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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



FORM 10-Q



ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2016o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


COMMISSION FILE NUMBER: 814-00841



FS Energy and Power Fund(Exact name of registrant as specified in its charter)



Delaware(State or other jurisdiction of
incorporation or organization)

27-6822130(I.R.S. Employer
Identification No.)201 Rouse Boulevard
Philadelphia, Pennsylvania(Address of principal executive office)

19112(Zip Code)


Registrant's telephone number, including area code: (215) 495-1150



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ý    No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o    No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a
smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý.

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

The
issuer had 415,660,635 common shares of beneficial interest outstanding as of July 26, 2016.





---





Table of Contents



TABLE OF CONTENTS



PagePART IFINANCIAL INFORMATIONITEM 1.

FINANCIAL STATEMENTS


1Consolidated Balance Sheets as of June 30, 2016 (Unaudited) and December 31, 2015


1Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015


2Unaudited Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2016 and 2015


3Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015


4Consolidated Schedules of Investments as of June 30, 2016 (Unaudited) and December 31, 2015


5Notes to Unaudited Consolidated Financial Statements


19ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


53ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


77ITEM 4.

CONTROLS AND PROCEDURES


78PART IIOTHER INFORMATIONITEM 1.

LEGAL PROCEEDINGS


79ITEM 1A.

RISK FACTORS


79ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


79ITEM 3.

DEFAULTS UPON SENIOR SECURITIES


79ITEM 4.

MINE SAFETY DISCLOSURES


79ITEM 5.

OTHER INFORMATION


79ITEM 6.

EXHIBITS


80SIGNATURES


86


---





Table of Contents

PART IFINANCIAL INFORMATION

Item 1.    Financial Statements.



FS Energy and Power Fund

Consolidated Balance Sheets
(in thousands, except share and per share amounts)



June 30, 2016
(Unaudited)

December 31,
2015AssetsInvestments, at fair valueNon-controlled/unaffiliated investments (amortized cost$3,362,783 and $3,267,830, respectively)

$
2,886,925

$
2,518,595Non-controlled/affiliated investments (amortized cost$600,457 and $356,188, respectively)


648,589


276,993Controlled/affiliated investments (amortized cost$26,539 and $270,389, respectively)


4,089


273,910​
​
​
​
​
​
​
​Total investments, at fair value (amortized cost$3,989,779 and $3,894,407, respectively)


3,539,603


3,069,498Cash


330,665


368,867Receivable for investments sold and repaid


28,639


13,792Interest receivable


46,167


34,921Receivable for common shares purchased


9,701


6,915Deferred financing costs


3,751


3,865Deferred offering costs


2,077


Prepaid expenses and other assets


125


247​
​
​
​
​
​
​
​Total assets

$
3,960,728

$
3,498,105​
​
​
​
​
​
​
​LiabilitiesPayable for investments purchased

$
53,766

$
Credit facilities payable (net of deferred financing costs of $1,181 and $1,094, respectively)


576,225


714,416Repurchase agreement payable (net of deferred financing costs of $156 and $220, respectively)(1)


324,828


324,764Shareholder distributions payable


29


48Management fees payable


18,398


18,338Subordinated income incentive fees payable(2)





12,048Administrative services expense payable


1,533


1,872Interest payable


3,731


3,046Trustees' fees payable


262


254Other accrued expenses and liabilities


5,075


5,458​
​
​
​
​
​
​
​Total liabilities


983,847


1,080,244​
​
​
​
​
​
​
​Commitments and contingencies(3)Shareholders' equityPreferred shares, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding





Common shares, $0.001 par value, 450,000,000 shares authorized, 414,652,463 and 372,210,264 shares issued and outstanding, respectively


415


372Capital in excess of par value


3,707,072


3,428,672Accumulated undistributed net realized gains (losses) on investments and gain/loss on foreign currency(4)


(276,298
)

(200,220
)Accumulated undistributed (distributions in excess of) net investment income(4)


(4,068
)

14,024Net unrealized appreciation (depreciation) on investments and unrealized gain/loss on foreign currency


(450,240
)

(824,987
)​
​
​
​
​
​
​
​Total shareholders' equity


2,976,881


2,417,861​
​
​
​
​
​
​
​Total liabilities and shareholders' equity

$
3,960,728

$
3,498,105​
​
​
​
​
​
​
​Net asset value per common share at period end

$
7.18

$
6.50


(1)See
Note 8 for a discussion of the Company's repurchase transaction.(2)See
Note 2 and Note 4 for a discussion of the methodology employed by the Company in calculating the subordinated income incentive fees.(3)See
Note 9 for a discussion of the Company's commitments and contingencies.(4)See
Note 5 for a discussion of the sources of distributions paid by the Company.




See notes to unaudited consolidated financial statements.

1

---



Table of Contents



FS Energy and Power Fund

Unaudited Consolidated Statements of Operations
(in thousands, except share and per share amounts)



Three Months Ended
June 30,

Six Months Ended
June 30,2016

2015

2016

2015Investment incomeFrom non-controlled/unaffiliated investments:Interest income

$
72,909

$
78,406

$
150,651

$
154,608Fee income


1,807


9,127


2,627


13,645From non-controlled/affiliated investments:Interest income


13,610


4,877


25,602


9,744Fee income








7,356


​
​
​
​
​
​
​
​
​
​
​
​
​
​Total investment income


88,326


92,410


186,236


177,997​
​
​
​
​
​
​
​
​
​
​
​
​
​Operating expensesManagement fees


18,398


19,392


35,639


38,137Subordinated income incentive fees(1)





6,478


5,774


9,357Administrative services expenses


883


761


1,767


2,261Share transfer agent fees


642


638


1,384


1,432Accounting and administrative fees


324


361


610


721Interest expense


8,927


7,408


18,279


14,724Trustees' fees


262


265


512


490Offering costs


498





623


Other general and administrative expenses


1,320


1,374


2,153


2,328​
​
​
​
​
​
​
​
​
​
​
​
​
​Total operating expenses


31,254


36,677


66,741


69,450Income taxes


46


69


79


158​
​
​
​
​
​
​
​
​
​
​
​
​
​Total expenses


31,300


36,746


66,820


69,608​
​
​
​
​
​
​
​
​
​
​
​
​
​Net investment income


57,026


55,664


119,416


108,389​
​
​
​
​
​
​
​
​
​
​
​
​
​Realized and unrealized gain/lossNet realized gain (loss) on investments:Non-controlled/unaffiliated


(19,073
)

(40,553
)

(78,349
)

(58,510
)Non-controlled/affiliated


6





2,271


Net realized gain (loss) on foreign currency





91





(147
)Net change in unrealized appreciation (depreciation) on investments:Non-controlled/unaffiliated


290,929


44,673


259,592


60,791Non-controlled/affiliated


140,859


5,131


128,341


7,599Controlled/affiliated


(13,200
)




(13,200
)

Net change in unrealized gain (loss) on foreign currency


(2
)

(13
)

14


(141
)​
​
​
​
​
​
​
​
​
​
​
​
​
​Total net realized and unrealized gain (loss) on investments


399,519


9,329


298,669


9,592​
​
​
​
​
​
​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations

$
456,545

$
64,993

$
418,085

$
117,981​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​Per share informationbasic and dilutedNet increase (decrease) in net assets resulting from operations (Earnings per Share)

$
1.14

$
0.20

$
1.07

$
0.37​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​Weighted average shares outstanding


401,013,506


329,285,131


389,350,942


319,815,870​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)See
Note 2 and Note 4 for a discussion of the methodology employed by the Company in calculating the subordinated income incentive fees.




See notes to unaudited consolidated financial statements.

2

---



Table of Contents



FS Energy and Power Fund

Unaudited Consolidated Statements of Changes in Net Assets
(in thousands)



Six Months Ended
June 30,2016

2015OperationsNet investment income

$
119,416

$
108,389Net realized gain (loss) on investments and foreign currency


(76,078
)

(58,657
)Net change in unrealized appreciation (depreciation) on investments


374,733


68,390Net change in unrealized gain (loss) on foreign currency


14


(141
)​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations


418,085


117,981​
​
​
​
​
​
​
​Shareholder distributions(1)Distributions from net investment income


(137,508
)

(99,484
)Distributions from net realized gain on investments





(13,591
)​
​
​
​
​
​
​
​Net decrease in net assets resulting from shareholder distributions


(137,508
)

(113,075
)​
​
​
​
​
​
​
​Capital share transactionsIssuance of common shares(2)


224,029


283,757Reinvestment of shareholder distributions(2)


86,691


57,735Repurchases of common shares(2)


(32,277
)

(10,230
)Offering costs





(5,350
)​
​
​
​
​
​
​
​Net increase in net assets resulting from capital share transactions


278,443


325,912​
​
​
​
​
​
​
​Total increase (decrease) in net assets


559,020


330,818Net assets at beginning of period


2,417,861


2,565,721​
​
​
​
​
​
​
​Net assets at end of period

$
2,976,881

$
2,896,539​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Accumulated undistributed (distributions in excess of) net investment income(1)

$
(4,068
)
$
13,246​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(1)See
Note 5 for a discussion of the sources of distributions paid by the Company.(2)See
Note 3 for a discussion of transactions with respect to the Company's common shares during the six months ended June 30, 2016 and 2015.




See notes to unaudited consolidated financial statements.

3

---



Table of Contents



FS Energy and Power Fund

Unaudited Consolidated Statements of Cash Flows
(in thousands)



Six Months Ended
June 30,2016

2015Cash flows from operating activitiesNet increase (decrease) in net assets resulting from operations

$
418,085

$
117,981Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating
activities:Purchases of investments


(435,184
)

(686,349
)Paid-in-kind interest


(13,911
)

(12,556
)Proceeds from sales and repayments of investments


285,075


380,080Net realized (gain) loss on investments


76,078


58,510Net change in unrealized (appreciation) depreciation on investments


(374,733
)

(68,390
)Accretion of discount


(7,430
)

(3,940
)Amortization of deferred financing costs


1,575


1,228Amortization of deferred offering costs


623


(Increase) decrease in receivable for investments sold and repaid


(14,847
)

44,301(Increase) decrease in interest receivable


(11,246
)

7,128(Increase) decrease in prepaid expenses and other assets


122


(160
)Increase (decrease) in payable for investments purchased


53,766


6,829Increase (decrease) in management fees payable


60


1,480Increase (decrease) in subordinated income incentive fees payable


(12,048
)

(5,664
)Increase (decrease) in administrative services expense payable


(339
)

379Increase (decrease) in interest payable(1)


685


(937
)Increase (decrease) in trustees' fees payable


8


37Increase (decrease) in other accrued expenses and liabilities


(383
)

608​
​
​
​
​
​
​
​Net cash provided by (used in) operating activities


(34,044
)

(159,435
)​
​
​
​
​
​
​
​Cash flows from financing activitiesIssuance of common shares


221,243


293,696Reinvestment of shareholder distributions


86,691


57,735Repurchases of common shares


(32,277
)

(10,230
)Offering costs incurred


(2,700
)

(5,350
)Shareholder distributions


(137,527
)

(90,303
)Borrowings under credit facilities





5,000Borrowings under repurchase agreement





70,312Repayments under credit facilities


(138,104
)

(172,762
)Deferred financing costs paid


(1,484
)

(1,190
)​
​
​
​
​
​
​
​Net cash provided by (used in) financing activities


(4,158
)

146,908​
​
​
​
​
​
​
​Total increase (decrease) in cash


(38,202
)

(12,527
)Cash at beginning of period


368,867


225,130​
​
​
​
​
​
​
​Cash at end of period

$
330,665

$
212,603​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Supplemental disclosureExcise and state taxes paid

$
109

$
310​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Non-cash purchases of investment

$
(190,104
)
$
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Non-cash sales of investment

$
190,104

$
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(1)See
Note 8 for a discussion of the Company's credit facilities and repurchase transaction. During the six months ended June 30, 2016 and 2015,
the Company paid $10,529 and $10,072, respectively, in interest expense on the credit facilities. During the six months ended June 30, 2016 and 2015, the Company paid $5,490 and $4,361,
respectively, in interest expense pursuant to the repurchase agreement.




See notes to unaudited consolidated financial statements.

4

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Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments
As of June 30, 2016
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured LoansFirst Lien27.9%Abaco Energy Technologies LLC

(g)(i)(j)

Service & Equipment

L+700, 2.5% PIK (2.5% Max PIK)


1.0
%
11/20/20

$
60,487

$
57,767

$
39,316Allied Wireline Services, LLC

(g)(i)(k)(l)

Service & Equipment

L+400, 5.5% PIK (5.5% Max PIK)


1.5
%
2/28/19


104,494


103,516


99,139Alon USA Partners, L.P.

(g)(i)(m)

Downstream

L+800


1.3
%
11/26/18


7,121


7,277


7,085Altus Power America, Inc.

(j)

Power

L+750


1.5
%
10/10/21


66,805


66,805


67,473Altus Power America, Inc.

(e)

Power

L+750


1.5
%
10/10/21


17,570


17,570


17,745AP Exhaust Acquisition, LLC

(g)(l)

Service & Equipment

L+775


1.5
%
1/16/21


15,811


15,811


13,933BL Sand Hills Unit, L.P.

(l)

Upstream

Prime+650


3.5
%
12/17/17


39,946


34,691


36,700BL Sand Hills Unit, L.P.

(e)

Upstream

Prime+650


3.5
%
12/17/17


15,922


13,827


14,628Brock Holdings III, Inc.

(f)

Service & Equipment

L+450


1.5
%
3/16/17


1,984


1,920


1,885Cactus Wellhead, LLC

(g)(i)(j)

Service & Equipment

L+600


1.0
%
7/31/20


51,503


50,751


35,023Cimarron Energy Inc.

(g)

Service & Equipment

L+775, 3.8% PIK (3.8% Max PIK)


1.0
%
12/15/19


23,958


23,958


23,958CITGO Holding, Inc.

(f)(bb)

Downstream

L+850


1.0
%
5/12/18


16,908


17,066


17,061Crestwood Holdings LLC

(f)(g)(j)

Midstream

L+800


1.0
%
6/19/19


29,966


30,073


26,521EnergySolutions, LLC

(i)(j)(bb)

Service & Equipment

L+575


1.0
%
5/29/20


18,193


17,937


17,738Industrial Group Intermediate Holdings, LLC

(i)

Service & Equipment

L+800


1.3
%
5/31/20


22,284


22,284


22,507Lusk Operating LLC

(r)(z)(aa)

Upstream

Prime+500 PIK (8.3% Max PIK)


3.3
%
9/30/16


26,265


25,539


7,486Lusk Operating LLC

(e)(r)(z)(aa)

Upstream

Prime+500 PIK (8.3% Max PIK)


3.3
%
9/30/16


3,735


4,461


1,064MB Precision Holdings LLC

(g)

Service & Equipment

L+725


1.3
%
1/23/20


12,788


12,788


11,493Moxie Liberty LLC

(g)(j)

Power

L+650


1.0
%
8/21/20


32,432


32,528


31,703P2 Upstream Acquisition Co.

(f)(bb)

Service & Equipment

L+400


1.0
%
10/30/20


3,758


3,509


3,523Panda Temple Power, LLC

(j)

Power

L+625


1.0
%
3/6/22


9,875


9,712


8,394Panda Temple Power II, LLC

(g)(j)

Power

L+600


1.3
%
4/3/19


27,670


27,946


25,595ProPetro Services, Inc.

(i)

Service & Equipment

L+625


1.0
%
9/30/19


11,246


11,236


9,221Stonewall Gas Gathering LLC

(j)(bb)

Midstream

L+775


1.0
%
1/28/22


21,405


20,785


21,833Sunnova Asset Portfolio 5 Holdings, LLC

(j)(l)(p)

Power

12.0% PIK (12.0% Max PIK)




11/14/21


149,017


146,615


150,507Swift Worldwide Resources US Holdings Corp.

(g)(j)

Service & Equipment

L+1100


1.0
%
7/20/21


58,910


58,910


58,321UTEX Industries, Inc.

(f)

Service & Equipment

L+400


1.0
%
5/21/21


5,460


4,205


3,794Warren Resources, Inc.

(k)(z)

Upstream

L+850


1.0
%
5/22/20


131,175


131,175


91,166​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured LoansFirst Lien
















970,662


864,812Unfunded Loan Commitments
















(35,858
)

(35,858
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Senior Secured LoansFirst Lien
















934,804


828,954​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to unaudited consolidated financial statements.

5

---



Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of June 30, 2016
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured LoansSecond Lien33.3%Alison US LLC

(j)(m)

Service & Equipment

L+850


1.0
%
8/29/22

$
17,222

$
16,679

$
15,235Ameriforge Group Inc.

(g)

Service & Equipment

L+750


1.3
%
12/21/20


35,950


36,394


6,471AP Exhaust Acquisition, LLC



Service & Equipment

12.0% PIK (12.0% Max PIK)




9/28/21


3,547


3,547


2,975Arena Energy, LP

(i)(k)

Upstream

L+1100


1.0
%
1/24/21


65,000


65,000


59,995Ascent ResourcesMarcellus, LLC



Upstream

L+750


1.0
%
8/4/21


10,000


9,874


1,567Ascent ResourcesUtica, LLC

(g)(j)(k)(l)

Upstream

L+950, 2.0% PIK (2.0% Max PIK)


1.5
%
9/30/18


283,590


282,621


276,500Atlas Resource Partners, L.P.

(i)(k)

Upstream

L+900


1.0
%
2/23/20


100,000


97,759


77,480BlackBrush Oil & Gas, L.P.

(f)(i)

Upstream

L+650


1.0
%
7/30/21


31,519


30,778


31,480Brock Holdings III, Inc.

(g)(j)

Service & Equipment

L+825


1.8
%
3/16/18


29,605


29,734


26,053Chief Exploration & Development LLC

(f)(i)(bb)

Upstream

L+650


1.0
%
5/16/21


27,576


26,787


25,017Consolidated Precision Products Corp.

(g)(j)

Service & Equipment

L+775


1.0
%
4/30/21


9,574


9,539


8,664Emerald Performance Materials, LLC

(f)(j)(bb)

Downstream

L+675


1.0
%
8/1/22


11,819


11,751


11,612Extraction Oil & Gas Holdings, LLC

(i)(j)

Upstream

11.0%




5/29/19


74,186


74,186


74,928Extraction Oil & Gas Holdings, LLC

(i)(j)

Upstream

10.0%




5/29/19


32,462


32,462


32,786Fieldwood Energy LLC



Upstream

L+713


1.3
%
9/30/20


41,047


41,871


11,634Granite Intermediate Holdings, Inc.

(f)

Power

L+725


1.0
%
12/19/22


13,150


13,054


12,462Gruden Acquisition, Inc.

(j)

Service & Equipment

L+850


1.0
%
8/18/23


15,000


14,326


11,300Horn Intermediate Holdings, Inc.

(g)(j)

Service & Equipment

L+775


1.3
%
10/2/18


50,250


50,250


50,501Jonah Energy LLC

(i)(j)

Upstream

L+650


1.0
%
5/12/21


25,133


24,847


22,306MD America Energy, LLC

(f)(g)(j)

Upstream

L+850


1.0
%
8/4/19


1,248


1,232


1,174Neff Rental LLC

(f)(j)(bb)

Service & Equipment

L+625


1.0
%
6/9/21


26,539


26,103


25,411Oxbow Carbon LLC

(g)

Midstream

L+700


1.0
%
1/19/20


15,000


14,916


14,269P2 Upstream Acquisition Co.

(g)(j)

Service & Equipment

L+800


1.0
%
4/30/21


32,599


32,843


28,198Templar Energy LLC

(g)(r)(z)

Upstream

L+750


1.0
%
11/25/20


91,746


88,592


24,542Total Safety U.S., Inc.

(g)(j)

Service & Equipment

L+800


1.3
%
9/13/20


14,795


14,961


6,436UTEX Industries, Inc.

(f)(j)

Service & Equipment

L+725


1.0
%
5/20/22


36,192


36,229


18,005Vantage Energy, LLC

(i)(j)

Upstream

L+750


1.0
%
12/20/18


32,412


31,699


29,981Vantage Energy II, LLC

(i)(j)(l)

Upstream

L+750


1.0
%
5/8/17


85,000


85,000


85,000​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured LoansSecond Lien
















1,203,034


991,982​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to unaudited consolidated financial statements.

6

---



Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of June 30, 2016
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured Bonds12.2%Calpine Corp.

(f)(m)

Power

5.3%




6/1/26

$
15,000

$
14,994

$
14,981CITGO Holding, Inc.

(f)(bb)

Downstream

10.8%




2/15/20


4,000


4,040


4,025FourPoint Energy, LLC

(j)(k)(l)(p)

Upstream

9.0%




12/31/21


235,125


227,200


228,071Light Tower Rentals, Inc.

(h)(o)

Service & Equipment

8.1%




8/1/19


17,500


17,334


10,347Lightstream Resources Ltd.

(k)(l)(m)

Upstream

9.9%




6/15/19


62,400


62,400


56,784Mirant Mid-Atlantic Trust

(f)(h)(o)

Power

10.1%




12/30/28


30,651


33,006


28,851SandRidge Energy, Inc.

(h)(r)(z)

Upstream

8.8%




6/1/20


46,700


46,600


18,855​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured Bonds
















405,574


361,914​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Subordinated Debt27.2%Alta Mesa Holdings, LP

(h)

Upstream

9.6%




10/15/18


30,451


27,612


25,693Archrock Partners, L.P.

(h)(m)

Midstream

6.0%




4/1/21


5,555


4,686


5,006Archrock Partners, L.P.

(h)(m)

Midstream

6.0%




10/1/22


14,283


12,275


12,730Atlas Energy Holdings Operating Co., LLC

(h)

Upstream

7.8%




1/15/21


28,285


26,042


3,536Atlas Energy Holdings Operating Co., LLC

(h)

Upstream

9.3%




8/15/21


24,460


23,622


3,088Bellatrix Exploration Ltd.

(f)(h)(m)

Upstream

8.5%




5/15/20


45,590


44,812


30,260Brand Energy & Infrastructure Services, Inc.

(f)(h)

Service & Equipment

8.5%




12/1/21


37,311


36,610


35,707Calpine Corp.

(f)(m)

Power

5.8%




1/15/25


5,100


5,092


4,966Canbriam Energy Inc.

(h)(j)(m)

Upstream

9.8%




11/15/19


115,200


111,935


118,081Compressco Partners, LP

(f)(h)(m)

Service & Equipment

7.3%




8/15/22


20,050


19,898


16,466Crestwood Equity Partners L.P.

(f)(m)

Midstream

6.1%




3/1/22


5,500


5,500


5,094Dynegy Finance I/II Inc.

(f)(m)

Power

7.6%




11/1/24


22,542


21,943


21,683Eclipse Resources Corp.

(h)(m)(bb)

Upstream

8.9%




7/15/23


45,745


40,376


43,286EV Energy Partners, L.P.

(h)(o)(bb)

Upstream

8.0%




4/15/19


38,814


27,688


23,366Everest Acquisition LLC

(h)(m)

Upstream

9.4%




5/1/20


19,970


15,815


14,254Genesis Energy, L.P.

(f)(m)

Midstream

6.8%




8/1/22


16,100


15,498


15,758Genesis Energy, L.P.

(f)(m)

Midstream

6.0%




5/15/23


15,280


14,046


14,323GenOn Energy, Inc.

(h)(o)

Power

9.9%




10/15/20


42,698


44,498


30,713GenOn Energy, Inc.

(h)

Power

7.9%




6/15/17


5,000


4,861


4,206Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




1/30/25


679


679


674Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




4/30/25


4,312


4,312


4,285Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




9/3/25


891


891


886Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




9/29/25


839


839


834Global Partners L.P.

(f)(h)(m)(o)

Midstream

6.3%




7/15/22


69,435


69,252


58,392


See notes to unaudited consolidated financial statements.

7

---



Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of June 30, 2016
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Gulfport Energy Corp.

(f)(m)

Upstream

7.8%




11/1/20

$
6,229

$
6,351

$
6,408Jupiter Resources Inc.

(h)(m)

Upstream

8.5%




10/1/22


71,125


67,561


51,299Laredo Petroleum, Inc.

(f)(m)(bb)

Upstream

7.4%




5/1/22


14,634


14,511


14,689Lonestar Resources America Inc.

(h)(o)

Upstream

8.8%




4/15/19


21,500


21,579


8,224Martin Midstream Partners L.P.

(f)(h)(m)

Midstream

7.3%




2/15/21


28,155


27,648


25,955NRG Energy, Inc.

(f)(m)(bb)

Power

7.3%




5/15/26


23,000


22,844


22,971ONEOK, Inc.

(f)(h)(m)(o)

Midstream

7.5%




9/1/23


28,000


26,827


29,864Synergy Resources Corp.

(m)

Upstream

9.0%




6/14/21


40,000


40,000


40,000Talos Production LLC

(h)(o)

Upstream

9.8%




2/15/18


43,250


43,253


15,946Tenrgys, LLC

(i)(j)

Upstream

L+900


2.5
%
12/23/18


75,000


75,000


72,375Western Refining Logistics, LP

(f)(m)

Midstream

7.5%




2/15/23


2,512


2,386


2,490Whiting Petroleum Corp.

(h)(m)

Upstream

5.0%




3/15/19


6,685


5,837


6,217Zachry Holdings, Inc.

(f)

Service & Equipment

7.5%




2/1/20


21,300


21,291


21,087​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Subordinated Debt
















953,870


810,812​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to unaudited consolidated financial statements.

8

---



Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of June 30, 2016
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry







Number of
Shares

Amortized
Cost

Fair
Value(d)Equity/Other18.3%(n)Abaco Energy Technologies LLC, Common Equity

(r)

Service & Equipment









6,944,444

$
6,944

$
347Abaco Energy Technologies LLC, Preferred Equity

(r)

Service & Equipment









28,942,003


1,447


1,447Allied Downhole Technologies, LLC, Common Equity

(k)(q)(r)

Service & Equipment









6,600,000


6,600


2,640Allied Downhole Technologies, LLC, Warrants, 2/28/2019

(k)(q)(r)

Service & Equipment









5,344,680


1,865


2,138Altus Power America Holdings, LLC, Preferred Equity

(l)

Power









22,268,478


21,195


35,630Altus Power America Management, LLC, Class B Units

(r)(s)

Power









2,250





AP Exhaust Holdings, LLC, Common Equity

(k)(q)(r)

Service & Equipment









811


811


24Ascent Resources Utica Holdings, LLC, Common Equity

(r)(t)

Upstream









148,692,909


44,700


37,173BL Sand Hills Unit, L.P., Net Profits Interest

(r)(v)

Upstream









N/A


5,074


5,753BL Sand Hills Unit, L.P., Overriding Royalty Interest

(v)

Upstream









N/A


725


305Cimarron Energy Holdco Inc., Common Equity

(r)

Service & Equipment









3,201,631


2,991


2,081Extraction Oil & Gas Holdings, LLC, Common Equity

(k)(q)(r)

Upstream









4,191,800


11,250


19,282Fortune Creek Co-Invest I L.P., LP Interest

(m)(r)(w)(z)

Midstream









N/A


16,697


2,688FourPoint Energy, LLC, Common Equity, Class C-II-A Units

(k)(p)(q)(r)

Upstream









66,000


66,000


26,235FourPoint Energy, LLC, Common Equity, Class D Units

(k)(p)(q)(r)

Upstream









12,374


8,176


4,950FourPoint Energy, LLC, Common Equity, Class E-II Units

(p)(r)(cc)

Upstream









274,688


68,672


105,068FourPoint Energy, LLC, Common Equity, Class E-III Units

(k)(p)(q)(r)(cc)

Upstream









222,750


55,688


88,543Global Jet Capital Holdings, LP, Preferred Equity

(r)

Service & Equipment









2,448,883


2,449


2,449Industrial Group Intermediate Holdings, LLC, Common Equity

(k)(q)(r)

Service & Equipment









472,755


473


780Lusk Operating LLC, Common Equity

(r)(u)(aa)

Upstream









2,000


1,000


MB Precision Investment Holdings LLC, Class A-2 Units

(k)(q)(r)

Service & Equipment









490,213


490


74Plains Offshore Operations Inc., Preferred Equity

(l)

Upstream









21,067


27,209


25,964Plains Offshore Operations Inc., Warrants, 11/18/2019

(r)

Upstream









427,005


689


3Summit Midstream Partners, LLC, Preferred Equity

(l)

Midstream









31,330


31,330


30,860Sunnova Energy Corp., Common Equity

(p)(r)

Power









6,667,368


25,026


42,138Sunnova Energy Corp., Preferred Equity

(p)(r)

Power









578,468


3,080


3,077Swift Worldwide Resources Holdco Limited, Common Equity

(m)(r)(x)

Service & Equipment









3,750,000


6,029


1,875Synergy Offshore LLC, Preferred Equity

(k)(y)

Upstream









57,500


71,750


100,280White Star Petroleum Holdings, LLC, Common Equity

(r)(cc)

Upstream









4,867,084


4,137


4,137​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Equity/Other
















492,497


545,941​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​TOTAL INVESTMENTS118.9%















$
3,989,779


3,539,603​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​LIABILITIES IN EXCESS OF OTHER ASSETS(18.9%)



















(562,722
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​NET ASSETS100.0%


















$
2,976,881​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to unaudited consolidated financial statements.

