NYSE: MSIF

MSC Income also maintains a legacy portfolio of investments in larger middle market (“Middle Market”) companies (its “Middle Market investment portfolio”) and a limited portfolio of other portfolio (“Other Portfolio”) investments. MSC Income’s Middle Market investments are generally debt investments in companies owned by a private equity fund that were originally issued through a syndication financing process. MSC Income has generally stopped making new Middle Market investments and expects the size of its Middle Market investment portfolio to continue to decline in future periods as its existing Middle Market investments are repaid or sold. MSC Income’s Other Portfolio investments primarily consist of investments that are not consistent with the typical profiles for its Private Loan, LMM or Middle Market portfolio investments, including investments in unaffiliated investment companies and private funds managed by third parties. Similar to its Middle Market investments, MSC Income has generally stopped making new Other Portfolio investments and expects the size of its Other Portfolio to continue to decline in future periods as its existing Other Portfolio investments are repaid or sold.

The “Investment Portfolio,” as used herein, refers to all of MSC Income’s investments in Private Loan portfolio companies, investments in LMM portfolio companies, investments in Middle Market portfolio companies and Other Portfolio investments.

MSIF was formed in November 2011 to operate as an externally managed BDC under the Investment Company Act of 1940, as amended (the “1940 Act”). MSIF has elected to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a result, MSIF generally does not pay corporate-level U.S. federal income taxes on any net ordinary taxable income or capital gains that it distributes to its stockholders.

On October 28, 2020, MSC Income’s stockholders approved the appointment of MSC Adviser I, LLC (the “Adviser”), which is wholly-owned by Main Street, as MSC Income’s investment adviser and administrator under an Investment Advisory and Administrative Services Agreement dated October 30, 2020 (the “Prior Investment Advisory Agreement”).

On December 16, 2024, in advance of the MSC Income Listing, the Fund effectuated a two-for-one reverse stock split of its outstanding common stock pursuant to approval from the Board of Directors (the “Reverse Stock Split”). As a result of the Reverse Stock Split, every two shares of MSC Income’s issued and outstanding common stock were converted into one share of issued and outstanding common stock, without any change in the par value per share or the number of authorized shares of its common stock. Unless otherwise indicated, all figures in this Annual Report on Form 10-K reflect the implementation of the Reverse Stock Split.

On January 29, 2025, MSC Income’s shares of common stock were listed on the NYSE under the ticker symbol “MSIF” (the “MSC Income Listing”).

On January 29, 2025, in connection with the MSC Income Listing, MSC Income entered into an Amended and Restated Investment Advisory and Administrative Services Agreement (the “Advisory Agreement”) with the Adviser. The Advisory Agreement was approved by the affirmative vote of the holders of a majority of MSC Income’s outstanding voting securities, as defined in the 1940 Act, at a special meeting of MSC Income’s stockholders held on December 11, 2024, and the Advisory Agreement became effective upon the MSC Income Listing. In such role, the Adviser has the responsibility to manage the business of MSC Income, including the responsibility to identify, evaluate, negotiate and structure prospective investments, make investment and portfolio management decisions, monitor its Investment Portfolio and provide ongoing administrative services.

On January 29, 2025, in connection with the MSC Income Listing, the Fund amended and restated its Articles of Amendment and Restatement, as amended, by filing new Articles of Amendment and Restatement of the Fund (the “New Articles”) with the State Department of Assessments and Taxation of the State of Maryland. The New Articles revised the Fund’s charter to, among other things, (i) include a provision that limits the transferability of shares of its common stock outstanding at the time of the MSC Income Listing during the 365-day period following the MSC Income Listing, (ii) reflect an amendment to delete provisions regarding restrictions and requirements applicable to its dividend reinvestment plan, (iii) reflect an amendment to delete provisions prohibiting acquisitions of assets in exchange for shares of its common stock and restricting certain transactions between the Fund and the Adviser and its affiliates and (iv) delete certain provisions required by, and remove references to, the NASAA Guidelines in order to conform certain provisions of the Fund’s charter more closely to provisions in the charters of other BDCs whose securities are listed and publicly-traded on a national securities exchange.

