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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 SEPTEMBER 30, 2015o

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 357,227,144 common shares of beneficial interest outstanding as of October 27, 2015.





---





Table of Contents



TABLE OF CONTENTS



PagePART IFINANCIAL INFORMATIONITEM 1.

FINANCIAL STATEMENTS


1Consolidated Balance Sheets as of September 30, 2015 (Unaudited) and December 31, 2014


1Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014


2Unaudited Consolidated Statements of Changes in Net Assets for the nine months ended September 30, 2015 and 2014


3Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014


4Consolidated Schedules of Investments as of September 30, 2015 (Unaudited) and December 31, 2014


5Notes to Unaudited Consolidated Financial Statements


17ITEM 2.

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


49ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


73ITEM 4.

CONTROLS AND PROCEDURES


74PART IIOTHER INFORMATIONITEM 1.

LEGAL PROCEEDINGS


75ITEM 1A.

RISK FACTORS


75ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


75ITEM 3.

DEFAULTS UPON SENIOR SECURITIES


75ITEM 4.

MINE SAFETY DISCLOSURES


75ITEM 5.

OTHER INFORMATION


75ITEM 6.

EXHIBITS


76SIGNATURES


81


---





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)



September 30, 2015
(Unaudited)

December 31,
2014AssetsInvestments, at fair valueunaffiliated (amortized cost$3,663,666 and $3,375,716, respectively)

$
3,211,159

$
3,089,068Investments, at fair valueaffiliated (amortized cost$355,887 and $287,334, respectively)


349,128


286,109Cash


195,582


225,130Receivable for investments sold and repaid


21,872


51,253Interest receivable


47,136


47,197Receivable for common shares purchased


5,873


9,989Deferred financing costs


4,811


5,575Prepaid expenses and other assets


109


30​
​
​
​
​
​
​
​Total assets

$
3,835,670

$
3,714,351​
​
​
​
​
​
​
​LiabilitiesPayable for investments purchased

$
24,995

$
20,094Credit facilities payable


724,013


901,300Repurchase agreement payable(1)


324,984


189,113Shareholder distributions payable


50


50Management fees payable


19,522


17,912Subordinated income incentive fees payable(2)


9,611


12,142Administrative services expenses payable


1,827


1,653Interest payable


2,302


2,888Trustees' fees payable


266


229Other accrued expenses and liabilities


4,319


3,249​
​
​
​
​
​
​
​Total liabilities


1,111,889


1,148,630​
​
​
​
​
​
​
​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, 357,581,688 and 299,394,371 shares issued and outstanding, respectively


358


299Capital in excess of par value


3,338,171


2,841,446Accumulated undistributed net realized gains (losses) on investments and gain/loss on foreign currency(4)


(165,627
)

7,497Accumulated undistributed net investment income(4)


10,216


4,341Net unrealized appreciation (depreciation) on investments and unrealized gain/loss on foreign currency


(459,337
)

(287,862
)​
​
​
​
​
​
​
​Total shareholders' equity


2,723,781


2,565,721​
​
​
​
​
​
​
​Total liabilities and shareholders' equity

$
3,835,670

$
3,714,351​
​
​
​
​
​
​
​Net asset value per common share at period end

$
7.62

$
8.57


(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
September 30,

Nine Months Ended
September 30,2015

2014

2015

2014Investment incomeInterest incomeunaffiliated

$
82,469

$
68,699

$
237,077

$
181,418Interest incomeaffiliated


5,512





15,256


Fee incomeunaffiliated


10,096


3,922


23,741


19,766Fee incomeaffiliated


681





681


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


98,758


72,621


276,755


201,184​
​
​
​
​
​
​
​
​
​
​
​
​
​Operating expensesManagement fees


19,522


16,513


57,659


44,058Capital gains incentive fees(1)





(9,977
)




(1,397
)Subordinated income incentive fees(1)


9,611


5,307


18,968


19,930Administrative services expenses


892


1,019


3,153


2,962Share transfer agent fees


767


667


2,199


1,974Accounting and administrative fees


361


209


1,082


763Interest expense


7,627


4,776


22,351


13,209Trustees' fees


246


213


736


629Other general and administrative expenses


1,020


668


3,348


2,405​
​
​
​
​
​
​
​
​
​
​
​
​
​Total operating expenses


40,046


19,395


109,496


84,533Income taxes


76


56


234


163​
​
​
​
​
​
​
​
​
​
​
​
​
​Total expenses


40,122


19,451


109,730


84,696​
​
​
​
​
​
​
​
​
​
​
​
​
​Net investment income


58,636


53,170


167,025


116,488​
​
​
​
​
​
​
​
​
​
​
​
​
​Realized and unrealized gain/lossNet realized gain (loss) on investmentsunaffiliated


(100,813
)

809


(159,323
)

5,500Net realized gain (loss) on foreign currency


(63
)

(55
)

(210
)

(562
)Net change in unrealized appreciation (depreciation) on investmentsunaffiliated


(226,650
)

(50,641
)

(165,859
)

(11,923
)Net change in unrealized appreciation (depreciation) on investmentsaffiliated


(13,133
)




(5,534
)

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


59


(17
)

(82
)

14​
​
​
​
​
​
​
​
​
​
​
​
​
​Total net realized and unrealized gain (loss) on investments


(340,600
)

(49,904
)

(331,008
)

(6,971
)​
​
​
​
​
​
​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations

$
(281,964
)
$
3,266

$
(163,983
)
$
109,517​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​Per share informationbasic and dilutedNet increase (decrease) in net assets resulting from operations (Earnings per Share)

$
(0.81
)
$
0.01

$
(0.50
)
$
0.50​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​Weighted average shares outstanding


348,739,636


252,878,585


329,564,799


220,299,828​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


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



Nine Months Ended
September 30,2015

2014OperationsNet investment income

$
167,025

$
116,488Net realized gain (loss) on investments and foreign currency


(159,533
)

4,938Net change in unrealized appreciation (depreciation) on investments


(171,393
)

(11,923
)Net change in unrealized gain (loss) on foreign currency


(82
)

14​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations


(163,983
)

109,517​
​
​
​
​
​
​
​Shareholder distributions(1)Distributions from net investment income


(161,150
)

(101,676
)Distributions from net realized gain on investments


(13,591
)

(10,898
)​
​
​
​
​
​
​
​Net decrease in net assets resulting from shareholder distributions


(174,741
)

(112,574
)​
​
​
​
​
​
​
​Capital share transactionsIssuance of common shares(2)


410,987


866,224Reinvestment of shareholder distributions(2)


111,606


67,393Repurchases of common shares(2)


(18,659
)

(7,223
)Offering costs


(7,150
)

(5,288
)​
​
​
​
​
​
​
​Net increase in net assets resulting from capital share transactions


496,784


921,106​
​
​
​
​
​
​
​Total increase in net assets


158,060


918,049Net assets at beginning of period


2,565,721


1,676,237​
​
​
​
​
​
​
​Net assets at end of period

$
2,723,781

$
2,594,286​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Accumulated undistributed net investment income(1)

$
10,216

$
6,866​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(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 nine months ended September 30, 2015 and
2014.




See notes to unaudited consolidated financial statements.

3

---



Table of Contents



FS Energy and Power Fund

Unaudited Consolidated Statements of Cash Flows
(in thousands)



Nine Months Ended
September 30,2015

2014Cash flows from operating activitiesNet increase (decrease) in net assets resulting from operations

$
(163,983
)
$
109,517Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating
activities:Purchases of investments


(1,113,391
)

(1,734,596
)Paid-in-kind interest


(19,292
)

(9,570
)Proceeds from sales and repayments of investments


622,847


741,890Net realized (gain) loss on investments


159,323


(5,500
)Net change in unrealized (appreciation) depreciation on investments


171,393


11,923Accretion of discount


(5,990
)

(8,370
)Amortization of deferred financing costs


1,954


1,315(Increase) decrease in receivable for investments sold and repaid


29,381


(605
)(Increase) decrease in interest receivable


61


(15,233
)(Increase) decrease in prepaid expenses and other assets


(79
)

(69
)Increase (decrease) in payable for investments purchased


4,901


(26,945
)Increase (decrease) in management fees payable


1,610


5,762Increase (decrease) in accrued capital gains incentive fees





(4,254
)Increase (decrease) in subordinated income incentive fees payable


(2,531
)

(1,479
)Increase (decrease) in administrative services expense payable


174


965Increase (decrease) in interest payable


(586
)

196Increase (decrease) in trustees' fees payable


37


(27
)Increase (decrease) in other accrued expenses and liabilities


1,070


1,382​
​
​
​
​
​
​
​Net cash provided by (used in) operating activities


(313,101
)

(933,698
)​
​
​
​
​
​
​
​Cash flows from financing activitiesIssuance of common shares


415,103


866,183Reinvestment of shareholder distributions


111,606


67,393Repurchases of common shares


(18,659
)

(7,223
)Offering costs


(7,150
)

(5,288
)Shareholder distributions


(174,741
)

(105,365
)Borrowings under credit facilities(1)


20,000


106,826Borrowings under repurchase agreement(2)


135,871


14,063Repayments under credit facilities


(197,287
)

Deferred financing costs paid


(1,190
)

(3,583
)​
​
​
​
​
​
​
​Net cash provided by financing activities


283,553


933,006​
​
​
​
​
​
​
​Total increase (decrease) in cash


(29,548
)

(692
)Cash at beginning of period


225,130


91,084​
​
​
​
​
​
​
​Cash at end of period

$
195,582

$
90,392​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Supplemental disclosureExcise and state taxes paid

$
315

$
264​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(1)See
Note 8 for a discussion of the Company's credit facilities. During the nine months ended September 30, 2015 and 2014, the Company paid
$14,101 and $11,698, respectively, in interest expense on the credit facilities.(2)See
Note 8 for a discussion of the Company's repurchase transaction. During the nine months ended September 30, 2015, the Company paid $6,882
in interest expense pursuant to the repurchase agreement.




See notes to unaudited consolidated financial statements.

4

---



Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments
As of September 30, 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37.2%Abaco Energy Technologies LLC

(g)(i)(j)

Service & Equipment

L+700


1.0
%
11/20/20

$
61,328

$
58,135

$
49,216Allied Wireline Services, LLC

(g)(i)(j)

Service & Equipment

L+800


1.5
%
2/28/19


101,750


100,542


91,066Alon USA Partners, L.P.

(g)(i)(l)

Downstream

L+800


1.3
%
11/26/18


7,176


7,374


7,140Altus Power America, Inc.

(j)

Power

L+750


1.5
%
10/10/21


39,805


39,805


40,203Altus Power America, Inc.

(e)

Power

L+750


1.5
%
10/10/21


44,570


44,570


45,015AP Exhaust Acquisition, LLC

(g)

Service & Equipment

L+775


1.5
%
1/16/21


15,811


15,811


15,811BBH Operating LLC



Upstream

Prime+500 PIK (8.25% Max PIK)


3.3
%
2/26/16


23,488


23,488


17,616BBH Operating LLC

(e)

Upstream

Prime+500 PIK (8.25% Max PIK)


3.3
%
2/26/16


6,512


6,512


4,884BL Sand Hills Unit, L.P.



Upstream

Prime+650


3.5
%
12/17/17


32,429


28,163


30,807BL Sand Hills Unit, L.P.

(e)

Upstream

Prime+650


3.5
%
12/17/17


24,536


21,308


23,309Cactus Wellhead, LLC

(g)(i)(j)

Service & Equipment

L+600


1.0
%
7/31/20


51,975


51,104


41,320Cimarron Energy Inc.

(g)

Service & Equipment

L+775


1.0
%
12/15/19


24,625


24,625


23,640CITGO Holding, Inc.

(f)

Downstream

L+850


1.0
%
5/12/18


8,994


8,812


8,882Crestwood Holdings LLC

(g)(j)

Midstream

L+600


1.0
%
6/19/19


30,973


31,107


27,721EnergySolutions, LLC

(f)(i)

Service & Equipment

L+575


1.0
%
5/29/20


20,462


20,134


20,155EP Acquisition LLC

(x)

Upstream

Prime+500 PIK (8.25% Max PIK)


3.3
%
2/26/16


525


525


FR Dixie Acquisition Corp.



Service & Equipment

L+475


1.0
%
12/18/20


1,119


1,126


884FR Utility Services LLC

(i)

Service & Equipment

Prime+475


3.3
%
10/18/19


7,452


7,427


7,461Gruden Acquisition, Inc.

(f)

Service & Equipment

L+475


1.0
%
8/18/22


3,045


3,015


3,010Industrial Group Intermediate Holdings, LLC

(i)

Service & Equipment

L+800


1.3
%
5/31/20


14,541


14,541


14,541MB Precision Holdings LLC

(g)

Service & Equipment

L+725


1.3
%
1/23/20


12,889


12,889


12,760Moxie Liberty LLC

(g)(j)

Power

L+650


1.0
%
8/21/20


32,432


32,546


31,135Murray Energy Corp.

(f)(j)

Upstream

L+650


1.0
%
4/16/20


17,198


16,720


13,439Panda Sherman Power, LLC

(g)(j)

Power

L+750


1.5
%
9/14/18


22,700


23,020


20,771Panda Temple Power, LLC

(j)

Power

L+625


1.0
%
3/6/22


9,950


9,765


9,204Panda Temple Power II, LLC

(g)(j)

Power

L+600


1.3
%
4/3/19


27,809


28,154


25,028PeroxyChem LLC

(g)(j)

Service & Equipment

Prime+550


3.3
%
2/28/20


6,030


6,004


6,030ProPetro Services, Inc.

(i)

Service & Equipment

L+625


1.0
%
9/30/19


11,776


11,761


7,949Southcross Holdings Borrower LP

(i)

Midstream

L+500


1.0
%
8/4/21


8,334


8,297


6,323Stallion Oilfield Holdings, Inc.

(f)(g)(i)(j)

Service & Equipment

L+675


1.3
%
6/19/18


63,042


62,956


45,916Stonewall Gas Gathering LLC

(j)

Midstream

L+775


1.0
%
1/28/22


26,862


25,829


26,727Sunnova Asset Portfolio 5 Holdings, LLC

(j)

Power

12.0% PIK (12.0% Max PIK)




11/14/21


236,149


236,149


236,149


See notes to unaudited consolidated financial statements.

5

---



Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of September 30, 2015
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Sunnova Asset Portfolio 5 Holdings, LLC

(e)

Power

12.0% PIK (12.0% Max PIK)




11/14/21

$
17,917

$
17,917

$
17,917Swift Worldwide Resources US Holdings Corp.

(g)(j)

Service & Equipment

L+800


1.3
%
4/30/19


59,208


59,208


58,320UTEX Industries, Inc.

(f)(k)

Service & Equipment

L+400


1.0
%
5/21/21


1,496


1,317


1,294Warren Resources, Inc.



Upstream

L+850


1.0
%
5/22/20


122,790


122,790


112,967Warren Resources, Inc.

(e)

Upstream

L+850


1.0
%
5/22/20


16,770


16,770


15,428​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured LoansFirst Lien
















1,200,216


1,120,038Unfunded Loan Commitments
















(107,077
)

(107,077
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Senior Secured LoansFirst Lien
















1,093,139


1,012,961​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Senior Secured LoansSecond Lien39.5%Alison US LLC

(f)(j)(l)

Service & Equipment

L+850


1.0
%
8/29/22


22,222


21,444


19,185American EnergyMarcellus, LLC



Upstream

L+750


1.0
%
8/4/21


10,000


9,874


1,317Ameriforge Group Inc.

