prospective investors as the Adviser and the Company deem necessary in order to comply with Morgan Stanley policies and procedures, the USA PATRIOT Act, or other relevant U.S.

or other anti-money laundering legislation or regulations, and may provide such information to a government regulatory authority if the Adviser deems it necessary in order to comply with Morgan Stanley policies and procedures, the USA PATRIOT Act or other relevant U.S.

or other anti-money laundering legislation or regulations administered or enforced by such government regulatory authority.

Requests for documentation and additional information may be made at any time during which a stockholder holds shares in the Company.

Sanctions Laws may prohibit Morgan Stanley, its affiliates and the Company from transacting with or in certain countries and with certain individuals and companies.

In the United States, the U.S.

Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) administers and enforces laws, Executive Orders and regulations establishing U.S.

economic and trade sanctions, which prohibit, among other things, transactions with, and the provision of services to, certain foreign countries, territories, entities and individuals.

These entities and individuals include specially designated nationals, specially designated narcotics traffickers and other parties subject to OFAC sanctions and embargo programs.

The lists of OFAC prohibited countries, territories, persons and entities, including the List of Specially Designated Nationals and Blocked Persons, as such list may be amended from time to time, can be found on the OFAC website at http://www.treas.gov/ofac.

In addition, certain programs administered by OFAC prohibit dealing with individuals or entities in certain countries regardless of whether such individuals or entities appear on the lists maintained by OFAC.

Sanctions Laws may significantly restrict or completely prohibit certain investment activities of both the Company and its portfolio entities.

If the Company or any of its portfolio entities were to violate any such laws or regulations, it may face significant legal and monetary penalties.

The Company will require investors to represent that (i) neither they nor their underlying beneficial owners are natural persons or entities acting, directly or indirectly, in contravention of any applicable money laundering regulations or conventions of the United States or other international jurisdictions, or on behalf of terrorists, terrorist organizations or narcotics traffickers, including those persons or entities that are included on any relevant lists maintained by the United Nations, the European Union, OFAC, U.S.

Federal Bureau of Investigation or other similar or successor entities, in each case as may be amended from time to time;

or on behalf of a foreign shell bank or a U.S.

financial institution that has established, maintains, administers or manages an account in the United States for, or on behalf of, a foreign shell bank and (ii) neither the subscriber nor any underlying beneficial owner of such subscriber is the subject of any sanctions, including by being included on the List of Specially Designated Nationals and Blocked Persons (see http://www.treas.gov/ofac), any U.S.

Executive Order administered by OFAC, or any United Nations, European Union (including, for the avoidance of doubt, the U.K., Norway or Switzerland sanctions lists, as amended from time to time or located, organized or resident in a country or territory that is the subject of comprehensive Sanctions Laws.

Where the foregoing representations becomes

untrue, the Company may be required to cease any further dealings with the investor’s interest in the Company, until such sanctions are lifted or a license is sought under applicable law to continue dealings.

In some countries, there is a greater acceptance than in the United States of government involvement in commercial activities, and of corruption.

Morgan Stanley, Morgan Stanley professionals and the Company are committed to complying with the U.S.

Foreign Corrupt Practices Act (“FCPA”), the U.K.

Bribery Act of 2010 (the “U.K.

Bribery Act”) and other anti-corruption laws, anti-bribery laws and regulations, as well as anti-boycott regulations, to which they are subject.

As a result, the Company may be adversely affected because of its unwillingness to participate in transactions that violate such laws or regulations.

Such laws and regulations may make it difficult in certain circumstances for the Company to act successfully on investment opportunities and for investments to obtain or retain business.

The FCPA and other anti-corruption laws and regulations, as well as anti-boycott regulations, may also apply to and restrict the activities of the Company’s portfolio entities.

If a portfolio entity were to violate any such laws or regulations, it may face significant legal and monetary penalties.

government has indicated that it is particularly focused on FCPA enforcement, which may increase the risk that the Company’s portfolio entities become the subject of such actual or threatened enforcement.

In addition, certain commentators have suggested that asset management firms in general and the funds that they manage, such as the Company, may face increased scrutiny and/or liability with respect to the activities of their underlying portfolio entities.

As such, a violation of the FCPA or other applicable regulations by a portfolio entity could have a material adverse effect on the Company.

In recent years, the U.S.

Department of Justice and the SEC have devoted greater resources to enforcement of the FCPA.

In addition, the U.K.

has recently significantly expanded the reach of its anti-bribery laws with the U.K.

Bribery Act, which in some ways is broader in scope than the FCPA and applies to private and public sector corruption and holds companies liable for failure to prevent bribery unless they have adequate procedures in place to prevent bribery.

While Morgan Stanley has developed and implemented a stringent compliance program designed to ensure compliance by Morgan Stanley and its personnel with the FCPA and the U.K.

Bribery Act, even reasonable compliance programs may not be effective in all instances to prevent violations.

In addition, affiliates of portfolio entities, particularly in cases where the Company or another alternative investment fund, investment program, account or business advised by Morgan do not control such portfolio entity, third-party consultants, managers and advisors may engage in activities that could result in FCPA or U.K.

Bribery Act violations.

Any determination that Morgan Stanley has violated the FCPA, the U.K.

Bribery Act or other applicable anti-corruption laws or anti-bribery laws could subject Morgan Stanley to, among other things, civil and criminal penalties, material fines, profit disgorgement, injunctions on future conduct, securities litigation and a general loss of investor confidence, any one of which could adversely affect Morgan Stanley’s business prospects and/or financial position, as well as the Company’s ability to achieve its investment objective and/or conduct its operations.