On January 30, 2025, in connection with the MSC Income Listing, MSC Income closed a follow-on public offering of 5,500,000 shares of its common stock, at the public offering price of $15.53 per share. In addition, on February 3, 2025, MSC Income issued and sold 825,000 additional shares of its common stock, at the public offering price of $15.53 per share, pursuant to the underwriters’ full exercise of their overallotment option (together with the offering and sale of the 5,500,000 shares, the “MSC Income Offering”). Net of underwriting discounts and commissions and offering costs, the Fund received net cash proceeds of $90.5 million in connection with the MSC Income Offering.

MSIF has certain direct and indirect wholly-owned subsidiaries that have elected to be taxable entities (the “Taxable Subsidiaries”). The primary purpose of the Taxable Subsidiaries is to permit MSIF to hold equity investments in portfolio companies which are “pass-through” entities for tax purposes. MSIF also has certain direct and indirect wholly-owned subsidiaries formed for financing purposes (the “Structured Subsidiaries”).

Unless otherwise noted or the context otherwise indicates, the terms “MSC Income” and the “Fund” refer to MSIF and its consolidated subsidiaries, which include the Taxable Subsidiaries and the Structured Subsidiaries.

The following diagram depicts MSC Income’s organizational structure:

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(1)The Taxable Subsidiaries and the Structured Subsidiaries were formed for operational purposes. Each of these companies is directly or indirectly wholly-owned by MSIF.

CORPORATE INFORMATION

MSC Income’s principal executive offices are located at 1300 Post Oak Boulevard, 8th Floor, Houston, Texas 77056. The Fund maintains a website on the Internet at www.mscincomefund.com. MSC Income makes available free of charge on its website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Information contained on MSC Income’s website is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider that information to be part of this Annual Report on Form 10-K. The Fund’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports and other public filings are also available free of charge on the EDGAR Database on the SEC’s website at www.sec.gov.

OVERVIEW OF THE BUSINESS

MSC Income’s principal investment objective is to maximize the Investment Portfolio’s total return, primarily by generating current income from debt investments and, to a lesser extent, by generating current income and capital appreciation from equity and equity-related investments, including warrants, convertible securities and other rights to acquire equity securities in a portfolio company. MSC Income seeks to achieve its investment objective primarily through its Private Loan investment strategy and its LMM investment portfolio. MSC Income’s Private Loan investment strategy involves investments in companies that generally have annual revenues between $25 million and $500 million and annual earnings before interest, tax, depreciation and amortization expenses (“EBITDA”) between $7.5 million and $50 million. MSC Income’s LMM investment portfolio consists of investments in companies that generally have annual revenues between $10 million and $150 million and annual EBITDA between $3 million and $20 million. MSC Income’s Private Loan and LMM investments generally range in size from $1 million to $30 million.

Private Loan investments primarily consist of debt securities that have primarily been originated directly by the Adviser or, to a lesser extent, through the Adviser’s strategic relationships with other investment funds on a collaborative basis through investments that are often referred to in the debt markets as “club deals” because of the small lender group size. In both cases, MSC Income’s Private Loan investments are typically made in a company owned by or in the process of being acquired by a private equity fund. The Fund’s Private Loan portfolio debt investments are generally secured by a first priority lien on the assets of the portfolio company and typically have a term of between three and seven years from the original investment date. The Fund may also co-invest with Main Street and the private equity fund in the equity securities of its Private Loan portfolio companies.

MSC Income has also historically sought to fill the financing gap for LMM businesses, which, historically, have had limited access to financing from commercial banks and other traditional sources. The underserved nature of the LMM created the opportunity for MSC Income to meet the financing needs of LMM companies while also negotiating favorable transaction terms and equity participation. MSC Income’s ability to invest across a company’s capital structure, from secured loans to equity securities, allowed it to offer portfolio companies a comprehensive suite of financing options, or a “one-stop” financing solution. MSC Income’s LMM portfolio debt investments are generally secured by a first priority lien on the assets of the portfolio company and typically have a term of between five and seven years from the original investment date.

In connection with the MSC Income Listing, the Fund’s Board of Directors and the Adviser decided to change its investment strategy with respect to new platform investments to be solely focused on the Fund’s Private Loan investment strategy. As a result, the size of the Fund’s LMM investment portfolio is expected to decrease over time as its existing LMM investments are repaid or sold in the ordinary course of business. The Fund does, however, plan to continue executing follow-on investments in its existing LMM portfolio companies going forward in accordance with its existing SEC order for co-investment exemptive relief.