(f)(g)(j)

Service & Equipment

L+750


1.3
%
12/21/20


35,950


36,454


21,300AP Exhaust Acquisition, LLC



Service & Equipment

12.0%




9/28/21


3,243


3,243


3,243Arena Energy, LP

(i)

Upstream

L+900


1.0
%
1/24/21


65,000


65,000


62,603Ascent ResourcesUtica, LLC

(g)(j)

Upstream

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


1.5
%
9/30/18


279,314


278,046


263,952Atlas Resource Partners, L.P.

(i)(l)

Upstream

L+900


1.0
%
2/23/20


100,000


97,348


89,276BlackBrush Oil & Gas, L.P.

(f)(i)

Upstream

L+650


1.0
%
7/30/21


31,519


30,674


26,818Brock Holdings III, Inc.

(f)(g)(j)

Service & Equipment

L+825


1.8
%
3/16/18


29,605


29,782


27,755Callon Petroleum Co.

(i)(l)

Upstream

L+750


1.0
%
10/8/21


10,000


9,820


9,725Chief Exploration & Development LLC

(i)(j)

Upstream

L+650


1.0
%
5/16/21


19,576


19,501


16,249Consolidated Precision Products Corp.

(g)(j)

Service & Equipment

L+775


1.0
%
4/30/21


11,574


11,527


11,371Emerald Performance Materials, LLC

(j)

Downstream

L+675


1.0
%
8/1/22


5,319


5,296


5,281Extraction Oil & Gas Holdings, LLC

(i)(j)

Upstream

11.0%




5/29/19


74,186


74,186


75,484Extraction Oil & Gas Holdings, LLC

(i)(j)

Upstream

10.0%




5/29/19


32,462


32,462


32,786Fieldwood Energy LLC

(f)(i)

Upstream

L+713


1.3
%
9/30/20


41,047


41,990


11,698Granite Intermediate Holdings, Inc.

(f)(j)(k)

Power

L+725


1.0
%
10/15/22


13,150


13,043


12,279Gruden Acquisition, Inc.

(j)

Service & Equipment

L+850


1.0
%
8/18/23


15,000


14,259


14,325Horn 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


26,185


25,847


21,210MD America Energy, LLC

(f)(g)(j)

Upstream

L+850


1.0
%
8/4/19


56,500


54,328


51,274Neff Rental LLC

(f)(j)

Service & Equipment

L+625


1.0
%
6/9/21


15,647


15,684


14,708Oxbow Carbon LLC

(g)

Midstream

L+700


1.0
%
1/19/20


15,000


14,899


13,875P2 Upstream Acquisition Co.

(f)(g)(j)

Service & Equipment

L+800


1.0
%
4/30/21


32,599


32,872


28,687Templar Energy LLC

(f)(g)(i)

Upstream

L+750


1.0
%
11/25/20


89,923


88,388


40,840Total Safety U.S., Inc.

(f)(g)(j)

Service & Equipment

L+800


1.3
%
9/13/20


14,795


14,987


11,713UTEX Industries, Inc.

(j)

Service & Equipment

L+725


1.0
%
5/20/22


39,192


39,220


31,680Vantage Energy, LLC

(i)(j)

Upstream

L+750


1.0
%
12/20/18


30,155


29,999


23,823Vantage Energy II, LLC

(i)(j)

Upstream

L+750


1.0
%
5/8/17


85,000


85,000


84,575​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured LoansSecond Lien
















1,245,423


1,076,528​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to unaudited consolidated financial statements.

6

---



Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of September 30, 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14.4%American EnergyWoodford, LLC

(h)

Upstream

12.0% PIK (12.0% Max PIK)




12/30/20

$
7,350

$
5,271

$
3,381FourPoint Energy, LLC

(j)(o)

Upstream

8.0%




12/31/20


290,813


281,711


255,915FourPoint Energy, LLC

(e)(o)

Upstream

8.0%




12/31/20


18,563


18,470


16,335Gastar Exploration USA, Inc.

(h)(n)

Upstream

8.6%




5/15/18


26,750


26,079


17,923Light Tower Rentals, Inc.

(h)

Service & Equipment

8.1%




8/1/19


17,500


17,301


12,513Lightstream Resources Ltd.

(l)

Upstream

9.9%




6/15/19


62,400


62,400


53,508Mirant Mid-Atlantic Trust

(f)(h)

Power

10.1%




12/30/28


23,344


26,119


23,942SandRidge Energy, Inc.

(h)(n)

Upstream

8.8%




6/1/20


46,700


46,593


28,545​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured Bonds
















483,944


412,062Unfunded Bond Commitment
















(18,470
)

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
















465,474


393,592​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Subordinated Debt28.1%Alta Mesa Holdings, LP

(h)(n)

Upstream

9.6%




10/15/18


27,451


27,404


14,562Atlas Energy Holdings Operating Co., LLC

(h)(l)(n)

Upstream

7.8%




1/15/21


28,285


25,780


12,198Atlas Energy Holdings Operating Co., LLC

(h)(l)

Upstream

9.3%




8/15/21


24,460


23,552


11,221Bellatrix Exploration Ltd.

(f)(h)(l)

Upstream

8.5%




5/15/20


45,590


44,691


35,389Brand Energy & Infrastructure Services, Inc.

(f)(h)

Service & Equipment

8.5%




12/1/21


27,500


27,253


24,372Calpine Corp.

(f)(l)

Power

5.8%




1/15/25


10,100


10,093


9,494Canbriam Energy Inc.

(h)(j)(l)

Upstream

9.8%




11/15/19


115,200


111,371


114,048Chaparral Energy Inc.

(h)(n)

Upstream

7.6%




11/15/22


15,225


16,177


4,434Compressco Partners, LP

(f)(h)(l)

Service & Equipment

7.3%




8/15/22


20,050


19,884


16,479Crestwood Midstream Partners L.P.

(f)(l)

Midstream

6.1%




3/1/22


5,500


5,500


4,868CrownRock, L.P.

(f)

Upstream

7.1%




4/15/21


22,200


22,200


21,451Dynegy Finance I/II Inc.

(f)(l)

Power

7.6%




11/1/24


11,580


11,601


11,681Eclipse Resources Corp.

(f)(h)(l)

Upstream

8.9%




7/15/23


27,500


26,929


21,897Eco Services Operations LLC

(f)

Service & Equipment

8.5%




11/1/22


5,000


5,000


4,475EV Energy Partners, L.P.

(f)(h)(l)

Upstream

8.0%




4/15/19


25,560


20,983


17,764Everest Acquisition LLC

(f)

Upstream

9.4%




5/1/20


14,250


14,250


12,362Exterran Partners, L.P.

(h)(k)(l)

Midstream

6.0%




4/1/21


3,055


2,610


2,574Exterran Partners, L.P.

(h)(l)

Midstream

6.0%




10/1/22


10,533


8,814


8,650


See notes to unaudited consolidated financial statements.

7

---



Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of September 30, 2015
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Gardner Denver, Inc.

(f)

Service & Equipment

6.9%




8/15/21

$
5,948

$
6,231

$
5,257Genesis Energy, L.P.

(h)(l)

Midstream

6.8%




8/1/22


9,100


8,977


8,554GenOn Energy, Inc.

(f)(h)(n)

Power

9.9%




10/15/20


42,698


44,760


39,949GenOn Energy, Inc.

(h)(k)

Power

7.9%




6/15/17


5,000


4,763


4,790Global Jet Capital Inc.



Service & Equipment

15.0%, 0.0% PIK (15.0% Max PIK)




1/30/25


620


620


620Global Jet Capital Inc.



Service & Equipment

15.0%, 0.0% PIK (15.0% Max PIK)




4/30/25


4,826


4,826


4,826Global Jet Capital Inc.



Service & Equipment

15.0%, 0.0% PIK (15.0% Max PIK)




9/3/25


875


875


875Global Jet Capital Inc.



Service & Equipment

15.0%, 0.0% PIK (15.0% Max PIK)




9/29/25


999


999


999Global Partners L.P.

(f)(h)(l)

Midstream

6.3%




7/15/22


68,350


68,350


61,173Hillman Group, Inc.

(f)

Service & Equipment

6.4%




7/15/22


5,000


5,021


4,644Jones Energy, Inc.

(h)(n)

Upstream

6.8%




4/1/22


8,000


8,000


6,540Jupiter Resources Inc.

(f)(h)(l)

Upstream

8.5%




10/1/22


71,125


67,210


42,408Kenan Advantage Group, Inc.

(f)

Service & Equipment

7.9%




7/31/23


15,300


15,300


15,549Legacy Reserves LP

(f)(l)

Upstream

8.0%




12/1/20


16,750


16,488


12,228Legacy Reserves LP

(f)(h)(l)

Upstream

6.6%




12/1/21


14,000


13,841


9,380Lonestar Resources America Inc.

(h)(n)

Upstream

8.8%




4/15/19


21,500


21,598


14,163Martin Midstream Partners L.P.

(f)(l)

Midstream

7.3%




2/15/21


18,607


19,113


17,260Memorial Production Partners L.P.

(h)(l)(n)

Upstream

7.6%




5/1/21


7,000


6,833


4,760Memorial Production Partners L.P.

(h)(l)

Upstream

6.9%




8/1/22


12,500


12,300


7,828Northern Oil and Gas, Inc.

(h)(l)

Upstream

8.0%




6/1/20


3,150


3,001


2,366ONEOK, Inc.

(f)(h)(l)

Midstream

7.5%




9/1/23


20,400


19,999


19,685Seven Generations Energy Ltd.

(f)(k)(l)

Upstream

6.8%




5/1/23


6,150


5,599


5,427Talos Production LLC

(f)(h)(n)

Upstream

9.8%




2/15/18


43,250


43,260


29,086Teine Energy Ltd.

(h)(l)

Upstream

6.9%




9/30/22


9,900


9,835


8,498Tenrgys, LLC

(i)(j)

Upstream

L+900


2.5
%
12/23/18


75,000


75,000


72,000Whiting Petroleum Corp.

(f)(k)(l)

Upstream

5.0%




3/15/19


4,685


4,088


4,082Zachry Holdings, Inc.

(f)

Service & Equipment

7.5%




2/1/20


14,300


14,379


14,229​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Subordinated Debt
















925,358


765,095​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to unaudited consolidated financial statements.

8

---



Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of September 30, 2015
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry







Number of
Shares

Amortized
Cost

Fair
Value(d)Equity/Other11.5%(m)Abaco Energy Technologies LLC, Common Equity

(q)

Service & Equipment









6,944,444

$
6,944

$
1,389Allied Downhole Technologies, LLC, Common Equity

(p)(q)

Service & Equipment









6,600,000


6,600


5,940Allied Downhole Technologies, LLC, Warrants, 2/28/2019

(p)(q)

Service & Equipment









5,344,680


1,865


1,603Altus Power America Holdings, LLC, Preferred Equity

(q)

Power









13,268,478


13,268


23,883AP Exhaust Holdings, LLC, Common Equity

(p)(q)

Service & Equipment









811


811


584Ascent Resources Utica Holdings, LLC, Common Equity

(q)(r)

Upstream









15,657,194


14,900


10,177BBH Operating LLC, Common Equity

(q)(s)

Upstream









1,000


1,000


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

(q)(t)

Upstream









N/A


4,082


293BL Sand Hills Unit, L.P., Overriding Royalty Interest

(t)

Upstream









N/A


583


329Cimarron Energy Holdco Inc., Common Equity

(q)

Service & Equipment









2,500,000


2,500


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

(p)(q)

Upstream









4,191,800


11,250


15,510Fortune Creek Co-Invest I L.P., LP Interest

(l)(u)

Midstream









N/A


16,696


3,642FourPoint Energy, LLC, Common Equity, Class C Units

(o)(p)(q)

Upstream









66,000


66,000


80,190FourPoint Energy, LLC, Common Equity, Class D Units

(o)(p)(q)

Upstream









12,374


8,176


15,158Global Jet Capital Holdings, LP, Preferred Equity

(q)

Service & Equipment









3,137,062


3,137


3,137Industrial Group Intermediate Holdings, LLC, Common Equity

(p)(q)

Service & Equipment









371,901


372


576MB Precision Investment Holdings LLC, Class A-2 Units

(q)

Service & Equipment









490,213


490


319Plains Offshore Operations Inc., Preferred Equity

(f)

Upstream









21,067


25,893


28,567Plains Offshore Operations Inc., Warrants, 11/18/2019

(f)(q)

Upstream









427,005


689


Summit Midstream Partners, LLC, Preferred Equity



Midstream









39,163


39,163


38,380Swift Worldwide Resources Holdco Limited, Common Equity

(l)(q)(v)

Service & Equipment









3,750,000


6,029


4,534Synergy Offshore LLC, Preferred Equity

(w)

Upstream









50,000


59,711


76,150​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Equity/Other
















290,159


312,111​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​TOTAL INVESTMENTS130.7%















$
4,019,553


3,560,287​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​LIABILITIES IN EXCESS OF OTHER ASSETS(30.7%)



















(836,506
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​NET ASSETS100.0%


















$
2,723,781​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to unaudited consolidated financial statements.

9

---



Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of September 30, 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 September 30, 2015, the three-month London Interbank Offered Rate was 0.33% and the U.S. Prime Lending Rate was 3.25%.(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)Position
or portion thereof unsettled as of September 30, 2015.(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
September 30, 2015, 82.9% 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 September 30, 2015, the fair value of securities rehypothecated by BNP was $49,148.(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 and 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 September 30, 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 nine months ended September 30, 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




$
15,256

$
681




$
(831
)Equity/OtherFourPoint Energy, LLC, Common Equity, Class C Units
















$
(3,960
)FourPoint Energy, LLC, Common Equity, Class D Units
















$
(743
)


(p)Security
held within FSEP Investments, Inc., a wholly-owned subsidiary of the Company.(q)Security
is non-income producing.(r)Security
held within EP American Energy Investments, Inc., a wholly-owned subsidiary of the Company.(s)Security
held within FSEP-BBH, Inc., a wholly-owned subsidiary of the Company.(t)Security
held within EP Burnett Investments, Inc., a wholly-owned subsidiary of the Company.(u)Investment
denominated in Canadian dollars. Amortized cost and fair value are converted into U.S. dollars as of September 30, 2015.(v)Investment
denominated in British pounds. Amortized cost and fair value are converted into U.S. dollars as of September 30, 2015.(w)Security
held within EP Synergy Investments, Inc., a wholly-owned subsidiary of the Company.(x)Security
was on non-accrual status as of September 30, 2015.


See notes to unaudited consolidated financial statements.

10

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments
As of December 31, 2014
(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33.3%Abaco Energy Technologies LLC

(h)(j)(k)

Service & Equipment

L+700


1.0
%
11/20/20

$
62,500

$
58,795

$
59,063Allied Wireline Services, LLC

(h)(j)(k)

Service & Equipment

L+800


1.5
%
2/28/19


105,875


104,405


105,081Alon USA Partners, L.P.

(h)(j)(m)

Downstream

L+800


1.3
%
11/26/18


7,231


7,468


7,308Altus Power America, Inc.

(k)

Power

L+750


1.5
%
10/10/21


20,568


20,568


20,568Altus Power America, Inc.

(e)

Power

L+750


1.5
%
10/10/21


63,807


63,807


63,807AP Exhaust Acquisition, LLC

(h)

Service & Equipment

L+775


1.5
%
1/16/21


14,595


14,595


14,157Atlas Energy, L.P.

(g)(m)

Midstream

L+550


1.0
%
7/31/19


5,486


5,443


5,404Azure Midstream Energy LLC

(g)

Midstream

L+550


1.0
%
11/15/18


12,825


12,669


11,543BBH Operating LLC



Upstream

Prime+500


3.3
%
2/26/15


19,850


19,850


18,957BBH Operating LLC

(e)

Upstream

Prime+500


3.3
%
2/26/15


10,150


10,150


9,693BL Sand Hills Unit, L.P.