9

---



Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of June 30, 2016
(in thousands, except share amounts)




(a)Security
may be an obligation of one or more entities affiliated with the named company.(b)Certain
variable rate securities in the Company's portfolio bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread.
As of June 30, 2016, the three-month London Interbank Offered Rate, or LIBOR, was 0.65% and the U.S. Prime Lending Rate, or Prime, was 3.50%.(c)Denominated
in U.S. dollars, unless otherwise noted.(d)Fair
value determined by the Company's board of trustees (see Note 7).(e)Security
is an unfunded commitment. The stated rate reflects the spread disclosed at the time of commitment and may not indicate the actual rate received
upon funding.(f)Security
or portion thereof held within FSEP Term Funding, LLC and is pledged as collateral supporting the amounts outstanding under the revolving
credit facility with Deutsche Bank AG, New York Branch (see Note 8).(g)Security
or portion thereof held within Energy Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit
facility with Natixis, New York Branch (see Note 8).(h)Security
or portion thereof held within Berwyn Funding LLC and is pledged as collateral supporting the amounts outstanding under the prime brokerage
facility with BNP Paribas Prime Brokerage, Inc., or BNP. Securities held within Berwyn Funding LLC may be rehypothecated from time to time as permitted under Rule 15c-1(a)(1) of
the Securities Exchange Act of 1934, as amended, or the Exchange Act, subject to the terms and conditions governing the prime brokerage facility with BNP (see Note 8).(i)Security
or portion thereof held within Wayne Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit
facility with Wells Fargo Securities, LLC (see Note 8).(j)Security
or portion thereof held within Gladwyne Funding LLC and is pledged as collateral supporting the obligations outstanding under the repurchase
transaction with Goldman Sachs Bank USA (see Note 8).(k)Security
or portion thereof held within Foxfields Funding LLC and is pledged as collateral supporting the obligations outstanding under the term loan
facility with Fortress Credit Co LLC (see Note 8).(l)Security
or portion thereof held within Bryn Mawr Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving
credit facility with Barclays Bank PLC (see Note 8).(m)The
investment is not a qualifying asset under the Investment Company Act of 1940, as amended, or the 1940 Act. A business development company may not
acquire any asset other than a qualifying asset, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development company's total assets. As of
June 30, 2016, 83.3% of the Company's total assets represented qualifying assets.(n)Listed
investments may be treated as debt for U.S. generally accepted accounting principles, or GAAP, or tax purposes.(o)Security
or portion thereof held within Berwyn Funding LLC has been rehypothecated under Rule 15c-1(a)(1) of the Exchange Act, subject to the
terms and conditions governing the prime brokerage facility with BNP (see Note 8). As of June 30, 2016, the fair value of securities rehypothecated by BNP was $95,194.(p)Under
the 1940 Act, the Company generally is deemed to be an "affiliated person" of a portfolio company if it owns 5% or more of the portfolio company's
voting securities and generally is deemed to "control" a portfolio company if it owns more than 25% of the portfolio company's voting securities or it has the power to exercise control over the
management or policies of such portfolio company. As of June 30, 2016, the Company held investments in portfolio companies of which it is deemed to be an "affiliated person" but is not deemed
to "control". The following table presents certain information with respect to such portfolio companies for the six months ended June 30, 2016:


Portfolio Company

Purchases

Paid-in-Kind
Interest

Sales and
Repayments

Interest
Income

Fee
Income

Net
Realized
Gain (Loss)

Net Change
in Unrealized
Appreciation
(Depreciation)Senior Secured LoansFirst LienSunnova Asset Portfolio 5 Holdings, LLC

$
11,624

$
4,458

$
105,579

$
12,330

$
7,356

$
2,271

$
4,906Senior Secured BondsFourPoint Energy, LLC







$
55,688

$
13,272







$
60,814Equity/OtherFourPoint Energy, LLC, Common Equity, Class C-II-A Units



















$
(19,965
)FourPoint Energy, LLC, Common Equity, Class D Units



















$
(3,774
)FourPoint Energy, LLC, Common Equity, Class E-II Units

$
68,672
















$
36,396FourPoint Energy, LLC, Common Equity, Class E-III Units

$
55,688
















$
32,855Sunnova Energy Corp., Common Equity

$
25,026
















$
17,112Sunnova Energy Corp., Preferred Equity

$
46,196




$
43,116










$
(3
)




See notes to unaudited consolidated financial statements.

10

---



Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of June 30, 2016
(in thousands, except share amounts)




(q)Security
held within FSEP Investments, Inc., a wholly-owned subsidiary of Foxfields Funding LLC.(r)Security
is non-income producing.(s)Security
is held within EP Altus Investments, LLC, a wholly-owned subsidiary of the Company.(t)Security
held within EP American Energy Investments, Inc., a wholly-owned subsidiary of the Company.(u)Security
held within FSEP-BBH, Inc., a wholly-owned subsidiary of the Company.(v)Security
held within EP Burnett Investments, Inc., a wholly-owned subsidiary of the Company.(w)Investment
denominated in Canadian dollars. Amortized cost and fair value are converted into U.S. dollars as of June 30, 2016.(x)Investment
denominated in British pounds. Amortized cost and fair value are converted into U.S. dollars as of June 30, 2016.(y)Security
held within EP Synergy Investments, Inc., a wholly-owned subsidiary of Foxfields Funding LLC.(z)Security
was on non-accrual status as of June 30, 2016.(aa)Under
the 1940 Act, the Company generally is deemed to "control" a portfolio company if it owns more than 25% of the portfolio company's voting securities
or it has the power to exercise control over the management or policies of such portfolio company. As of June 30, 2016, the Company held an investment in one portfolio company of which it is
deemed to be an "affiliated person" of and deemed to "control". The following table presents certain information with respect to such portfolio company for the six months ended June 30, 2016:


Portfolio Company

Purchases

Paid-in-Kind
Interest

Sales and
Repayments

Interest
Income

Fee
Income

Net
Realized
Gain (Loss)

Net Change
in Unrealized
Appreciation
(Depreciation)Senior Secured LoansFirst LienLusk Operating LLC

$
1,824
















$
(13,200
)Equity/OtherLusk Operating LLC, Common Equity























(bb)Position
or portion thereof unsettled as of June 30, 2016.(cc)Security
held within FS Energy Investments, LLC, a wholly-owned subsidiary of the Company.


See notes to unaudited consolidated financial statements.

11

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments
As of December 31, 2015
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured LoansFirst Lien38.5%Abaco Energy Technologies LLC

(g)(i)(j)

Service & Equipment

L+700


1.0
%
11/20/20

$
60,938

$
57,911

$
31,383Allied Wireline Services, LLC

(g)(i)(j)(k)

Service & Equipment

L+400, 5.5% PIK (5.5% Max PIK)


1.5
%
2/28/19


103,061


101,930


96,234Alon USA Partners, L.P.

(g)(i)(l)

Downstream

L+800


1.3
%
11/26/18


7,158


7,342


7,140Altus Power America, Inc.

(j)

Power

L+750


1.5
%
10/10/21


46,555


46,555


46,090Altus Power America, Inc.

(e)

Power

L+750


1.5
%
10/10/21


37,820


37,820


37,441AP Exhaust Acquisition, LLC

(g)

Service & Equipment

L+775


1.5
%
1/16/21


15,811


15,811


14,842BBH Operating LLC



Upstream

Prime+500 PIK (8.25% Max PIK)


3.3
%
2/26/16


24,441


24,441


17,719BBH Operating LLC

(e)

Upstream

Prime+500 PIK (8.25% Max PIK)


3.3
%
2/26/16


5,559


5,559


4,031BL Sand Hills Unit, L.P.



Upstream

Prime+650


3.5
%
12/17/17


36,626


31,807


34,016BL Sand Hills Unit, L.P.

(e)

Upstream

Prime+650


3.5
%
12/17/17


19,367


16,819


17,987Cactus Wellhead, LLC

(g)(i)(j)

Service & Equipment

L+600


1.0
%
7/31/20


51,844


51,012


37,457Cimarron Energy Inc.

(g)

Service & Equipment

L+775, 0.0% PIK (3.75% Max PIK)


1.0
%
12/15/19


24,250


24,250


24,129Crestwood Holdings LLC

(f)(g)(j)

Midstream

L+600


1.0
%
6/19/19


30,565


30,689


19,816EnergySolutions, LLC

(i)(j)

Service & Equipment

L+575


1.0
%
5/29/20


20,462


20,150


18,211EP Acquisition LLC

(q)(y)

Upstream

Prime+500 PIK (8.25% Max PIK)


3.3
%
2/26/16


525


525


Industrial Group Intermediate Holdings, LLC

(i)

Service & Equipment

L+800


1.3
%
5/31/20


14,951


14,951


14,801MB Precision Holdings LLC

(g)

Service & Equipment

L+725


1.3
%
1/23/20


12,855


12,855


12,726Moxie Liberty LLC

(g)(j)

Power

L+650


1.0
%
8/21/20


32,432


32,540


30,162Panda Sherman Power, LLC

(g)(j)

Power

L+750


1.5
%
9/14/18


22,643


22,937


20,492Panda Temple Power, LLC

(j)

Power

L+625


1.0
%
3/6/22


9,925


9,747


8,188Panda Temple Power II, LLC

(g)(j)

Power

L+600


1.3
%
4/3/19


27,809


28,132


24,750ProPetro Services, Inc.

(i)

Service & Equipment

L+625


1.0
%
9/30/19


11,612


11,599


7,838Stallion Oilfield Holdings, Inc.

(g)(i)(j)

Service & Equipment

L+675


1.3
%
6/19/18


45,025


45,045


24,404Stonewall Gas Gathering LLC

(j)

Midstream

L+775


1.0
%
1/28/22


26,794


25,803


26,727Sunnova Asset Portfolio 5 Holdings, LLC

(j)(z)

Power

12.0% PIK (12.0% Max PIK)




11/14/21


250,138


245,363


244,510Sunnova Asset Portfolio 5 Holdings, LLC

(e)(z)

Power

12.0% PIK (12.0% Max PIK)




11/14/21


7,167


7,167


7,006Swift Worldwide Resources US Holdings Corp.

(g)(j)

Service & Equipment

L+800


1.3
%
4/30/19


59,057


59,057


59,057UTEX Industries, Inc.

(f)

Service & Equipment

L+400


1.0
%
5/21/21


4,485


3,443


3,091Warren Resources, Inc.

(k)

Upstream

L+850


1.0
%
5/22/20


131,175


131,175


106,907​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured LoansFirst Lien
















1,122,435


997,155Unfunded Loan Commitments
















(67,365
)

(67,365
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Senior Secured LoansFirst Lien
















1,055,070


929,790​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to unaudited consolidated financial statements.

12

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2015
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured LoansSecond Lien38.2%Alison US LLC

(f)(j)(l)

Service & Equipment

L+850


1.0
%
8/29/22

$
17,222

$
16,641

$
13,993American EnergyMarcellus, LLC



Upstream

L+750


1.0
%
8/4/21


10,000


9,874


233Ameriforge Group Inc.

(f)(g)

Service & Equipment

L+750


1.3
%
12/21/20


35,950


36,433


2,831AP Exhaust Acquisition, LLC



Service & Equipment

12.0%, 0.0% PIK (12.0% Max PIK)




9/28/21


3,243


3,243


2,959Arena Energy, LP

(i)(k)

Upstream

L+1000


1.0
%
1/24/21


65,000


65,000


59,854Ascent ResourcesUtica, LLC

(g)(j)(k)

Upstream

L+950, 2.0% PIK (2.0% Max PIK)


1.5
%
9/30/18


280,735


279,572


251,258Atlas Resource Partners, L.P.

(i)(k)

Upstream

L+900


1.0
%
2/23/20


100,000


97,489


79,986BlackBrush Oil & Gas, L.P.

(f)(i)

Upstream

L+650


1.0
%
7/30/21


31,519


30,708


25,268Brock Holdings III, Inc.

(f)(g)(j)

Service & Equipment

L+825


1.8
%
3/16/18


29,605


29,766


22,796Chief Exploration & Development LLC

(f)(i)

Upstream

L+650


1.0
%
5/16/21


19,576


19,504


13,143Consolidated Precision Products Corp.

(g)(j)

Service & Equipment

L+775


1.0
%
4/30/21


11,574


11,529


10,532Emerald Performance Materials, LLC

(j)

Downstream

L+675


1.0
%
8/1/22


5,319


5,296


5,055Extraction Oil & Gas Holdings, LLC

(i)(j)

Upstream

11.0%




5/29/19


74,186


74,186


74,650Extraction Oil & Gas Holdings, LLC

(i)(j)

Upstream

10.0%




5/29/19


32,462


32,462


32,259Fieldwood Energy LLC

(f)(i)

Upstream

L+713


1.3
%
9/30/20


41,047


41,951


6,547Granite Intermediate Holdings, Inc.

(f)

Power

L+725


1.0
%
10/15/22


13,150


13,047


10,257Gruden Acquisition, Inc.

(j)

Service & Equipment

L+850


1.0
%
8/18/23


15,000


14,281


14,288Horn Intermediate Holdings, Inc.

(g)

Service & Equipment

L+775


1.3
%
10/2/18


50,250


50,250


49,496Jonah Energy LLC

(i)(j)

Upstream

L+650


1.0
%
5/12/21


25,133


24,821


15,960MD America Energy, LLC

(f)(g)(j)

Upstream

L+850


1.0
%
8/4/19


41,612


40,121


34,815Neff Rental LLC

(j)

Service & Equipment

L+625


1.0
%
6/9/21


15,145


15,182


12,570Oxbow Carbon LLC

(g)

Midstream

L+700


1.0
%
1/19/20


15,000


14,904


12,631P2 Upstream Acquisition Co.

(g)(j)

Service & Equipment

L+800


1.0
%
4/30/21


32,599


32,862


27,302Templar Energy LLC

(f)(g)(i)

Upstream

L+750


1.0
%
11/25/20


89,923


88,451


10,903Total Safety U.S., Inc.

(f)(g)(j)

Service & Equipment

L+800


1.3
%
9/13/20


14,795


14,978


8,335UTEX Industries, Inc.

(f)(j)

Service & Equipment

L+725


1.0
%
5/20/22


36,192


36,232


23,706Vantage Energy, LLC

(i)(j)

Upstream

L+750


1.0
%
12/20/18


30,078


29,933


19,325Vantage Energy II, LLC

(i)(j)

Upstream

L+750


1.0
%
5/8/17


85,000


85,000


82,450​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured LoansSecond Lien
















1,213,716


923,402​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to unaudited consolidated financial statements.

13

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2015
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured Bonds13.4%American EnergyWoodford, LLC

(h)(q)(y)

Upstream

12.0% PIK (12.0% Max PIK)




12/30/20

$
7,806

$
5,662

$
1,112FourPoint Energy, LLC

(j)(k)(o)

Upstream

8.0%




12/31/20


290,813


282,012


226,107FourPoint Energy, LLC

(e)(o)

Upstream

8.0%




12/31/20


18,563


18,470


14,432Gastar Exploration USA, Inc.

(h)

Upstream

8.6%




5/15/18


5,690


5,393


2,902Light Tower Rentals, Inc.

(h)(n)

Service & Equipment

8.1%




8/1/19


17,500


17,313


8,947Lightstream Resources Ltd.

(k)(l)

Upstream

9.9%




6/15/19


62,400


62,400


52,104Mirant Mid-Atlantic Trust

(f)(h)(n)

Power

10.1%




12/30/28


23,344


26,097


22,556SandRidge Energy, Inc.

(h)(n)

Upstream

8.8%




6/1/20


46,700


46,598


14,258​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured Bonds
















463,945


342,418Unfunded Bond Commitment
















(18,470
)

(18,470
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Senior Secured Bonds
















445,475


323,948​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Subordinated Debt24.0%Alta Mesa Holdings, LP

(h)(n)

Upstream

9.6%




10/15/18


18,451


18,376


6,481Archrock Partners, L.P.

(h)(l)

Midstream

6.0%




4/1/21


3,055


2,625


2,452Archrock Partners, L.P.

(h)(l)

Midstream

6.0%




10/1/22


10,533


8,858


8,124Atlas Energy Holdings Operating Co., LLC

(h)

Upstream

7.8%




1/15/21


28,285


25,869


5,648Atlas Energy Holdings Operating Co., LLC

(h)

Upstream

9.3%




8/15/21


24,460


23,574


5,022Bellatrix Exploration Ltd.

(f)(h)(l)

Upstream

8.5%




5/15/20


45,590


44,731


30,716Brand Energy & Infrastructure Services, Inc.

(f)(h)

Service & Equipment

8.5%




12/1/21


27,500


27,261


23,684Calpine Corp.

(f)(l)

Power

5.8%




1/15/25


5,100


5,093


4,501Canbriam Energy Inc.

(h)(j)(l)

Upstream

9.8%




11/15/19


115,200


111,556


104,256Chaparral Energy Inc.

(h)(n)

Upstream

7.6%




11/15/22


15,225


16,150


3,191Compressco Partners, LP

(f)(h)(l)

Service & Equipment

7.3%




8/15/22


20,050


19,889


14,862Crestwood Equity Partners L.P.

(f)(l)

Midstream

6.1%




3/1/22


5,500


5,500


3,827Dynegy Finance I/II Inc.

(f)(l)

Power

7.6%




11/1/24


17,080


16,654


14,603Eclipse Resources Corp.

(h)(l)

Upstream

8.9%




7/15/23


27,500


26,949


13,234EV Energy Partners, L.P.

(h)(n)

Upstream

8.0%




4/15/19


25,560


21,221


12,716Everest Acquisition LLC

(f)(l)

Upstream

9.4%




5/1/20


14,250


14,250


9,054


See notes to unaudited consolidated financial statements.

14

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2015
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Genesis Energy, L.P.

(f)(l)

Midstream

6.8%




8/1/22

$
12,100

$
11,688

$
10,179GenOn Energy, Inc.

(f)(h)(n)

Power

9.9%




10/15/20


42,698


44,669


31,383GenOn Energy, Inc.

(h)

Power

7.9%




6/15/17


5,000


4,795


4,371Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




1/30/25


635


635


635Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




4/30/25


4,030


4,030


4,030Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




9/3/25


828


828


828Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




9/29/25


779


779


779Global Partners L.P.

(f)(h)(l)(n)

Midstream

6.3%




7/15/22


68,350


68,350


54,424Jones Energy, Inc.

(h)(n)

Upstream

6.8%




4/1/22


8,000


8,000


4,345Jupiter Resources Inc.

(h)(l)

Upstream

8.5%




10/1/22


71,125


67,291


28,539Kenan Advantage Group, Inc.

(f)

Service & Equipment

7.9%




7/31/23


11,970


11,970


11,820Legacy Reserves LP

(h)

Upstream

8.0%




12/1/20


16,750


16,499


3,371Legacy Reserves LP

(h)

Upstream

6.6%




12/1/21


14,000


13,847


3,028Lonestar Resources America Inc.

(h)(n)

Upstream

8.8%




4/15/19


21,500


21,591


13,231Martin Midstream Partners L.P.

(f)(l)

Midstream

7.3%




2/15/21


15,658


16,144


13,877Memorial Production Partners L.P.

(h)

Upstream

6.9%




8/1/22


12,250


12,059


3,690ONEOK, Inc.

(f)(h)(l)(n)

Midstream

7.5%




9/1/23


28,000


26,771


23,363Seven Generations Energy Ltd.

(f)(l)

Upstream

6.8%




5/1/23


6,150


5,612


5,220Talos Production LLC

(f)(h)(n)

Upstream

9.8%




2/15/18


43,250


43,258


17,841Tenrgys, LLC

(i)(j)

Upstream

L+900


2.5
%
12/23/18


75,000


75,000


64,875Whiting Petroleum Corp.

(f)(l)

Upstream

5.0%




3/15/19


4,685


4,124


3,562Zachry Holdings, Inc.

(f)

Service & Equipment

7.5%




2/1/20


14,300


14,376


13,978​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Subordinated Debt
















860,872


579,740​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to unaudited consolidated financial statements.

15

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2015
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry







Number of
Shares

Amortized
Cost

Fair
Value(d)Equity/Other12.9%(m)Abaco Energy Technologies LLC, Common Equity

(q)

Service & Equipment









6,944,444

$
6,944

$
1,042Allied Downhole Technologies, LLC, Common Equity

(k)(p)(q)

Service & Equipment









6,600,000


6,600


4,950Allied Downhole Technologies, LLC, Warrants, 2/28/2019

(k)(p)(q)

Service & Equipment









5,344,680


1,865


4,009Altus Power America Holdings, LLC, Preferred Equity



Power









15,518,478


15,464


28,709Altus Power America Management, LLC, Class B Units

(q)(r)

Power









2,250





AP Exhaust Holdings, LLC, Common Equity

(k)(p)(q)

Service & Equipment









811


811


405Ascent Resources Utica Holdings, LLC, Common Equity

(q)(s)

Upstream









15,657,194


14,900


3,131BBH Operating LLC, Common Equity

(q)(t)

Upstream









1,000


1,000


BL Sand Hills Unit, L.P., Net Profits Interest

(q)(u)

Upstream









N/A


4,677


5,966BL Sand Hills Unit, L.P., Overriding Royalty Interest

(u)

Upstream









N/A


668


227Cimarron Energy Holdco Inc., Common Equity

(q)

Service & Equipment









2,500,000


2,500


1,750Extraction Oil & Gas Holdings, LLC, Common Equity

(k)(p)(q)

Upstream









4,191,800


11,250


15,090Fortune Creek Co-Invest I L.P., LP Interest

(l)(q)(v)(y)

Midstream









N/A


16,697


3,281FourPoint Energy, LLC, Common Equity, Class C Units

(k)(o)(p)(q)

Upstream









66,000


66,000


46,200FourPoint Energy, LLC, Common Equity, Class D Units

(k)(o)(p)(q)

Upstream









12,374


8,176


8,724Global Jet Capital Holdings, LP, Preferred Equity

(q)

Service & Equipment









2,448,883


2,449


2,449Industrial Group Intermediate Holdings, LLC, Common Equity

(k)(p)(q)

Service & Equipment









371,901


372


614MB Precision Investment Holdings LLC, Class A-2 Units

(q)

Service & Equipment









490,213


490


466Plains Offshore Operations Inc., Preferred Equity

(f)

Upstream









21,067


26,321


25,869Plains Offshore Operations Inc., Warrants, 11/18/2019

(f)(q)

Upstream









427,005


689


Summit Midstream Partners, LLC, Preferred Equity



Midstream









39,163


39,163


37,205Sunnova Holdings, LLC, Common Equity

(q)(z)

Power









1,074,951


25,026


29,561Swift Worldwide Resources Holdco Limited, Common Equity

(l)(q)(w)

Service & Equipment









3,750,000


6,029


3,870Synergy Offshore LLC, Preferred Equity

(k)(x)

Upstream









50,000


61,183


89,100​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Equity/Other
















319,274


312,618​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​TOTAL INVESTMENTS127.0%















$
3,894,407


3,069,498​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​LIABILITIES IN EXCESS OF OTHER ASSETS(27.0%)



















(651,637
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​NET ASSETS100.0%


















$
2,417,861​
​
​
​
​
​
​
​
​
​
​
​
​
​
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See notes to unaudited consolidated financial statements.

16

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Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2015
(in thousands, except share amounts)




(a)Security
may be an obligation of one or more entities affiliated with the named company.(b)Certain
variable rate securities in the Company's portfolio bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread.
As of December 31, 2015, the three-month London Interbank Offered Rate was 0.61% and the U.S. Prime Lending Rate was 3.50%.(c)Denominated
in U.S. dollars, unless otherwise noted.(d)Fair
value determined by the Company's board of trustees (see Note 7).(e)Security
is an unfunded commitment.(f)Security
or portion thereof held within FSEP Term Funding, LLC and is pledged as collateral supporting the amounts outstanding under the revolving
credit facility with Deutsche Bank AG, New York Branch (see Note 8).(g)Security
or portion thereof held within Energy Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit
facility with Natixis, New York Branch (see Note 8).(h)Security
or portion thereof held within Berwyn Funding LLC and is pledged as collateral supporting the amounts outstanding under the prime brokerage
facility with BNP Paribas Prime Brokerage, Inc., or BNP. Securities held within Berwyn Funding LLC may be rehypothecated from time to time as permitted under Rule 15c-1(a)(1) of
the Securities Exchange Act of 1934, as amended, or the Exchange Act, subject to the terms and conditions governing the prime brokerage facility with BNP (see Note 8).(i)Security
or portion thereof held within Wayne Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit
facility with Wells Fargo Securities, LLC (see Note 8).(j)Security
or portion thereof held within Gladwyne Funding LLC and is pledged as collateral supporting the obligations outstanding under the repurchase
transaction with Goldman Sachs Bank USA (see Note 8).(k)Security
or portion thereof held within Foxfields Funding LLC and is pledged as collateral supporting the obligations outstanding under the term loan
facility with Fortress Credit Co LLC (see Note 8).(l)The
investment is not a qualifying asset under the Investment Company Act of 1940, as amended, or the 1940 Act. A business development company may not
acquire any asset other than a qualifying asset, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development company's total assets. As of
December 31, 2015, 87.8% of the Company's total assets represented qualifying assets.(m)Listed
investments may be treated as debt for U.S. generally accepted accounting principles, or GAAP, or tax purposes.(n)Security
or portion thereof held within Berwyn Funding LLC has been rehypothecated under Rule 15c-1(a)(1) of the Exchange Act, subject to the
terms and conditions governing the prime brokerage facility with BNP (see Note 8). As of December 31, 2015, the fair value of securities rehypothecated by BNP was $108,340.(o)Under
the 1940 Act, the Company generally is deemed to be an "affiliated person" of a portfolio company if it owns 5% or more of the portfolio company's
voting securities. As of December 31, 2015, the Company held investments in a portfolio company of which it is deemed to be an "affiliated person" but is not deemed to "control." The following
table presents certain information with respect to such portfolio company for the year ended December 31, 2015:


Portfolio Company

Purchases

Sales and
Repayments

Interest
Income

Fee
Income

Net
Realized
Gain (Loss)

Net Change
in Unrealized
Appreciation
(Depreciation)Senior Secured BondsFourPoint Energy, LLC

$
67,722




$
21,503

$
681




$
(32,843
)Equity/OtherFourPoint Energy, LLC, Common Equity, Class C Units
















$
(37,950
)FourPoint Energy, LLC, Common Equity, Class D Units
















$
(7,177
)


(p)Security
held within FSEP Investments, Inc., a wholly-owned subsidiary of Foxfields Funding LLC.(q)Security
is non-income producing.(r)Security
is held within EP Altus Investments, LLC, a wholly-owned subsidiary of the Company.(s)Security
held within EP American Energy Investments, Inc., a wholly-owned subsidiary of the Company.(t)Security
held within FSEP-BBH, Inc., a wholly-owned subsidiary of the Company.


See notes to unaudited consolidated financial statements.

17

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Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2015
(in thousands, except share amounts)




(u)Security
held within EP Burnett Investments, Inc., a wholly-owned subsidiary of the Company.(v)Investment
denominated in Canadian dollars. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2015.(w)Investment
denominated in British pounds. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2015.(x)Security
held within EP Synergy Investments, Inc., a wholly-owned subsidiary of Foxfields Funding LLC.(y)Security
was on non-accrual as of December 31, 2015.(z)Under
the 1940 Act, the Company generally is deemed to "control" a portfolio company if it owns 25% or more of the portfolio company's voting securities or
it has the power to exercise control over the management or policies of a portfolio company. As of December 31, 2015, the Company held investments in a portfolio company of which it is deemed
to be an "affiliated person" and is also deemed to "control." The following table presents certain information with respect to such portfolio company for the year ended December 31, 2015:


Portfolio Company

Purchases

Sales and
Repayments

Interest
Income

Fee
Income

Net
Realized
Gain (Loss)

Net Change
in Unrealized
Appreciation
(Depreciation)Senior Secured LoansFirst LienSunnova Asset Portfolio 5 Holdings, LLC

$
187,636




$
19,950

$
2,162




$
(1,014
)Equity/OtherSunnova Holdings, LLC, Common Equity

$
25,026







$
6,523




$
4,535




See notes to unaudited consolidated financial statements.

18

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Table of Contents

FS Energy and Power Fund        Notes to Unaudited Consolidated Financial Statements  (in thousands, except share and per share amounts)

Note 1. Principal Business and Organization

FS Energy and Power Fund, or the Company, was formed as a Delaware statutory trust under the Delaware Statutory Trust Act on September 16, 2010 and formally commenced investment
operations on July 18, 2011 upon raising gross proceeds in excess of $2,500, or the minimum offering requirement, from sales of its common shares of beneficial interest, or common shares, in
its continuous public offering to persons who were not affiliated with the Company or the Company's investment adviser, FS Investment Advisor, LLC, or FS Advisor, a private investment firm that
is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act, and an affiliate of the Company.

The
Company has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. The Company is an externally
managed, non-diversified, closed-end management investment company that has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a regulated investment
company, or RIC, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As of June 30, 2016, the Company had eight wholly-owned financing
subsidiaries and seven wholly-owned subsidiaries through which it holds interests in certain portfolio companies. The unaudited consolidated financial statements include both the Company's accounts
and the accounts of its wholly-owned subsidiaries as of June 30, 2016. All significant intercompany transactions have been eliminated in consolidation. Certain of the Company's consolidated
subsidiaries are subject to U.S. federal and state income taxes.

The
Company's investment objective is to generate current income and long-term capital appreciation by investing primarily in privately-held U.S. companies in the energy and power
industry. The Company's investment policy is to invest, under normal circumstances, at least 80% of its total assets in securities of energy and power related, or Energy, companies. The Company
considers Energy companies to be those companies that engage in the exploration, development, production, gathering, transportation, processing, storage, refining, distribution, mining, generation or
marketing of natural gas, natural gas liquids, crude oil, refined products, coal or power, including those companies that provide equipment or services to companies engaged in any of the foregoing.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation:The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance
with U.S.
generally accepted accounting principles, or GAAP, for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. For a more complete discussion of significant accounting policies and certain other information, the Company's interim unaudited consolidated
financial statements should be read in conjunction with its audited consolidated financial statements as of and for the year ended December 31, 2015 included in the Company's annual report on
Form 10-K. Operating results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31,
2016. The December 31, 2015 consolidated balance sheet and consolidated schedule of investments are derived from the Company's audited consolidated financial statements as of and for the year
ended December 31, 2015. The Company is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies. The Company has
evaluated the impact of subsequent events through the date the consolidated financial statements were issued and filed with the Securities and Exchange Commission, or the SEC.