MSC Income’s Middle Market investments are generally debt investments in companies owned by a private equity fund that were originally issued through a syndication financing process. MSC Income has generally stopped making new Middle Market investments and expects the size of its Middle Market investment portfolio to continue to decline in future periods as existing Middle Market investments are repaid or sold. MSC Income’s Middle Market debt investments generally range in size from $1 million to $20 million, are generally secured by a first priority lien on the assets of the portfolio company and typically have an expected duration of between three and seven years from the original investment date.

MSC Income’s Other Portfolio investments primarily consist of investments that are not consistent with the typical profiles for its Private Loan, LMM or Middle Market portfolio investments, including investments in unaffiliated investment companies and private funds managed by third parties. In the Fund’s Other Portfolio, it may incur indirect fees and expenses in connection with investments managed by third parties. Similar to MSC Income’s Middle Market investments, the Fund has generally stopped making new Other Portfolio investments and expects the size of its Other Portfolio to continue to decline in future periods as existing Other Portfolio investments are repaid or sold.

Subject to changes in MSC Income’s cash and overall liquidity, it may in the future invest in short-term portfolio investments that are atypical of its Private Loan and LMM portfolio investments in that they would be intended to be a short-term deployment of capital. These assets would be expected to be realized in one year or less and would not be expected to be a significant portion of MSC Income’s overall Investment Portfolio.

MSC Income’s portfolio investments are generally made through MSIF, the Taxable Subsidiaries and the Structured Subsidiaries. MSIF, the Taxable Subsidiaries and the Structured Subsidiaries share the same investment strategies and criteria. An investor’s return in MSIF will depend, in part, on the Taxable Subsidiaries’ and the Structured Subsidiaries’ investment returns as they are wholly-owned subsidiaries of MSIF.

The level of new portfolio investment activity will fluctuate from period to period based upon MSC Income’s view of the current economic fundamentals, its ability to identify new investment opportunities that meet its investment criteria, its ability to consummate the identified opportunities and its available liquidity. The level of new investment activity, and associated interest and fee income, will directly impact future investment income. In addition, the level of dividends paid by portfolio companies and the portion of the Fund’s portfolio debt investments on non-accrual status will directly impact future investment income. While MSC Income intends to grow its portfolio and its investment income over the long term, growth and operating results may be more limited during depressed economic periods. However, the Fund intends to appropriately manage its cost structure and liquidity position based on applicable economic conditions and investment outlook. The level of realized gains or losses and unrealized appreciation or depreciation on investments will also fluctuate depending upon portfolio activity, economic conditions and the performance of individual portfolio companies. The changes in realized gains and losses and unrealized appreciation or depreciation could have a material impact on the Fund’s operating results.

MSC Income has received an exemptive order from the SEC permitting co-investments among it, Main Street and other advisory clients of the Adviser in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act. MSC Income has made co-investments with, and in the future intends to continue to make co-investments with, Main Street and other advisory clients of the Adviser, in accordance with the conditions of the order. Because the Adviser is wholly-owned by Main Street and is not managing MSC Income’s investment activities as its sole activity, this may provide the Adviser an incentive to allocate opportunities to Main Street or its other advisory clients instead of MSC Income. However, both MSC Income and the Adviser have adopted policies and procedures pursuant to the order to manage this conflict and ensure that investment opportunities are allocated in a manner that is fair and equitable considering each investor’s interests, including oversight of the co-investment program by the independent members of MSC Income’s and Main Street’s boards of directors and their required approval of certain co-investment transactions thereunder. In addition to the co-investment program described above, MSC Income also co-invests in certain investment transactions where price is the only negotiated point by the Fund and its affiliates.