Upstream

Prime+650


3.5
%
12/17/17


20,206


17,548


19,423BL Sand Hills Unit, L.P.

(e)

Upstream

Prime+650


3.5
%
12/17/17


38,292


33,254


36,808Boomerang Tube, LLC

(f)(g)

Service & Equipment

L+950


1.5
%
10/11/17


18,584


18,441


16,122Cactus Wellhead, LLC

(g)(h)(j)(k)

Service & Equipment

L+600


1.0
%
7/31/20


52,369


51,384


42,550Cimarron Energy Inc.

(h)

Service & Equipment

L+775


1.0
%
12/15/19


25,000


25,000


25,000Crestwood Holdings LLC

(g)(h)(k)

Midstream

L+600


1.0
%
6/19/19


32,255


32,406


30,622EnergySolutions, LLC

(f)(j)

Service & Equipment

L+575


1.0
%
5/29/20


21,709


21,314


21,702EP Acquisition LLC



Upstream

Prime+500


3.3
%
3/31/15


750


750


720FR Dixie Acquisition Corp.

(g)

Service & Equipment

L+475


1.0
%
12/18/20


10,173


10,184


8,443FR Utility Services LLC

(g)

Service & Equipment

L+575


1.0
%
10/18/19


15,009


14,919


14,952Harvey Gulf International Marine, LLC

(g)

Service & Equipment

L+450


1.0
%
6/18/20


1,910


1,893


1,551Hudson Products Holdings Inc.

(g)

Service & Equipment

L+400


1.0
%
3/15/19


1,773


1,769


1,720Industrial Group Intermediate Holdings, LLC

(j)

Service & Equipment

L+800


1.3
%
5/31/20


14,886


14,886


14,886Larchmont Resources, LLC

(g)(j)

Upstream

L+725


1.0
%
8/7/19


20,370


20,379


19,809MB Precision Holdings LLC

(h)

Service & Equipment

L+725


1.3
%
1/23/20


13,365


13,365


13,231Moxie Liberty LLC

(g)(h)(k)

Power

L+650


1.0
%
8/21/20


32,432


32,562


32,270Moxie Patriot LLC

(k)

Power

L+575


1.0
%
12/19/20


2,000


2,041


1,990Panda Sherman Power, LLC

(g)(h)

Power

L+750


1.5
%
9/14/18


19,872


20,258


19,773Panda Temple Power, LLC (TLA)

(k)

Power

L+700


1.5
%
7/17/18


13,949


13,799


14,141Panda Temple Power, LLC (TLB)

(g)(h)(k)

Power

L+1000


1.5
%
7/17/18


40,000


39,447


40,600Panda Temple Power II, LLC

(g)(h)

Power

L+600


1.3
%
4/3/19


23,809


24,274


23,452PeroxyChem LLC

(h)(k)

Service & Equipment

L+650


1.0
%
2/28/20


11,900


11,793


11,781ProPetro Services, Inc.

(j)(l)

Service & Equipment

L+625


1.0
%
9/30/19


12,267


12,246


11,899RGL Reservoir Operations Inc.

(g)(m)

Service & Equipment

L+500


1.0
%
8/13/21


9,120


8,859


7,357Southcross Holdings Borrower LP

(g)(j)

Midstream

L+500


1.0
%
8/4/21


18,952


18,862


16,962Sprint Industrial Holdings LLC

(h)

Service & Equipment

L+575


1.3
%
11/14/19


14,775


14,760


14,110Stallion Oilfield Holdings, Inc.

(f)(g)(h)(j)(k)

Service & Equipment

L+675


1.3
%
6/19/18


63,538


63,425


54,404Sunnova Asset Portfolio 5 Holdings, LLC

(k)

Power

12.0% PIK (12.0% Max PIK)




11/14/21


62,502


62,502


62,502Sunnova Asset Portfolio 5 Holdings, LLC

(e)

Power

12.0% PIK (12.0% Max PIK)




11/14/21


110,909


110,909


110,909


See notes to unaudited consolidated financial statements.

11

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2014
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Swift Worldwide Resources US Holdings Corp.

(h)(k)

Service & Equipment

L+800


1.3
%
4/30/19

$
59,660

$
59,660

$
58,467Total Safety U.S., Inc.

(g)

Service & Equipment

L+450


1.3
%
3/13/20


4,394


4,451


4,240United Components, Inc.

(h)(l)

Service & Equipment

L+400


1.5
%
7/26/17


4,987


4,975


4,968​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured LoansFirst Lien
















1,100,065


1,072,945Unfunded Loan Commitments
















(218,120
)

(218,120
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Senior Secured LoansFirst Lien
















881,945


854,825​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Senior Secured LoansSecond Lien38.6%Alison US LLC

(f)(m)

Service & Equipment

L+850


1.0
%
8/29/22


22,222


21,363


20,806American EnergyMarcellus, LLC

(g)

Upstream

L+750


1.0
%
8/4/21


10,000


9,858


9,200American EnergyUtica, LLC

(h)(k)

Upstream

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


1.5
%
9/30/18


122,646


122,646


120,194American EnergyUtica, LLC



Upstream

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


1.5
%
9/30/18


83,297


83,297


81,631Ameriforge Group Inc.

(f)(h)(k)

Service & Equipment

L+750


1.3
%
12/21/20


35,950


36,516


35,478BlackBrush Oil & Gas, L.P.

(f)(j)

Upstream

L+650


1.0
%
7/30/21


27,500


27,286


22,825Brock Holdings III, Inc.

(f)(h)(k)

Service & Equipment

L+825


1.8
%
3/16/18


29,605


29,829


23,832Callon Petroleum Co.

(j)(m)

Upstream

L+750


1.0
%
8/29/21


10,000


9,804


9,475Chief Exploration & Development LLC

(j)(k)

Upstream

L+650


1.0
%
5/16/21


19,576


19,494


17,717Consolidated Precision Products Corp.

(f)(g)(h)(k)

Service & Equipment

L+775


1.0
%
4/30/21


28,500


28,375


27,218Drew Marine Group Inc.

(k)(m)

Service & Equipment

L+700


1.0
%
5/19/21


10,000


9,978


9,950Emerald Performance Materials, LLC

(k)

Downstream

L+675


1.0
%
8/1/22


5,319


5,294


5,186Extraction Oil & Gas Holdings, LLC

(j)(k)

Upstream

11.0%




5/29/19


74,186


74,186


74,928Extraction Oil & Gas Holdings, LLC

(j)(k)

Upstream

10.0%




5/29/19


32,462


32,462


32,137Fieldwood Energy LLC

(f)(j)(k)

Upstream

L+713


1.3
%
9/30/20


41,047


42,100


30,298Filtration Group Corp.

(g)

Service & Equipment

L+725


1.0
%
11/21/21


2,632


2,608


2,635Granite Intermediate Holdings, Inc.

(f)(k)(l)

Power

L+725


1.0
%
10/15/22


10,150


10,049


10,254Horn Intermediate Holdings, Inc.

(h)

Service & Equipment

L+775


1.3
%
10/2/18


57,750


57,750


56,306Husky Injection Molding Systems Ltd.

(f)(m)

Service & Equipment

L+625


1.0
%
6/30/22


4,000


4,048


3,850Jonah Energy LLC

(j)(k)

Upstream

L+650


1.0
%
5/8/21


26,185


25,808


22,650Magnum Hunter Resources Corp.

(j)(m)

Upstream

L+750


1.0
%
10/17/19


6,983


6,780


6,878MD America Energy, LLC

(f)(g)(h)(k)

Upstream

L+850


1.0
%
8/4/19


78,000


74,506


74,879Neff Rental LLC

(f)(k)

Service & Equipment

L+625


1.0
%
6/9/21


17,989


18,019


18,068Oxbow Carbon LLC

(h)

Midstream

L+700


1.0
%
1/19/20


15,000


14,874


13,325P2 Upstream Acquisition Co.

(f)(h)(k)

Service & Equipment

L+800


1.0
%
4/30/21


32,599


32,901


31,377Power Buyer, LLC

(g)

Service & Equipment

L+725


1.0
%
11/6/20


2,500


2,520


2,422Templar Energy LLC

(f)(h)(j)(k)

Upstream

L+750


1.0
%
11/25/20


89,923


88,196


65,014Total Safety U.S., Inc.

(g)(h)

Service & Equipment

L+800


1.3
%
9/13/20


14,795


15,013


14,352UTEX Industries, Inc.

(g)(k)

Service & Equipment

L+725


1.0
%
5/20/22


39,192


39,224


35,469Vantage Energy II, LLC

(j)(k)

Upstream

L+750


1.0
%
5/8/17


85,000


85,000


84,575Vantage Energy, LLC

(j)(k)

Upstream

L+750


1.0
%
12/20/18


30,385


30,197


27,043​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured LoansSecond Lien
















1,059,981


989,972​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


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, 2014
(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11.1%FourPoint Energy, LLC

(j)(k)(p)

Upstream

8.0%




12/31/20

$
222,750

$
213,158

$
196,020FourPoint Energy, LLC

(e)(p)

Upstream

8.0%




12/31/20


86,625


86,192


76,230Gastar Exploration USA, Inc.

(i)

Upstream

8.6%




5/15/18


22,000


21,548


18,855Globe Luxembourg SCA

(f)(m)

Service & Equipment

9.6%




5/1/18


10,000


9,706


7,748Light Tower Rentals, Inc.

(j)

Service & Equipment

8.1%




8/1/19


17,500


17,273


14,000Mirant Mid-Atlantic Trust

(f)(i)

Power

10.1%




12/30/28


33,087


37,072


34,990Permian Tank & Manufacturing, Inc.

(g)

Service & Equipment

10.5%




1/15/18


3,499


3,562


2,712Prince Mineral Holding Corp.

(i)(o)

Service & Equipment

11.5%




12/15/19


15,345


16,748


15,671Ryerson Inc.

(f)(g)

Service & Equipment

9.0%




10/15/17


2,300


2,362


2,371Tervita Corp.

(i)(m)

Service & Equipment

8.0%




11/15/18


3,500


3,534


3,080​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured Bonds
















411,155


371,677Unfunded Bond Commitments
















(86,192
)

(86,192
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Senior Secured Bonds
















324,963


285,485​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Subordinated Debt36.6%Alta Mesa Holdings, L.P.

(f)(i)

Upstream

9.6%




10/15/18


34,951


34,870


29,637American EnergyWoodford, LLC

(i)

Upstream

9.0%




9/15/22


10,500


10,078


6,602Atlas Energy Holdings Operating Co., LLC

(f)(i)(m)

Upstream

7.8%




1/15/21


21,450


20,713


15,551Atlas Energy Holdings Operating Co., LLC

(f)(i)(m)

Upstream

9.3%




8/15/21


19,763


20,040


15,193Brand Energy & Infrastructure Services, Inc.

(f)(i)(o)

Service & Equipment

8.5%




12/1/21


25,000


25,000


22,625BWAY Holding Co.

(f)

Service & Equipment

9.1%




8/15/21


3,100


3,080


3,116Calpine Corp.

(f)(m)

Power

5.8%




1/15/25


7,100


7,100


7,224Canbriam Energy Inc.

(f)(i)(m)

Upstream

9.8%




11/15/19


88,200


82,990


83,349Chaparral Energy Inc.

(f)

Upstream

8.3%




9/1/21


2,000


2,053


1,319Chaparral Energy Inc.

(f)(g)

Upstream

7.6%




11/15/22


15,225


16,254


10,011CHC Helicopter S.A.

(f)(i)(m)(o)

Service & Equipment

9.4%




6/1/21


8,125


8,276


7,698Clayton Williams Energy, Inc.

(i)(m)

Upstream

7.8%




4/1/19


9,300


9,288


7,797Compressco Partners, LP

(f)(i)(m)

Service & Equipment

7.3%




8/15/22


20,000


19,830


17,338Comstock Resources, Inc.

(f)(m)

Upstream

9.5%




6/15/20


5,000


4,821


3,375Crestwood Midstream Partners L.P.

(i)(m)

Midstream

6.1%




3/1/22


5,500


5,500


5,207Crew Energy Inc.

(i)(m)(v)

Upstream

8.4%




10/21/20

C$
10,343


11,502


10,085CrownRock, L.P.

(f)(i)

Upstream

7.1%




4/15/21

$
37,500


37,500


35,257Dynegy Finance I/II Inc.

(f)(m)

Power

7.4%




11/1/22


1,950


1,950


1,999Dynegy Finance I/II Inc.

(f)(m)

Power

6.8%




11/1/19


950


950


969Dynegy Finance I/II Inc.

(f)(m)

Power

7.6%




11/1/24


8,680


8,710


8,886Eco Services Operations LLC

(f)

Service & Equipment

8.5%




11/1/22


5,000


5,000


5,075Energy XXI Gulf Coast, Inc.

(i)(m)(o)

Upstream

7.5%




12/15/21


4,000


3,983


2,200Energy XXI Gulf Coast, Inc.

(i)(m)

Upstream

9.3%




12/5/17


5,000


5,145


3,325Era Group Inc.

(f)(m)

Service & Equipment

7.8%




12/15/22


7,750


7,638


8,060Everest Acquisition LLC

(f)

Upstream

9.4%




5/1/20


14,250


14,250


14,468


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, 2014
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Gardner Denver, Inc.

(f)

Service & Equipment

6.9%




8/15/21

$
8,948

$
9,426

$
8,501GenOn Energy, Inc.

(f)(i)(o)

Power

9.9%




10/15/20


40,698


42,923


40,299Global Jet Capital, Inc.



Service & Equipment

8.0% PIK (8.0% Max PIK)




1/30/15


313


313


313Global Partners L.P.

(f)(i)(m)

Midstream

6.3%




7/15/22


83,350


83,350


81,266The Hillman Group, Inc.

(f)

Service & Equipment

6.4%




7/15/22


5,000


5,024


4,825Ithaca Energy Inc.

(i)(m)

Upstream

8.1%




7/1/19


2,000


2,000


1,518Jones Energy, Inc.

(i)

Upstream

6.8%




4/1/22


8,000


8,000


6,120Jupiter Resources Inc.

(f)(i)(m)

Upstream

8.5%




10/1/22


67,125


63,660


50,344The Kenan Advantage Group, Inc.

(f)(i)

Service & Equipment

8.4%




12/15/18


18,000


18,447


18,585Legacy Reserves L.P.

(f)(m)

Upstream

8.0%




12/1/20


16,750


16,460


13,999Legacy Reserves L.P.

(f)(i)(m)

Upstream

6.6%




12/1/21


14,000


13,827


11,486Lightstream Resources Ltd.

(f)(i)(m)(o)

Upstream

8.6%




2/1/20


48,745


49,119


34,358Lonestar Resources America Inc.

(i)

Upstream

8.8%




4/15/19


21,500


21,615


16,206Martin Midstream Partners L.P.

(f)(m)

Midstream

7.3%




2/15/21


18,607


19,172


17,486Memorial Production Partners L.P.

(i)(m)

Upstream

7.6%




5/1/21


7,000


6,815


5,653Memorial Production Partners L.P.

(i)(m)

Upstream

6.9%




8/1/22


12,500


12,284


9,469The Pantry Inc.

(f)(m)

Service & Equipment

8.4%




8/1/20


250


270


275Resolute Energy Corp.

(i)(o)

Upstream

8.5%




5/1/20


6,230


6,550


2,951RKI Exploration & Production, LLC

(f)(i)(o)

Upstream

8.5%




8/1/21


58,704


58,655


47,848Samson Investment Co.

