SecProbe.io

CORRESP
1
filename1.htm

Correspondence Letter

 John A. Good

PHONE:    (901) 543-5901

FAX:        (888) 543-4644

E-MAIL:    jgood@bassberry.com

 The Tower at Peabody Place

 100 Peabody Place, Suite 900

 Memphis, TN 38103-3672

(901) 543-5900

 January 30, 2012

 Edward P. Bartz

 Staff Attorney

 U.S. Securities and Exchange Commission

 Division of Investment Management

100 F Street, NE

 Washington, DC 20549

Re:
HMS Income Fund, Inc.

 Registration Statement on Form N-2

 Filed
December 16, 2011

 File No. 333-178548

Dear Mr. Bartz:

 As
counsel to HMS Income Fund, Inc., a Maryland corporation (the “Fund”), we are transmitting for filing pursuant to the Securities Act of 1933, as amended (the “Securities Act”), Pre-Effective Amendment
No. 1 (“Amendment No. 1”) to the Fund’s Registration Statement on Form N-2 (File No. 333-178548) (the “Registration Statement”) and the Fund’s responses to the comments of the
Staff of the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission (the “Commission”) contained in your letter dated January 13, 2012.

For convenience of reference, each Staff comment in your January 13, 2012 comment letter is reprinted below in italics, numbered to
correspond with the paragraph numbers assigned in your letter, and is followed by the corresponding response of the Fund.

 We
are providing to you a courtesy copy of this letter and a courtesy copy of Amendment No. 1 filed by the Fund on the date hereof, which has been marked to reflect changes made to the initial Registration Statement filed with the Commission on
December 16, 2011 (the “Blackline”). The changes reflected in Amendment No. 1 have been made in response to the Staff’s comments and for the purpose of updating and revising certain information in the
Registration Statement. All page references in our responses are to the pages of the Blackline. Capitalized terms used and not otherwise defined in this response letter that are defined in the Registration Statement shall have the meanings set forth
in the Registration Statement.

 PROSPECTUS

 Front Cover

 Comment 1: The first paragraph on the Front
Cover states that the Fund’s investment objective is to generate both current income and the potential for long-term capital appreciation. Since the name of the Fund is the HMS Income Fund, please revise this disclosure to clarify that the
generation of income is the Fund’s primary investment objective. See Section 35(d) of the Investment Company Act of 1940 (the “1940 Act”).

 January 30, 2012

  Page
 2

 Response 1:

In response to the Staff’s comment, the Fund has revised its investment objective on the front cover and pages 5,
56, 67 and 71 to clarify that the generation of income is the Fund’s primary investment objective.

 Comment
2: Disclosure in the second paragraph states that, immediately prior to the commencement of the offering, the Fund will acquire through a merger HMS Income LLC, which owns the Fund’s initial portfolio, in exchange for shares of
common stock of the Fund to be issued to an affiliate of Hines Interests Limited Partnership and an unaffiliated investor who are the members of HMS Income LLC. Elsewhere in the registration statement (page 2), it is disclosed that the initial
portfolio was purchased from Main Street, which is the sub-advisor to the Fund. Please provide an analysis of these transactions under Section 57 of the 1940 Act, including a discussion of whether an exemption from the provisions of this
Section is necessary. Additionally, please file the merger agreement as an exhibit to the registration statement. See Item 25.2.k of Form N-2 (copies of material contracts that are to be performed in whole or in part at or after the date
of the filing of the registration statement).

 Response 2:

We believe that the transactions referred to in your comment do not implicate Section 57 of the 1940 Act. While
the Fund has filed a registration statement on Form N-2, it has not yet elected to be regulated as a BDC under the 1940 Act by filing Form N-54A. Until the Fund files its election on Form N-54A, it is not subject to Sections 55 through 65 of the
1940 Act.

 Moreover, the Fund filed on Form N-6F a Notice of Intent to be Subject to Sections 55
through 65 of the Investment Company Act of 1940 (“Form N-6F”). Because it filed Form N-6F, the Fund is not required to have filed its election to be regulated as a BDC at the time it filed its registration statement on Form N-2. Also, by
filing Form N-6F, the Fund is eligible to rely on Section 6(f) of the 1940 Act.

 HMS Income LLC is
not an investment company by reason of Section 3(c)(1) of the 1940 Act. In addition, at the time of the sale of the initial portfolio to HMS Income LLC, Main Street was not an investment sub-adviser to HMS Income LLC or the Fund. For those
reasons, we believe the initial purchase transaction by HMS Income LLC from Main Street was not subject to Section 57 of the 1940 Act.