19

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 2. Summary of Significant Accounting Policies (Continued)

Use of Estimates:The preparation of the unaudited consolidated financial statements in conformity with GAAP requires management to
make estimates
and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates. Many of the amounts have been rounded, and all amounts are in thousands, except share and per share
amounts.

Capital Gains Incentive Fee:The Company entered into an investment advisory and administrative services agreement with FS Advisor,
dated as of
April 28, 2011, which was amended on August 10, 2012, and which, as amended, is referred to herein as the investment advisory and administrative services agreement. Pursuant to the terms
of the investment advisory and administrative services agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of
such agreement). Such fee equals 20.0% of the Company's incentive fee capital gains (i.e., the Company's realized capital gains on a cumulative basis from inception, calculated as of the end of
the applicable period, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive
fees. On a quarterly basis, the Company accrues for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.

While
the investment advisory and administrative services agreement with FS Advisor neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital
gains incentive fee, pursuant to an interpretation of an American Institute of Certified Public Accountants Technical Practice Aid, or AICPA, for investment companies, the Company includes unrealized
gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to FS Advisor as if
the Company's entire portfolio was liquidated at its fair value as of the balance sheet date even though FS Advisor is not entitled to an incentive fee with respect to unrealized gains unless and
until such gains are actually realized.

Subordinated Income Incentive Fee:Pursuant to the investment advisory and administrative services agreement, FS Advisor may also be
entitled to
receive a subordinated incentive fee on income. The subordinated incentive fee on income, which is calculated and payable quarterly in arrears, equals 20.0% of the Company's "pre-incentive fee net
investment income" for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital equal to 1.625% per quarter, or an annualized hurdle rate of
6.5%. As a result, FS Advisor does not earn this incentive fee for any quarter until the Company's pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.625%. For
purposes of this fee, "adjusted capital" means cumulative gross proceeds generated from sales of the Company's common shares (including proceeds from its distribution reinvestment plan) reduced for
distributions from non-liquidating dispositions of the Company's investments paid to shareholders and amounts paid for share repurchases pursuant to the Company's share repurchase program. Once the
Company's pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FS Advisor is entitled to a "catch-up" fee equal to the amount of the pre-incentive fee net investment income
in excess of the hurdle rate, until the Company's pre-incentive fee net investment income for such quarter equals 2.031%, or 8.125% annually, of adjusted capital. Thereafter, FS Advisor is entitled to
receive 20.0% of pre-incentive fee net investment income.

Offering Costs:The Company's offering costs primarily include, among other things, marketing expenses and printing, legal and due
diligence fees and
other costs pertaining to the Company's continuous public offering of its common shares. Historically, the Company charged offering costs

20

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 2. Summary of Significant Accounting Policies (Continued)

against
capital in excess of par value on its consolidated balance sheets. Following discussions with the Staff of the Division of Investment Management of the SEC, the Company determined to change
its accounting treatment of offering costs and defer and amortize such costs as an expense over twelve months. The Company evaluated this change in accounting treatment of offering costs, which it
implemented effective January 1, 2016, and determined that it did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

Reclassifications:Certain amounts in the unaudited consolidated financial statements for the three and six months ended June 30,
2015 may
have been reclassified to conform to the classifications used to prepare the unaudited consolidated financial statements for the three and six months ended June 30, 2016. These
reclassifications had no material impact on the Company's consolidated financial position, results of operations or cash flows as previously reported.

In
April 2015, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update No. 2015-03,InterestImputation of
Interest,or ASU 2015-03, to simplify the presentation of debt issuance costs in financial statements. Under pre-existing guidance, debt issuance costs were recognized as a
deferred charge and presented as an asset on the balance sheet. ASU 2015-03 requires that debt issuance costs related to a recognized liability for indebtedness be presented in the balance
sheet as a direct deduction from the carrying amount of that liability, consistent with debt discounts. In August 2015, the FASB issued Accounting Standards Update No. 2015-15, InterestImputation of
Interest, or ASU 2015-15, to update the guidance to include SEC staff views regarding the presentation and subsequent
measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit
arrangements, the SEC indicated that it would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over
the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.

Commencing
January 1, 2016, the Company adopted ASU 2015-03 and changed its method of disclosing debt issuance costs incurred in connection with its repurchase agreement entered
into in connection with its financing arrangement with Goldman Sachs Bank USA, or Goldman, and its multiple draw term loan agreement entered into in connection with its financing arrangement with
Fortress Credit Co LLC, or Fortress. ASU 2015-03 affects the presentation and disclosure of such costs in the Company's financial statements. There is no change to the Company's recognition and
measurement of debt issuance costs. In accordance with ASU 2015-15, the Company elected to continue to present debt issuance costs associated with line-of-credit arrangements as an asset, which is
unchanged from its prior method of disclosure.

Comparative
financial statements of prior interim and annual periods have been adjusted to apply the new method retrospectively. The adoption and retrospective adjustment of ASU 2015-03
had no material impact on the Company's consolidated financial position, results of operations or cash flows as previously reported.

21

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 3. Share Transactions

Below is a summary of transactions with respect to the Company's common shares during the six months ended June 30, 2016 and 2015:

Six Months Ended June 30,2016

2015Shares

Amount

Shares

AmountGross Proceeds from Offering


34,158,813

$
245,308


32,435,087

$
311,304Reinvestment of Distributions


13,197,052


86,691


6,612,504


57,735​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Gross Proceeds


47,355,865


331,999


39,047,591


369,039Commissions and Dealer Manager Fees





(21,279
)




(27,547
)​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Proceeds to Company


47,355,865


310,720


39,047,591


341,492Share Repurchase Program


(4,913,666
)

(32,277
)

(1,167,150
)

(10,230
)​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Proceeds from Share Transactions


42,442,199

$
278,443


37,880,441

$
331,262​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
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​
​
​
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​
​
​
​
​


Status of Continuous Public Offering

Since commencing its continuous public offering and through July 26, 2016, the Company has sold 426,354,518 common shares
(as adjusted for share distributions) for gross proceeds of $4,180,613, including common shares issued under its distribution reinvestment plan. As of July 26, 2016, the Company had raised
total gross proceeds of $4,200,817, including $200 of seed capital contributed by the principals of FS Advisor in December 2010 and $20,004 in proceeds raised from the principals of FS Advisor, other
individuals and entities affiliated with FS Advisor, certain members of the Company's board of trustees and certain individuals and entities affiliated with GSO Capital Partners LP, or GSO, the
Company's investment sub-adviser, in a private placement conducted in April 2011 (see Note 4).

During
the six months ended June 30, 2016 and 2015, the Company sold 47,355,865 and 39,047,591 common shares for gross proceeds of $331,999 and $369,039, respectively, at an
average price per share of $7.01 and $9.45, respectively. The gross proceeds received during the six months ended June 30, 2016 and 2015 include reinvested shareholder distributions of $86,691
and $57,735, respectively, for which the Company issued 13,197,052 and 6,612,504 common shares, respectively. During the period from July 1, 2016 to July 26, 2016, the Company sold
2,796,193 common shares for gross proceeds of $22,296 at an average price per share of $7.97.

The
proceeds from the issuance of common shares as presented on the Company's unaudited consolidated statements of changes in net assets and unaudited consolidated statements of cash
flows are presented net of selling commissions and dealer manager fees of $21,279 and $27,547 for the six months ended June 30, 2016 and 2015, respectively.

Based
on and subject to market conditions and the pace of capital raising, the Company expects to close its public offering to new investors near the end of the third quarter of 2016.

Share Repurchase Program

The Company intends to conduct quarterly tender offers pursuant to its share repurchase program. The Company's board of trustees will
consider the following factors, among others, in making its determination regarding whether to cause the Company to offer to repurchase common shares and under what
terms:



22

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 3. Share Transactions (Continued)



The
Company currently intends to limit the number of common shares to be repurchased during any calendar year to the number of common shares it can repurchase with the proceeds it
receives from the issuance of common shares under its distribution reinvestment plan. At the discretion of the Company's board of trustees, the Company may also use cash on hand, cash available from
borrowings and cash from the liquidation of securities investments as of the end of the applicable period to repurchase common shares. In addition, the Company will limit the number of common shares
to be repurchased in any calendar year to 10% of the weighted average number of common shares outstanding in the prior calendar year, or 2.5% in each quarter, though the actual number of common shares
that the Company offers to repurchase may be less in light of the limitations noted above. The Company intends to offer to repurchase such common shares on each date of repurchase at a price equal to
90% of the offering price in effect on the date of repurchase. In months in which the Company repurchases common shares pursuant to its share repurchase program, it expects to conduct repurchases on
the same date that it holds its first weekly closing in such month for the sale of common shares in its public offering. The Company's board of trustees may amend, suspend or terminate the share
repurchase program at any time, upon 30 days' notice.

The
following table provides information concerning the Company's repurchases of common shares pursuant to its share repurchase program during the six months ended June 30, 2016
and 2015:

For the Three Months Ended

Repurchase Date

Shares
Repurchased

Percentage
of Shares
Tendered
That Were
Repurchased

Repurchase
Price Per
Share

Aggregate
Consideration
for Repurchased
SharesFiscal 2015December 31, 2014

January 7, 2015


450,293


100
%
$
8.820

$
3,972March 31, 2015

April 1, 2015


716,857


100
%
$
8.730

$
6,258Fiscal 2016December 31, 2015

January 6, 2016


2,716,924


100
%
$
6.750

$
18,339March 31, 2016

April 6, 2016


2,196,742


100
%
$
6.345

$
13,938


On
July 6, 2016, the Company repurchased 1,788,021 common shares (representing 100% of common shares tendered for repurchase) at $7.20 per share for aggregate consideration
totaling $12,874.

Note 4. Related Party Transactions

Compensation of the Investment Adviser and Dealer Manager

Pursuant to the investment advisory and administrative services agreement, FS Advisor is entitled to an annual base management fee of
2.0% of the average value of the Company's gross assets and an incentive fee based on the Company's performance. The Company commenced accruing fees under the investment advisory and administrative
services agreement on July 18, 2011, upon commencement of the Company's investment operations. Base management fees are paid on a quarterly basis in arrears.

23

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 4. Related Party Transactions (Continued)

The
incentive fee consists of two parts. The first part of the incentive fee, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in
arrears, equals 20.0% of the Company's "pre-incentive fee net investment income" for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted
capital, equal to 1.625% per quarter, or an annualized hurdle rate of 6.5%. As a result, FS Advisor does not earn this incentive fee for any quarter until the Company's pre-incentive fee net
investment income for such quarter exceeds the
hurdle rate of 1.625%. For purposes of this fee, "adjusted capital" means cumulative gross proceeds generated from sales of the Company's common shares (including proceeds from its distribution
reinvestment plan) reduced for distributions from non-liquidating dispositions of the Company's investments paid to shareholders and amounts paid for share repurchases pursuant to the Company's share
repurchase program. Once the Company's pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FS Advisor is entitled to a "catch-up" fee equal to the amount of the
pre-incentive fee net investment income in excess of the hurdle rate, until the Company's pre-incentive fee net investment income for such quarter equals 2.031%, or 8.125% annually, of adjusted
capital. This "catch-up" feature allows FS Advisor to recoup the fees foregone as a result of the existence of the hurdle rate. Thereafter, FS Advisor is entitled to receive 20.0% of pre-incentive fee
net investment income.

The
second part of the incentive fee, which is referred to as the incentive fee on capital gains, is determined and payable in arrears as of the end of each calendar year (or upon
termination of the investment advisory and administrative services agreement). This fee equals 20.0% of the Company's incentive fee capital gains, which equal the Company's realized capital gains on a
cumulative basis from inception, calculated as of the end of the applicable period, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the
aggregate amount of any previously paid capital gains incentive fees. The Company accrues for the capital gains incentive fee, which, if earned, is paid annually. The Company accrues the capital gains
incentive fee based on net realized and unrealized gains; however, under the terms of the investment advisory and administrative services agreement, the fee payable to FS Advisor is based on realized
gains and no such fee is payable with respect to unrealized gains unless and until such gains are actually realized.

Pursuant
to an investment sub-advisory agreement between FS Advisor and GSO, or the sub-advisory agreement, GSO will receive 50% of all management and incentive fees payable to FS
Advisor under the investment advisory and administrative services agreement with respect to each year.

The
Company reimburses FS Advisor for expenses necessary to perform services related to the Company's administration and operations, including FS Advisor's allocable portion of the
compensation and related expenses of certain personnel of Franklin Square Holdings, L.P., or Franklin Square Holdings, the Company's sponsor and an affiliate of FS Advisor, providing
administrative services to the Company on behalf of FS Advisor. The amount of the reimbursement payable to FS Advisor is the lesser of (1) FS Advisor's actual costs incurred in providing such
services and (2) the amount that the Company estimates it would be required to pay alternative service providers for comparable services in the same geographic location. FS Advisor is required
to allocate the cost of such services to the Company based on factors such as assets, revenues, time allocations and/or other reasonable metrics. The Company's board of trustees reviews the
methodology employed in determining how the expenses are allocated to the Company and the proposed allocation of the administrative expenses among the Company and certain affiliates of FS Advisor. The
Company's board of trustees then assesses the reasonableness of such reimbursements for expenses allocated to the Company based on the breadth, depth and quality of such services as compared to the
estimated cost to the Company of obtaining similar services from third-party providers known to be available. In addition, the Company's board of trustees considers whether any single third-party
service provider would be capable of providing all such

24

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 4. Related Party Transactions (Continued)

services
at comparable cost and quality. Finally, the Company's board of trustees, among other things, compares the total amount paid to FS Advisor for such services as a percentage of the Company's
net assets to the same ratio as reported by other comparable BDCs. The Company will not reimburse FS Advisor for any services for which it receives a separate fee, or for rent, depreciation,
utilities, capital equipment or other administrative items allocated to a controlling person of FS Advisor.

Under
the investment advisory and administrative services agreement, the Company, either directly or through reimbursement to FS Advisor or its affiliates, is responsible for its
organization and offering costs in an amount up to 1.5% of gross proceeds raised in the Company's continuous public offering. Organization and offering costs primarily include legal, accounting,
printing and other expenses relating to the Company's continuous public offering, including costs associated with technology integration between the Company's systems and those of its selected
broker-dealers, marketing expenses, salaries and direct expenses of FS Advisor's personnel, employees of its affiliates and others while engaged in registering and marketing the Company's common
shares, which includes the development of marketing materials and presentations, training and educational meetings, and generally coordinating the marketing process for the Company.

Prior
to satisfaction of the minimum offering requirement and for a period of time thereafter, Franklin Square Holdings funded certain of the Company's organization and offering costs.
Following this period, the Company paid certain of its organization and offering costs directly and reimbursed FS Advisor for offering costs incurred by FS Advisor on the Company's behalf, including
marketing expenses, salaries and other direct expenses of FS Advisor's personnel and employees of its affiliates while engaged in registering and marketing the Company's common shares. Organization
and offering costs funded directly by Franklin Square Holdings were recorded by the Company as a contribution to capital. These offering costs were offset against capital in excess of par value on the
consolidated financial statements and organization costs were charged to expense as incurred by the Company. All other offering costs, including costs incurred directly by the Company, amounts
reimbursed to FS Advisor for ongoing offering costs and any reimbursements paid to Franklin Square Holdings for organization and offering costs previously funded, are recorded as a reduction of
capital. Commencing January 1, 2016, offering costs incurred by the Company are deferred and amortized as an expense over twelve months (see Note 2).

The
dealer manager for the Company's continuous public offering is FS2 Capital Partners, LLC, or FS2, which is one of the Company's affiliates. Under
the dealer manager agreement among the Company, FS Advisor and FS2, or the dealer manager agreement, FS2 is entitled to receive sales commissions and dealer manager fees in
connection with the sale of common shares in the Company's continuous public offering, all or a portion of which may be re-allowed to selected broker-dealers and financial representatives.

25

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 4. Related Party Transactions (Continued)

The
following table describes the fees and expenses accrued under the investment advisory and administrative services agreement and the dealer manager agreement during the three and six
months ended June 30, 2016 and 2015:

Three Months
Ended June 30,

Six Months
Ended June 30,Related PartySource Agreement

Description

2016

2015

2016

2015FS Advisor

Investment Advisory and Administrative Services Agreement

Base Management Fee(1)

$
18,398

$
19,392

$
35,639

$
38,137FS Advisor

Investment Advisory and Administrative Services Agreement

Subordinated Incentive Fee on Income(2)




$
6,478

$
5,774

$
9,357FS Advisor

Investment Advisory and Administrative Services Agreement

Administrative Services Expenses(3)

$
883

$
761

$
1,767

$
2,261FS Advisor

Investment Advisory and Administrative Services Agreement

Offering Costs(4)

$
1,657

$
1,409

$
2,370

$
3,033FS2

Dealer Manager Agreement

Dealer Manager Fee(5)

$
2,639

$
2,129

$
4,118

$
5,346


(1)During
the six months ended June 30, 2016 and 2015, $35,579 and $36,657, respectively, in base management fees were paid to FS Advisor. As of
June 30, 2016, $18,398 in base management fees were payable to FS Advisor.(2)During
the six months ended June 30, 2016 and 2015, $17,822 and $15,021, respectively, of subordinated incentive fees on income were paid to FS
Advisor. As of June 30, 2016, the Company did not have a subordinated incentive fee on income payable to FS Advisor.(3)During
the six months ended June 30, 2016 and 2015, $1,708 and $2,124, respectively, of the accrued administrative services expenses related to the
allocation of costs of administrative personnel for services rendered to the Company by FS Advisor and the remainder related to other reimbursable expenses. The Company paid $2,106 and $1,882 in
administrative services expenses to FS Advisor during the six months ended June 30, 2016 and 2015, respectively.(4)During
the six months ended June 30, 2016 and 2015, the Company incurred offering costs of $2,700 and $5,350, respectively, of which $2,370 and
$3,033, respectively, related to reimbursements to FS Advisor for offering costs incurred on the Company's behalf, including marketing expenses, salaries and other direct expenses of FS Advisor's
personnel and employees of its affiliates while engaged in registering and marketing the Company's common shares. See Note 2 for a discussion regarding the Company's change in accounting
treatment of offering costs.(5)Represents
aggregate dealer manager fees retained by FS2 and not re-allowed to selected broker-dealers and financial representatives.


Capital Contribution by FS Advisor and GSO

In December 2010, Michael C. Forman and David J. Adelman, the principals of FS Advisor, contributed an aggregate of $200 to purchase
22,444 common shares (as adjusted for share distributions) at $8.91 per share, which represents the initial public offering price (as adjusted for share distributions), net of selling commissions and
dealer manager fees. The principals have agreed not to tender these common shares for repurchase as long as FS Advisor remains the Company's investment adviser.

In
April 2011, pursuant to a private placement, Messrs. Forman and Adelman agreed to purchase, through affiliated entities controlled by each of them, 224,444 additional common
shares (as adjusted for share distributions) at $8.91 per share (as adjusted for share distributions). The principals have agreed not to tender these common shares for repurchase as long as FS Advisor
remains the Company's investment adviser. In connection with the same private placement, certain members of the Company's board of trustees and other individuals and entities affiliated with FS
Advisor agreed to purchase 1,459,320 common shares (as adjusted for share distributions), and certain individuals and entities affiliated with GSO agreed to purchase 561,111 common shares (as adjusted
for share distributions), in each case at a price of $8.91 per share (as adjusted for share distributions). In

26

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 4. Related Party Transactions (Continued)

connection
with the private placement, the Company issued an aggregate of 2,244,875 common shares (as adjusted for share distributions) for aggregate proceeds of $20,004, upon satisfaction of the
minimum offering requirement on July 18, 2011. As of July 26, 2016, the Company has issued an aggregate of 5,656,033 common shares (as adjusted for share distributions) for aggregate
gross proceeds of $47,588 to members of its board of trustees and individuals and entities affiliated with FS Advisor and GSO, including common shares sold to Messrs. Forman and Adelman in
December 2010 and common shares sold in the private placement conducted in April 2011.

Potential Conflicts of Interest

FS Advisor's senior management team is comprised of substantially the same personnel as the senior management teams of FB Income
Advisor, LLC, FSIC II Advisor, LLC, FSIC III Advisor, LLC, FSIC IV Advisor, LLC and FS Global Advisor, LLC, the investment advisers to Franklin Square Holdings'
other affiliated BDCs and affiliated closed-end management investment company. As a result, such personnel provide investment advisory services to the Company and each of FS Investment Corporation, FS
Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV and FS Global Credit Opportunities Fund. While none of FS Advisor, FB Income Advisor, LLC,
FSIC II Advisor, LLC, FSIC III Advisor, LLC, FSIC IV Advisor, LLC or FS Global Advisor, LLC is currently making private corporate debt investments for clients other
than the Company, FS Investment Corporation, FS Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV or FS Global Credit Opportunities Fund, respectively, any,
or all, may do so in the future. In the event that FS Advisor undertakes to provide investment advisory services to other clients in the future, it intends to allocate investment opportunities in a
fair and equitable manner consistent with the Company's investment objectives and strategy, if necessary, so that the Company will not be disadvantaged in relation to any other client of FS Advisor or
its management team. In addition, even in the absence of FS Advisor retaining additional clients, it is possible that some investment opportunities may be provided to FS Investment Corporation, FS
Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV and/or FS Global Credit Opportunities Fund rather than to the Company.

Exemptive Relief

As a BDC, the Company is subject to certain regulatory restrictions in making its investments. For example, BDCs generally are not
permitted to co-invest with certain affiliated entities in transactions originated by the BDC or its affiliates in the absence of an exemptive order from the SEC. However, BDCs are permitted to, and
may, simultaneously co-invest in transactions where price is the only negotiated term. In an order dated June 4, 2013, the SEC granted exemptive relief permitting the Company, subject to the
satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions with certain affiliates of FS Advisor, including FS Investment Corporation, FS Investment
Corporation II, FS Investment Corporation III, FS Investment Corporation IV, and any future BDCs that are advised by FS Advisor or its affiliated investment advisers, or collectively the Company's
co-investment affiliates. The Company believes this relief has and may continue to enhance its ability to further its investment objectives and strategy. The Company believes this relief may also
increase favorable investment opportunities for the Company, in part, by allowing it to participate in larger investments, together with the Company's co-investment affiliates, than would be available
to it if such relief had not been obtained. Because the Company did not seek exemptive relief to engage in co-investment transactions with its investment sub-adviser, GSO, and its affiliates, it will
continue to be permitted to co-invest with GSO and its affiliates only in accordance with existing regulatory guidance (e.g., where price is the only negotiated term).

27

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 4. Related Party Transactions (Continued)

Expense Reimbursement

Pursuant to an expense support and conditional reimbursement agreement, amended and restated as of May 16, 2013, or, the expense
reimbursement agreement, Franklin Square Holdings has agreed to reimburse the Company for expenses in an amount that is sufficient to ensure that no portion of the Company's distributions to
shareholders will be paid from its offering proceeds or borrowings. However, because certain investments the Company may make, including preferred and common equity investments, may generate dividends
and other distributions to the Company that are treated for tax purposes as a return of capital, a portion of the Company's distributions to shareholders may also be deemed to constitute a return of
capital for tax purposes to the extent that the Company may use such dividends or other distribution proceeds to fund its distributions to shareholders. Under those circumstances, Franklin Square
Holdings will not reimburse the Company for the portion of such distributions to shareholders that represent a return of capital for tax purposes, as the purpose of the expense reimbursement
arrangement is not to prevent tax-advantaged distributions to shareholders.

Under
the expense reimbursement agreement, Franklin Square Holdings will reimburse the Company quarterly for expenses in an amount equal to the difference between the Company's
cumulative distributions paid to its shareholders in each quarter, less the sum of the Company's net investment company taxable income, net capital gains and dividends and other distributions paid to
the Company on account of preferred and common equity investments in portfolio companies (to the extent such amounts are not included in net investment company taxable income or net capital gains) in
each quarter.

Pursuant
to the expense reimbursement agreement, the Company has a conditional obligation to reimburse Franklin Square Holdings for any amounts funded by Franklin Square Holdings under
such agreement if (and only to the extent that), during any fiscal quarter occurring within three years of the date on which Franklin Square Holdings funded such amount, the sum of the Company's net
investment company taxable income, net capital gains and the amount of any dividends and other distributions paid to the Company on account of preferred and common equity investments in portfolio
companies (to the extent not included in net investment company taxable income or net capital gains) exceeds the distributions paid by the Company to its shareholders; provided, however, that
(i) the Company will only reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings with respect to any calendar quarter beginning on or after
July 1, 2013 to the extent that the payment of such reimbursement (together with any other reimbursement paid during such fiscal year) does not cause "other operating expenses" (as defined
below) (on an annualized basis and net of any expense support payments received by the Company during such fiscal year) to exceed the lesser of (A) 1.75% of the Company's average net assets
attributable to its common shares for the fiscal year-to-date period after taking such payments into account and (B) the percentage of the Company's average net assets attributable to its
common shares represented by "other operating expenses" during the fiscal year in which such expense support payment from Franklin Square Holdings was made (provided, however, that this
clause (B) shall not apply to any reimbursement payment which relates to an expense support payment from Franklin Square Holdings made during the same fiscal
year) and (ii) the Company will not reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings if the aggregate amount of distributions per share declared
by the Company in such calendar quarter is less than the aggregate amount of distributions per share declared by the Company in the calendar quarter in which Franklin Square Holdings made the expense
support payment to which such reimbursement relates. The Company is not obligated to pay interest on the payments it receives from Franklin Square Holdings. "Other operating expenses" means the
Company's total "operating expenses" (as defined below), excluding base management fees, incentive fees, organization and offering expenses, financing fees and costs, interest expense, brokerage
commissions

28

---



Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 4. Related Party Transactions (Continued)

and
extraordinary expenses. "Operating expenses" means all operating costs and expenses incurred, as determined in accordance with GAAP for investment companies.

The
Company or Franklin Square Holdings may terminate the expense reimbursement agreement at any time. The specific amount of expenses reimbursed by Franklin Square Holdings, if any,
will be determined at the end of each quarter. Upon termination of the expense reimbursement agreement by Franklin Square Holdings, Franklin Square Holdings will be required to fund any amounts
accrued thereunder as of the date of termination. Similarly, the Company's conditional obligation to reimburse Franklin Square Holdings pursuant to the terms of the expense reimbursement agreement
shall survive the termination of such agreement by either party.

Franklin
Square Holdings is controlled by the Company's chairman, president and chief executive officer, Michael C. Forman, and the Company's vice-chairman, David J. Adelman. There can
be no assurance that the expense reimbursement agreement will remain in effect or that Franklin Square Holdings will reimburse any portion of the Company's expenses in future quarters.

As
of June 30, 2016, the Company had no reimbursements due from Franklin Square Holdings and no further amounts remained subject to repayment by the Company to Franklin Square
Holdings in the future.

FS Benefit Trust

On May 30, 2013, FS Benefit Trust was formed as a Delaware statutory trust for the purpose of awarding equity incentive
compensation to employees of Franklin Square Holdings and its affiliates. During the six months ended June 30, 2016 and 2015, FS Benefit Trust purchased $142 and $104, respectively, of the
Company's common shares at a purchase price equal to 90% of the public offering price in effect on the applicable purchase date.

Note 5. Distributions

The following table reflects the cash distributions per share that the Company declared and paid on its common shares during the six months ended June 30, 2016 and 2015:

DistributionFor the Three Months Ended

Per Share

AmountFiscal 2015March 31, 2015

$
0.1771

$
54,825June 30, 2015

$
0.1771

$
58,250Fiscal 2016March 31, 2016

$
0.1771

$
66,720June 30, 2016

$
0.1771

$
70,788


The
Company authorizes and declares ordinary cash distributions on a weekly basis and pays such distributions on a monthly basis. On June 6, 2016, July 7, 2016 and
August 8, 2016, the Company's board of trustees declared regular weekly cash distributions for July 2016, August 2016 and September 2016, respectively. These distributions have been or will be
paid monthly to shareholders of record as of weekly record dates previously determined by the Company's board of trustees in the amount of $0.013625 per share. The timing and amount of any future
distributions to shareholders are subject to applicable legal restrictions and the sole discretion of the Company's board of trustees.

29

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 5. Distributions (Continued)

The Company has adopted an "opt in" distribution reinvestment plan for its shareholders. As a result, if the Company makes a cash distribution, its shareholders will receive
distributions in cash unless they specifically "opt in" to the distribution reinvestment plan so as to have their cash distributions reinvested in additional common shares. However, certain state
authorities or regulators may impose restrictions from time to time that may prevent or limit a shareholder's ability to participate in the distribution reinvestment plan.

The
Company may fund its cash distributions to shareholders from any sources of funds legally available to it, including offering proceeds, borrowings, net investment income from
operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to the Company on account of preferred and common
equity investments in portfolio companies and expense reimbursements from Franklin Square Holdings. The Company has not established limits on the amount of funds it may use from available sources to
make distributions.

For
a period of time following commencement of the Company's continuous public offering, substantial portions of the Company's distributions were funded through the reimbursement of
certain expenses by Franklin Square Holdings and its affiliates, including through the waiver of certain investment advisory fees by FS Advisor, that were subject to repayment by the Company within
three years. The purpose of this arrangement was to ensure that no portion of the Company's distributions to shareholders was paid from offering proceeds or borrowings. Any such distributions funded
through expense reimbursements or waivers of advisory fees were not based on the Company's investment performance.