(i)

Upstream

9.8%




2/15/20


56,300


52,952


23,646Sanchez Energy Corp.

(i)(m)

Upstream

7.8%




6/15/21


14,500


14,265


13,731SandRidge Energy, Inc.

(i)(m)

Upstream

8.8%




1/5/20


22,075


20,428


15,066SandRidge Energy, Inc.

(i)(m)

Upstream

8.1%




10/15/22


3,500


3,314


2,301SandRidge Energy, Inc.

(i)(m)

Upstream

7.5%




3/15/21


5,000


4,487


3,244SandRidge Energy, Inc.

(i)(m)

Upstream

7.5%




2/15/23


2,500


2,371


1,597Sidewinder Drilling Inc.

(i)

Service & Equipment

9.8%




11/15/19


18,700


18,783


10,940Silver II US Holdings, LLC

(f)

Service & Equipment

7.8%




12/15/20


1,835


1,968


1,743Swift Energy Co.

(f)(i)(o)

Upstream

7.9%




3/1/22


20,000


20,045


10,253Talos Production LLC

(f)(i)(o)

Upstream

9.8%




2/15/18


43,250


43,267


39,140Teine Energy Ltd.

(i)(m)

Upstream

6.9%




9/30/22


12,900


12,802


10,303Tenrgys, LLC

(j)(k)

Upstream

L+900


2.5
%
12/23/18


75,000


75,000


74,250Warren Resources, Inc.

(f)(i)

Upstream

9.0%




8/1/22


38,900


38,377


24,313Zachry Holdings, Inc.

(f)

Service & Equipment

7.5%




2/1/20


11,800


12,022


11,918​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Subordinated Debt
















1,124,512


940,313​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


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, 2014
(in thousands, except share amounts)

Portfolio Company(a)

Footnotes

Industry







Number of
Shares

Amortized
Cost

Fair
Value(d)Equity/Other11.9%(n)Abaco Energy Technologies LLC, Common Equity

(r)

Service & Equipment









6,944,444

$
6,944

$
6,944Allied Downhole Technologies, LLC, Common Equity

(q)(r)

Service & Equipment









6,600,000


6,600


10,890Allied Downhole Technologies, LLC, Warrants

(q)(r)

Service & Equipment









5,344,680


1,865


4,810Altus Power America Holdings, LLC, Preferred Equity

(r)

Power









6,855,978


6,856


6,856American Energy Appalachia Holdings, LLC, Common Equity

(r)(s)

Upstream









15,657,194


14,900


15,657AP Exhaust Holdings, LLC, Common Equity

(q)(r)

Service & Equipment









811


811


580BBH Operating LLC, Common Equity

(r)(t)

Upstream









1,000


1,000


931BL Sand Hills Unit, L.P., Net Profits Interest

(r)(u)

Upstream









N/A


2,499


2,614BL Sand Hills Unit, L.P., Overriding Royalty Interest

(u)

Upstream









N/A


357


322Cimarron Energy Inc., Common Equity

(r)

Service & Equipment









2,500,000


2,500


2,500Extraction Oil & Gas Holdings, LLC, Common Equity

(q)(r)

Upstream









4,191,800


11,250


10,480Fortune Creek Co-Invest I L.P., LP Interest

(m)(v)

Midstream









N/A


16,904


15,111FourPoint Energy, LLC, Common Equity, Class C Units

(p)(q)(r)

Upstream









66,000


66,000


84,150FourPoint Energy, LLC, Common Equity, Class D Units

(p)(q)(r)

Upstream









12,374


8,176


15,901Industrial Group Intermediate Holdings, LLC, Common Equity

(q)(r)

Service & Equipment









371,901


372


521MB Precision Holdings LLC, Common Equity

(r)

Service & Equipment









490,213


490


490Plains Offshore Operations Inc., Preferred Equity

(f)

Upstream









21,067


24,689


26,712Plains Offshore Operations Inc., Warrants

(f)(r)

Upstream









427,005


689


811Summit Midstream Partners, LLC, Preferred Equity



Midstream









37,095


37,095


36,910Swift Worldwide Resources Holdco Limited, Common Equity

(m)(r)(w)

Service & Equipment









3,750,000


6,029


5,842Synergy Offshore LLC, Preferred Equity

(x)

Upstream









50,000


55,623


55,550​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Equity/Other
















271,649


304,582​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​TOTAL INVESTMENTS131.5%















$
3,663,050


3,375,177​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​LIABILITIES IN EXCESS OF OTHER ASSETS(31.5%)



















(809,456
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​NET ASSETS100.0%


















$
2,565,721​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


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, 2014
(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, 2014, the three-month London Interbank Offered Rate was 0.26% and the U.S. Prime Lending Rate was 3.25%.(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 EP Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit
facility with Citibank, N.A. (see Note 8).(h)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).(i)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. 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, subject to the terms and conditions governing the prime brokerage facility with BNP (see Note 8).(j)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).(k)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).(l)Position
or portion thereof unsettled as of December 31, 2014.(m)The
investment is not a qualifying asset under 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, 2014, 84.5% of the Company's total assets
represented
qualifying assets.(n)Listed
investments may be treated as debt for 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 Securities Exchange Act of
1934, as amended, subject to the terms and conditions governing the prime brokerage facility with BNP. (see Note 8). As of December 31, 2014, the fair value of securities rehypothecated
by BNP was $68,487.(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 25% or more of the portfolio company's voting securities or it has the power to exercise control over the
management or policies of such portfolio company. During the year ended December 31, 2014, the Company made an investment in and, in connection with such investment is deemed to be an
"affiliated person" of (but would not be deemed to "control"), the following portfolio company:


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

$
212,346




$
6,254

$
2,228




$
(27,100
)Equity/OtherFourPoint Energy, LLC, Common Equity, Class C Units

$
66,000













$
18,150FourPoint Energy, LLC, Common Equity, Class D Units

$
8,176













$
7,725


(q)Security
held within FSEP Investments, Inc., a wholly-owned subsidiary of the Company.(r)Security
is non-income producing.(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.(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, 2014.(w)Investment
denominated in British pounds. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2014.(x)Security
held within EP Synergy Investments, Inc., a wholly-owned subsidiary of the Company.


See notes to unaudited consolidated financial statements.

16

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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 September 30, 2015, the Company had six wholly-owned financing
subsidiaries and six wholly-owned subsidiaries through which it holds interests in certain non-controlled portfolio companies. The unaudited consolidated financial statements include both the
Company's accounts and the accounts of its wholly-owned subsidiaries as of September 30, 2015. 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, 2014 included in the Company's annual report on
Form 10-K. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2015. The December 31, 2014 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, 2014. 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.

17

---



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, or AICPA, Technical Practice Aid 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 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.

Reclassifications:Certain amounts in the unaudited consolidated financial statements for the three and nine months ended
September 30, 2014
may have been reclassified to conform to the classifications used to prepare the unaudited consolidated financial statements for the three and nine months ended

18

---



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)

September 30,
2015. These reclassifications had no material impact on the Company's consolidated financial position, results of operations or cash flows as previously reported.

Note 3. Share Transactions

Below is a summary of transactions with respect to the Company's common shares during the nine months ended September 30, 2015 and 2014:

Nine Months Ended September 30,2015

2014Shares

Amount

Shares

AmountGross Proceeds from Offering


47,279,557

$
450,747


88,167,106

$
954,280Reinvestment of Distributions


13,030,574


111,606


6,863,316


67,393​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Gross Proceeds


60,310,131


562,353


95,030,422


1,021,673Commissions and Dealer Manager Fees





(39,760
)




(88,056
)​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Proceeds to Company


60,310,131


522,593


95,030,422


933,617Share Repurchase Program


(2,122,814
)

(18,659
)

(734,206
)

(7,223
)​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Proceeds from Share Transactions


58,187,317

$
503,934


94,296,216

$
926,394​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


Status of Continuous Public Offering

Since commencing its continuous public offering and through October 27, 2015, the Company has sold 361,219,340 common shares (as
adjusted for share distributions) for gross proceeds of $3,709,344, including common shares issued under its distribution reinvestment plan. As of October 27, 2015, the Company had raised total
gross proceeds of $3,729,548, 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 nine months ended September 30, 2015 and 2014, the Company sold 60,310,131 and 95,030,422 common shares for gross proceeds of $562,353 and $1,021,673, respectively, at
an average price per share of $9.32 and $10.75, respectively. The gross proceeds received during the nine months ended September 30, 2015 and 2014 include reinvested shareholder distributions
of $111,606 and $67,393, respectively, for which the Company issued 13,030,574 and 6,863,316 common shares, respectively. During the period from October 1, 2015 to October 27, 2015, the
Company sold 2,356,544 common shares for gross proceeds of $20,255 at an average price per share of $8.60.

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 $39,760 and $88,056 for the nine months ended September 30, 2015 and 2014, respectively.

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

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 3. Share Transactions (Continued)

determination
regarding whether to cause the Company to offer to repurchase common shares and under what terms:



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 nine months ended September 30,
2015 and 2014:

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 2014December 31, 2013

January 2, 2014


174,181


100
%
$
9.72

$
1,693March 31, 2014

April 2, 2014


158,723


100
%
$
9.81

$
1,557June 30, 2014

July 2, 2014


401,302


100
%
$
9.90

$
3,973Fiscal 2015December 31, 2014

January 7, 2015


450,293


100
%
$
8.82

$
3,972March 31, 2015

April 1, 2015


716,857


100
%
$
8.73

$
6,258June 30, 2015

July 1, 2015


955,664


100
%
$
8.82

$
8,429


On
October 7, 2015, the Company repurchased 2,711,088 common shares (representing 100% of common shares tendered for repurchase) at $7.88 per share for aggregate consideration
totaling $21,350.

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 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.

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 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.

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

21

---



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)

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 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. The offering costs were offset against capital in excess of par value on the
consolidated financial statements and the 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.

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.

22

---



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 nine
months ended September 30, 2015 and 2014:

Three Months Ended
September 30,

Nine Months Ended
September 30,Related PartySource Agreement

Description

2015

2014

2015

2014FS Advisor

Investment Advisory and Administrative Services Agreement

Base Management Fee(1)

$
19,522

$
16,513

$
57,659

$
44,058FS Advisor

Investment Advisory and Administrative Services Agreement

Capital Gains Incentive Fee(2)




$
(9,977
)



$
(1,397
)FS Advisor

Investment Advisory and Administrative Services Agreement

Subordinated Incentive Fee on Income(3)

$
9,611

$
5,307

$
18,968

$
19,930FS Advisor

Investment Advisory and Administrative Services Agreement

Administrative Services Expenses(4)

$
892

$
1,019

$
3,153

$
2,962FS Advisor

Investment Advisory and Administrative Services Agreement

Offering Costs(5)

$
840

$
1,508

$
3,873

$
4,444FS2

Dealer Manager Agreement

Dealer Manager Fee(6)

$
2,276

$
6,398

$
7,622

$
17,044


(1)During
the nine months ended September 30, 2015 and 2014, $56,049 and $38,296, respectively, in base management fees were paid to FS Advisor. As of
September 30, 2015, $19,522 in base management fees were payable to FS Advisor.(2)During
the nine months ended September 30, 2015, the Company did not accrue any capital gains incentive fees. During the nine months ended
September 30, 2014, the Company reversed $1,397 of capital gains incentive fees previously accrued based on the performance of its portfolio. The Company did not pay any capital gains incentive
fees to FS Advisor during the nine months ended September 30, 2015. The Company paid FS Advisor $2,857 in capital gains incentive fees during the nine months ended September 30, 2014. As
of September 30, 2015, the Company did not have any accrued capital gains incentive fees.(3)During
the nine months ended September 30, 2015 and 2014, $21,499 and $21,409, respectively, of subordinated incentive fees on income were paid to FS
Advisor. As of September 30, 2015, a subordinated incentive fee on income of $9,611 was payable to FS Advisor.(4)During
the nine months ended September 30, 2015 and 2014, $2,940 and $2,707, 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 $2,979 and $1,997 in
administrative services expenses to FS Advisor during the nine months ended September 30, 2015 and 2014, respectively.(5)During
the nine months ended September 30, 2015 and 2014, the Company incurred offering costs of $7,150 and $5,288, respectively, of which $3,873 and
$4,444, 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.(6)Represents
aggregate dealer manager fees retained by FS2 and not re-allowed to selected broker-dealers.


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.

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)

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 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 October 27, 2015, the
Company has issued an aggregate of 4,363,896 common shares (as adjusted for share distributions) for aggregate gross proceeds of $39,260 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

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 it had

24

---



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)

not
obtained such relief. 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.

Expense Reimbursement

Pursuant to an expense support and conditional reimbursement agreement, dated as of February 14, 2012 and amended and restated
as of May 16, 2013, or, as amended and restated, 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

25

---



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)

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 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 September 30, 2015, 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 nine months ended September 30, 2015 and 2014, FS Benefit Trust purchased $104 and $49, 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 nine months ended September 30, 2015 and 2014:

DistributionFor the Three Months Ended

Per Share

AmountFiscal 2014March 31, 2014

$
0.1524

$
28,423June 30, 2014

$
0.1680

$
36,323September 30, 2014

$
0.1908

$
47,828Fiscal 2015March 31, 2015

$
0.1771

$
54,825June 30, 2015

$
0.1771

$
58,250September 30, 2015

$
0.1771

$
61,666


The
Company authorizes and declares ordinary cash distributions on a weekly basis and pays such distributions on a monthly basis. On August 5, 2015 and November 11, 2015,
the Company's board of trustees declared regular weekly cash distributions for October 2015 through December 2015 and

26

---



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)

January
2016 through March 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.

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 nine months ended September 30, 2015 or 2014 was funded through the reimbursement of operating expenses by Franklin Square
Holdings. During the nine months ended September 30, 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.

27

---



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
following table reflects the sources of the cash distributions on a tax basis that the Company paid on its common shares during the nine months ended September 30, 2015 and
2014:

Nine Months Ended September 30,2015

2014Source of Distribution

Distribution
Amount

Percentage

Distribution
Amount

PercentageOffering proceeds

$





$



Borrowings











Net investment income(1)


161,150


92
%

101,676


90
%Short-term capital gains proceeds from the sale of assets








6,907


6
%Long-term capital gains proceeds from the sale of assets


13,591


8
%

3,991


4
%Non-capital gains proceeds from the sale of assets











Distributions on account of limited partnership interest











Expense reimbursement from sponsor











​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
174,741


100
%
$
112,574


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


(1)During
the nine months ended September 30, 2015 and 2014, 91.2% and 91.0%, respectively, of the Company's gross investment income was attributable to
cash income earned, 1.8% and 4.2% respectively, was attributable to non-cash accretion of discount and 7.0% and 4.8%, respectively, was attributable to paid-in-kind, or PIK, interest.


The
Company's net investment income on a tax basis for the nine months ended September 30, 2015 and 2014 was $164,105 and $109,604, respectively. As of September 30, 2015,
the Company had $2,955 of undistributed ordinary income and $155,868 of net realized losses on a tax basis. As of December 31, 2014, the Company had $13,591 of undistributed ordinary income and
net realized gains on a tax basis, all of which was distributed during the nine months ended September 30, 2015.

The
difference between the Company's GAAP-basis net investment income and its tax-basis net investment income is primarily due to the amount by which tax-basis income on a limited
partnership interest differs from its GAAP-basis income, 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, with respect to the nine months ended September 30, 2014, the reversal of the required accrual for GAAP purposes of incentive fees on
unrealized gains even though no such incentive fees on unrealized gains were payable by the Company.