BUSINESS STRATEGIES

MSC Income’s principal investment objective is to maximize its Investment Portfolio’s total return, primarily by generating current income from debt investments and, to a lesser extent, by generating current income and capital appreciation from equity and equity-related investments, including warrants, convertible securities and other rights to acquire equity securities in a portfolio company. MSC Income has adopted the following business strategies to achieve its investment objective:

•Focus on Established Companies. MSC Income generally invests in companies with established market positions, experienced management teams and proven revenue streams. MSC Income believes that those companies generally possess better risk-adjusted return profiles than newer companies that are building their management teams or are in the early stages of building a revenue base. MSC Income also believes that established companies in its targeted size range generally provide opportunities for capital appreciation.

•Generate Unique Returns from its LMM Investment Portfolio. MSC Income believes that its existing investments in its LMM portfolio companies provide unique risk-adjusted return characteristics and also provide its stockholders with access to a large and attractive portion of the U.S. economy that has been and continues to be underserved from a financing standpoint. As a result, MSC Income believes that its existing LMM investment portfolio provides its stockholders the opportunity for superior future returns.

•Leverage the Skills and Experience of the Adviser’s Investment Team. The Adviser’s investment team has significant experience in lending to and investing in Private Loan and LMM companies. The members of the Adviser’s investment team have broad investment backgrounds, with significant experience and long-term tenure with the Adviser, and prior experience at private investment funds, corporate entities with active acquisition growth strategies and activities, investment banks and other financial services companies. The expertise of the Adviser’s investment team in analyzing, valuing, structuring, negotiating and closing transactions should provide MSC Income with competitive advantages by allowing it to consider customized financing solutions and non-traditional or complex structures for its portfolio companies.

•Invest Across Multiple Companies, Industries, Regions and End Markets. MSC Income seeks to maintain a portfolio of investments that is appropriately balanced among various companies, industries, geographic regions and end markets. This portfolio balance is intended to mitigate the potential effects of negative economic events for particular companies, regions, industries and end markets.

•Capitalize on Strong Transaction Sourcing Network. The Adviser’s investment team seeks to leverage its extensive network of referral sources for portfolio company investments. Main Street has developed a reputation in the marketplace as a responsive, efficient and reliable source of financing, which has created a growing stream of proprietary deal flow for MSC Income.

•Benefit from Lower, Fixed, Long-Term Cost of Capital. MSC Income maintains an investment grade rating from Kroll Bond Rating Agency, LLC, which provides the opportunity and flexibility to obtain additional, attractive long-term financing options to supplement the Fund’s capital structure, including the unsecured notes with fixed interest rates issued by the Fund.

INVESTMENT CRITERIA

The Adviser’s investment team has identified the following investment criteria that it believes are important in evaluating prospective portfolio companies. The Adviser’s investment team uses these criteria in evaluating investment opportunities. However, not all of these criteria have been, or will be, met in connection with each of MSC Income’s investments:

•Established Companies with Positive Cash Flow. MSC Income seeks to invest in established companies with sound historical financial performance. MSC Income primarily pursues investments in Private Loan companies that have historically generated annual EBITDA of $7.5 million to $50 million. MSC Income also maintains a portfolio of investments in LMM companies that have historically generated annual EBITDA of $3 million to $20 million. MSC Income generally does not invest in start-up companies or companies with speculative business plans.

•Defensible Competitive Advantages/Favorable Industry Position. MSC Income primarily focuses on companies that have competitive advantages in their respective markets and/or are operating in industries with barriers to entry, which may help to protect their market position and profitability.

•Proven Management Team. MSC Income looks for operationally-oriented management with direct industry experience and a successful track record. MSC Income believes management teams with these attributes are more likely to manage the companies in a manner that protects its investment.

•Exit Alternatives. MSC Income exits debt investments primarily through the repayment of its investment from internally generated cash flow of the portfolio company and/or a refinancing. In addition, MSC Income seeks to invest in companies whose business models and expected future cash flows may provide alternate methods of repaying its investment, such as through a strategic acquisition by other industry participants or a recapitalization.