No
portion of the distributions paid during the six months ended June 30, 2016 or 2015 was funded through the reimbursement of operating expenses by Franklin Square Holdings.
During the six months ended June 30, 2016 and 2015, the Company did not repay any amounts to Franklin Square Holdings for expenses previously reimbursed or waived. There can be no
assurance that the Company will continue to achieve the performance necessary to sustain its distributions or that the Company will be able to pay distributions at a specific rate or at all. Franklin
Square Holdings and its affiliates have no obligation to waive advisory fees or otherwise reimburse expenses in future periods.

The
following table reflects the sources of the cash distributions on a tax basis that the Company paid on its common shares during the six months ended June 30, 2016 and 2015:

Six Months Ended June 30,2016

2015Source of Distribution

Distribution
Amount

Percentage

Distribution
Amount

PercentageOffering proceeds

$





$



Borrowings











Net investment income(1)


137,508


100
%

99,484


88
%Short-term capital gains proceeds from the sale of assets











Long-term capital gains proceeds from the sale of assets








13,591


12
%Non-capital gains proceeds from the sale of assets











Distributions on account of limited partnership interest











Expense reimbursement from sponsor











​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
137,508


100
%
$
113,075


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)During
the six months ended June 30, 2016 and 2015, 89.8% and 91.2%, respectively, of the Company's gross investment income was attributable to cash
income earned, 2.7% and 1.7%,


30

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 5. Distributions (Continued)

respectively,
was attributable to non-cash accretion of discount and 7.5% and 7.1%, respectively, was attributable to paid-in-kind, or PIK, interest.


The
Company's net investment income on a tax basis for the six months ended June 30, 2016 and 2015 was $131,526 and $110,999, respectively. As of June 30, 2016 and
December 31, 2015, the Company had $10,454 and $16,436, respectively, of undistributed ordinary income on a tax basis and distributable income received from a limited partnership interest. As
of June 30, 2016, the Company had excess undistributed ordinary income on a tax basis of $3,596. During the last twelve months, the Company's distributions exceeded tax-basis net investment
income by $8,576. Over the same period, $16,873 of the Company's tax-basis net investment income was generated by fee income, which is generally non-recurring in nature and the full amount of which is
recorded as revenue when earned. Excluding
fee income from net investment income during the last twelve months, the Company would have had distributions in excess of tax-basis net investment income of $25,449. No portion of the distributions
paid during the six months ended June 30, 2016 or 2015 was funded from offering proceeds or borrowings.

During
the six months ended June 30, 2016, the Company saw positive developments in its investment portfolio and a subsequent increase in its net asset value. However, the Company
anticipates that certain investments in the portfolio may need to be restructured or may experience defaults. These restructurings and defaults may have an impact on the level of income received by
the Company. As a result, the Company is evaluating the current distribution rate payable on its common shares and there can be no assurance that the Company will be able to maintain a weekly cash
distribution amount of $0.013625 per common share. FS Advisor will waive its incentive fees and may waive a portion of its management fee through the third quarter of 2016 to ensure that no portion of
the Company's distributions to shareholders is paid from offering proceeds or borrowings.

The
difference between the Company's GAAP-basis net investment income and its tax-basis net investment income was primarily due to the reclassification of unamortized original issue
discount and prepayment fees recognized upon prepayment of loans from income for GAAP purposes to realized gains for tax purposes, the impact of certain subsidiaries that are consolidated for purposes
of computing GAAP-basis net investment income but are not consolidated for purposes of computing tax-basis net investment income and income recognized for tax purposes on certain transactions.

The
following table sets forth a reconciliation between GAAP-basis net investment income and tax-basis net investment income during the six months ended June 30, 2016 and 2015:

Six Months Ended
June 30,2016

2015GAAP-basis net investment income

$
119,416

$
108,389Income on limited partnership interest





(610
)Reclassification of unamortized original issue discount and prepayment fees


(2,071
)

(1,109
)GAAP vs. tax-basis consolidation of subsidiaries


5,643


4,562Income subject to tax not recorded for GAAP


7,925


Other miscellaneous differences


613


(233
)​
​
​
​
​
​
​
​Tax-basis net investment income

$
131,526

$
110,999​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


The
determination of the tax attributes of the Company's distributions is made annually as of the end of the Company's fiscal year based upon the Company's taxable income for the full
year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of the Company's distributions for a full
year. The actual tax

31

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 5. Distributions (Continued)

characteristics
of distributions to shareholders are reported to shareholders annually on Form 1099-DIV.

As
of June 30, 2016 and December 31, 2015, the components of accumulated earnings (deficit) on a tax basis were as follows:

June 30, 2016
(Unaudited)

December 31, 2015Distributable ordinary income

$
3,596

$
9,578Distributable capital gains (accumulated capital losses)(1)


(274,198
)

(200,191
)Other temporary differences


68


56Net unrealized appreciation (depreciation) on investments and unrealized gain/loss on foreign currency(2)


(470,499
)

(831,920
)​
​
​
​
​
​
​
​Total

$
(741,033
)
$
(1,022,477
)​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(1)Under
the Regulated Investment Company Modernization Act of 2010, net capital losses recognized for tax years beginning after December 22, 2010, may
be carried forward indefinitely, and their character is retained as short-term or long-term capital losses, as applicable. As of June 30, 2016 and December 31, 2015, the Company had
capital loss carryforwards available to offset future capital gains of $274,198 and $200,191, respectively.(2)As
of June 30, 2016 and December 31, 2015, the gross unrealized appreciation on the Company's investments and unrealized gain on foreign
currency was $196,154 and $44,089, respectively. As of June 30, 2016 and December 31, 2015, the gross unrealized depreciation on the Company's investments and unrealized loss on foreign
currency was $666,653 and $876,009, respectively.


The
aggregate cost of the Company's investments for federal income tax purposes totaled $4,000,905 and $3,895,733 as of June 30, 2016 and December 31, 2015, respectively.
The aggregate net unrealized appreciation (depreciation) on a tax basis was $(470,499) and $(831,920) as of June 30, 2016 and December 31, 2015, respectively.

As
of June 30, 2016 and December 31, 2015, the Company had deferred tax liabilities of $28,666 and $23,252, respectively, resulting from unrealized appreciation on
investments held by the Company's wholly-owned taxable subsidiaries and deferred tax assets of $47,616 and $33,224, respectively, resulting from net operating losses of the Company's wholly-owned
taxable subsidiaries. As of June 30, 2016 and December 31, 2015, net operating losses generated by certain wholly-owned taxable subsidiaries exceeded the ability to use all of the net
operating losses, therefore the deferred tax assets were offset by valuation allowances of $18,950 and $9,972, respectively. For the three and six months ended June 30, 2015, the Company did
not record a provision for taxes related to wholly-owned taxable subsidiaries.

32

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 6. Investment Portfolio

The following table summarizes the composition of the Company's investment portfolio at cost and fair value as of June 30, 2016 and December 31, 2015:

June 30, 2016
(Unaudited)

December 31, 2015Amortized
Cost(1)

Fair Value

Percentage
of Portfolio

Amortized
Cost(1)

Fair Value

Percentage
of PortfolioSenior Secured LoansFirst Lien

$
934,804

$
828,954


24
%
$
1,055,070

$
929,790


30
%Senior Secured LoansSecond Lien


1,203,034


991,982


28
%

1,213,716


923,402


30
%Senior Secured Bonds


405,574


361,914


10
%

445,475


323,948


11
%Subordinated Debt


953,870


810,812


23
%

860,872


579,740


19
%Equity/Other


492,497


545,941


15
%

319,274


312,618


10
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,989,779

$
3,539,603


100
%
$
3,894,407

$
3,069,498


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)Amortized
cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.


As
of June 30, 2016, except for FourPoint Energy, LLC, in which the Company held a senior secured bond and four equity/other investments, Sunnova Energy Corp., in which the
Company held two equity/other investments, Sunnova Asset Portfolio 5 Holdings, LLC, in which the Company held a first lien senior secured loan, and Lusk Operating LLC, in which the
Company held a first lien senior secured loan and an equity/other investment, the Company was not an "affiliated person" of any of its portfolio companies, as defined in the 1940 Act. As of
June 30, 2016, except for Lusk Operating LLC, in which the Company held a first lien senior secured loan and an equity/other investment, the Company did not "control" any of its
portfolio companies, as defined in the 1940 Act.

As
of December 31, 2015, except for FourPoint Energy, LLC, in which the Company held a senior secured bond and two equity/other investments, Sunnova Holdings, LLC,
in which the Company held one equity/other investment and its wholly-owned subsidiary Sunnova Asset Portfolio 5 Holdings, LLC, in which the Company held one first lien senior secured loan, the
Company was not an "affiliated person" of any of its portfolio companies, as defined in the 1940 Act. As of December 31, 2015, except for Sunnova Holdings, LLC, in which the Company held
one equity/other investment and its wholly-owned subsidiary Sunnova Asset Portfolio 5 Holdings, LLC, in which the Company held one first lien senior secured loan, the Company did not "control"
any of its portfolio companies, as defined in the 1940 Act.

In
general, under the 1940 Act, the Company would be presumed to "control" a portfolio company if it owned more than 25% of its voting securities or it had the power to exercise control
over the management or policies of a portfolio company, and would be an "affiliated person" of a portfolio company if it owned 5% or more of its voting securities.

33

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 6. Investment Portfolio (Continued)

The Company's investment portfolio may contain loans or bonds that are in the form of lines of credit or revolving credit facilities, or other investments, pursuant to which the Company
may be required to provide funding when requested by portfolio companies in accordance with the terms of the underlying agreements. As of June 30, 2016, the Company had three senior secured
loan investments with aggregate unfunded commitments of $35,858 and four equity/other investments with aggregate unfunded commitments of $14,908. As of June 30, 2016, these unfunded
equity/other investments were Altus Power America Holdings, LLC, BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest, and Synergy
Offshore LLC. As of December 31, 2015, the Company had four senior secured loan investments with aggregate unfunded commitments of $67,365, one senior secured bond investment with an
unfunded commitment of $18,470 and five equity/other investments with aggregate unfunded commitments of $33,890. As of December 31, 2015, these unfunded equity/other investments were Altus
Power America Holdings, LLC, BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest, Sunnova Holdings, LLC and Synergy
Offshore LLC. The Company maintains sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.

The
table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of June 30, 2016
and December 31, 2015:

June 30, 2016
(Unaudited)

December 31, 2015Industry Classification

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of PortfolioUpstream

$
2,085,271


59
%
$
1,689,705


55
%Midstream


265,783


8
%

215,906


7
%Downstream


39,783


1
%

12,195


0
%Power


505,525


14
%

519,593


17
%Service & Equipment


643,241


18
%

632,099


21
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,539,603


100
%
$
3,069,498


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


Note 7. Fair Value of Financial Instruments

Under existing accounting guidance, fair value is defined as the price that the Company would receive upon selling an investment or pay to transfer a liability in an orderly transaction
to a market participant in the principal or most advantageous market for the investment. This accounting guidance emphasizes that valuation techniques maximize the use of observable market inputs and
minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be
observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from
sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on the best information
available in the circumstances. The Company classifies the inputs used to measure these fair values into the following hierarchy as defined by current accounting guidance:

Level 1:Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:Inputs that are quoted prices for similar assets or liabilities in active markets.

Level 3:Inputs that are unobservable for an asset or liability.

34

---



Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 7. Fair Value of Financial Instruments (Continued)

A
financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

As
of June 30, 2016 and December 31, 2015, the Company's investments were categorized as follows in the fair value hierarchy:

Valuation Inputs

June 30, 2016
(Unaudited)

December 31, 2015Level 1Price quotations in active markets

$


$
Level 2Significant other observable inputs





Level 3Significant unobservable inputs


3,539,603


3,069,498​
​
​
​
​
​
​
​Total

$
3,539,603

$
3,069,498​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


The
Company's investments as of June 30, 2016 consisted primarily of debt investments that were acquired directly from the issuer. Nineteen senior secured loan investments, two
senior secured bond investments and six subordinated debt investments were valued by independent valuation firms, which determined the fair value of such investments by considering, among other
factors, the borrower's ability to adequately service its debt, prevailing interest rates for like investments, call features, anticipated prepayments and other relevant terms of the debt. All of the
Company's equity/other investments were valued by an independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to
such investments, as well as various income scenarios and multiples of earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues or, in limited
instances, book value or liquidation value. Except as described above, the Company valued its other investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of
the relevant period end, which were provided by an independent third-party pricing service and screened for validity by such service.

The
Company's investments as of December 31, 2015 consisted primarily of debt investments that were acquired directly from the issuer. Twenty senior secured loan investments, two
senior secured bond investments and five subordinated debt investments were valued by independent valuation firms, which determined the fair value of such investments by considering, among other
factors, the borrower's ability to adequately service its debt, prevailing interest rates for like investments, call features, anticipated prepayments and other relevant terms of the debt. All of the
Company's equity/other investments were valued by an independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to
such investments, as well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. Except as described above,
the Company valued its other investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by an independent
third-party pricing service and screened for validity by such service.

The
Company periodically benchmarks the bid and ask prices it receives from the third-party pricing service and/or dealers, as applicable, against the actual prices at which the Company
purchases and sells its investments. Based on the results of the benchmark analysis and the experience of the Company's management in purchasing and selling these investments, the Company believes
that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), the Company believes that
these valuation inputs are classified as Level 3 within the fair value hierarchy. The Company may also use other methods, including the use of independent valuation firms, to determine fair
value for securities for

35

---



Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 7. Fair Value of Financial Instruments (Continued)

which
it cannot obtain prevailing bid and ask prices through third-party pricing services or independent dealers or where the Company's board of trustees otherwise determines that the use of such
other method is appropriate. The Company periodically benchmarks the valuations provided by the independent valuation firms against the actual prices at which it purchases and sells its investments.
The valuation committee of the board of trustees, or the valuation committee, and the board of
trustees reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with the Company's valuation policy.

The
following is a reconciliation for the six months ended June 30, 2016 and 2015 of investments for which significant unobservable inputs (Level 3) were used in
determining fair value:

For the Six Months Ended June 30, 2016Senior
Secured
Loans
First Lien

Senior
Secured
Loans
Second Lien

Senior
Secured
Bonds

Subordinated
Debt

Equity/
Other

TotalFair value at beginning of period

$
929,790

$
923,402

$
323,948

$
579,740

$
312,618

$
3,069,498Accretion of discount (amortization of premium)


2,722


710


843


2,267


888


7,430Net realized gain (loss)


(18,783
)

(1,279
)

(1,310
)

(54,712
)

6


(76,078
)Net change in unrealized appreciation (depreciation)


19,430


79,262


77,867


138,074


60,100


374,733Purchases


124,972


26,753


44,470


174,433


254,660


625,288Paid-in-kind interest


6,690


3,159


468


527


3,067


13,911Sales and redemptions


(235,867
)

(40,025
)

(84,372
)

(29,517
)

(85,398
)

(475,179
)Net transfers in or out of Level 3

















​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Fair value at end of period

$
828,954

$
991,982

$
361,914

$
810,812

$
545,941

$
3,539,603​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to
investments still held at the reporting date

$
(13,901
)
$
91,001

$
56,746

$
113,517

$
60,100

$
307,463​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​




For the Six Months Ended June 30, 2015Senior
Secured
Loans
First Lien

Senior
Secured
Loans
Second Lien

Senior
Secured
Bonds

Subordinated
Debt

Equity/
Other

TotalFair value at beginning of period

$
854,825

$
989,972

$
285,485

$
940,313

$
304,582

$
3,375,177Accretion of discount (amortization of premium)


1,454


820


512


569


585


3,940Net realized gain (loss)


(13,350
)

15


(5,157
)

(40,018
)




(58,510
)Net change in unrealized appreciation (depreciation)


(3,090
)

9,247


12,468


52,154


(2,389
)

68,390Purchases


285,287


173,182


75,413


146,523


5,944


686,349Paid-in-kind interest


4,934


2,876








4,746


12,556Sales and redemptions


(145,424
)

(53,281
)

(35,090
)

(146,285
)




(380,080
)Net transfers in or out of Level 3

















​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Fair value at end of period

$
984,636

$
1,122,831

$
333,631

$
953,256

$
313,468

$
3,707,822​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to
investments still held at the reporting date

$
(5,277
)
$
8,375

$
9,153

$
182

$
(2,389
)
$
10,044​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


36

---



Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 7. Fair Value of Financial Instruments (Continued)

The
valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements as of June 30, 2016 and December 31, 2015 were as
follows:

Type of Investment

Fair Value at
June 30, 2016
(Unaudited)

Valuation Technique(1)

Unobservable Input

Range

Weighted
AverageSenior Secured Loans
First Lien

$
489,096

Market Comparables

Market Yield (%)

8.5% - 17.3%


12.0
%Proved Reserves Multiples (Mmboe)

$11.3 - $11.8


$11.5PV-10 Multiples (x)

1.0x - 1.2x


1.1x91,166

Other(2)

Other(2)

N/A


N/A248,692

Market Quotes

Indicative Dealer Quotes

60.0% - 102.5%


86.0
%Senior Secured LoansSecond
Lien


467,451

Market Comparables

Market Yield (%)

8.5% - 22.8%


15.0
%192,714

Other(2)

Other(2)

N/A


N/A331,817

Market Quotes

Indicative Dealer Quotes

14.8% - 100.3%


79.6
%Senior Secured Bonds


284,855

Market Comparables

Market Yield (%)

9.5% - 14.3%


10.5
%77,059

Market Quotes

Indicative Dealer Quotes

40.3% - 100.8%


77.7
%Subordinated Debt


119,054

Market Comparables

Market Yield (%)

8.8% - 15.3%


11.8
%691,758

Market Quotes

Indicative Dealer Quotes

12.0% - 106.8%


87.0
%Equity/Other


514,840

Market Comparables

Market Yield (%)

11.3% - 12.3%


11.8
%EBITDA Multiples (x)

5.3x - 16.8x


13.0xProduction Multiples (Mboe/d)

$35,000.0 - $77,500.0


$40,496.5Proved Reserves Multiples (Mmboe)

$8.0 - $12.5


$8.7PV-10 Multiples (x)

0.4x - 2.4x


0.7xCapacity Multiple ($/kW)

$2,000.0 - $2,500.0


$2,250.0Undeveloped Acreage Multiple ($/acre)

$8,000.0 - $10,000.0


$9,000.0Discounted Cash Flow

Discount Rate (%)

9.1% - 23.6%


23.0
%Option Valuation Model

Volatility (%)

70.0% - 70.0%


70.0
%31,101

Other(2)

Other(2)

N/A


N/A​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,539,603​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)Investments
using a market quotes valuation technique were valued by using the midpoint of the prevailing bid and ask prices from dealers on the date of the
relevant period end, which were provided by an independent third-party pricing service and screened for validity by such service. For investments utilizing a market comparables valuation technique, a
significant increase (decrease) in the market yield, in isolation, would result in a significantly lower (higher) fair value measurement, and a significant increase (decrease) in any of the valuation
multiples, in isolation, would result in a significantly higher (lower) fair value measurement. For investments utilizing a discounted cash flow valuation technique, a significant increase (decrease)
in the discount rate, in isolation, would result in a significantly lower (higher) fair value measurement. For investments utilizing an option valuation model valuation technique, a significant
increase (decrease) in the volatility, in isolation, would result in a significantly higher (lower) fair value measurement.(2)Fair
valued based on expected outcome of proposed corporate transactions, the expected value of the liquidation preference of the investment or other
factors.


37

---



Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 7. Fair Value of Financial Instruments (Continued)

Type of Investment

Fair Value at
December 31, 2015

Valuation Technique(1)

Unobservable Input

Range

Weighted
AverageSenior Secured Loans
First Lien

$
670,131

Market Comparables

Market Yield (%)

8.5% - 19.0%

13.0
%Production Multiples (Mmb/d)

$95,000.0 - $100,000.0

$97,500.0Proved Reserves Multiples (Mmboe)

$7.8 - $8.3

$8.0PV-10 Multiples (x)

0.4x - 0.4x

0.4x259,659

Market Quotes

Indicative Dealer Quotes

46.5% - 100.3%

77.8
%Senior Secured LoansSecond Lien


632,912

Market Comparables

Market Yield (%)

9.3% - 19.9%

14.8
%290,490

Market Quotes

Indicative Dealer Quotes

1.8% - 96.0%

73.1
%Senior Secured Bonds


274,173

Market Comparables

Market Yield (%)

14.0% - 16.5%

14.6
%49,775

Market Quotes

Indicative Dealer Quotes

14.0% - 96.8%

65.0
%Subordinated Debt


64,875

Market Comparables

Market Yield (%)

17.3% - 17.8%

17.5
%508,593

Market Quotes

Indicative Dealer Quotes

19.9% - 99.0%

73.2
%6,272

Other(2)

Other(2)

N/A

N/AEquity/Other


284,300

Market Comparables

Market Yield (%)

13.0% - 14.0%

13.5
%EBITDA Multiples (x)

5.0x - 14.3x

9.9xProduction Multiples (Mmb/d)

$50,000.0 - $100,000.0

$56,271.9Proved Reserves Multiples (Mmboe)

$7.8 - $14.0

$9.0PV-10 Multiples (x)

0.4x - 1.0x

0.5xCapacity Multiple ($/kW)

$2,000.0 - $2,500.0

$2,250.0Discounted Cash Flow

Discount Rate (%)

12.0% - 31.3%

30.1
%28,318

Other(2)

Other(2)

N/A

N/A​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,069,498​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​


(1)Investments
using a market quotes valuation technique were valued by using the midpoint of the prevailing bid and ask prices from dealers on the date of the
relevant period end, which were provided by an independent third-party pricing service and screened for validity by such service. For investments utilizing a market comparables valuation technique, a
significant increase (decrease) in the market yield, in isolation, would result in a significantly lower (higher) fair value measurement, and a significant increase (decrease) in any of the valuation
multiples, in isolation, would result in a significantly higher (lower) fair value measurement. For investments utilizing a discounted cash flow valuation technique, a significant increase (decrease)
in the discount rate, in isolation, would result in a significantly lower (higher) fair value measurement.(2)Fair
valued based on expected outcome of proposed corporate transactions, the expected value of the liquidation preference of the investment or other
factors.


Note 8. Financing Arrangements

The following table presents a summary of information with respect to the Company's outstanding financing arrangements as of June 30, 2016. For additional information regarding
these financing arrangements, please see the notes to the Company's audited consolidated financial statements contained in its annual report on Form 10-K for the fiscal year ended
December 31, 2015 and the additional disclosure set forth in this Note 8.

Facility

Type of
Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity DateBarclays Facility

Revolving

L+3.25%




$
100,000

May 18, 2021BNP Facility

Prime Brokerage

L+1.10%

$
113,737

$
186,263

March 27, 2017(1)Deutsche Bank Credit Facility

Revolving

L+2.05%(2)

$
200,000

$
115,000

June 11, 2017Fortress Facility

Term

L+5.00%(3)

$
89,600

$
65,400

November 6, 2020Goldman Facility

Repurchase

L+2.75%

$
324,984

$
16

September 15, 2017Natixis Credit Facility

Revolving

CP+2.25%

$
88,969




July 11, 2023Wells Fargo Credit Facility

Revolving

L+2.50% to 2.75%

$
85,100

$
39,900

September 9, 2019


(1)As
described below, the BNP facility generally is terminable upon 270 days' notice by either party. As of June 30, 2016, neither Berwyn
Funding nor BNP had provided notice of its intent to terminate the facility.(2)Prior
to June 11, 2016, borrowings under the Deutsche Bank credit facility accrued interest at a rate equal to the London Interbank Offered Rate, or
LIBOR, plus 1.80% per annum. Beginning on June 11, 2016, borrowings under the Deutsche Bank credit facility accrue interest at a rate equal to LIBOR plus 2.05% per annum.(3)As
described below, borrowings under the Fortress facility accrue interest at a rate equal to LIBOR, plus 5.00%, subject to a floor of 0.75%.


38

---



Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 8. Financing Arrangements (Continued)

The
Company's average borrowings and weighted average interest rate, including the effect of non-usage fees, for the six months ended June 30, 2016 were $969,931 and 3.41%,
respectively. As of June 30, 2016, the Company's weighted average effective interest rate on borrowings was 3.20%.

Barclays Facility

On May 18, 2016, Bryn Mawr Funding LLC, or Bryn Mawr Funding, a wholly-owned subsidiary, entered into a revolving credit
facility, or the Barclays facility, with Barclays Bank PLC, or Barclays, as administrative agent, and the lenders from time to time party thereto. The Barclays facility provides for borrowings
in U.S. dollars and certain agreed upon foreign currencies in an aggregate amount of up to $100,000, including a subfacility for the issuance of letters of credit for Bryn Mawr Funding's account in an
aggregate face amount of up to $10,000. Bryn Mawr Funding's obligations to Barclays under the facility are secured by a first priority security interest in substantially all of the assets of Bryn Mawr
Funding, including its portfolio of assets and the assets of its subsidiaries, subject to customary exceptions. In addition, the Company has agreed to guaranty the obligations of Barclays and grant a
first priority lien in favor of Barclays, for the benefit of the lenders, on the membership interests in Bryn Mawr Funding.

The
Barclays facility provides for a four year revolving period followed by a one year term-out period, after which time all outstanding advances and other amounts will become due and
payable. Interest under the Barclays facility for (i) loans for which the Company elects the eurocurrency option is payable at a rate equal to LIBOR plus 3.25% per annum; and (ii) loans
for which the Company elects the base rate option is payable at a rate equal to 2.25% per annum plus the greatest of (a) the U.S. Prime Rate, (b) the federal funds effective rate for
such day plus 0.50%, (c) three-month LIBOR plus 1.00% per annum and (d) zero. Bryn Mawr Funding will pay a commitment fee of 0.375% per annum on the unused portion of the commitments
under the Barclays facility during the revolving period and letter of credit participation fees and a fronting fee on the average daily amount of any letters of credit issued under the Barclays
facility. Interest and fees are payable in arrears at the end of each interest period or three-month measurement period, as applicable, and, in each case, beginning on October 31, 2016.

As
of June 30, 2016, no amount was outstanding under the Barclays facility. The carrying amount outstanding under the facility approximates its fair value. The Company incurred
costs of $160 in connection with obtaining the facility, which the Company recorded as deferred financing costs on its consolidated balance sheet and amortizes to interest expense over the life of the
facility. As of June 30, 2016, $158 of such deferred financing costs had yet to be amortized to interest expense.

The
Company recorded interest expense under the Barclays facility of $47 for the three and six months ended June 30, 2016, of which $2 related to the amortization of deferred
financing costs and $45 related to commitment fees on the unused portion of the facility.

Borrowings
of Bryn Mawr Funding will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.

BNP Facility

On December 11, 2013, Berwyn Funding LLC, or Berwyn Funding, the Company's wholly-owned, special-purpose financing
subsidiary, entered into a committed facility arrangement, or the BNP facility, with BNP Paribas Prime Brokerage, Inc., or BNP. As amended to date, Berwyn Funding can borrow, from time to time,
up to $300,000 from BNP. The BNP facility was effected through a committed facility agreement by and between Berwyn Funding and BNP, or the committed facility agreement, a U.S. PB Agreement by and
between Berwyn Funding and BNP and a special custody and pledge

39

---



Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 8. Financing Arrangements (Continued)

agreement
by and among Berwyn Funding, BNP and State Street Bank and Trust Company, or State Street, as custodian, each dated as of December 11, 2013, as amended to date, and which are
collectively referred to herein as the BNP financing agreements.

The
Company may contribute securities to Berwyn Funding from time to time, subject to certain restrictions set forth in the committed facility agreement, and will retain a residual
interest in any securities contributed through its ownership of Berwyn Funding or will receive fair market value for any securities sold to Berwyn Funding. Berwyn Funding may purchase additional
securities from various sources. Berwyn Funding has appointed the Company to manage its portfolio of securities pursuant to the terms of an investment management agreement. Berwyn Funding will pledge
certain of its securities as collateral to secure borrowings under the BNP facility. Such pledged securities will be held in a segregated custody account with State Street. The value of securities
required to be pledged by Berwyn Funding is determined in accordance with the margin requirements described in the BNP financing agreements. Berwyn Funding's obligations to BNP under the facility are
secured by a first priority security interest in substantially all of the assets of Berwyn Funding, including its portfolio of securities. The obligations of Berwyn Funding under the facility are
non-recourse to the Company and the Company's exposure under the facility is limited to the value of the Company's investment in Berwyn Funding. On May 4, 2016, Berwyn Funding entered into an
amendment to the BNP financing arrangements that permits Berwyn Funding to enter into trades, including but not limited to purchasing options, through the prime brokerage arrangement provided under
the BNP financing arrangements.

Borrowings
under the BNP facility accrue interest at a rate equal to three-month London Interbank Offered Rate, or LIBOR, plus 1.10% per annum. Berwyn Funding is required to pay a
non-usage fee of 0.55% per annum to the extent the aggregate principal amount available under the facility is not borrowed. On May 4, 2016, Berwyn Funding entered into an amendment to the BNP
facility which will increase the (i) interest rate payable on borrowings to LIBOR plus 1.35% per annum effective on and after January 2, 2017 and (ii) the commitment fee payable
on all unused amounts to, effective on and after January 2, 2017, (a) 0.65% per annum on unused amounts so long as 75% or more of the facility amount is utilized or (b) 0.85% per
annum on unused amounts if less than 75% of the facility amount is utilized. Berwyn Funding may terminate the committed facility agreement upon 270 days' notice. Subject to certain cancellation
rights, and absent a default or facility termination event, BNP is required to provide Berwyn Funding with 270 days' notice prior to terminating or amending the committed facility agreement.