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 5. Distributions (Continued)

The
following table sets forth a reconciliation between GAAP-basis net investment income and tax-basis net investment income during the nine months ended September 30, 2015 and
2014:

Nine Months Ended
September 30,2015

2014GAAP-basis net investment income

$
167,025

$
116,488Income on limited partnership interest


(37
)

(867
)Reclassification of unamortized original issue discount and prepayment fees


(9,549
)

(5,824
)GAAP vs. tax-basis consolidation of subsidiaries


6,889


1,761Reversal of incentive fee accrual on unrealized gains





(1,397
)Other miscellaneous differences


(223
)

(557
)​
​
​
​
​
​
​
​Tax-basis net investment income

$
164,105

$
109,604​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


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

As
of September 30, 2015 and December 31, 2014, the components of accumulated earnings on a tax basis were as follows:

September 30, 2015
(Unaudited)

December 31, 2014Distributable ordinary income

$
2,955

$
Distributable capital gains (accumulated capital losses)


(155,868
)

13,591Deferral of late year capital losses





(6,094
)Distribution receivable on limited partnership interest


302


57Unamortized organization costs


(250
)

(268
)Net unrealized appreciation (depreciation) on investments and unrealized gain/loss on foreign currency(1)


(463,921
)

(283,310
)​
​
​
​
​
​
​
​Total

$
(616,782
)
$
(276,024
)​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(1)As
of September 30, 2015 and December 31, 2014, the gross unrealized appreciation on the Company's investments and unrealized gain on foreign
currency was $50,515 and $50,887, respectively. As of September 30, 2015 and December 31, 2014, the gross unrealized depreciation on the Company's investments and unrealized loss on
foreign currency was $514,436 and $334,197, respectively.


The
aggregate cost of the Company's investments for U.S. federal income tax purposes totaled $4,019,790 and $3,658,498 as of September 30, 2015 and December 31, 2014,
respectively. The aggregate net unrealized appreciation (depreciation) on a tax basis was $(463,921) and $(283,310) as of September 30, 2015 and December 31, 2014, respectively.

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 6. Investment Portfolio

The following table summarizes the composition of the Company's investment portfolio at cost and fair value as of September 30, 2015 and December 31, 2014:

September 30, 2015
(Unaudited)

December 31, 2014Amortized
Cost(1)

Fair Value

Percentage
of Portfolio

Amortized Cost(1)

Fair Value

Percentage
of PortfolioSenior Secured LoansFirst Lien

$
1,093,139

$
1,012,961


28
%
$
881,945

$
854,825


25
%Senior Secured LoansSecond Lien


1,245,423


1,076,528


30
%

1,059,981


989,972


29
%Senior Secured Bonds


465,474


393,592


11
%

324,963


285,485


9
%Subordinated Debt


925,358


765,095


22
%

1,124,512


940,313


28
%Equity/Other


290,159


312,111


9
%

271,649


304,582


9
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
4,019,553

$
3,560,287


100
%
$
3,663,050

$
3,375,177


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 September 30, 2015, except for FourPoint Energy, LLC, in which the Company held a senior secured bond and two equity/other investments, the Company was not an
"affiliated person" of any of its portfolio companies, as defined in the 1940 Act. As of September 30, 2015, 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 25% or more 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.

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 September 30, 2015, the Company had five senior secured
loan investments with aggregate unfunded commitments of $107,077, one senior secured bond investment with an unfunded commitment of $18,470 and four equity/other investments with aggregate unfunded
commitments of $32,686. As of September 30, 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, and Synergy Offshore LLC. As of December 31, 2014, the Company had four senior secured loan investments with aggregate
unfunded commitments of $218,120, one senior secured bond investment with an unfunded commitment of $86,192 and three equity/other investments with aggregate unfunded commitments of $26,109. As of
December 31, 2014, these unfunded equity/other investments were Altus Power America Holdings, LLC, BL Sand Hills Unit, L.P., net profits interest and BL Sand Hills
Unit, L.P., overriding royalty interest. The Company maintains sufficient cash on hand and available borrowings to fund such unfunded commitments should the need arise.

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 6. Investment Portfolio (Continued)

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 September 30,
2015 and December 31, 2014:

September 30, 2015
(Unaudited)

December 31, 2014Industry Classification

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of PortfolioUpstream

$
2,053,093


58
%
$
1,815,456


54
%Midstream


239,432


7
%

233,836


7
%Downstream


21,303


0
%

12,494


0
%Power


488,953


14
%

326,773


10
%Service & Equipment


757,506


21
%

986,618


29
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,560,287


100
%
$
3,375,177


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.

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 September 30, 2015 and December 31, 2014, the Company's investments were categorized as follows in the fair value hierarchy:

Valuation Inputs

September 30, 2015
(Unaudited)

December 31, 2014Level 1Price quotations in active markets

$


$
Level 2Significant other observable inputs





Level 3Significant unobservable inputs


3,560,287


3,375,177​
​
​
​
​
​
​
​Total

$
3,560,287

$
3,375,177​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


The
Company's investments as of September 30, 2015 consisted primarily of debt investments that were acquired directly from the issuer. Twenty senior secured loan investments, two
senior secured

31

---



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)

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 also 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, 2014 consisted primarily of debt investments that were traded on a private over-the-counter market for institutional investors.
Seventeen senior secured loan investments, one senior secured bond investment and two subordinated debt investments were valued by an independent valuation firm, 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 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 methods 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.

32

---



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
following is a reconciliation for the nine months ended September 30, 2015 and 2014 of investments for which significant unobservable inputs (Level 3) were used in
determining fair value:

For the Nine Months Ended September 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)


1,857


1,274


869


994


996


5,990Net realized gain (loss)


(20,253
)

(78
)

(6,599
)

(132,393
)




(159,323
)Net change in unrealized appreciation (depreciation)


(53,058
)

(98,886
)

(32,404
)

23,936


(10,981
)

(171,393
)Purchases


403,042


261,604


196,821


240,566


11,358


1,113,391Paid-in-kind interest


9,054


4,082








6,156


19,292Sales and redemptions


(182,506
)

(81,440
)

(50,580
)

(308,321
)




(622,847
)Net transfers in or out of Level 3

















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

$
1,012,961

$
1,076,528

$
393,592

$
765,095

$
312,111

$
3,560,287​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​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

$
(36,875
)
$
(92,452
)
$
(31,862
)
$
(80,318
)
$
(10,981
)
$
(252,488
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​




For the Nine Months Ended September 30, 2014Senior
Secured
Loans
First Lien

Senior
Secured
Loans
Second Lien

Senior
Secured
Bonds

Subordinated
Debt

Equity/
Other

TotalFair value at beginning of period

$
634,919

$
683,723

$
82,484

$
789,834

$
109,241

$
2,300,201Accretion of discount (amortization of premium)


972


3,706


439


1,724


1,529


8,370Net realized gain (loss)


3,673


(269
)

318


2,693


(915
)

5,500Net change in unrealized appreciation (depreciation)


1,304


(7,703
)

(1,044
)

(18,373
)

13,893


(11,923
)Purchases


395,958


607,500


150,898


505,388


74,852


1,734,596Paid-in-kind interest





6,040








3,530


9,570Sales and redemptions


(201,441
)

(250,940
)

(41,548
)

(240,374
)

(7,587
)

(741,890
)Net transfers in or out of Level 3

















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

$
835,385

$
1,042,057

$
191,547

$
1,040,892

$
194,543

$
3,304,424​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​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

$
3,803

$
(12,941
)
$
(241
)
$
(10,765
)
$
14,252

$
(5,892
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


33

---



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 September 30, 2015 and December 31, 2014 were as
follows:

Type of Investment

Fair Value at
September 30, 2015
(Unaudited)

Valuation Technique(1)

Unobservable Input

Range

Weighted
AverageSenior Secured Loans
First Lien

$
653,356

Market Comparables

Market Yield (%)

8.5% - 14.8%

11.7
%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

0.4x359,605

Market Quotes

Indicative Dealer Quotes

65.0% - 100.6%

86.7
%Senior Secured Loans
Second Lien


661,415

Market Comparables

Market Yield (%)

8.8% - 15.5%

12.8
%415,113

Market Quotes

Indicative Dealer Quotes

10.7% - 99.8%

80.4
%Senior Secured Bonds


307,288

Market Comparables

Market Yield (%)

10.8% - 15.3%

11.7
%86,304

Market Quotes

Indicative Dealer Quotes

45.0% - 102.6%

74.8
%Subordinated Debt


72,000

Market Comparables

Market Yield (%)

12.8% - 13.3%

13.0
%685,775

Market Quotes

Indicative Dealer Quotes

29.0% - 101.8%

83.6
%7,320

Other(2)

Other(2)

N/A

N/AEquity/Other


280,407

Market Comparables

Market Yield (%)

11.3% - 12.3%

11.8
%EBITDA Multiples (x)

5.0x - 11.5x

9.5xProduction Multiples (Mmb/d)

$62,500.0 - $100,000.0

$65,839.4Proved Reserves Multiples (Mmboe)

$6.3 - $14.0

$8.9PV-10 Multiples (x)

0.3x - 1.6x

1.0xCapacity Multiple ($/kW)

$2,000.0 - $2,500.0

$2,250.0Discounted Cash Flow

Discount Rate (%)

18.5% - 29.0%

23.5
%Option Valuation Model

Volatility (%)

50.0% - 52.5%

51.3
%31,704

Other(2)

Other(2)

N/A

N/A​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,560,287​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​


(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.


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)

Type of Investment

Fair Value at
December 31, 2014

Valuation Technique(1)

Unobservable Input

Range

Weighted
AverageSenior Secured Loans
First Lien

$
356,089

Market Comparables

Market Yield (%)

8.5% - 12.3%

10.2
%498,736

Market Quotes

Indicative Dealer Quotes

78.8% - 102.3%

93.9
%Senior Secured Loans
Second Lien


449,771

Market Comparables

Market Yield (%)

8.5% - 12.0%

10.6
%540,201

Market Quotes

Indicative Dealer Quotes

71.6% - 101.6%

89.6
%Senior Secured Bonds


186,058

Market Comparables

Market Yield (%)

10.5% - 11.0%

10.8
%99,427

Market Quotes

Indicative Dealer Quotes

76.5% - 106.3%

94.2
%Subordinated Debt


74,250

Market Comparables

Market Yield (%)

11.5% - 12.0%

11.8
%865,750

Market Quotes

Indicative Dealer Quotes

41.5% - 110.5%

84.9
%313

Other

Other

N/A

N/AEquity/Other


304,582

Market Comparables

Market Yield (%)

11.0% - 15.8%

13.1
%EBITDA Multiples (x)

4.5x - 10.5x

8.9xProduction Multiples (Mmb/d)

$37,500.0 - $174,000.0

$47,173.9Proved Reserves Multiples (Mmboe)

$6.5 - $27.2

$7.2PV-10 Multiples (x)

0.3x - 1.8x

1.2xDiscounted Cash Flow

Discount Rate (%)

11.5% - 30.3%

16.0
%Option Valuation Model

Volatility (%)

45.0% - 52.5%

51.6
%​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,375,177​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​


(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.


Note 8. Financing Arrangements

The following table presents a summary of information with respect to the Company's outstanding
financing arrangements as of September 30, 2015. 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, 2014 and the additional disclosure set forth in this Note 8.

Arrangement

Type of
Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity DateBNP Facility

Prime Brokerage

L+1.10%

$
207,100

$
92,900

June 26, 2016(1)Deutsche Bank Credit Facility

Revolving

L+1.80%

$
280,000

$
60,000

June 11, 2016Goldman Facility

Repurchase

L+2.75%

$
324,984

$
16

September 15, 2017Natixis Credit Facility

Revolving

CP+2.25%

$
96,913




July 11, 2023Wells Fargo Credit Facility

Revolving

L+2.50% to 2.75%

$
140,000

$
60,000

September 9, 2019


(1)As
described below, the BNP facility generally is terminable upon 270 days' notice by either party. As of September 30, 2015, neither Berwyn
Funding nor BNP had provided notice of its intent to terminate the facility.


The
Company's average borrowings and weighted average interest rate, including the effect of non-usage fees, for the nine months ended September 30, 2015 were $999,720 and 2.72%,
respectively. As of September 30, 2015, the Company's weighted average effective interest rate on borrowings was 2.41%.

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 8. Financing Arrangements (Continued)

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, pursuant to which Berwyn Funding could borrow, from time to time,
up to $200,000 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 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, and which are collectively referred to herein as the BNP financing agreements.

On
August 18, 2014, the BNP facility was amended to increase the maximum commitment financing available to Berwyn Funding from $200,000 to $300,000.

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.

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. 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 September 30, 2015 and December 31, 2014, $207,100 and $223,000, respectively, 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
September 30, 2015, all of the deferred financing costs had been amortized to interest expense.

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 8. Financing Arrangements (Continued)

For
the three and nine months ended September 30, 2015 and 2014, the components of total interest expense for the BNP facility were as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,2015

2014

2015

2014Direct interest expense

$
798

$
506

$
2,334

$
1,151Non-usage fees


111


140


324


427Amortization of deferred financing costs





101


76


300​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
909

$
747

$
2,734

$
1,878​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


For
the nine months ended September 30, 2015 and 2014, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the
BNP facility were as follows:

Nine Months Ended
September 30,2015

2014Cash paid for interest expense(1)

$
2,662

$
1,386Average borrowings under the facility

$
222,280

$
113,806Effective interest rate on borrowings


1.43
%

1.33
%Weighted average interest rate (including the effect of non-usage fees)


1.59
%

1.85
%


(1)Interest
under the BNP facility is paid monthly in arrears and commenced on January 2, 2014.


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 are eligible securities 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 nine months ended September 30, 2015, Berwyn Funding received a fee of $1 from BNP for securities that had been rehypothecated pursuant to the BNP
financing agreements. As of September 30, 2015, the fair value of those securities rehypothecated by BNP was $49,148.

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.

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 8. Financing Arrangements (Continued)

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 September 30, 2015, no amounts remained outstanding under the Citibank credit facility. As of December 31, 2014, $128,300 was 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 as
deferred financing costs on its consolidated balance sheets and amortized to interest expense over the life of the facility.

For
the three months ended September 30, 2014 and the nine months ended September 30, 2015 and 2014, the components of total interest expense for the Citibank credit
facility were as follows:

Nine Months Ended
September 30,Three Months Ended
September 30, 20142015

2014Direct interest expense

$
1,216

$
471

$
3,602Non-usage fees








1Amortization of deferred financing costs


82


130


245​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
1,298

$
601

$
3,848​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


For
the nine months ended September 30, 2015 and 2014, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the
Citibank credit facility were as follows:

Nine Months Ended
September 30,2015

2014Cash paid for interest expense(1)

$
1,011

$
3,607Average borrowings under the facility(2)

$
70,020

$
174,643Effective interest rate on borrowings





2.72
%Weighted average interest rate (including the effect of non-usage fees)


2.99
%

2.75
%


(1)Interest
under the Citibank credit facility was paid quarterly in arrears.(2)Average
borrowings for the nine months ended September 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.

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)

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, which provided for borrowings in an aggregate amount of up to $50,000. On May 30, 2012, August 28, 2012 and October 18, 2012, FSEP Funding and Deutsche Bank entered into
separate amendments to the Deutsche Bank credit facility which increased the aggregate borrowings available under the facility to $100,000, $175,000 and $240,000, respectively. On June 24,
2013, FSEP Funding and Deutsche Bank entered into an additional amendment to the Deutsche Bank credit facility which extended the maturity date of the facility to June 24, 2014 and consolidated
the existing four tranches of commitments under the facility into a single tranche of commitments with an aggregate principal amount of $240,000. On June 11, 2014, FSEP Funding and Deutsche
Bank entered into an additional amendment to the Deutsche Bank credit facility which, among other things, extended the scheduled maturity date from June 24, 2014 to June 11, 2015 and
increased the maximum commitments under the facility from $240,000 to $340,000 through the addition of a $100,000 tranche of revolving loan commitments from State Street. On June 11, 2015, FSEP
Funding and Deutsche Bank entered into a further amendment to the Deutsche Bank credit facility that extended the maturity date from June 11, 2015 to June 11, 2016.