 The definitive merger agreement pursuant to which HMS Income LLC will merge into the Fund will be entered into prior to the filing of the Fund’s BDC election on Form N-54A. Moreover, the merger
will be consummated before the filing of such BDC election and prior to effectiveness of the registration statement on Form N-2. Because all these transactions will close before the filing of the BDC election, the execution of the merger agreement
and consummation of the merger are not subject to Section 57 of the 1940 Act.

 January 30, 2012

  Page
 3

 Comment 3: Please disclose the procedures to be used for valuing the
initial portfolio that will be acquired by the Fund through the merger. In addition, please inform us in your response whether a properly-constituted board (with a majority of non-interested members) will pass on the valuation of the initial
portfolio.

 Response 3:

As disclosed in the Registration Statement, HMS Income LLC purchased the securities comprising the initial portfolio
from Main Street at the proportional face amount or par value for customized lower middle market securities and at Main Street’s amortized cost for over-the-counter debt securities, which HMS Income LLC and Main Street agreed reasonably
represented the fair value of the assets at the time of the transaction. Prior to the consummation of the merger, a properly-constituted board of directors (which will consist of a majority of non-interested members) will, in accordance with the
valuation procedures set forth in the prospectus, determine the valuation of the initial portfolio.

The merger agreement provides that within 48 hours prior to consummation of the merger the board of directors of the
Fund will determine the net asset value of HMS Income LLC. The merger agreement provides that the units of membership interest in HMS Income LLC will be converted by means of the merger into that number of shares of common stock of the Fund
determined by dividing the net asset value of HMS Income LLC (determined as described in the preceding sentence) by $9.00 (based on the $10.00 per share initial offering price of the common stock of the Fund as stated on the cover page of the
prospectus less the $1.00 combined selling commission and dealer manager fee as set forth on the cover page). By utilizing this method for determining the rate of conversion of units of membership interest in HMS Income LLC into shares of common
stock of the Fund, the initial offering price for the common stock at the time the offering commences (the time of effectiveness of the Registration Statement) less selling commissions and dealer manager fees will be equal to the net asset value per
share as determined within 48 hours prior to issuance of shares of common stock by the board of directors of the Fund. The merger will be consummated before the Fund’s election to be treated as a BDC and effectiveness of the Registration
Statement. We have revised the prospectus to describe the formula under the merger agreement for converting units of membership interest in HMS Income LLC into shares of common stock of the Fund and to disclose that the net asset value will be
determined by the board of directors of the Fund. The revision is contained on the cover page of the prospectus and on pages 2, 27, 55, 59 and F-4.

 Comment 4: Footnote (2) to the table refers to the estimated 1.5% in offering expenses “we would incur” in connection with this offering. Since all offering expenses are
paid either directly or indirectly by shareholders, please revise the footnote by eliminating the term “we” when referring to the payment of these expenses.

 Response 4:

 In response to the Staff’s
comment, the Fund has revised footnote (2) to the table on the front cover of the prospectus.

 Prospectus Summary – The
Company (Page 2)

 Comment 5: The third paragraph of this section discusses the initial portfolio that the
Fund will acquire. For each investment in the initial portfolio, please disclose, either within the description of the securities in the Schedule of Investments or as a narrative, the following information for the past three years:

 January 30, 2012

  Page
 4

•

 Whether the investment is on partial or non-accrual of income;

•

 if the security is on partial or non-accrual of income, a full description of the reasons why income is not being accrued at the full coupon
rate;

•

 whether there has been a material change to the creditworthiness of the borrower;

•

 whether the type of income being accrued is cash, non-cash (original issue discount or payment in kind), or a combination of types; and

•

 whether the investment has been restructured in any way since its initial offering, such as a change in interest rate, maturity date, or type of
interest.

 Response 5:

The Fund respectfully submits that HMS Income LLC acquired the initial portfolio from Main Street on December 12,
2011. As part of its due diligence process, HMS Income LLC conducted a review of the investments comprising the initial portfolio and concluded that the investments in the initial portfolio were of such quality and type that made the acquisition of
such investments advisable. As disclosed in the Registration Statement, the Fund will be the successor to the initial portfolio upon the consummation of the merger transaction, which will occur immediately prior to the Fund’s electing to be
treated as a BDC and the Commission declaring the Registration Statement effective. Prior to the consummation of the merger transaction, the Fund’s board of directors will determine the value of the initial portfolio in accordance with the
procedure set forth in Response 3 above.