INVESTMENT PORTFOLIO

MSC Income’s Private Loan portfolio investments primarily consist of debt securities that have primarily been originated directly by the Adviser, or to a lesser extent, through the Adviser’s strategic relationships with other investment funds on a collaborative basis through investments that are often referred to in the debt markets as “club deals” because of the small lender group size. In both cases, MSC Income’s Private Loan investments are typically made in a company owned by or in the process of being acquired by a private equity fund. MSC Income’s LMM portfolio investments primarily consist of secured debt, direct equity investments and equity warrants in privately held, LMM companies based in the U.S. MSC Income’s Middle Market portfolio investments are generally debt investments in companies owned by private equity funds that were originally issued through a syndication financing process. MSC Income has generally stopped making new Middle Market investments and expects the size of its Middle Market investment portfolio to continue to decline in future periods as existing Middle Market investments are repaid or sold. MSC Income’s Other Portfolio investments primarily consist of investments that are not consistent with the typical profiles for its Private Loan, LMM or Middle Market portfolio investments, including investments which may be managed by third parties. In MSC Income’s Other Portfolio, it may incur indirect fees and expenses in connection with investments managed by third parties, such as investments in other investment companies or private funds. Similar to the Fund’s Middle Market investments, it has generally stopped making new Other Portfolio investments and expects the size of its Other Portfolio to continue to decline in future periods as existing Other Portfolio investments are repaid or sold.

Debt Investments

The debt investments in MSC Income’s Private Loan portfolio have rights and protections that may include affirmative and negative covenants, default penalties, lien protection, change of control provisions, guarantees and equity pledges. MSC Income’s Private Loan portfolio debt investments are generally secured by a first priority lien and typically have a term of between three and seven years from the original investment date. MSC Income’s Private Loan debt investments generally have floating interest rates at the Secured Overnight Financing Rate (“SOFR”) or the Prime rate typically subject to a contractual minimum interest rate (an “interest rate floor”), plus a margin.

Historically, MSC Income has made LMM debt investments principally in the form of single tranche debt. Single tranche debt financing involves issuing one debt security that blends the risk and return profiles of both first lien secured and subordinated debt. The Fund believes that single tranche debt is more appropriate for many LMM companies given their size in order to reduce structural complexity and potential conflicts among creditors.

MSC Income’s LMM debt investments generally have a term of five to seven years from the original investment date, with limited required amortization prior to maturity, and provide for monthly or quarterly payment of interest at annual interest rates generally between 10% and 14%, payable currently in cash on either a fixed or floating rate basis. The LMM debt investments with floating interest rates will generally bear interest at the SOFR or the Prime rate, typically subject to an interest rate floor, plus a margin. In addition, certain LMM debt investments may have a form of interest that is not paid currently but is accrued and added to the loan balance and paid at maturity. MSC Income refers to this form of interest as payment-in-kind (“PIK”) interest. The Fund typically structures its LMM debt investments with the maximum seniority and collateral that it can reasonably obtain while seeking to achieve its total return target. In most cases, MSC Income’s LMM debt investment will be collateralized by a first priority lien on substantially all the assets of the portfolio company. In addition to seeking a senior secured lien position in the capital structure of its LMM portfolio companies, MSC Income seeks to limit the downside potential of its LMM debt investments by negotiating covenants that are designed to protect the LMM debt investments while affording its portfolio companies as much flexibility in managing their businesses as is reasonable. Such restrictions may include affirmative and negative covenants, default penalties, lien protection, change of control or change of management provisions, key-man life insurance, guarantees, equity pledges, personal guaranties, where appropriate, and put rights. In addition, MSC Income typically seeks board representation or observation rights in all of its LMM portfolio companies.

MSC Income’s Middle Market portfolio debt investments are generally secured by a first priority lien on the assets of the portfolio company and typically have a term of between three and seven years from the original investment date. The debt investments in MSC Income’s Middle Market portfolio usually have rights and protections that are similar to those in its Private Loan and LMM debt investments. The Middle Market debt investments generally have floating interest rates at the SOFR or Prime rate, typically subject to an interest rate floor, plus a margin.

Direct Equity Investments

MSC Income has also historically sought to make direct equity investments to align its interests with key management and stockholders of its LMM portfolio companies, and to allow for participation in the appreciation in the equity values of its LMM portfolio companies. MSC Income usually made its direct equity investments in connection with debt investments in its LMM portfolio companies. In addition, the Fund may have both equity warrants and direct equity positions in some of its LMM portfolio companies. MSC Income, on a combined basis together with Main Street and other investment advisory clients of the Adviser, has historically sought to maintain fully diluted equity positions in its LMM portfolio companies of 5% to 50%, and may have controlling equity interests in some instances. MSC Income has had a value orientation toward its direct equity investments and has traditionally been able to purchase its equity investments at reasonable valuations. MSC Income will also have, from time to time, the opportunity to co-invest with Main Street and the private equity funds in the equity securities of its Private Loan portfolio companies. The equity co-investment aligns its interests with those of the private equity fund and provides the Fund with the opportunity to benefit from appreciation in the equity values of its Private Loan portfolio companies.