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.

Pricing
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 1.80% 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, 2016.

As
of September 30, 2015 and December 31, 2014, $280,000 was outstanding under the Deutsche Bank credit facility. The carrying amount outstanding under the facility
approximates its fair value. The Company incurred costs of $3,340 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 September 30, 2015, $828 of such deferred financing costs had yet to be amortized to interest expense.

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)

For
the three and nine months ended September 30, 2015 and 2014, the components of total interest expense for the Deutsche Bank credit facility were as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,2015

2014

2015

2014Direct interest expense

$
1,495

$
1,248

$
4,383

$
3,692Non-usage fees


115


192


341


234Amortization of deferred financing costs


297


213


737


547​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
1,907

$
1,653

$
5,461

$
4,473​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


For
the nine months ended September 30, 2015 and 2014, 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:

Nine Months Ended
September 30,2015

2014Cash paid for interest expense(1)

$
4,702

$
3,862Average borrowings under the facility

$
280,000

$
240,000Effective interest rate on borrowings


2.09
%

2.03
%Weighted average interest rate (including the effect of non-usage fees)


2.25
%

2.18
%


(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.

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 Sachs Bank USA, or Goldman. Pursuant to this financing
arrangement, up to $225,000 was initially made available to the Company to fund investments in securities and for general corporate purposes. On December 15, 2014, the parties amended the
financing arrangement to increase the amount available thereunder to $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 September 30, 2015, the fair value of
assets held by Gladwyne Funding was $664,116, 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

40

---



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)

$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 September 30, 2015, Strafford Funding had purchased $577,750 of Notes, the maximum principal amount of Notes that may be purchased under the
Goldman facility. Strafford Funding purchased $241,550 of Notes during the nine months ended September 30, 2015.

Strafford
Funding, in turn, has 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 September 30, 2015, Goldman had purchased Notes in the principal amount of $577,750 from Strafford Funding, the maximum principal amount of Notes that may 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 September 30, 2015, 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 September 30, 2015, Strafford Funding's liability under the Goldman facility was $324,984, plus $439 of accrued interest
expense. The

41

---



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)

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 September 30, 2015, $252 of such deferred financing costs had yet to be amortized to interest expense.

For
the three and nine months ended September 30, 2015 and 2014, the components of total interest expense for the Goldman facility were as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,2015

2014

2015

2014Direct interest expense

$
2,521

$
19

$
6,876

$
19Amortization of deferred financing costs


32





96


​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
2,553

$
19

$
6,972

$
19​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


For
the nine months ended September 30, 2015 and 2014, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the
Goldman facility were as follows:

Nine Months Ended
September 30,2015

2014Cash paid for interest expense(1)

$
6,882


Average borrowings under the facility

$
226,639

$
14,063Effective interest rate on borrowings


3.04
%

2.98
%Weighted average interest rate


4.05
%

3.04
%


(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 nine months ended September 30, 2015, the Company repaid $53,087 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

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)

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.

Prior
to March 2014, borrowings under the Natixis credit facility accrued interest at a rate equal to three-month LIBOR plus 2.40% per annum. In March 2014, borrowings under the Natixis
credit facility began to accrue interest at a rate equal to the applicable commercial paper rate plus 2.25% per annum. Borrowings under the facility were subject to compliance with, among other
things, an overcollateralization ratio test with respect to the current value of Energy Funding's portfolio, an interest coverage ratio test with respect to the payments due under the facility and
eligibility criteria with respect to the initial acquisition of each debt security in Energy Funding's portfolio.

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 September 30, 2015 and December 31, 2014, $96,913 and $150,000, 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 September 30, 2015, $1,648 of such deferred financing costs had yet to be amortized to interest expense.

For
the three and nine months ended September 30, 2015 and 2014, the components of total interest expense for the Natixis credit facility were as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,2015

2014

2015

2014Direct interest expense

$
650

$
964

$
2,411

$
2,768Amortization of deferred financing costs


263


64


520


192​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
913

$
1,028

$
2,931

$
2,960​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


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 nine months ended September 30, 2015 and 2014, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the
Natixis credit facility were as follows:

Nine Months Ended
September 30,2015

2014Cash paid for interest expense(1)

$
2,557

$
2,843Average borrowings under the facility

$
123,964

$
150,000Effective interest rate on borrowings


2.59
%

2.53
%Weighted average interest rate


2.62
%

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 provides for borrowings in an aggregate principal amount up to $200,000 on a committed basis.

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.

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)

As
of September 30, 2015 and December 31, 2014, $140,000 and $120,000, 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 September 30, 2015, $2,083 of such deferred financing costs had yet to be amortized to
interest expense.

For
the three and nine months ended September 30, 2015 and 2014, the components of total interest expense for the Wells Fargo credit facility were as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,2015

2014

2015

2014Direct interest expense

$
981

$


$
2,835

$
Non-usage fees


230





422


Amortization of deferred financing costs


134


31


395


31​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
1,345

$
31

$
3,652

$
31​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


As
of September 30, 2014, no amounts were outstanding under the Wells Fargo credit facility. For the nine months ended September 30, 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:

Nine Months Ended
September 30, 2015Cash paid for interest expense(1)

$
3,169Average borrowings under the facility

$
126,062Effective interest rate on borrowings


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


3.44
%


(1)Interest
under the Wells Fargo credit facility is paid quarterly in arrears and commenced on December 15, 2014.


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.

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 10. Financial Highlights

The following is a schedule of financial highlights of the Company for the nine months ended September 30, 2015 and the year ended December 31, 2014:

Nine Months Ended
September 30, 2015
(Unaudited)

Year Ended
December 31, 2014Per Share Data:(1)Net asset value, beginning of period

$
8.57

$
9.66Results of operations(2)Net investment income (loss)


0.51


0.74Net realized and unrealized appreciation (depreciation) on investments and gain/loss on foreign currency


(1.01
)

(1.46
)​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations


(0.50
)

(0.72
)​
​
​
​
​
​
​
​Shareholder distributions(3)Distributions from net investment income


(0.49
)

(0.62
)Distributions from net realized gain on investments


(0.04
)

(0.07
)​
​
​
​
​
​
​
​Net decrease in net assets resulting from shareholder distributions


(0.53
)

(0.69
)​
​
​
​
​
​
​
​Capital share transactionsIssuance of common shares(4)


0.10


0.35Repurchases of common shares(5)





Offering costs(2)


(0.02
)

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


0.08


0.32​
​
​
​
​
​
​
​Net asset value, end of period

$
7.62

$
8.57​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Shares outstanding, end of period


357,581,688


299,394,371​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Total return(6)


(4.90
)%

(4.14
)%​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Ratio/Supplemental Data:Net assets, end of period

$
2,723,781

$
2,565,721​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Ratio of net investment income to average net assets(7)


6.02
%

7.71
%Ratio of total expenses to average net assets(7)


3.96
%

5.07
%Portfolio turnover(8)


17.45
%

35.55
%Total amount of senior securities outstanding, exclusive of treasury securities

$
1,048,997

$
1,090,413Asset coverage per unit(9)


3.60


3.35


(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 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.(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.


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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 (Continued)

(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 nine months ended September 30, 2015 are not
annualized. The following is a schedule of supplemental ratios for the nine months ended September 30, 2015 and the year ended December 31, 2014:


Nine Months Ended
September 30, 2015
(Unaudited)

Year Ended
December 31,
2014Ratio of accrued capital gains incentive fees to average net assets





(0.48
)%Ratio of subordinated income incentive fees to average net assets


0.68
%

1.41
%Ratio of interest expense to average net assets


0.81
%

0.84
%Ratio of income and excise taxes to average net assets


0.01
%

0.04
%


(8)Portfolio
turnover for the nine months ended September 30, 2015 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.


Note 11. Recently Issued Accounting Standards

In April 2015, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No. 2015-03, InterestImputation of Interest,to simplify the presentation in the financial statements of debt issuance costs. Under existing guidance,
debt issuance costs are recognized as a deferred charge and presented as an asset on the balance sheet. The amendments to the guidance require 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 ASU
No. 2015-15,InterestImputation of Interest,to update the guidance to include SEC 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 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. The recognition and measurement guidance for debt issuance costs is not
affected by the amendments to the guidance. The amendments to the FASB codification guidance are

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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 11. Recently Issued Accounting Standards (Continued)

to
be applied retrospectively with applicable disclosures for a change in accounting principle upon transition. For public entities, the amendments are effective during interim and annual periods
beginning after December 15, 2015. Early application by public entities is permitted. The Company is currently assessing the impact of this guidance on its consolidated financial statements.

Note 12. Subsequent Events

On November 6, 2015, Foxfields Funding LLC, or Foxfields Funding, a newly-formed, wholly-owned, financing subsidiary of the Company, entered into a senior secured multiple
draw term loan facility, or the Fortress facility, with Fortress Credit Co LLC as administrative agent, or Fortress, the lenders from time to time party thereto, or the Lenders, and the other
loan parties from time to time party thereto. The Fortress facility provides for $125,000 of term loans, or the Initial Facility Amount, available to be borrowed during the first year after the
closing date of November 6, 2015, or the Availability Period, 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 $75,000 of additional commitments. On the closing date, Foxfields Funding borrowed $40,000 of the Initial Facility Amount. Foxfields Funding's obligations
to the Lenders under the facility are secured by a first priority security interest in substantially all of the assets of Foxfields Funding, including its portfolio of assets and the assets of its
subsidiaries, subject to certain customary exceptions. In addition, the Company has agreed to guaranty the obligations of Foxfields Funding and grant a first priority lien in favor of Fortress, for
the benefit of the Lenders, on the capital stock of Foxfields Funding.

Interest
under the Fortress facility for (i) loans bearing interest by reference to LIBOR will accrue 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 will accrue 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 beginning with the quarter
ending March 31, 2016. Foxfields Funding incurred certain customary fees, costs and expenses in connection with obtaining the facility. In addition, during the Availability Period, Foxfields
Funding will be subject to a commitment fee at a rate equal to 100 basis points on the average daily undrawn Initial Facility Amount. Under certain conditions, Foxfields Funding will also 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.

In
connection with the Fortress facility, Foxfields Funding has made certain representations and warranties and must comply with various covenants and reporting requirements customary
for facilities of this type, including the following financial covenants: (a) the Company's minimum consolidated shareholders' equity, as determined in accordance with GAAP and measured as of
each fiscal quarter-end, must be greater than $1,500,000; (b) the Company must maintain at all times a 200% asset coverage ratio; (c) Foxfields Funding must maintain, as of each
quarter-end, an asset coverage ratio of either 300% or 325% depending on the relative composition of its portfolio between debt and equity investments; and (d) the portfolio investments must be
issued by not fewer than 10 unrelated obligors at all times, measured as of each quarter-end.

The
Fortress facility contains events of default customary for facilities of this type as described in the loan documentation. Upon the occurrence of an event of default, Fortress, at
the instruction or with the consent of the Lenders, may terminate the commitments and declare the outstanding advances and all other obligations under the facility immediately due and payable. During
the continuation of certain events of default, the Company must pay interest at a default rate.

Borrrowings
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.

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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 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 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, 2014.

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 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 for expense support payments made by Franklin Square Holdings with respect to any calendar quarter

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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 September 30, 2015, 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 Nine Months Ended September 30, 2015
and for the Year Ended December 31, 2014

During the nine months ended September 30, 2015, we made investments in portfolio companies totaling $1,113,391. During the same
period, we sold investments for proceeds of $442,341 and received principal repayments of $180,506. As of September 30, 2015, our investment portfolio, with a total fair value of $3,560,287
(28% in first lien senior secured loans, 30% in second lien senior secured loans, 11% in senior secured bonds, 22% in subordinated debt and 9% in equity/other), consisted of interests in 103 portfolio
companies. The portfolio companies that comprised our portfolio as of such date had an average annual EBITDA of approximately $266.1 million. As of September 30, 2015, the debt
investments in our portfolio were purchased at a weighted average price of 98.6% 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 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 September 30, 2015 and our public offering price of $8.75 per share as of such date, the annualized
distribution rate to shareholders as of September 30, 2015 was 8.10%. The distribution rate to shareholders may include income, realized capital gains and a return of investors' capital.

During
the year ended December 31, 2014, we made investments in portfolio companies totaling $2,437,689. During the same period, we sold investments for proceeds of $462,170 and
received principal repayments of $582,141. As of December 31, 2014, our investment portfolio, with a total fair value of $3,375,177 (25% in first lien senior secured loans, 29% in second lien
senior secured loans, 9%

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in
senior secured bonds, 28% in subordinated debt and 9% in equity/other), consisted of interests in 125 portfolio companies. The portfolio companies that comprised our portfolio as of such date had
an average annual EBITDA of approximately $233.3 million. As of December 31, 2014, the debt investments in our portfolio were purchased at a weighted average price of 99.1% of par value,
and our
estimated gross annual portfolio yield, prior to leverage, was 8.8% 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, 2014 and our public offering price of $9.80 per share as of such date, the annualized
distribution rate to shareholders as of December 31, 2014 was 7.23%. 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 "Item 1A Risk Factors" in our annual
report on Form 10-K for the fiscal year ended December 31, 2014 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 nine months
ended September 30, 2015:

Net Investment Activity

For the
Three Months Ended
September 30, 2015

For the
Nine Months Ended
September 30, 2015Purchases

$
427,042

$
1,113,391Sales and Redemptions


(242,767
)

(622,847
)​
​
​
​
​
​
​
​Net Portfolio Activity

$
184,275

$
490,544​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​




For the
Three Months Ended
September 30, 2015

For the
Nine Months Ended
September 30, 2015New Investment Activity by Asset Class

Purchases

Percentage

Purchases

PercentageSenior Secured LoansFirst Lien

$
117,755


28
%
$
403,042


36
%Senior Secured LoansSecond Lien


88,422


21
%

261,604


23
%Senior Secured Bonds


121,408


28
%

196,821


18
%Subordinated Debt


94,043


22
%

240,566


22
%Equity/Other


5,414


1
%

11,358


1
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
427,042


100
%
$
1,113,391


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


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The
following table summarizes the composition of our investment portfolio at cost and fair value as of September 30, 2015 and December 31, 2014:

September 30, 2015
(Unaudited)

December 31, 2014Amortized
Cost(1)

Fair Value

Percentage
of Portfolio

Amortized
Cost(1)

Fair Value

Percentage
of PortfolioSenior Secured LoansFirst Lien

$
1,093,139

$
1,012,961


28
%
$
881,945

$
854,825


25
%Senior Secured LoansSecond Lien


1,245,423


1,076,528


30
%

1,059,981


989,972


29
%Senior Secured Bonds


465,474


393,592


11
%

324,963


285,485


9
%Subordinated Debt


925,358


765,095


22
%

1,124,512


940,313


28
%Equity/Other


290,159


312,111


9
%

271,649


304,582


9
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
4,019,553

$
3,560,287


100
%
$
3,663,050

$
3,375,177


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 September 30, 2015 and December 31, 2014:

September 30, 2015

December 31, 2014Number of Portfolio Companies


103


125% Variable Rate (based on fair value)


51.0
%

51.8
%% Fixed Rate (based on fair value)


40.3
%

39.2
%% Income Producing Equity/Other Investments (based on fair value)