“Sanctions Laws” means any trade, economic or financial sanctions, laws, regulations, embargoes or restrictive measures imposed, administered or enforced, from time to time, by OFAC, the U.S.

State Department, any other agency of the U.S.

government, the United Nations, the European Union, her Majesty’s Treasure, or other relevant sanctions authority.

Certain Material U.S.

Federal Income Tax Considerations

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For example, we have not described certain considerations that may be relevant to certain types of holders subject to special treatment under U.S.

federal income tax laws, including stockholders subject to the alternative minimum tax (the “AMT”), tax-exempt organizations, insurance companies, dealers in securities, traders in securities that elect to mark-to-market their securities holdings, pension plans and trusts, persons that have a functional currency (as defined in Section 985 of the Code) other than the U.S.

Section 985 of the Code) other than the U.S.

dollar and financial institutions.

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• qualify to be regulated as a BDC under the 1940 Act at all times during each taxable year;

• derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities, or other income derived with respect to our business of investing in such stock or securities, and net income derived from interests in “qualified publicly traded partnerships” (partnerships that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of their income from interest, dividends and other permitted RIC income) (the “90% Income Test”);

partnerships” (partnerships that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of their income from interest, dividends and other permitted RIC income) (the “90% Income Test”);

• diversify our holdings so that at the end of each quarter of the taxable year:

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We may invest in partnerships, including qualified publicly traded partnerships, which may result in our being subject to state, local or foreign income, franchise or other tax liabilities.

In addition, as a RIC we are subject to ordinary income and capital gain distribution requirements under U.S.

federal excise tax rules for each calendar year (the “Excise Tax Avoidance Requirement”).

In addition, as a RIC we are subject to ordinary income and capital gain distribution requirements under the Excise Tax Avoidance Requirement.

If we do not meet the required distributions, we will be subject to a 4% nondeductible federal excise tax on the undistributed amount.

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federal income tax provisions that may, among other things, (1) treat dividends that would otherwise constitute qualified dividend income as non-qualified dividend income, (2) treat dividends that would otherwise be eligible for the corporate dividends-received deduction as ineligible for such treatment, (3) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (4) convert lower-taxed long-term capital gain into higher-taxed short-term capital gain or ordinary income, (5) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (6) cause us to recognize income or gain without a corresponding receipt of cash, (7) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (8) adversely alter the characterization of certain complex financial transactions and (9) produce income that will not be qualifying income for purposes of the 90% Income Test.

We intend to monitor our transactions and may make certain tax elections to mitigate the effect of these provisions and prevent our ability to be subject to tax as a RIC.

We intend to monitor our transactions and may make certain tax elections to mitigate the potential adverse effect of these provisions, but there can be no assurance that we will be eligible for any such tax elections or that any adverse effects of these provisions will be mitigated.

Gain or loss realized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss.

Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant.

Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant or security.

A portfolio company in which we invest may face financial difficulties that require us to work-out, modify or otherwise restructure its investment in the portfolio company.

Any such transaction could, depending upon the specific terms of the transaction, result in

unusable capital losses and future non-cash income.

Any such transaction could also result in our receiving assets that give rise to income that is not qualifying income for purposes of the 90% Income Test.

Our investment in non-U.S.

securities may be subject to non-U.S.

income, withholding and other taxes.

In that case, our yield on those securities would be decreased.

stockholders generally will not be entitled to claim a U.S.

foreign tax credit or deduction with respect to non-U.S.

taxes paid by the Company.

Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy distribution requirements.

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See “ Item 1.

Business—Regulation

as a Business Development Company—Senior Securities .” Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our qualification as a RIC, including certain diversification tests in order to qualify as a RIC for U.S.

Business—Regulation as a Business Development Company—Senior Securities .” Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our qualification as a RIC, including certain diversification tests in order to qualify as a RIC for U.S.

federal income tax purposes (the “Diversification Tests”).

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corporate income tax on their earnings, which ultimately will reduce our return on such income and fees.

A portfolio company in which we invest may face financial difficulties that require us to work-out, modify or otherwise restructure its investment in the portfolio company.

Any such transaction could, depending upon the specific terms of the transaction, result in unusable capital losses and future non-cash income.

Any such transaction could also result in our receiving assets that give rise to income that is not qualifying income for purposes of the 90% Income Test.

Our investment in non-U.S.

securities may be subject to non-U.S.

income, withholding and other taxes.

In that case, our yield on those securities would be decreased.

stockholders generally will not be entitled to claim a U.S.

foreign tax credit or deduction with respect to non-U.S.

taxes paid by the Company.

There may be uncertainty as to the appropriate treatment of certain of our investments for U.S.

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Under the Code, gains or losses attributable to fluctuations in foreign currency exchange rates that occur between the time we accrue interest income or other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time we actually collect such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss.

Similarly, on disposition of some investments, including debt securities and certain forward contracts denominated in a foreign currency, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss.

disposition also are treated as ordinary gain or loss.

These gains and losses, referred to under the Code as “section 988” gains and losses, may increase or decrease the amount of our ICTI to be distributed to stockholders as ordinary income.

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If we fail to qualify as a RIC, we may be subject to regular corporate tax on any net built-in gains with respect to certain of our assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if we had been liquidated) that we elect to recognize on requalification or when recognized over the next five taxable years.

We do not currently have any employees.

Our day-to-day investment operations are managed by our Adviser, and our Administrator provides services necessary to conduct our business.

We pay no compensation directly to any interested director or executive officer of the Company.

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 1. Business