Warrants

In connection with MSC Income’s LMM debt investments, it occasionally received equity warrants to establish or increase its equity interest in the portfolio company. Warrants that MSC Income received in connection with a debt investment typically require only a nominal cost to exercise, and thus, as a portfolio company appreciates in value, the Fund may achieve additional investment return from this equity interest. MSC Income typically structured the warrants to provide provisions protecting its rights as a minority-interest holder, as well as secured or unsecured put rights, or rights to sell such securities back to the portfolio company, upon the occurrence of specified events. In certain cases, MSC Income also obtained registration rights in connection with these equity interests, which may include demand and “piggyback” registration rights.

INVESTMENT PROCESS

The Adviser’s investment committee has oversight over all aspects of MSC Income’s investment processes. The current members of the Adviser’s investment committee are Dwayne L. Hyzak, MSC Income and the Adviser’s Chief Executive Officer, David Magdol, MSC Income and the Adviser’s President and Chief Investment Officer, and Vincent D. Foster, the Chairman of Main Street’s board of directors.

The Adviser’s investment processes for portfolio investments are outlined below. The Adviser’s investment strategy involves a “team” approach, whereby potential transactions are screened by several members of the Adviser’s investment team before being presented to the investment committee. The investment committee meets on an as-needed basis depending on transaction volume. The Adviser generally categorizes MSC Income’s investment process into seven distinct stages:

Deal Generation/Origination

Deal generation and origination is maximized through the Adviser’s long-standing and extensive relationships with industry contacts, brokers, commercial and investment bankers, entrepreneurs, service providers such as lawyers, financial advisors and accountants, and current and former portfolio companies and investors. The Adviser’s investment team has developed a reputation as a knowledgeable, reliable and active source of capital and assistance in these markets.

Screening

During the screening process, if a transaction initially meets MSC Income’s investment criteria, the Adviser will perform preliminary due diligence, taking into consideration some or all of the following information:

•a comprehensive financial model based on quantitative analysis of historical financial performance, projections and pro forma adjustments to determine the estimated internal rate of return;

•a brief industry and market analysis;

•direct industry expertise imported from other portfolio companies or investors;

•preliminary qualitative analysis of the management team’s competencies and backgrounds;

•potential investment structures and pricing terms; and

•regulatory compliance.

Upon successful screening of a proposed transaction, the investment team makes a recommendation to the investment committee. If the investment committee concurs with moving forward on the proposed transaction, MSC Income typically issues a non-binding term sheet or letter of intent to the company.

Term Sheet

For proposed transactions, the non-binding term sheet or letter of intent will include the key economic terms based upon the Adviser’s analysis performed during the screening process, as well as a proposed timeline and the Adviser’s qualitative expectation for the transaction. While the term sheet or letter of intent for investments is non-binding, MSC Income typically receives an expense deposit in order to move the transaction to the due diligence phase. Upon execution of a term sheet or letter of intent, the Adviser begins the formal due diligence process.

Due Diligence

Due diligence on a proposed investment is generally performed on materials and information obtained from certain external resources and assessed internally by a minimum of three of the Adviser’s investment professionals, who work to understand the relationships among the prospective portfolio company’s business plan, operations and financial performance using the accumulated due diligence information. The Adviser’s typical due diligence review includes some or all of the following:

•detailed review of historical and projected financial statements;

•site visits or other discussions with management and key personnel;

•in-depth industry, market, operational and strategy analysis;

•regulatory compliance analysis; and

•detailed review of the company’s management team and their capabilities.

During the due diligence process, significant attention is given to sensitivity analyses and how the company might be expected to perform given downside, base-case and upside scenarios. In certain cases, MSC Income may decide not to make an investment based on the results of the diligence process.