As
of June 30, 2016 and December 31, 2015, $113,737 was outstanding under the BNP facility. The carrying amount outstanding under the facility approximates its fair value.
The Company incurred costs of $449 in connection with obtaining and amending the facility, which the Company recorded as deferred financing costs on its consolidated balance sheets and amortized to
interest expense over the 270 day period following the closing date of the BNP facility or the amendment thereto, as applicable. As of June 30, 2016, all of the deferred financing costs
had been amortized to interest expense.

For
the three and six months ended June 30, 2016 and 2015, the components of total interest expense for the BNP facility were as follows:

Three Months Ended
June 30,

Six Months Ended
June 30,2016

2015

2016

2015Direct interest expense

$
502

$
777

$
999

$
1,536Non-usage fees


258


107


517


213Amortization of deferred financing costs





26





76​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
760

$
910

$
1,516

$
1,825​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


40

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 8. Financing Arrangements (Continued)

For
the six months ended June 30, 2016 and 2015, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the BNP
facility were as follows:

Six Months Ended
June 30,2016

2015Cash paid for interest expense(1)

$
1,525

$
2,070Average borrowings under the facility

$
113,737

$
223,000Effective interest rate on borrowings


1.75
%

1.38
%Weighted average interest rate (including the effect of non-usage fees)


2.64
%

1.57
%


(1)Interest
under the BNP facility is paid monthly in arrears.


Under
the terms of the BNP financing agreements, BNP has the ability to borrow a portion of the pledged collateral, or, collectively, the rehypothecated securities, subject to certain
limits. Berwyn Funding may designate any security within the pledged collateral as ineligible to be a rehypothecated security, provided there remain securities eligible to be rehypothecated within the
segregated custody account in an amount equal to the outstanding borrowings owed by Berwyn Funding to BNP. Berwyn Funding may recall any rehypothecated security at any time and BNP must return such
security or an equivalent security within a commercially reasonable period. In the event BNP does not return the security, Berwyn Funding will have the right to, among other things, apply and set off
an amount equal to 100% of the then-current fair market value of such rehypothecated securities against any outstanding borrowings owed to BNP under the facility. Rehypothecated securities are
marked-to-market daily and if the value of all rehypothecated securities exceeds 100% of the outstanding borrowings owed by Berwyn Funding under the facility, BNP may either reduce the amount of
rehypothecated securities to eliminate such excess or deposit into the segregated custody account an amount of cash equal to such excess. Berwyn Funding will continue to receive interest and the
scheduled repayment of principal balances on rehypothecated securities. For the six months ended June 30, 2016 and 2015, Berwyn Funding received a fee of $0 and $1, respectively, from BNP for
securities that had been rehypothecated pursuant to the BNP financing agreements. As of June 30, 2016 and December 31, 2015, the fair value of those securities rehypothecated by BNP was
$95,194 and $108,340, respectively.

Borrowings
of Berwyn Funding will be considered borrowings by the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.

Citibank Credit Facility

On March 24, 2015, EP Funding LLC, or EP Funding, the Company's wholly-owned, special-purpose financing subsidiary,
repaid and terminated the revolving credit facility, or the Citibank credit facility, with Citibank, N.A., or Citibank, as administrative agent, and the financial institutions and other lenders from
time to time party thereto. The Citibank credit facility provided for borrowings in an aggregate principal amount up to $175,000 on a committed basis. Prior to the termination of the Citibank credit
facility, borrowings under the facility accrued interest at a rate equal to three-month LIBOR plus 2.75% per annum. Under the Citibank credit facility, EP Funding was subject to a non-usage fee of
0.50% per annum to the extent that the aggregate principal amount available under the facility was not borrowed.

As
of June 30, 2016 and December 31, 2015, no amounts remained outstanding under the Citibank credit facility. The carrying amount outstanding under the facility
approximated its fair value. The Company incurred costs of $657 in connection with obtaining the facility, which the Company recorded

41

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 8. Financing Arrangements (Continued)

as
deferred financing costs on its consolidated balance sheets and amortized to interest expense over the life of the facility.

For
the six months ended June 30, 2015, the components of total interest expense for the Citibank credit facility were as follows:

Six Months Ended
June 30, 2015Direct interest expense

$
471Amortization of deferred financing costs


130​
​
​
​
​Total interest expense

$
601​
​
​
​
​​
​
​
​
​​
​
​
​
​


For
the six months ended June 30, 2015, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Citibank credit
facility were as follows:

Six Months Ended
June 30, 2015Cash paid for interest expense(1)

$
1,011Average borrowings under the facility(2)

$
70,020Effective interest rate on borrowings


Weighted average interest rate (including the effect of non-usage fees)


2.99
%


(1)Interest
under the Citibank credit facility was paid quarterly in arrears.(2)Average
borrowings for the six months ended June 30, 2015 were calculated for the period from January 1, 2015 to the date on which the Company
repaid and terminated the facility.


Borrowings
of EP Funding were considered borrowings by the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.

Deutsche Bank Credit Facility

On June 24, 2011, FSEP Term Funding, LLC, or FSEP Funding, the Company's wholly-owned, special-purpose financing
subsidiary, entered into a revolving credit facility, or the Deutsche Bank credit facility, with Deutsche Bank AG, New York Branch, or Deutsche Bank, as administrative agent and the lender party
thereto. The Deutsche Bank credit facility subsequently was amended multiple times, most recently, to set the maximum commitments under the facility at $315,000 and extend the maturity date to
June 11, 2017.

Under
the Deutsche Bank credit facility, the Company has transferred from time to time cash or securities to FSEP Funding as a contribution to capital and retains a residual interest in
the contributed cash or securities through the Company's ownership of FSEP Funding. The Company may contribute additional cash or securities to FSEP Funding from time to time and FSEP Funding may
purchase additional securities from various sources. FSEP Funding has appointed the Company to manage its portfolio of securities pursuant to the terms of an investment management agreement. FSEP
Funding's
obligations to the lenders under the facility are secured by a first priority security interest in substantially all of the assets of FSEP Funding, including its portfolio of securities. The
obligations of FSEP Funding under the facility are non-recourse to the Company and the Company's exposure under the facility is limited to the value of the Company's investment in FSEP Funding.

During
the period from June 24, 2011 to June 10, 2016, interest on borrowings under the Deutsche Bank credit facility accrues at a rate equal to LIBOR for an interest
period closest to the weighted average LIBOR interest period of eligible securities owned by FSEP Funding plus 1.80% per annum.

42

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 8. Financing Arrangements (Continued)

Beginning
June 11, 2016, interest on borrowings under the Deutsche Bank credit facility is based on LIBOR for an interest period closest to the weighted average LIBOR interest period of
eligible securities owned by FSEP Funding plus 2.05% per annum. FSEP Funding is subject to a non-usage fee of 0.75% per annum to the extent that the aggregate principal amount available under the
facility is not borrowed. Any amounts borrowed under the Deutsche Bank credit facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on June 11, 2017.

As
of June 30, 2016 and December 31, 2015, $200,000 and $280,000, respectively, was outstanding under the Deutsche Bank credit facility. The carrying amount outstanding
under the facility approximates its fair value. The Company incurred costs of $4,443 in connection with obtaining and amending the facility, which the Company has recorded as deferred financing costs
on its consolidated balance sheets and amortizes to interest expense over the life of the facility. As of June 30, 2016, $1,039 of such deferred financing costs had yet to be amortized to
interest expense.

For
the three and six months ended June 30, 2016 and 2015, the components of total interest expense for the Deutsche Bank credit facility were as follows:

Three Months Ended
June 30,

Six Months Ended
June 30,2016

2015

2016

2015Direct interest expense

$
1,247

$
1,477

$
2,868

$
2,888Non-usage fees


255


113


394


226Amortization of deferred financing costs


297


230


593


440​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
1,799

$
1,820

$
3,855

$
3,554​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


43

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 8. Financing Arrangements (Continued)

For the six months ended June 30, 2016 and 2015, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the
Deutsche Bank credit facility were as follows:

Six Months Ended
June 30,2016

2015Cash paid for interest expense(1)

$
3,373

$
3,096Average borrowings under the facility

$
233,407

$
280,000Effective interest rate on borrowings


2.66
%

2.08
%Weighted average interest rate (including the effect of non-usage fees)


2.76
%

2.22
%


(1)Interest
under the Deutsche Bank credit facility is paid quarterly in arrears.


Borrowings
of FSEP Funding will be considered borrowings by the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.

Fortress Facility

On November 6, 2015, Foxfields Funding LLC, or Foxfields Funding, a wholly-owned financing subsidiary of the Company,
entered into a senior secured multiple draw term loan facility, or the Fortress facility, with Fortress, the lenders from time to time party thereto and the other loan parties from time to time party
thereto. The Fortress facility, as amended, provides for $155,000 of term loans available to be borrowed during the first two years after the initial closing date of November 6, 2015 with an
option for the Company to request, at one or more times during the first two years after the closing date, that existing or new lenders, at their election provide up to $45,000 of additional
commitments.

Interest
under the Fortress facility for (i) loans bearing interest by reference to LIBOR accrues at a rate equal to LIBOR (subject to a floor of 0.75%) plus 5.00% per annum, and
(ii) loans bearing interest by reference to the base rate accrues at 4.00% per annum plus the greater of: (x) the per annum rate of interest announced, from time to time, within Wells
Fargo Bank, National Association at its principal office in San Francisco as its "prime rate," and (y) 1.75% per annum. Interest is payable quarterly in arrears and began accruing during the
quarter ended March 31, 2016. During the first year after the closing date, Foxfields Funding is subject to a commitment fee at a rate equal to 1.00% per annum of the average daily undrawn
amount under the Fortress facility. Under certain conditions, Foxfields Funding will be subject to a prepayment premium if all or any part of the principal balance of the borrowings is prepaid prior
to a date that is two years after the closing date. Foxfields Funding incurred certain customary fees, costs and expenses in connection with obtaining the facility.

As
of June 30, 2016 and December 31, 2015, $89,600 was outstanding under the Fortress facility. The carrying amount outstanding under the facility approximates its fair
value. The Company incurred costs of $1,342 in connection with obtaining and amending the Fortress facility, which the Company has recorded as deferred financing costs on its consolidated balance
sheets and amortizes to interest expense over the life of the facility. As of June 30, 2016, $1,181 of such deferred financing costs had yet to be amortized to interest expense.

44

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 8. Financing Arrangements (Continued)

For
the three and six months ended June 30, 2016, the components of total interest expense for the Fortress facility were as follows:

Three Months Ended
June 30, 2016

Six Months Ended
June 30, 2016Direct interest expense

$
1,305

$
2,608Non-usage fees


178


377Amortization of deferred financing costs


68


134​
​
​
​
​
​
​
​Total interest expense

$
1,551

$
3,119​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


For
the six months ended June 30, 2016, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Fortress
facility were as follows:

Six Months Ended
June 30, 2016Cash paid for interest expense(1)

$
2,113Average borrowings under the facility

$
89,600Effective interest rate on borrowings


5.75
%Weighted average interest rate (including the effect of non-usage fees)


6.59
%


(1)Interest
under the Fortress facility is paid quarterly in arrears and payments commenced on April 14, 2016.


Borrowings
of Foxfields Funding will be considered borrowings by the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.

Goldman Financing

On September 11, 2014, through its two wholly-owned, special-purpose financing subsidiaries, Gladwyne Funding LLC, or
Gladwyne Funding, and Strafford Funding LLC, or Strafford Funding, the Company entered into a debt financing arrangement with Goldman. The amount available under the financing arrangement, as
amended, is $325,000. The Company elected to structure the financing in the manner described more fully below in order to, among other things, obtain such financing at a lower cost than would have
been available through alternate arrangements.

Under
the financing arrangement, assets in the Company's portfolio may be sold and/or contributed by it from time to time to Gladwyne Funding, pursuant to an Amended and Restated Sale
and Contribution Agreement, dated as of September 11, 2014, between the Company and Gladwyne Funding, or the Sale and Contribution Agreement. As of June 30, 2016, the fair value of
assets held by Gladwyne Funding was $731,888, which includes an initial contribution by the Company of a portfolio of assets with an aggregate par value of $427,061. The assets held by Gladwyne
Funding secure the obligations of Gladwyne Funding under certain Floating Rate Notes, or the Notes, to be issued from time to time by Gladwyne Funding to Strafford Funding, pursuant to an indenture,
dated as of September 11, 2014, as supplemented by the First Supplemental Indenture dated as of December 15, 2014, or the Indenture, with Citibank, as trustee. Pursuant to the Indenture,
the aggregate principal amount of Notes that may be issued by Gladwyne Funding from time to time is $577,750. Interest on the Notes under the Indenture accrues at three-month LIBOR plus a spread of
4.00% per annum. Principal and any unpaid interest on the Notes will be due and payable on the stated maturity date of
November 15, 2025. As of June 30, 2016, Strafford Funding had purchased $577,750 of Notes, the maximum principal amount of Notes that may be purchased under the Goldman facility (as
defined below).

45

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 8. Financing Arrangements (Continued)

Strafford
Funding, in turn, entered into a repurchase transaction with Goldman, pursuant to the terms of a master repurchase agreement and the related annex thereto, each dated as of
September 11, 2014, and an amended and restated master confirmation dated as of December 15, 2014, or collectively, the Goldman facility. Pursuant to the Goldman facility, on one or more
occasions beginning December 15, 2014, Goldman began purchasing Notes held by Strafford Funding for an aggregate purchase price equal to approximately 56.25% of the principal amount of the
Notes purchased. As of June 30, 2016, Goldman had purchased Notes in the principal amount of $577,750 from Strafford Funding, the maximum principal amount of Notes available to be purchased
under the Goldman facility, for a total purchase price equal to $324,984.

Strafford
Funding will repurchase the Notes sold to Goldman under the Goldman facility no later than September 15, 2017. The repurchase price paid by Strafford Funding to Goldman
will be equal to the purchase price paid by Goldman for the repurchased Notes, plus financing fees accrued at the applicable pricing rate under the Goldman facility. Through March 15, 2015,
financing fees accrued on the greater of $225,000 or the aggregate purchase price paid by Goldman for such Notes. Thereafter, financing fees accrue on $325,000 (even in prior periods when the
aggregate purchase price paid for Notes purchased by Goldman was less than that amount), unless and until the outstanding amount is reduced in accordance with the terms of the Goldman facility.

If
the Goldman facility is accelerated prior to September 15, 2017 due to an event of default or the failure of Gladwyne Funding to commit to sell any underlying assets that
become defaulted obligations within 30 days and thereafter to use commercially reasonable efforts to sell any such defaulted obligations, then Strafford Funding must pay to Goldman a fee equal
to the present value of the aggregate amount of the financing fees that would have been payable to Goldman through September 15, 2017 had the acceleration not occurred. The financing fee under
the Goldman facility is equal to three-month LIBOR plus a spread of up to 2.75% per annum for the relevant period.

Goldman
may require Strafford Funding to post cash collateral if the market value of the Notes (measured by reference to the market value of Gladwyne Funding's portfolio of assets)
declines and is less than the required margin amount under the Goldman facility. In such event, in order to satisfy any such margin-posting requirements, Strafford Funding has the option to borrow
funds from the Company pursuant to an uncommitted revolving credit agreement, dated as of September 11, 2014 and amended and restated on December 15, 2014, between Strafford Funding, as
borrower, and the Company, as lender, or the Revolving Credit Agreement. Borrowings under the Revolving Credit Agreement may not exceed $325,000 and will accrue interest at a rate equal to one-month
LIBOR plus a spread of 0.75% per annum.

As
of June 30, 2016, Notes in an aggregate principal amount of $577,750 had been purchased by Strafford Funding from Gladwyne Funding and subsequently sold to Goldman under the
Goldman
facility for aggregate proceeds of $324,984. The carrying amount outstanding under the Goldman facility approximates its fair value. The Company funded each purchase of Notes by Strafford Funding
through a capital contribution to Strafford Funding. As of June 30, 2016, Strafford Funding's liability under the Goldman facility was $324,984, plus $489 of accrued interest expense. The Notes
issued by Gladwyne Funding and purchased by Strafford Funding eliminate in consolidation on the Company's financial statements.

The
Company incurred costs of $380 in connection with obtaining and amending the Goldman facility, which the Company has recorded as deferred financing costs on its consolidated balance
sheets and amortizes to interest expense over the life of the facility. As of June 30, 2016, $156 of such deferred financing costs had yet to be amortized to interest expense.

46

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 8. Financing Arrangements (Continued)

For
the three and six months ended June 30, 2016 and 2015, the components of total interest expense for the Goldman facility were as follows:

Three Months Ended
June 30,

Six Months Ended
June 30,2016

2015

2016

2015Direct interest expense

$
2,798

$
2,488

$
5,505

$
4,355Amortization of deferred financing costs


32


32


64


64​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
2,830

$
2,520

$
5,569

$
4,419​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


For
the six months ended June 30, 2016 and 2015, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Goldman
facility were as follows:

Six Months Ended
June 30,2016

2015Cash paid for interest expense(1)

$
5,490

$
4,361Average borrowings under the facility

$
324,984

$
197,659Effective interest rate on borrowings


3.38
%

3.04
%Weighted average interest rate


3.35
%

4.41
%


(1)Interest
under the Goldman facility is paid quarterly in arrears.


Amounts
outstanding under the Goldman facility will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable
to BDCs.

Natixis Credit Facility

On July 11, 2013, Energy Funding LLC, or Energy Funding, the Company's wholly-owned, special-purpose financing
subsidiary, entered into a revolving credit facility, or the Natixis credit facility, with Natixis, New York Branch, or Natixis, as administrative agent and lender, Wells Fargo Bank, National
Association, as collateral agent and custodian, and the other lenders from time to time party thereto. The Natixis credit facility provided for revolving borrowings through January 11, 2015 in
an aggregate principal amount up to $150,000 on a committed basis. After that date, the Company was no longer permitted to borrow under the facility and outstanding amounts began to
amortize. During the six months ended June 30, 2016, the Company repaid $3,204 of outstanding borrowings under the facility.

The
Company contributed cash and debt securities to Energy Funding from time to time prior to the commencement of the amortization period under the facility, subject to certain
restrictions set forth in the Natixis credit facility. The Company continues to retain a residual interest in any assets contributed through its ownership of Energy Funding or it received fair market
value for any debt securities sold to Energy Funding. Energy Funding was also permitted to purchase additional debt securities from various sources prior to the commencement of the amortization period
under the facility. Energy Funding has appointed the Company to manage its portfolio of debt securities pursuant to the terms of a collateral management agreement. Energy Funding's obligations to the
lenders under the facility are secured by a first priority security interest in substantially all of the assets of Energy Funding, including its portfolio of debt securities. The obligations of Energy
Funding under the facility are non-recourse to the Company and the Company's exposure under the facility is limited to the value of the Company's investment in Energy Funding.

47

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 8. Financing Arrangements (Continued)

Borrowings
under the Natixis credit facility accrue interest at a rate equal to the applicable commercial paper rate plus 2.25% per annum. Prior to the commencement of the amortization
period, Energy Funding was subject to a non-usage fee of 1.00% per annum to the extent that the aggregate principal amount available under the Natixis credit facility had not been borrowed. Any
amounts borrowed under the facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on July 11, 2023.

As
of June 30, 2016 and December 31, 2015, $88,969 and $92,173, respectively, was outstanding under the Natixis credit facility. The carrying amount outstanding under the
facility approximates its fair value. The Company incurred costs of $2,544 in connection with obtaining the facility, which the Company has recorded as deferred financing costs on its consolidated
balance sheets and amortizes to interest expense over the life of the facility. As of June 30, 2016, $867 of such deferred financing costs had yet to be amortized to interest expense.

For
the three and six months ended June 30, 2016 and 2015, the components of total interest expense for the Natixis credit facility were as follows:

Three Months Ended
June 30,

Six Months Ended
June 30,2016

2015

2016

2015Direct interest expense

$
668

$
815

$
1,323

$
1,761Amortization of deferred financing costs


259


195


519


257​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
927

$
1,010

$
1,842

$
2,018​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


For
the six months ended June 30, 2016 and 2015, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Natixis
credit facility were as follows:

Six Months Ended
June 30,2016

2015Cash paid for interest expense(1)

$
1,299

$
1,885Average borrowings under the facility

$
89,706

$
136,835Effective interest rate on borrowings


3.01
%

2.56
%Weighted average interest rate


2.92
%

2.57
%


(1)Interest
under the Natixis credit facility is paid quarterly in arrears.


Borrowings
of Energy Funding will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.

Wells Fargo Credit Facility

On September 9, 2014, Wayne Funding LLC, or Wayne Funding, the Company's wholly-owned, special purpose financing
subsidiary, entered into a revolving credit facility, or the Wells Fargo credit facility, with Wells Fargo Securities, LLC, as administrative agent, each of the conduit lenders and
institutional lenders from time to time party thereto and Wells Fargo Bank, National Association, collectively referred to herein as Wells Fargo, as the collateral agent, account bank and collateral
custodian under the Wells Fargo credit facility. The Wells Fargo credit facility originally provided for borrowings in an aggregate principal amount up to $200,000 on a committed basis, subject to
Wayne

48

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 8. Financing Arrangements (Continued)

Funding's
option to reduce the commitment amount as provided in the Wells Fargo credit facility. Wayne Funding elected to reduce the commitment amount on February 23, 2016 to $125,000.

The
Company may contribute cash, loans or bonds to Wayne Funding from time to time and will retain a residual interest in any assets contributed through its ownership of Wayne Funding or
will receive fair market value for any assets sold to Wayne Funding. Wayne Funding may purchase additional assets from various sources. Wayne Funding has appointed the Company to manage its portfolio
of assets pursuant to the terms of a collateral management agreement. Wayne Funding's obligations to Wells Fargo under the Wells Fargo credit facility are secured by a first priority security interest
in substantially all of the assets of Wayne Funding, including its portfolio of assets. The obligations of Wayne Funding under the Wells Fargo credit facility are non-recourse to the Company and the
Company's exposure under the facility is limited to the value of its investment in Wayne Funding.

Borrowings
under the Wells Fargo credit facility accrue interest at a rate equal to three-month LIBOR plus a spread ranging between 2.50% and 2.75% per annum, depending on the
composition of the portfolio of assets for the relevant period. During the period beginning October 10, 2014 through June 5, 2015, Wayne Funding was subject to a non-usage fee to the
extent the aggregate principal amount available under the Wells Fargo credit facility was not borrowed. Beginning June 6, 2015, the non-usage fee increased to the sum of (a) 0.50% per
annum on the first $40,000 of unborrowed principal amount available under the Wells Fargo credit facility and (b) 2.00% on any unborrowed principal amount available under the facility in excess
of $40,000. Any amounts borrowed under the Wells Fargo credit facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on September 9, 2019. Borrowings
under the Wells Fargo credit facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Wayne Funding varies depending upon the types of assets in
Wayne Funding's portfolio.

As
of June 30, 2016 and December 31, 2015, $85,100 and $140,000, respectively, was outstanding under the Wells Fargo credit facility. The carrying amount outstanding under
the facility approximates its fair value. The Company incurred costs of $2,641 in connection with obtaining the facility, which the Company has recorded as deferred financing costs on its consolidated
balance sheets and amortizes to interest expense over the life of the facility. As of June 30, 2016, $1,687 of such deferred financing costs had yet to be amortized to interest expense.

For
the three and six months ended June 30, 2016 and 2015, the components of total interest expense for the Wells Fargo credit facility were as follows:

Three Months Ended
June 30,

Six Months Ended
June 30,2016

2015

2016

2015Direct interest expense

$
853

$
921

$
1,950

$
1,854Non-usage fees


28


95


118


192Amortization of deferred financing costs


132


132


263


261​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
1,013

$
1,148

$
2,331

$
2,307​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 8. Financing Arrangements (Continued)

For
the six months ended June 30, 2016 and 2015, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the Wells
Fargo credit facility were as follows:

Six Months Ended
June 30,2016

2015Cash paid for interest expense(1)

$
2,219

$
2,010Average borrowings under the facility

$
118,496

$
123,536Effective interest rate on borrowings


3.28
%

2.92
%Weighted average interest rate (including the effect of non-usage fees)


3.45
%

3.31
%


(1)Interest
under the Wells Fargo credit facility is paid quarterly in arrears.


Borrowings
of Wayne Funding will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act applicable to BDCs.

Note 9. Commitments and Contingencies

The Company enters into contracts that contain a variety of indemnification provisions. The Company's maximum exposure under these arrangements is unknown; however, the Company has not
had prior claims or losses pursuant to these contracts. Management of FS Advisor has reviewed the Company's existing contracts and expects the risk of loss to the Company to be remote.

The
Company is not currently subject to any material legal proceedings and, to the Company's knowledge, no material legal proceedings are threatened against the Company. From time to
time, the Company may be party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company's rights under contracts with its
portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, the Company does not expect that any such proceedings will have a material effect upon its financial
condition or results of operations.

See
Note 6 for a discussion of the Company's unfunded commitments.

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Table of Contents

FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 10. Financial Highlights

The following is a schedule of financial highlights of the Company for the six months ended June 30, 2016 and the year ended December 31, 2015:

Six Months Ended
June 30, 2016
(Unaudited)

Year Ended
December 31, 2015Per Share Data:(1)Net asset value, beginning of period

$
6.50

$
8.57Results of operations(2)Net investment income (loss)


0.31


0.67Net realized and unrealized appreciation (depreciation) on investments and gain/loss on foreign currency


0.76


(2.18
)​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations


1.07


(1.51
)​
​
​
​
​
​
​
​Shareholder distributions(3)Distributions from net investment income


(0.35
)

(0.67
)Distributions from net realized gain on investments





(0.04
)​
​
​
​
​
​
​
​Net decrease in net assets resulting from shareholder distributions


(0.35
)

(0.71
)​
​
​
​
​
​
​
​Capital share transactionsIssuance of common shares(4)





0.18Repurchases of common shares(5)





Other


(0.04
)

Offering costs(2)





(0.03
)​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from capital share transactions


(0.04
)

0.15​
​
​
​
​
​
​
​Net asset value, end of period

$
7.18

$
6.50​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Shares outstanding, end of period


414,652,463


372,210,264​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Total return(6)


15.85
%

(15.87
)%​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Ratio/Supplemental Data:Net assets, end of period

$
2,976,881

$
2,417,861​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Ratio of net investment income to average net assets(7)


4.77
%

8.31
%Ratio of total expenses to average net assets(7)


2.67
%

5.55
%Portfolio turnover(8)


15.33
%

22.70
%Total amount of senior securities outstanding, exclusive of treasury securities

$
902,390

$
1,040,494Asset coverage per unit(9)


4.30


3.32


(1)Per
share data may be rounded in order to recompute the ending net asset value per share.(2)The
per share data was derived by using the weighted average shares outstanding during the applicable period.(3)The
per share data for distributions reflects the actual amount of distributions paid per share during the applicable period.(4)The
issuance of common shares on a per share basis reflects the incremental net asset value changes as a result of the issuance of common shares in the
Company's continuous public offering and pursuant to the Company's distribution reinvestment plan. The issuance of common shares at


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FS Energy and Power Fund

Notes to Unaudited Consolidated Financial Statements (Continued)
(in thousands, except share and per share amounts)



Note 10. Financial Highlights (Continued)

an
offering price, net of selling commissions and dealer manager fees, that is greater than the net asset value per share results in an increase in net asset value per share. The per share impact of
the Company's issuance of common shares was an increase in net asset value of less than $0.01 per share during the six months ended June 30, 2016. (5)The
per share impact of the Company's repurchases of common shares was a reduction to net asset value of less than $0.01 per share during each period.(6)The
total return for each period presented was calculated by taking the net asset value per share as of the end of the applicable period, adding the cash
distributions per share which were declared during the applicable period and dividing the total by the net asset value per share at the beginning of the applicable period. The total return does not
consider the effect of the sales load from the sale of the Company's common shares. The total return includes the effect of the issuance of common shares at a net offering price that is greater than
net asset value per share, which causes an increase in net asset value per share. The historical calculation of total return in the table should not be considered a representation of the Company's
future total return, which may be greater or less than the returns shown in the table due to a number of factors, including the Company's ability or inability to make investments in companies that
meet its investment criteria, the interest rates payable on the debt securities the Company acquires, the level of the Company's expenses, variations in and the timing of the recognition of realized
and unrealized gains or losses, the degree to which the Company encounters competition in its markets and general economic conditions. As a result of these factors, results for any previous period
should not be relied upon as being indicative of performance in future periods. The total return calculations set forth above represent the total return on the Company's investment portfolio during
the applicable period and do not represent an actual return to shareholders.(7)Weighted
average net assets during the applicable period are used for this calculation. Ratios for the six months ended June 30, 2016 are not
annualized. The following is a schedule of supplemental ratios for the six months ended June 30, 2016 and year ended December 31, 2015:


Six Months Ended
June 30, 2016
(Unaudited)

Year Ended
December 31, 2015Ratio of subordinated income incentive fees to average net assets


0.23
%

1.13
%Ratio of interest expense to average net assets


0.73
%

1.12
%Ratio of offering costs to average net assets


0.02
%

Ratio of income and excise taxes to average net assets


0.00
%

0.01
%


(8)Portfolio
turnover for the six months ended June 30, 2016 is not annualized.(9)Asset
coverage per unit is the ratio of the carrying value of the Company's total consolidated assets, less liabilities and indebtedness not represented by
senior securities, to the aggregate amount of senior securities representing indebtedness.


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Table of Contents

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.
                              (in thousands, except share and per share amounts)

The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and
related notes thereto included elsewhere in this quarterly report on Form 10-Q. In this report, "we," "us" and "our" refer to FS Energy and Power Fund.