4.1
%

4.0
%% Non-Income Producing Equity/Other Investments (based on fair value)


4.6
%

5.0
%Average Annual EBITDA of Portfolio Companies

$
266,068

$
233,303Weighted Average Purchase Price of Debt Investments (as a % of par value)


98.6
%

99.1
%% of Investments on Non-Accrual (based on fair value)


0.0
%

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


9.3
%

8.8
%Gross Portfolio Yield Prior to Leverage (based on amortized cost)Excluding Non-Income Producing Assets


9.6
%

9.1
%


Direct Originations

The following tables present certain selected information regarding our direct originations for the three and nine months ended
September 30, 2015:

Net Direct Originations

For the
Three Months Ended
September 30, 2015

For the
Nine Months Ended
September 30, 2015Total Commitments (including Unfunded Commitments)

$
164,536

$
526,145Exited Investments (including partial paydowns)


(3,262
)

(15,007
)​
​
​
​
​
​
​
​Net Direct Originations

$
161,274

$
511,138​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


55

---



Table of Contents



For the
Three Months Ended
September 30, 2015

For the
Nine Months Ended
September 30, 2015New Direct Originations by Asset Class
    (including Unfunded Commitments)

Commitment
Amount

Percentage

Commitment
Amount

PercentageSenior Secured LoansFirst Lien

$
1,216


1
%
$
186,079


35
%Senior Secured LoansSecond Lien


83,243


50
%

252,532


48
%Senior Secured Bonds


62,400


38
%

62,400


12
%Subordinated Debt


1,874


1
%

6,997


1
%Equity/Other


15,803


10
%

18,137


4
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
164,536


100
%
$
526,145


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




For the
Three Months Ended
September 30, 2015

For the
Nine Months Ended
September 30, 2015Average New Direct Origination Commitment Amount

$
23,505

$
37,582Weighted Average Maturity for New Direct Originations


8/26/20


6/12/20Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Funded during Period


10.2
%

10.7
%Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Funded during PeriodExcluding Non-Income Producing
Assets


10.3
%

10.9
%Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Exited during Period


11.5
%

9.9
%


The
following table presents certain selected information regarding our direct originations as of September 30, 2015 and December 31, 2014:

Characteristics of All Direct Originations held in Portfolio

September 30, 2015

December 31, 2014Number of Portfolio Companies


27


22Average Annual EBITDA of Portfolio Companies

$
93,554

$
29,450Average Leverage Through Tranche of Portfolio CompaniesExcluding Equity/Other Securities


4.1x


4.0x% of Investments on Non-Accrual


0.0
%

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


9.8
%

9.1
%Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct OriginationsExcluding Non-Income Producing Assets


10.5
%

10.1
%


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 September 30, 2015 and December 31, 2014:

September 30, 2015

December 31, 2014Portfolio Composition by Strategy

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of PortfolioDirect Originations

$
2,027,815


57
%
$
1,371,063


41
%Opportunistic


767,645


22
%

892,154


26
%Broadly Syndicated/Other


764,827


21
%

1,111,960


33
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,560,287


100
%
$
3,375,177


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


56

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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 September 30, 2015 and December 31, 2014:

September 30, 2015
(Unaudited)

December 31, 2014Industry Classification

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of PortfolioUpstream

$
2,053,093


58
%
$
1,815,456


54
%Midstream


239,432


7
%

233,836


7
%Downstream


21,303


0
%

12,494


0
%Power


488,953


14
%

326,773


10
%Service & Equipment


757,506


21
%

986,618


29
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,560,287


100
%
$
3,375,177


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


As
of September 30, 2015, except for FourPoint Energy, LLC, in which we held a senior secured bond and two equity/other investments, we were not an "affiliated person" of
any of our portfolio companies, as defined in the 1940 Act. As of September 30, 2015, 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 25% or more 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, pursuant to which we may be required to
provide funding when requested by portfolio companies in accordance with the terms of the underlying agreements. As of September 30, 2015, we had five senior secured loan investments with
aggregate unfunded commitments of $107,077, one senior secured bond investment with an unfunded commitment of $18,470 and four equity/other investments with aggregate unfunded commitments of $32,686.
As of September 30, 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, and Synergy
Offshore LLC. As of December 31, 2014, we had four senior secured loan investments with aggregate unfunded commitments of $218,120, one senior secured bond investment with an unfunded
commitment of $86,192 and three equity/other investments with aggregate unfunded commitments of $26,109. As of December 31, 2014, these unfunded equity/other investments were Altus Power
America Holdings, LLC, BL Sand Hills Unit, L.P., net profits interest and BL Sand Hills Unit, L.P., overriding royalty interest. We maintain sufficient cash on hand and available
borrowings to fund such unfunded commitments should the need arise.

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.


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The
following table shows the distribution of our investments on the 1 to 5 investment rating scale at fair value as of September 30, 2015 and December 31, 2014:

September 30, 2015

December 31, 2014Investment Rating

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of Portfolio1

$
162,160


4
%
$
119,174


4
%2


2,631,947


74
%

2,630,119


78
%3


745,233


21
%

586,116


17
%4


20,947


1
%

39,768


1
%5











​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,560,287


100
%
$
3,375,177


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.

Results of Operations

The performance of our portfolio during the three months ended September 30, 2015 was primarily driven by renewed volatility and
a widening of credit spreads in the energy high yield and leveraged loan markets. Despite slowing U.S. production, a decline in the number of operational oil drilling rigs and ongoing demand growth,
oil prices declined to six-year lows in August 2015, which we believe was due, in part, to investors assessing the impact that a weaker Chinese economy could have on global demand. After rebounding on
both economic and fundamental data, oil prices again turned volatile in September 2015. This weighed on the performance of energy high yield bonds and energy loans, which in turn impacted the
performance of our portfolio during the three months ended September 30, 2015.

Comparison of the Three Months Ended September 30, 2015 and 2014

Revenues

We generated investment income of $98,758 and $72,621 for the three months ended September 30, 2015 and 2014, respectively, in
the form of interest and fees earned on senior secured loans, senior secured bonds and subordinated debt investments in our portfolio and dividends and other distributions earned on equity/other
investments in our portfolio. Such revenues represent $90,073 and $66,828 of cash income earned as well as $8,685 and $5,793 in non-cash portions relating to accretion of discount, PIK interest and
accrual of limited partnership income for the three months ended September 30, 2015 and 2014, 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 September 30, 2015 and 2014, we generated $10,777 and $3,922 of fee income, which represented 10.9% and 5.4%, 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.

Expenses

Our total expenses were $40,122 and $19,451 for the three months ended September 30, 2015 and 2014, respectively. Our expenses
include base management fees attributed to FS Advisor of $19,522 and $16,513 for the three months ended September 30, 2015 and 2014, respectively. Our expenses also

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include
administrative services expenses attributed to FS Advisor of $892 and $1,019 for the three months ended September 30, 2015 and 2014, respectively.

FS
Advisor is eligible to receive incentive fees based on our performance. During the three months ended September 30, 2015 and 2014, we accrued subordinated incentive fees on
income of $9,611 and $5,307, respectively, based on the performance of our portfolio. During the three months ended September 30, 2015, we did not accrue any capital gains incentive fees.
During the three months ended September 30, 2014, we reversed $9,977 of capital gains incentive fees previously accrued based on the performance of our portfolio.

We
recorded interest expense of $7,627 and $4,776 for the three months ended September 30, 2015 and 2014, respectively, in connection with our financing arrangements. For the
three months ended September 30, 2015 and 2014, fees and expenses incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $361 and
$209, respectively, and fees and expenses incurred with our share transfer agent totaled $767 and $667, respectively. Fees for our board of trustees were $246 and $213 for the three months ended
September 30, 2015 and 2014, respectively.

Our
other general and administrative expenses totaled $1,020 and $668 for the three months ended September 30, 2015 and 2014, respectively, and consisted of the following:

Three Months Ended
September 30,2015

2014Expenses associated with our independent audit and related fees

$
54

$
92Compensation of our chief compliance officer(1)





10Legal fees


221


35Printing fees


225


214Insurance expense


80


58Other


440


259​
​
​
​
​
​
​
​Total

$
1,020

$
668​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(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 three months ended September 30, 2015 and 2014, the ratio of our total expenses to our average net assets was 1.42% and 0.79%, respectively. During the three months
ended September 30, 2015 and 2014, our ratio of total expenses to average net assets included $7,627 and $4,776, respectively, related to interest expense, $9,611 and $(4,670), respectively,
related to accruals for (or reversals of previously accrued) incentive fees and $76 and $56, respectively, related to accruals for income taxes. Without such expenses, our ratio of total expenses to
average net assets would have been 0.81% and 0.78% for the three months ended September 30, 2015 and 2014, respectively. Incentive fees, interest expense and income taxes, 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 $58,636 ($0.17 per share) and $53,170 ($0.21 per share) for the three months ended
September 30, 2015 and 2014, respectively. The decrease in net investment income on a per share basis for the three months ended September 30, 2015 can be attributed primarily to an
increase in accruals for incentive fees.

Net Realized Gains or Losses

We sold investments and received principal repayments of $155,343 and $87,424, respectively, during the three months ended
September 30, 2015, from which we realized a net loss of $100,813, due

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primarily
to the sale of a subordinated debt investment. We realized a net loss of $63 from settlements on foreign currency during the three months ended September 30, 2015. We sold investments
and received principal repayments of $78,710 and $202,744, respectively, during the three months ended September 30, 2014, from which we realized a net gain of $809. We realized a net loss of
$55 from settlements on foreign currency during the three months ended September 30, 2014.

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

For the three months ended September 30, 2015 and 2014, the net change in unrealized appreciation (depreciation) on investments
totaled $(239,783) and $(50,641), respectively, and the net change in unrealized gain (loss) on foreign currency was $59 and $(17), respectively. The change in unrealized appreciation (depreciation)
on our investments during the three months ended September 30, 2015 was primarily driven by increased volatility and a general widening of credit spreads in the Energy high yield and leveraged
loan markets and by the performance of our directly originated and opportunistic investments. The change in unrealized appreciation (depreciation) on our investments during the three months ended
September 30, 2014 was primarily driven by a general widening of credit spreads during this period.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the three months ended September 30, 2015 and 2014, the net increase (decrease) in net assets resulting from operations was
$(281,964) ($(0.81) per share) and $3,266 ($0.01 per share), respectively.

Comparison of the Nine Months Ended September 30, 2015 and 2014

Revenues

We generated investment income of $276,755 and $201,184 for the nine months ended September 30, 2015 and 2014, respectively, in
the form of interest and fees earned on senior secured loans, senior secured bonds and subordinated debt investments in our portfolio and dividends and other distributions earned on equity/other
investments in our portfolio. Such revenues represent $252,509 and $183,244 of cash income earned as well as $24,246 and $17,940 in non-cash portions relating to accretion of discount, PIK interest
and accrual of limited partnership income for the nine months ended September 30, 2015 and 2014, 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 nine months ended September 30, 2015 and 2014, we generated $24,422 and $19,766 of fee income, which represented 8.8% and 9.8%, 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.

Expenses

Our total expenses were $109,730 and $84,696 for the nine months ended September 30, 2015 and 2014, respectively. Our expenses
include base management fees attributed to FS Advisor of $57,659 and $44,058 for the nine months ended September 30, 2015 and 2014, respectively. Our expenses also include administrative
services expenses attributed to FS Advisor of $3,153 and $2,962 for the nine months ended September 30, 2015 and 2014, respectively.

FS
Advisor is eligible to receive incentive fees based on our performance. During the nine months ended September 30, 2015 and 2014, we accrued subordinated incentive fees on
income of $18,968 and $19,930, respectively, based on the performance of our portfolio. During the nine months ended

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September 30,
2015, we did not accrue any capital gains incentive fees. During the nine months ended September 30, 2014, we reversed $1,397 of capital gain incentive fees previously
accrued based on the performance of our portfolio.

We
recorded interest expense of $22,351 and $13,209 for the nine months ended September 30, 2015 and 2014, respectively, in connection with our financing arrangements. For the
nine months ended September 30, 2015 and 2014, fees and expenses incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $1,082 and
$763, respectively, and fees and expenses incurred with our share transfer agent totaled $2,199 and $1,974, respectively. Fees for our board of trustees were $736 and $629 for the nine months ended
September 30, 2015 and 2014, respectively.

Our
other general and administrative expenses totaled $3,348 and $2,405 for the nine months ended September 30, 2015 and 2014, respectively, and consisted of the following:

Nine Months Ended
September 30,2015

2014Expenses associated with our independent audit and related fees

$
426

$
297Compensation of our chief compliance officer(1)


10


70Legal fees


565


503Printing fees


865


355Insurance expense


232


171Other


1,250


1,009​
​
​
​
​
​
​
​Total

$
3,348

$
2,405​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(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 nine months ended September 30, 2015 and 2014, the ratio of our total expenses to our average net assets was 3.96% and 3.95% respectively. During the nine months ended
September 30, 2015 and 2014, our ratio of total expenses to average net assets included $22,351 and $13,209, respectively, related to interest expense, $18,968 and $18,533, respectively,
related to accruals for incentive fees and $234 and $163, respectively, related to accruals for income taxes. Without such expenses, our ratio of total expenses to average net assets would have been
2.46% and 2.46% for the nine months ended September 30, 2015 and 2014, respectively. Incentive fees, interest expense and income taxes, 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 $167,025 ($0.51 per share) and $116,488 ($0.53 per share) for the nine months ended
September 30, 2015 and 2014, respectively. The decrease in net investment income on a per share basis for the nine months ended September 30, 2015 was primarily driven by an increase in
interest expense during the period.

Net Realized Gains or Losses

We sold investments and received principal repayments of $442,341 and $180,506, respectively, during the nine months ended
September 30, 2015, from which we realized a net loss of $159,323. We realized a net loss of $210 from settlements on foreign currency during the nine months ended September 30, 2015. We
sold investments and received principal repayments of $271,464 and $470,426, respectively, during the nine months ended September 30, 2014, from which we realized a
net gain of $5,500. During the nine months ended September 30, 2014, we realized a net loss of $562 from settlements on foreign currency.

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

For the nine months ended September 30, 2015 and 2014, the net change in unrealized appreciation (depreciation) on investments
totaled $(171,393) and $(11,923), respectively, and the net change in unrealized gain (loss) on foreign currency was $(82) and $14, respectively. The change in unrealized appreciation (depreciation)
on our investments during the nine months ended September 30, 2015 was primarily driven by a general widening of credit spreads in Energy markets and by the performance of our directly
originated and opportunistic investments. The change in unrealized appreciation (depreciation) on our investments during the nine months ended September 30, 2014 was primarily driven by a
general widening of credit spreads during the three months ended September 30, 2014.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the nine months ended September 30, 2015 and 2014, the net increase (decrease) in net assets resulting from operations was
$(163,983) ($(0.50) per share) and $109,517 ($0.50 per share), respectively.

Financial Condition, Liquidity and Capital Resources

Overview

As of September 30, 2015, we had $195,582 in cash, which is held in custodial accounts, and $212,916 in borrowings available
under our financing arrangements. 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."

During
the nine months ended September 30, 2015, we sold 60,310,131 common shares for gross proceeds of $562,353 at an average price per share of $9.32. The gross proceeds
received during the nine months ended September 30, 2015 include reinvested shareholder distributions of $111,606, for which we issued 13,030,574 common shares. During the nine months ended
September 30, 2015, we also incurred offering costs of $7,150 in connection with the sale of our common shares, which consisted primarily of legal, accounting, printing and other expenses,
including costs associated with technology integration between our systems and those of our selected broker-dealers, marketing expenses and due diligence fees. The offering costs were offset against
capital in excess of par value on our consolidated financial statements. The sales commissions and dealer manager fees related to the sale of our common shares were $39,760 for the nine months ended
September 30, 2015. These sales commissions and fees include $7,622 retained by the dealer manager, FS2, which is one of our affiliates.