 Because the Fund will not succeed to the initial portfolio
until the consummation of the merger transaction, the Fund respectfully submits that it is not appropriate to include within the Prospectus Summary the information set forth in the Staff’s comment with respect to the investments in the initial
portfolio for the past three years. The fact that for the majority of this three-year period neither the Fund nor HMS Income LLC owned the investments in the initial portfolio makes the inclusion of such information within the Prospectus Summary
inappropriate and potentially confusing to investors. The Fund does acknowledge that all of the investments in the initial portfolio are currently performing and are on accrual status. In addition, much of the requested information with respect to
our portfolio will be included in our prospectus, public reports and financial statements (e.g., non-cash income in our statements of cash flows, payment in kind interest in our schedules of investments and disclosure with respect to investments on
non-accrual status).

 Comment 6: Please include an audited Special Purpose Schedule of Investments (based
on AU 623 Special Purpose Financial Presentations) in the prospectus.

 Response 6:

The Fund’s independent registered public accounting firm is in the process of auditing the financial statements of
HMS Income LLC for the period from inception to December 31, 2011. Upon completion of the audit, an audited Special Purpose Schedule of Investments, if applicable, will be included by means of a pre-effective amendment to the Registration
Statement.

 January 30, 2012

  Page
 5

 Prospectus Summary – Risk Factors (Page 3)

Comment 7: The eleventh bullet point in this section describes the types of investments in which the Fund will invest.
Please provide the Fund’s policies with regard to the credit rating and maturities of its debt securities. Additionally, please include the term “junk bonds” to refer to debt securities rated below investment grade, and describe the
speculative nature of these types of investments.

 Response 7:

The Fund does not currently have any policies with regard to the credit ratings and maturities of its debt investments.
However, in response to the Staff’s comment, the Fund has revised the Form N-2 to disclose its general expectations with respect to the credit ratings (within the eleventh bullet point in the Prospectus Summary and on page 39 of the prospectus)
and maturities (on page 75 of the prospectus) of its debt securities. Additionally, the Fund has included the term “junk” to refer to debt securities below investment grade (which debt securities are generally credit facilities, and not
bonds), and it has described the speculative nature of these types of investments within the eleventh bullet point in the Prospectus Summary and on page 38 of the prospectus.

 Prospectus Summary – Share Repurchase Program (Page 12)

 Comment
8: This section states that, “[b]eginning 12 months after holding our initial closing, we intend to commence a share repurchase program pursuant to which we will conduct quarterly share
repurchases to allow our stockholders to sell their shares back to us.” (Emphasis added.) Please revise the above disclosure to state that there is no assurance the Fund’s board will decide to conduct a share repurchase, and that it will
be conducted only when the board determines it is in the best interest of the Fund to repurchase shares.

 Response
8:

 In response to the Staff’s comment, the Fund has revised the disclosure in question to
provide as follows (the revised language is underlined):

 “[b]eginning 12 months after holding our initial
closing, we intend to commence a share repurchase program pursuant to which we intend to conduct quarterly share repurchases to allow our stockholders to sell their shares back to us.”

Furthermore, in response to the Staff’s comment, the Fund has included disclosure providing that there is no
assurance that the Fund’s board of directors will decide to conduct a share repurchase and that a share repurchase will only be conducted when the Fund’s board of directors determines it is in the best interests of the Fund to repurchase
shares. This disclosure is contained on pages 12 to 13 and 140 of the prospectus.

 Comment 9: Please
revise the disclosure in this section in accordance with the guidance on issuer repurchases set forth in Guide 2 to Form N-2.

 January 30, 2012

  Page
 6

 Response 9:

In response to the Staff’s comment, the Fund has added additional disclosure to its description of the Fund’s
share repurchase program in accordance with the guidance on issuer repurchases set forth in Guide 2 to Form N-2. The additional disclosure is provided on pages 13 and 140 of the prospectus.

Comment 10: The first paragraph in this section states that the repurchase price per share to be paid by the Fund to the
stockholder will be equal to the net asset value per share of the shares as disclosed in the Fund’s most recent periodic report filed with the SEC. This may result in the Fund repurchasing shares at a net asset value that is several months old,
and significantly higher than the actual current net asset value of Fund shares. Please explain to us why it is appropriate for shareholders who do not participate in t