Forward-Looking Statements

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future
events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q may include statements as
to:



In
addition, words such as "anticipate," "believe," "expect" and "intend" indicate a forward-looking statement, although not all forward-looking statements include these words. The
forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the
forward-looking statements for any reason. Factors that could cause actual results to differ materially include:



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We
have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on
Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future
events or otherwise. Shareholders are advised to consult any additional disclosures that we may make directly to shareholders or through reports that we may file in the future with the SEC, including
annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this quarterly report on
Form 10-Q are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, or the Exchange Act.

Overview

We were formed as a Delaware statutory trust under the Delaware Statutory Trust Act on September 16, 2010 and formally commenced
investment operations on July 18, 2011 upon raising gross proceeds in excess of $2,500 from sales of our common shares in our continuous public offering to persons who were not affiliated with
us or FS Advisor. We are an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act and has elected to be treated for
U.S. federal income tax purposes, and intends to qualify annually, as a RIC under Subchapter M of the Code. Prior to satisfying the minimum offering requirement, we had no operations except for
matters relating to our organization.

Our
investment activities are managed by FS Advisor and supervised by our board of trustees, a majority of whom are independent. Under our investment advisory and administrative services
agreement, we have agreed to pay FS Advisor an annual base management fee based on our gross assets as well as incentive fees based on our performance. FS Advisor has engaged GSO to act as our
investment sub-adviser. GSO assists FS Advisor in identifying investment opportunities and makes investment recommendations for approval by FS Advisor according to guidelines set by FS Advisor.

Our
investment policy is to invest, under normal circumstances, at least 80% of our total assets in securities of Energy companies. This investment policy may not be changed without at
least 60 days' prior notice to holders of our common shares of any such change.

Our
investment objective is to generate current income and long-term capital appreciation. We have identified and intend to focus on the following investment categories, which we believe
will allow us to generate an attractive total return with an acceptable level of risk.

Direct Originations:We intend to leverage our relationship with GSO and its global sourcing and origination platform, including its
industry
relationships, to directly source investment opportunities. Such investments are originated or structured for us or made by us and are not generally available to the broader market. These investments
may include both debt and equity components, although we do not expect to make equity investments (other than income-oriented equity investments) independent of
having an existing credit relationship. We believe directly originated investments may offer higher returns and more favorable protections than broadly syndicated transactions.

Opportunistic:We seek to capitalize on market price inefficiencies by investing in loans, bonds and other securities where the market
price of such
investment reflects a lower value than deemed warranted by our fundamental analysis. We believe that market price inefficiencies may occur due to, among other things, general dislocations in the
markets, a misunderstanding by the market of a particular company or an Energy industry sub-sector being out of favor with the broader investment community. We seek to allocate capital to these
securities that have been misunderstood or mispriced by the market and where we believe there is an opportunity to earn an attractive return on our investment. Such opportunities may include both
event driven investments and anchor orders.

In
the case of event driven investments, we intend to take advantage of dislocations that arise in the markets due to an impending event and where the market's apparent expectation of
value differs substantially from our fundamental analysis. Such events may include a looming debt maturity or default, a merger, spin-off or other corporate reorganization, an adverse regulatory or
legal ruling, or a material contract expiration, any of which may significantly improve or impair a company's financial position. Compared to other investment strategies, event driven investing
depends more heavily on our

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ability
to successfully predict the outcome of an individual event rather than on underlying macroeconomic fundamentals. As a result, successful event driven strategies may offer both substantial
diversification benefits and the ability to generate performance in uncertain market environments.

We
may also invest in certain opportunities that are originated and then syndicated by a commercial or investment bank but where we provide a capital commitment significantly above the
average syndicate participant, i.e., an anchor order. In these types of investments, we may receive fees, preferential pricing or other benefits not available to other lenders in return for our
significant capital commitment. Our decision to provide an anchor order to a syndicated transaction is predicated on a rigorous credit analysis, our familiarity with a particular company, Energy
industry sub-sector or financial sponsor, and the broader investment experiences of FS Advisor and GSO.

Broadly Syndicated/Other:Although our primary focus is to invest in directly originated transactions and opportunistic investments, in
certain
circumstances we will also invest in the broadly syndicated loan and high yield markets. Broadly syndicated loans and bonds are generally more liquid than our directly originated investments and
provide a complement to our less liquid strategies. In addition, and because we typically receive more attractive financing terms on these positions than we do on our less liquid assets, we are able
to leverage the broadly syndicated portion of our portfolio in such a way that maximizes the levered return potential of our portfolio.

Our
portfolio is comprised primarily of income-oriented securities, which refers to debt securities and income-oriented preferred and common equity interests, of privately-held Energy
companies within the United States. We intend to weight our portfolio towards senior and subordinated debt. In addition to investments purchased from dealers or other investors in the secondary
market, we expect to invest in primary market transactions and directly originated investments as this will provide us with the ability to tailor investments to best match a project's or company's
needs with our investment objectives. Our portfolio may also be comprised of select income-oriented preferred or common equity interests, which refers to equity interests that pay consistent,
high-yielding dividends, that we believe will produce both current income and long-term capital appreciation. These income-oriented preferred or common equity interests may include interests in master
limited partnerships. In connection with certain of our debt investments, we may on occasion receive equity interests such as warrants or options as additional consideration.

Revenues

The principal measure of our financial performance is net increase or decrease in net assets resulting from operations, which includes
net investment income, net realized gain or loss on investments, net realized gain or loss on foreign currency, net change in unrealized appreciation or depreciation on investments and net change in
unrealized gain or loss on foreign currency. Net investment income is the difference between our income from interest, dividends, fees and other investment income and our operating and other expenses.
Net realized gain or loss on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost, including the respective realized gain or
loss on foreign currency for those foreign denominated investment transactions. Net realized gain or loss on foreign currency is the portion of realized gain or loss attributable to foreign currency
fluctuations. Net change in unrealized appreciation or depreciation on investments is the net change in the fair value of our investment portfolio, including the respective unrealized gain or loss on
foreign currency for those foreign denominated investments. Net change in unrealized gain or loss on foreign currency is the net change in the value of receivables or accruals due to the impact of
foreign currency fluctuations.

We
principally generate revenues in the form of interest income on the debt investments we hold. We also generate revenues in the form of dividends and other distributions on the equity
or other securities we may hold. In addition, we may generate revenues in the form of non-recurring commitment, closing, origination, structuring or diligence fees, fees for providing managerial
assistance, consulting fees, prepayment fees and performance-based fees. Any such fees generated in connection with our investments will be recognized as earned.

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Expenses

Our primary operating expenses include the payment of advisory fees and other expenses under the investment advisory and administrative
services agreement, interest expense from financing arrangements and other expenses necessary for our operations. Our investment advisory fee compensates FS Advisor for its work in identifying,
evaluating, negotiating, executing, monitoring and servicing our investments. FS Advisor is responsible for compensating our investment sub-adviser.

We
reimburse FS Advisor for expenses necessary to perform services related to our administration and operations, including FS Advisor's allocable portion of the compensation and related
expenses of certain personnel of Franklin Square Holdings providing administrative services to us on behalf of FS Advisor. Such services include the provision of general ledger accounting, fund
accounting, legal services, investor relations and other administrative services. FS Advisor also performs, or oversees the performance of, our corporate operations and required administrative
services, which includes being responsible for the financial records that we are required to maintain and preparing reports for our shareholders and reports filed with the SEC. In addition, FS Advisor
assists us in calculating our net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to our shareholders, and generally overseeing the
payment of our expenses and the performance of administrative and professional services rendered to us by others. See "Related Party Transactions" for additional information regarding the
reimbursements payable to FS Advisor for administrative services and the methodology for determining the amount of any such reimbursements. We bear all other expenses of our operations and
transactions. For additional information regarding these expenses, please see our annual report on Form 10-K for the year ended December 31, 2015.

In
addition, we have contracted with State Street to provide various accounting and administrative services, including, but not limited to, preparing preliminary financial information
for review by FS Advisor, preparing and monitoring expense budgets, maintaining accounting and corporate books and records, processing trade information provided by us and performing testing with
respect to RIC compliance.

Expense Reimbursement

Pursuant to an expense support and conditional reimbursement agreement, amended and restated as of May 16, 2013, or the expense
reimbursement agreement, Franklin Square Holdings has agreed to reimburse us for expenses in an amount that is sufficient to ensure that no portion of our distributions to shareholders will be paid
from our offering proceeds or borrowings. However, because certain investments we may make, including preferred and common equity investments, may generate dividends and other distributions to us that
are treated for tax purposes as a return of capital, a portion of our distributions to shareholders may also be deemed to constitute a return of capital for tax purposes to the extent that we may use
such dividends or other distribution proceeds to fund our distributions to shareholders. Under those circumstances, Franklin Square Holdings will not reimburse us for the portion of such distributions
to shareholders that represent a return of capital for tax purposes, as the purpose of the expense reimbursement arrangement is not to prevent tax-advantaged distributions to shareholders.

Under
the expense reimbursement agreement, Franklin Square Holdings will reimburse us quarterly for expenses in an amount equal to the difference between our cumulative distributions
paid to our shareholders in each quarter, less the sum of our net investment company taxable income, net capital gains and dividends and other distributions paid to us on account of preferred and
common equity investments in portfolio companies (to the extent such amounts are not included in net investment company taxable income or net capital gains) in each quarter.

Pursuant
to the expense reimbursement agreement, we have a conditional obligation to reimburse Franklin Square Holdings for any amounts funded by Franklin Square Holdings under such
agreement if (and only to the extent that), during any fiscal quarter occurring within three years of the date on which Franklin Square Holdings funded such amount, the sum of our net investment
company taxable income, net capital gains and the amount of any dividends and other distributions paid to us on account of preferred and common equity investments in portfolio companies (to the extent
not included in net investment company taxable income or net capital gains) exceeds the distributions paid by us to our shareholders; provided, however, that (i) we will only reimburse Franklin
Square Holdings

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for
expense support payments made by Franklin Square Holdings with respect to any calendar quarter beginning on or after July 1, 2013 to the extent that the payment of such reimbursement
(together with any other reimbursement paid during such fiscal year) does not cause "other operating expenses" (as defined below) (on an annualized basis and net of any expense support payments
received by us during such fiscal year) to exceed the lesser of (A) 1.75% of our average net assets attributable to our common shares for the fiscal year-to-date period after taking such
payments into account and (B) the percentage of our average net assets attributable to our common shares represented by "other operating expenses" during the fiscal year in which such expense
support payment from Franklin Square Holdings was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an expense support payment from
Franklin Square Holdings made during the same fiscal year) and (ii) we will not reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings if the aggregate
amount of distributions per share declared by us in such calendar quarter is less than the aggregate amount of distributions per share declared by us in the calendar quarter in which Franklin Square
Holdings made the expense support payment to which such reimbursement relates. We are not obligated to pay interest on the payments we receive from Franklin Square Holdings. "Other operating expenses"
means our total "operating expenses" (as defined below), excluding base management fees, incentive fees, organization and offering expenses, financing fees and costs, interest expense, brokerage
commissions and extraordinary expenses. "Operating expenses" means all operating costs and expenses incurred, as determined in accordance with GAAP for investment companies.

We
or Franklin Square Holdings may terminate the expense reimbursement agreement at any time. The specific amount of expenses reimbursed by Franklin Square Holdings, if any, will be
determined at the end of each quarter. Upon termination of the expense reimbursement agreement by Franklin Square Holdings, Franklin Square Holdings will be required to fund any amounts accrued
thereunder as of the date of termination. Similarly, our conditional obligation to reimburse Franklin Square Holdings pursuant to the terms of the expense reimbursement agreement shall survive the
termination of such agreement by either party.

Franklin
Square Holdings is controlled by our chairman, president and chief executive officer, Michael C. Forman, and our vice-chairman, David J. Adelman. There can be no assurance that
the expense reimbursement agreement will remain in effect or that Franklin Square Holdings will reimburse any portion of our expenses in future quarters.

As
of June 30, 2016, we had no reimbursements due from Franklin Square Holdings and no further amounts remained subject to repayment by us to Franklin Square Holdings in the
future.

Portfolio Investment Activity for the Three and Six Months Ended June 30, 2016 and for
the Year Ended December 31, 2015

During the six months ended June 30, 2016, we made investments in portfolio companies totaling $625,288. During the same period,
we sold investments for proceeds of $351,070 and received principal repayments of $124,109. As of June 30, 2016, our investment portfolio, with a total fair value of $3,539,603 (24% in first
lien senior secured loans, 28% in second lien senior secured loans, 10% in senior secured bonds, 23% in subordinated debt and 15% in equity/other), consisted of interests in 87 portfolio companies.
The portfolio companies that comprised our portfolio as of such date had an average annual EBITDA of approximately $327.7 million. As of June 30, 2016, the debt investments in our
portfolio were purchased at a weighted average price of 97.7% of par value, and our estimated gross annual portfolio yield, prior to leverage (which represents the expected annualized yield to be
generated by us on our investment portfolio based on the composition of our portfolio as of such date), was 8.5% based upon the amortized cost of our investments.

Based
on our regular weekly cash distribution rate of $0.013625 per share as of June 30, 2016 and our public offering price of $7.90 per share as of such date, the annualized
distribution rate to shareholders as of June 30, 2016 was 8.97%. The distribution rate to shareholders may include income, realized capital gains and a return of investors' capital.

During
the year ended December 31, 2015, we made investments in portfolio companies totaling $1,195,947. During the same period, we sold investments for proceeds of $590,726 and
received principal repayments of $209,808. As of December 31, 2015, our investment portfolio, with a total fair

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value
of $3,069,498 (30% in first lien senior secured loans, 30% in second lien senior secured loans, 11% in senior secured bonds, 19% in subordinated debt and 10% in equity/other), consisted of
interests in 90 portfolio companies. The portfolio companies that comprised our portfolio as of such date had an average annual EBITDA of approximately $244.8 million. As of December 31,
2015, the investments in our portfolio were purchased at a weighted average price of 98.4% of par value and our
estimated gross annual portfolio yield, prior to leverage, was 9.3% based upon the amortized cost of our investments.

Based
on our regular weekly cash distribution rate of $0.013625 per share as of December 31, 2015 and our public offering price of $7.50 per share as of such date, the annualized
distribution rate to shareholders as of December 31, 2015 was 9.45%. The distribution rate to shareholders may include income, realized capital gains and a return of investors' capital.

Our
estimated gross portfolio yield and annualized distribution rate to shareholders do not represent actual investment returns to shareholders. Our gross annual portfolio yield and
distribution rate to shareholders are subject to change and in the future may be greater or less than the rates set forth above. See the sections entitled "Risk Factors" in our annual report on
Form 10-K for the fiscal year ended December 31, 2015 and in our other periodic reports filed with the SEC for a discussion of the uncertainties, risks and assumptions associated with
these statements.

Total Portfolio Activity

The following tables present certain selected information regarding our portfolio investment activity for the three and six months
ended June 30, 2016:

Net Investment Activity

For the
Three Months Ended
June 30, 2016

For the
Six Months Ended
June 30, 2016Purchases

$
491,622

$
625,288Sales and Redemptions


(298,823
)

(475,179
)​
​
​
​
​
​
​
​Net Portfolio Activity

$
192,799

$
150,109​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​




For the
Three Months Ended
June 30, 2016

For the
Six Months Ended
June 30, 2016New Investment Activity by Asset Class

Purchases

Percentage

Purchases

PercentageSenior Secured LoansFirst Lien

$
105,802


22
%
$
124,972


20
%Senior Secured LoansSecond Lien


26,629


5
%

26,753


4
%Senior Secured Bonds


44,470


9
%

44,470


7
%Subordinated Debt


168,540


34
%

174,433


28
%Equity/Other


146,181


30
%

254,660


41
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
491,622


100
%
$
625,288


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


58

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Table of Contents

The
following table summarizes the composition of our investment portfolio at cost and fair value as of June 30, 2016 and December 31, 2015:

June 30, 2016
(Unaudited)

December 31, 2015Amortized
Cost(1)

Fair Value

Percentage
of Portfolio

Amortized
Cost(1)

Fair Value

Percentage
of PortfolioSenior Secured LoansFirst Lien

$
934,804

$
828,954


24
%
$
1,055,070

$
929,790


30
%Senior Secured LoansSecond Lien


1,203,034


991,982


28
%

1,213,716


923,402


30
%Senior Secured Bonds


405,574


361,914


10
%

445,475


323,948


11
%Subordinated Debt


953,870


810,812


23
%

860,872


579,740


19
%Equity/Other


492,497


545,941


15
%

319,274


312,618


10
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,989,779

$
3,539,603


100
%
$
3,894,407

$
3,069,498


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)Amortized
cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.


The
following table presents certain selected information regarding the composition of our investment portfolio as of June 30, 2016 and December 31, 2015:

June 30, 2016

December 31, 2015Number of Portfolio Companies


87


90% Variable Rate (based on fair value)


46.0
%

50.9
%% Fixed Rate (based on fair value)


38.5
%

38.9
%% Income Producing Equity/Other Investments (based on fair value)


5.5
%

5.9
%% Non-Income Producing Equity/Other Investments (based on fair value)


10.0
%

4.3
%Average Annual EBITDA of Portfolio Companies

$
327,703

$
244,789Weighted Average Purchase Price of Debt Investments (as a % of par value)


97.7
%

98.4
%% of Investments on Non-Accrual (based on fair value)


4.0
%

0.1
%Gross Portfolio Yield Prior to Leverage (based on amortized cost)


8.5
%

9.3
%Gross Portfolio Yield Prior to Leverage (based on amortized cost)Excluding Non-Income Producing Assets


9.7
%

9.8
%


Direct Originations

The following tables present certain selected information regarding our direct originations for the three and six months ended
June 30, 2016:

New Direct Originations

For the
Three Months Ended
June 30, 2016

For the
Six Months Ended
June 30, 2016Total Commitments (including unfunded commitments)

$
177,483

$
338,053Exited Investments (including partial paydowns)


(126,356
)

(327,991
)​
​
​
​
​
​
​
​Net Direct Originations

$
51,127

$
10,062​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


59

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Table of Contents



For the
Three Months Ended
June 30, 2016

For the
Six Months Ended
June 30, 2016New Direct Originations by Asset Class
    (including Unfunded Commitments)

Commitment
Amount

Percentage

Commitment
Amount

PercentageSenior Secured LoansFirst Lien

$
7,438


4
%
$
66,495


20
%Subordinated Debt


40,000


23
%

40,000


12
%Equity/Other


130,045


73
%

231,558


68
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
177,483


100
%
$
338,053


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​




For the
Three Months Ended
June 30, 2016

For the
Six Months Ended
June 30, 2016Average New Direct Origination Commitment Amount

$
35,496

$
37,561Weighted Average Maturity for New Direct Originations


4/15/21


6/7/21Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Funded during Period


3.1
%

3.9
%Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Funded during PeriodExcluding Non-Income Producing
Assets


8.6
%

10.1
%Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Exited during Period


6.0
%

8.6
%


The
following table presents certain selected information regarding our direct originations as of June 30, 2016 and December 31, 2015:

Characteristics of All Direct Originations held in Portfolio

June 30, 2016

December 31, 2015Number of Portfolio Companies


29


27Average Annual EBITDA of Portfolio Companies

$
88,311

$
82,111Average Leverage Through Tranche of Portfolio CompaniesExcluding Equity/Other Securities


4.9x


4.8x% of Investments on Non-Accrual (based on fair value)


4.4
%

0.1
%Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct Originations


8.6
%

9.9
%Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct OriginationsExcluding Non-Income Producing Assets


11.0
%

10.9
%


Portfolio Composition by Strategy and Industry

The table below summarizes the composition of our investment portfolio by strategy and enumerates the percentage, by fair value, of the
total portfolio assets in such strategies as of June 30, 2016 and December 31, 2015:

June 30, 2016

December 31, 2015Portfolio Composition by Strategy

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of PortfolioDirect Originations

$
2,201,577


62
%
$
1,975,269


64
%Opportunistic


708,655


20
%

567,149


19
%Broadly Syndicated/Other


629,371


18
%

527,080


17
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,539,603


100
%
$
3,069,498


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


60

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Table of Contents

The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as
of June 30, 2016 and December 31, 2015:

June 30, 2016
(Unaudited)

December 31, 2015Industry Classification

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of PortfolioUpstream

$
2,085,271


59
%
$
1,689,705


55
%Midstream


265,783


8
%

215,906


7
%Downstream


39,783


1
%

12,195


0
%Power


505,525


14
%

519,593


17
%Service & Equipment


643,241


18
%

632,099


21
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,539,603


100
%
$
3,069,498


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


As
of June 30, 2016, except for FourPoint Energy, LLC, in which we held a senior secured bond and four equity/other investments, Sunnova Energy Corp., in which we held two
equity/other investments, Sunnova Asset Portfolio 5 Holdings, LLC, in which we held a first lien senior secured loan, and Lusk Operating LLC, in which we held a first lien senior secured
loan and an equity/other investment, we were not an "affiliated person" of any of our portfolio companies, as defined in the 1940 Act. As of June 30, 2016, except for Lusk Operating LLC,
in which we held a first lien senior secured loan and an equity/other investment, we did not "control" any of our portfolio companies, as defined in the 1940 Act.

As
of December 31, 2015, except for FourPoint Energy, LLC, in which we held a senior secured bond and two equity/other investments, Sunnova Holdings, LLC, in which
we held one equity/other investment and its wholly-owned subsidiary Sunnova Asset Portfolio 5 Holdings, LLC, in which we held one first lien senior secured loan, we were not an "affiliated
person" of any of our portfolio companies, as defined in the 1940 Act. As of December 31, 2015, except for Sunnova Holdings, LLC, in which we held one equity/other investment and its
wholly-owned subsidiary Sunnova Asset Portfolio 5
Holdings, LLC, in which we held one first lien senior secured loan, we did not "control" any of our portfolio companies, as defined in the 1940 Act.

In
general, under the 1940 Act, we would be presumed to "control" a portfolio company if we owned more than 25% of its voting securities or we had the power to exercise control over the
management or policies of a portfolio company, and would be an "affiliated person" of a portfolio company if we owned 5% or more of its voting securities.

Our
investment portfolio may contain loans or bonds that are in the form of lines of credit or revolving credit facilities, or other investments, which may require us to provide funding
when requested by portfolio companies in accordance with the terms of the underlying agreements. As of June 30, 2016, we had three senior secured loan investments with aggregate unfunded
commitments of $35,858 and four equity/other investments with aggregate unfunded commitments of $14,908. As of June 30, 2016, these unfunded equity/other investments were Altus Power America
Holdings, LLC, BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest, and Synergy Offshore LLC. As of December 31,
2015, we had four senior secured loan investments with aggregate unfunded commitments of $67,365, one senior secured bond investment with an unfunded commitment of $18,470 and five equity/other
investments with aggregate unfunded commitments of $33,890. As of December 31, 2015, these unfunded equity/other investments were Altus Power America Holdings, LLC, BL Sand Hills
Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest, Sunnova Holdings, LLC and Synergy Offshore LLC. We maintain sufficient cash on
hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.

61

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Table of Contents

Portfolio Asset Quality

In addition to various risk management and monitoring tools, FS Advisor uses an investment rating system to characterize and monitor
the expected level of returns on each investment in our portfolio. FS Advisor uses an investment rating scale of 1 to 5. The following is a description of the conditions associated with each
investment rating:

Investment Rating

Summary Description1

Investment exceeding expectations and/or capital gain expected.2

Performing investment generally executing in accordance with the portfolio company's business planfull return of principal and
interest expected.3

Performing investment requiring closer monitoring.4

Underperforming investmentsome loss of interest or dividend possible, but still expecting a positive return on investment.5

Underperforming investment with expected loss of interest and some principal.


The
following table shows the distribution of our investments on the 1 to 5 investment rating scale at fair value as of June 30, 2016 and December 31, 2015:

June 30, 2016

December 31, 2015Investment Rating

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of Portfolio1

$
221,827


6
%
$
159,204


5
%2


1,756,603


50
%

1,340,637


44
%3


1,234,212


35
%

1,288,144


42
%4


134,264


4
%

203,084


7
%5


192,697


5
%

78,429


2
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,539,603


100
%
$
3,069,498


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


The
amount of the portfolio in each grading category may vary substantially from period to period resulting primarily from changes in the composition of the portfolio as a result of new
investment, repayment and exit activities. In addition, changes in the grade of investments may be made to reflect our expectation of performance and changes in investment values. As of
June 30, 2016, 35% of our portfolio consisted of investments with an investment rating of three, 4% of our portfolio consisted of investments with an investment rating of four and 5% of our
portfolio consisted of investments with an investment rating of five, in each case, based on fair value.

Results of Operations

Energy credit benefited from rallying oil prices during the three months ended June 30, 2016. The "spread-to-worst" of the Bank
of America Merrill Lynch High Yield Energy Index, or the Energy Index, which measures the difference from the Index's worst performing security to Treasuries, tightened significantly over the quarter
from 1,278 basis points as of March 31, 2016 to 834 basis points as of June 30, 2016. Overall, the Energy Index ended the second quarter of 2016 with a yield-to-worst of 9.47% after
reaching levels earlier in the year not seen since November 2008.

Energy
credit prices generally tracked rising commodity prices during the quarter. West Texas Intermediate (WTI) crude prices, which began the year at $40.71 per barrel, reached an
eleven month high on June 8, 2016 and ended at $48.33 per barrel as of June 30, 2016. The average par weighted price of the Energy Index began the year at $64.89, reached a year-to-date
low of $52.17 on February 11, 2016 and rebounded to $86.28 as of June 30, 2016. Rising asset prices resulted in meaningful unrealized appreciation on investments during the quarter ended
June 30, 2016. Since quarter end, however, oil prices have partially retreated, driven by rising gasoline stockpiles, geopolitical uncertainty, and a strengthening U.S. dollar following
Britain's decision to leave the European Union.

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Table of Contents

Comparison of the Three Months Ended June 30, 2016 and 2015

Revenues

We generated investment income of $88,326 and $92,410 for the three months ended June 30, 2016 and 2015, respectively, in the
form of interest and fees earned on senior secured loans (first and second lien), senior secured bonds and subordinated debt investments in our portfolio. Such revenues represent $79,732 and $86,585
of cash income earned as well as $8,594 and $5,825 in non-cash portions relating to accretion of discount, PIK interest and accrual of limited partnership income for the three months ended
June 30, 2016 and 2015, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized.

The
level of investment income we receive is directly related to the balance of income-producing investments multiplied by the weighted average yield of our investments. We expect the
dollar amount of interest and any dividend income that we earn to increase as the size of our investment portfolio increases and the proportion of directly originated investments in our portfolio
increases.

During
the three months ended June 30, 2016 and 2015, we generated $1,807 and $9,127 of fee income, which represented 2.0% and 9.9%, respectively, of total investment income. Such
fee income is transaction based, and typically consists of amendment and consent fees, prepayment fees, structuring fees, upfront fees and other non-recurring fees. As such, future fee income is
generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees. The decrease in fee income during the three months ended
June 30, 2016 compared to three months ended June 30, 2015 was primarily due to the prepayment of several large investments during the three months ended June 30, 2015.

Expenses

Our total expenses were $31,300 and $36,746 for the three months ended June 30, 2016 and 2015, respectively. Our expenses
include base management fees attributed to FS Advisor of $18,398 and $19,392 for the three months ended June 30, 2016 and 2015, respectively. Our expenses also include administrative services
expenses attributed to FS Advisor of $883 and $761 for the three months ended June 30, 2016 and 2015, respectively.

FS
Advisor is eligible to receive incentive fees based on our performance. We did not accrue any subordinated incentive fee on income during the three months ended June 30, 2016.
During the three months ended June 30, 2015, we accrued a subordinated incentive fee on income of $6,478. During the three months ended June 30, 2016 and 2015, we did not accrue any
capital gains incentive fees. See "Critical Accounting PoliciesCapital Gains Incentive Fee" and "Critical Accounting PoliciesSubordinated Income
Incentive Fee" for additional information about how the incentive fees are calculated.

We
recorded interest expense of $8,927 and $7,408 for the three months ended June 30, 2016 and 2015, respectively, in connection with our financing arrangements. For the three
months ended June 30, 2016 and 2015, fees and expenses incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $324 and $361,
respectively, and fees and expenses incurred with our share transfer agent totaled $642 and $638, respectively. Fees for our board of trustees were $262 and $265 for the three months ended
June 30, 2016 and 2015, respectively. Amortization of our deferred offering costs was $498 and $0 for the three months ended June 30, 2016 and 2015, respectively.

63

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Table of Contents

Our
other general and administrative expenses totaled $1,320 and $1,374 for the three months ended June 30, 2016 and 2015, respectively, and consisted of the following:

Three Months Ended
June 30,2016

2015Expenses associated with our independent audit and related fees

$
123

$
236Legal fees


218


121Printing fees


602


520Insurance expense


57


78Other


320


419​
​
​
​
​
​
​
​Total

$
1,320

$
1,374​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


During
the three months ended June 30, 2016 and 2015, the ratio of our total expenses to our average net assets was 1.17% and 1.28%, respectively. During the three months ended
June 30, 2016 and 2015, our ratio of total expenses to average net assets included $8,927 and $7,408, respectively, related to interest expense, $0 and $6,478, respectively, related to accruals
for incentive fees, $498 and $0, respectively, related to amortization of deferred offering costs and $46 and $69, respectively, related to accruals for income taxes. Without such expenses, our ratio
of expenses to average net assets would have been 0.82% and 0.80% for the three months ended June 30, 2016 and 2015, respectively. Incentive fees and interest expense, among other things, may
increase or decrease our expense ratios relative to comparative periods depending on portfolio performance and changes in benchmark interest rates such as LIBOR, among other factors.