Since
commencing our continuous public offering and through October 27, 2015, we have sold 361,219,340 common shares (as adjusted for share distributions) for gross proceeds of
$3,709,344, including common shares issued under our distribution reinvestment plan. As of October 27, 2015, we have raised total gross proceeds of $3,729,548, 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.

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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.

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 nine months ended September 30, 2015 and
2014:

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 2014December 31, 2013

January 2, 2014


174,181


100
%
$
9.72

$
1,693March 31, 2014

April 2, 2014


158,723


100
%
$
9.81

$
1,557June 30, 2014

July 2, 2014


401,302


100
%
$
9.90

$
3,973Fiscal 2015December 31, 2014

January 7, 2015


450,293


100
%
$
8.82

$
3,972March 31, 2015

April 1, 2015


716,857


100
%
$
8.73

$
6,258June 30, 2015

July 1, 2015


955,664


100
%
$
8.82

$
8,429


On
October 7, 2015, we repurchased 2,711,088 common shares (representing 100% of common shares tendered for repurchase) at $7.88 per share for aggregate consideration totaling
$21,350.

Financing Arrangements

The following table presents a summary of information with respect to our outstanding financing arrangements as of September 30,
2015:

Arrangement

Type of
Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity DateBNP Facility

Prime Brokerage

L+1.10%

$
207,100

$
92,900

June 26, 2016(1)Deutsche Bank Credit Facility

Revolving

L+1.80%

$
280,000

$
60,000

June 11, 2016Goldman Facility

Repurchase

L+2.75%

$
324,984

$
16

September 15, 2017Natixis Credit Facility

Revolving

CP+2.25%

$
96,913




July 11, 2023Wells Fargo Credit Facility

Revolving

L+2.50% to 2.75%

$
140,000

$
60,000

September 9, 2019


(1)The
BNP facility generally is terminable upon 270 days' notice by either party. As of September 30, 2015, neither Berwyn Funding nor BNP had
provided notice of its intent to terminate the facility.


Our
average borrowings and weighted average interest rate, including the effect of non-usage fees, for the nine months ended September 30, 2015 were $999,720 and 2.72%,
respectively. As of September 30, 2015, our weighted average effective interest rate on borrowings was 2.41%. On November 6, 2015, Foxfields Funding entered into the Fortress facility
with Fortress. The Fortress facility provides for $125,000 in available borrowings and an uncommitted option for up to $75,000 in additional commitments.

For
additional information regarding our outstanding financing arrangements as of September 30, 2015, see Note 8 to our unaudited consolidated financial statements
contained in this quarterly report on Form 10-Q. For additional information regarding the Fortress facility, see Note 12 to our unaudited consolidated financial statements contained in
this quarterly report on Form 10-Q.

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

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to
our shareholders. In order to maintain RIC tax treatment, we must, among other things, distribute to our shareholders each tax year dividends of an amount at least equal to 90% of our "investment
company taxable income," determined without regard to any deduction for dividends paid. As long as the distributions are declared by the later of the fifteenth day of the ninth month following the
close of the tax year or the due date of the tax return, including extensions, distributions paid up to one year after the current tax year can be carried back to the prior tax year for determining
the distributions paid in such tax year. We intend to make sufficient distributions to our shareholders to maintain our RIC tax treatment each tax year. We are also generally subject to nondeductible
U.S. federal excise taxes on certain undistributed income unless we distribute in a timely manner 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, for the one-year period
ending October 31 of that calendar year (adjusted for certain ordinary losses) and (3) any net 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
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. No portion of the distributions paid during the nine months ended September 30, 2015 and 2014 represented a return of capital.

The
following table reflects the cash distributions per share that we declared and paid on our common shares during the nine months ended September 30, 2015 and 2014:

DistributionFor the Three Months Ended

Per Share

AmountFiscal 2014March 31, 2014

$
0.1524

$
28,423June 30, 2014

$
0.1680

$
36,323September 30, 2014

$
0.1908

$
47,828Fiscal 2015March 31, 2015

$
0.1771

$
54,825June 30, 2015

$
0.1771

$
58,250September 30, 2015

$
0.1771

$
61,666


On
August 5, 2015 and November 11, 2015, our board of trustees declared regular weekly cash distributions for October 2015 through December 2015 and January 2016 through
March 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

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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 "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.

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 nine months ended September 30, 2015 or 2014 was funded through the reimbursement of operating expenses by Franklin Square
Holdings. During the nine months ended September 30, 2015 and 2014, 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 nine months ended September 30, 2015 and 2014:

Nine Months Ended September 30,2015

2014Source of Distribution

Distribution
Amount

Percentage

Distribution
Amount

PercentageOffering proceeds

$





$



Borrowings











Net investment income(1)


161,150


92
%

101,676


90
%Short-term capital gains proceeds from the sale of assets








6,907


6
%Long-term capital gains proceeds from the sale of assets


13,591


8
%

3,991


4
%Non-capital gains proceeds from the sale of assets











Distributions on account of limited partnership interest











Expense reimbursement from sponsor











​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
174,741


100
%
$
112,574


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


(1)During
the nine months ended September 30, 2015 and 2014, 91.2% and 91.0%, respectively, of our gross investment income was attributable to cash
income earned, 1.8% and 4.2%, respectively, was attributable to non-cash accretion of discount and 7.0% and 4.8%, respectively, was attributable to PIK interest.


Our
net investment income on a tax basis for the nine months ended September 30, 2015 and 2014 was $164,105 and $109,604, respectively. As of September 30, 2015, we had
$2,955 of undistributed ordinary income and $155,868 of net realized losses on a tax basis. As of December 31, 2014, we had

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$13,591
of undistributed ordinary income and net realized gains on a tax basis, all of which was distributed during the nine months ended September 30, 2015.

See
Note 5 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q for additional information regarding our distributions, a
reconciliation of our GAAP-basis net investment income and tax-basis net investment income for the nine months ended September 30, 2015 and 2014 and the components of accumulated earnings on a
tax basis as of September 30, 2015 and December 31, 2014.

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 that are publicly-traded are valued at the
reported closing price on the valuation date. Securities that are not publicly-traded 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, 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:



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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.

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

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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 September 30, 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 also 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, 2014 consisted primarily of debt investments that were traded on a private over-the-counter market for institutional investors. Seventeen senior
secured loan investments, one senior secured bond investment and two subordinated debt investments were valued by an independent valuation firm, 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 the third-party pricing service and/or dealers, as applicable, against the actual prices at which we purchase and sell
our investments. 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.

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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 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.

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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 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 nine months ended
September 30, 2015 and 2014, 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 include (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 three and nine months ended September 30, 2015 and 2014.

A
summary of our significant contractual payment obligations for the repayment of outstanding borrowings under the BNP facility, the Deutsche Bank credit facility, the Goldman facility,
the Natixis credit facility and the Wells Fargo credit facility at September 30, 2015 is as follows:

Payments Due By PeriodTotal

Less than
1 year

1-3 years

3-5 years

More than
5 yearsBNP Facility(1)

$
207,100

$
207,100








Deutsche Bank Credit Facility(2)

$
280,000

$
280,000








Goldman Facility(3)

$
324,984




$
324,984





Natixis Credit Facility(4)

$
96,913










$
96,913Wells Fargo Credit Facility(5)

$
140,000







$
140,000





(1)At
September 30, 2015, $92,900 remained unused under the BNP facility. The BNP facility generally is terminable upon 270 days' notice by
either party. As of September 30, 2015, neither Berwyn Funding nor BNP had provided notice of its intent to terminate the facility.(2)At
September 30, 2015, $60,000 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, 2016.


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(3)At
September 30, 2015, $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.(4)At
September 30, 2015, 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.(5)At
September 30, 2015, $60,000 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.


Off-Balance Sheet Arrangements

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

Recently Issued Accounting Standards

In April 2015, the FASB issued ASU No. 2015-03,InterestImputation of
Interestto simplify the presentation in the financial statements of debt issuance costs. Under existing guidance, debt issuance costs are recognized as a deferred charge and
presented as an asset on the balance sheet. The amendments to the guidance require 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 ASU No. 2015-15,
InterestImputation of Interestto update the guidance to include SEC 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 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. The recognition and measurement guidance for debt issuance costs is not affected by the amendments to the guidance. The
amendments to the FASB codification guidance are to be applied retrospectively with applicable disclosures for a change in accounting principle upon transition. For public entities, the amendments are
effective during interim and annual periods beginning after December 15, 2015. Early application by public entities is permitted. We are currently assessing the impact of this guidance on our
consolidated financial statements.

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. 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
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 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%. For purposes of this fee, "adjusted capital" means cumulative gross
proceeds generated from sales of our common shares (including 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. The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is accrued for on a
quarterly basis and, if earned, is paid annually. We accrue this incentive fee based on net realized and unrealized gains; however, under the terms of the investment advisory and administrative
services agreement, the

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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.

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. 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 we estimate we 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 us based on factors such as assets, revenues, time allocations and/or other reasonable metrics. Our board
of trustees reviews the methodology employed in determining how the expenses are allocated to us and the proposed allocation of the administrative expenses among us and certain affiliates of FS
Advisor. Our board of trustees then assesses the reasonableness of such reimbursements for expenses allocated to us based on the breadth, depth and quality of such services as compared to the
estimated cost to us of obtaining similar services from third-party providers known to be available. In addition, our board of trustees considers whether any single third-party service provider would
be capable of providing all such services at comparable cost and quality. Finally, our board of trustees, among other things, compares the total amount paid to FS Advisor for such services as a
percentage of our net assets to the same ratio as reported by other comparable BDCs. We 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, we, either directly or through reimbursement to FS Advisor or its affiliates, are responsible for our organization
and offering costs in an amount up to 1.5% of gross proceeds raised in our continuous public offering. Organization and offering costs primarily include legal, accounting, printing and other expenses
relating to our continuous public offering, including costs associated with technology integration between our systems and those of our 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 our common shares, which includes the development of marketing materials and
presentations, training and educational meetings, and generally coordinating the marketing process for us.

Prior
to satisfaction of the minimum offering requirement and for a period of time thereafter, Franklin Square Holdings funded certain of our organization and offering costs. Following
this period, we have paid certain of our organization and offering costs directly and reimbursed FS Advisor for offering costs incurred by FS Advisor 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. Organization and offering costs funded
directly by Franklin Square
Holdings were recorded by us as a contribution to capital. The offering costs were offset against capital in excess of par value on our consolidated financial statements and the organization costs
were charged to expense as incurred by us. All other offering costs, including costs incurred directly by us, 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.

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

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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 nine
months ended September 30, 2015 and 2014:

Three Months Ended
September 30,

Nine Months Ended
September 30,Related PartySource Agreement

Description

2015

2014

2015

2014FS Advisor

Investment Advisory and Administrative Services Agreement

Base Management Fee(1)

$
19,522

$
16,513

$
57,659

$
44,058FS Advisor

Investment Advisory and Administrative Services Agreement

Capital Gains Incentive Fee(2)




$
(9,977
)



$
(1,397
)FS Advisor

Investment Advisory and Administrative Services Agreement

Subordinated Incentive Fee on Income(3)

$
9,611

$
5,307

$
18,968

$
19,930FS Advisor

Investment Advisory and Administrative Services Agreement

Administrative Services Expenses(4)

$
892

$
1,019

$
3,153

$
2,962FS Advisor

Investment Advisory and Administrative Services Agreement

Offering Costs(5)

$
840

$
1,508

$
3,873

$
4,444FS2

Dealer Manager Agreement

Dealer Manager Fee(6)

$
2,276

$
6,398

$
7,622

$
17,044


(1)During
the nine months ended September 30, 2015 and 2014, $56,049 and $38,296, respectively, in base management fees were paid to FS Advisor. As of
September 30, 2015, $19,522 in base management fees were payable to FS Advisor.(2)During
the nine months ended September 30, 2015, we did not accrue any capital gains incentive fees. During the nine months ended
September 30, 2014, we reversed $1,397 of capital gains incentive fees previously accrued based on the performance of our portfolio. We did not pay any capital gains incentive fees to FS
Advisor during the nine months ended September 30, 2015. We paid FS Advisor $2,857 in capital gains incentive fees during the nine months ended September 30, 2014. As of
September 30, 2015, we did not have any accrued capital gains incentive fees.(3)During
the nine months ended September 30, 2015 and 2014, $21,499 and $21,409, respectively, of subordinated incentive fees on income were paid to FS
Advisor. As of September 30, 2015, a subordinated incentive fee on income of $9,611 was payable to FS Advisor.(4)During
the nine months ended September 30, 2015 and 2014, $2,940 and $2,707, 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 $2,979 and $1,997 in administrative
services expenses to FS Advisor during the nine months ended September 30, 2015 and 2014, respectively.(5)During
the nine months ended September 30, 2015 and 2014, we incurred offering costs of $7,150 and $5,288, respectively, of which $3,873 and $4,444,
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.(6)Represents
aggregate dealer manager fees retained by FS2 and not re-allowed to selected broker-dealers.


See
Note 4 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q for additional information regarding our related party
transactions and relationships, including 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 October 1, 2015 to October 27, 2015, we sold 2,356,544 common shares for gross proceeds of $20,255
at an average price per share of $8.60. On November 6, 2015, Foxfields Funding, our newly formed, wholly-owned, financing subsidiary, entered into the Fortress facility. For additional
information regarding the Fortress facility, see Note 12 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

We are subject to financial market risks, including changes in interest rates. As of September 30, 2015, 51.0% of our portfolio
investments (based on fair value) paid variable interest rates, 40.3% paid fixed interest rates, 4.1% were income producing equity or other investments and the remainder (4.6%) 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

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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 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, Deutsche Bank credit facility, Goldman facility, Natixis credit facility, Wells Fargo credit facility, and the Fortress facility, Berwyn
Funding, FSEP Funding, Strafford Funding, Energy Funding, Wayne Funding, and Foxfields 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 September 30, 2015 (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 35 basis points

$


$
(3,618
)
$
3,618


1.1
%No change











Up 100 basis points


4,271


10,337


(6,066
)

(1.8
)%Up 300 basis points


42,953


31,010


11,943


3.5
%Up 500 basis points


83,306


51,683


31,623


9.2
%


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 nine months ended September 30, 2015
and 2014, 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
September 30, 2015. 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 September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents

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, 2014.

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 September 30,
2015 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
ProgramsJuly 1 to July 31, 2015


955,664

$
8.82


955,664


(1
)August 1 to August 31, 2015











September 1 to September 30, 2015











​
​
​
​
​
​
​
​
​
​
​
​
​
​Total


955,664

$
8.82


955,664


(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 prospectus supplement filed on September 22, 2015 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

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.)10.19

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.)10.20

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.)10.21

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.)10.22

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.)10.23

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.)


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10.24

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.)10.25

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.)10.26

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.)10.27

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.)10.28

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.)10.29

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.)10.30

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.)10.31

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.)10.32

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.)10.33

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.)10.34

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.)10.35

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.)10.36

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.)10.37

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.)10.38

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.)


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10.39

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.)10.40

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.)10.41

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.)10.42

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.)10.43

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.)10.44

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.)10.45

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.)10.46

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.)10.47

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.)10.48

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.)10.49

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.)10.50

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.)10.51

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.)


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10.52

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.)10.53

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.)10.54

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.)10.55

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.)10.56

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.)10.57

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.)10.58

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.)10.59

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.)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 November 13, 2015.

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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