Document and Close

Upon completion of a satisfactory due diligence review of a proposed portfolio investment, the investment team presents the findings and a recommendation to the investment committee. The presentation contains information which can include, but is not limited to, the following:

•company history and overview;

•transaction overview, history and rationale, including an analysis of transaction strengths and risks;

•overview and history of the private equity fund sponsor as the company’s equity owner;

•analysis of key customers and suppliers;

•an analysis of the company’s business strategy;

•investment structure and expected returns;

•anticipated sources of repayment and potential exit strategies;

•pro forma capitalization and ownership;

•regulatory compliance analysis findings; and

•an analysis of historical financial results and key financial ratios.

If any adjustments to the transaction terms or structures are proposed by the investment committee, such changes are made and applicable analyses are updated prior to approval of the transaction. Approval for the transaction must be made by the affirmative vote from a majority of the members of the investment committee, with the committee member managing the transaction, if any, abstaining from the vote. Upon receipt of transaction approval, the investment team will re-confirm regulatory compliance, process and finalize all required legal documents, and fund the investment.

Post-Investment

The Adviser continuously monitors the status and progress of MSC Income’s portfolio companies. The Adviser generally offers managerial assistance to MSC Income’s portfolio companies, giving them access to the Adviser’s investment experience, direct industry expertise and contacts. The same investment team that was involved in the investment process will continue its involvement in the portfolio company post-investment. This provides for continuity of knowledge and allows the investment team to maintain a strong business relationship with key management of MSC Income’s portfolio companies for post-investment assistance and monitoring purposes.

As part of the monitoring process of MSC Income’s Private Loan and Middle Market portfolio investments, the investment team will analyze monthly and quarterly financial statements versus previous periods, review financial projections and review all compliance certificates and covenants. Depending upon the nature of the Private Loan and Middle Market portfolio investments, the investment team may also attend board meetings and meet and discuss issues or opportunities with the portfolio company’s management team or private equity owners; however, due to the nature of the “lender only” relationship with these Private Loan and Middle Market companies in comparison to the LMM portfolio companies, it is not practical to have as much direct management interface.

As part of the monitoring process of LMM portfolio investments, the investment team will analyze monthly and quarterly financial statements versus previous periods, review financial projections, meet and discuss issues or opportunities with management, attend board meetings and review all compliance certificates and covenants. While the investment team maintains limited involvement in the ordinary course operations of MSC Income’s LMM portfolio companies, the investment team maintains a higher level of involvement in non-ordinary course financing or strategic activities and any non-performing scenarios.

The Adviser utilizes an internally developed investment rating system to rate the performance of each Private Loan, LMM and Middle Market portfolio company and to monitor the expected level of returns on each of MSC Income’s Private Loan, LMM and Middle Market investments in relation to the expectations for the portfolio company. The investment rating system takes into consideration various factors, including, but not limited to, each investment’s expected level of returns, the collectability of its debt investments and the ability to receive a return of the invested capital in its equity investments, comparisons to competitors and other industry participants, the portfolio company’s future outlook and other factors that are deemed to be significant to the portfolio company.

Exit Strategies/Refinancing

While MSC Income generally exits most investments through the refinancing or repayment of its debt and redemption or sale of its equity positions, the refinancing or repayment of Private Loan investments and Middle Market debt investments typically do not require the Adviser’s assistance due to the additional resources available to these larger Private Loan and Middle Market companies. The Adviser typically assists the LMM portfolio companies in developing and planning exit opportunities, including any sale or merger of its portfolio companies. The Adviser may also assist in the structure, timing, execution and transition of the exit strategy.

DETERMINATION OF NET ASSET VALUE AND INVESTMENT PORTFOLIO VALUATION PROCESS

MSC Income determines the net asset value (“NAV”) per share of its common stock on a quarterly basis. The NAV per share is equal to MSC Income’s total assets minus total liabilities divided by the total number of shares of common stock outstanding.

MSC Income is required to report its investments at fair value. As a result, the most significant determination inherent in the preparation of its consolidated financial statements is the valuation of the Investment Portfolio and the related amounts of unrealized appreciation and depreciation. MSC Income follows the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 requires MSC Income to assume that the portfolio investment is to be sold in the principal market to independent market participants, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal market that are independent, knowledgeable and willing and able to transact.