Net Investment Income

Our net investment income totaled $57,026 ($0.14 per share) and $55,664 ($0.17 per share) for the three months ended June 30,
2016 and 2015, respectively. The decrease in net investment income on a per share basis can be attributed primarily to a decrease in investment income resulting from the restructuring of certain
investments in the portfolio.

Net Realized Gains or Losses

We sold investments and received principal repayments of $265,258 and $33,565, respectively, during the three months ended
June 30, 2016, from which we realized a net loss of $19,067. We sold investments and received principal repayments of $159,662 and $25,888, respectively, during the three months ended
June 30, 2015, from which we realized a net loss of $40,553. We realized a net gain of $91 from settlements on foreign currency during the three months ended June 30, 2015.

Net Change in Unrealized Appreciation (Depreciation) on Investments and Unrealized Gain (Loss)
on Foreign Currency

For the three months ended June 30, 2016 and 2015, the net change in unrealized appreciation (depreciation) on investments
totaled $418,588 and $49,804, respectively, and the net change in unrealized gain (loss) on foreign currency was $(2) and $(13), respectively. The change in unrealized appreciation (depreciation) on
our investments during the three months ended June 30, 2016 was primarily driven by a general improvement in the energy markets, a tightening of credit spreads and the performance of our
directly originated and opportunistic investments. The change in unrealized appreciation (depreciation) on our investments during the three months ended June 30, 2015 was primarily driven by a
general tightening of credit spreads in Energy markets.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the three months ended June 30, 2016 and 2015, the net increase (decrease) in net assets resulting from operations was
$456,545 ($1.14 per share) and $64,993 ($0.20 per share), respectively.

64

---



Table of Contents

Comparison of the Six Months Ended June 30, 2016 and 2015

Revenues

We generated investment income of $186,236 and $177,997 for the six months ended June 30, 2016 and 2015, respectively, in the
form of interest and fees earned on senior secured loans (first and second lien), senior secured bonds and subordinated debt investments in our portfolio. Such revenues represent $167,214 and $162,436
of cash income earned as well as $19,022 and $15,561 in non-cash portions relating to accretion of discount, PIK interest and accrual of limited
partnership income for the six months ended June 30, 2016 and 2015, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after
such revenues are recognized.

The
level of investment income we receive is directly related to the balance of income-producing investments multiplied by the weighted average yield of our investments. We expect the
dollar amount of interest and any dividend income that we earn to increase as the size of our investment portfolio increases and the proportion of directly originated investments in our portfolio
increases.

During
the six months ended June 30, 2016 and 2015, we generated $9,983 and $13,645 of fee income, which represented 5.4% and 7.7%, respectively, of total investment income. Such
fee income is transaction based, and typically consists of amendment and consent fees, prepayment fees, structuring fees, upfront fees and other non-recurring fees. As such, future fee income is
generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees. The decrease in fee income during the six months ended
June 30, 2016 compared to six months ended June 30, 2015 was primarily due to the prepayment of several large investments during the six months ended June 30, 2015.

Expenses

Our total expenses were $66,820 and $69,608 for the six months ended June 30, 2016 and 2015, respectively. Our expenses include
base management fees attributed to FS Advisor of $35,639 and $38,137 for the six months ended June 30, 2016 and 2015, respectively. Our expenses also include administrative services expenses
attributed to FS Advisor of $1,767 and $2,261 for the six months ended June 30, 2016 and 2015, respectively.

FS
Advisor is eligible to receive incentive fees based on our performance. During the six months ended June 30, 2016 and 2015, we accrued a subordinated incentive fee on income of
$5,774 and $9,357, respectively. During the six months ended June 30, 2016 and 2015, we did not accrue any capital gains incentive fees. See "Critical Accounting
PoliciesCapital Gains Incentive Fee" and "Critical Accounting PoliciesSubordinated Income Incentive Fee" for additional information about how the incentive fees
are calculated.

We
recorded interest expense of $18,279 and $14,724 for the six months ended June 30, 2016 and 2015, respectively, in connection with our financing arrangements. For the six
months ended June 30, 2016 and 2015, fees and expenses incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $610 and $721,
respectively, and fees and expenses incurred with our share transfer agent totaled $1,384 and $1,432, respectively. Fees for our board of trustees were $512 and $490 for the six months ended
June 30, 2016 and 2015, respectively. Amortization of our deferred offering costs was $623 and $0 for the six months ended June 30, 2016 and 2015, respectively.

65

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Table of Contents

Our
other general and administrative expenses totaled $2,153 and $2,328 for the six months ended June 30, 2016 and 2015, respectively, and consisted of the following:

Six Months Ended
June 30,2016

2015Expenses associated with our independent audit and related fees

$
246

$
372Compensation of our chief compliance officer(1)





10Legal fees


384


344Printing fees


800


640Insurance expense


118


152Other


605


810​
​
​
​
​
​
​
​Total

$
2,153

$
2,328​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(1)On
April 1, 2015, James F. Volk was appointed as our chief compliance officer. Prior to that date, we had contracted with Vigilant
Compliance, LLC to provide the services of Salvatore Faia as our chief compliance officer. Mr. Volk is employed by Franklin Square Holdings and will not receive any direct compensation
from us in this capacity.


During
the six months ended June 30, 2016 and 2015, the ratio of our total expenses to our average net assets was 2.67% and 2.53%, respectively. During the six months ended
June 30, 2016 and 2015, our ratio of total expenses to average net assets included $18,279 and $14,724, respectively, related to interest expense, $5,774 and $9,357, respectively, related to
accruals for incentive fees, $623 and $0, respectively, related to amortization of deferred offering costs and $79 and $158, respectively, related to accruals for income taxes. Without such expenses,
our ratio of expenses to average net assets would have been 1.68% and 1.65% for the six months ended June 30, 2016 and 2015, respectively. Incentive fees and interest expense, among other
things, may increase or decrease our expense ratios relative to comparative periods depending on portfolio performance and changes in benchmark interest rates such as LIBOR, among other factors.

Net Investment Income

Our net investment income totaled $119,416 ($0.31 per share) and $108,389 ($0.34 per share) for the six months ended June 30,
2016 and 2015, respectively. The decrease in net investment income on a per share basis can be attributed primarily to a decrease in investment income resulting from the restructuring of certain
investments in the portfolio.

Net Realized Gains or Losses

We sold investments and received principal repayments of $351,070 and $124,109, respectively, during the six months ended
June 30, 2016, from which we realized a net loss of $76,078. We sold investments and received principal repayments of $286,998 and $93,082, respectively, during the six months ended
June 30, 2015, from which we realized a net loss of $58,510. We realized a net loss of $147 from settlements on foreign currency during the six months ended June 30, 2015.

Net Change in Unrealized Appreciation (Depreciation) on Investments and Unrealized Gain (Loss)
on Foreign Currency

For the six months ended June 30, 2016 and 2015, the net change in unrealized appreciation (depreciation) on investments totaled
$374,733 and $68,390, respectively, and the net change in unrealized gain (loss) on foreign currency was $14 and $(141), respectively. The change in unrealized appreciation (depreciation) on our
investments during the six months ended June 30, 2016 was primarily driven by a general improvement in the energy markets, a tightening of credit spreads and the performance of our directly
originated and opportunistic investments. The change in unrealized appreciation (depreciation) on our investments during the six months ended June 30, 2015 was primarily driven by a general
tightening of credit spreads in Energy markets and by the performance of our directly originated and opportunistic investments.

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Net Increase (Decrease) in Net Assets Resulting from Operations

For the six months ended June 30, 2016 and 2015, the net increase (decrease) in net assets resulting from operations was
$418,085 ($1.07 per share) and $117,981 ($0.37 per share), respectively.

Financial Condition, Liquidity and Capital Resources

Based on and subject to market conditions and the pace of capital raising, we expect to close our public offering to new investors near
the end of the third quarter of 2016. Improving energy market conditions since the middle of February 2016 through June 30, 2016, have led to positive developments in the portfolio and a
subsequent increase in our net asset value per common share. However, we anticipate that certain investments in the portfolio may need to be restructured or may experience defaults. These
restructurings and defaults may have an impact on the level of income received by us. As a result, we are evaluating the current distribution rate payable on our common shares and there can be no
assurance that we will be able to maintain a weekly cash distribution amount of $0.013625 per common share. FS Advisor will waive its incentive fees and may waive a portion of its management fee
through the third quarter of 2016 to ensure that no portion of our distributions to shareholders is paid from offering proceeds or borrowings.

Overview

As of June 30, 2016, we had $330,665 in cash, which we or our wholly-owned financing subsidiaries held in custodial accounts,
and $506,579 in borrowings available under our financing arrangements, subject to borrowing base and other limitations. To seek to enhance our returns, we employ leverage as market conditions permit
and at the discretion of FS Advisor, but in no event may leverage employed exceed 50% of the value of our assets, as required by the 1940 Act. See "Financing Arrangements." As of
June 30, 2016, we also had broadly syndicated investments and opportunistic investments that could be sold to create additional liquidity. As of June 30, 2016, we had three senior
secured loan investments with aggregate unfunded commitments of $35,858 and four equity/other investments with aggregate unfunded commitments of $14,908. We maintain sufficient cash on hand, available
borrowings and liquid securities to fund such unfunded commitments should the need arise.

During
the six months ended June 30, 2016, we sold 47,355,865 common shares for gross proceeds of $331,999 at an average price per share of $7.01. The gross proceeds received
during the six months ended June 30, 2016 include reinvested shareholder distributions of $86,691, for which we issued 13,197,052 common shares. The sales commissions and dealer manager fees
related to the sale of our common shares were $21,279 for the six months ended June 30, 2016. These sales commissions and fees include $4,118 retained by the dealer manager, FS2,
which is one of our affiliates.

Since
commencing our continuous public offering and through July 26, 2016, we have sold 426,354,518 common shares (as adjusted for share distributions) for gross proceeds of
$4,180,613, including common shares issued under our distribution reinvestment plan. As of July 26, 2016, we have raised total gross proceeds of $4,200,817, including $200 of seed capital
contributed by the principals of FS Advisor in December 2010 and $20,004 in proceeds raised from the principals of FS Advisor, other individuals and entities affiliated with FS Advisor, certain
members of our board of trustees and certain individuals and entities affiliated with GSO in a private placement conducted in April 2011.

We
generate cash primarily from the net proceeds of our continuous public offering and from cash flows from fees, interest and dividends earned from our investments as well as principal
repayments and proceeds from sales of our investments. We are engaged in a continuous public offering of our common shares. We accept subscriptions on a continuous basis and issue common shares at
weekly closings. Shares are issued at prices that, after deducting selling commissions and dealer manager fees, must be above our net asset value per share.

Prior
to investing in securities of portfolio companies, we invest the net proceeds from our continuous public offering and from sales and paydowns of existing investments primarily in
cash, cash equivalents, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less from the time of investment, consistent with our BDC election
and our election to be taxed as a RIC.

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To
provide our shareholders with limited liquidity, we conduct quarterly tender offers pursuant to our share repurchase program. The first such tender offer commenced in August 2012, and
the repurchase occurred in connection with our October 1, 2012 semi-monthly closing.

The
following table provides information concerning our repurchases of common shares pursuant to our share repurchase program during the six months ended June 30, 2016 and 2015:

For the Three Months Ended

Repurchase Date

Shares
Repurchased

Percentage
of Shares
Tendered
That Were
Repurchased

Repurchase
Price
Per Share

Aggregate
Consideration
for Repurchased
SharesFiscal 2015December 31, 2014

January 7, 2015


450,293


100
%
$
8.820

$
3,972March 31, 2015

April 1, 2015


716,857


100
%
$
8.730

$
6,258Fiscal 2016December 31, 2015

January 6, 2016


2,716,924


100
%
$
6.750

$
18,339March 31, 2016

April 6, 2016


2,196,742


100
%
$
6.345

$
13,938


On
July 6, 2016, we repurchased 1,788,021 common shares (representing 100% of common shares tendered for repurchase) at $7.20 per share for aggregate consideration totaling
$12,874.

Financing Arrangements

The following table presents a summary of information with respect to our outstanding financing arrangements as of June 30,
2016:

Facility

Type of
Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity DateBarclays Facility

Revolving

L+3.25%




$
100,000

May 18, 2021BNP Facility

Prime Brokerage

L+1.10%

$
113,737

$
186,263

March 27, 2017(1)Deutsche Bank Credit Facility

Revolving

L+2.05%(2)

$
200,000

$
115,000

June 11, 2017Fortress Facility

Term

L+5.00%(3)

$
89,600

$
65,400

November 6, 2020Goldman Facility

Repurchase

L+2.75%

$
324,984

$
16

September 15, 2017Natixis Credit Facility

Revolving

CP+2.25%

$
88,969




July 11, 2023Wells Fargo Credit Facility

Revolving

L+2.50% to 2.75%

$
85,100

$
39,900

September 9, 2019


(1)The
BNP facility generally is terminable upon 270 days' notice by either party. As of June 30, 2016, neither Berwyn Funding nor BNP had
provided notice of its intent to terminate the facility.(2)Prior
to June 11, 2016, borrowings under the Deutsche Bank credit facility accrued interest at a rate equal to LIBOR, plus 1.80% per annum. Beginning
on June 11, 2016, borrowings under the Deutsche Bank credit facility accrue interest at a rate equal to LIBOR plus 2.05% per annum.(3)As
described in Note 8, borrowings under the Fortress facility accrue interest at a rate equal to LIBOR plus 5.00%, subject to a floor of 0.75%.


Our
average borrowings and weighted average interest rate, including the effect of non-usage fees, for the six months ended June 30, 2016 were $969,931 and 3.41%, respectively. As
of June 30, 2016, our weighted average effective interest rate on borrowings was 3.20%.

For
additional information regarding our outstanding financing arrangements, see Note 8 to our unaudited consolidated financial statements included herein.

RIC Tax Treatment and Distributions

We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a RIC under Subchapter M
of the Code. As a RIC, we generally do not have to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that we distribute as dividends to our shareholders. To
maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. In addition, in order to maintain RIC tax treatment, we must
distribute to our shareholders, for each tax year, dividends generally of an amount at least equal to 90% of our "investment company taxable income," which is generally the sum of our net ordinary
income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses, determined without regard to any deduction for dividends paid. In addition, we

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may,
in certain cases, satisfy the Annual Distribution Requirement by distributing dividends relating to a tax year after the close of such tax year under the "spillover dividend" provisions of
Subchapter M of the Code. If we distribute a spillover dividend, such dividend will be included in a shareholder's gross income for the tax year in which the spillover distribution is paid. We
intend to make sufficient distributions to our shareholders to maintain our RIC tax treatment each tax year. We will also be subject to nondeductible U.S. federal excise taxes on certain undistributed
income unless we distribute in a timely manner to our shareholders of an amount at least equal to the sum of (1) 98% of our net ordinary taxable income (taking into account certain deferrals
and elections) for the calendar year, (2) 98.2% of our capital gain net income, which is the excess of capital gains over capital losses (adjusted for certain ordinary losses), for the one-year
period ending October 31 of that calendar year and (3) any ordinary income and capital gain net income for the preceding years that were not distributed during such years and on which we
paid no U.S. federal income tax. Any distribution declared by us during October, November or December of any calendar year, payable to our shareholders of record on a specified date in such a month
and actually paid during January of the following calendar year, will be treated as if it had been paid by us, as well as received by our U.S. shareholders, on December 31 of the calendar year
in which the distribution was declared. We generally will endeavor in each tax year to avoid any material U.S. federal excise tax on our earnings.

We
authorize and declare ordinary cash distributions on a weekly basis, while continuing to pay such distributions on a monthly basis, in each case subject to our board of trustees'
discretion and applicable legal restrictions. We will calculate each shareholder's specific distribution amount for the period using record and declaration dates and each shareholder's distributions
will begin to accrue on the date we accept such shareholder's subscription for our common shares. From time to time, we may also pay special interim distributions in the form of cash or common shares
at the discretion of our board of trustees.

During
certain periods, our distributions may exceed our earnings, especially during the period before we have substantially invested the proceeds from our continuous public offering of
common shares. As a result, it is possible that a portion of the distributions we make will represent a return of capital. A return of capital generally is a return of an investor's investment rather
than a return of earnings or gains derived from our investment activities and will be made after deducting the fees and expenses payable in connection with our continuous public offering, including
any fees payable to FS Advisor. Moreover, a return of capital will generally not be taxable, but will reduce each shareholder's cost basis in our common shares, and will result in a higher reported
capital gain or lower reported capital loss when the common shares on which such return of capital was received are sold. Each year a statement on Form 1099-DIV identifying the sources of the
distributions will be mailed to our shareholders.

The
following table reflects the cash distributions per share that we have declared and paid on our common shares during the six months ended June 30, 2016 and 2015:

DistributionFor the Three Months Ended

Per Share

AmountFiscal 2015March 31, 2015

$
0.1771

$
54,825June 30, 2015

$
0.1771

$
58,250Fiscal 2016March 31, 2016

$
0.1771

$
66,720June 30, 2016

$
0.1771

$
70,788


On
June 6, 2016, July 7, 2016 and August 8, 2016 our board of trustees declared regular weekly cash distributions for July 2016, August 2016 and September 2016,
respectively. These distributions have been or will be paid monthly to shareholders of record as of weekly record dates previously determined by our board of trustees in the amount of $0.013625 per
share. The timing and amount of any future distributions to shareholders are subject to applicable legal restrictions and the sole discretion of our board of trustees.

We
have adopted an "opt in" distribution reinvestment plan for our shareholders. As a result, if we make a cash distribution, our shareholders will receive distributions in cash unless
they specifically

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"opt
in" to the distribution reinvestment plan so as to have their cash distributions reinvested in additional common shares. However, certain state authorities or regulators may impose restrictions
from time to time that may prevent or limit a shareholder's ability to participate in the distribution reinvestment plan. Although distributions paid in the form of additional common shares will
generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, shareholders who elect to participate in our distribution reinvestment plan will not receive any
corresponding cash distributions with which to pay any such applicable taxes. Shareholders receiving distributions in the form of additional common shares will generally be treated as receiving a
distribution in the amount of the fair market value of our common shares.

We
may fund our cash distributions to shareholders from any sources of funds legally available to us, including offering proceeds, borrowings, net investment income from operations,
capital gains proceeds
from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to us on account of preferred and common equity investments in portfolio companies
and expense reimbursements from Franklin Square Holdings. We have not established limits on the amount of funds we may use from available sources to make distributions.

For
a period of time following commencement of our continuous public offering, substantial portions of our distributions were funded through the reimbursement of certain expenses by
Franklin Square Holdings and its affiliates, including through the waiver of certain investment advisory fees by FS Advisor, that were subject to repayment by us within three years. The purpose of
this arrangement was to ensure that no portion of our distributions to shareholders was paid from offering proceeds or borrowings. Any such distributions funded through expense reimbursements or
waivers of advisory fees were not based on our investment performance.

No
portion of the distributions paid during the six months ended June 30, 2016 or 2015 was funded through the reimbursement of operating expenses by Franklin Square Holdings.
During the six months ended June 30, 2016 and 2015, we did not repay any amounts to Franklin Square Holdings for expenses previously reimbursed or waived. There can be no assurance that we will
continue to achieve the performance necessary to sustain our distributions or that we will be able to pay distributions at a specific rate or at all. Franklin Square Holdings and its affiliates have
no obligation to waive advisory fees or otherwise reimburse expenses in future periods.

The
following table reflects the sources of the cash distributions on a tax basis that we paid on our common shares during the six months ended June 30, 2016 and 2015:

Six Months Ended June 30,2016

2015Source of Distribution

Distribution
Amount

Percentage

Distribution
Amount

PercentageOffering proceeds

$





$



Borrowings











Net investment income(1)


137,508


100
%

99,484


88
%Short-term capital gains proceeds from the sale of assets











Long-term capital gains proceeds from the sale of assets








13,591


12
%Non-capital gains proceeds from the sale of assets











Distributions on account of limited partnership interest











Expense reimbursement from sponsor











​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
137,508


100
%
$
113,075


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)During
the six months ended June 30, 2016 and 2015, 89.8% and 91.2%, respectively, of our gross investment income was attributable to cash income
earned, 2.7% and 1.7%, respectively, was attributable to non-cash accretion of discount and 7.5% and 7.1%, respectively, was attributable to PIK interest.


Our
net investment income on a tax basis for the six months ended June 30, 2016 and 2015 was $131,526 and $110,999, respectively. As of June 30, 2016 and
December 31, 2015, we had $10,454 and $16,436, respectively, of undistributed ordinary income on a tax basis and distributable income received from a limited partnership interest. As of
June 30, 2016 we had excess undistributed ordinary income

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on
a tax basis of $3,596. During the last twelve months, our distributions exceeded tax-basis net investment income by $8,576. In addition, $16,873 of our tax-basis net investment income was generated
by fee income, which is generally non-recurring in nature and the full amount of which is recorded as revenue when earned. Excluding fee income from net investment income during the last twelve
months, we would have had distributions in excess of tax-basis net investment income of $25,449. No portion of the distributions paid during the six months ended June 30, 2016 and 2015 was
funded from offering proceeds or borrowings.

During
the six months ended June 30, 2016, we saw positive developments in our investment portfolio and a subsequent increase in our net asset value. However, we anticipate that
certain investments in the portfolio may need to be restructured or may experience defaults. These restructurings and defaults may have an impact on the level of income received by us. As a result, we
are evaluating the current distribution rate payable on our common shares and there can be no assurance that we will be able to maintain a weekly cash distribution amount of $0.013625 per common
share. FS Advisor will waive its incentive fees and may waive a portion of its management fee through the third quarter of 2016 to ensure that no portion of our distributions to shareholders is paid
from offering proceeds or borrowings.

See
Note 5 to our unaudited consolidated financial statements included herein for additional information regarding our distributions, including a reconciliation of our GAAP-basis
net investment income to our tax-basis net investment income for the six months ended June 30, 2016 and 2015, the
components of accumulated earnings on a tax basis and deferred taxes as of June 30, 2016 and December 31, 2015.

Critical Accounting Policies

Our financial statements are prepared in conformity with GAAP, which requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are
those that require the application of management's most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently
uncertain and that may change in subsequent periods. In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available
information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality.
Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in
similar businesses. As we execute our operating plans, we will describe additional critical accounting policies in the notes to our future financial statements in addition to those discussed below.

Valuation of Portfolio Investments

We determine the net asset value of our investment portfolio each quarter. Securities are valued at fair value as determined in good
faith by our board of trustees. In connection with that determination, FS Advisor provides our board of trustees with portfolio company valuations which are based on relevant inputs, including, but
not limited to, indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by independent third-party valuation services.

Accounting
Standards Codification Topic 820,Fair Value Measurements and Disclosure, or ASC Topic 820, issued by the FASB clarifies the
definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial
recognition. ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1,

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defined
as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for
identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to
develop its own assumptions.

With
respect to investments for which market quotations are not readily available, we undertake a multi-step valuation process each quarter, as described
below:



Determination
of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements refer to the uncertainty with respect to the
possible effect of such valuations and any change in such valuations on our consolidated financial statements. In making its determination of fair value, our board of trustees may use any approved
independent third-party pricing or valuation services. However, our board of trustees is not required to determine fair value in accordance with the valuation provided by any single source, and may
use any relevant data, including information obtained from FS Advisor or any approved independent third-party valuation or pricing service that our board of trustees deems to be reliable in
determining fair value under the circumstances. Below is a description of factors that FS Advisor's management team, any approved independent third-party valuation services and our board of trustees
may consider when determining the fair value of our investments.

Valuation
of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility
in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, we may incorporate these factors into discounted
cash flow models to arrive at fair value. Other factors that may be considered include the borrower's ability to adequately service its debt, the fair market value of the portfolio company in relation
to the face amount of its outstanding debt and the quality of collateral securing our debt investments.

For
convertible debt securities, fair value generally approximates the fair value of the debt plus the fair value of an option to purchase the underlying security (i.e., the
security into which the debt may convert) at the conversion price. To value such an option, a standard option pricing model may be used.

Our
equity interests in portfolio companies for which there is no liquid public market are valued at fair value. Our board of trustees, in its determination of fair value, may consider
various factors, such as multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. All of these factors may be subject to adjustments based upon
the particular circumstances of a portfolio company or our actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition,
recapitalization, restructuring or other related items.

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FS
Advisor's management team, any approved independent third-party valuation services and our board of trustees may also consider private merger and acquisition statistics, public
trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. FS Advisor's
management team, any
approved independent third-party valuation services and our board of trustees may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, and may apply
discounts or premiums, where and as appropriate, due to the higher (or lower) financial risk and/or the smaller size of portfolio companies relative to comparable firms, as well as such other factors
as our board of trustees, in consultation with FS Advisor's management team and any approved independent third-party valuation services, if applicable, may consider relevant in assessing fair value.
Generally, the value of our equity interests in public companies for which market quotations are readily available is based upon the most recent closing public market price. Portfolio securities that
carry certain restrictions on sale are typically valued at a discount from the public market value of the security.

When
we receive warrants or other equity securities at nominal or no additional cost in connection with an investment in a debt security, the cost basis in the investment will be
allocated between the debt securities and any such warrants or other equity securities received at the time of origination. Our board of trustees subsequently values these warrants or other equity
securities received at their fair value.

The
fair values of our investments are determined in good faith by our board of trustees. Our board of trustees is solely responsible for the valuation of our portfolio investments at
fair value as determined in good faith pursuant to our valuation policy and consistently applied valuation process. Our board of trustees has delegated day-to-day responsibility for implementing our
valuation policy to FS Advisor's management team, and has authorized FS Advisor's management team to utilize independent third-party valuation and pricing services that have been approved by our board
of trustees. The valuation committee is responsible for overseeing FS Advisor's implementation of the valuation process.

Our
investments as of June 30, 2016 consisted primarily of debt investments that were acquired directly from the issuer. Nineteen senior secured loan investments, two senior
secured bond investments and six subordinated debt investments were valued by independent valuation firms, which determined the fair value of such investments by considering, among other factors, the
borrower's ability to adequately service its debt, prevailing interest rates for like investments, call features, anticipated prepayments and other relevant terms of the debt. All of our equity/other
investments were valued by an independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as
well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. Except as described above, we valued our other
investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by an independent third-party pricing service and
screened for validity by such service.

Our
investments as of December 31, 2015 consisted primarily of debt investments that were acquired directly from the issuer. Twenty senior secured loan investments, two senior
secured bond investments and five subordinated debt investments were valued by independent valuation firms, which determined the fair value of such investments by considering, among other factors, the
borrower's ability to adequately service its debt, prevailing interest rates for like investments, call features, anticipated prepayments and other relevant terms of the debt. All of our equity/other
investments were valued by an independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as
well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. Except as described above, we valued our other
investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by an independent third-party pricing service and
screened for validity by such service.

We
periodically benchmark the bid and ask prices we receive from third-party pricing services and/or dealers, as applicable, against the actual prices at which we purchase and sell our
investments.

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Based
on the results of the benchmark analysis and the experience of our management in purchasing and selling these investments, we believe that these prices are reliable indicators of fair value.
However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), we believe that these valuation inputs are classified as Level 3 within the
fair value hierarchy. We may also use other methods, including the use of independent valuation firms, to determine fair value for securities for which we cannot obtain prevailing bid and ask prices
through third-party pricing services or independent dealers or where our board of trustees otherwise determines that the use of such other method is appropriate. We periodically benchmark the
valuations provided by the independent valuation firms against the actual prices at which we purchase and sell our investments. Our valuation committee and board of trustees reviewed and approved the
valuation determinations made with respect to these investments in a manner consistent with our valuation policy.

Revenue Recognition

Security transactions are accounted for on the trade date. We record interest income on an accrual basis to the extent that we expect
to collect such amounts. We record dividend income on the ex-dividend date. We do not accrue as a receivable interest or dividends on loans and securities if we have reason to doubt our ability to
collect such income. Our policy is to place investments on non-accrual status when there is reasonable doubt that interest income will be collected. We consider many factors relevant to an investment
when placing it on or removing it from non-accrual status including, but not limited to, the delinquency status of the investment, economic and business conditions, the overall financial condition of
the underlying investment, the value of the underlying collateral, bankruptcy status, if any, and any other facts or circumstances relevant to the investment. If there is reasonable doubt that we will
receive any previously accrued interest, then the previously recognized interest income will be written-off. Payments received on non-accrual investments may be recognized as income or applied to
principal depending upon the collectability of the remaining principal and interest. Non-accrual investments may be restored to accrual status when principal and interest payments become current and
are likely to remain current based on our judgment.

Loan
origination fees, original issue discount and market discount are capitalized and we amortize such amounts as interest income over the respective term of the loan or security. Upon
the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as interest income. Structuring and other non-recurring upfront fees are recorded
as fee income when earned. We record prepayment premiums on loans and securities as fee income when we receive such amounts.

Net Realized Gains or Losses, Net Change in Unrealized Appreciation or Depreciation and Net
Change in Unrealized Gains or Losses on Foreign Currency

Gains or losses on the sale of investments are calculated by using the specific identification method. We measure realized gains or
losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously
recognized, but considering unamortized fees. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any
reversal of previously recorded unrealized gains or losses when gains or losses are realized and the respective unrealized gain or loss on foreign currency for any foreign denominated investments we
may hold. Net change in unrealized gains or losses on foreign currency reflects the change in the value of foreign currency held, receivables or accruals during the reporting period due to the impact
of foreign currency fluctuations.

Capital Gains Incentive Fee

Pursuant to the terms of the investment advisory and administrative services agreement, the incentive fee on capital gains is
determined and payable in arrears as of the end of each calendar year (or upon termination of such agreement). Such fee equals 20.0% of our incentive fee capital gains (i.e., our realized
capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, computed net of all realized capital losses and unrealized capital depreciation on a cumulative
basis), less the aggregate amount of any previously paid capital gains incentive fees. On a

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quarterly
basis, we accrue for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.