MSC Income determines in good faith the fair value of the Investment Portfolio pursuant to a valuation policy in accordance with ASC 820 and a valuation process approved by the Board of Directors and in accordance with the 1940 Act. MSC Income’s valuation policies and processes are intended to provide a consistent basis for determining the fair value of the Investment Portfolio. See Note B.1. — Summary of Significant Accounting Policies — Valuation of the Investment Portfolio in the notes to the consolidated financial statements included in Item 8. Consolidated Financial Statements and Supplementary Data of this Annual Report on Form 10-K for a detailed discussion of the Investment Portfolio valuation process and procedures.

Due to the inherent uncertainty in the valuation process, MSC Income’s determination of fair value for the Investment Portfolio may differ materially from the values that would have been determined had a ready market for the securities existed. In addition, changes in the market environment, portfolio company performance and other events that may occur over the lives of the investments may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. MSC Income determines the fair value of each individual investment and records changes in fair value as unrealized appreciation or depreciation.

The 1940 Act requires valuation of a portfolio security at “market value” if market quotations for the security are “readily available.” Portfolio securities for which market quotations are not readily available must be valued at fair value as determined in good faith by the board of directors. Rule 2a-5 under the 1940 Act permits a BDC’s board of directors to designate its executive officers or investment adviser as a valuation designee to determine the fair value for its investment portfolio, subject to the active oversight of the board.

MSC Income’s Board of Directors has approved policies and procedures pursuant to Rule 2a-5 (the “Valuation Procedures”) and designated the Adviser, led by a group of its executive officers (the “Valuation Committee”), to serve as the Board of Directors’ valuation designee thereunder. Pursuant to the Valuation Procedures, MSC Income undertakes a multi-step process each quarter in connection with determining the fair value of its investments.

The following outlines MSC Income’s valuation process as established under the Valuation Procedures:

•The Fund’s quarterly process begins with an initial valuation of each portfolio investment performed by the Adviser’s valuation team consisting of several professionals who apply the appropriate valuation methodology depending on the type of investment.

•Each valuation model is then reviewed by the investment team responsible for monitoring the portfolio investment for accuracy, with any recommended changes reviewed by the valuation team.

•Updated valuation conclusions are then reviewed by and discussed with the Valuation Committee at quarterly valuation meetings. Valuation meetings are generally attended by the Valuation Committee, the valuation team, members of the investment team responsible for each investment and members of the compliance team. Valuation models and valuation conclusions are adjusted as necessary following such meetings.

•A nationally recognized independent financial advisory services firm analyzes and provides observations, recommendations and an assurance certification regarding the determinations of the fair value for the majority of the portfolio companies on a rotational basis.

•After incorporating commentary by the Valuation Committee and review of recommendations provided by the independent financial advisory services firm, valuation results are finalized and approved by the Valuation Committee.

•The Board of Directors oversees the process through its Audit Committee in accordance with Rule 2a-5 under the 1940 Act pursuant to the Valuation Procedures.

Determination of fair value involves subjective judgments and estimates. The notes to the Fund’s consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on its financial results and financial condition.

COMPETITION

MSC Income competes for investments with a number of investment funds (including private equity funds, debt funds, mezzanine funds, collateralized loan obligation funds, or CLOs, BDCs and small business investment companies (“SBICs”)), as well as traditional financial services companies such as commercial banks and other sources of financing. Many of the entities that compete with MSC Income are larger and have more resources available to them. MSC Income believes it is able to be competitive with these entities primarily on the basis of the experience and contacts of the Adviser’s management team and the Fund’s ability to co-invest with Main Street and other advisory clients of the Adviser, the less competitive nature of the market for companies described in the Private Loan investment strategy, the Adviser’s responsive and efficient investment analysis and decision-making processes, MSC Income’s comprehensive suite of customized financing solutions and the investment terms it offers.

MSC Income believes that some of its competitors make senior secured loans, junior secured loans and subordinated debt investments with interest rates and returns that are comparable to or lower than the rates and returns that the Fund targets. Therefore, MSC Income does not seek to compete primarily on the interest rates and returns that it offers to potential portfolio companies. For additional information concerning the competitive risks MSC Income faces, see