While
the investment advisory and administrative services agreement with FS Advisor neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital
gains incentive fee, pursuant to an interpretation of an AICPA Technical Practice Aid for investment companies, we include unrealized gains in the calculation of the capital gains incentive fee
expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to FS Advisor as if our entire portfolio was liquidated at its fair value as of
the balance sheet date even though FS Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

Subordinated Income Incentive Fee

Pursuant to the investment advisory and administrative services agreement, FS Advisor may also be entitled to receive a subordinated
incentive fee on income. The subordinated incentive fee on income, which is calculated and payable quarterly in arrears, equals 20.0% of our "pre-incentive fee net investment income" for the
immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital equal to 1.625% per quarter, or an annualized hurdle rate of 6.5%. As a result, FS
Advisor does not earn this incentive fee for any quarter until our pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.625%. For purposes of this fee, "adjusted
capital" means cumulative gross proceeds generated from sales of our common shares (including proceeds from our distribution reinvestment plan) reduced for distributions from non-liquidating
dispositions of our investments paid to shareholders and amounts paid for share repurchases pursuant to our share repurchase program. Once our pre-incentive fee net investment income in any quarter
exceeds the hurdle rate, FS Advisor is entitled to a "catch-up" fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until our pre-incentive fee net
investment income for such quarter equals 2.031%, or 8.125% annually, of adjusted capital. Thereafter, FS Advisor is entitled to receive 20.0% of pre-incentive fee net investment income.

Uncertainty in Income Taxes

We evaluate our tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with
accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in our consolidated financial statements.
Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is "more likely than not" to be sustained assuming examination by taxing
authorities. We recognize interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in our consolidated statements of operations. During the six months ended
June 30, 2016 and 2015, we did not incur any interest or penalties.

Contractual Obligations

We have entered into an agreement with FS Advisor to provide us with investment advisory and administrative services. Payments for
investment advisory services under the investment advisory and administrative services agreement are equal to (a) an annual base management fee of 2.0% of the average value of our gross assets
and (b) an incentive fee based on our performance. FS Advisor, and to the extent it provides such services, GSO, are reimbursed for administrative expenses incurred on our behalf. See
Note 4 to our unaudited consolidated financial statements included herein and "Related Party TransactionsCompensation of the Investment Adviser and Dealer Manager" for
a discussion of these agreements and for the amount of fees and expenses accrued under these agreements during the six months ended June 30, 2016 and 2015.

A
summary of our significant contractual payment obligations for the repayment of outstanding borrowings under the BNP facility, the Barclays facility, the Deutsche Bank credit facility,
the Fortress

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facility,
the Goldman facility, the Natixis credit facility and the Wells Fargo credit facility at June 30, 2016 is as follows:

Payments Due By PeriodTotal

Less than
1 year

1-3 years

3-5 years

More than
5 yearsBNP Facility(1)

$
113,737

$
113,737








Deutsche Bank Credit Facility(2)

$
200,000

$
200,000








Fortress Facility(3)

$
89,600







$
89,600


Goldman Facility(4)

$
324,984




$
324,984





Natixis Credit Facility(5)

$
88,969










$
88,969Wells Fargo Credit Facility(6)

$
85,100







$
85,100





(1)At
June 30, 2016, $186,263 remained unused under the BNP facility. The BNP facility generally is terminable upon 270 days' notice by either
party. As of June 30, 2016, neither Berwyn Funding nor BNP had provided notice of its intent to terminate the facility.(2)At
June 30, 2016, $115,000 remained unused under the Deutsche Bank credit facility. All amounts borrowed under the facility will mature, and all
accrued and unpaid interest thereunder will be due and payable, on June 11, 2017.(3)At
June 30, 2016, $65,400 remained unused under the Fortress facility. All amounts borrowed under the facility will mature, and all accrued and
unpaid interest thereunder will be due and payable, on November 6, 2020.(4)At
June 30, 2016, $16 remained unused under the Goldman facility. Strafford Funding will repurchase all Notes sold to Goldman under the Goldman
facility and will owe all accrued and unpaid interest thereunder, on September 15, 2017.(5)At
June 30, 2016, no amounts remained unused under the Natixis credit facility. All amounts borrowed under the facility will mature, and all accrued
and unpaid interest thereunder will be due and payable, on July 11, 2023. Amounts under the Natixis credit facility began to amortize after the first repayment thereunder and we cannot borrow
additional amounts under the facility thereafter.(6)At
June 30, 2016, $39,900 remained unused under the Wells Fargo credit facility. All amounts borrowed under the facility will mature, and all accrued
and unpaid interest thereunder will be due and payable, on September 9, 2019.


As
of June 30, 2016, no amounts were outstanding under the Barclays facility.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices.

Related Party Transactions

Compensation of the Investment Adviser and Dealer Manager

Pursuant to the investment advisory and administrative services agreement, FS Advisor is entitled to an annual base management fee of
2.0% of the average value of our gross assets and an incentive fee based on our performance. Pursuant to the investment sub-advisory agreement, GSO will receive 50% of all management and incentive
fees payable to FS Advisor under the investment advisory and administrative services agreement with respect to each year. We commenced accruing fees under the investment advisory and administrative
services agreement on July 18, 2011, upon commencement of our investment operations. Base management fees are paid on a quarterly basis in arrears.

The
dealer manager for our continuous public offering is FS2, which is one of our affiliates. Under the dealer manager agreement among us, FS Advisor and FS2,
FS2 is entitled to receive sales commissions and dealer manager fees in connection with the sale of common shares in our continuous

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public
offering, all or a portion of which may be re-allowed to selected broker-dealers and financial representatives.

The
following table describes the fees and expenses accrued under the investment advisory and administrative services agreement and the dealer manager agreement during the three and six
months ended June 30, 2016 and 2015:

Three Months
Ended June 30,

Six Months
Ended June 30,Related PartySource Agreement

Description

2016

2015

2016

2015FS Advisor

Investment Advisory and Administrative Services Agreement

Base Management Fee(1)

$
18,398

$
19,392

$
35,639

$
38,137FS Advisor

Investment Advisory and Administrative Services Agreement

Subordinated Incentive Fee on Income(2)




$
6,478

$
5,774

$
9,357FS Advisor

Investment Advisory and Administrative Services Agreement

Administrative Services Expenses(3)

$
883

$
761

$
1,767

$
2,261FS Advisor

Investment Advisory and Administrative Services Agreement

Offering Costs(4)

$
1,657

$
1,409

$
2,370

$
3,033FS2

Dealer Manager Agreement

Dealer Manager Fee(5)

$
2,639

$
2,129

$
4,118

$
5,346


(1)During
the six months ended June 30, 2016 and 2015, $35,579 and $36,657, respectively, in base management fees were paid to FS Advisor. As of
June 30, 2016, $18,398 in base management fees were payable to FS Advisor.(2)During
the six months ended June 30, 2016 and 2015, $17,822 and $15,021, respectively, of subordinated incentive fees on income were paid to FS
Advisor. As of June 30, 2016, we did not have a subordinated incentive fee on income payable to FS Advisor.(3)During
the six months ended June 30, 2016 and 2015, $1,708 and $2,124, respectively, of the accrued administrative services expenses related to the
allocation of costs of administrative personnel for services rendered to us by FS Advisor and the remainder related to other reimbursable expenses. We paid $2,106 and $1,882 in administrative services
expenses to FS Advisor during the six months ended June 30, 2016 and 2015, respectively.(4)During
the six months ended June 30, 2016 and 2015, we incurred offering costs of $2,700 and $5,350, respectively, of which $2,370 and $3,033,
respectively, related to reimbursements to FS Advisor for offering costs incurred on our behalf, including marketing expenses, salaries and other direct expenses of FS Advisor's personnel and
employees of its affiliates while engaged in registering and marketing our common shares. See Note 2 to our unaudited consolidated financial statements included herein for a discussion
regarding our change in accounting treatment of offering costs.(5)Represents
aggregate dealer manager fees retained by FS2 and not re-allowed to selected broker-dealers or financial representatives.


See
Note 4 to our unaudited consolidated financial statements included herein for additional information regarding our related party transactions and relationships, including a
description of the fees and amounts due to FS Advisor, capital contributions by FS Advisor and GSO, potential conflicts of interest, our exemptive relief order, our expense reimbursement arrangement
with Franklin Square Holdings and FS Benefit Trust's purchases of our common shares.

Recent Developments

During the period from July 1, 2016 to July 26, 2016, we sold 2,796,193 common shares for gross proceeds of $22,296 at an
average price per share of $7.97.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

We are subject to financial market risks, including changes in interest rates. As of June 30, 2016, 46.0% of our portfolio
investments (based on fair value) paid variable interest rates, 38.5% paid fixed interest rates, 5.5% were income producing equity or other investments and the remainder (10.0%) consisted of
non-income producing equity or other investments. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to the variable rate investments we hold and
to declines in the value of any fixed rate investments we hold. However, many of our variable rate investments provide for an interest rate floor, which may prevent our interest income from increasing
until benchmark interest rates increase beyond a threshold amount. To the extent that a substantial portion of our investments may be in variable rate investments, an increase in interest rates beyond
this threshold would make it easier for us to meet or exceed the hurdle rate applicable to the subordinated incentive fee on income and may result in a substantial increase in our net investment

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income
and to the amount of incentive fees payable to FS Advisor with respect to our increased pre-incentive fee net investment income.

Pursuant
to the terms of the BNP facility, Barclays facility, Deutsche Bank credit facility, Fortress facility, Goldman facility, Natixis credit facility and Wells Fargo credit facility,
Berwyn Funding, Bryn Mawr Funding, FSEP Funding, Foxfields Funding, Strafford Funding, Energy Funding and Wayne Funding, respectively, borrow at a floating rate based on a benchmark interest rate. To
the extent that any present or future credit facilities or other financing arrangements that we or any of our subsidiaries enter into are based on a floating interest rate, we will be subject to risks
relating to changes in market interest rates. In periods of rising interest rates when we or our subsidiaries have such debt outstanding or financing arrangements in effect, our interest expense would
increase, which could reduce our net investment income, especially to the extent we hold fixed rate investments.

The
following table shows the effect over a twelve-month period of changes in interest rates on our interest income, interest expense and net interest income, assuming no changes in the
composition of
our investment portfolio, including the accrual status of our investments, and our borrowing arrangements in effect as of June 30, 2016 (dollar amounts are presented in thousands):

Basis Point Change in Interest Rates

Increase
(Decrease)
in Interest
Income

Increase
(Decrease)
in Interest
Expense

Increase
(Decrease) in
Net Interest
Income

Percentage
Change in
Net Interest
IncomeDown 65 basis points

$


$
(5,872
)
$
5,872


1.9
%No change











Up 100 basis points


7,401


9,034


(1,633
)

(0.5
)%Up 300 basis points


40,499


27,101


13,398


4.4
%Up 500 basis points


74,265


45,168


29,097


9.6
%


We
expect that our long-term investments will be financed primarily with equity and debt. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize
our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes
in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. During the six months ended June 30, 2016 and
2015, we did not engage in interest rate hedging activities.

In
addition, we may have risk regarding portfolio valuation. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of
OperationsCritical Accounting PoliciesValuation of Portfolio Investments."

Item 4.    Controls and Procedures.

As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the
participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of
June 30, 2016. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable
assurance that we would meet our disclosure obligations.

There
was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) that occurred during the three month
period ended June 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART IIOTHER INFORMATION

Item 1.    Legal Proceedings.

We are not currently subject to any material legal proceedings and, to our knowledge, no material legal proceedings are threatened
against us. From time to time, we may be party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our
portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, we do not expect that any such proceedings will
have a material effect upon our financial condition or results of operations.

Item 1A.    Risk Factors.

There have been no material changes from the risk factors set forth in our annual report on Form 10-K for the fiscal year ended
December 31, 2015.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

The table below provides information concerning our repurchases of common shares during the three months ended June 30, 2016
pursuant to our share repurchase program.

Period

Total
Number of
Shares
Purchased

Average
Price Paid
per Share

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs

Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or
ProgramsApril 1 to April 30, 2016


2,196,742

$
6.345


2,196,742


(1
)May 1 to May 31, 2016











June 1 to June 30, 2016











​
​
​
​
​
​
​
​
​
​
​
​
​
​Total


2,196,742

$
6.345


2,196,742


(1
)​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)A
description of the maximum number of common shares that may be repurchased under our share repurchase program is set forth in Note 3 to our
unaudited consolidated financial statements contained in this quarterly report on Form 10-Q.


See
Note 3 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q for a more detailed discussion of the terms of our share
repurchase program.

Item 3.    Defaults upon Senior Securities.

Not applicable.

Item 4.    Mine Safety Disclosures.

Not applicable.

Item 5.    Other Information.

Not applicable.

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Item 6.    Exhibits.

3.1

Third Amended and Restated Declaration of Trust of FS Energy and Power Fund.(Incorporated by reference to Exhibit 3.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on
March 13, 2012.)3.2

Amended and Restated Bylaws of FS Energy and Power Fund.(Incorporated by reference to Exhibit 3.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on March 13,
2012.)4.1

Form of Subscription Agreement.(Incorporated by reference to FS Energy and Power Fund's final prospectus filed on July 6, 2016 with the Securities and Exchange Commission pursuant to
Rule 497 of the Securities Act of 1933, as amended.)4.2

Amended and Restated Distribution Reinvestment Plan of FS Energy and Power Fund.(Incorporated by reference to Exhibit 4.1 to FS Energy and Power Fund's Current Report on Form 8-K
filed on November 14, 2011.)10.1

Investment Advisory and Administrative Services Agreement, dated as of April 28, 2011, by and between FS Energy and Power Fund and FS Investment Advisor, LLC.(Incorporated by
reference to Exhibit (g)(1) filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.)10.2

Amendment No. 1 dated as of August 10, 2012, to Investment Advisory and Administrative Services Agreement, dated as of April 28, 2011, by and between FS Energy and Power Fund and FS Investment Advisor,
 LLC.(Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on August 14, 2012.)10.3

Investment Sub-advisory Agreement, dated as of April 28, 2011, by and between FS Investment Advisor, LLC and GSO Capital Partners LP.(Incorporated by reference to Exhibit (g)
(2) filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.)10.4

Dealer Manager Agreement, dated as of April 28, 2011, by and between FS Energy and Power Fund and FS2 Capital Partners, LLC.(Incorporated by reference to Exhibit (h)(1)
 filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.)10.5

Form of Follow-On Dealer Manager Agreement by and among FS Energy and Power Fund, FS Investment Advisor, LLC and FS2 Capital Partners, LLC.(Incorporated by reference to
Exhibit (h)(2) filed with Pre-Effective Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-184407) filed on May 10, 2013.)10.6

2014 Follow-On Dealer Manager Agreement, dated as of January 7, 2015, by and among FS Energy and Power Fund, FS Investment Advisor, LLC and FS2 Capital Partners, LLC.(Incorporated by reference to Exhibit (h)(3) filed with Post-Effective Amendment No. 1 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-199777) filed on April 1, 2015.)10.7

Form of Selected Dealer Agreement (Included as Appendix A to the Dealer Manager Agreement).(Incorporated by reference to Exhibit (h)(1) filed with Amendment No. 3 to FS Energy
and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.)10.8

Form of Follow-On Selected Dealer Agreement.(Included as Exhibit A to the Form of Follow-On Dealer Manager Agreement.) (Incorporated by reference to Exhibit (h)(2) filed with
Pre-Effective Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-184407) filed on May 10, 2013.)10.9

Custodian Agreement, dated as of November 14, 2011, by and between State Street Bank and Trust Company and FS Energy and Power Fund.(Incorporated by reference to Exhibit 10.6 to FS
Energy and Power Fund's Quarterly Report on Form 10-Q filed on November 14, 2011.)


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10.10

Escrow Agreement, dated as of March 29, 2011, by and between FS Energy and Power Fund and UMB Bank, N.A.(Incorporated by reference to Exhibit (k) filed with Amendment No. 3 to FS
Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.)10.11

Credit Agreement, dated as of June 24, 2011, by and among FSEP Term Funding, LLC, Deutsche Bank AG, New York Branch, and the other lenders party thereto.(Incorporated by reference to
Exhibit 10.7 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.)10.12

First Amendment to Credit Agreement, dated as of May 30, 2012, by and among FSEP Term Funding, LLC, Deutsche Bank AG, New York Branch, and the other lenders party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 30, 2012.)10.13

Second Amendment to Credit Agreement, dated as of August 28, 2012, by and among FSEP Term Funding, LLC, Deutsche Bank AG, New York Branch, and the other lenders party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on August 30, 2012.)10.14

Third Amendment to Credit Agreement, dated as of October 18, 2012, by and among FSEP Term Funding, LLC, Deutsche Bank AG, New York Branch, and the other lenders party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on October 18, 2012.)10.15

Fourth Amendment to Credit Agreement, dated as of June 24, 2013, by and among FSEP Term Funding, LLC and Deutsche Bank AG, New York Branch.(Incorporated by reference to
Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 25, 2013.)10.16

Amended and Restated Credit Agreement, dated as of June 11, 2014, by and among FSEP Term Funding, LLC and Deutsche Bank AG, New York Branch.(Incorporated by reference to
Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 17, 2014.)10.17

First Amendment to Amended and Restated Credit Agreement, dated as of June 11, 2015, by and among FSEP Term Funding, LLC and Deutsche Bank AG, New York Branch(Incorporated by
reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 15, 2015.)10.18

Second Amendment to Amended and Restated Credit Agreement, dated as of June 10, 2016, by and among FSEP Term Funding, LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent and a lender,
 and the other lenders party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 16, 2016.)10.19

Asset Contribution Agreement, dated as of June 24, 2011, by and between FS Energy and Power Fund and FSEP Term Funding, LLC.(Incorporated by reference to Exhibit 10.8 to FS
Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.)10.20

Investment Management Agreement, dated as of June 24, 2011, by and between FS Energy and Power Fund and FSEP Term Funding, LLC.(Incorporated by reference to Exhibit 10.9 to FS
Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.)10.21

Security Agreement, dated as of June 24, 2011, by and between FSEP Term Funding, LLC and Deutsche Bank AG, New York Branch.(Incorporated by reference to Exhibit 10.10 to FS
Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.)10.22

ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of August 11, 2011, by and between EP Investments LLC and Citibank, N.A.(Incorporated by reference to Exhibit 10.11 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on August 15, 2011.)


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10.23

Termination and Release Acknowledgment, dated as of May 11, 2012, by Citibank N.A. in favor of FS Energy and Power Fund.(Incorporated by reference to Exhibit 10.15 to FS Energy and Power
Fund's Quarterly Report on Form 10-Q filed on May 15, 2012.)10.24

Amendment Agreement, dated as of May 11, 2012, to the ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, by and between EP Investments LLC and Citibank,
N.A.(Incorporated by reference to Exhibit 10.16 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on May 15, 2012.)10.25

Amended and Restated Confirmation Letter Agreement, dated as of May 11, 2012, by and between EP Investments LLC and Citibank, N.A.(Incorporated by reference to Exhibit 10.17 to
FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on May 15, 2012.)10.26

Amended and Restated Confirmation Letter Agreement, dated as of October 11, 2012, by and between EP Investments LLC and Citibank, N.A.(Incorporated by reference to Exhibit 10.1
to FS Energy and Power Fund's Current Report on Form 8-K filed on October 12, 2012.)10.27

Termination Acknowledgment (TRS), dated as of May 24, 2013, by and between EP Investments LLC and Citibank, N.A.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power
Fund's Current Report on Form 8-K filed on May 31, 2013.)10.28

Loan Agreement, dated as of May 24, 2013, by and among EP Funding LLC, the financial institutions and other lenders from time to time party thereto and Citibank, N.A., as administrative agent.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 29, 2013.)10.29

Account Control Agreement, dated as of May 24, 2013, by and among EP Funding LLC, Citibank, N.A. and Virtus Group, LP.(Incorporated by reference to Exhibit 10.2 to FS Energy
and Power Fund's Current Report on Form 8-K filed on May 29, 2013.)10.30

Security Agreement, dated as of May 24, 2013, by and between EP Funding LLC and Citibank, N.A.(Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current
Report on Form 8-K filed on May 29, 2013.)10.31

Investment Management Agreement, dated as of May 24, 2013, by and between FS Energy and Power Fund and EP Funding LLC.(Incorporated by reference to Exhibit 10.4 to FS Energy and
Power Fund's Current Report on Form 8-K filed on May 29, 2013.)10.32

Credit Agreement, dated as of July 11, 2013, by and among Energy Funding LLC, Natixis, New York Branch, Wells Fargo Bank, National Association and the other lenders from time to time party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on July 16, 2013.)10.33

Securities Account Control Agreement, dated as of July 11, 2013, by and among Energy Funding LLC and Wells Fargo Bank, National Association.(Incorporated by reference to
Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on July 16, 2013.)10.34

Collateral Management Agreement, dated as of July 11, 2013, by and between FS Energy and Power Fund and Energy Funding LLC.(Incorporated by reference to Exhibit 10.3 to FS Energy
and Power Fund's Current Report on Form 8-K filed on July 16, 2013.)10.35

Amended and Restated Expense Support and Conditional Reimbursement Agreement, dated May 16, 2013, by and between FS Energy and Power Fund and Franklin Square Holdings, L.P.(Incorporated by reference to Exhibit 99.1 to FS Energy and Power Fund's Current report on Form 8-K filed on May 17, 2013.)10.36

Committed Facility Agreement, dated as of December 11, 2013, by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc.(Incorporated by reference to
Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.)10.37

First Amendment Agreement, dated as of August 18, 2014, between BNP Paribas Prime Brokerage, Inc., on behalf of itself and as agent for the BNPP Entities, and Berwyn Funding LLC.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on August 21, 2014.)


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10.38

Fifth Amendment to the Committed Facility Agreement, dated as of May 4, 2016 by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc.(Incorporated by reference to
Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 4, 2016.)10.39

U.S. PB Agreement, dated as of December 11, 2013, by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc.(Incorporated by reference to Exhibit 10.2 to FS
Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.)10.40

First Amendment to the U.S. PB Agreement, dated as of May 4, 2016, by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc.(Incorporated by reference to
Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 4, 2016.)10.41

Special Custody and Pledge Agreement, dated as of December 11, 2013, by and among State Street Bank and Trust Company, Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc.(Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.)10.42

Investment Management Agreement, dated as of December 11, 2013, by and between FS Energy and Power Fund and Berwyn Funding LLC.(Incorporated by reference to Exhibit 10.4 to FS
Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.)10.43

Loan and Servicing Agreement, dated as of September 9, 2014, among Wayne Funding LLC, as borrower, Wells Fargo Securities, LLC, as administrative agent, Wells Fargo Bank, National Association, as
collateral agent, account bank and collateral custodian, and the other lenders and lender agents from time to time party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on
Form 8-K filed on September 15, 2014.)10.44

Purchase and Sale Agreement, dated as of September 9, 2014, by and between Wayne Funding LLC, as purchaser, and FS Energy and Power Fund, as seller.(Incorporated by reference to
Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.45

Collateral Management Agreement, dated as of September 9, 2014, by and between Wayne Funding LLC and FS Energy and Power Fund, as collateral manager.(Incorporated by reference to
Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.46

Securities Account Control Agreement, dated as of September 9, 2014, by and among Wayne Funding LLC, as pledgor, Wells Fargo Bank, National Association, as collateral agent, and Wells Fargo Bank, National
Association, as securities intermediary.(Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.47

Amended and Restated Sale and Contribution Agreement, dated as of September 11, 2014, by and between FS Energy and Power Fund and Gladwyne Funding LLC.(Incorporated by reference to
Exhibit 10.5 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.48

Indenture, dated as of September 11, 2014, by and between Gladwyne Funding LLC and Citibank, N.A., as trustee.(Incorporated by reference to Exhibit 10.6 to FS Energy and Power
Fund's Current Report on Form 8-K filed on September 15, 2014.)10.49

First Supplemental Indenture, dated as of December 15, 2014, by and between Gladwyne Funding LLC and Citibank, N.A., as trustee.(Incorporated by reference to Exhibit 10.1 of FS
Energy and Power Fund's Current Report on Form 8-K filed on December 19, 2014.)10.50

Gladwyne Funding LLC Floating Rate Notes due 2024.(Incorporated by reference to Exhibit 10.7 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15,
2014.)


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10.51

September 1996 Version Master Repurchase Agreement between Goldman Sachs Bank USA and Strafford Funding LLC, together with the related Annex and Master Confirmation thereto, each dated as of September 11, 2014.(Incorporated by reference to Exhibit 10.8 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.52

Amended and Restated Master Confirmation, dated as of December 15, 2014, by and between Goldman Sachs Bank USA and Strafford Funding LLC.(Incorporated by reference to
Exhibit 10.2 of FS Energy and Power Fund's Current Report on Form 8-K filed on December 19, 2014.)10.53

Revolving Credit Agreement, dated as of September 11, 2014, by and between FS Energy and Power Fund and Strafford Funding LLC.(Incorporated by reference to Exhibit 10.9 to FS
Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.54

Amended and Restated Revolving Credit Agreement, dated as of December 15, 2014, by and between FS Energy and Power Fund and Strafford Funding LLC.(Incorporated by reference to
Exhibit 10.3 of FS Energy and Power Fund's Current Report on Form 8-K filed on December 19, 2014.)10.55

Amended and Restated Investment Management Agreement, dated as of September 11, 2014, by and between Gladwyne Funding LLC and FS Energy and Power Fund.(Incorporated by reference to
Exhibit 10.10 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.56

Collateral Administration Agreement, dated as of September 11, 2014, by and among Gladwyne Funding LLC, FS Energy and Power Fund and Virtus Group, LP.(Incorporated by reference
to Exhibit 10.11 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.57

Term Loan and Security Agreement, dated as of November 6, 2015, by and among Foxfields Funding LLC, Fortress Credit Co LLC, as administrative agent, the lenders from time to time party thereto and the
other loan parties from time to time party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.)10.58

Contribution Agreement, dated as of November 6, 2015, by and between FS Energy and Power Fund and Foxfields Funding LLC.(Incorporated by reference to Exhibit 10.2 to FS Energy
and Power Fund's Current Report on Form 8-K filed on November 12, 2015.)10.59

Investment Management Agreement, dated as of November 6, 2015, by and between FS Energy and Power Fund and Foxfields Funding LLC.(Incorporated by reference to Exhibit 10.3 to FS
Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.)10.60

Securities Account Control Agreement, dated as of November 6, 2015, by and among Foxfields Funding LLC, Fortress Credit Co LLC, as administrative agent and State Street Bank and Trust Company.(Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.)10.61

Guaranty, dated as of November 6, 2015, by and between FS Energy and Power Fund and Fortress Credit Co LLC.(Incorporated by reference to Exhibit 10.5 to FS Energy and Power
Fund's Current Report on Form 8-K filed on November 12, 2015.)10.62

Pledge Agreement, dated as of November 6, 2015, by and between FS Energy and Power Fund and Fortress Credit Co LLC.(Incorporated by reference to Exhibit 10.6 to FS Energy and
Power Fund's Current Report on Form 8-K filed on November 12, 2015.)10.63

First Amendment to Term Loan and Security Agreement, dated as of November 25, 2015, by and among Foxfields Funding LLC, Fortress Credit Co LLC, as administrative agent, the lenders signatory thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 1, 2015.)


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10.64

Senior Secured Revolving Credit Agreement, dated as of May 18, 2016, by and among Bryn Mawr Funding LLC, Barclays Bank PLC, as administrative agent, and the lenders from time to time party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 18, 2016.)10.65

Contribution Agreement, dated as of May 18, 2016, by and between FS Energy and Power Fund and Bryn Mawr Funding LLC.(Incorporated by reference to Exhibit 10.2 to FS Energy and
Power Fund's Current Report on Form 8-K filed on May 18, 2016.)10.66

Investment Management Agreement, dated as of May 18, 2016, by and between FS Energy and Power Fund and Bryn Mawr Funding LLC.(Incorporated by reference to Exhibit 10.3 to FS
Energy and Power Fund's Current Report on Form 8-K filed on May 18, 2016.)10.67

Control Agreement, dated as of May 18, 2016, by and among Bryn Mawr Funding LLC, Barclays Bank PLC, as collateral agent, and State Street Bank and Trust Company, as custodian.(Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 18, 2016.)10.68

Guaranty, dated as of May 18, 2016, by and between FS Energy and Power Fund and Barclays Bank PLC, as collateral agent.(Incorporated by reference to Exhibit 10.5 to FS Energy and
Power Fund's Current Report on Form 8-K filed on May 18, 2016.)10.69

Pledge Agreement, dated as of May 18, 2016, by and between FS Energy and Power Fund and Barclays Bank PLC, as collateral agent.(Incorporated by reference to Exhibit 10.6 to FS
Energy and Power Fund's Current Report on Form 8-K filed on May 18, 2016.)10.70

Guarantee, Pledge and Security Agreement, dated as of May 18, 2016, by and among Bryn Mawr Funding LLC, any subsidiary guarantors from time to time party thereto, Barclays Bank PLC, as revolving
administrative agent, and Barclays Bank PLC, as collateral agent.(Incorporated by reference to Exhibit 10.7 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 18, 2016.)31.1*

Certification of Chief Executive Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended.31.2*

Certification of Chief Financial Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended.32.1*

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.


*Filed
herewith.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized on August 8, 2016.

FS Energy and Power FundBy:

/s/ MICHAEL C. FORMAN Michael C. Forman
Chief Executive Officer
(Principal Executive Officer)By:

/s/ EDWARD T. GALLIVAN, JR. Edward T. Gallivan, Jr.
Chief Financial Officer
(Principal Financial and Accounting Officer)


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